Crypto and other Hail-Mary financial plays show that many of us aren’t greedy, but desperate. But desperation will make the situation worse.
By now you’ve all probably heard about the latest failure of a crypto exchange, FTX.
Even if you don’t understand what a crypto exchange is, you know one thing: a lot of people just lost of a lot of real (non-crypto) money.
And perhaps you were one of them.
I sure hope you weren’t, but more than a million people were affected in the collapse, so it wouldn’t be totally out of left field for it to be you.
There’s plenty of schadenfreude to go around, and a lot of anger for boy-wonder-turned-Madoff-wannabe Sam Bankman-Fried.
But I don’t really share any of that. What I see in the millions who put money in FTX, or Dogecoin, or a million other plays, is desperation.
There is something to be learned from all of this though, even if you never owned a single FTT token, and even if you think Shiba Inu is just a breed of Japanese dog.
It’s that desperation isn’t a financial strategy.
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Greed versus desperation
You may have thought that I was going to say “greed” above, not “desperation”.
But while greed might have been a factor, I don’t think it was the primary motivator for most of the people cashing their paycheck and buying tokens.
Greed, to me, implies that you are of means, and that you want more, perhaps more than you might otherwise be entitled to.
Whereas desperation is more of the desire to acquire through any means possible, without reasonable oversight.
Would you call a homeless person greedy for trying to collect donations from passersby, or for playing the lottery?
Instinctively, that doesn’t feel like greed.
And make no mistake, the majority of us, we are that homeless person.
What is financial desperation?
Financial desperation is acts involving financial transactions (or the desire for same) that contain a lack of oversight, or perhaps a lack of adherence to a reasonable risk/reward equation.
In short, it’s making bad decisions with money, in the hopes of getting out of a bad situation.
For me the canonical definition of financial desperation is the final scene in Run Lola Run, where the lead character bets all of her money on one number on the roulette wheel—twice in a row—in the hopes of gaining enough money to save her boyfriend from being murdered.
Now, while this scene incredibly ends up going her way (sorry for the spoiler), in reality, this doesn’t happen, at least not to us regular folk.
But it doesn’t mean people don’t try.
Why do we feel desperate?
The problem here is that so many of us feel like we have already lost the roulette spin in life.
We see wages not going up when compared to inflation, the cost of goods and services rising, the need for newer and more expensive stuff to keep up growing without cease.
The result is that people have lost hope of becoming financially secure.
For every poor soul who may have majored in some throwaway major and left college with $100,000 in student loan debt, the vast majority of us will graduate with debt that it will take years, if not decades, to pay off. (And some people won’t even graduate.)
The prices of cars and homes, relative to yearly incomes, have risen many times what they were in generations past, so anyone over 50 who says, “well I bought my home at age 24” clearly doesn’t understand (or care to understand) how math works.
In short, the system isn’t working for people.
Or rather: most people.
Because on the other side, you have these individuals who have gone from strength to strength, even profiting handsomely in the pandemic.
These are the people (or investors) who don’t care about interest rates on mortgages because they can pay cash for homes.
These are people driving up prices for everyone else.
And at the top, you have billionaires, who determine our laws that perpetuate their wealth, who have literally zero idea what it’s like to have $100,000 in debt and work for $50,000 a year, while paying $2,500 a month in rent.
These clowns can do stupid, vanity projects like buy a social media company for $40 billion dollars, and be able to walk away even if it crashes and burns.
Now, I ask you, is it any wonder that so many of us are desperate?
What financially desperate people do
People who are desperate don’t take standard, well-founded advice, and instead, try to take shortcuts.
This describes our crypto folks quite well.
One could argue that there are practical uses for crypto projects, but I can confidently say that most people who were putting money into crypto didn’t care about any of that. Instead they were trying to make a fortune.
Crypto has been around for less than two decades. It doesn’t have the best track record. While some become ridiculously wealthy, most do not.
Desperate people also play the lottery. This has less potential to bankrupt you, but as I’ve said, you have as much chance of winning the lottery if you play as if you don’t play. So do yourself a favor and don’t play.
And financially desperate people do not invest in sensibly-returning low-cost index funds, because they heard that “the market might crash at some point in the future”.
At this point though, anyone who says that the global financial system is somehow more prone to collapse than crypto, is not someone who is talking sense.
Financially desperate people do not track their spending either, because they don’t connect it to taking control of their money.
When you’re so used to feeling like you have no agency, and nothing you do matters, you may ignore the small places where you do have control.
You have (some) control
And that’s where I want to make sure that we end here: you have some control. Not a ton, but some.
Sure, you can’t affect gas prices, but you can buy a more fuel efficient car and/or change where you live to require less driving.
Sure, you can’t make things cost less, but you can advocate to make more money for yourself.
And while you’re most likely not going to be a millionaire, you can become wealthy, over time, by following a few, boring, well-founded principles. Among them:
- Track your spending to become more intentional
- Reduce/eliminate your debts, and don’t take on more
- Save up for purchases before buying them
- Have a fully-funded emergency fund
- Invest in tax-advantaged, low-cost funds when you’re out of debt
- Advocate for your income; seek more, and don’t feel bad about it
Do this over a lifetime, and you will have all of the money you need to live comfortably.
Sure, it must feel scary to work a plan that may take years or even decades to fully pay off. But in my experience, you can see real results in only a few months.
And it’s certainly better than betting it all on some crypto fund.