1.1.2: Financial philosophy: what is it and why is it necessary?

Your financial philosophy and your relationship with money

Your financial philosophy is your dynamic lived experience of your relationship with money, and how you go about improving it

‘But what is philosophy?’ asked Epictetus, ‘Doesn't it simply mean preparing ourselves for what may come?’[i]

Philosophy is not something to look at; it’s something to look through. It’s a way of seeing. It’s a way of studying yourself, the world, and the interplay between the two. It’s a set of lenses that brings clarity to the complexity and fuzziness of your vision.

It is lived, not possessed. It is brain surgery. If it doesn’t literally change you, and better equip you to interact with the world, then it’s not working. It is a means both of grounding yourself to reality and opening up your eyes to the possibilities of the heavens. Great organisational clarity is the most fertile soil for creative, insightful, spontaneity.

A sound financial philosophy better equips us to live with money. All investing is preparation, and because we’re investing – preparing – for living, the preparation of our money is inescapably intertwined with the preparation of our minds. The point of philosophy is not to inform, but to form.

Philosophy is the study of human behaviour with the aim of improving it. Financial philosophy is the process of examining how we behave around money with the aim of improving it. Our relationship with money is how we interact with money: how we think about it, and consequently act with it, and around it. It is about the role money plays in our lives: how we connect money to who we are and what we value.

This goes beyond psychology. Where financial psychology describes, explains, and occasionally prescribes means of controlling an environment to improve in-the-moment behaviours, and consequently financial outcomes (which can be extraordinarily valuable!), financial philosophy is about rewiring our brains to defeat self-deception by seeing more clearly, rather than playing behavioural whack-a-mole.[1]

Behavioural psychologists use a model of decision-making that divides our cognitive machinery into a fast, reactive, instinctive ‘system 1’ and a slower, more thoughtful, calculant ‘system 2’. Daniel Kahneman, who popularised the terms, gives as examples of system 1: reading words on a large billboard, driving a car on an empty road, and – if you’re a chess master – finding a strong move. They require little or no effort. You can’t mess them up even if you wanted to.

System 2 by contrast requires attention, and without it, you’ll make mistakes. For example: focusing on a particular voice in a noisy room, checking the validity of a complex argument, and comparing two goods for overall value prior to purchase.

Psychologically inspired environment-control prescriptions are great. When system 1, having spotted something shiny, is likely to get us into trouble by unthinkingly freewheeling after it, psychological ‘nudges’ either swerve us away from danger, control its damage, or switch on system 2 in time to save us. In investing, nudges can get us started and stop us from bailing out, making or saving millions in the process.

Yet however well such nudges work, they all start too late. They save us from symptoms, but do little to cure the causes. While any right action makes it a little easier to take the right action again next time, real change comes only with conscious, attentional, action. I’ve seen time and again that while having an adviser acting as a private on-call ‘nudge coach’ can save investors from the monetarily costly consequences of idiotic investment ideas, it doesn’t stop the emotionally costly thoughts and feelings that inspire those ideas from arising. It can even enable them, as we’ll see later.[2]

There is a better way. When sailing through stormy investment seas that summon screams of ‘get me out of here!’ there is a world of difference between shutting your eyes, hearing ‘calm down’, asking ‘where to?’, and instinctively knowing that despite the storm there is nowhere you’d rather be.

The last option is possible only with a conscious internalisation of a sound investment philosophy. Reactive behaviour changes work. Changes in the way you see the world that trigger the need for such reactions work better. Better insights are better than better incentives.

To become wiser with money is to see more clearly such that your system 1 and system 2 responses become more closely aligned. You cannot ‘stop’ system 1’s instincts, but you can wire yourself to improve them. As Pierre Hadot wrote: philosophical knowledge is ‘not just plain knowing, but knowing-what-ought-to-be-preferred, and hence knowing how to live. […] Philosophical discourse must be understood from the perspective of the way of life of which it is both the expression and the means.’[ii]

Both behavioural-psychology and philosophy solutions to the problems of our screwy relationship with money aim at better outcomes. Psychology does so through triggering better behaviours, philosophy does so by making decisions more conscious. As John Vervaeke explains:

What consciousness seems to do is the following: it seems to be a way in which you can coordinate attention and other related abilities of awareness so as to optimise how insightfully you can make sense of your world. That’s why you need consciousness for complex problems that require insight, for situations that have a high degree of novelty or challenge in them. You can reduce consciousness when the problem has become very well defined for you.[iii]

Behavioural tricks are brilliant because they reduce the cognitive load of taking the right action at the right time. But we can train ourselves to reduce the conscious requirements in a more reliable, long-term, way. Not by dodging having to define problems, or pretending to understand them better, but by seeing more clearly both the problems and the range of solutions. Psychological solution tricks are less necessary when you defeat the problematic self-deceptive tricks that triggered their need. To live philosophically is to live more authentically.

Because each interaction with money is both an expression of, and a stimulus to changing who we are, your relationship with money is a process to be lived and observed, not a snapshot to be ‘discovered’ and ‘preserved’.

A relationship with anything involves one thing meeting another thing and together creating a new thing that stands outside of each original thing, while at the same time changing those original things by virtue of the relationship.

A person meeting money creates an expression of who that person is. Money is sitting there all inanimate, then a person comes along and chooses how to allocate it. In that allocation of resources, that web of decisions, lies the determination of whether the life it is shaping is a good one or not.

Who or what is your ‘self’?

You are the product of your self-centred storytelling

Our relationship with money is a means of matching the story we tell the world about who we are with the one we tell ourselves.

Knowing who that ‘self’ is has entertained thoughtful types forever. The model we’ll use to guide us through this book[3] is Daniel Dennett’s concept of the conscious self as an emergent ‘centre of narrative gravity’.[iv]

In discussing how spider’s make webs, snails shells, and bowerbirds bowers, Dennett describes how:

the strangest and most wonderful constructions in the whole animal world are the amazing, intricate constructions made by the primate, Homo sapiens. Each normal individual of this species makes a self. Out of its brain it spins a web of words and deeds, and, like the other creatures, it doesn’t have to know what it’s doing; it just does it. This web protects it, just like the snail’s shell, and provides it a livelihood, just like the spider’s web, and advances its prospects for sex, just like the bowerbird’s bower.

This ‘web of discourses’[4] emerges as unconsciously as a dam does from the interaction of a bunch of beavers with their environment. Our wiring, our environment, and our interaction with them – our effects on them, and their effects on us – creates what we call a ‘self’. And just as, in Dennett’s words, ‘an illustrated encyclopedia of zoology should no more picture Homo sapiens naked than it should picture Ursus arctus — the black bear — wearing a clown suit and riding a bicycle’[v], nor should we rob this picture of some money. Whether we like it or not, the money in its pocket has become as much a ‘biological construction’ of the human as the clothes on its body. If we’re going to be pictured with clothes, we’re going to need resources to trade with a tailor.

The discourse-laden web we weave may be who we are, but in two crucial ways we are not always its authors. The web is for protection, and progress. Having the protective functions happen automatically is a good idea. We don’t want conscious control over this stuff. ‘Our tales are spun,’ wrote Dennett, ‘but for the most part we don’t spin them; they spin us. Our human consciousness, and our narrative selfhood, is their product, not their source.’ The brain is a prediction machine. It preserves its existence by guessing how to navigate its environment, by using inputs from a body (including emotions[5]), and a mind (with a cool ability to talk to itself and tell itself stories) and the environment itself.[6]

The progressive functions of our storytelling are a bit different. If we don’t consciously control the authorship, unconscious influences take the reins by default, and letting this happen is not such a good idea. Our ability to overcome unhelpful influences and take control of our centre of narrative gravity is at the root of all that is good – or not so good – about our lives.

When Dennett writes that ‘Of all the things in the environment an active body must make mental models of, none is more crucial than the model the agent has of itself’ it is as correct in its application to allowing us to stay alive as it is to allowing us to really live.[7]

The success of a personal philosophy relies in part on its dance between efficiency and resiliency. Efficiency means we can move fast, but we’re blind to the bigger picture, and adapt poorly to new situations.[8] Resiliency makes us slower, but we’re better able to respond to novel stimuli because we see a more complete picture and have better connections to potential solutions from other areas we can make use of.

When it comes to money, we optimise for efficiency, which is why we’re so prone to panic when things go wrong. The same narrow lens that helps us make sense of a series of next actions also stops us from checking in on how those actions fit into something more transcendentally meaningful. The better we can flick between efficiency and resiliency, the more adaptive we become. Sometimes what is relevant is what’s changing, sometimes it’s what’s staying the same. There are more possible games of chess than there are atoms in the universe; master chess players (human or machine) cannot analyse them all. They need a filter for relevance. They need a philosophy.

Retirement is a terrible goal

Mental preparation is more important than financial preparation

Nowhere is the importance of our self-storytelling cast into starker relief than with the most universal financial-planning ‘goal’: retirement.

Retirement in its traditional sense is a stupid goal. And not only because up until a mere few generations ago, life expectancy and retirement age were give or take the same thing, or because retirement often sucks meaning out of life, rather than pumps it in.[9]

Retirement is a terrible goal because it makes no sense to spend years in the service of a single overarching goal, while not enjoying the journey, and then, upon arrival at the destination, realising not only that neither of the two biggest determinants of your everyday happiness – your body and your relationships – are what they could have been, but the future doesn’t feel like it was supposed to either.

Robbed of the relevance a career provided, many – men especially – become less happy and less fulfilled, even suicidal. Lifelong striving ending in suicide? What sort of goal is that? A completely shitty one, of course. It may be a cliché, but spending your life finding work you enjoy is far wiser than spending it doing something you don’t for the chance to stop at some point before you die.

A person with a mind sufficiently well prepared to know what it both wants out of life, and can best contribute towards life, is in a healthier position, with or without needing to continue to earn an income, than one who has made a mattress out of money to land on when a period of their life comes crashing to a halt.

Unlike mental preparation, which proves its worth along the way, financial preparation needs a finish line. Saving for tomorrow is sensible; forgetting that tomorrow technically never comes is not. As John Maynard Keynes remarked, noting the propensity to grow the ‘cake’ of safety-net savings:[10]

And so the cake increased; but to what end was not clearly contemplated. Individuals would be exhorted not so much to abstain as to defer, and to cultivate the pleasures of security and anticipation. Saving was for old age or for your children; but this was only in theory – the virtue of the cake was that it was never to be consumed, neither by you nor by your children after you.[vi]

Philosophy is about how to live a Good Life.[11] To live it, not to dream about it. Living only ever happens in the here and now. Living that happens in the future is only a dream, inspired by nightmare thoughts of ‘just in case’ or ‘better safe than sorry’.

Much of financial planning is about seeking security. Yet poorly done it is more often the security of a stagnant pond, not a beautiful waterfall. ‘Nature is stable, and money is not’[vii], wrote Euripides. Money worries come from viewing money in a non-natural way, focusing not on the stability of one’s ability to be rewarded with it for the value one provides to the world, but on what would happen if one lost what they had – which leads, inevitably, to believing that one can never have enough.

page1.1.3: The two types of financial errors

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[1] The same point applied specifically to the benefit of an investment philosophy over and above an investment strategy will be the theme of Part 4.

[2] Part 1, Section 2.3: When is delegation dangerous?

[3] Whether Dennett’s model is ‘true’ is irrelevant here. What’s important is if it is a useful model for helping us determine when our actions turn our resources into a Good Life, and when they don't.

[4] To borrow a phrase that Dennett borrowed from Robyn Penrose.

[5] Emotions literally move us. Even the etymology – emovere – is shared. Emotions are the way the body has its say in moving the mind towards a thought. In the words of Matthieu Ricard, in Happiness: ‘Emotion is that which conditions the mind and prompts it to adopt a particular perspective, a certain way of seeing things.’ The common distinction between ‘emotional’ and ‘rational’ is unhelpful. Emotions are inputs into rationality and the process of becoming wiser, but neither self-avowed ‘thinkers’ nor ‘feelers’ prefer to focus on whatever they’ve identified with rather than the wisdom they really want.

[6] It’s important to remember, in the context of believing there to be an objective reality of any sort (including, say, that money is objectively useful) that we don't observe reality, we construct it. As Anil Seth explains in his TED talk: Your brain hallucinates your conscious reality, ‘Instead of perception depending largely on signals coming into the brain from the outside world, it depends as much, if not more, on perceptual predictions flowing in the opposite direction. We don't just passively perceive the world, we actively generate it. The world we experience comes as much, if not more, from the inside out as from the outside in.’ Both we and the world are our stories. ‘Your experience of being a self,’ Seth continues, is ‘a controlled hallucination generated by the brain.’ We have far more control over – and responsibility for – our ‘reality’ than most people realise.

[7] We’ll return to this in the context of the relative importance of our income and our expenditure, after we’ve studied the study of how to really live.

[8] As the state of PPE procurement during the coronavirus pandemic testifies to all-too-chillingly.

[9] From God to Brexit, humanity is very good at taking things away without working out what to replace the good bits with.

[10] Please do not mistake this as exhorting the equally stupid opposite: to spend, spend, spend. It is the lack of consciousness of the consequences of the allocation of monetary resources that is the issue, not the quantum of expenditure.

[11] Capitalised to distinguish what we’ll come to define in Section 3.4 from something more mundane.


[i] Epictetus, Discourses

[ii] Pierre Hadot, What is Ancient Philosophy?

[iii] John Vervaeke, Awakening from the Meaning Crisis, ep. 10

[iv] Daniel Dennett, Consciousness Explained

[v] Daniel Dennett, Consciousness Explained

[vi] John Maynard Keynes, Economic Consequences of the Peace

[vii] Euripides, Electra

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