The Amateur Financier

It’s one of the most commonly cited axioms in the English language (and I’m willing to bet the equivalent is quoted in most other languages, as well): ‘Life isn’t fair’.  A complete list of the examples of unfairness in life would fill an entire blog.  (Not a blog entry, or even a week’s worth of blog entries, but an entire blog run for years with the sole purpose of documenting the unfairness of life.)  From the fact that your quality of life is largely determined where you are born (as well as your race and gender at birth) to the fact that Death can reach out his icy hand and drag you into the great beyond at any time, life in its entirety is pretty unfair.  (Don’t get too depressed; this post’ll get more upbeat by the end.)

This is the point made by Investor Junkie in his well-titled post ‘Life Isn’t Fair.  Now Get Over It.‘  It’s a decent summation of ways in which life isn’t fair, as well as the suggested method of handling that unfairness: getting over it and moving on with your life.  He makes some very good points about how the world currently exists, and does so with a nice reference to Dr. Seuss.  (I do love me some Seuss).

Just look at those stuck up birds

But that brings up the inevitable question: should we try to make life fair?  After all, the desire for fairness is deeply ingrained in most of us from a young age.  From the time we go to elementary school, teachers, parents, and we ourselves try to make everything from games to tests fair to everyone.  Tests are administered simultaneously, cheating is prevented, and assuming the teacher is any good, ample opportunity exists to study and get further assistance, if needed.  Board games start with everyone having equal standing; nobody begins Monopoly with hotels on Boardwalk and Park Place and half the money in the game.  Even when you get your friends together to play kickball, you try to make the teams ‘even’; the captains take turns choosing team members so that not all the huge, athletic kids end up on one team against the nerds.

Already we’ve run into a problem, though; not everyone is created equal, in spite of what the Declaration of Independence states.  Some people are more intelligent, more athletic, or better at making money than others, simply by virtue of their genes and upbringing.  Attempting to make everyone equal in all aspects of life will mean going against the natural order of things, and most attempts have the tendency to bring everyone down to the lowest common denominator (at it’s easier to make the strong (or otherwise gifted) hold back than it is to make the weak stronger).

That, in a nutshell,is the same argument that arises whenever issues of federal programs, taxes, and ‘fairness’ arise in the government.  On the Left, you have progressives and liberals who maintain that the government should take a greater hand in redistributing wealth for the benefit of society as a whole, with the communists on the far left arguing that everyone should have exactly the same amount of money and other possessions (colloquially, the same amount of ’stuff’).  On the Right, you hear the conservatives arguing that high taxes and generous government handouts will discourage people from working, with the most extreme libertarians arguing that we’d be better off without government, period.

As is the case with most the intractable political debates, there’s truth to both arguments, at least, the less extreme arguments; this makes sense, as even the most die-hard partisans would hopefully come to an agreement if all the evidence was against them.  Not that this always happens…  Societies with a more equal distribution of money and other property tend to be healthier and happier, at all levels of society, which is a key to the Left’s argument.  On the other hand, high and rising taxes can (and unfortunately do) discourage labor, savings, and other industry, as the Right claims.

Finding a balance

How do we thread the needle, then, between creating an economically equal society that promotes a good society overall (with crippling high taxes) and a society that rewards those who take risks, build empires, and further spur the advance of mankind (while generating a greater gap between the haves and have-nots)?

I’ll be honest, I don’t know the answer.  From my perspective, the key seems to be establishing a floor (or safety net) to keep those who are earning little from falling into the depth of poverty, as well as a tax rate low enough to minimize disincentives to working but high enough to level the field a bit (to say nothing of providing for the needs of the government, for better or for worse).  That’s what we’re currently attempting to do, with the myriad of social programs in existence, although it creates the unfortunate side effect of causing those being helped to spend all their time being administered to rather than working on something that could better society.  A simpler plan, like Milton Friedman’s negative income tax plan, might be workable, although getting the needed number of politicians together to so radically change the tax system would be a monumental undertaking.

That said, I don’t believe the American system is either as unfair or as discouraging to economic growth as critics on both sides occasionally attempt to contend.  Taxes are far from punitive on most people, with a max marginal rate of roughly 40% (and as mentioned before, marginal rates are far from the actual rate of taxes paid)  as of this writing and most wage earners getting nowhere near that amount.  Similarly, there are already plenty of social programs designed to keep people from starving in the streets (not to say that people don’t still fall through the cracks).  Is it perfect, no; but we’ve still done a decent job of protecting the worst off while allowing the best to profit from their skills.  (See, I told you I would end on a high note.)

Do you think society should work to be more fair, even at the cost of demotivating the best economic performers?  Is there a way to both motivate the capable and keep society fair?  Does thinking about this make you start wondering about your beliefs, or is it just me?

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Occasionally, I see something that just makes me think.  This article is one of those things.  In case you don’t feel like clicking through, here’s the executive summary: Karl Rabeder, who started poor and built up a fantastic fortune (3 million British pounds, about $4.6 million), has now decided to give all the money away: he gave (or is in the process of giving) all 3 million pounds he had accumulated to charities he had set up in Central and South America, although he’s not going to be drawing any sort of salary or compensation from those organizations.  His stated goal is to “Have nothing left.”

It’s not the sort of thing you see every day; in the modern world, there’s a great deal of emphasis on accumulating a greater and greater amount of wealth, rather than giving it all away.  Usually, if someone has such charitable leanings, they give only a portion of their wealth away, or wait until after they have died (and can’t use the money anymore, anyway).  To see someone voluntarily turn themselves into a pauper comes across as just plain strange; this isn’t helped when he says things about hearing words telling him to ’start his real life.’

Actually, giving away worldly possessions to find your true self isn’t a completely new concept, though; asceticism, the practice of depriving yourself physically in order to grow spiritually and in your religious beliefs, is a concept that has existed for much of human history.  Eastern religions, such as Buddhism and Jainism, have made the denial of worldly pleasures into major tenants of their faiths, and monks, nuns, and priests in most Christian sects practice varying degrees of abstinence (sexual and otherwise) to strengthen their faith.

Eastern Monks

But the ascetics differ from Mr. Rabeder in at least one important respect: they believe that money is a distraction from your spiritual goals because it can bring happiness.  Removing money and other possessions allows them to focus on the attainment of spiritual goals without the worry about possessions so many people seem to have.  In contrast, Mr. Rabeder has said, “Money is counterproductive – it prevents happiness to come.”  He clearly seems to think that, rather than bringing (earthly) pleasure as the ascetics (and so many other people) seem to believe, money instead blocks it.  Mr. Rabeder’s words caused me to start thinking: does money actually prevent people from achieving happiness and fulfillment in life?

My Thoughts

Money is many things.  I’ve given some of the reasons for people to want money before (and to want more of it than they currently have), and all are still valid.  In fact, that’s the primary reason to have money; it gives you options.  There’s many, many things you could do with $4.6 million dollars: fabulous spending sprees, great investment opportunities, and yes, giving it away to charity.

Money does have another side, of course; it also brings responsibilities and obligations.  Particularly if you are trying to ensure that your net worth keeps rising, then the time and effort needed to manage, maintain, and grow your money can be quite extensive.  It’s likely that sort of feeling that helped to motivate Mr. Rabeder’s choice in this matter.

That said, I can’t claim to understand Mr. Rabeder’s rationale completely; not being in his shoes, never having built a small fortune after I started from a poor background, I doubt I could ever fully understand him.  But, it’s his money, and if he feels that this move will increase his happiness more than spending or investing it, well, I hope that he is right.  Good luck in giving your fortune away to charity, Karl Rebeder, and here’s hoping that what you are seeking is easier to find once you no longer have so much money!  (Here’s also hoping that I don’t read about you being arrested for tax evasion or something similar; it would be a shame if such an interesting, oddly uplifting story turned out to be a ruse to avoid paying your share of taxes.)

What do you think of Karl Rebeder’s plan?  If you discovered, after working to build a fortune, that you weren’t any happier, would you consider (or even think of) donating it all to charity?  What sort of charity would you create to be funded by your millions?  Does anyone else want to give those monks a noogie?

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As you’re probably well aware, I’m a sci-fi buff.  I love concepts like space flight, cloning, and artificial intelligence.  But, being a child of the eighties, there’s one that’s held my interest just about as long as I can remember: time travel.  Yes, one of the iconic images from my youth was a flying, time-traveling DeLorean, souped up to the ultimate machine for jumping through the fourth dimension in style.  So, when I came across Lazy Man’s list of things he would tell his high school self (using a modified DeLorean, no less), I knew I would have to do the same.  The idea of being able to undo mistakes, make different (hopefully better) decisions, and generally get a ‘do over’ on much of my life sounds pretty darn good to me.

Before we get to the list itself, though, there are a few caveats I’ve set myself, to narrow down a huge list and make it more manageable, as well as staying true to the spirit of the list, how I would improve MY life.  First, no warning myself about natural or human caused disasters (or other events) that are still pending for my high school self (everything from September 11th to the recent Haitian earthquake happened well after I started college, let alone high school); besides being a list of far longer than fifteen points, it would also affect a lot of more people than just me, something I doubt will be allowed by the Time Police.  (We could get into a whole discussion about paradoxes and whether preventing, say, the election of George W. Bush would cause time travel to not exist (since we wouldn’t be in the current time line, which leads, somehow, to time travel), thus preventing me from preventing said election, thus allowing time travel to exist, thus… and so on, but this article is going to be geeky enough already, so we’ll ignore that.)  Second, no sharing direct knowledge of how particular markets or investments will fare; I can point myself in the right direction, suggesting that I learn about investing and maybe a bit about home improvement, but providing a detailed time line of how the markets will move for next thirteen years seems a bit like cheating (again, I’ll assume the Time Police will get involved if I do something that could affect so many people beyond myself).

With those points in mind, here’s what I would tell my younger self (in the summer of 1997, before I entered the ninth grade, for anyone who wants to know exactly when this is set):

15. Study More. I know you’ve been able to make it through eight years of public school without having to really stretch your mental muscles too much, but high school will be harder (well…at least when you get to your AP courses), and college will be harder still.  Getting into good study habits now will make your life much easier in the future.

14. Stop Watching So Much TV. It was so easy when you were in junior high, to come home after school, turn on the tube, and leisurely work on your homework.  But it’s a bad habit, one that makes studying take longer and decreases how much you actually remember.  Either turn off the TV or go somewhere that you won’t be tempted to watch it, and do your homework and other work there; trust me, you’ll save yourself a lot of future grief if you can cut down now.

13. Stop Playing the Trumpet. You’re not really a fan of playing the trumpet, and sullenly practicing just enough to be mildly competent is going to cut into the time you could be using for something more productive.  It’d be better to just quit the band now, before you devote even more time and energy to something you won’t keep up in the near future.  You can redirect that extra energy towards other things, such as:

12. Exercising More. You’ve managed to keep pretty fit, but as you get older, it’s only going to get tougher and tougher.  Rather than spending your time watching television, get out and go for a walk, or ask for a small weight set and start to build up your muscles.  Better yet, join something like track or cross country; you’ll get more exercise, have better social opportunities, and have something nonacademic to add to your resume.

11. Learn About Computers and Programming. Computers aren’t going away any time soon, and the more you learn about how they work, the better off you will be in the future.  At the minimum, try to get a working knowledge of what they call ‘Hyper Text Markup Language’ or HTML; it’s what makes the World Wide Web go round, and you should know it.  The internet is only going to get bigger and bigger, and having the skills to interact with computers and generate content that people like and want will be an excellent skill to have in the future.

10. Learn About Investing. It might seem boring or pointless now, but it’ll be vital in the future.  Gain a basic understanding of how various investments work, the potential profits that can be generated, as well as the risks.  Don’t feel the need to jump into something until you understand it, and remember that anything that shoots up will eventually come crashing back down.  You can wait until your graduate from college if you don’t feel comfortable investing earlier, but try not to delay once you reach that point.

9. Learn German. Not just enough to pass the piddling tests you’ll get, either; build up your skills so you can actually hold deep, fairly meaningful conversations in German.  It’s always good to have some skills in a foreign language, and if you’re planning to go with the German Club to Germany itself, you should be able to talk the talk.  (P.S., once you have German down, consider trying to teach yourself some other languages, like Spanish, Japanese, and Arabic; all would be wonderful skills for you to have in the future.)

8. Go on the First Trip to Germany; Skip the Second. You’ll have two opportunities to go to Germany in the course of your high school career.  The first time will be after your sophomore year, when you’ll go with your best friend and some upperclassmen, and have a great time filled with memories you’ll laugh about more than a decade later; don’t miss it for the world.  The second time, at the end of your senior year, will be filled with drama, tears, and people you don’t really care about (who will refuse to drink any beer, while in Germany); it’ll cost a sizable chunk of money you could use for college, you’ll miss your graduation, and the number of good memories from the trip could be counted on one hand.  Save yourself the time and aggravation, and just skip it.

7. Be More Social, and Date More. You’re a bit of a wall flower, and it will hurt your experience of being a high school student.  Break out of your shell, be friendly, and try to talk to people, especially girls.  Speaking of girls, try asking them out.  Yes, I know, the girls you get crushes on tend to be popular and unattainable, either dating other guys or simply not being interested in you; rather than spending your time lusting after them, try asking some of the nerd girls in your circle of friends out.  Besides being very cute (as you’ll come to realize in hindsight), they are funny, smart and interesting; what more do you really want?

6. Keep Track of Your Friends. It’s easy enough to lose track of people over time; I handicapped myself from the start by not really gathering their contact information before school ended.  Don’t make my mistake; find out how to contact your friends (at least the few who are closest to you), and keep in touch with them as you go on to college.  And speaking of going on to college…

5. Do Well on Your SATs. I almost didn’t include this one; I (and by extension you, in the future) managed a 1450 the first time around without any serious problems.  If you can repeat that performance, good, it’s time to go to the next step; if not, keep trying until you get it, 1450 is a magic number for what you should do after high school.

4. Go to Wilkes University for Pharmacy, and Stay In the Pharmacy Program.  As you search through schools in your area, you’ll discover Wilkes University, which will let you attend tuition-free for your first four years, provided you got a 1450 on your SAT (see why it’s important?) and maintain a high enough GPA (not too hard, if you remember that studying comment from earlier).  This is a darn good deal, and you should go there and join the pre-pharmacy program.  However, do not, I repeat, DO NOT give into the urge to switch to biochemistry during your sophomore year.  I don’t know for certain what will happen if you stay in the pharmacy program, but if you switch, you will come to consider that decision one of the worst you ever made.  Save yourself the grief, and stay in the pharmacy program.

3. Try to Become an RA as well as a TA. You’ll be able to cut back significantly on your student loans (and thus, the biggest debt you’ll have when leaving school) if you don’t have to shell out money for a dorm/apartment for (if you followed the last tip) six years.  After your freshman year, try to get a position as an RA, as well as possibly a TA in the chemistry department (the first one I didn’t do, but the second one I did).  Combined with the tuition-free schooling you should be getting, thanks to tip 5, the rent-free living and money you’re making from these positions should leave you in very good shape financially when you finally graduate.

2. Start a Website. Assuming that you aren’t already overwhelmed with school work, being a TA, and being an RA, consider starting a website in your (hopefully still existent) free time.  Besides being a great way to express yourself, it’s a potential source of money above and beyond what little you are getting in stipends working for the university.  Try to pick a subject that will hold your interest for a long period of time as you build up content; if you’ve developed the same interests I did, you could try anime, videogames, drawing, or even organic chemistry as possible topics.  The important thing is, just try to put yourself out there.

*In An Envelope Labeled, ‘Do Not Open Until January 1st, 2007′ (Or a second visit, since I’m not to be trusted to not open something for a decade)* 1. Find Your Beloved. Well, look at you now; a decade of following my advice (I hope) has made you a much different man than I was back then, a better educated, more well-rounded, and dare I say, richer man than I was.  I know how this will sound to you, but I hope that you haven’t found anyone special yet; in my version of reality, I’ve met a sweet, wonderful girl named Sondra who frankly, just completes me.  You’ll find information on how to contact and woo her included in this letter; if you are still single and looking, please use it to contact her and start courting her.  Good luck, my alternative self, in all you choose to do in the future.

Now, this is of course just scratching the surface of everything I would like to tell my past self; I probably could have generated fifteen points just on how to get the most out of that trip to Germany.  (Germany Tip Trip #14: Don’t drink too much; you’ll have to wrangle a crowd of drunkards around Berlin at least one night, and need to be at least semi-sober.)  Still, not a bad list of ways I could have improved my life, if I had the foresight.

What sort of things would you do differently if you had the opportunity?  Is there any one thing you consider your single biggest mistake?  How many of you would break my rule and give your past self a guide to successful investing/gambling so that by now you’d be filthy rich?  (Be honest; if I really had access to a time machine, I doubt I would resist the urge.)

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Merry Christmas to you all!  I hope that you all had a wonderful holiday, and spent it with your family.  I thought that I would take a break from the personal finance information today, and instead tell you a little bit about one of my favorite Christmas rituals: my church’s Christmas Eve candlelight service.

Every Christmas Eve, there is a special service (actually two, one earlier in the night for those who have young children and another one later in the night).  The services are pretty similar to normal Sunday services, although given the time of year and the joy of the season, it’s generally a more festive atmosphere.  All of the hymns are more commonlC hristmas carols (From ‘Oh Come All Ye Faithful’ to open the service, to ‘Joy to the World’ as the recessional hymn; which I’m sure is not meant to a be a reflection of what people think as they are able to leave church).  The gospel passages are all part of the Christmas story.

The centerpiece of it all is  the candlelight service.  Everyone in the church has their own candle, and near the end of the service, the pastor lights candles for two ushers who move down the center aisle of the church.  Each person in the center of the aisle lights their candle, and then allows the person next to them to light their candle, until every candle is lit.  The lights are turned off, and then, we all sing ‘Silent Night’ in a darkened church, reading our hymns by candlelight.  At the last verse of the song, when the song talks of ‘radiance streaming, love’s true light’, everyone in the congregation takes their candles, lifting them above their heads, still singing, a hundred pin pricks of light burning through the darkness.

When that happens, I always, always look up, staring out over the congregation, seeing all lights shining out in the otherwise dark church.  This year as I did so, my mind started to wax philosophic, thinking of how all the lights came from the same initial flame, and that, no matter how many candles were lit from the initial one, the lights were not diminished.  Metaphorical thoughts of sharing knowledge flashed through my mind, and I ended up getting a little teary as I tend to do.  If I had to pick one single moment that I felt most clearly represented everything I love about Christmas, that moment would be it.

What’s your favorite part of the season, everyone?  I’m eager to learn what appeals to everyone about this side of the holidays.

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The Rich are productive, intelligent, and knowledgeable.  They are the driving force behind the economy.  They have secret methods to build and maintain their fortunes, little known to the middle and lower classes.  They should be taxed less, as they are the source of our country’s fortune.

The Rich are lazy, greedy, and unproductive.  They take more than they deserve, and don’t contribute a fair share of taxes.  They benefit from government programs without contributing their fair share to the public good.  They should be taxed more, as they’ve only gotten where they are due to help from favorable government programs, created by their rich pals in government.

If you spend much time reading financial literature, from blogs like this and money-related websites to books and magazines, you’ve probably come across statements like this at one point or another.  The first paragraph is the sort of thing you hear from Republicans or personal finance advisers like Robert Kiyosaki, who want you to believe that the rich are special (and that he knows how to pass on that knowledge); the second is the sort of thing you hear from liberals during campaign season.  But the fact of the matter is, neither is correct.

The Truth

The problem with talking about ‘The Rich’ is that wealthy people are not a single, homogeneous group that shares goals, methods and techniques.  There are numerous people that qualify as rich, who have many different traits.  Just as with any group, there are a variety of people who qualify as rich.  The only thing they all have in common is that they have a high level of wealth.

The Only Thing Connecting All Rich People: Lots of This

There are rich people who reached their current level of wealth due to hard work, personal effort, and years of struggle and preparation.  By the same token, there are rich people who did nothing to earn their riches other than being born into the right family (which, although I can’t remember my own birth pretty well, is something that’s usually out of your control).  Some rich people build up wealth slowly over a lifetime, skimping and saving to generate riches for themselves while others have one good idea or invention and are catapulted to a high net worth overnight.  Some start with little, if anything, in terms of money and create their wealth through hard work, and still others start out with everything and gradually lose it all.

Even among those who built up wealth from modest means, there’s an incredible number of ways for them to achieve wealth.  Some start businesses, others invest in real estate, some simply work and invest over the course of a lifetime.  A few find work in professions like Hollywood actors or mainstream singers that provide them compensation high enough to boost themselves up to riches in a short period of time.  Once they achieve wealth, they can use their riches in a number of ways, from providing for a charity, to providing for their own future, or even blowing it all on wild parties and ending up as a joke before they reach forty.

These same points can apply to ‘The Middle Class’ and ‘The Poor’, as well.  No social economic group is homogeneous; just as you may have a similar net worth to your friends and neighbors when you have completely different salaries, saving habits, and types of investments, so are other groups a collection of individuals, all of whom are well, individual.

The Point

Why go to the trouble of writing out a whole blog entry to state what (hopefully) is already obvious?  Well, there is an unfortunate tendency for people to demagogue by appealing to class distinctions.  The rich are idolized and scapegoated, treated as sources of inspiration and as those holding you down.  Neither is entirely wrong; there are rich people who should be well-regarded and respected, because of how they got their money or what they choose to do with it (Warren Buffett and William Gates both come to mind).  There are also rich people who, well, we would be better off as a society ignoring.  *cough*Paris Hilton*cough*

But that’s the point; assuming all ‘The Rich’ people are the same and equally deserving of any particular reaction is wrong.  They are just people, people we group into a particular clump due to the amount of money they have.  Building policies or perceptions based on how we view them is not the right way to do things.  We should set tax policy based on government needs and economic realities, not whether we think that ‘The Rich’ deserve their money or not.  We should follow investment advice based on whether it will meet our needs, not whether rich people do the same thing.  Finally, we should remember that there are many different ways to become rich, and that these differences should affect how we view the rich, whether we treat them as role models, sources of entertainment, or examples of what NOT to do.

Alright, that’s enough preaching from me; remember that ‘The Rich’ are people too, and any claims about them as single, uniform group should be taken with a huge grain of salt.

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When you get right down to it, there are only three real reasons to have money: to spend it, to give it away, and to own it.  The spending one, I would hope, should be pretty obvious; if you want to buy things, more money makes it easier to do so.  This holds whether you hope to spend your money on food, clothing and other necessities or splurge on huge indulgences.  Money may not buy happiness, but it can get you a large number of goods and services.

Giving it away should also be pretty clear.  Many of us have charities we want to support, churches or other houses of worship at which we want to tithe, or deserving organizations in the community we feel could use an extra boost.  Even barring that, most people will have children, and many of those people in turn want to pass money on to their children, either before or after they die.

Owning it might sound the most odd, but as with anything tangible, there’s a pride of ownership associated with money.  Having a high net worth, earning more money than the guy in the cubicle next to you, increasing the amount you have in your emergency fund; all these are ways in which simply owning money can serve a source of pleasure in your life.

It's all about the Benjamins

Of course, there are combinations of the above motivations that also drive our monetary habits. You can spend money on gifts that you end up giving away.  Investing your money is when you spend your money (on an investment vehicle) that you own, with the hopes it increase in value and give you more money in the future.  So it goes; everything you can do with money (with the possible exceptions of losing it or setting it aflame, two things most people try to avoid) can be summed up as one or more of these three things.

Why do I say all this?  First, it’s kind of neat to think about money, not as a tangible item, but more as a philosophical concept, to consider the underlying reasons why we put so much of our blood, sweat, and tears into obtaining these slips of colored paper and small metal disks (and increasingly, strings of numbers on a computer somewhere).  It’s something interesting to consider as you head off to work to earn your daily bread.

Second, it’s good to remind yourself of just why you’re attempting to gain more money.  Do you want to spend it, either now or in the future?  Do you want to give it away?  If so, to whom; your children, your church, your favorite charity?  Do you want to own it, to increase your net worth out of a sense of pride or as an aid to your future goals?  Knowing your goals is the first step to determining how to reach them.

Third, different goals will have different paths to reach them, as well as different tools to help you along the way.  If you’re hoping to give your money away to charity for example, you’ll likely choose a different investment vehicle (like a donor advised fund) than someone who is hoping to spend their money after retirement (who would likely use a 401(k) or IRA).  Choosing the best option for your goals depends on first figuring out what those goals will be.

So there it is, a few philosophical thoughts on the nature and purpose of money that occurred to me while writing the various posts on this blog.  Hopefully, it was mildly amusing, and perhaps even a bit thought-provoking.

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Recently, Frank Curmudgeon of Bad Money Advice posted (or rather, reposted) an article in which he discussed hyperopia, or excessive far-sightedness.  The basics of this condition involve regretting excessive caution taken in the present to avoid a hypothetical negative outcome at some point in the future.  The study he cited included, as an illustrative example, students who increasingly regretted the decision to study rather than party during their college years.  Over time, more and more students came to regret having too much self-control, versus not enough.  (I feel their pain; I wish I had done a bit more socializing and a bit less studying during my college days.)

When it comes to your finances, hyperopia can hurt you, just as can myopia (excessive short-sightedness).  You might find, years or decades down the road, that you feel you’ve gone through life without having any fun, instead saving and scrimping during your best years.  At best, this point of view can taint the otherwise grand event of saving enough to retire, or even retire early.  At worst, in an attempt to make up for lost time in the wild and crazy department, you might end up spending a great deal of money when you’re older (and have less time to make it back) than you would have during your younger days.  (Think of the guys who go through a mid-life crisis and buy a car with a six-figure price tag.)

How Do I Avoid Financial Hyperopia?

There’s no certain way to avoid being too farsighted and frugal with your money.  Each person is different, and what I might consider an excessive amount of saving, you may feel is just right.  If you do too much spending in an attempt to capture all the joys that life has to offer (and to live with no regrets), you will likely end up with not enough in savings when it comes time to retire, and end up with a heap of regrets anyway.

If there’s no way for me to tell you how much to save and how much to spend to make you happy, what advice CAN I provide?  In a nutshell, know yourself, and adjust your spending to meet your own needs and desires, now and in the future.  For a bit more advice on avoiding hyperopia, consider the following tips:

1) Splurge on Events, Not Things – Probably my strongest belief related to financial hyperopia: events are more memorable than physical objects, and you shouldn’t skimp on them if you hope to live a life relatively regret free.  Just about all the really good memories I have are from things I did, usually with friends or family, rather than things I bought.  If you want to avoid feeling like you missed out when you retire, be sure to do plenty of new and interesting things with your loved ones throughout your life.

2) Don’t Make Spending a Routine – No matter how interesting and memorable something is the first time you experience it, if you do it repeatedly, it’ll become boring and routine.  Even the most exciting and interesting vacations will become boring and start to blend together in your mind if you take the same ones every single year.  Make sure to vary your spending, in order to capture different experiences throughout your life and avoid feeling like you’ve seen it all.

3) Don’t Try to Make Big Changes All At Once – If you feel like your frugality has caused you to miss out on some great experiences in life, you might be tempted to make up for lost time by becoming very loose with your money.  In a word, don’t; going on a spending spree is unlikely to make you feel more satisfied with your spending decisions in life, and is likely to leave you significantly poorer in a short period of time.  Instead, plan out some events (or things, if you prefer) that you feel will make your saver’s regret decrease, and slowly start to integrate them into your spending plans.

4) Try to Start Young When Saving – You might wonder why a tip saying to save is included in a list of solutions to excessive saving.  The answer is simple: thanks to the power of compound interest, each dollar you save and invest while you are young has time to grow into much, much more money in several decades time.  As a result, saving a little bit (more) while you are young will enable you to spend more as you get older, without having to worry that you won’t have enough money to retire.

That’s all I have on financial hyperopia and how to avoid it.  As money problems go, it’s hard to think of a better one to have; still, if you are preventing yourself from having interesting and memorable experiences in order to save more money, you may feel as if your life has passed you by when you finally get to enjoy your spoils, and that’s something we want to avoid.  Make sure you accrue good memories as well as money during your life, and you should end up fine.

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