For the love of life and money
I have to say that this post took me far too long to write. I am a fast writer, true, but this was hard. On the one hand, I have pledged that I’ll build a repository of book reviews that my readers can refer to – either to decide whether to read the book, or if they trust me, to take the messages I have synthesised away and ‘run with them’. On the other hand, this blog is about personal finance and the book should at least have something to do with it: but I already told you several times that in my opinion most personal finance books are a bit like conducting interviews: they start repeating themselves after the 11th or so.
A bit of a conundrum, eh?
Well, it is. But then, thinking a bit more about this, I realised that if the technical side of these books is very repetitive their philosophical foundations can be rather different. And this is the side of the books that I can get excited about.
So, today I’ll introduce to you a book that you may have come across; in fact you probably have come across it. It is Your Money or Your Life by Joe Dominguez and Vicky Robin. It is even likely that some of you have obeyed by the rules, good principles and techniques that it sets. This book pushes all the usual personal finance buttons and ticks all boxes: tracking your income and expenditure, frugality and frugal tips, case studies of success to prove credibility, the need to build passive income streams through investing, and even early retirement.
Furthermore, the book offers plenty of tools to do all this – tables, spreadsheets and graphs. One of my favourites is the tool mapping three graphs: your income from employment of different kinds, your expenditure and your income from investments. Reaching the cross over point between expenditure and income from investments is when you become financially independent. And you know what? This is usually achieved by doing both, increasing your passive income (investment income) and reducing your expenses.
Well, as is usual some of the technical tips and advice are probably a bit outmoded – I am not entirely convinced how wise it is at the moment to buy bonds, for instance. But this is not what this book is about.
I believe that this book is life changing not because of the technical advice it offers but because of three key messages.
- Your money is your life. When we think about money we tend to think about numbers. This masks the fact that money is ‘embodied labour’ or life. Thinking about money as numbers can skew our decisions: paying £10 on something we don’t particularly want or like doesn’t seem like a big deal. But thinking that this is the equivalent of 10 minutes of our lives which we spend labouring spending make us realise that life and money are a unity. Interestingly, Seth Godin recently published something similar arguing that to make decisions about money we have to compare things rather than think about numbers.
- You have to know your ‘enough’. There is an optimal point beyond which money doesn’t bring satisfaction and it is important to work this one out. Where your enough is, is not about numbers but about your desired lifestyle. I know there has been a lot written lately about lifestyle design and that it builds on a very similar premise – this book was the pioneer, though.
- Consumption is THE PROBLEM. Our problem generally in the ‘developed’ world is not that we don’t have enough but that we consume too much. I have been thinking about this one a lot any way; about all the websites where the ambition is to enable people to consume more for less.
Now, I would leave you with some of my favourite quotes from this book.
Frugality is enjoying the virtue of getting good value for every minute of your life energy and from everything you have the use of.
Waste lies not in the number of possessions but in the failure to enjoy them. Your success in being frugal is measured not by your penny pinching but by your degree of enjoyment of the material world.
Don’t think of a clogged toilet as a tragedy; think of it as an opportunity to work your pectoral muscles.
It is empowering to know that the major driving force behind our planetary plight is not the military-industrial complex or the federal budget or defence spending – things we usually feel powerless to do anything about. Rather it is our patterns of consumption here in North America, our demand. And that is something that we can do something about…
And last but not least
Life isn’t unduly stressful; you may, however, be unduly stressed by life.
So let’s get beyond the immediately obvious in personal finance and enjoy the more profound messages of this book.
Politics and economy in the Eurozone part 2
The immediate response of the markets last week was quite muted. They assumed that with Germany in charge of the Euro and Merkel in charge of Germany, the austerity programmes will continue to the bitter end. Simpletons.
Faced with changes in France and another election in Greece, people then started falling over themselves talking about growth. Voters have also spoken in Germany where Merkel’s hard line approach seems to be losing touch. Merkel herself has to go to the polls next year. In Spain a large banking bailout will be required to accommodate all the duff mortgages and construction loans.
Contradictions
People are now openly talking about two things which are contradictory – Greece leaving the Euro and growth pacts. If Greece leaves the Euro, there will be such a flight of money from all Club Med countries that the Euro will find it difficult to work at all. There will be no growth. Investors have already had a ‘haircut’ with the Greek debt and won’t want to go there again. Don’t imagine it will be a civilised divorce, whatever the contractual obligations and treaties.
Apart from the inevitable poverty and chaos that will happen in Greece, the real big losers will be France and Germany, which have invested most in Greece and other Club Med countries. Companies have already started putting money in ‘safe havens’ overnight. There is no guarantee that the money will come back. Remember what happened with Lehman Bros?
If Greece does exit – or is evicted – then while physical Euros currently in Greece will be OK, accounts will be empty because the other banks will not lend to Greek banks at all. Contagion will occur in the other indebted countries. The abyss.
While Greece must bear some responsibility, the banks which lent them money are also at fault. Some of this debt was actually to fund exports to Greece – of military hardware! Both Germany and France are the main suppliers of such goods and have, to some extent, been competing with each other. Presumably these exports were ‘guaranteed’ by the respective governments so if Greece does default it will be German and French taxpayers that will take the largest hit.
Forseeing this possibility, the Euro has weakened and stock markets round the world have taken a trip south. Unless the principles I outlined last week are adopted and the European Central Bank starts behaving like a proper central bank – with all its implications not the least for the redundant national banks – the market will start to view the Euro as not as a stateless currency but a currency working under diverse and incoherent jurisdictions, which it is. Expect then more than a few countries, Euro-denominated bonds and instruments to lose their credit ratings.
It is against this background that Francois Hollande is being baptised in Berlin. He will be aware of the consequences of failing to persuade Germany that its best interests lie in growth and renegotiation. So let’s assume that he succeeds.
Hollande succeeds …
The immediate effect is that the Euro will lose a little more value but if as a result the Eurozone economy picks up, that will be good news all round. Changes will have to be subtle not seismic but a move from austerity to growth will bode well for the Eurozone internally. Investors will be more realistic and accept that to get out of the mess that the Euro finds itself, they will have to be rather more patient.
It will need considerable time and, for fiscal union, political agreement which will need a new Agreement post Lisbon and not be easy. Most importantly, something must be offered now to the innocent people while this re-orientation is going on. There has to be hope.
As far as the consumer is concerned, it will be carry on as before. Some countries may have painful re-orientation, property prices in Spain and Ireland will remain low and a Eurobond with the ECB as banker of last resort will drastically cut the interest payments for all. Maybe not honey and cream but at least some jam.
… or fails
On the other hand, if there is no progress, all hell will break loose. It is likely that social unrest in southern Europe will become a major issue; none of the countries has a passive history. Of course, it may be that a passive and broken population of southern Europe will bow down and accept their fate but it is also possible that pigs will fly. When people are driven to the wall with five years of constant cuts while others walk away with millions, don’t expect acquiesence.
Many people in Greece are already starving and it may soon come to Spain, Portugal and Italy. The only one of the PIIGS which is likely to escape is Ireland because their problems were not in tax collection or overspend but in an overheated property market. It is Club Med that will suffer I’m afraid. Get out now while you can – there may be investment opportunities once everything has settled down but that could be years away.
There will have to be a lots more haircuts. Investors stand to loose many billions or even trillions of Euros which will depress the world economy affecting not only Europe but also the US and China. Therefore it behoves these countries not to rock the boat. Europe needs some re-alignment for sure because the world does not owe it a living. But it has many good things, not only culture but also innovation, science and a certain civilisation that has been exported all over the world.
The UK will suffer. If our major trading partner is not purchasing, our economy will nose-dive as well and it will be impossible to square Osborne’s fiscal circle. There is no room for schadenfreude here.
So what for the rest of the world? Pretty dire for the next 10 years or so. While there are havens and not all countries will be affected, severe recession in Europe will take many years to recover and depress the world economy by many points.
It is in all our interests therefore that Hollande succeeds.
The Money Principle was Included in Six Carnivals This Week
It is this time of the week again; Friday and here is a report on our participation in Carnivals on, around and above personal finance (this is supposed to be a joke, btw).
Last week, my post Money for All Seasons II was included in these six carnivals.
Carnival of Financial Planning at Financial Excellence
Totally Money Blog Carnival at Balance Junkie
Carnival of Financial Camaraderie at Young and Thrifty
Carnival of Retirement at Simple Finance Blog
Carnival of MoneyPros at Financial Success for Young Adults
Yakezie Carnival at One Cent At A Time
Thank you guys and good job with hosting; I really enjoy the company as well.
About Greek art and the little things that make our lives
Usually on Thursdays I tell you about a book I have read, or an idea that I have got from a book; and sometimes I also engage in polemics but then I would, wouldn’t I? These past weeks, I have been so frightfully busy and so preoccupied that I have not had the time to look at a book, even less to read one. What am I preoccupied with, you may ask?
A piece of very complex writing! It is a report but it is of very complex nature; I have all the concepts and empirical material but I still don’t have the elegance that a text ought to possess to be read and to enchant. Still working on it and experimenting but have been needing support from me ‘beehive’ and complete focus.
I very seldom allow emotions on my blog; I don’t do emotions very well to begin with; also this is supposed to be a repository of information and a place for reflexion and debate – not a gushing ground. Today though is different!
I have been feeling so tired lately that I haven’t been exactly brimming with positivity. On top of all this a student of mine has been insisting to meet me for several weeks now; he was so un-specific about the reasons for that (remember, I am on sabbatical) that I told him that I’ll let him know when I am in next. And it was today. Guess why he wanted to see me?
My student wanted to see me to give me the statuette you see on the picture. It comes from Greece and is called ‘Female figurine of the “folded arm” type’ and comes from the early Cycladic II period (2800-2300 B.C.). Don’t get excited, it is not an original. It is still beautiful; in fact I am not certain whether the picture I took does it credit but we’ll have to settle for it.
I am looking at the figurine and I am feeling all choked up. Good choked up. I do get small gifts from students from time to time (recently I got a kangaroo skin; apparently a great souvenir from Australia). But this is mostly from my PhD students and it is not surprising: after all I work very closely with them and, being rather old fashioned, I do invite them to my home. This is different! This guy is an undergraduate, one of the group that I was mentoring and teaching theory, and method.
It is a fine gift and I’ll treasure it. What choked me up though was not the statuette; it was what came with it. A small card that said:
“To my father I owe my life; to my teacher, the quality of my life.”
(Alexander the Great about Aristotle)
I have always taken great pleasure in seeing the students’ eyes light up with curiosity and thirst for knowledge; this is what I like doing! It looks like they have been paying attention and it feels so good!
These are little things that make our lives complete!
