Last week I wrote a couple of blogs about what’s going on in the consumer mindset, and what that means for the direction of the economy from here.
In short, households have rebuilt their balance sheets, but they still saving more and more of their income.
I was talking about these posts over dinner with some friends on the weekend. One of them is one of the most successful investors I know. I won’t tell you his or her name. But just to make it easy, let’s call him Bill Gates.
(It’s not Bill Gates.)
Anyway, Bill was saying that getting the saving mindset right is one of the hardest things facing investors.
We all agreed. Saving is hard. For a lot of people, putting money away, somewhere where they can’t touch it and blow it on frivolous things, is a real challenge.
“That’s not what I mean,” he said. “There’s a challenge with saving for sure. But that’s not really a challenge for the investors we know. Most folks we know are already well past that stage in their relationship to money.
“The real challenge for investors like us in getting the ‘savings mindset’ right.
“There are two mental approaches to saving,” he said. “There’s creative saving and there’s defensive saving. One’s a road to wealth. One’s a road to nowhere.”
Now Bill’s not in the habit of saying much. He’s normally happy just to let the conversation bubble along. But when he does feel a need to speak, he has the habit of dropping some real pearls of wisdom.
So the room went quiet as we waited for him to go on. Just some progressive jazz floating from the other room.
(man, I hate jazz.)
“It seems that right now, a lot of people are locked in a defensive saving mindset. It’s not just consumers, it’s everywhere – even in the investor community where people should know better.
“They’re caught in a defensive saving trap – when the only thing driving your decision to save is fear.
“We all know it. It’s the fear that one day, the good times are just going to end. It’s the fear that the great cosmic plumber in the sky is one day just going to turn off the flow of wealth and abundance, and we’ll all be screwed.
“But it’s just fear. And if you give energy to it – by letting it determine how much you save and spend and invest – then you’re just giving power to fear. And no good will come of it, mark my words Mr Baggins.”
Bill’s doing his ever-popular Gandalf impression at this stage.
“And it’s completely disempowering. It’s a statement of belief that if and when things get tough, I won’t have the resources or skills to deal with it. The only thing that will protect me and my family is some wads of money.
“And to top it all off, it’s a statement of belief about the kind of world we live in. It like saying that the economy is inherently risky and unstable, and the world is a dangerous place.
“If you give too much power to that idea – even at a subconscious level – then that will shape the kind of investor you’ll be – timid, cautious, always taking cover in the herd. You’ll never get anywhere.”
“But c’mon,” said Mary, who was the first to finish her fish. “You can’t be an investor if you’re not saving.”
“Of course,” said Bill. “I’m not saying saving is bad. But we’ve got to get our thinking straight. We’ve got to get our mindset right.
“We’ve got to think about saving as a creative act – as something affirming and empowered. We’ve got to think about it as a means to an end. As a tool for achieving what we want to achieve.
“It’s a very different thing to say, ‘I’m saving 10% of my income so that in 18 months I can put a deposit down on an investment property,’ than it is to say, ‘I’m saving as much as I can because the future is uncertain and scary’.
“It’s a totally different mindset. And it’s our mindset that shapes our habits, and our it’s our habits that shape who we are.”
There was no disagreement on that point. That was something everyone there that night had experienced for themselves.
“The other trap”, continued Bill, “is that if you’re saving to defend yourself against an unknown enemy, how will you ever know if you’ve got enough?
“You’ll always have the nagging thought in your head, that maybe I should be saving more.
“But if you’re carrying that thought around, you’ll never feel good about spending your money – about enjoying your money.
“And what’s the point of having money if you never let yourself enjoy it? You may as well be poor!”
We didn’t get much more out of Bill that night, but that’s our Bill. What he lacks in quantity he makes up for in quality.
And these are wise words I reckon. There’s defensive savings and there’s creative savings, and a world of difference between them.
Making sure our attitudes to saving (and all forms of money) are coming from a space of empowered creativity, rather than a fear-based defensiveness is an incredibly important lesson.
In fact, I’d say that all the successful investors I know would subscribe to this idea in one way or another, even if they didn’t use Bill’s terms exactly.
They would all think about wealth-building as a creative act – as an expressive art. It requires skill and craft, but it also requires a clarity of intention – and a discipline for always making sure that we’re always coming from a brave and empowered place.
There’s no room for fear here. Not at my table.