Dear PiePie,
Between 21st Jan and 28th Jan of 2021, a relatively small public company called Gamestop saw its share price went from about $40 to an intraday high of $500, having already gone from $4 to $40 in the preceding 3 months. That’s a >100x increase in 3 months! It was a wild time in the markets, as hordes of retail investors loosely banded over a Reddit thread took the fight to hedge funds and institutional investors who were overly short on the stock – they borrowed a lot of shares to sell first and buy later, hoping that the prices will drop. Through heavy buying, the retail investors basically tried to force these funds to go out of business and to liquidate their positions, which would cause the prices to rise further as they bought back stocks to “return” them. Fortunes were made and lost as this previously obscure company dominated headlines all across the world.
Many attributed this episode as an indication that the masses – who had been previously excluded from many financial instruments – now have increasingly similar access to invest and trade like the institutional financial firms and funds, the “smart money”. While it’s still far from a level playing field, both are on the same field now at least. By the time you’re reading this, hopefully the field has levelled even more, because you’ll soon have to manage your own finances.
So, how should you think about money? There isn’t really a rulebook, but these are things I wished someone told me earlier on.
Money is a means to an end, and it helps to know what your end is. Money doesn’t mean much unless it can be exchanged for things that makes you happy or for things you care about. The goal isn’t to make more money, but to use money to get to things you care about. It turns out that a lot of these “other things” we care about or that makes us happy don’t always require that we make more money, especially if we need to sacrifice our time and life and happiness to get the money. Don’t lose track of the end goals even as you are on the path to acquire the money to get there. For me, I like that I spend time with you throughout the pandemic as I work from home, and so, despite earning not that much and not particularly enjoying what I do, the goal of spending more time with you in your infancy (which is ultimately what I want) is achieved. And that is an end in itself.
Money buys you options, and options are valuable. It helps to know what your end is, but sometimes, you just don’t know. And that’s ok – you can still accumulate wealth without knowing what you want the wealth to do for you. Money will eventually allow you to capitalise on opportunities and buy you the freedom to do things you want. But throughout the process of working hard to accumulate money, don’t forget to keep exploring and figuring out what you are going to do with the supposed freedom and options that money buys you. It’s a perpetual process of testing hypotheses about what makes you happy. There’s no point ending up on the other side of wealth and still being confused about what that wealth gets you.
Beyond a certain point, money doesn’t really matter. When you don’t have enough, money is a necessity, because of course you need to buy food and clothe yourself and pay rent. But after you’re earning enough to live comfortably, what you’re spending on tend to be ‘wants’ and the incremental joys that money can bring gradually diminishes. Of course, what “living comfortably” means differs from person to person, so if your baseline is to eat at restaurants every day and to go to the salon every week, then you’re going to have to work a lot harder to reach that baseline level. Life is a little easier if you are able to temper your ‘wants’. Which leads to the next point.
Do not overextend yourself and commit to expenses you cannot actually afford. It is emotionally stressful to have to worry about whether you have enough money to pay your bills. And one of the ways people get into such situations of stress is to overspend on large purchases like a house or car, even though your income may barely cover the monthly repayments. In general, it is ideal to always budget a buffer on your expenditures so that you have comfort in the knowledge that you have more than enough and do not have to worry about money. You’ll live far more happily this way, and it is worth it.
Finally, if a deal seems too good to be true, you’re probably right. Very rarely is there a “free lunch” in this world, and in the context of personal finance, rarely is there a way to “get rich quick” without also probably putting a substantial amount of your money at risk. Be super weary of anything or anyone promising you a way to become rich quickly, it’s either a scam or there’s usually a catch somewhere. Understand what the worst-case scenario for the situation is and ask yourself if you can accept that outcome. Because even if the worst-case scenario sounds improbable, the probability of that happening is likely greater than you think it is.
I hope these advices are helpful, and money will not be a source of worry for you.
Love, Dad