Here’s a riddle: you can’t put a price on it, but it’s tremendously valuable. Without it, you wouldn’t be alive. What is it?
Did you guess “the mind?”
Few things peeve me more about our culture than the value we put on a single key ingredient to a healthy mind: sleep. Isn’t it insane that we still give people 15 minute smoke breaks (one of my first jobs offered two fifteen minute smoke breaks each day) – and yet napping is stigmatized?
I don’t have time to point cite any studies, but you can them up, and you’ve likely heard about what research shows about sleep. Well rested individuals get more done, are more effective and getting things done, and are at a lower risk for a myriad of diseases. In short, if you get plenty of sleep, you’ll be healthier and richer.
When it comes to employee benefits, we offer insurance, gym memberships, onsite cafeterias, retirement plans, company cars, and more. I even read an article recently about businesses building sound-proof phone booths for personal phone calls. Employers offer these things because they know that healthier, happier employees = more productive (read: profitable) employees.
Wait, you want to sleep? Stop being lazy!
Think about how absurd that is. As an employee benefit, it wouldn’t cost more than a mattress pad like these ones available on Amazon and semi-private designated sleeping quarters (i.e., an office.)
But to do all that, we need to stop stigmatizing sleep. Being well rested is not about just “going to bed earlier” (although that certainly helps.) We now know that sleep cycles, when interrupted, results in us feeling more tired and groggy…regardless of how many actual hours of sleep we got.
Don’t get me wrong: this is not me saying “forget the rules! Stay up until 4am! Take a 6 hour snooze after lunch!” Try to go bed at a normal time, and try to get up at a normal time. But if you can’t make that happen, don’t punish yourself. A 20 minute snooze can give your mind that extra push to get you through the rest of your day.
Last week I wrote about us living in an abundant universe. One of those things that is abundant in our universe is time. Therefore, don’t feel bad for giving yourself time to rest. You don’t owe anyone an explanation. If anyone asks why you were sleeping, there’s a simple answer: “I was tired.” If you get pushback, such as, “you need to go to bed earlier,” you can respond, “I did, but I couldn’t sleep.” If you then run into “you have things to get done,” simply respond “no one knows better than me what I need to get done, which is why I wanted to get some rest so I could concentrate.”
I’ll say it. I’m not ashamed. I take naps. I take them during the day. I take them in my office. I take them in my car. I know this totally spoils your image of me (lol) but I promise you that I am a hardworking individual. Sometimes I work so hard that I get tired. And sometimes that getting tired happens at 2:15pm instead of 10:00pm.
When I began my career in financial services in 2011, the vast majority of the investing public was still recovering from aftershock of the great recession that had only ended a few years prior. Rampant were fears of a double dip recession – the idea that the market correction of 2008 could rear its ugly head again – or that perhaps, something much bigger was on the horizon.
Out of these fears comes the desire for safety. And despite the peace of mind they provided, with interest rates continuing to plummet, FDIC insured bank accounts and certificates weren’t providing the yield many retirees needed to maintain their lifestyles. Where else was there to look for safety and yield?
Enter gold, one of the rarest metals on the planet. While the stock markets were moving sideways and doing nothing, the price of gold per ounce was soring. By the end of August 2011, gold was trading at more than $1,800 per ounce – an all-time high.
As you can see from the chart above, reality eventually reared its head. No markets move in one direction, and gold is no exception. Still, the idea that gold is a safe investment got me thinking: just why is it perceived as a safe investment in the first place? To answer that, let’s look to its origins as a source of wealth. From Investopedia:
For 5,000 years, gold’s combination of luster, malleability, density and scarcity has captivated humankind like no other metal. According to Peter Bernstein’s book The Power of Gold: The History of Obsession, gold is so dense that one ton of it can be packed into a cubic foot.
So there you have it – gold is dense, malleable, shiny, and scarce. People like shiny things; they like metal they can use, and they like stuff that packs a big punch without taking up a lot of space. But it turns out it’s really the scarcity aspect that gives the gold any value at all.
From 1871 to 1914, the gold standard was at its pinnacle. During this period near-ideal political conditions existed in the world. Governments worked very well together to make the system work, but this all changed forever with the outbreak of the Great War in 1914.
With World War I, political alliances changed, international indebtedness increased and government finances deteriorated. While the gold standard was not suspended, it was in limbo during the war, demonstrating its inability to hold through both good and bad times. This created a lack of confidence in the gold standard that only exacerbated economic difficulties. It became increasingly apparent that the world needed something more flexible on which to base its global economy.
That something flexible: paper currency. What’s more is that gold, historically speaking, hasn’t always been the standard for determing monetary value. From Investopedia:
While gold has fascinated humankind for 5,000 years, it hasn’t always been the basis of the monetary system. A true international gold standard existed for less than 50 years (1871 to 1914) in a time of world peace and prosperity that coincided with a dramatic increase in the supply of gold. The gold standard was the symptom and not the cause of this peace and prosperity. Though a lesser form of the gold standard continued until 1971, its death had started centuries before with the introduction of paper money – a more flexible instrument for our complex financial world.
Gold is scarce. But just how scarce?
The reason that gold is so rare on earth is because it’s rare in the universe. In fact, relative to human life, the event that creates gold is rare occurrence: the collision of two neutron stars, which happens about once every 100,000 years. When those collisions do happen, the amount of gold produced – not to mention silver and platinum – might make you feel small. Take the first ever direct observance of such a collision in October of 2017.
Observations revealed the event forged roughly 50 Earth masses’ worth of silver, 100 Earth masses of gold, and 500 Earth masses of platinum.
How much gold is that?
The gold forged alone is worth about 100 octillion dollars at (October 2017’s) market price, according to Metzger, or $100,000,000,000,000,000,000,000,000,000 written out (1 followed by 29 zeroes).
Is it abundant or is it in short supply? Whether we’re talking gold, time, love, happiness, wealth, or anything else, it’s a matter of perspective. If your perspective on gold has changed by this point, imagine how your perspective on the wealth you’re trying to build can change with the right mindset.
It’s a simple question, isn’t it? Unfortunately, annuities are complicated, so the answers we get aren’t always straight forward. There’s a lot of press around these products – some good, some bad, some scathingly bad. Regardless of your opinion on annuities, we can all agree that they are some of the most misunderstood products in the financial market place.
To understand what an annuity is, let’s start by understanding what an annuity was. Before insurance companies got creative, annuities were designed to do one thing: provide lifetime income to the recipient in exchange for a lump sum of money. For example: I hand the insurance company $100,000, and they promise me $500 per month, no matter how long I live. Pretty straight forward, right?
Although this type of annuity (known as an immediate annuity) still exists, but it’s no longer alone. In the 90s, we could all go to McDonald’s an order French fries. Are our options on the side were ketchup, and ketchup. But humans are fickle creatures, and not all of us like ketchup. Restaurants want our money, so they put out packets of ranch dressing, bbq sauce, honey, mustard, honey mustard, and so on. All of these fall into the category of “condiments,” yet all of them are slightly different and gears towards consumers’ unique tastes. This is not unlike annuities today.
Let’s return to the above example. I hand the insurance company $100,000, and they promise me $500 per month, no matter how long I live. But what happens after I die? Are you saying the insurance company just gets to keep my money, that I worked hard for and earned? Just like ranch dressing doesn’t sit well in some people’s stomachs, that concept of losing one’s hard earned money didn’t sit well with retirees. So insurance companies came up with death benefits that are also guaranteed. I die early, my wife keeps getting paid. We both die early, our kids get a refund.
Okay, great, insurance companies are to fast food conglomerates as annuities are to condiments. What else do I need to know? Well, there’s a catch. You want more benefits, you pay for them. (It drives me nuts when I have to pay extra for a side of ranch!) In our running example, the insurance company just might offer you $400 per month instead of $500 if you want death benefits.
Fast food wouldn’t exist without preservatives. Sure, they’re often terrible for you, but they keep products from spoiling, and profits from falling. Because we as fickle consumers, want things when want them, and not when they’re available, preservatives have found their way into our whopper jrs and chicken nuggets to make their ingredients last longer. This is not unlike deferred annuities, which are designed for people who want money later, but not right now. If I use retirement money to buy an annuity, but plan to work for two more years, why do I want to take income right now and pay tax on it? I’m already earning money through my job.
You might be thinking: who needs an annuity if they don’t need income now? It’s another great question, and the simple answer is that not everyone is comfortable leaving their nest egg parked in other investments that are exposed to market risk. Enter deferred annuities, many of which are fixed, and earn a set interest rate, or at the very least cannot lose money. For someone who has gone through major recessions like 2001 and 2008, the peace of mind that comes with guaranteed growth might be worth the opportunity cost that comes with risky investing – especially if they are only a few years out from retirement.
When I was a kid, all of the joy I got out of life came from simple things. Two of those things were a pencil and a piece of paper. I loved to sketch – I would sit on the couch in my living room with a TV tray and recreate the room. I’d often create concept art for video games – sometimes for games I played, other times for games I dreamed of creating. I’d spend hours creating comics with my own heroes and villains.
My childhood was not fraught with the newest gadgets. But don’t get me wrong: I had, and loved toys. It’s just that my parents earned modest livings. Some things I got – stuffed animals, action figures from yard sales, cheap matchbox cars every now and then. As for getting the expensive things – they taught me that I needed to save. I earned a weekly allowance by doing household chores – vacuuming, polishing furniture, and sweeping the stairs. It was only a few dollars per week, but I eventually saved up enough money to buy my biggest purchase in my life: a Super Nintendo.
What kept me going was my powerful vision of owning a video game console. When I closed me eyes and imagined it, I could feel it. Nothing was going to stop me. Sure, I wanted it now, but “now” wasn’t an option. Working was. Dreaming was. So I worked and I dreamed, continuing to create imaginary video game levels with a pencil and paper.
As kids, we find creative ways to keep ourselves entertained. We don’t always get exactly what we want, and we certainly don’t get it when we want it. We have to wait. We have to work. We have to have patience. And even then, sometimes our patience doesn’t pay off. But we move on.
Then we become adults.
We place value on the stuff we own. The difference is that stuff as kids meant fun. Stuff as adults means status. Think of it: the brand new, shiny black Mercedes. The five thousand dollar engagement ring. The brand-name suit or dress. Is it realistic to afford these things? For the average person, no. So companies offer payment plans, and accept credit cards. And we cough up the money any way we can, because we’re convinced that owning stuff is what defines success.
We all know the truth: people don’t die regretting never having gotten to own a luxury sports car. They don’t spend their final moments wishing that had bought a bigger house. People look back at their life and wish they had spent more quality time with loved ones. They wish they had spent less time caring about how other people saw them, and more time pursuing their creative passions. No one dies wishing they had owned more stuff.
It took me years to understand this. Throughout my twenties, I thought being successful meant being someone else’s brand of success. So I wasted money on expensive bar tabs, restaurants, clothes, and household items that became nothing more than clutter. None of it led to happiness…..it just led to tons of credit card debt. Until one day, I had enough. I cut up my credit cards, and threw them in a shredder. And that worked, for a while. Until I got new credit cards in the mail. I threw them in a drawer, “just in case.” It wasn’t long before I was back at bars and restaurants swiping the cards again. Not the “just in case” I planned for.
The reason I failed was because I hadn’t solved the problem. My problem was the entire way I was thinking about money and success. First, I held the semi-unconscious notion that superficial experiences at bars and buying things would pay for themselves (although I had zero notion as to when.) The second was that because I had graduated from business school I was now entitled to financial independence that I had not earned. The truth eventually hit me: those that have achieved financial independence don’t buy things and let them “pay for themselves,” they buy things, and they pay for them with money they already have.
This new mindset has allowed me to draw a clear line between what’s necessary, and what isn’t. And it doesn’t mean I have to sacrifice my lifestyle. I count myself fortunate to live in one of the most wasteful societies in the world. You’d be shocked at the things people literally just throw away: cherry cabinets, flat screen televisions, washing machines, wooden end tables, books, and more. All of which can either be used, or converted to cash, which can they be spent on something useful. The reason more people don’t take advantage of other people’s wastefulness? Two reasons: first, they aren’t trained to look. Second, they can’t swallow their pride. There is a shame that goes with being middle class and not spending money. It’s almost expected. The trick to getting around this is to remember this: your money, your choice. No one pockets money to make it sit there and collect dust. We do it to achieve financial independence.
We can’t be financially independent if we pay companies interest on overpriced stuff that loses half its value in the first year we buy it. We can’t be financially independent if we spend money because of others’ perceptions of us. These things are the opposite of financial independence. I’d even just call them “financial dependence.”
Financial independence begins with a mindset, and ends as accumulated wealth. You can begin enjoying financial independence today. How? Think about your budget. What can you give up now – something that is taking your money? The cable bill? The brand name cereal? Even if it’s only an extra dollar you keep in your pocket, that extra dollar is yours. With the mindset of financial independence – keeping more of your money, and spending less – that extra dollar will become lots of extra dollars.
If you’re scared, my advice is this: stop tying your identity and sense of self worth to the stuff you own. It’s a never ending game with rules that are constantly changing. At the end of the game, somebody else is rich, and you’re still working at age 70.
Being financially independent means not depending on what your financial status means to others. Again: your money, your choice. You earn it, don’t you deserve to decide what you’re spending it on?
A final note: you can’t undo yesterday’s bad spending habits. You (likely) can’t just erase all of your debt and have a million dollars in your bank account. But it doesn’t matter, because that’s not what financial independence is. To be financially independent, you just have to accept an obvious, but easy to overlook truth: money can’t buy happiness. You already know this. Now it’s time to live it.
Forgive yourself for your past mistakes, and fight to keep the money you bust your ass to earn. Enjoy the simple things in life – the ones that don’t require money (there are plenty!) Welcome to your first day of financial independence.
Do you agree? I’d love to hear your thoughts – comment below!
About the Author
Scot Whiskeyman is Founder and Partner of Providers & Families Wealth Management, LLC., and is a CERTIFIED FINANCIAL PLANNERTM . His primary focus is on retirement planning for established professionals and estate planning for seniors. He can be reached by e-mail at firstname.lastname@example.org.