Monday, January 12, 2015

Functionalist perspective on the attainment of Financial Independence.

The primary reason why I avoided the study of Humanities when I was younger was mainly because I do not like the idea of getting lots of B's when the report card gets handed back to us.  The secondary reason, which also explains why I do not have great luck with Arts girls when I was an undergraduate, is that I have a very utilitarian and pragmatic philosophy of life.

Like many engineers, I am not only vulgar in my words, I am vulgar in my outlook of life. Here's hoping Law school can change that.

Imagine that you are in an RPG game and you find a magic sword. A great humanities scholar will be interested in it's history, the player wants to know who forged it, who wielded it into battle and how was it lost. Perhaps it was forged prior to the Doom of Valyria, wielded by Azhor Ahai, a great hero of ancient times who perished it battling an armada of fire breathing dragons.

When I find a magic sword, the only thing I want to do is to hit someone with it. The more damage I do, the more satisfying it is. I don't care if it's the great flaming sword of Azhor Ahai or the +2 Dildo of Sodomizing Justin Bieber.  I like to roll critical hits with my weapon, behead my opponent and kick his head around like a football after I am done with it.

Imagine my loss that it took me 40 years to discover Functionalism !

Functionalism is a methodology used in Comparative Law. To shed insight on legal systems around the world, scholar ask themselves what is the purpose of these laws ? Another words, while the Law of Contract differs from US, Singapore and German jurisdictions, the function of having rules is to govern agreements and promises between two parties. Different societies evolve different approaches to deal with people who breaks oath and promises.

This insight is actually quite brilliant because I think if I swing this concept hard and fast enough, we can learn something about why some people attain independence and why some don't.

I think  the problem with very technical financial authors like myself, there is a lot of focus on technique. If you distill the essence of how I attained financial independence, its basically get a decent job, save aggressively and invest in high yielding instruments until the yields exceed your monthly income.

Even today, it baffles me as to how people can't do something as simple as that. I have actually met lawyers in the past, salivated over their 5-digit monthly incomes and then they ask me how to budget their expenses because there's not enough to go by every month.

The insight on financial independence I just learnt from my legal texts is this : While almost every piece of financial advice is similar, the purpose of the person who seeks financial independence differ. This is the opposite problem in Comparative legal scholarship.

What is your purpose of seeking financial independence ?

If what you seek is income security to cope with job loss really want that quiet confidence  to live out your life without being a slave to any corporation, then the method of dividend and value investing makes a whole of sense and like many other financial bloggers, you should be able to attain FI before the age of 40. This life can be boring.

If what you seek is variety, you aspire to the kind of Facebook creature  living that parachutes off planes and take lots of picture of your high-end cuisine, you are likely to fail, because for FI to take place, it often means having a very austere lifestyle for more than a decade. All that advice on budgeting and seeking yield based instruments will not allow you to meet your purpose. It's like Afghanistan developing securities trading laws. I think that instead you should be attending Dale Carnegie courses and should look for a good sales job to attain that lifestyle.

The final insight from Functionalism is actually common sense : You need to know what you really in life and have a definite purpose before you look for the tools and the techniques to achieve that purpose.


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