I’m finally hitting Publish on this post. It’s long. It’s not about photography. And it’s none of my business. But it is yours and as I’ve been talking about freedom a lot, I feel strongly that there’s at least one person out there that will read this and avoid making the same mistakes I did, and find freedom from some of this stuff much sooner.
We don’t talk much about money. It’s not polite, which is too bad because if we talked a little more about it we might worry less about it, and we might all have a little more wisdom on the subject. Our culture has multiple personalities when it comes to money. We want it. We trade our days for it. We buy goods that tell others how much of it we have. But we don’t talk about it. About 4 years ago I started talking about it, because as a confirmed financial moron, I had nothing to lose and much to gain. Getting my finances in order has allowed me to live the intentional life I keep talking about. In fact it started with getting intentional about my money. But this post isn’t really about money. It’s about freedom. Freedom to do amazing things with our lives. Generous, adventurous, creative things. It’s just that I need to talk about money because, depending on what we do with it, it’s either a path or an obstacle to that freedom.
I don’t think the secret of a good life is in financial riches. But I do think the good life will be better lived (more easily lived?) when it is lived free of the bondage of debt and the fear and the worry that results.
“Though chains be of gold, they are chains all the same.” ~ Bruce Cockburn.
Money is not the root of all evil. Money allows us to do things like feed kids, put a roof over our head, give to the causes we believe in, fund projects we long to be a part of, and travel to astonishing corners of this beautiful planet. True, money can be a terrible trap. So can poverty and debt. For all this, no one wants to talk about it, and those that do always seem to find a way to seem sleazy about it. It might help if we were less ashamed about wanting more of it, which would make us less ashamed about learning to use it a little better, and working a little harder to keep it.
I keep hearing that most North Americans – as an average – are only 2 pay-cheques away from financial ruin. Something tells me this is bad. Our debt load is astronomical. The 2014 numbers, for credit debt only, and only taking into account households that have credit debt, tell us the average credit debt (USA) is $15,000 per household. The average student loan debt in the United States is $33,000. I’m in Canada and our numbers are also staggering. Apparently there are more self-storage facilities in North America than there are McDonald’s restaurants. We keep buying stuff we don’t need, purchasing against our future, in hopes it’ll get better. It usually doesn’t. And still we have too much stuff.
You may have heard this from me before, but several years ago I completely ran out of options and went bankrupt. One of the many forms I signed said: Reason for bankruptcy: _____________. I wrote “Optimism.” We all think it’s going to get better, though we don’t often make the tough choices that would cause things to get better.
For all the words in this article, there are no magic bullets. They don’t exist, despite what all the Get Rich Fast schemes out there promise. If you want to manage your money, the short, painful secret that no one wants to hear is this: change. When people say they wish they could master their finances they usually mean they wish they had more money (don’t we all?), not that they’re willing to change their behaviour. Change is the hard part. Here are 5 things that I should have done much, much sooner.
This is the easiest. And the hardest. Not everyone needs two cars. Not everyone needs the latest iPhone, the latest big screen tv, the latest Nikon DWhatever or Canon WhateverDMkII. We don’t need it but oh do we want it! The problem, on a culture-wide basis (aside from how much money we make), is our appetite. GK Chesterton once said there are two ways to get what you want: the first is to acquire more and more, the second is to desire less and less. If you don’t need it, don’t buy it. If you bought it and don’t need it, sell it. Clear it out and don’t fill the space with something new. Tame the appetite. Learn to say no to yourself – or rather, learn to say yes to a bigger thing: a debt-free, clutter-free life that affords you the freedom to do what you want to do.
Our landfills are groaning from the waste. We don’t need it. Your kids don’t need it either. They’ll survive not being the cool kid. I did. Might be that not being the cool kid made me the person I am today. A simpler life, with less consumption, is more sustainable on many levels, including your finances.
More stuff, shiny stuff: it all comes with a promise, and it’s usually false. It never makes us cooler, but it leaves us with that impression for a while. It never lasts as long as we wish it did. And most troubling, someone’s always got something newer, ergo, something better, and we don’t. And it’s never anything we need.
What we need is freedom to live without the debt over our heads. We need freedom to pursue the opportunities that come to us in the present that we’re unable to take because at some point in the past we leveraged our future to buy something we so badly thought we needed. It’s a choice. I pay for nothing unless I have the cash for it. It means sometimes I have to wait. But the longer I do this, the more money I save, the less painful this is. It’s always harder at first. It’s going to hurt. But it’ll hurt more later if you don’t control your spending. If it’s too late, suck it up and go see a credit counselor. The sooner you take this seriously, the easier it’ll be. You won’t believe how fast a $10,000 debt becomes $80,000. It’ll make your head spin. You also won’t believe how freeing it is to live without owing a penny to anyone.
Scaling down applies to homes as well. I’m not going to go into it, but not all real estate is the investment it’s said to be, and there are many, many, good reasons to chose to rent instead of mortgaging a home. Cash flow is one of them. I’ve many a friend that laughed at me for throwing money away on rent who couldn’t themselves afford to do anything because they were so tied up in the mortgage they could barely afford, and several of those who sold the house years later for a return that didn’t come close to displacing what I gained from renting by paying no property taxes, no interest, and no maintenance. For some it’s a great idea, but question the prevailing logic because it might not be right for you. Don’t let pressure to own force you into buying – like all our stuff, a house can own you as easily as you can own the house.
Along these lines, my own policy is to buy the right thing the first time. Want a great pair of boots? Buy great boots the first time. I’d rather spend $200 every 5 years than $80 once a year for 5 years. Buying quality (not on credit) has always paid off for me. It’s false economy to be penny wise and pound foolish, as they say. Second thought – unless it makes you money, it’s a liability. Tech (iPhone, Macbook Pro…) is a terrible place to put your money, and without a debt the worst thing you can use credit dollars to buy. If it’s a business, a lease might be a good idea, but that’s a different conversation. I’m not saying don’t buy them, just to understand you’re buying something with a best-before date and the more years you can use it before buying yet another one, the better.
When I was young I was taught to put 10% of my money aside. I didn’t. What did I know about money? We didn’t have much of it, but I didn’t know that. It seemed to be there when I needed it. I had no idea how hard it was for my single mother to earn it. I wish I’d been more grateful. I wish I’d started saving. It’s human nature, when things are going well to assume they will always go well. Once you’re free of debt you can put into the bank all that staggering pile of money you were paying in interest. The best time for me to start saving was when I was 10 years old. You now know I didn’t do that. The second best time is now.
Once my bankruptcy was over I started put 10% aside into a savings account. I didn’t miss it. My trustee (court-appointed blessing that she was) told me to do this. In light of my financial incompetence, it seemed like a good idea to listen to her. Combined with tighter spending and no debt, that money in savings made me feel better about myself than any of the stupid things on which I’d spent my money over the previous decade. Slowly I opened more bank accounts, into each I put a specific percentage. Now I have money saved for the tax man, for my travel, and other adventures and contingencies. I do this every pay-cheque and I pay myself first – which means those 10% chunks go into the bank before anything else happens (unless I’ve put something on the credit card to get air miles or purchase protection, that always gets paid first, no questions). Fill those buckets first, then whatever is left over is your means. And it might not be big just yet. But you know what, you’re debt free. You have money in the bank. And no, you may not have the newest Nikon. You have something much better – you have the freedom to use your camera – go somewhere! – and when it breaks or finally dies, you won’t have 2 years of payments left to make on it. Money saved is the same as money earned.
If you’re going to put money in the bank, shop around. Know what interest you’re earning, and how much you have to pay in service charges to earn it. Could be you spend more in a year with that savings account than you earn. That’s not saving. Know your country’s opportunities for tax breaks and leverage your RRSP, 401K, TFSA, or whatever the equivalent of tax free savings or registered retirement finds. One year I saved $11,000 that I would otherwise have paid in taxes, but moving it from a savings account to a retirement fund. One had tax breaks, the other didn’t. $11K is a lot of money and in the right investment it can double in 5-7 years. Keep reading.
Do something with that money. I think it was the book Rich Dad, Poor Dad, in which I read this idea: the poor work for their money, the rich let their money work for them. It’s overly-simplistic, I know that, and I bristle at the distinction. But there’s something to learn in it. When you don’t service a mountain of debt, and when you’ve got some money saved, there’s money to invest. Where you do that is up to you. I won’t invest in the stock market, it feels too much like gambling, and mutual funds, etc., scare me. A friend of mine told me he will only invest in what he understands. For me that’s small investments in private equity that routinely yield 10-12%. I won’t explain it because that’s not my place. But 10%, compounded over the next 20-30 years is a great return without being too risky. If you could put $10,000 into something like this, you could double your money every 5-7 years. In 30 years, without doing a thing, you could have $160,000 from that initial $10k. That’s the possibility. But it’s going to take some work to find those opportunities and sift through all the empty promises.
Investing where you’ll see great returns is not just about making more money. It’s about giving your money away, in the places you want to make a difference. It’s about being able to create something – including a bank account – larger than yourself.
Don’t just follow the crowd. Study this stuff the way you do your photography. Be intentional about it. Read books like Rich Dad, Poor Dad, or The Richest Man in Babylon. Look up I Will Teach You to be Rich by Ramit Sethi, it’s an awful title that makes me feel like I need to go take a shower, but it contains some solid wisdom and should really be called, I Can Teach You Not to be a Moron with Your Money. And if you know almost nothing about money, any of those three books is a good start. Some ideas will work for you, some will not, but you’ll learn. And investing where you’ll see great returns is not just about making more money. It’s about giving your money away, in the places you want to make a difference. It’s about being able to create something – including a bank account – larger than yourself.
Diversifying your investments is smart, but so is diversifying the way you earn that money. Find a way to earn multiple income streams. Pull your water from different streams, so to speak, and you’ll be less vulnerable when one stream dries up. And if you make one of those streams a passive income stream, even better. You can only be in one place, earning one dollar at a time for your presence. A book that earns royalties earns when you’re off doing something else, perhaps the day job you’re looking to one day leave: that’s passive income and the opportunity for this kind of thing has never been better. Spend some time looking around and you’ll see a staggering variety of things people have leveraged into new streams of income – both active and passive. eBay, Etsy, Shopify, and eJunkie all allow you to sell from almost anywhere in the world. And there are the same amount and quality of services that allow you to to broadcast or teach online, too. You can literally carry a store, a TV station, and a radio station, in your bag, and run it anywhere you’ve got a laptop or tablet and an internet connection. I’ve serviced customer issues from Antarctica. You can do this. If you haven’t read them, I’ll recommend them again: Crush It! by Gary Vaynerchuk, and The 4-Hour Workweek by Timothy Ferris. These books gave me notebooks full of ideas. The eMyth Revisited, by Michael E. Gerber is another good one if you’re looking to become an entrepreneur.
None of this is easy. Definitely isn’t magic. Changing our lives can be hard. Our own habits are hard to break and we live in a culture that passively, if not actively, encourages our debt and consumption. It keeps the big wheels well lubricated. But eventually your own wheels will seize up. Don’t let it happen. Your freedom is on the line. Your one chance at an extraordinary life may not be completely hijacked by your debt or money struggle, but mine was getting strangled. It took re-educating myself, changing patterns I didn’t want to change but could no longer afford. Read some books, talk to someone who knows how to use money well (not a guy who runs a mutual fund gig selling what his boss tells him to sell) – money is a tool and the sooner we learn about how to use it, the sooner we can build something amazing with it. Don’t give up.
Not an easy subject. Even harder to admit when things have been off the rails and ask for help. It’s deeply personal, I get that. It’s one of the reasons I’m finally publishing this article, which I’ve written and re-written a hundred times over the last year. I’m open to this post being a total bust but if it gives just one of you some new resolve or a fresh idea on approaching this, then it’ll be worth it. Your finances are none of my business, and my answers might not be yours, but the comments are open if you want to bounce some ideas around, tell your story, refer us to a good resource…