Investorship Financial Education Foundation
Spending Your Way to Wealth(s)
Chapter One — On Being Normal
The IFEF is offering to provide this book (at no cost) to financial literacy educators everywhere. Here is the first chapter, explaining what it is to be normal, and how that affects our spending habits. A secure PDF version of the full book is available. Please contact us for information on obtaining free copies of the printed version for your use.
Chapter 1
On Being Normal
“Is being normal, being ordinary, really such a bad thing?
Is it something inferior? Or, in truth, isn’t everybody normal?”
— Ichiro Kishimi
For most of us, life involves routine. There are high and low points, but a large portion of everyday life is familiar, ordinary, often habitual. In other words, it is normal.
As humans, we exhibit similar, predictable responses to everyday situations. These can be correct and beneficial. Driving a car (after we’ve learned how) or looking both ways before crossing the street are good examples. We do these things automatically, without giving it much conscious thought. It is what normal people do. Regrettably, we all too often exhibit similar, predictable responses to everyday situations that have very costly consequences, depriving us of future wealth.
To gauge how normal you are, take a few moments to answer these five questions. Try to answer quickly, without checking the correct answers (in the back of the book) before finishing all five. Write down your answers if you wish.
- The total cost of a bat and a ball is $1.10. The bat costs one dollar more than the ball. How much does the ball cost?
- Mary’s father has five daughters. The names of the first four daughters are: Nana, Nene, Nini, and Nono. What’s the name of the fifth daughter?
- You are a participant in a race on a straight track. You overtake the second person. What position are you in?
- You overtake the last person in the same race. What position are you in?
- A person who cannot speak goes into a shop to buy a toothbrush. By imitating the action of brushing his teeth, he successfully expresses his need to the shopkeeper and makes the purchase. Then, a person who is blind comes into the same shop to buy a pair of protective sunglasses. How does she indicate to the shopkeeper what she wants to buy?
After you finish, check your answers against those from the back of the book. If you’re like many, you gave answers that instinctively felt true but were in fact incorrect. (You may also find that if you did not answer quickly—contrary to instructions—you probably had more answers correct.) Don’t be frustrated. Giving intuitive-but-wrong answers just means you’re normal. It also means you’re a perfect fit for this book!
Being Normal With Money
Being normal, and responding normally, does not guarantee being right. The easy, intuitive answer can often be the wrong one—based on popular ideas, like the (mostly) ancient belief in a flat earth, or more subtle factors. As humans, we see patterns where none exist, and assign causes to events we don’t fully understand. As H. L. Mencken once said, “There is always a well-known solution to every human problem—neat, plausible, and wrong.”
Being intuitive-but-wrong is especially true when it comes to money. Ordinary spending choices can have negative consequences—sometimes even dangerous ones. The problem is we make these choices automatically, from unconscious habit. We believe in the value of what we get in return for our spending, but we fail to recognize what we will likely forfeit in the long term.
Acting against our own financial interest does not mean we are unintelligent or irrational. It just means we are normal: thinking and responding Reactively rather than Reflectively. (More on that in Chapter 2.) We are certainly not alone. To quote the fictional pop philosopher, Walt Kelly’s Pogo, “We have met the enemy, and he is us.”
Becoming Normal PLUS
As this book will show, being normal is not sufficient when it comes to spending and wealth. Instead, we hope the reader will come to understand the importance of becoming normal plus. The book will provide the reader with the information, insights, and incentive to adopt a spending philosophy comparable to that of Warren Buffett and other widely recognized, financially successful individuals.
Anyone who studies the thinking and behavioral characteristics of such financial decision makers will discover striking similarities. Most possess a high level of self-awareness. Most tend to possess core competencies and tend to be steadfast in their adherence to essential disciplines. Most also have the ability to take a long-term approach and not be unduly worried about short-term noise. While outwardly quite normal, they are what is described in this book as normal plus. They subscribe to a core philosophy that separates them from most normal people. It is a philosophy this book describes as Investorship—a new word that describes a worthy and desirable financial spending practice. It’s a philosophy that has enabled countless people to literally spend their way to wealth.
The Investorship spending philosophy is free to anyone with the intellectual and emotional resources to understand its importance and adopt it. Hopefully, that will be you.
This book is about spending and investing, and how normal human behavior can help or hinder our success in accumulating wealth. These ideas have been advanced by Nobel laureate Daniel Kahneman and others under the impressive heading of behavioral finance.
There are other books—long ones—on this subject. However, they are written for advanced readers. This book is intended for existing investors and non-investors—younger adults and others who avoid financial planning as too complicated or scary, as well as older adults who feel it’s now too late to start investing. It is also aimed at those who are already investing to a small degree—perhaps through a 401(k) or similar program—but who are unhappy or frustrated in their progress towards greater wealth.
Most of all, the book is intended for those who believe investing is too arcane for them, when it is actually something a financial newcomer can master. My goal is to help you understand the consequences of spending and investment decisions—whether they be the small, incremental ones, or the large major ones. By slowing down and reflecting on these consequences, rather than acting reactively or “intuitively,” you will be on a path to spending your way to wealth.
Special Note
While the mathematical calculations utilized in this book are straightforward and uncomplicated, a brief explanation will aid you in better understanding them:
When the book discusses current and future expenses associated with a particular item, it automatically adjusts each future year’s expenditure for that item by an estimated inflation factor (3%). Thus, something which costs $1.00 today will cost $1.03 next year, $1.061 the following year, and so on.
Similarly, when the book discusses the possible future value of an investment of $1.00 in an S&P 500 Index fund (which has historically returned an average of 10% per year over an extended period of time), it shows the value of the invested $1.00 will likely be worth $1.10, the following year, $1.21 the following year, and so on.
The calculations in the book were derived from future-value tables similar to those used for the online Investorship calculator. They have been checked for accuracy by significantly credentialed individuals (accountants and financial consultants) whose calculation methodology may differ slightly based on minor formulation differences.
American consumers (people like us) are among the greatest financial spenders in the world. Certainly, we are among the most practiced. We spend more frequently on more things, in larger amounts and in greater quantities than almost anyone else on earth. Regrettably, most of this spending is at the expense of spending on our future financial security. Since this problem tends not to manifest itself immediately, the magnitude of the problem increases each year until it ultimately may be unmanageable.
The purpose of this book is to help the reader understand the problems that arise out of spending unchecked by reflection on long-term consequences, and to modify their spending practices in ways that make their future spending the cause of financial wealth.
This book is not intended to deprive us of the pleasure and satisfaction of spending. Rather, its purpose is to alert us to the forfeiture of enormous future financial wealth that is the likely consequence of the way we often spend—unconsciously mis-allocating our dollars. In pointing out this forfeiture, the book also shows the magnitude of potential future financial wealth that will result from a revised allocation of our spending dollars.