Investing is an operation in which one through thorough analysis promises a safety of the principal and an adequate return. Everything that is not this is speculation.
-Benjamin Graham, Intelligent Investor
I was listening to an episode of Ramit Sethi's podcast called "I Will Teach You To Be Rich". He was talking to a couple who wanted to get married but the boyfriend decided they couldn't get married until they were on better footing financially. The girl is over $15,000 in Credit Card debt and kept saying she has no idea how it happens.
Ramit tries to get her to understand her problem but she keeps playing the "I'm so Helpless. Just Do It For Me" Card. The episode is so fascinating from a psychological perspective. It reveals so many of the different things that play into our money decisions. If you have time, definitely listen to it.
However, there was something that the girl kept saying whenever Ramit asked her about various expenses. For example, Ramit asked her about a pair of $300 shoes she bought. She said something along the lines of "Well, I have to take care of my feet. I see it as an investment in my personal health."
He asked about a trip she had been on, she answered something about mental health investment. You could hear Ramit ready to rip her to shreds with her continuous use of the word "investment" as an excuse to buy whatever she wanted and put herself deeper in debt.
But to her, she felt she was doing the right thing. She has created a story that as long as I see this thing worth something, it is an investment. Therefore, I can buy it.
In a post called “What Owns You” I said this:
We humans have always had a need to collect and preserve things. We have always assigned value to items that do not necessarily have value on their own merits. But that is irrelevant, we are social creatures with the ability to conjure up stories that captures our imagination. A powerful enough story can make a picture of a rock cost millions of dollars and the dollars in your pocket worthless.
I can come up with so many more examples from Tulips to Bennie Babies to Coins to Various Card Games etc. By itself, there is no problem in buying these things or collecting these things for our enjoyment. I mean I am completely guilty of this:
I have a bunch of vinyl records from some of my favorite artists but I do not have a vinyl player.
I buy Funko pop dolls of Star Wars and Marvel Characters.
The problem is when we see these things for more than what they are. Our stories quickly become delusions that we cannot escape from.
There is something called the Endowment Effect. According to Wikipedia:
the endowment effect is the finding that people are more likely to retain an object they own than acquire that same object when they do not own it.
Another way of explaining this, we tend to value things we own more than it is worth.
Combine the endowment effect with the flippant use of the word "INVESTMENT" in culture today. We end up in a place where we no longer see the things we buy just as simple objects but rather as items that must be protected for their value. It gives us an excuse to indulge when we cannot afford to.
I love this quote by Richard P. Feynman, "The first principle is that you must not fool yourself and you are the easiest person to fool."
Be careful about the things you call an "INVESTMENT". It can easily wrap from being a way of building wealth to being a way of staying broke. If everything you buy becomes an investment. It means nothing is an investment.
Regardless of what you might see on social media. Just because there might be a benefit to an item does not make it an investment. To be an investment there must be a return of your capital with growth. Not just good feelings.
Companies have also caught on to this idea and now use it as an easy way to market products. Here are a few examples:
Invest in Your Self Care by buying XYZ products to help you lose weight, gain muscle, and have clear skin
Reality: The actual investment in self-care is eating clean simple vegetables, drinking water, and getting at least 30 mins of exercise daily
Invest in your mental health by buying XYZ products or going to a spa or wellness center because who shouldn't invest in their mental health
Reality: In truth, most of us just need to take a walk and put our phones down for an hour.
Invest in your look. You deserve to be presentable for every different season
How many shoes, clothes, and bags, can one person wear?
Reality: Find what actually fits your body and the style that you like. Stick to those and stop following trends.
Invest in your relationships. Buy this retreat or vacation so you can have some intimacy with each other
Reality: you build relationships right where you are. Not by going on a fancy trip. All you need is to decide to prioritize the person.
Invest in your productivity. Buy this planner, app, coaching product, book, mastermind class, etc
Reality: Use the apps on your phone: Do Not Disturb, Reminder, Calendar, Turn Off Notifications, Remove Social Media Apps, etc.
I could keep going but I think you all get the idea.
As Ramit Sethi says, "In order to be better with money, you first have to be HONEST about your money." This means if you want to buy an expensive pair of shoes because you like them, then say that. Don't lie about it being some BS investment for your feet. There are shoes that are the exact same and will be just as durable but cost much less.
There is absolutely nothing wrong with buying things you want. The only catch is being in a position to afford those things. Don't use the excuse of "investing" to keep yourself broke. Wait until you are in a position to buy that thing without any hassle. Otherwise, you'll never ever make progress with your money.
Remember Generosity > greed
✌🏾
Recommended Reads
Morgan Housel, Some Things I Think. An Assortment of statements on the surprising ways the world works.
Nick Magguilli, Money Can't Buy Happiness Or Can It. Data-backed research on how money can increase and also do nothing for your happiness.
Jack Raines, Dopamine Overload. He explains why we all need to DELETE THESE APPS! Just check in periodically, trust me you will not miss as much as you think you will miss.