How to Thrive in Financial Life

They say that money doesn’t buy you happiness but it kind of does. This is one of those bits of popular wisdom that often gets taken out of context. Yeah, money might not be able to make you happy in the ultimate sense but it can certainly help and the absence of money causes all kinds of problems. 

In modern life, there’s a baseline level of financial security that is essentially necessary for the happy life. Don’t believe me? Do you know anyone who is really struggling financially who is also happy at the same time? What about in your own life? I’m guessing the times when you felt you didn’t have enough money don’t rank high on the favorites list.

Studies of happiness have consistently shown that the subjective experience of happiness goes up as one’s financial position improves. In this sense, the color map on this chart from a recent Gallup Poll is completely predictable: 

Surprise, surprise! The richest countries are the ones reporting the highest levels of subjective happiness. Our Founders, who cared enough about happiness to put in the Declaration of Independence, would be happy to see this chart!

“But Nick, haven’t you been saying all along that true happiness comes from dedicating your life to service and working to make the world a better place?” 

Yes, definitely and I haven’t changed my mind. Just stay with me for a bit longer!

You see, in modern life, money is necessary but not sufficient for happiness. In other words, our phrase should be rewritten to say, “Money alone will not make you happy.” We probably need to add a footnote here too—something like “neither will not having money.” 

While the over-prioritization of the pursuit of money is what we are trying to guard against, we also have to make sure we don’t under-prioritize it at the same time, for money moves the world. And financial life is an arena where you simply cannot afford to fail—quite literally!

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I want you all to take something to heart: to thrive in modern life, you don’t have to be rich or financially independent (whatever that means?). Please don’t think that or get caught up pursuing ever more money to the exclusion of all else. Despite all the cultural messaging yelling at us to get rich and do so as fast as possible, we don’t really have to be rich to lead a good life. Learn instead how to become financially effective. 

Just what does that mean? 

Well, financial effectiveness is about making sure you have enough money to do what you need—and this has to be a for sure thing—and then, ideally, having some left over to do what you want as well (so long as what you want isn’t bad for you or your community!). I had to throw this caveat in as there are many human desires, where if you believe at all in a spiritual, moral, or just universe, you have to question whether they deserve to be fulfilled. More on that in a future article. 

Financial effectiveness might seem like a complicated idea but it’s not. Money is something that facilitates action in the world and the question at any one moment is: will you have enough to do what needs to be done? How about to do what you want? Ultimately, “effectiveness” is just about being able to answer “yes” to these questions.

It’s completely ok, by the way, to have grand ambitions that demand a lot of money. If you are like Elon and are trying to make a meaningful difference in the fight against climate change, it’s better to have a lot of money than not. What you want to avoid are things like getting caught up in the pursuit of money for money’s sake or pursuing money to fulfill some obviously bad end, like a drug or gambling addiction. The point is that once you have your needs taken care of, you should be really thoughtful and careful about understanding what you really want to do with that extra money. And, yes, just doing what everyone else is doing is a really bad idea.

Here's the good news: there are really only 2 legitimate paths to financial effectiveness:

1. Entrepreneurship

2. Financial Prudence.

Entrepreneurship is about creating something valuable and owning, at least some meaningful part of it, the more the better. The path of financial prudence is different. Here the game is about earning as much as you can working for other people, of course. But that alone is not enough. You also have to save and then take those savings and use them to acquire as many productive assets as you can. What ties these two disparate paths together, is the ownership of productive assets—e.g. your own or shares in those of others.

Now, the Internet is full of sorts of other ideas about money and personal finance, and for every legitimate piece of advice, there are a million grifters and schemers, who are just trying to get you to do something that is not actually in your self-interest. Don’t be seduced by the false promises of anyone telling you there’s another, easier way. 

Here’s the bad news: while the formula is simple to articulate (spend less than you earn and own as many productive assets as possible), both legitimate paths are difficult. We all know how hard it is to make a success out of entrepreneurship and living consistently in a financially prudent manner is one of life’s most difficult psychological challenges.

Don’t lose heart though, for as hard as these paths may be, they are always open and available and you can start turning your financial life around at any moment. Each day, you will be presented with dozens of opportunities to be better—to alter your spending habits or do a better job at work or finally take that entrepreneurial risk.

By the way, the biggest mistake people make is over-emphasizing the austerity part of the personal financial effectiveness journey. By all means, if your spending is out of control, fix that. But don’t stop there and don’t get stuck believing that this is what it’s all about. Indeed, most of the time, it’s actually more effective to focus on improving the inflow of money into your life. Ultimately, the more money you have coming in, the easier it is to save and accumulate productive assets and that’s the true game here. 

To be financially effective you have to master two distinct arts:

1. The art of personal financial management

2. The art of ownership

I’m going to write a series of articles about both of these arts eventually, but for now I’ll leave you with some homework.

To get your brain headed in the right direction when it comes to personal financial management, the best place to start is Morgan Housel’s “The Psychology of Money.” These days, almost every personal financial guru out there is a grifter and Morgan is decidedly not. That alone makes him stand out but he also happens to offer a ton of great wisdom for how to be better with money in his book.

For the art of ownership, which, by the way, is the true key to success in capitalism, you have to learn either how to be an entrepreneur or an investor or both. There aren’t that many good books on being an entrepreneur but “Zero to One” by Peter Thiel is a decent place to start. For investing, “The Essays of Warren Buffett” is a must-read as-is the entire Market Wizards series by Jack Schwager.  

Wherever you are in your financial journey, it’s important to remember that, while finance and money seem like things that are all about reason, rational analysis, and mathematics, they are really about psychology. To get better with money means to better yourself. 

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