So what is financial stoicism? I define financial stoicism as creating, building and maintaining wealth using the principles of Stoicism such as patience, discipline, delayed gratification and focusing on what you can control.
I would LOVE to have been the person to have coined the phrase ‘Financial Stoicism’. In fact, it would have been the cumulation of over 15 years of having seriously pursued Stoicism and Financial Independence in close concert with one another in my daily life.
However, I was beat to the punch by Jonathan Mendonsa of Choose FI in one of his podcasts. Although I don’t know exactly who first used the term, I have to give the Choose FI guys credit for hearing it there first https://www.choosefi.com/
Stoicism defined
To understand how powerful this combination of terms truly is, it’s important to have a full understanding of what Stoicism is. On the surface, Stoicism is an ancient Greek philosophy founded by Zeno of Citium more than three centuries BC that focuses on particular virtues and ethics based on a system of logic and living in accordance with the natural order of nature.
Below the surface, Stoicism is a commitment to an ethical and virtuous way of life. At its core, it celebrates the 4 virtues; Courage, Wisdom, Justice and Temperance above all else. It uses logic as the backdrop of applying these principles to everyday life occurrences.
Control your emotions
As a result, one of the major elements of Stoicism is for a practitioner to not be controlled by their emotions but be in control of those emotions.
Stoics put an incredible value on being able to take in all sorts of information, good and bad, and by using logic instead of emotion they’re able to sort through it and make the best decision.
Stoics are also particularly fond of being able to resist other destructive emotions and thought that taking action upon them was a complete error in judgment. As such, a strong ethical character is an absolute must so as to be able to decipher information and input and make the most rational decision.
The Stoics also believed that those things that were beyond their control should not be worried over but instead taken in stride. Their special power was to be able to experience what would otherwise be considered unfavorable events and realize that they had absolutely no control over them but that they DID have control over how they perceived them, interpreted them and how they reacted to them.
It is this unflappable quality that most people misjudge Stoics as being emotionless. Quite the contrary. Stoics recognize emotion, process the underlying event as it properly is and then make a rationale decision. Stoics are masters at their reactions to events.
Stoicism as a personal operational system
Beyond just being an academic exercise, the principles of Stoicism can easily be incorporated into what I call an ‘operating system’ for an individual.
This operating system is essentially the programming that runs an individual’s decision-making functions. Extended to financial decisions, an individual would effectively have a framework that they would mentally apply to all items that had a financial implication.
Over time, this framework becomes more of an active function where an individual projects these principles upon situations and begins to make decisions based on their guidance. As a result, these guiding principles become more of an active personal philosophy that starts to determine how the individual behaves.
As this operating system starts to become followed religiously by the individual, they start to apply all aspects of their life against this system. One of the easiest and most obvious application is how to manage one’s own finances and wealth building efforts.
Financial Stoicism principles
1. Patience IS in fact a virtue
One of the first aspects of Financial Stoicism is for an individual to understand that wealth building takes time. Getting wealthy is a process and not an event.
Therefore, there is no ‘get rich quick’ scheme involved. It will take time and purposeful decisions in order to build the right foundation, make the right decisions and follow the plan in a steadfast and committed way.
From my experience developing patience within the wealth building process is tough. The reason for this is that there are so many charlatans selling proclaimed shortcuts and ‘hacks’ that it’s difficult to stay the course. However, having enough patience to stay the course is exactly what is needed.
2. Ego is the enemy
Although there certainly are braggadocious individuals who become wealthy, humility is certainly a better quality to have when on the wealth building journey. In fact, those individuals who are led by their Ego will tend to make worse financial decisions or be part of activities that are based more in chance rather than in proof.
Much of this is due in large part as to how Ego works. It wants you to believe that you are smarter than you are and that there’s an easier way than taking the hard road.
I’m here to tell you that there isn’t a shortcut or an easier road to building wealth. I’m also here to tell you no matter how smart you are, there are more proven methods to create and build wealth and they’re probably not the ones being pushed by the gurus telling you that you’re foolish for following the ‘old school’ practices.
3. Don’t let what others are doing impact what you’re doing
The Stoics were masters of their own destinies. They strived to not be swayed by what others around them were doing if it was not their needed course of action.
In fact, they applauded others for taking the action they needed to fulfill their own journeys but kept to their own plan.
This is such an important practice in order to build wealth, regardless of your situation. I have seen this play out so many times firsthand.
Those individuals that have a well thought out plan that stick to it tend to be the ones that are successful. Those individuals that tend to change what they’re doing based on the trend of the day usually don’t achieve anything.
In order to build wealth, we need to develop our wealth plan AND stick to it…relentlessly! Let others bluster on about what they’re doing. Good for them. In fact, like the Stoics, applaud them for their impressive efforts and achievements and go right back to what you’re doing.
4. It’s happening but not necessarily to Us
Stoics believe that life is happening. It’s just part of the natural order of life. However, they don’t believe that life is happening to us.
Let me explain, Stoics have this deep belief that what happens, happens. In other words, if something happens it was simply going to happen anyways. It didn’t happen because of us, it simply happened. The universe isn’t plotting against us and what ever happened didn’t just single us out. If something was going to happen with us, it was going to happen without us.
In terms of Stoicism, things involve us, they don’t revolve around us. That being said, Stoics believe that it’s our job to take whatever actions are called for in order to take advantage of whatever is happening at this very moment.
How does this relate to wealth building? Well, for starters whatever is happening in the stock market is just happening. It’s not out to get us or aspiring to take us down nor is it plotting on our behalf to make us millionaires.
It is what it is. As a result, we have to keep to our plan, acknowledge what is happening and assess whether this is a structural change in the market or simply a bump along the way. If just a bump, we stick to the plan.
5. It isn’t the event that causes the result, it’s how we react to the event
The Stoics have a belief that it isn’t the event or the situation that creates the result, it’s in how we react to that event or situation that causes the result.
The point that the Stoics make is that there may be so many different responses to the initial event, so from that perspective we are in control with how we respond. We don’t just have to assume that the initial situation is negative, as we are more inclined to do.
Taken further, the Stoics believe that there’s still an opportunity to react in a way whereby the outcome can be the most favorable possible as long as we react positively and give ourselves every chance for a positive outcome.
In regard to our finances, we have the ability to take the time to contemplate how to react to an event before we react. Great example once again, is the stock market.
Just because the stock market tanks it doesn’t mean that we should immediately sell. In fact, if our plan calls for us to be in the stock market for several more years then selling would be disastrous. What we need to do, as the Stoics would, is take a moment to think about what is REALLY happening.
If what is happening is merely a temporary setback, then we don’t do anything. Even if the pundits are telling us that the situation is dire, if our wealth building plan calls for us to stay the course then we need to stay the course.
Conclusion
Stoicism has proven to be an amazing personal philosophy and just as an amazing ‘operating system’ when applied to building wealth.
As we identified within this post, Stoicism is largely about keeping to our own plan and not being swayed by emotion, events or outside influence.
It also is about not being pulled into the emotions of the moment and making bad decisions. I find it so ironic that Stoics are criticized as being emotionless robots but the truth is that Stoics merely know how to identify their emotions and control them. This allows them to always have the advantage of being able to make the best decision possible, regardless of the ciscumstances.
Wealth building and managing one’s finances requires us to play the long game. There usually is no benefit to being indecisive and impulsive.
To combat those emotions, Stoicism is exactly what is needed.
