How Principles Help Me Make Better Choices

Unique Advantage Monthly Client Email – December 7, 2023

By Kyle J Christensen, Founder of Unique Advantage

Most of us have been somewhere hiking in the mountains or woods, traveling in an unfamiliar city or country, or out on a boat on a lake or the sea.  How would we feel if we had no source for direction?  How would we feel if we simply couldn’t tell which way we should go?  Maybe, to some degree, we’ve all experienced that sinking feeling at some point in our lives.  It’s pretty scary to have no clue where you are or where you should go. 

Thankfully, we now have smart phones that have GPS and maps on them, which can give us confidence in almost any new surrounding (as long as we have cell coverage).  In other situations that are more remote, we can use devices that provide GPS without having to be connected to cell towers.  When I’m in super remote places, I also like to always have a compass and a physical map.  I don’t like to be too reliant on tech and battery power.

A compass, according to Geomagnetism Canada, has “a small, elongated, permanently magnetized needle [which] is placed on a pivot so that it may rotate freely in the horizontal plane.  The Earth’s magnetic field exerts a force on the compass needle, causing it to rotate until it comes to rest in the same horizontal direction as the magnetic field.”  In other words, a compass relies on principles of the orientation of the earth and magnetism.  People have used compasses for navigation as far back as 206 BC, by the Han dynasty.  In today’s vernacular, it’s been around forever!

When it comes to personal finances, it can seem like you are in a boat in the middle of an huge unfamiliar sea of choices.  Very few people receive any formal financial education, and therefore can feel confused and overwhelmed, like they are wandering in a foreign land.  They can feel that they don’t know where they are or where they should go.  Without foundational financial principles, a person is left to their own devices to figure out what to do and where to go, like a sailor without a compass or map.  

Without principles we would be forced to react to all the things life throws at us individually, as if we were experiencing each of the for the first time. – Ray Dalio (Principles: Life & Work)

Personal finances entails daily money management (tracking and budgeting), tax laws, estate laws, investing, saving, debt management, various insurances, and legal protections.  These are all huge arenas in and of themselves.  The language spoken is a foreign language (sometimes called “legalese”).  The laws change all the time.  Financial products change all the time.  It’s almost like attempting to navigate in a place where even the landscape changes while you are there. Even if you think you’ve figured it all out at some point in your life, because so much changes all of the time, unless a person continuously stays on top of it, you’re knowledge of what exists and what’s possible is suddenly outdated.  Because of this, we need something that doesn’t change.  We need principles.  

The most important thing I learned is an approach to life based on principles that helps me find out what’s true and what to do about it. – Ray Dalio (Principles: Life & Work)

If we don’t have principles, we are easily influenced by “mirages” (marketing, hype, herd mentality, popular opinions, our own pride and greed, or even past outdated and extremely biased personal experiences).  Making decisions based on mirages is a recipe for failure.  Most people, unfortunately, base their financial decisions on mirages.

Millions of people lost trillions of dollars because they listened to opinions they thought were facts or principles. – Robert Kiyosaki (Who Took My Money)

The most important thing a person obtains by meeting with one of our Principles-Based Planners, is a knowledge of certain principles that predictably lead to becoming and remaining financially free.  

Principles #1 through #4 are foundational (foundation: a basis upon which something stands or is supported – Merriam-Webster).  Principle #1 teaches us that we should constantly, automatically and systematically save a portion of our money, every time we get paid.  It teaches us what saving really means (it’s not investing and it’s not gambling).  Principle #2 teaches us how we can protect our income and assets at the highest level.  Things can and will go wrong in life.  How many people are truly prepared or in the position they would like to be?  Principle #3 teaches us how we can have the use and enjoyment of the wealth we build, without fear of running out.  Principle #4 teaches us the importance of liquidity, how much we should always maintain, and what counts.  

Most people have a tendency to skip the first four principles.  Knowingly or unknowingly, they want to jump ahead and focus on “investing”.  Tell me this.  How valuable is any building, regardless of its beauty and quality of construction, if the foundation of that building is shabby?  How long will the building last?

Most people think investing is risky.  It’s not investing that is risky.  Investing without insurance is risky. – Robert Kioysaki (Who Took My Money)

Once we have a strong foundation in place, we are ready to build wealth, we are ready to invest.  Principle #5 teaches us what investing is, what an asset is, and what our true objectives should be as it relates to investing.  Principle #5 teaches us that it’s all about getting multiple uses of our money over time.  It’s about getting real assets that produce cash flow back to us.  Principle #5 teaches us that we are our best investments.  Our knowledge, our property, our businesses, our ideas.  It teaches us that investing is not the same thing as gambling.  It teaches us how we can truly become financially free. 

Financial institutions aren’t charitable organizations.  Their main purpose isn’t to help you become financially free.  Their main purpose is to produce profit.  They produce profit when we give them the control and use of our money.  They (all of them) want to control and use our money for as long as possible.  There’s no exception to this rule (synonym: principle).  The products they create and the strategies they promote are designed to accomplish their objective.  Knowing this should cause us to pause and question, especially if it’s something that is very popular or highly marketed.  

Now, in saying this, I don’t want you to think that I am opposed to financial institutions or think that we would be better off without them.  We wouldn’t be.  We, as a society, would be much worse off if we didn’t have the strong financial institutions we have in America.  However, it’s super important to know and keep on the forefront of you mind, that financial institutions are not trying to help you individually.  You are a number to them.  That’s all.  If you have a mortgage, become disabled, and can’t make your mortgage payment, they will take your home away.  No question!  If they cared about you individually, wouldn’t they be nicer and more charitable in that situation?  So, it’s important that you know that the information that they send out to the public is designed for one thing and one thing only, to convince you to send them your money and leave it there.  It is not designed to make you financially free, necessarily.  They create mirages.  

I was reading recently in a book called What’s In It For Them, by Joe Polish.  It recounts the story of the 2000 British rowing team who won gold in the Sydney Olympics.  Leading up to the event, they all agreed and committed to asking themselves this question, when faced with any choice in or out of practice, “Will this make the boat go faster?”  For anything that the answer was “yes”, they committed to do it.  For anything that the answer was “no”, they committed not to do it, whatever it was.  These were decisions based on principle.  Hype, marketing, opinions of others, had no impact.  And they won the gold.

If we know what a real asset is, what real investing is, and that our goal is to get to the point where cash flow from assets meets or exceeds our chosen lifestyle, then we can ask the question: “Will this choice move us closer to that objective?”  If it won’t (especially if it’s not designed to do so for many years or even decades), then we can firmly commit to saying no.  If it will, and it doesn’t compromise our foundation, then we can firmly commit to saying yes.  

Having principles gives us a criteria to filter all of our financial choices through.  A filter can either be designed to catch the good things (i.e. panning for gold) or it can be used to catch all of the bad things, things that we don’t want (i.e. an air filter in a car).  

Ultimately, the more we know and learn to rely on principles, the more easily we will make choices and the more likely we will achieve our objectives financially because we will not be so easily swayed by mirages. 

Principles help us navigate the sea of financial choices we are faced with throughout our lives.  They are our compass and map.  With a compass and map, we can confidently find out where we are and where we need to go.