Are You a Good Steward of Your Money? By Justin Paolini

Ask yourself a question: why do you trade? Is it because you love money or because you love the markets? The answer is of the deciding factors when scanning coaching questionnaires. Too often, aspiring traders are fed up with their day jobs or have some kind of financial limitation and gravitate towards trading as THE solution to their issues.

Today I’d like to put fourth some suggestions on how to be a better steward of your money, because in my experience the immediate solution to financial issues is not “how to make more” but rather a review of how you’re managing your current income.

Stewards, not Owners

The first thing to correct is the perspective. Money is not something that provides happiness, wisdom or health on it’s own. Money must be exchanged for something else: a vacation, education, a gym subscription, etc. Money also does not grow on trees, it cannot be cultivated. We exchange our time (in terms of labour) for money (our paycheck).

So money must be “employed” correctly, in order to enhance our lifestyle and obtain whatever we need. In this sense, we never “Own” the money, we simply “direct” it towards the best use. Sure, savings is one of the directions of our money, but so are spending, investing, debt repayment, donations.  We need to seek wisdom, and know how to properly employ our money. Don’t hoard it. Don’t think it’s yours. Don’t keep it as a top priority.

This should already convey the true perspective: money is NOT the solution to problems. It’s what you do with money that can allow you to achieve a result. And sometimes, we can achieve the same results with very little money – or even for free.

Work hard, Spend Wisely

Money is made in exchange for our labour. This is why it’s important to not “hate” your day job. Your day job is what is allowing you to even think about trading in the first place. It’s what will pay the bills while you educate yourself. It’s what allows you to have a certain lifestyle, even if it’s essential: a roof atop your head, warm meals and clothing. You’d be surprized how many people would consider these things “luxuries” even in the 21st century.

So firstly, good cash flow depends on hard work first of all. You can’t aspire to be a good steward of your money, unless you first work hard and work smart. But part of the work should also be about finding ways to spend less, or spend better.

Three Lifestyle Choices

When aspiring traders think about trading as “the way to make more money”, I’m willing to bet that more often than not, they are living beyond their means and trying to compensate for a lack of humility. There are 3 ways we can life:

  • Beyond our means (usually this implies debt-financed purchases, more stress, extended use of credit cards, etc which will one day have to be paid off);
  • Within our means (most people assume this is right way to live, since there’s a steady cash flow and a balance between income and expenses, but without much foresight or room to meet unforseen expenses);
  • Below our means (this is a lifestyle most people don’t consider, and yet it still allows for a balanced cash flow and freedom, but also allows more flexibility because it allows you to save & invest more for the future, whether yours or that of your children).

When people can’t make ends meet, the usual things that come to mind are increasing income (how to make more) or increasing debt (take out a loan, repay it in due time). But there is a third possibility. I learned it well whilst working as a purchasing officer for a major player in the European aluminium market:

if you can spend less for primary material, there’s much more left over at the end of the value creation chain.

So here are some suggestions for cutting costs which will allow you to save more and, in time, invest:

  • Be very clear about the differences between “I want” and “I need”, and do without the “I wants” . For example, do you really need that fancy phone with all the GBs of data, etc.? Do you really need a super-fast computer with 5 screens? A trading platform plus streaming news, plus emailing and site navigation takes up approximately 700-800 MB/day. If you only consider work, you can probably do with 1GB/day. And if you’re working hard, do you really have time for Facebook, Whatsapp, Youtube or similar things?
  • Used instead of new. 
  • Respect what you own. If you treat your washing machine well, it can last a good couple of decades for example, but if you treat if poorly, you’re working against yourself and will be required to buy a new one before long.
  • Sacrifice. Do you really have to eat out 4 nights a week? Do you really need that magazine subscription?
  • Read the ingredients and buy comparable generic brands. 
  • Less instead of more mentality.
  • Create a budget, and stick to it. 
  • Plan ahead.
  • Sell stuff you don’t need (garage sale anyone?)
  • Watch your utility bills.
  • Look for value, not vanity
  • Debit cards, not credit cards.

I’m sure there are other worthy suggestions, but the idea is to try and cut expenses and live a more humble lifestyle (compared to your means of course). If you don’t do this exercize yourself, the markets will teach you the same lesson on humility, by decimating your account value. Usually it’s the humble people that go ahead in this business: the ones that stick to what’s essential, have no issues putting in hard work and burning the midnight oil, and understand it’s impossible to know everything and that we’re often wrong.

Trading is the Tip of the Iceberg

Now let’s talk about your savings. Trading is probably the last thing you should do with your savings. Here are more fundamental considerations that are listed in order of risk (from least risky to most risky):

  • the need for personal insurance – if you can’t work, you can’t produce income. So think about some kind of life-insurance policy.
  • the need for protection against inflation – perhaps something like a Fixed Indexed Annuity or inflation linked bonds (preferably investment grade corporate, not government); also renting property.
  • the need for capital appreciation over time – a diversified asset allocation approach (think of the All Weather idea);
  • high risk/high return initiatives: active trading, buy to rent, invest in a business venture, etc.

The high rish/high return profile of trading puts it at the top of the financial security pyramid, not at the base. Also note that there is a considerable opportunity cost to trading in terms of time and energy. It’s a tough job, so do some lateral thinking because rarely (if ever) is trading the solution to a financial problem.

Over to You

Dare to dream, but work smart. Work on various aspects of your life: are you spending well? Can you spend less and save more? Do you have a hobby or passion that you can convert into extra income (for example teaching music, writing a book, being a personal trainer, etc)? Are you living beyond your means?

Trading can be part of the plan, but it shouldn’t be the most important part. People who come to the financial markets looking for money usually find trouble instead.

There are usually some adjustments that can be made in our lives that will also teach us something about essentials, about humility and respect for what we do have.

About the Author

Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

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