It fascinates me that whilst our understanding of the world continues to expand due to new scientific insights and increased use of sophisticated technology when it comes to understanding how to be as effective as possible…
There is one school of thought that has survived for thousands of years.
That’s not to say that in recent years we haven’t made incredible leaps and bounds in understand how humans think, behave and act (I’ll come back to some of my favourite books in this field in a future article) a lot of the principals which guide effectiveness are older than most organised religions. These principals were practiced and refined in Ancient Greece and Rome but continue to be in use by many today.
These principals are ‘Stoic’
Now in modern times the term ‘Stoic’ is often misunderstood. It certainly doesn’t mean ‘without emotion’. I follow many of the Stoic principals and am far from emotionless (I even talked about becoming a bit glassy eyed in my last article) but helps by giving you useful ways to think about life.
So, you may be asking yourself, why am I, on a financial planning website, talking about philosophy in general and Stoicism specifically. Firstly as a few of my regular readers (as far as I understand we’ve got at least three!) will know I do like to write about often seemingly Random topics (like, for example, Peppa Pig, Denmark and Ski-Doos). Secondly the principals of Stoicism apply to manage your financial affairs quite effectively…here are the 5 ancient principals that can help your financial plan:-
1) You can only have total control over two things. Your actions and your thoughts.
The stoics believed that it was important to remind ourselves that whilst we might have influence over other people we don’t have any control.
The reality is that we only have total control over two things.
Firstly the action you take. You control what you do.
Secondly what you think. You control how you think.
Now the stoics weren’t Naive. They understood that our emotions often get in the way of making rational decisions. However they also understood that often our emotions about certain things are often driven by the stories we tell ourselves.
So, the Stoics believed that we controlled our own thoughts. This included the stories we tell ourselves. This means that whilst changing the narrative in our own heads isn’t easy…it’s entirely possible.
This means that the next time we tell ourselves ‘I’m a bad cook’, or ‘I’m not confident enough’ or ‘I’m rubbish with money’ the reality is that these stories aren’t the truth but your own narrative.
If we changed the stories to ‘I’m trying to be a better cook’ or ‘I’m improving in confidence’ or ‘I’m taking more active control of my financial affairs’ this allows us to control ourselves better stories, control our thoughts and move forward more effectively.
2) Failure (and loss) happens…but it isn’t permanent
In our lives there is one guarantee. Life won’t always be perfect.
The reality is that we all lose and fail at something somewhere along the line. Most of us lose as much as we win. We fail as much as we succeed. (I’m including myself in this camp!)
However the stoics would say that when we experience failure and loss the most important thing isn’t the actual failure…but what we do when it occurs.
When it comes to our financial affairs it’s important to remember that things won’t always go to plan. So, it’s important to consider a couple of things…
Firstly, ask yourself the following question – What action can I take (what’s in your control) to ensure that can minimise the impact of the loss. This might include insuring you or your family against death, sickness or serious illness or alternatively reviewing your investments to ensure that you are taking a level of risk you’re comfortable with.
Secondly it’s worth considering how you react when these inevitable failures do occur (and particular how you react emotionally). A lot of mistakes investors make is when markets take a temporary tumble, an understandable emotional reaction occurs and they take unadvisable action which turns out to be poor decisions over the longer term.
The reality is that by having an understanding that when investing loss will occur and mentally preparing for that loss (knowing that the odds for greater longer term gain are in your favour) then you are less likely to make irrational decisions.
3) Be honest with yourself
One of the most difficult things to do is be brutally honest with ourselves. We like to see ourselves as the heroes of our own story and sometimes this means that when we need to ‘face reality’ it’s a pretty difficult thing to do.
I’ve often had conversations with people who have told me that they don’t need to worry about planning financially as they’ll just ‘sell their business’ or ‘downsize to a smaller property’ or ‘I’ve got an inheritance I’m relying on’ when in reality they haven’t truly tested whether these elements of their financial plan will provide them with enough money to live the life they want in the future.
It’s not unusual to be certain that a particular plan will be enough to provide financial freedom…however being honest with yourself is not assuming it will but testing the numbers. For our clients these means working in partnership to build a cashflow analysis (which then tells us whether their assumptions are realistic…or not). Then we work with them (and often the other professionals on their team including their accountants) to ensure that we take action to make the requirement become a reality.
However it’s important not to assume that there is one solution to ensuring you’ve got one ‘fix all’ solution to achieve financial freedom and understand that by being honest with yourself you’re more likely to take action to achieve your financial goals.
4) Reflect on where you spend your time
The stoics recognised that our most important and finite resource isn’t money, or material possessions…it’s time.
You see the Stoics talked and thought about death a decent amount. Not in a particular morbid way but instead using the concept of a finite end to life as an empowering force. You see the Stoics believed that the priority was to make the most of your time. This meant being present in the moment, doing meaningful work and seeking the things you enjoyed the most (but also challenged you) as well as spending your time doing other things which give us pleasure.
When it comes to the work we do with clients we try to understand a bit more about what they actually enjoy spending their time doing and building a financial plan around empowering them to do more of that activity. Like the Stoics we believe that financial planning should be about providing our clients with more time…not always more money. This means on occasion encouraging clients who we know have sufficient money for the rest of their lives to spend more! After all we believe life is there to be lived and money is there to be spent on the things which make us happiest.
5) Why Happiness isn’t about what we own but actually about who we are
Even thousands of years ago the Stoics had an incredibly insightful take on consumerism.
Epictetus (the Greek philosopher) put it most succinctly when he said…
“Wealth does not come in great possessions, but in having few wants”
The reality is that these is now a decent amount of research about what makes us happy and what doesn’t (my favourite book in the Subject is “Happy Money” which you can find here) and the research backs up many Stoic principals.
The fact that material goods don’t make us intrinsically happy. The fact that the way we see the world has a huge impact on our well being. The fact that our challenges (including work we love which we’re entirely focused on) and achievements make us happy too.
It’s why when we speak to clients we want to understand what they want…not what they’ve got and understand where they spend their happiest time now so we can empower them to do more of that particular activity.
I still find it fascinating that Stoic philosophy first appeared thousands of years ago yet it’s principals are still completely relevant today.
I also believe that having an understanding these principals can mean we work more meaningfully on behalf of our clients.
Feel free to get in touch on 01708 606 202 or you can email us at firstname.lastname@example.org to find out how…