213. Investing is really a Mindset (Building Financial Intuition Series)
“Wise spending is part of wise investing. And it’s never too late to start.” — Rhonda Katz
Decades ago, when I just started to work, my salary was quite low with very little saving capacity but was good enough to live a decent bachelor life. In the initial months after I started to work, I met an uncle of mine and for some reason, one particular conversation with him remained etched in my mind. I asked him what would be a good amount to give to beggars on the beach where we met. Beggars may be a rare sight these days but about thirty years ago, they were not very uncommon. It was an important question for me because I could afford to give more than my perceived going rate.
“Many folks think they aren’t good at earning money, when what they don’t know is how to use it.” — Frank A. Clark
More than anything else, this reflected my complete cluelessness about how to equate money with value. It took a full decade and a half and loads of money under the bridge before I started to develop a basic understanding of how to manage money. Good salary combined with youth makes for a heady concoction. I used to live with supreme, but evidently misplaced, confidence in my abilities to handle any obstacle thrown my way. This confidence checked any concern about future well before it ever developed. I used to be live with gay abandon. But when my then employer, Lehman Brothers, filed for bankruptcy in 2008, I faced my most serious contention with joblessness yet. It led me to questions of financial security. I suddenly took up investing rather seriously. Without any real knowledge of how to go about it, I made many mistakes in a hurry but in about a year, stabilized my approach. Ten years after that, I was able to muster courage to take a two-year break from work. The break upgraded itself into early retirement. Today, as I approach 50 (beckoning within days now), when I look back at my life, as ordinary and unremarkable as it has been, I am still able to extract a few useful lessons. Among the most valuable of those lessons is that investing is not really a thing you do but a mindset with which you approach life. To build something beautiful and extraordinary in your life, go beyond treating investing as an explicit activity and try to embed it into your mindset or, better still, build your mindset around it.
“A man who both spends and saves money is the happiest man, because he has both enjoyments.” — Samuel Johnson
What is investing? To each one’s own but I think of it as doing something today so at to get cumulatively above-par value in the future. “Investing” mindset makes the critical distinction between spending and investing. For, expenditure may, at times, feel like investments and also investments may feel like expenditure. Let me illustrate with a couple of examples.
Is car an expenditure or an investment? It can be either or both. For someone living in a big city with excellent public transport infrastructure and easy availability of cabs, buying a car may be more of an expenditure. But if that someone has ailing elders at home, it may be better to have a car at disposal for the inevitable emergency hospital visits. Perhaps, buying a car becomes an investment then. Of course, this also gets coloured strongly by the fancifulness of the car, price of the car, one’s own financial condition and social standing. There will be other factors at play too. But personally, if I had to care for people with fragile health, I would prefer to own a reliable and safe car and I would think of it as an investment. Importantly, I will not care for any bells and whistles on that car. It has to be safe, convenient and reliable — mainly utilitarian. To be sure, I don’t intend to judge anyone’s buying preferences or habits here.
“If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.” — Edmund Burke
What about vacations? I imagine that most people go on vacations to acquire memorable experiences. I think of fancy vacations where you get to check off things to see, as acquiring material possessions. They are valuable at the time of acquiring them but then rapidly lose in value. Whereas vacations where we are required to do something like hike or trek before we are treated with beautiful natural views, tend to keep giving off value every time we bring up those memories. In this sense, tourism feels more like expenditure, and travelling more like investment. Again, I’m not trying to judge others’ vacation habits, just reflecting on my own vacations. One of the most vivid memories of my children is the time when we got lost in a jungle during a trek. Most of our trek-vacations also make for our fondest memories.
The choices could be something like “spending” Rs 5000/- on a weekend getaway or “investing” Rs 50,000/- on a Himalayan trek. One of them is an investment and the other is an expenditure. Both are required for a fulfilling life. But I think distinguishing them and seeing them for what they are, can make life lot more purposeful and satisfying.
A whole lot more can be said on this topic and I think I will write a follow-up article in the coming weeks.
Bottomline
“A wise man should have money in his head, but not in his heart.” — Jonathan Swift
While investing is generally talked about in the context of money, I feel that real and substantial value generally emanates from an “investing” mindset and not so much from “investing” activity. Over a period of time, spending reduces your resources and investing increases them. “Investing” mindset allows you to wisely apportion your limited resources and time between “spending” activities and “investing” activities. This is vital because we often tend to confuse spending with investing.
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Thanks for taking time to read this article. In this newsletter, I share my learnings that could help you improve your decisions and make meaningful progress in your life. I try to share stuff that I have personally experienced or experimented with.
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