I’ve thought and written a lot about investing and I frequently visit numerous high quality personal finance blogs and websites (including CashMoneyLife, of course). I’m convinced that there’s a common denominator at work here, that those who succeed at improving their financial lives share a similar perspective.
I’m not talking about an identical set of beliefs or some kind of shared theology of finances. I’m talking about something more basic, whether it’s ever explicitly expressed or not: the idea of self ownership.
In a nutshell, this is what I’ve learned: If you’re serious about improving your financial well being, of taking your life to the next level, you must own, really own, some area of your life.
Financial freedom, I contend, is more than simply being debt free. It requires you to be proactive, brilliant even, in some corner of your life.
Conventional wisdom and good advice, on the other hand, are for those without the interest in or aptitude for self ownership. When CNN, for example, runs any kind of personal finance segment, you have to keep in mind that it’s designed to target the widest possible audience. And that means 90% of the adult population who spend maybe ten minutes a month contemplating their finances.
Do you have to be brilliant in every aspect of your life? Of course not. But there’s no excuse for not striving to be so in some area of your life. In general, I find that there are four general categories from which to choose:
I mean absolutely no disrespect to anyone when I say this, but anyone can live a life caged inside a cubicle, shackled to a desk, or answering the phones for someone else. And a lot of people do. The road less traveled is reserved for those who refuse to play it completely safe, for those who choose to become financially sophisticated instead of being a lifelong indentured servant.
Are there employees who love their jobs and who would describe their careers as fulfilling? I’m willing to assume that there are. But in my experience, for most individuals, employment is simply a necessity of life with which they’ve made some kind of peace. It’s something that just is.
If you’re one of the fortunate ones whose job is your calling, then congratulations. You’ve found the brilliant area of your life, and you can afford to simply make prudent and common sense financial choices and follow the conventional wisdom in regard to retirement accounts and such. You’ll be fine.
Why? Your passion for your work gives you three important structural advantages: you’ll most likely excel in your work, you’ll always be employable, and you’re much less likely to burnout than your frustrated peers.
Owning your own business is fraught with peril, but, when successful, there’s generally no quicker path to wealth and financial independence. Entrepreneurship is the foundation of the American economy, and to a large extent, American culture as well.
If you can provide products, services, or information that enough people find valuable at some level, and if you can effectively communicate that value and availability, you will succeed. If not, you will fail. It is a harsh but simple reality.
I differentiate between frugality and being cheap. Frugality is an art and it’s about priorities and choices. In contrast, being cheap is an expression of insecurity. Its message is one of personal inadequacy and lack.
There’s a great paradox to frugality that any truly frugal person knows. Frugality is not privation. It’s the art of experiencing your material life more deeply through simplifying, decluttering, and stripping away the noisy and the unnecessary.
Disclosure: I wish this were my brilliant area!
I understand the logic of maxing out your employer-matched 401K and the long term tax advantages of fully funding your Roth IRA. But I am highly critical of the mutual fund industry and the idea of putting my money somewhere that I can’t access for decades has always seemed crazy to me.
Due to fees, transaction costs related to over trading, and the short term mindset on Wall Street, the vast majority of all mutual funds underperform the market as a whole.
Index investing or ETF investing isn’t much better. Diversification is a kind of respectable sham, a wide net that catches all fish. Yes, you gain the benefit of investing in great businesses. But whatever advantage you gain from doing so is more than offset by everything else you dredge up from the deep—including the more numerous average businesses and the ones flailing their way along to obsolescence.
Unless you run your own business, or have investments beyond retirement accounts, or have eliminated a large number of your expenses, full participation in a 401K and an IRA pretty much guarantees that you will always work for someone else until you’re too old to work.
Personally, I would rather be a proactive and self-directed investor and take my profits and cash flow now rather than abdicate that responsibility to strangers with poor track records, short term trading mindsets, and way, way too much money to manage. I’m confident that I can compound better on my own, the negative tax considerations notwithstanding.
I am an investor, not a trader and not a diluted victim of the managed money industry. I invest in shares of only the highest quality companies I can identify. The only question then becomes the issue of price.
[note: almost every time I make a statement like this, abdicators and proponents of the managed money industry will reference the most recent high profile corporate bankruptcy – as though brand recognition is the sole component that makes a corporation an attractive investment.]
Obviously the less I pay, the greater my returns will be. My own approach is to use a variety of conservative option trading strategies to lower my purchase price – before, during, and after I actually acquire the shares.
I call this approach Leveraged Investing. If I can use options to continually lower my cost basis on my long term holdings and then reinvest these “rebates” as it were, then I’m going to dramatically speed up an already superior investing approach.
I’ve written extensively about Leveraged Investing on my Great Option Trading Strategies website. I realize this approach is not for everyone, but for those with a long term mindset and an interest in enhancing their investments, then this buy and hold and cheat approach might be worth considering.
I believe in the supremacy of the individual, the focused and motivated individual empowered by a community (online or off) of other like-minded individuals. In the Christian tradition, Jesus of Nazareth famously states: “Ask and it will be given to you; seek and you will find; knock and the door will be opened for you.”
To me this statement implies three very important ideas: you CAN realize your desires, there’s no single path for doing so, and persistence pays off.
And how do you know when you’ve arrived? When you see that CNN segment on a topic about which you’re knowledgeable and skilled and you have no choice but to roll your eyes at the simplicity of the advice.
Brad Castro is an investor and writes about investing and related topics at his website, Great Option Trading Strategies.
Photo credit: MartinaYach