Your Time Is Worth Something

October 3, 2012

“Give up my seat? With pleasure!”

The other day, speaking with one of the few personal finance bloggers who doesn’t want to see us drawn, quartered, and fed to narwhals, we got on the topic of public transportation. (Alright, it was her. She’s a sweet gal: don’t hold it against her that she associates with us.) We each concluded that we’d rather crawl wherever we were going until our knees were bloodied and infected than get on a bus.

When you’re 11, riding a bus (solo, anyway) is awesome. You’re away from your parents, and you have the freedom that your 10-year-old sibling who’s stuck riding with mom and dad doesn’t yet enjoy. Sure, where you can travel is still limited (by the bus driver, the connecting routes, their schedules, your curfew), but if you’re plucky enough you could theoretically hop a Greyhound to Belize and start a new life. Even if you don’t, public transportation still beats the hell out of being stuck at home or in the passenger seat of your mom’s Scion.

But you know what happens? Most of us grow up. We want wheels of our own, giving us a new kind of autonomy that that 11-year-old bus rider can barely comprehend. Hopefully, you haven’t forgotten this yourself. Wherever you’re reading this, there’s nothing to stop you from getting in your car at 3 a.m. tomorrow and driving wherever you want to. That’s a liberty that most of us take for granted, so much so that we don’t even bother thinking about exercising it. “Are you crazy? I have to work that morning and I’d be dead tired. Can’t show up at the office groggy. What will people think? Besides, I was out late last night, almost 7 p.m.”

What does this have to do with money? Everything.

Those of us who drive do so because we like self-determination. It’s not that we necessarily like paying $4-something a gallon for gas, sitting in traffic, nor burning fossil fuels and turning the planet into a premature Venus. The last of those is irrelevant, and the first 2 aren’t even up for consideration. A car lets you go wherever you want, whenever you want. For that degree of freedom, $4 a gallon is an unbelievable bargain.

Most of us don’t live in Manhattan (thank God), Tokyo or Singapore. There’s no subway station outside the door. And even if there were, we’d still have to share it with people. You folks who think that riding public transportation is the greatest gift you can give to the planet short of buying carbon credits don’t know what you’re missing.

Did you know you can save $12,000 a year by not owning a car? Gas, insurance, repairs…

So you’re saying that for just $12,000 a year, I can come and go as I please? Have somewhere to store certain stuff as I run errands throughout the day? Keep warm in the winter and cool in the summer? Listen to music I like while going where I’m going, as loud as I want? Go on a roadtrip next weekend?  My God, cars are the most amazing deal ever. You just said so.

We’ve progressed pretty far as a species, but the fundamentals of off-roading via public transportation continue to elude us. Buses and subways traditionally steer clear of sand dunes, mountain passes and 4WD roads.

Transporting cargo. You know what you can do in an SUV that you can’t do on a bus? (No, aside from that. Grow up.) Go to the supermarket and buy a week’s worth of groceries, for one thing. How you central business district metropolitans can survive carless, and thus limited to the amount of groceries you can carry in your hands, is beyond us.

The only reason to take the bus is if you don’t value your time. Drive 20 minutes somewhere, or take an hour including multiple transfers to save a portion of that $12,000 a year…it’s up to you. Now if you’re a kid who’s too young to drive, your time is pretty worthless anyway. You still have decades ahead of you, which you can squander first by going to college, then by paying off student loans. Besides, if you’re under 16 you have no choice in the matter anyway.

Those of with places to go and people to see – you know, adult interests – realize there’s only an ever-diminishing finite time in which to get things done. Knowing that, why on Earth wouldn’t you do so as efficiently and quickly as possible?

An advanced city is not a place where the poor move about in cars, rather it’s where even the rich use public transportation.

– Enrique Peñalosa, former mayor of Bogota

The best part about pithy quotes? You don’t have to elaborate on them! Like the ones attributed to Einstein (World War IV will be fought with sticks and stones, if bees die out humans will follow them within 4 years, etc.) While losing nothing in the translation, the above Twitter-friendly sentence (8000 or something retweets) is simultaneously provocative, unexpected, and devoid of sense. Rich people don’t sacrifice autonomy and self-determination, neither to have a boss push them around nor to wait for a bus. That’s what makes them rich. 

The next time an idealistic idiot tells you that driving cars is a social ill, run him over. Driving and maintaining a car says that your time is yours to cherish and make the best use out of. Taking the bus says you’re poor, a manipulable automaton, or both.

Filed Under: Capitalism, Healthy Living, Making Smart Choices Tagged With: , ,

Money Is The Root Of All Evil

September 26, 2012

 

Indisputable moral evil, the result of the LACK of money.

If you really believe the headline, then we have a lot of deprogramming to put you through.

In and of itself, money is nothing. People who complain about money, or its absence in their lives, or its influence in the world at large, are missing the point. Money is an abstraction, a mechanism for keeping score. It’s a representation of tangible goods and services. As a society, we’ve decided to use money because it’s infinitely easier than bartering everything would be.

Marissa Meyer doesn’t have more money than you so much as her capitalizing on her particular combination of talents, background, luck and other attributes have enabled her to amass more stuff than you. That’s a distinction and a difference. The stuff, exchangeable for other stuff (and that exchangeability is one definition of money), builds upon itself and allows its owner to propagate and maintain a lifestyle. If you earmark a chunk of that stuff for investing – i.e., allow other people to use the representation of your stuff, in the hopes of generating still more stuff, to be distributed among all the parties involved in the investment transaction – and you get a sufficient return, you can keep doing this indefinitely and free yourself from the hassle of going into an office or on a jobsite every day. Correspondingly, you can then spend your time on other pursuits that transcend commuting, pleasing your boss, sitting through racial sensitivity workshops and many of the other banalities of modern life in a developed society.

In case it isn’t obvious, we’re generalizing here, well past the parameters of that amorphous topic called “personal finance”. It’s about self-actualization, which is more than just a term used in a famous paper by some long-dead academic looking to earn credentials.

If you clicked on the link, you’ll notice that most people you know spend the majority of their lives on the 2nd level (from the bottom) of the pyramid.

This is how our Bronze Age antecedents lived. Or our subsistence farming brethren who dwell today on the steppes of Bashkortostan. Or pretty much every non-domesticated species of animal. We’re supposed to be beyond this. For 99% of human history, the most important task at hand has been ensuring you have a full belly. We don’t have to do this anymore. Go to your neighborhood supermarket, and for the price of a couple hours’ wages you can find enough protein, fats and carbohydrates to keep you alive for a few more days. No threshing, gathering, planting, sowing, digging, silage, nor sunup-to-sundown workdays required. Just a couple hours of your time, which you might very well have spent in an air-conditioned office, on an ergonomic chair.

For us at CYC, even that couple of hours is too much time. Which brings us to a fundamental truth about making money, something the poor and permanently struggling are too dumb to figure out:

The relationship between effort rendered and reward received is not linear.

You can complain about this, you can say it isn’t fair. You might as well complain about the weather. The line italicized above is the text of a natural law. (Hyrum W. Smith: “A natural law is one that cannot be repealed.”) If you work twice as hard as your neighbor, you probably won’t make twice as much money. The assembly-line employee who creates widgets at twice the speed of her less competent co-worker is an abstraction, too, and not a particularly elegant one. There’s a limit to how many widgets you can create, at least with your own hands, and thus a (modest) upper bound to how much stuff you can exchange your time as a widget-maker for.

So you have to leverage. For most people who are smart enough to sniff the 3rd level of the pyramid, this means going to college. The theory is that an additional 4 or more years of taking notes in various classrooms will enable you to increase the ratio at which you receive stuff in exchange for a fixed amount of time.

Ask this 30-year-old child how that’s working out for him.

Education is swell. Deferring real life while fooling yourself into thinking you’re doing something worthwhile is not. A computer science degree will guarantee you a profound change in your ability to convert your time into stuff. A women’s studies degree will not, and hopefully that goes without saying. The latter won’t help you convert your time into stuff any better than a high school diploma will. In fact, the diploma on its own will do a far better job, seeing as it didn’t directly cost its holder thousands of dollars to earn.

So you have to leverage beyond mere education. Which means borrowing money in anticipation of greater returns. The vast majority of wealth on the planet – the ever-growing mass of everything from furniture to office buildings to surfboards – is the result of some people borrowing from others to finance their desires. On the individual level it can mean going to the bank, and borrowing money that other people have deposited there, so you can buy a house. Which saves you from exchanging too many of your hours at work so you can rent a place to live, from a landlord who figured out this leverage thing a long time ago.

The balances in your 401(k) investments – mutual funds, etc. Technically most of that is equity and not debt, but you’re still forking over money to the managers of the funds’ components so they can make more stuff. Which is leverage, again. Leverage is supposed to be mutually beneficial, and it usually is.

But most of the benefits accrue to the person who’s initiating the leverage. The investor who finds a plot of land on which to build an industrial park that will eventually house some paying tenants, but needs some partners to chip in. The car salesman who figured out that financing cars pays better than selling them does. The tradesman who cashes out said 401(k), gladly paying the 10% penalty, so he can start his own contracting firm. The working stiff who decides that being an investor sounds more rewarding than waiting for a raise.

Sure, they might fail, at least initially. That’s not the point. The point is that the alternative – punching a clock as life ticks away – is the real risky behavior.

Filed Under: Capitalism Tagged With: , , ,

The 25th Through 28th Ways Rich People Think Differently

September 21, 2012

 

Don’t just laugh at this. Wear it to your next job interview if you want to avoid being average.

 

You’re not going to understand this unless you read Wednesday’s post.

Rich people know that if you have “something to fall back on”, you’ll fall back.

“Your dream is to perform on Broadway? Good for you. But finish that political science degree, so you’ll have something to fall back on.”

Not to delve into the semantics of this, but think about the expression “fall back”, and its antonym. You’re making allowances for your own eventual failure, or regression, and practically expecting it.

This doesn’t mean that rich people follow their dreams without thinking about worst-case scenarios. It means that rich people don’t even think in terms of “dream achievement” vs. “safe harbor”.

Making subsistence money is not hard to do. (Besides, in the estimation of noted average person Trent Hamm, making more than $25,000 a year barely makes you any happier at all.) But when you do so while in a fallback position, like when you’re using a teaching certificate that you never wanted in the first place, it paradoxically makes it harder to walk away and do something more ambitious. “I put all this time and effort into getting my teaching credential, I might as well use it. Even though I hate everything about the job. Although I suppose I could convince myself that I don’t.”

Finding your passion isn’t just self-help blather. It’s Ricardo’s Law of Comparative Advantage in action. Do what you’re good at, and not just you but the rest of society will benefit. Or just be miserable and do something you hate. What do we care? It’s your life, not ours.

 

Rich people could absolutely give a damn about being ostentatious. Average people want you to notice and thus validate them.

Jewelry? Seriously, what’s the point?

Rims? You can’t even admire them, because you’re inside the freaking car.

Bottle service? Okay, now you’re just screwing with us. You clearly hate money if you’re paying $300 to have a waitress come to your table and make drinks for you. 

What are you talking about? Rich people love to spend money on expensive things. You’re telling me rich people don’t own private jets, etc.? What about Donald Trump?

Slow down, average person.

First of all, Donald Trump isn’t a rich person so much as he is a guy who’s created a character of a rich person that he uses to great effect. The showiness is intrinsic to his celebrity, and frees him from the ignominy of being just another faceless New York real estate tycoon. The outrageous statements, the speculative presidential runs, even the hair: it’s all part of the act.

Take a more ordinary rich person, one of typical rich-person showiness. Warren Buffett doesn’t own a Bombardier Challenger 600 so he can be lavish. (That’s Floyd Mayweather’s thing, and God knows how badly that will end.) Warren Buffett’s time is worth a lot. He isn’t doing anybody any good, himself nor anyone else, by getting to Eppley Airfield 2 hours before a scheduled flight to Denver so he can stand in the TSA line removing his shoes and emptying his pockets while eating a Cinnabon. Better he get where he’s going as fast as possible, move some more assets to higher-valued uses as he does, and get back home. Buffett owning a jet is the equivalent of you owning a car. Or would you prefer taking a bus to work, moving only at the whim of the bus scheduler, and running your errands and going to your kids’ soccer practice without autonomy?

Rich people spend money with the end in mind. They spend for a tangible purpose that more often than not will pay dividends. It’s not “How much will this jet cost me?” It’s “How much will this jet enrich me?” When Warren Buffett and Charlie Munger fly out to Vegas to spend the night dancing and imbibing at Marquee, you can bet they go to the bar and order their own drinks like normal people like rich people.

 

Rich people see money as a vehicle, not a destination.

The standard axiom is to contrast “journey” with destination, but that doesn’t serve our purposes. Here’s the message of this entire series, reduced to a single example:

Average person:

Can I afford this vacation? I have $x in my savings account.

Rich person:

Can I afford this vacation? My monthly passive cash flow is $x beyond my living and other mandatory expenses.

 

We used x because the numbers themselves aren’t as important as the observations. In fact, the observations are even more important than whether the person in question can afford the vacation. The responsible average person, who determines that yes, she can, isn’t philosophically different than the irresponsible average person who just whips out her credit card and doesn’t think about how she’ll have to pay the minimum balance for the next 30 years. At best, an average person sees an indulgent expense as something to justify – a tradeoff. Enjoy it now, but it’ll cost you later.

A rich person sees an indulgent expense as something to pay for out of money coming in, rather than out of money sitting stagnant. Obviously, paying for a vacation requires anyone to economize a little. But a rich person thinks about how doing so will reduce his cash flow for a fixed period. An average person thinks about how doing so will reduce his net worth.

Cash flow and net worth. Both are important, but the former is a better indicator of what you can afford in the short term. A rich person wouldn’t take on a frivolous expense that would cut into net worth, or even think in terms of doing so. An average person either doesn’t think about cash flow, or doesn’t have large enough cash flow to warrant said expenses.

Some people read this and grasp it immediately, others don’t. Cash flow is just that, flow. Money coming in. Money goes out too, but the idea is for cash flow to be net positive. The cash flow becomes the more important measurement for determining your ability to buy things, mainly because net positive cash flow, by definition, will always increase your net worth. A rich person knows his net worth is increasing just by looking at his cash flow. He doesn’t even need to look at the net worth.

So a rich person looking to indulge himself doesn’t think about saving and scrimping for the indulgence. He thinks about that money coming out of cash flow instead, which will temporarily lower the flow. He doesn’t think “I’ll have to spend x% of my net worth on this vacation.” He thinks, “I’ll have to spend y days worth of cash flow on this vacation.” When he returns, and no longer has a vacation to pay for, the cash flow picks up where it left off. As if nothing ever happened. Meanwhile, the average person thinks about how to get back to his previous level of wealth.

 

Rich people aren’t waiting for Daddy to make things all better, average people are.

Finally, and excuse us for quoting ourselves, rich people buy assets and sell liabilities. Average people buy liabilities and sell (or at least, fail to buy) assets. They aren’t blowing hundreds a month on ways to deaden the pain of their unfulfilling lives, get their buzz on, buy Marlboro Lights by the carton because it saves money, I do it because it relaxes me or whatever. Instead, even spending that money on something as mundane as an increased 401(k) contribution will help free you from the miasma of averageness.

That’s the biggest difference between rich and average people, right there. It dwarfs most of the others, which are largely about thought rather than activity. Again, this stuff is unbelievably simple to comprehend, and not all that much harder to act upon. Amazingly, actually making up your mind to embrace it is the hardest part for most people.

 

Filed Under: Capitalism, Economics Tagged With: , , ,
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