The Christmas and New Year period is a stressful time for me because I have to think of a lot of presents! Presents for family and my girlfriend for Christmas, but soon after is her birthday as well, so I need to come up with a lot of ideas, which is stressful. After over four years of being together I have bought her plenty of gifts and some have been great, others not so great. I was thinking about what makes a good present and realised that the amount of money spent is usually inversely associated with its value and how ‘good’ a present it is. This is true for me at least. Typically, if I’m running out of time or haven’t thought of something yet, I resort to something that is expensive, because I suppose at the time I think that she will know I care because I spent a lot of money on something for her. When I really think about it, I believe the opposite is usually the case.
The goal of a present is not to just supply the person with more things, fundamentally, giving presents is to show the receiver that you care and thought about them and getting them something that will show that. The best presents are things that they didn’t even knew they wanted but love it, showing that deep thought went into the gift, which is what they really care about.
I am always amazed that my mum likes it when my brothers and I hand make her cards, because they never look amazing, but nevertheless she loves them. The reason for this (I think) is again because it shows that we put effort and thought into the card, rather than buying her another mass-produced card from the shops.
This all makes a lot of sense but goes against the current culture of consumerism which has captured the world. We are all very ‘busy,’ allowing external things like work and study occupy our consciousness. This distraction is when we aren’t able to think of an appropriately thoughtful gift, because our mind is elsewhere. I believe this is all changing with movements against todays consumerism such as the increasing focus on sustainability and the environment, deterring the pursuit of more.
Another Christmas has come and gone and I’m sure everyone ended up with more ‘stuff’ and everyone has had birthdays where they may get an expensive present or two but somehow still feel unsatisfied with it. When it comes to presents, the amount of money spent is usually inversely associated with the amount of thought that has gone into the present, thus, the amount of pleasure the receiver gets from it. The reason we give presents is to make people feel valued, appreciated and cared for, and spending money isn’t the best way to show that, time, effort and thought is. So next time you’re in need of a present, stop and think what the person would really value, and ask yourself is spending more money the answer.
I think I’ve subconsciously thought this before but I came across this notion a few months ago and it resonated with me. Change is an incredibly hard thing to enact, often taking huge amounts of effort to do. This thought isn’t going to drastically make it easier, but I’m sure anyone who has tried to make a change knows that if you environment is working against you, behavior change becomes much harder. An example of this is if you wanted to stop eating processed sweets, but didn’t clean out your cupboard of chocolates, you’re going to have a much harder time avoiding them.
So if you wanted to spend less time on your phone, it seems silly to upgrade to the latest model. However, if you want to spend more time running, it seems like a good idea to spend money on running clothes, shoes etc. This may seem very obvious, but if we change our purchasing habits, I believe it can really shape our lives.
This isn’t to say that as soon as you buy a pair of running shoes you’re going to consistently run 3x per week, but it definitely reduces the activation energy for doing that activity.
Another example of this I’ve noticed in my life is, I bought a kindle about 1 year ago to enable me to read more of the books I wanted to read and was interested in. Previously what I had done to get books was go to the local primary school fete book store and buy 20 books, and repeat this every year. This limited me in the scope of books I would read to a lot of crime fiction and some classics, which wasn’t bad I just wanted something different. The kindle allowed me to get whatever book I wanted much easier and cheaper than going to a book store and buying one. I already had a habit of reading every night, but I now consume a much more varied literary diet which has been great. All because I lowered the activation energy to doing so by my spending choices.
This is a very simple but very powerful tool to use to help you enact the changes you want. So next time you’re spending money on something, think, do I really want to spend more time in this area?
Throughout young adulthood we’re told we need to save money, and the more we save, the more likely we are to be well off in the future. I think this is the wrong advice.
For some, just making a conscious effort to not deplete their bank account at the end of every money can be very helpful and is never a bad thing. I’m going to be talking about a different kind of person, the compulsive saver. The compulsive saver is someone who really wants to have more money and begins to forego every little luxury in their life, I’m not talking about the 10th t-shirt they buy every week, or the Ubers they get everyone; I’m talking about buying coffee’s out, buying lunch with friends etc. Small purchases which yes, add up, but overall (for me at least) the cost is worth the expense. The reason I believe these purchases are different is because they are generally spent with people socializing, and without them, can begin to seriously affect your life, unlike that 5mins saved by getting an Uber rather than a bus.
So saving money on small things which have an outsized effect on your quality of life isn’t good, it’s better to spend the money on them and be happier. But then you aren’t saving as much money and will never be rich?!
Well even if you saved all your money, lived on bare essentials with beans and rice for every meal, you can only save so much. You are limited by your income, with it being a classic trade of time for money (ie. typical work), which again, has a cap on it because there are only so many hours in the day. Saving money, and working for money both have caps on how much you can really earn. I believe the way to truly be able to break free from the limits of saving and working for money, acheiving financial independence is through a thing called passive income.
Passive income is as it sounds, it is earning money passively, without doing anything. This allows you to stop trading your time for money as the money comes in regardless of what you’re doing. It sounds too good to be true but there are many tried and trued ways of earning passive income; investing in stocks which pay you a dividend, making shirts on red-bubble, setting up a youtube channel where you videos generate ad revenue and even owning your own business (sometimes).
If you look at all über-rich people of the world, the Jeff Bezos’, Bill Gates’ and Kylie Kardashians’, they don’t trade their time for money, they could go away for a year and still earn money from their businesses and stock holdings. These are obviously extreme examples but they convey my point. Nobody gets rich by just working on a salary. Some may argue that yes, doctors, lawyers, investment bankers and whatever other professionals earn a lot of money and get rich, and yes, they do. Although they also have to work long hours and still trade their time for money so are limited exactly that same as you and me, just at a higher level.
Even if you don’t want to be uber-rich, I’m sure everyone wants a bit more time to spend on doing the things they love, rather than being at work. That is what developing sources of passive income can help generate, the freedom to be more in control of your time. So go out and buy a coffee every day if that’s what you like doing, just think about ways you can start to break free from your simple trade of time for money.
I’ve said for a while that winning a substantial amount of money would be one of the worst things that could happen to your in your late teens and early twenties. I’m going to talk about this in terms of my experience, where I haven’t ‘come into money’ but I have managed to save enough money with not too much to spend it on (thanks covid) (trust me it’s not that much). I’d also like to preface this that this doesn’t apply to people in debt, because most would just use their new found money to pay down that, which will always be helpful
I’ve begun to notice a paradox in work and money. Somewhat intuitively, the more money I earn, the less drive I have to work, the less ‘hustle’ I have. As I mentioned yesterday I used to figure out every way under the sun to make money, tie dying t-shirts, photography and buying and selling skateboards, camera’s, bikes, anything I was remotely interested. I also went through a period where I was able to say I had 5 different jobs, during year 12 I was washing dishes, umpiring, taking photos at events, tie dying shirts and I was also a gardener for a few people.
I think of myself now, after having two consistent casual jobs which has allowed me to mass a comfortable amount of savings. Now I have that safety buffer, I don’t feel myself having the same fire in my belly to earn money by whatever means possible. This makes me nervous. I used to love how much drive I had to earn money, even in atypical ways, but now I don’t have that.
This is a paradox because I was working in different ways in to precisely put me in the situation where I have money… Maybe this is just another idiosyncratic aspect of me but I’m sure this happens with others as well.
So what am I going to do about it? I think my issue is that I’m still thinking of money like a teenager, thinking that having over 10k is having a lot of money, whereas in real adult terms, that’s not even much of a safety buffer, nor does it allow you to move forward in life. Other than shifting my financial goals, I feel I also need to begin investing this money more. There’s no better time than your 20’s to invest and as I don’t have much to spend this on, I might as well invest it.
My dilemma is different to the one I posed in my opening remarks, but I believe that that issue is a supercharged version of mine. Being given more money, I feel, would quash your drive to continue to earn. Take the endless stories of NBA stars, rappers or lotto winners who have not only lost the drive to earn money, but have ended up bankrupt or in debt.
I suppose my conclusion of this is that when you increase your wealth, you need to shift your goalposts and not by spending more. You need to increase your investments, ensuring you avoid lifestyle creep, otherwise, in the long term you’ll end up earning less money overall.
This has been a bit of a ramble but I hope that this isn’t just another of my oddities and someone can take something away from it
I’ve been interested in investing since I finished high-school; who doesn’t want to earn heaps of money by doing nothing? This journey has had plenty of ups and downs (literally) from cryptocurrency to gold, but I feel like I have learned a lot (and lost a lot) over the past 4 years and wanted to share it so you don’t make the same mistakes I did.
Investing can be very nerve-wracking and something I know a lot of people in their 20’s often avoid thinking about because it’s too complex or risky, but I hope to show how easy it is, as well as how low risk it can be, when done the right way. Here are my learnings to date
1. Remove Risk
There are two ways you can reduce the risk of investing, a common barrier to entry into the market, especially for younger people. There are two ways to invest safely, no matter if you don’t know what to invest in, or what the stock markets conditions are (ie. going up or down). These are: invest in ETFs and Dollar Cost Average.
Invest in Exchange Traded Funds (ETFs)
Firstly, what are ETFs?
ETFs are somewhat like a group gift, a lot of people chip in a bit, so the person buying the gift/s has more money to play with and can get the person more gifts. ETFs are funds which a lot of people invest in, so they have a lot of money, which they then spread out across the stock market, so if one company goes up or down, it doesn’t make much of a difference to the overall value of the ETF. This is great because a huge worry for most investors is that they lose all their money through a company going bust, ETFs safeguard against this and unless the whole stock market crashes and society as we know it is upended, you’re money is pretty safe in the long term.
ETFs are an amazing way to get into the stock market because they are safe, following the general trend of the stock market. You can buy ETFs like any other share, all you need is a share trading account, which you can sign up to for free, pay a small fee to buy the share, and bingo, there you go, you’ve got a piece of the stock market.
Many of these ETFs also pay a dividend a few times a year, which I recommend you re-invest straight away, so each dividend you get slightly more than the last time, which increases exponentially so by the time you want to use the money (ie. retirement) it’s worth many multiples what you have initially invested. I’ll discuss compound interest later.
Dollar Cost Averaging (DCA)
So, you’ve saved up a chunk of money and you’re sick of it sitting in your bank account earning 0.2% interest and want to invest, DO NOT INVEST IT ALL AT ONCE. If you invest a lump sum of money into the stock market, you’re opening yourself up to the ups and downs of the market (ie. you could invest it and the next week the market has gone down 20%). DCA is a term used to describe what is simply investing a portion of the lump sum, regularly (ie. once a fortnight) until you have used it up. You pay slightly more in fee’s this way, but you safeguard against market volatility (which is very prevalent at the moment).
For example, let’s say you want to buy an ANZ share, which costs $20 today and you’ve got $2000 to invest. You could drop it all in at once and get 100 shares. If you DCA and invest $400, 5 times across 10 weeks, let’s say the market is quite volatile and the first one you buy at $20 (20 shares), then in 2 weeks time it’s worth $16 (25 shares), then $22 (18 shares), then $21 (19 shares), then finally its worth $18 at the end so you buy another 22 shares, you end up with 104 shares worth $1872, rather than 100 shares worth $1800 despite the same initial investment. This is only a small amount and small time frame, the effect gets magnified over the time period you do it. Brandon Van der Kolk from New Money on Youtube has a great video explaining how dollar cost averaging is better than buying even at the bottom of the price ‘dips.’ He explains it a lot better than me so I highly recommend watching it. He’s been one of the people who has taught me a lot about investing.
2. Be in it for the long run
On Average over the past 100 years, the stock market has gone up between 7-10% per year depending on who you listen to. This isn’t to say that the market went up 7% every year, some years it goes up 20%, some it goes down 10%, but on average, it goes up over time.
Here is a chart from vanguard (who’s ETFs I invest in) showing their returns over the past 20 years (until the end of 2019), and as you can see, it’s been bumpy, but over time, it has always risen. It’s on this premise that long-term investing is the lowest risk form of investing.
Here is an example of how not to invest, and why it’s so important to invest for the long term.
My first investments were in the end of 2017 into cryptocurrency, I was lucky enough to invest before the price of Bitcoin went through the roof. In 2 months time I had doubled my initial investment, which was absolutely incredible. I had no idea about the nuance of cryptocurrency, and rather than selling it there and then, I held onto it and the market crashed and I ended up selling my positions at a 12x loss. If I had held those investments, I would almost have not lost anything.
That was an expensive lesson, but a mistake I learned a lot from.
3. You cannot be an emotional investor.
When the cryptocurrency market dropped, and when the stock market crashed in March of this year (2020) I initially wasn’t phased, thinking, “nah it’s fine, it’ll come back up.” Then it kept dropping, and dropping, and dropping, before I got too nervous thinking the market would continue to go down, and sold my positions at a heavy loss. This year wasn’t as bad a the crypto saga, but I had still lost 30% of my initial investment. If I had kept my money in there and not touched it, I would be back to only 8% down. To make matters even worse I ended up buying back the shares which I had sold at a higher price. This is all the prime example of emotional investing, you get nervous and make irrational, bad decisions, which never end well. What I know now, and how I think of my investments these days is that it is money I’m not going to see until I’m 40 or 50. This means it can do whatever it wants until then, up or down, it doesn’t matter, because compound interest will be the greatest impact on increasing the value of the investments. On top of this, if you have invested safely, into an ETF then you will also make roughly 7-10% per year on top of the compounding from dividends.
4. The power of compound interest is ridiculous
There is the famous saying “Time in the market is better than timing the market” and all this means it the best time to invest is right now, because the longer you are in the market, the more time you are able to accrue through compound interest, no matter if the market is high or low. To show how ridiculous compound interest is, here is an example from a compound interest calculator, as you can see, if you initially invest $1000, then put $10 a week away and invest it (a la dollar cost averaging), at a 7% interest rate (ie. the growth of the shares), by the end of 10 years, you will have invested $6k and made nearly $3k in interest.
That’s pretty good, but wait until you see what the same investments turn into over 40 years.
With a $20,000 investment (accumulated over time), you end up earning nearly $100k earned in interest. Obviously, this is a very simplified version of how the stock market works but it’s a great illustration of the power of compound interest. As you can see, towards the end of those 40 years, that’s when the big money is made, which is why it’s crucial to start investing as early as possible.
Time in the market, is better than timing the market
You can play around with this compound interest calculator yourself here
5. How do I get started?
Getting started is really easy, the share trading platform I use is called IG, I’ve been really happy with it although there is a $50 quarterly fee if you have investments and don’t trade at least 3x/quarter. If you want to just buy something and hold it, this may not be the platform for you, but they have the lowest fees out of the one’s I found, $8 per trade.
Conclusion
Share trading can be full of volatility and risk, but I’ve explained some of the safest ways to begin investing. Invest in ETFs so you’re not reliant on just one company doing well. Dollar cost average when investing, this spreads your risk out reducing the risk of ‘investing at the wrong time.’ But even if you were to invest ‘in the wrong time’ it doesn’t matter because just the fact you’ve begun investing sets you up to the power of compound interest, which trumps everything and you inevitably make money, and exponentially more money the earlier you start investing.
I hope this has cleared the water up around investing, it can be very nerve-wracking and something I know a lot of people in their 20’s try to avoid thinking about because it’s too complex, but I have hopefully shown how easy and low risk it truly can be.
Harrison Hansford 