Stoicism is a school of Greek philosophy founded in Athens whose followers practice a way of life that focuses not on what a person says but on how they act. To live a good life, one has to understand the rules of human behavior since Stoic lessons teach that everything happening around you is rooted in your own mind.
What does this have to do with financial success?
Let’s take a look at five Stoic principles that should form the bedrock of your own financial success.
5 Stoic Principles for Financial Success
Rule 1 – Acknowledge that your emotions come from within
Marcus Aurelius, 2nd-century emperor of Rome and leading Stoic, said “You have power over your mind – not outside events. Realize this, and you will find strength.”
He wasn’t thinking of financial markets, but he might as well have been. I know I’ve been guilty of over-reacting to outside events.
But you have no control over outside events. None. Nada. Zilch. So why waste any time worrying about those events? By definition, it’s not a productive use of your time.
Instead, focus on gaining power over your own mind and your reaction to outside events. As an investor, you must learn to stay the course and not be influenced by market noise.
Rule 2 – Find someone you respect and use them to stay steady
Human beings are remarkably good at adapting to behaviors of role models. Therefore, it is worth your time to find someone whose behavior you want to emulate.
This doesn’t even have to be someone you know. I have a friend who models his investing decisions on Warren Buffett. Before he makes any trade or financial decision, he simply thinks, “What would Warren Buffett do?”
Now obviously my friend is no Warren Buffett, but thankfully Buffett does a good job communicating to everyone like he did in his 2013 letter to shareholders where he dropped this little nugget:
“My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguards.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.”
Rule 3 – Reflect on what you spend the most time on
Stoics believe that “our lives are what our thoughts make it”. Have you ever noticed that you can’t feel angry unless you first think angry thoughts? Go ahead and try it now! Our feelings and actions are a direct result of our thoughts.
If you want a certain life, you must consider where, when and how you are spending your time.
This applies to investing as well. If you spend all of your time watching financial markets, you will end up concerned about the latest financial crises or disaster.
Therefore, it pays to take a step back and think about how you want to spend your time and energy in order to achieve a certain goal. Stoics try not to concern themselves with the drama of life because they know it will only serve to unsettle their own emotions.
One way to apply this to your financial life would be to ask, have you done the basic steps you know you need to do to achieve financial success? Is your 401(k) set up and optimized? Are all of your financial accounts in order? Make sure you are spending time on the things that have been proven to be successful.
Rule 4 – Be present and engaged in the now
Similar to the above, you cannot achieve financial success if you are living in the future or the past. You must remain firmly grounded in the present.
This means that you must avoid human behavior errors like the sunk cost fallacy.
It also means that you must be careful and guard against living in the future. You see this all the time with people spending their paychecks BEFORE they receive the money.
To keep yourself in the present, focus instead on the one action that you can to today to improve your financial future. We all have ONE action that can be done today. It may be small or it might be big, but chances are high that you already know what it is you should be doing. Forget about “becoming a millionaire” and do that one action right now.
Rule 5 – Imagine the worst possible outcome
One of the ways Stoics become comfortable with uncertainty and risk is by imagining the worst possible outcome.
If you’re thinking about quitting your job and starting a business, think about the worst possible outcome.
- Could you lose all of your money?
- Would people laugh at you?
- Would you be homeless?
- And then what would happen?
- Would you allow yourself to stay in that state forever?
- Would you figure out a way to bounce back?
Often the exercise of imagining the worst possible result will help you see that most risks are not nearly as risky as we think.
Let me know if you are practicing any of these Stoic principles in your own financial life. I will be participating in the comments below and I challenge you to tell me the ONE thing you will do today to improve your financial future.
About the Author: The Biglaw Investor writes for lawyers and other high-income professionals who seek financial independence and to improve their knowledge of personal finance. He currently works as a private equity attorney in a large law firm in NYC.