Work Backwards to Avoid Poverty
In our world that seems to be spinning out of control with COVID, economic shocks, and environmental disasters, Stoicism is having a pretty big moment. If you've managed to avoid it so far, Stoicism is a school of philosophy that goes back to the Ancient Greeks and Romans and focused on living virtuously in the moment, and not being caught up in pleasures like food or spending money. They focused on staying calm in the face of distress, which right now we all could use more of.
One Stoic exercise that has caught on in boardrooms and bedrooms around the world and could help keep us from disaster is called the "Premortem" or Negative Visualization: thinking about the worst result, then working backwards from there to see the steps to avoid. Basically, if you figure out what the worst thing that can happen is, and think through what would have to happen to end up there, you can avoid the negative outcome by avoiding the negative steps to that outcome.
As I'm a personal finance writer, I wanted to focus on a terrible financial Worst Outcome that I've seen many people have here in Dubai: Working hard but still ending up broke.
Now, I understand that some things can’t be controlled for like certain health conditions (not heart disease, diabetes or lifestyle diseases which can be controlled by better choices), accidents, getting sued, and just plain bad luck. Sometimes life is a gamble and the universe decides you need a whole lot of terrible things to happen all at once. COVID has taught this to a lot of us. But by going through this "Premortem" process, we can figure out a path that avoids the avoidable pitfalls and leaves us with a much better chance of success.
So, disregarding things I can’t control for, how would I end up broke?
Developing a taste for luxury, which can never be slaked because there's always more to buy.
Buying as much house and car as I can afford, leaving me no margin of savings
Not figuring out how much I can spend in a day.
Not tracking my spending.
Getting unhealthy habits that lead to chronic lifestyle illnesses.
Not buying income producing assets and investing wisely.
Going with a "Financial Adviser" who is only there to sell me things that benefit him.
These are not theoretical. I've seen many friends here in Dubai and around the world fall into these traps. These are often people who will always get their financial house in order next year, after they just get through this one thing. But next year never comes, and they stay on the hamster wheel of spending as much as they make or even more than they make, going into chronic debt that leaves them trapped with no monetary cushion.
Any financial success I've had here (and I'm no millionaire, but I've 7x my net worth in the 5 years I've lived here in Dubai as a teacher, most of that coming in the last 3 years after I learned about Financial Independence) has come from doing the opposite of the seven steps above.
I've realized that luxury is a trap that just makes you want more, and I avoid it. Every now and again I'll do something fancy just for the novelty of it, but like any drug, once you get used to it, it's very hard to get un-addicted.
I've lived in accommodation that cost less than my housing allowance, giving me a raise for doing no extra work. My car was reliable but not flashy, and easy to afford.
I worked out how much I can spend in a day and still hit my savings goals, and I've made it a game so I get a little burst of happiness every day I'm under my spending target.
I track my spending with a Spending Tracker app so I know exactly where my money is going and only spend about 30 seconds every day doing it.
I've fixed my eating and weight and started some moderate exercise, reversing my pre-diabetes, sleep apnea, and other burgeoning health problems that were caused by terrible eating habits and being obese.
I've invested regularly and intelligently and learned about Index Fund investing from great groups like SimplyFi here in the UAE.
I've avoided "Financial Advisers" so I haven't gotten stuck with underperforming financial products that have huge fees and are difficult to get out of and only benefit the person selling it to me.
None of these things require anything crazy or unobtainable. I'm a pretty average person in a lot of ways. But by figuring out where your financial traps are, if you're focused on financial success, you can live intentionally and avoid them.
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