My role is quite interesting, as I am not responsible for any internal processes, but I am responsible for changing behaviors around tools and processes owned by others. This slots me into a difficult position at times, as the people who are responsible, don't always understand what is required for changing behaviors. For instance, there are some who think telling a tool exists is enough for an individual to understand the value and implications, as well as make the shift from default activities to support the change to include it. When written in back and white, it seems so obvious it isn't going to work, doesn't it?
Yet, a lot of what might be obvious seemingly bypasses us, or perhaps it is that we choose to ignore what doesn't fit into our world view or what we desire. For instance, everyone knows that being overextended in debt is a negative, yet how many people have done just this as they FOMO'd into a house in recent years?
In Australia, "mortgage stress" is when a homeowner is spending more than 30% of their income on their mortgage, which is currently sitting at just under 40% of mortgage holders. And around 15% are spending about half of their income on their mortgage, with 4% spending over 60% of their income.
They are quite terrible numbers, and if you remember from the other day, accumulated savings are rapidly decreasing in response to rising cost of living pressures. But once those savings are gone, what happens to those who are unable to cover their mortgages?
But of course, most will manage to make it through this period without losing their home, but "survival" has other implications. For instance, the best time to invest is when the market is depressed, but this requires having available resources to invest with. If they are all going into covering the mortgage. This means that the money isn't able to capitalize, it isn't able to earn, though it is able to reduce a debt burden - if people are actually paying down the principle significantly. A lot aren't though, they are paying the interest only.
This is a "hidden" cost of debt many don't seem to consider, where they look at what they are able to service as the important factor, rather than the opportunity cost of it. A person who has debt that they can manage, but nothing much left over to invest, will continually miss out on the opportunity to have their money working for them, increasing their wealth. They will forever be survivors, not thrivers.
I think that some part of this mentality comes down to the want it now approach and how bad we are at counting the impact of compounding value. Because when we get something now we have it in our hand, we see that immediate value of it and it gives us the dopamine hit that we don't get from the long term investment, which takes time and consistency to develop into a significant impact.
For instance, most of us would like to be able to cover our income needs with passive income, even if we are working, but how long does it take to have enough capital generating value to do so? It is unlikely that we are going to win the lottery or get enough from an inheritance to do so, which means we have to build it. However, it is like building a house buying a few bits of lumber, nail and bricks at a time. Even with good blueprints, it is hard to see the whole house.
And when it comes to investing, it can take years and decades to get to the point we are able to cover our salary, especially since it is also likely that there is lifestyle creep as we age, that soaks up additional income we might get through career advancement.
"Normal" human behaviors aren't actually well-suited to investment strategies, because we are designed to look too far into the future, nor actually live that long. We haven't evolved to be long-term storers of value, even though we have been built to be collectors. It is a strange conflict perhaps, but over the last few thousand years and especially as our lifespan has dramatically increased in the last couple hundred years, we have had to build mechanisms to be able to cover our needs, even though we can no longer hunt or gather.
The more we move away from family units and relying on each other, the more we are going to have to provide for ourselves, and be able to purchase from others. Our culture is changing, even if our behaviors to cater for our lives is not moving fast enough. As a result, a lot of us are going to find ourselves short, because we didn't think long.
We have a lot of tools at our disposal to enable and help us reach our goals, but having the tool doesn't mean we know how to apply them well, when we need to. If we want to improve our chances of getting to where we want to be, we are going to have to change our behaviors and unlike the people at my work, we probably don't have enablement managers to support us. So, we have to take responsibility for our own accommodations, and make it a home.
Taraz
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