The Psychology of Money

Economists often joke that a recession is when your best friend loses their job. A depression is when you lose yours.

The widespread job losses of 2020 were a staunch reminder that blue collar and white collar workers alike are never truly insulated from a job loss that could upend everything they've worked for. Although we did see a more prominent K-shaped recovery for more white collar workers who were able to quickly transition to remote work, the unemployment rate is still hovering around 6% in early summer of 2021. This fast recovery is much more palatable than the double digit unemployment rates we witnessed last year.

Even in a more stable bull market, a job loss could blindside you especially in more volatile industries or perhaps a business that is not strong financially. This was certainly the case for me when I took on my first job as a healthcare professional for a large company. The idea of having a graduate degree and a job providing a service that people needed routinely was enough mental cushion to kick back, relax, and not think about black swan events. What you hardly think about as a newfound graduate are the behind the scenes dynamics of a big business. You simply assume everything is rosy as the paychecks continually roll in. But the most susceptible businesses are those with large debt burdens, a weak income statement, and a management team that is less than mediocre.

And boy did the music end abruptly six months after having moved into a new city, opened new credit cards, and accommodated a pricier lifestyle. The company declared bankruptcy, citing extreme competition and a picky consumer base. Longer tenured employees had a severance package to rely on, but I on the other hand did not. The years and years of academic preparation did a great job of instilling fear, panic, and apprehension in these desperate times. It was a struggle. 

How was I going to pay for rent? What was going to happen with my car? What do I do with all these credit cards? Does the government help with this!?

Getting used to a new income after graduation settles in fast! But having no income with accumulated expenses becomes a wicked scramble. My last days were spent on a piece of cardboard on cold tile as the company discharged patient profiles, equipment, and practically everything tangible. 

"You're free to leave early you know," my manager said.

"I think I'll spend a little more time here." I wanted to really let things marinate.  

What felt like the end of the world for a mid-twenty something was really a catalyst for growth. It just never feels that way at the time. 

You realize that volatility is normal and actually a blessing in disguise. 

Nobody ever really takes a linear path up and to the right, except for the occasional meme stock. Sometimes you need a shell shocker to really wake up and harness what you were designed to do: Adapt. You no longer wait for things to simply happen for you. You no longer have an unfettering fear of loss. In fact, you are now prepared for it and you will have a strategy in place to pivot or accelerate. The next downturn won't be a trough of despair, but rather a springboard. 

You no longer rely on a single income. 

We often hear about portfolio diversification when you're investing, but less so about income diversification. Having multiple sources of income protects you from unforeseen events, emergencies, and sometimes yourself. 

The next several months without work helped me prepare for the next lines of employment and self-employment. I took on two jobs to feel less vulnerable to shaky businesses and used it as leverage to build a foundation. Whether it's taking on an additional job, working on a side hustle, or building a business, diversifying your income gradually over time is a powerful way to set yourself up for financial freedom. Gone are the times where someone can completely rely on a single employer to keep them paid, nurtured, and set up for a comfortable retirement. 

You instill a greater sense of urgency. 

We all procrastinate, but do you know anyone that precrastinates? This would be the complete opposite and does have a detrimental side, however your sense of urgency is a gift that may often be robbed when you're the most comfortable. When coupled with a long term plan, urgency now is a recipe for getting a ton of things done and conveniently set up for the future. 

Time is finite and we're well aware, but it's easy to act like it isn't. Losing my job was an accelerated way of defibrillating this lull. Give yourself a little less time and you'll be amazed at what you get done. 

See it as a means to develop your human capital and explore your options. 

One of the hardest parts of this process is taking time to reflect on your skill sets. The future of work is heavily reliant on the investment of human capital, both individual and on a macro level. If your skills may not be durable over the next 10 years, this can be an excellent time to explore what you're most interested in and what you can be great at. 

Are jobs growing in your industry? Is there wage growth and mobility? Is automation a risk factor? 

These are questions to ask as you delineate what skills are most appropriate for you. Double down on your problem solving skills, teamwork, and adaptability. Investing in yourself and your value delivery will always pay attractive dividends. 

I saw this opportunity as an important time to develop skills in business and investing, taking time after work to read, self-teach, and put these elements into practice -- but it does take time. 

Surprisingly, losing your job can be one of the most liberating feelings in your career. Enjoy the newfound freedom, embrace the change, and see it from a growth perspective.  

The Psychology of Giving.

A deeper look at the psychology of giving and how it makes you happier.

“Giving Is Receiving.” Many of us may have heard this old saying before, but what does it mean?

This deceptively simple adage has held a deep significance in human history. Many people of all cultures and backgrounds think that pursuing material gain will make them happy, and rightfully so. Every business, advertisement, and celebrity seems to say so. By making more money, having a larger house, or merely owning more things, the void should be filled, right? The algebra of happiness may say otherwise.

A strategy that focuses on long term happiness is better off excluding high levels of material acquisition. An equation of exercise, relationships, and giving is much more robust. This doesn’t mean that you shouldn’t aim for any semblance of economic security, but avoid making that the all-encompassing aim.

By freeing your mental preconceptions and being open to the idea of giving, you create a more reliable arc of happiness and peace of mind.

A fleeting sense of fulfillment through material consumption.

Buying brand new things is fun, exciting, and shareable, but it could lead to a false sense of accomplishment.

“Treat yourself.”

Have you ever experienced the rush you get when you treat yourself to a new phone, buy a new car, or indulge in an expensive bottle of anything? The idea of material consumption can generate a feeling of satisfaction, caused by a surge of dopamine triggered by the purchase, but this is often short-lived. We find ourselves on the hedonistic treadmill, needing unsustainable levels of novelty to feel the same rushes of the past.

The pursuit of more creates an accelerating cycle of dependency that may even endure long term. Your neural circuitry is almost fried, so to speak, when pushed to excessive levels of stimulation. The positive reinforcement becomes harder to satisfy with each additional purchase. You are always going to need the latest and greatest, at least that’s how a consumer-based economy likes to frame it. People fall into spirals of “retail therapy” or spend their lives looking for greener pastures without considering the healthier alternative of gratitude.  

Why does the joy of giving not fade?

This can be traced back as an evolutionary adaption that helped us survive over many millennia. Groups and tribes that were more cooperative and willing to give for the greater good had much higher levels of fitness. When you give, you are essentially activating the ancient hardware that was beneficial for the species, and the behaviors are reinforced by the neurotransmitters that allow us to feel pleasure. Research has shown that the happiness resulting from many subsequent episodes of giving are no different from the very first time. Each giving experience is perceived as unique, so there is no decrease in sensitivity.

Giving can be a truly rewarding experience. Feelings of connection, love, and attachment are frequently associated with the act of giving. Smiles are contagious and appreciation is not forgotten.

The happiness that results from material gain is as ephemeral as the novelty itself. Genuine happiness through giving is longer lasting and does not desensitize over time.

A better place in the community.

Personal well-being aside, being a giver is not only prosocial but a great way to build a better reputation in your community. Simply put, generous people are often held in high regard, and it is easier for them to build meaningful connections with others. Improving and strengthening relationships naturally have a positive effect on mood.

In the words of Christopher Johnson McCandless, “Happiness is only real when shared.” This means that by giving, you will be able to create more lasting connections with other people, and hopefully, build cherished friendships and relationships. People are naturally inclined to return the favor when gifted and this engenders a virtuous cycle. When giving is selfless, reciprocity follows and communities are better off.

Give early and often.

Flexing your giving muscles early allows them to flourish over time. Like many of our skills and abilities, if we don’t use them they tend to atrophy. When you consider giving early, you can better leverage the benefits of compound interest, and use it to create an even greater impact.

Waiting to give unfortunately forces you to face the protective mechanism of loss aversion while insidiously diminishing your return on happiness. And because the fear of loss greatly outweighs the joy of gain, we are placed in a more compromising situation the longer we wait. This is a counterintuitive adaptation that will take nature forever to fix, so don’t wait!

It is much easier to give when the money appears less tangible, but it is harder to part ways with a pile of cash that is already in front of you.   

Start small, and let the effects of time enhance the charitable process for you. The idea of effective altruism is certainly one to consider, build upon, and share with others.

On demand, right to our doorstep, two day shipping, and even same day delivery: These are the pillars of a modern 21st century economy. The driving forces that are described most as serving the customer and increasing access to goods and services. Consumption has become exponentially easier year after year, where the limit would be outsourcing your consumption, because who would do that right? But the means to create consumption will be farmed out to the lowest bidder, as is the case in any booming consumer economy. The pace of demand seems ceaseless.

But there is a hidden cost behind the ubiquity of "always low prices," one that can be more potent than anyone would expect.

Sally Owen's Dragon's Nest is a relic of the monopolistic dominance of mega-cap companies like Amazon and Walmart. Nostalgic toys in "a land of magic and wonder" are slowly disappearing from communities, alienating bright eyed kids from a former world of curiosity and imagination. It has on the outside become what many would consider a battle for survival of the fittest, but in this environment it is undoubtedly a survival of the cheapest. Even for larger companies like Toys 'R Us, the changing landscape of attention has captured the young and old consumer in ways that would shift industries and close countless businesses.

The indie bookstores and metropolitan hideouts that infatuated the minds of many are also seeing the veil pulled over their eyes. Once a bustling place to discuss and explore new literature is now eroding faster with each last mile package placed at every doorstep. Small shop owners don't often have the luxury of providing continually improving wages, retirement benefits, and health benefits, even though they would love to. Warehouse workers at various third party fulfillment (3PL) centers are tracked like non-sentient robots, who are monitored with a microscope, from their bathroom breaks to lunches and volume they do day by day. Trends and timestamps are used to create a culture that is extremely taxing on the individual and chastises anyone who needs a moment of calm to maintain a sense of well-being. It is these full time workers who are ironically on governmental assistance because the privatization of profits has always had its own priorities. 

Much like the food industry, the ecommerce age aims to remove the consumer from all the gore within its underbelly. 

When community needs and costs are socialized, but business profits are privatized, communities become dilapidated both literally and culturally. Small businesses that preserve a conscientious and personal culture are eroded away, unable to sustain even basic operations. Roads and buildings that would greatly benefit from repair and renovation are left to rot and jeopardize public safety. Great businesses build up communities and raise the standard of living for everyone within. But planting a tree twenty years ago seems no longer the goal. It's the pursuit of mind-boggling growth, at the expense of everything and everyone around it. An internal growth engine that surely would not suffer if it slowed down even briefly for the sake of community. 

Many people want consumption at a level of cheap that is both unsustainable and unreasonable. The cost of doing business can be incredibly high but unfortunately out of view. Amongst the many indisputable positives, it is important to understand that the premium paid goes to the welfare of the workers, the culture of the organization, the lights that provide the ambiance, and the commitment to value that small owners wish to serve. There is a consequence to only buying from one company or a few companies. The ultimate being the gradually irreversible loss of diversity and opportunity. 

There is a suppressed exploitation that is more easily clandestine with every new dollar that is tucked away in their vaults. It breeds an overarching corporate culture that will eventually reach you the consumer in your own line of work, and make way to the plazas adjacent to your neighborhoods. Big business doubles down on anonymity to bring you cheap, but makes many cities inevitably anonymous as a result. Small businesses close, jobs are lost, people are displaced, and vacancy becomes commonplace. 

When you shop, take the extra time to vote with your dollars. Support good business practices and legacies you want to see continue. 

Altruistic finance is an inherent extension of good personal finance. The assets in your own community are a shared wealth that pays you dividends in countless ways. Spend a little more for small businesses that preserve value in your town. A cheaper product today could very well be a great social cost long term.