How Razors Can Aid Against Financial Pitfalls


Financial Independence / Friday, February 23rd, 2018

Razors? The heck are you talking about?

I have not gone mad, nor am I heavily medicated. Gillette razor reps did not kidnap me and forced me to write this in a prison cell. An inspiration did hit me to write up just something different. It could suck, but whatever. I mean, how many more times can people read rehashes of Trinity Studies and the 4% rule?

So what are these razors I am speaking of?

Anyone who has ever opened a philosophy book was already shaking their head in disgust when they read the title. I will let Wikipedia explain the meaning as they are spot on:

In philosophy, a razor is a principle or rule of thumb that allows one to eliminate (“shave off”) unlikely explanations for a phenomenon.

So how will this help you out with financially and avoid pitfalls? Maybe it will or maybe it won’t. Read on…

Occam’s razor :

When faced with competing hypotheses, select the one that makes the fewest assumptions and is thus most open to being tested. Do not multiply entities without necessity.

As we all know, there are so many competing schools of thought on financial independence. If we apply Occam’s Razor to this, how will it turn out?

When there are multiple theories to a problem, you would generally want to pick the simplest premise in the beginning (unless evidence is presented against it otherwise). It is advising against adding additional ideas to justify the claim. The more assumption one has to make to justify the explanation, the more unlikely that the explanation is true.

What is the simplest solution to achieving financial independence – the basic foundation without complicating matters?

Save money, reduce spending and invest the difference ™.

This has been proven to be a time-tested pillar that just simply works. Even if you were to not do all the complicated stuff, following this would probably still get you to financial independence. Optimizing the path and speeding things up is a whole other matter.

There are other ways to get to FI, but for most people, this path is true. People sometimes over complicate matters when first starting out instead of focusing on the foundation.

Grice’s razor :

As a principle of parsimony, conversational implications are to be preferred over semantic context for linguistic explanations.

Many financial advisers or life insurance salespeople will be guilty of this one. They would purposely use complicated language or wording to explain their investments or other financial instruments, instead of using pragmatic explanations or plain language.

Their hope is that you would either be too scared to self-manage or be impressed over their semantics. You would then be stepping into an investments which you do not really understand, while they laugh their way to the bank.

Technical concepts should be difficult to explain, but it should still be presented in an understandable format. If not, they are not doing their job. This is one reason why certain financial independence blogs are so successful – they are able to explain in plain language, a difficult concept to everyone to understand.

Stay with explanations that are straightforward and practical, instead of fancy, impressive language. A complicated financial instrument you do not understand might actually extend your time with the workforce, unwillingly of course.

Hanlon’s razor :

Never attribute to malice that which can be adequately explained by stupidity.

One of my personal favorites principles.

Not everyone is purposely out to get you. The Uber driver imploring you to dump your life savings into Bitconnect is not necessarily evil, but be merely introducing you to a stupid idea, even with the best of intentions.

This principle will also allow you some relief and solace along the way. You will begin to realize that a lot of things which are happening to you is not because someone necessarily hates you (although someone out there might), but it’s because someone did something stupid which somehow affected you directly.

Never underestimate the power of stupidity and you’re invited to play in the cosmic shit lottery. Often time. you will win.

Hume’s razor :

“If the cause, assigned for any effect, be not sufficient to produce it, we must either reject that cause, or add to it such qualities as will give it a just proportion to the effect.”

Essentially, when someone is promising you a get rich quick scheme that sounds way too good <cough, Bitconnect – yeah, I like ragging on them>, they should be able to provide sufficient and equally compelling evidence.

We all fall too quickly to outrageous claims – blinded by our greed, impatience or hope that we found that “one winning investment”. Shysters prey upon this.

A famous line sums up this principle – extraordinary claims require extraordinary evidence.

If someone is “hooking you up” with the opportunity of a lifetime guaranteeing some insane returns (stocks, bonds, real estate, business ventures, etc…), make sure they can provide a damn good explanation of how it works before handing over a single dollar.

Hitchens’ razor :

“What can be asserted without evidence can be dismissed without evidence.”

Coined by one of my personal heroes, the late Christopher Hitchens. This one is pretty straightforward.

(Photo by Peter Power/The Toronto Star)

Similar to the previous razor, this one “cuts” right to the chase. You can simply ignore things which are claimed without any proof. No need to keep going down the rabbit hole with them and waste time trying to disprove them.

This one saved me a lot of headache with relatives who think multi-level marketing is the next best thing since sliced bread and saying it’ll make “me” rich.

How come they are not rich and begging me to sell under them??!?!?! The boxes of Herbalife hitting the ceiling in their spare bedroom is giving me great confidence!

Alder’s razor :

If something cannot be settled by experiment or observation then it is not worthy of debate

AKA – Newton’s flaming laser sword

Many times, we read a financial independence blogs and think it’s awesome, without really going into the meat of their claim.

This principle helps to remind us to absorb content with a grain of salt. When people introduce premises about how it will get us to financial independence, we should question if the techniques are testable. We need to be able to separate between actual techniques and opinions / subjective advice.

If it can be tested, observable and supported by evidence, then the claim is more likely true – although nothing can be completely correct.

Test out the theories and premises of content that you consume! Just check the math once in a while, please?

As with life, nothing is perfect.

There are more razors which I did not mention, like Rand’s razor and others. I feel like I am already stretching a bit to make these square pegs fit into a round hole at this point.

The whole point of this post is to really make you aware that although there is a lot of good content and knowledgeable people out there, their information could be possibly incorrect or damaging. There are also a lot of  psudeo-gurus who wants to benefit off you financially, “here in their garage with their Lambos” trying to selling you “knowledge” to get rich (themselves of course).

For people trying to reach financial independence, it should be important that they fill their toolbox with as much tested and proven knowledge, as much as possible. I understand that there is an emotional factor as well, but the foundation of having some testable truth(s) is important to start.

TLDR:
  • Do not over complicate the premise unnecessarily in the beginning.
  • Make certain it could be tested and dismiss things that cannot be.
  • Shit can and will happen..
  • Stay skeptical.

Follow these few simple principles so you can filter out a lot of the junk and overload of financial independence information out there. At the very least, you are now armed to win a philosophical argument against a good friend over a beer.

If you are not bored to death yet and somehow interested in more posts, click here.

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