The best financial question that my pastor ever asked me was, “How much savings would you need to decide that you don’t need to work for income any more?” Granted, I was 25 years old when I heard this, but I thought, “10 million dollars.”
Whoa. That response says a lot about me at the time. What could I possibly need that much money for?
I’ve never been flashy or extravagant. I still drive the same car from my freshman year in college – a 2000 Honda Civic. My TV is 7 years old. I already had a good income. If I wasn’t spending money then, when would I ever spend it?
The 10 million number reflects the fact that no amount of money would have made me feel secure. Money to me was a safety blanket. Unlike most Americans that spend more than their paychecks, I drew comfort from watching the numbers in my bank account climb up and up.
- If I ever lost my job or business, I had several years worth of savings to cover living expenses
- If I wanted to buy a house in cash, I could have done that (houses in Dallas-Ft Worth are cheap, even in the good areas)
- My wife and kids could have gone on many, many amazing vacations.
So what did I do with a big chunk of that money? I invested $138,923.66 in a business in Ireland that ultimately failed. The money is long gone. The investment is worthless.
There’s no amount of money that will keep you safe. Whether you’re in a hyperinflationary collapse (like Argentina), your forex broker goes bankrupt or you make a once-off, terrible investment decision like me, something can always happen that takes your money away.
If your money can disappear so quickly, then why do you want to be wealthy in the first place?
Personal success inventory
My pastor’s question – and losing my investment so quickly – pushed me into taking a personal success inventory. I’m sharing mine in that hopes that it will spur others into thinking more carefully about why they’re trading and why wealth is important to them. Maybe wealth isn’t even the right word to describe it. A better way to phrase it is “when do you have enough money?”
Beat the market
My overwhelming passion is designing systems to beat the market. The performance is my scorecard, but I find the day to day mechanics of the markets boring. Boring as in really boring. Rip out your eyeballs boring. Nobody could ever pay me enough money to watch prices tick up and down all day.
The challenge is designing the system. The collapse of the Swiss franc peg is a great example. My QB Pro system traded USDCHF at the time. I knew that if the peg ever broke and I was short francs, it could be an epic disaster. I programmed a rule into the strategy that if the EURCHF ever traded below 1.1998, then exit at market with unlimited slippage. Just get out.
Thankfully, the system was not in the market when chaos unleashed. The problem is a good example of how to think about unlikely ways that your trading system can go wrong. I enjoy these challenges and gave myself a pat on the back when my system’s ejection seat looked like it would have done exactly as intended.
That’s not a financial reward. I like feeling clever.
As many of you have noted, math really gets me going. That’s pretty funny because I majored in Arab history in college. It wasn’t until I realized that math was useful in real life that I genuinely started to care. Stumbling across academic papers discussing fractal markets – and understanding none of it – made me realize it was time to learn what I ought to have learned at university.
I had to take a big step back to go down that path and buy “Precalculus Demystified”. Seeing that I wasn’t completely awful at math motivated me to pursue online learning. I took calculus classes through MIT Opencourseware and eventually moved on to Coursera and free online textbooks. Once you find a topic that strikes your fancy, it’s easy to find support online.
Nobody pays me to study complex analysis after my kids go to sleep. There’s no obvious, direct use for the material. By designing trading systems and identifying weak spots in my math skills, it’s pushed me into a new hobby. I truly enjoy the classes. Even without financial markets, I would continue with my math hobby.
Money comes and goes. It’s nice to have, but there’s a point where cash in hand becomes less and less valuable.
On the other hand, there’s also a minimum threshold of cash to keep available for monthly expenses. Health insurance for my family is $906.06. We spend about $800 a month on groceries. Then there’s 3 types of insurance, housing, gas… it costs a lot of money to provide for my family.
$138,923.66 is far beyond the threshold of what I needed to feel safe. That’s more than 3 years of living expenses (assuming no income). Needing $100,000 in cash to feel secure is over the top. 12 months seems like a much more realistic concern. Everything beyond that should be considered savings and not the security blanket.
Yes, making a lot of money motivates me. But I’m not wanting to make millions of dollars to fund a new kind of lifestyle.
I would still do what I’m doing even with 1 or 10 million in the bank. I can’t imagine sitting around wondering, “What am I going to do today?”
It took 5 years before I ever saw a decent profit from financial markets. It’s obviously not the allure of money that pushes me to design systems.
The primary reason that I like earning money is that I like business. It’s fun writing a blog, guessing how customers will respond and building relationships with people. It’s a dynamic system that keeps me on my toes. I have to think. I have to be social. All of those things are big positives.
I don’t want to be a pushy parent, but I do have dreams of teaching my young boys how to run their own businesses. I respect the scrappy entrepreneur and hope my sons will learn some of those skills from me.
Since this is an honest conversation… I believe that God put each and every one of us here for a reason. Trading and speculating in the markets as my sole purpose doesn’t fit with my view of building his Kingdom. The question is what to do with the money once I have it.
My father in law’s ministry at the Colleyville Prayer Room is very important to me. I know the pleasure that I receive from supporting ministry. It would be nice to reach the point where I feel secure tithing a larger percentage of my income.
Have you ever thought about how much money you need in order to stop working purely for income? How does trading help you achieve that goal? Share your thoughts in the comment section below.
PS: If you’re married, your first thought was probably, “How did your wife take it?”
Neidy took it pretty well. She was able to deal with it because that was money I had saved before we married. Had I invested our joint savings and lost it all, she informed me that it would have been “a much bigger issue”. That was her way of telling me not to relearn the lesson a second time.