(This article was first published on www.living-money.com and audioboom.com)
Hello and welcome to Living Money’s January Money Manifesto.
I want to expand this month on an earlier Manifesto article and talk about scarcity, which by definition, is the other side of the coin from desire for wealth and status.
The issue of scarcity
In my November 15 Money Manifesto I was inspired by John McCarthy and others to discuss whether our desire for wealth and status, which extends into all areas of our lives, actually leads to contented lives. I think the conclusion was that it did not – in fact, our desire left us feeling discontented rather than contented.
My post was also a reaction to the downturn in financial markets in the second half of 2015 and my observation that fear seemed to motivate people to log onto their portfolios more often than in rising markets.
Market falls have become headline news in the first few weeks of 2016. Although I no longer have access to the log-on history of my old Planning for Life clients to see how they are reacting, I don’t need it because the focus of the financial press on how to deal with a bear market and predictions about the future is more than enough evidence that household investors are even more in the grip of fear of ‘not enough’ now than three months ago.
Coincidentally last autumn I met Brene Brown, attended her London workshop and immersed myself in her books. This spring, I am enrolled in her Living Bravely semester which runs through until late April. Brown is a research professor at the University of Houston Graduate College for Social Work. She has spent the past 13 years studying her subject of choice – shame – and her weapon of choice against shame – vulnerability, or courage, compassion and connection as she puts it.
Her ultimate goal is to help us all lead wholehearted lives. She sees scarcity, or the culture of ‘Never Enough’ as a major obstacle to this. Her description of scarcity is more psychological than financial, although the emotional elements of financial scarcity are important.
Brown is more concerned with comparative scarcity. We are never good enough, powerful enough, safe enough, smart enough – or rich enough. In her view, ‘we get scarcity because we live it’ (Daring Greatly, page 24), and ‘we spend inordinate amounts of time calculating how much we have, want and don’t have and how much everyone else has, needs and wants.’
Scarcity is ‘the great lie’ according to Brown’s favourite writer on scarcity, Lynn Twist, author of The Soul of Money. Quoting Twist, Brown provides a powerful reminder that, from the moment we wake up and think ‘I didn’t get enough sleep’ to the time we go to bed thinking ‘I don’t have enough time’, the though of ‘not enough’ nowadays occurs to us automatically before we even think to question or examine it.
If this internal comparison is bad enough, it gets even worse when we start to compare ourselves and our connections to the external ‘Icons of Enough’ presented to us in the media.
So in this culture of ‘never enough’ its hardly surprising that a 15% fall in the value of our portfolios leads to stress, guilt, shame, comparison and disengagement – even though we may not need our money today, and the value of the portfolio will almost certainly recover in time.
How do we deal with this? Well, there are a number of practical ways.
The first thing to do is to become a little bit vulnerable, as Brown would recommend. In practice, sit down with a calculator or spreadsheet and compile a set of financial statements (assets, liabilities, income and expenditure).
If this does not sound like vulnerability, then let me tell you my clients generally hate me for making them do it.
Compiling financial statements is part of the first or Foundation phase of developing a financial life plan. Often clients will use the excuse that they don’t have time to carry out the exercise (‘never enough’ again); however, I suspect that it goes deeper than that. It requires clients to become extremely vulnerable on two counts. First, they are scared of knowing where they stand and it takes real courage to work through the household finances to reach the truth of their financial situation. And, second, when it comes to their expenditure, they hold up a mirror to their lives, a mirror which so often shows them existing rather than living, or fighting for perfection rather than loving who they are.
You can see the impact on clients who do this well. They know where they are; even if it is not good, they can at least do something about it. Even if their situation turns out to be not good they walk taller, live calmer, recognise their own courage and achievement, and become determined to deal with their personal finances.
They extend their vulnerability by discussing their situation with me. They talk about their emotions around money, their relationship with money, their hopes and fears as well as the straight numbers.
Brown gently castigates us for spending inordinate amounts of time calculating how much we have, and how much everyone else has. I disagree with her on the first bit. Calculating what we have is an important part of getting to know ourselves and provides the foundation for financial planning – and it is an exercise in vulnerability. The second part, though I would agree with, and whether its because we are British, or whether the exercise itself give them a sense of worthiness, I have never heard my clients brag about their situation or compare themselves to others, either good or bad, and that I find encouraging.
The second way we can deal with falling portfolio values and the problem of scarcity is to have a viable financial life plan, which will include a spending plan. A good plan helps you know where you are and who you are, and how to get to where you want to get to or be.
A third way, which should form part of your plan, is to have an investment policy, which will incorporate your approach to risk and give you an understanding of investments.
I’ll be posting more about these in the coming months.
In the meantime, if the current falls in the value of your portfolio are making you feel scratchy, then lean into the vulnerability, do some work on your financial plans and think about what you have got, not what you haven’t got.
About Living Money (abbreviated)
Living Money coaches busy families in personal finance. We are not authorised to provide financial advice and we do not recommend financial products. Instead, we aim to provide you with the tools and skills to buy the financial products that will best serve your life and money.
Thats it from me. Thank you for listening. Have a very good week.
Take care and go well.