It has been a while since my latest blog post and this time I’m writing out of whimsical inspiration. I was browsing the PersonalFinanceCanada sub-Reddit and saw a question about being mindful of lifestyle creep. If you don’t know what lifestyle creep is, it basically means ever increasingly extravagant lifestyle, usually marked with fancier material posessions, dinners or experiences. It usually coincides with increases in salary, relocation or a momentous life event (such as a financial windfall).

Usually (though not everyone necessarily sees this way), lifestyle creep has a negative connotation, particularly because it usually hampers someone’s ability to save for their future. Suffice to say that the poster of the thread was of that mindset. So I came up with the acronym EUPHORIA, hoping that it can be of help to the poster. And I hope an expansion of the acronym in this blog post will also help you.

E - Envision where you want to be

Hal Hershfield, a UCLA researcher in the domain of behavioural decision making has conducted studies into the effectiveness of envisioning yourself into the future. He contends that interestingly, often we treat ourselves in the future as completely different people.

While at first it may be surprising, intuitively you can kind of see why that may be the case. It is unsurprising to us now that though the world is ever more connected through the Internet, the lack of physical proximity may still cause a toll in our connection and relationship with others. Similarly ourselves in the future are temporally distant to ourselves. But at the very least space is arguably a visible and felt concept while time is more nebulous and seemingly unfelt, and you certainly never feel like slamming against time as you do against a wall. Compound this with the idea of trying to project yourself into the future several years ahead and you would likely have a hard time accurately depicting what you will be like into the future.

I don’t know about you, but I certainly have moments of surprises when I think back what I was like 5 years ago compared to how I am now. I find it surprising not because of how extraordinarily different I am now than what I hope to be, but simply because I didn’t even imagine a world where I am like I am now. In his research Hal and his colleagues identified that given effective cues to both visually and imaginatively one’s future self, those that were studied were able to make better savings decisions. They contend that the exercise helped create a connection between the present and future selves which helped participants to discount future rewards less. In other words they were better able to appreciate the value of delayed gratification.

U - Understand yourself

If self envisioning can help you to more seriously aim for desired future targets to achieve, then the next question would be to ask what kind of targets you would like to pursue. While you can try to envision what, how and where you want to be in the future, it is still notoriously difficult to understand the why of the goals you are making. In a previous blog post I talked a bit on the topic of exploring what matters for yourself. In the post I advocate for the notion of focusing on your situation to find out what is important for you. The blog post was inspired by the larger notion of self-understanding.

Consider the following quote:

The hardest but most important financial skill is getting the goalpost to stop moving - Morgan Housel

Why is it so hard? Morgan argues that in order to keep the goalpost from moving requires a sense of having enough. But our sense of needs and wants live in a continuum scale, and probability will tell you that identifying the chances of a single point in the scale to materialize is a flat zero

But a perfect understanding of what is enough for us need not be the case. We simply need to be able to narrow it down enough to a small band of area in the needs and wants spectrum such that we can confidently say that anywhere within this small band we are content and can continue to be so. To be able narrow the ban BUT also stay confident in our judgement of what brings us contentment, joy, happiness, fulfillment etc. the ability to understand ourself is needed.

Here’s an example: for myself I am keeping a “decision log” that tracks my investment decisions. It helps me record and assess my actions such that I don’t just understand myself by how I feel, but also by what I actually did.

P - Prioritize what is important, not what is nice

Now if you are able to both envision yourself, and continuously improve your understanding of yourself, you will now come to the impasse of how to proceed with life such that you can reach that envisioned content self. Between now and the future we all notice that there is no magical time leap machine we can take such that we can jump through the hoops of process and life. So we must take things step by step, which requires us to create prioritizations in life.

Fundamentally the act of prioritization is akin to the act of making decisions. For this I will direct you to this Rational Reminder podcast episode #120 with Annie Duke.

What I want to say though is that it is okay if you find your prioritizations to shift and change over time. Independently, envisioning and understanding yourself is already difficult, even more so when you start thinking of things and steps you would like to prioritize in order to achieve your goals and targets. The point is to be able to commit to the things that you have identified to be important, and if you realize eventually that they are not as important as you think they were, your vision for the future and the understanding you have for yourself will act as your lighthouse.

Many of us have heard of tales of regret from those whose lives have run out short. The least we want to be is be that someone that poured our resources for that extra dash of glittering junk in life, while missing the real beauty.

H - Hold off from making hasty decision

You may have heard of the tale of the GameStop mania in early 2021. Basically the story goes that GameStop’s stock experienced a massive increase in price, over a whopping 2000% growth from January 1st, 2021 of the year to its highest point on January 27th, 2021. Many people took a substantial amount of profit from this and those are the headlines you would like to see (or maybe not if you are feeling sour about it), but how many people LOST money?

I don’t know the global number, but here I’ll take a sample (and for sure a biased one to make a point). Based on Wealthsimple’s report 67% of people that invested in the GameStop stock (GME) lost money. The holding period is an average of 4.5 days, not very long. So what does this say? Well, in general the average investor likely saw the craze, for whatever reason decided to jump in to the craze, and then seemingly as fast as they went in they got out of it. It’s good that many didn’t lose more than 1000, but financially it would’ve been better that they didn’t lose any. Ah but perhaps they were allured at the potential prospect

Meanwhile one of the earliest believers in the GME stock, Keith Gill, made millions out of this episode (and have not fully cashed out at the time of this writing), but he was holding the stock for a much longer period than 4.5 days. He held the stock since September 2019, whilst during that time the GME stock kept going lower AND he was making YouTube content talking about his position, making his thoughts and opinions public.

Against all odds AND viewing eyes, Keith held on and continued to have conviction. Yes his conviction may have turned out to be a bad result, but you cannot deny his conviction. At least in contrast to some of his peers with a holding period of 4.5 days, his decision definitely seems less hasty.

Now it is not necessarily the time horizon that I want to focus on, but the reasoning and believe you have over your decisions that I want to highlight. Remember, your future self and your self-understanding continues to be your lighthouse. Here’s another way to get my message across:

Courtesy of imgflip

O - Organize your finances and be on top of it

What you do not measure, you do not know

This is probably a pretty common saying you may have heard somewhere in your professional career or even the Internet. Leaving a side the origins of the statement and how accurate it is, it is undeniable that observability, data and understanding over that data is becoming more important in the digital age. Data is the new gold they say. So why not bring to your personal finance life?

I am an advocator for budgeting. I am not a budgeting expert, but I try to budget and set myself expenditure targets. It helps me understand where my money is going, where I want it to go, and any discrepancy between reality and desire that may happen.

For a more universal topic, mayhaps you have heard tales of people who get swamped in their purchasing debt and are having trouble keeping a rein on it or improving the situation. And if you are Canadian you probably have heard of hearsay speak about how high personal debt is in Canada(and continue to grow).

While there are possibly some structural issues that people may be facing, it can also be useful to bring in specialized financial organization tools. Coupled with a vision for your future self, an understanding of oneself, commitment to prioritization and identification of what is important and holding off from making hasty decisions, these organization tools can be immensely powerful in paving the way for financial wellness.

Here are some tools that you can try to look into:

R - Run from comparison

Here’s another commonly heard phrase:

Comparison is the thief of joy

When I was small, from time to time I get compared by my parents to some other kid they knew. Luckily it wasn’t often for me, but when it did happen it always felt unnerving and discomforting. Even for the pettiest of things (at least in my head), such as who dresses nicer (definitely not me), it would still be a bit of a sting. A sting to my pride, confidence and yes, joy.

I do not dislike all kinds of comparisons. In fact, it is useful to be able to compare one thing over another, a lot of our decisions are a matter of extracting conclusions from comparisons. But there are certainly good AND bad comparisons. Remember how apples aren’t necessarily comparable to oranges? The same case applies often when we are compared against one another. A person’s situation may seem similar but contain vastly differing details. A comparison that does not really apply equal criteria and assumptions likewise is not a good comparison.

And when it comes to finances, it is also equally important to NOT make comparisons against others yourself. Here’s an article that mentions that social and wealth comparisons are detrimental for your psyche, and there are other research delving into the topic. It is the case irrespective of who is initiating the comparison.

I think in recent years we have started to learn the lesson from our exposure to social media, and we can apply the same wisdom there with our financial lives. Some people may be able to tolerate it, some may even revel in it. But it is probably best for most if not all of us, to run from it.

I - Involve your partner in the discussion

Did you know that marriage is costly? Here’s an article from WeddingWire that says the average Canadian wedding costs 29,450 CAD (maybe it has gone down during the pandemic though). But I contend that divorce is costlier. You get the mental and physical stress, arguments, fear, trauma, child care disputes, legal costs and also on top of it the financial costs.

This is not going to be a fair example for daily people like you and me but consider Jeff and Mackenzie Bezos’ divorce. Depending on how you see it, Mackenzie (Jeff) got (lost) 38 billion USD in Amazon stock. Financially a big win for Mackenzie, but at the very least a dent into Jeff’s financial situation. As I’ve noted this is not a fair nor representative example of the average person, but it strikes an example of how costly financially a divorce can be. As your marriage (or even just dating) there are some assets that have been grown together between the you and your partner, a big one would be housing usually, which would somehow need to be divided amongst the both of you.

Here is an article that may be closer to home for young Canadian couples. It seems that financial communication has improved for these couples, yet still there are a significant percentage feeling like they are struggling to meet their financial goals. Communication is on aspect, but when I say “involve your partner” I mean so much more. It is about bringing your partner along with your journey of self-envisioning, self-understanding, self prioritization etc. Transforming the self into a process and activity of togetherness.

Let me try to inspire you with my own experience. Compared to me my partner isn’t at all interested in investments. I don’t try to force her into it but I explain to her about the things I do, and likewise she explains to me her thought process. While not much, but I managed to help her started with investing bit by bit, with what we think is suitable for her at this time. Everytime I think something good can be done for her investments I consult her, and I let her have the final say. Sometimes I want to do things faster, but she doesn’t. Sometimes I share investment material and discuss financial topics or scenarios with her, as much as she is willing to take. In doing all this I’ve made it clear to her that I want her to be financially ready and successful, regardless if I am there in her life or not. While we may be different in many ways, this is a common goal and journey that we are both working towards for each other.

A - Automate where possible

As a software engineer, automation naturally plays a big role in my life. I love to be able to automate the rote work I need to do day to day. Not only is it faster, if done well it can help bring a much needed simplicity to my activities. And the same case applies to finances, if not even more so.

Money has been a very emotionally related and charged topic in our culture. It has led to one of the greatest stressors in people’s lives. Let alone making investments, people sometimes don’t know what to do to keep things afloat! Automation can’t help to start to fill all the holes caused by financial stress, but I believe it can greatly help people achieve consistency in implementing their goals and targets.

Technology such as Scotiabank’s Bank The Rest Program, automatic paycheck deposit to savings account, pre-authorized contributions for investments, robo-advisors, spending tracking apps and tax software management, are just some examples of ways you can automate your financial life.

Will automation bring you the most optimal financial result? Theoretically, not always, especially since some of these automation technologies have a cost. However it definitely does help alleviate the taxing mental energy you would have otherwise required to invest in. And as human beings we are neither fully rational or have infinite capacity and resources to always consistently reach the optimal result. Worse, we are prone to be overconfident in our own ability.

So why not let technology help you achieve speed, greater peace of mind and consistency? Those non-financial gains may very well outweigh whatever financial optimization you were trying to do, especially when you take into account what you should prioritize

Final words

The acronym EUPHORIA was created in the mindset and context of financial well-being. But I think it has room to be amended for other contexts. Additionally it doesn’t go through the gritty details and leaves out other important considerations. Some points may need to be adapted for your specific case (most easily visible in “I” if you don’t have a partner). But in general I believe it is a good and applicable recipe for financial (or other) well-being.

If you’ve been reading this far in, thank you for your time.