I was going to post a comment in response to this post on a personal finance blog that I had never read before coming across a link to said post, but then I decided I shouldn’t hijack that person’s comment section, I should instead just write my own post. BECAUSE THAT’S WHY I HAVE MY OWN BLOG.

Also this feels appropriate because July 1 (when I started writing this post) would have been my father’s 78th birthday, and I think that my father would have been proud of me for being able to write this post. He was a CPA who was very patient in letting me ask him dumb questions over and over again until things finally made sense. (We had probably 15 conversations about depreciation before I got it.) He also would never just give me an answer, he would send me the Rev. Notice or whatever his answer was based on and have me read it for myself.

This was his approach my whole adult life.

Like for instance in 1992 when I found myself with $3000 that I needed to figure out what to do with. (Despite making around $18,000 a year at my first job in Princeton, NJ, I managed to end up with that amount in a savings account that I needed to close following my relocation to DC/Virginia.) I asked my dad what I should do with it and he told me that before he would tell me what to do, I needed to learn about the stock market. He gave me a list of books to read, one of which (the only one I remember) was The Intelligent Investor by Benjamin Graham. Once I’d read that, he told me, we could talk about it and I could tell him what I thought I should do and he would tell me what he thought I should do.

So I read The Intelligent Investor and it helped me understand the stock market and not be afraid of it. I closed my savings account and with a third of the money I bought a new bike (which I still have, and still ride) and the remaining $2000 I invested in a couple of different mutual funds. Once I started doing my own taxes a few years later, I realized that the Vanguard fund I invested in was far better than the others, the returns were better and the taxes were lower, so I stopped putting new money into the others and instead put all of my monthly transfer into Vanguard.

By the time I bought my house in 1999, I had more than $30,000 in those investment accounts. I bought my house for around $100,000 so I only needed $20,000 for the 20% down payment, and the rest I left in Vanguard for later use. It’s been really great to have that money. I’ve been able to dip into it as needed — for work on my house, to pay off my student loans from grad school, and (in the past few years), to help prop up the nonprofit I work for to avoid fiscal crisis — as well as to have it as “just in case” money that keeps me from worrying about not having any money.

I thank my father every time I look at my Vanguard statement. He didn’t give me any money to put into it, but he gave me something much more important — the education and knowledge I needed to take care of things myself and to make good decisions about money.

Thanks, Dad.

*****

Okay, here’s the post I started to write, which is probably of interest to no one. But I am posting it anyway. Because this blog is not for you, Dear Readers, it is for ME. You’re just along for the ride.

Here goes.

Dear My Money Wizard,

Your post on earning tax-free income was interesting, but it seems to be missing some context. And since you work in finance, I’m assuming you know all of this, but I’m going to lay it out here anyway since I know there are lots of other people out there who don’t.

Here are a few things I noted and wanted to comment on.

1. A dividend is not a “thank you” from a company for buying its stock. You’re not doing a company a favor when you buy stock; you’re providing the company with capital, in exchange for which you are receiving an ownership interest in the company. (Whether you do this by buying an individual company stock or through a mutual fund makes no difference; the concept is the same.)

The company takes the money it earns from the sale of stock and uses that money to make more money. The reason people become owners of a company is to make money; that’s the whole point of investing.

The ownership interest you purchase when you buy stock gives you the right to have a say in how the company is run and the right to a portion of the company’s future profits (should there be any). If the company makes money, you as an owner make money. If the company loses money, you as an owner may lose money. (The amount you stand to lose is generally limited to the amount you invested.)

There are two ways to generate income from investing in a company.

One way is when the value of the company’s stock increases during the time you own it. This allows you to sell the stock for more than you paid for it. The difference between what you bought the stock for and what you sell it for is the amount of gain you make on your capital (i.e., your capital gain). This is what is taxed at the capital gains rate.

Capital gains can be short-term (property held for less than a year) or long-term (property held for more than a year). (Stock is a form of property.)

Through the workings of our elected officials, We the People have decided that taxes should be lower for gains someone had to wait more than a year for than for gains someone got by buying and selling in less than a year. This means that long-term capital gains are taxed at lower rates than short-term capital gains.

Stock prices can also go down.

If you sell a stock for less than you paid for it, you lost capital. For tax purposes, capital losses can be used to offset capital gains. But that would be another very long and very boring post so we’re going to skip that discussion. For now, let’s just assume that you can only make money in the stock market, not lose it. (Yippee!)

The second way that people generate a return on their investment by owning stock is by receiving a distribution of a portion of the company’s annual profit. This is called a dividend. The amount of profit to be distributed is divided by the number of shares outstanding resulting in a per-share amount (e.g., $3 per share). So if you own 100 shares in a company that has a $3 per share dividend, you would get $300.

As noted in your post, “qualified dividends” are dividends that meet certain criteria set by Congress. Again, We the People working through our elected officials agreed that most but not all dividends should get lower rates; others are taxed at the same rate as the rest of your income. (For federal income tax, that is. They are not subject to Social Security or Medicare tax. DIFFERENT POST.)

Got that?

To recap: Capital gains are the income you earn when you sell your stock for more than you paid for it. Dividends are a distribution of income you receive as an owner. These are the two ways that equity investors (owners) make money.

You can also be a debt investor (lender), loaning money to a company by buying bonds. But again, not going to go into that here. Too long, too boring. DIFFERENT POST. This is why the CPA exam consists of four separate 3-hour tests, each of which has multiple testlets (yes, that is an actual word). It just goes on and on.

Okay. Now into the weeds on dividend income.

Let’s say a company has 80 shares outstanding, it has two stockholders who each own 40 shares, and its total income tax rate (federal plus state and local) is 20%.

Further, let’s say that the company’s net profit for the year, after all of the expenses are paid — wages and rent and utilities and the costs to buy/make/develop the products or services it sells and to advertise and sell the products/services and to buy snacks for the staff break room and whatever else the company spent its money on during the year — is $100. With a 20% tax rate, it pays $20 in taxes, leaving $80 in net earnings. The company earnings are $1 per share ($80 divided by 80 shares outstanding = $1/share).

The company can take that $80 and do something with it that it thinks will allow it to generate more income next year — buy new equipment or hire more staff or upgrade the chocolate in the break room from Hershey’s to Callebaut — or it can distribute that money to the owners in the form of a dividend.

In this case, with two owners each having 40 shares, if it distributes all of its earnings as dividends, each owner would receive a $40 dividend.

Typically newer companies keep the money they make to invest and try to increase growth, while mature companies distribute profits to their owners. Retirees and people who are in search of steady income tend to prefer dividend-paying stocks.

Bottom line: Dividends are a return on investment, it’s why people invest, they are not a thank you for buying stock.

Phew.

Okay on to the rest, which is slightly simpler.

2. Some people argue that investment income shouldn’t be taxed at all when distributed to owners, because owners paid tax on that income when the company paid taxes on its earnings. By taxing the income both when it is earned and again when it is distributed, the same money is being taxed twice. (You can read lots and lots on this if you search for information on “corporate double taxation.”)

This argument assumes that the corporation and its owners are a single entity, and that the corporate entity is being taxed both when the money is earned and when the money is distributed. This argument doesn’t quite work for me, because it seems to me that the corporate entity is one thing and the individual owners are a different thing. It’s hard for me to wrap my head around any other interpretation.

But your post seems to go even further by seeing no connection at all between the company and the owner/investor, considering the reduced taxes on investment income as some kind of crazy loophole.

But basically the reduced rates — with lower-income individuals being taxed at a 0% rate — is a compromise between the people who think investment income shouldn’t be taxed at all (because it was already taxed when it was earned) and the people who think investment income should be taxed a lot because it is mostly earned by rich people who can afford the higher taxes and who cares where it came from in the first place or what happened to it before the rich people got it.

3. Your “earn income tax-free” argument doesn’t completely make sense, because in order to execute your plan, you need to make as much money as possible, and that money is taxed when you earn it. (And taxed more if you earn enough to bump yourself into a higher tax bracket.) [Unless you are doing the 401(k)/Roth conversion thing, which I admit I do not understand the details of because I’m not about to do it and it depends on tax laws that may change by the time I ever need to actually know about it so I just skim over anything involving a Roth conversion.] Then you are using this after-tax income to earn more by becoming the owner of a company, and the company you own is paying taxes, thus reducing the amount they have available to distribute to you. So the money isn’t really tax-free — you pay taxes when you make the money you use to invest and then again when the company you have invested in makes money. It’s just that the taxes are indirect, they come out before you see the money instead of being something you pay on your own tax return. But nonetheless they are taxes.

If you really want to earn money tax-free you need to talk to Paul Manafort. You get paid cash for your work and park it offshore then use a shell company to buy a house with the offshore cash then take out a mortgage on the house to get cash in the U.S.. Voila! Cash! No taxes!

Except oops, you can’t talk to Paul Manafort because he’s in jail.

4. Regarding Publication 550 being the most boring IRS publication ever produced, I need to say that as someone who survived getting a master’s degree in accounting at age 48 (which involved, among other things, a class in partnership tax and a class in international tax), and who spent the past two summers studying for and passing all four CPA exams, I find it extremely amusing when PF bloggers read some IRS publication and declare it the most boring or most confusing thing ever produced by the IRS.

I am here to tell you that you have no earthly idea how confusing and/or boring information produced by the IRS can be.

Trust me on that.

****

Okay that’s it.

Congratulations to everyone who made it to the end!

I promise that I will not be producing a tax series. And if you are actually interested in understanding investing, you should go read The Intelligent Investor. It will change your life.

On Spending Less, Earning More

Sunday, June 14, 2015

I’ve been thinking lately about Ignatius J. Reilly, the generally repulsive yet oddly compelling protagonist of John Kennedy Toole’s great comic novel A Confederacy of Dunces.

I thought of him often over the winter, because one of the pairs of pants that I ended up wearing a lot was this pair of brown “loose fit” Gap cordurouys that had wide legs and very large, deep pockets. The word that came to mind when I put them on was “capacious.” I kept thinking of the introductory description of Ignatius on the first page of the book, when he’s waiting for his mother at the D.H. Holmes department store — “The voluminous tweed trousers were durable and permitted unusually free locomotion. Their pleats and nooks contained pockets of warm, stale air that soothed Ignatius.”

That’s what I felt like when I wore those pants. Soothing pleats and nooks, with unusually free locomotion.

Lately I’ve been thinking about Ignatius when it comes to reading things on the internet.

I think I may have mentioned previously that I don’t make a habit of reading good, useful information on the internet. Instead I tend to latch on to some thing that annoys me, something I read and pull my hair out and say, “Gaah!!! No! What are you thinking?!?!”

Like Ignatius, who liked to go to the movies so he could throw popcorn at the screen and complain loudly about everything that offended him about modern life (which was most everything). That is me.

I’ve realized that I don’t like reading blogs by people who have everything figured out — “here, look at how great my life is, look at how smart and successful I am.” Those feel boring and pointless to me.

I like a little bit of angst in my blogs. But it’s hard to find the right amount of angst — a little bit can feel real and useful but too much quickly becomes tiresome. But sometimes I’ll find one with just the right amount and it flips me into hate-reading mode. Which then sucks me down a rabbit hole of guilty pleasure. It’s like reading Valley of the Dolls, it’s so bad I can’t put it down.

And I’d gone months and months without any internet obsessions at all but I recently came across an intriguing lifestyle/personal finance blog that I’ve been reading and pulling my hair out over and which has helped crystallize some of my thoughts about personal finance and happiness and life in general.

(And note that I’m leaving off the object of my hate-reading, because it doesn’t seem nice to tell the internet that you hate-read someone who is trying to write a serious blog. So here I’ll just talk about what I’ve learned.)

The PF blogging world has basically two camps in their approach to advising people how to get ahead: those who focus on spending less and those who focus on earning more. Of course most bloggers acknowledge that both strategies play a role, but usually they come down on the side of one or the other as being more important.

The people who focus on earning more tend to be dismissive of the people who focus on spending less — they think you just can’t make very much progress by cutting back on spending, there’s just not enough to work with, and it’s silly to put energy into saving small amounts of money here and there. They think the only way to really get ahead is to make more money.

And on some level, I agree with that — if your income is very low or if your fixed expenses are very high, your options can be constrained.

On the other hand, people usually have more control over how they spend their money than they do over how they make it. So in that sense focusing on spending less can be better because it’s something you can do right now, that doesn’t depend on the actions of people over whom you have no control.

But until getting sucked into reading this blog, written by someone who managed to save over $300,000 in less than 10 years, starting with around $10K and a starting salary of $25K, I hadn’t really thought through the fact that there’s another important difference between getting ahead by making more or getting ahead by spending less.

I’ve realized in reading about someone who has been very successful in achieving financial goals by making more money that there is a huge nonfinancial element to focusing on spending.

If you follow the Your Money or Your Life model and reduce expenditures by tracking and analyzing your spending, you are by way of this process clarifying your values — you are thinking about what you care about, and whether or not the money you spend is being used to support things you care about. You reduce spending on the things you don’t care about and you end up spending much less without any decrease in your overall quality of life.

The process helps you figure out what you actually need and allows you to be happy on much less than you ever could have imagined, and much less than most people spend. It’s like you enter a parallel universe where you always have enough. It’s magical.

If instead you focus on making more, you’re not able to figure out how much is “enough” because you’re not really thinking about that, you can always use more, and more is always better. So there’s no end. (Or maybe you do think about what’s enough but it’s a really huge number — $10 million or something like that.)

Also focusing on making more requires you to keep on keeping on in the economic stew of modern life — as my friend Ann likes to say, you have to stay in the puddin’.

You have to constantly be networking, working on job skills, dealing with bosses and clients. You need to move up the ladder in your office, or find a new job, or take on side gigs.

You need to hustle.

There’s nothing wrong with that, and certainly that approach is the best way to increase your income. But it’s not necessarily the best way to improve your quality of life.

No matter how much money you make or save or spend — or don’t make or save or spend — at some point you have to figure out what makes you happy. The process of making more money generally does not help you figure this out. So you can make a lot more money than you used to while being no happier at all.

I feel like the YMOYL approach almost has an element of therapy to it.

It’s very structured — track what you spend, think about it, figure out how to spend less; track what you save, think about it, figure out how to make more. By focusing on these specific things, you are figuring out what you need and what you don’t need.

By needing less, you are able to let go of things, and in doing that, you gain freedom.

People in your life can’t control you with strings-attached gifts. Employers don’t have the same leverage because you can walk away at any time. Your life overall is less stressful if what you need to be happy is easily within your capacity to generate — if what you need to be happy is as much as you can possibly make by working as hard as you can all the time, you are always going to be behind the eight ball. Your life will always be stressful.

Making more money involves thinking about other people — bosses, clients, customers. Spending less money involves thinking about you (and possibly the people directly connected to you — spouse, children, other relatives).

Spending less allows you to disengage from many things that can cause anxiety — it lets you stop worrying about how what you are buying compares to what other people are buying, or what it says about you or what other people think about you. (Worrying about what other people think about you seems to be a major source of anxiety for many people.)

I truly believe that focusing on what you care about, what you want, what you value, can help get you out of that mindset. It can help free you.

Spending less gets you to this place where you are in control of your life, and where your world feels manageable.

It is the key to happiness.

Or one of them, at least.

(And while on the subject of being happy, I read The Happiness Project while on my trip and I may write about that at some point. I liked it.)

Go forth and be happy. And stay cool if you can.

Step Zero

Wednesday, January 21, 2015

[Ed. Note: This is from the drafts folder, written October 2013. Don’t know why I never posted it, seems good enough to send out into the world. Even though it will bump Julia from the home page, and put Dave Ramsey there. That’s an unhappy trade if ever there was one. But in the interest of Fresh Content, I am hitting the “publish” button.]

For a while, I’ve been thinking of doing a new feature on this blog called Where I Read Books So You Don’t Have To.

I was reminded of this recently when I read Dave Ramsey’s Total Money Makeover. Man. Talk about stretching things out. That book is barely a magazine article, it’s maybe a Reader’s Digest article, yet the author and publisher managed to stretch it out for 280 completely excruciating pages. Holy schmoly.

I’ll save the full analysis for a future post, but in the meantime I want to talk a little bit about I what I found to be the biggest flaw with Dave Ramsey’s strategy in that book. (Okay, one of the biggest flaws. There were quite a number of flaws, but I’m going to stick with just this one for now.)

One of the main flaws I found with The Total Money Makeover is that Step One is Save $1,000.

Well, okay!

Most people I know who are struggling with their finances are struggling BECAUSE THEY ARE UNABLE TO SAVE MONEY. How is telling them to save a thousand dollars useful? If they knew how to save a thousand dollars, wouldn’t they just do it?

Maybe I’m missing something here.

So personally I would suggest a few preliminary steps to get people to the point where they can save a thousand dollars.

The very first step is to think about why you want to fix your finances. What problems are you having that you do not want to have anymore? What goals do you have that you will not be able to achieve living the way you are currently living? What do you hope to accomplish with the program you are thinking of starting?

It might seem like you can skip this step, of course you want to fix your finances, who wants to live paycheck to paycheck for the rest of their life, but the reason you want to do this is because it’s going to be hard and it’s going to take a while and you are going to run into things that totally knock you off track. You need to be motivated enough to get through the hard things, to get back on track, to keep working.

I learned this lesson when I was trying to be more organized.

Progress was slow, and sometimes I felt like I tried as hard as I could but I kept ending up back in the same place. When I started to feel like it wasn’t worth it, I just wasn’t going to be able to do it, maybe I just didn’t have it in me and who cares anyway, the thing that worked to get through was to remember what I was trying to accomplish. Not the grand plan of “being organized,” but living in a house that didn’t always have piles of laundry, or not being late. Those are the things that bothered me, so those were the things I focused on. And those are the things I fixed.

I’m still not organized, but I’m not late anymore, and I always have clean clothes when I need them. [2015 note: Hmm, okay. May have to revise this now that I’m in school. I always have clean clothes when I need them, but they are not always folded and put away. Clearly experiencing some backsliding on this particular goal.]

So think about specifically what you want to fix, and why, and keep that foremost in your mind. Especially when it all feels hopeless.

The other thing you can work on if saving a thousand dollars sounds like taking a trip to the moon is imagining yourself saving money.

If you can imagine yourself saving a thousand dollars, that’s great, you can start working on saving a thousand dollars. If not, get it down to an amount you can imagine saving, in a time frame you can think about. How much can you save each week? Can you save twenty dollars? Ten? One? Start with whatever you can think about starting with and build from there.

As Marilyn Paul says in It’s Hard to Make a Difference When You Can’t Find Your Keys, it’s very difficult to make something happen if you can’t even think about it.

Think about what you want your life to be like. Think about being able to save money. Then imagine yourself doing it.

Step Zero.

Beyond the Occupational Identity

Friday, July 4, 2014

I have nothing to report from my actual life at the moment, decided to look through the archives to see if there was anything partially written but not yet posted that could be finished and put up.

And look, here is something.

I was working on this in the fall as I thought through issues surrounding early retirement and financial independence, about working and not working, and what that all means and where it leads people. Obviously this is something that the early retirement bloggers focus on a lot, and nicoleandmaggie wrote post about how economists define retirement that I thought was interesting. (They also have a good post about the concept of financial independence. UPDATE: And another one about identity and jobs.)

So one of the things I decided to do while thinking about all of this was to re-read part of a book I bought a long time ago, called How to Do Things Right by L. Rust Hills that is a compilation of short works and essays written by the long-time fiction editor at Esquire magazine, who had an interesting and varied career over many decades.

The section I wanted to re-read is called “How to Retire at 41, Or, Life Among the Pursuits.” It was originally published in 1973 as a book called How to Retire at 41: Dropping Out of the Rat Race without Going Down the Drain.

As is often the case when I read an actual book, written before the advent of the internet (or at least before the internet as we know it), by an actual writer, I am struck by how much better it is than so much of what I usually read. Which almost always makes me think I should stop spending so much time on the internet and start reading more actual books.

Hmm…

So I was going to write a nice post about this whole thing, with a point and everything, and hopefully someday I will actually manage to do that, but in the meantime I decided I should just to give you an excerpt from the book. Because it provides some good background and if I ever do get around to writing more, I can just reference this.

The general point, which I’ve been thinking about for a long time, is that one of the challenges of being “financially independent” or “retiring” (sometimes those terms are used interchangeably, sometimes not) is that much of our society is built around work. People typically define themselves by occupation; one of the most common introductory questions in America is “What do you do?” (Which doesn’t mean that it’s not a weird question, it totally is, but nonetheless it is very common.)

Having a job provides a great deal of structure to your life; if you don’t have a job, you need to figure all kinds of things out on your own. And you need to have enough of a conception of yourself that you can give a reasonable answer when you meet new people and they ask you what you do.

About half way through “How to Retire at 41,” the author begins discussing the concept of the “occupational identity” — how you identify yourself with what you do for a living — and considers how one can move beyond that. And I think what he says is worth thinking about.

So here it is:

Beyond the Occupational Identity

Remember that statement of Montaigne’s that we began with, way back when:

If you plan to withdraw into yourself, first prepare yourself a welcome.

We now see it isn’t just a Comprehensive Day Plan you need, or a country place or an old time-consuming boat or an engrossing hobby or whatever (although these help, God knows); what’s needed is some conception of yourself — of, that is, your self — now that you won’t be working. You don’t really realize, until you quit work, just how much of your conception of your self comes from your work — not just from what you do, but how you do it.

Your basic occupational identity — what you did, or “were” — permitted a lot of amplification by the way you did what you were. When you were working, you weren’t (not in your own mind, anyway) just ” an accountant” or “in fabrics” or “one of the salesmen” or “an insurance man” or whatever. You were also the way you did the work: you were the kindly boss, or the efficient second-in-command, or the talented idea-man or the only one in the office who got along with the secretaries, or some such. Whatever you were, you had some sense of yourself doing it, some recognition of the role you’d chosen to play or the role you’d been forced into.

Let’s take fishing, which can be either a work-for-pay occupation or a leisure-retirement pursuit. Say you were a fisherman when you worked, that’s what you did, that’s who you were, a fisherman. Okay, now there’s also the style you used when you were a fisherman. A fisherman-by-trade can be, for instance, kindly like Manuel or whatever his name was (Spencer Tracy) in Captains Courageous; or he can be surly like Ahab in Moby-Dick. There are presumably an infinite number of ways to be a professional fisherman on this kindly-surly scale, and kindly-surly is only one of many polarizations of personality traits, as you know — although, admittedly, perhaps the most important one.

But now, suppose that when you quit work you took up fishing as a retirement pursuit. One assumes here that you weren’t a fisherman-by-trade before, but something else; because you’d never retire from being a fisherman at age forty-one and then take up fishing as a retirement pursuit unless it was just to make fun of me. Say, though, you were (used to be) an insurance salesman, and now at forty-one you can quit work and live off your commissions from the premiums we pay on the policies you sold us years and years ago. You decide to take up fishing as a retirement pursuit. Now the way you fish in retirement is the key thing. You can do it in a kind of elegant, heroic, upper-classy, sportsman-type way — big-game fishing like Hemingway, or elegant dry-fly angling with delicate lightweight rods — that sort of way. Or you can take it up in a kind of messy, kindly, puttery, lower-classish way — in an old rowboat or fishing off the bridge with the neighborhood kids.

You see what I’m saying? I’m saying that once the specific, defining, perhaps confining, at any rate identifying occupation is removed from your life by your retirement from work, then you style or manner, your “you-ness,” becomes the all-important thing, because there isn’t anything much else. The way you do things, the way in fact you do nothing (now that there’s nothing to do) that’s now the only self you have. If when you retire you do some fishing to fill your time, you can sit out there in your rowboat all day long with the pole in your hands, and they’re still not going to say of you, “Oh, he’s a fisherman,” because you aren’t a fisherman. You used to be an insurance man. Now you’re nothing. You’re nothing except the way you do nothing. Everyone thinks of you as nothing — unless you do your nothing in a way that identifies you to people; unless, for instance, you do your fishing (or whatever) in a puttery, kindly sort of way, say, in which case they’ll say, “Oh, he’s (you, that is, are) a kindly soul, just as sweet and gentle as can be.” Or maybe they’ll describe you, identify you, “Oh, he really stirs things up, a kind of troublemaker, but fun to be around.” Personality’s a part of it, of course, but it’s more a matter of individuality, a kind of amplification of personality by consistency of style and manner.

With your occupational identity gone, you have to find another existence for yourself. Remember Thoreau leaning on the fence post, lying on the ice, and so on? Well, now imagine he’s fishing. When he fishes, he fishes as Thoreau, not as a fisherman. He’s not a fisherman, and he knows it. Like him, you have to be able to have the fishing (or whatever the specific nondefining, nonoccupational routine or pursuit you’re up to) removed or replaced, and still be left with enough particularity of how it is done (not what is done) to provide a sufficient sense of self for yourself and others.

Beyond the occupational identity, that’s all there is.

Personal Finance Thoughts, Part I

Monday, July 8, 2013

Okay so I’ve been thinking a lot about personal finance lately, and I want to write about it but I’m not sure what direction things should go in. Most of my thoughts on personal finance come from a combination of my own experience and jumping off points provided by personal finance blogs, where I go to read about other people’s experiences, as well as books I’ve read on the subject by personal finance “experts” like Dave Ramsey, Suze Orman, Clark Howard, etc.

So I guess I’ll just start with a few thoughts on the blog part.

For many years, I was moderately obsessed with the blog Get Rich Slowly. I do not know why, except that it was the first “personal finance” blog I became aware of (in 2007, when I was looking for information on Amy Dacyzyn) and just after finding the blog, I discovered the author’s personal blog, foldedspace, where he noted that he was making $4,000 a month in revenue on GRS.

I was like, What??? Who knew that was even possible?

So then I was reading both foldedspace and GRS to see whether this seemed like easy money or a lot of work (answer: a lot of work), and then I kind of got hooked on the upstairs/downstairs thing, the professional blog on the front end and the personal one on the back.

I thought it was interesting that the blogger, J. D. Roth, noted that one of the things that helped kickstart him on his life of debt-free living was the book Your Money or Your Life, which, likewise, was instrumental in helping me figure out a different path for my own life. However I’ve had limited success recommending that book to people, because when you first read it, it seems completely crazy and you’re much more likely to respond with, “Okay, maybe, but this is not workable for normal people,” than you are with, “Hey, this sounds great!”

So it was interesting for me to see someone who had more or less implemented the program, and then become very successful with it and gotten out of debt and started making more money than he’d ever imagined.

[Side note: I read the book in 1997 when I was living in DC, and one of my friends from work read it at the same time, and we were commenting on the fact that many of the stories in the book were about people who had followed the program, cut way back on their expenses, discovered something they loved to do that they were really good at, and then made a gazillion dollars doing that thing. My friend and I were laughing about that, we were like okay, if you’re going to make a gazillion dollars, what do you need to learn to live on nothing for? Couldn’t you just skip that step and head straight for the thing that makes you a gazillion dollars?]

One of the things I noted in my YMOYL experience was that at some point, the world feels like it flips. You suddenly can live on much less than most people and somehow you always have enough money. It starts to feel like you are living in a parallel universe.

J.D. had so many people following along, and I was looking forward to him getting to that point, hitting the parallel universe, and talking about it and people being able to see how it happened. It seemed like it might turn into something I could point people to instead of the book itself. Here’s what this person did and here’s how it turned out, and here’s where he wrote all about it.

But then it didn’t.

J.D. decided that he was being “too frugal” and started moving back towards living (for lack of a better term) like a normal person.

Later (much later) we learned that right around this time, he sold the blog for a large sum of money. So of course it felt like he was being too frugal, he now had a gazillion dollars at his disposal. And for the next few years, without letting his readers know he no longer needed to focus on getting rich slowly, since he had in fact gotten rich rather quickly, he emphasized “conscious spending” and repeated the mantra “do what works for you.”

It might have been more valuable to most people, but to me, it felt like a missed opportunity. Instead of showing people how to truly have a different life and what that looks like, he worked on helping people with average to above-average incomes choose bank accounts and life insurance policies. Woo hoo.

And now he’s moved on to a whole new life. And Get Rich Slowly is sill there, but it’s not the same. Though all of the old posts are archived there, so sometimes I still send people there for articles about specific topics.

Meanwhile, back in the blogosphere…

In 2011, Mr. Money Mustache came on to the scene, picking up well ahead of where J.D. left off, with a thoroughly YMOYL attitude, even though apparently he came to this approach on his own without actually reading the book.

In theory, I am in support of this.

I’m glad that someone is showing that it is possible to live happily for much less than most people think possible. I think MMM offers a great deal of useful information on his website. I think he has opened the eyes of many people to the possibility of a different kind of life. I like his anti-consumerist stance and that he focuses on the environmental impact of choices like living close to work and biking instead of driving. I like his emphasis on creative problem-solving and continuous questioning to make sure you are always learning, always improving, always thinking about your choices.

All good.

That being said, I cannot read that blog. The tone too often completely gets under my skin, despite the fact that I fully agree with almost everything he says.

I think the persona he has created is smug and arrogant. I think he is unwilling or unable to consider the possibility that his approach to life is not necessarily going to work for everyone, for all kinds of different reasons. Or that many people would not actually even want to live like that. And that not everyone has the capacity to make $50,000 to $100,000 a year and buy and fix up multiple houses, which they can then rent out to provide ongoing cashflow.

He has structured his comments section so that people who don’t agree with his articles or have any questions or concerns about them get a smackdown and are called a complainypants. (Which, by the way, is a great word.) This results in a large group of like-minded individuals gathering together to discuss how great and smart they are, and how much better they are than the rest of the world, who do not live in the enlightened manner in which they live and do not share their badassity. And anyone who doesn’t agree with them is a whiny complainypants. (Or possibly a jealous hater, though I think that term might be reserved for the anti-Pioneer Woman crowd. I might be getting my blog animosity people mixed up here.)

This is not enjoyable for me to read. This is cult-like. It feels like Rush Limbaugh with his dittoheads. (And it actually reminds me of a quote I read a long time ago, I think from Dave Barry, about being frightened by large groups of like-minded people. But I can’t remember the whole quote, and am unable to dig it up, so will just have to leave it at that.)

So…

What is the point of all this?

I don’t know.

Following Your Money or Your Life allows you to live in a parallel universe where everything is cheaper and you always have enough money.

J.D. Roth of Get Rich Slowly was heading in that direction but turned around. But it doesn’t matter because he made a gazillion dollars when he sold his blog so now he always has enough money anyways, who cares.

Mr. Money Mustache does live in the parallel universe but he’s so flipping annoying about it that I can’t read about it. But other people seem to like it. Maybe you would too.

That’s all I know about personal finance blogging.

One of my friends said to me the other day, “You need to write more about personal finance.” I’m guessing this wasn’t what she had in mind.

Sorry, sometimes what comes out is what comes out. But I do have more to say on the subject in general, so we’ll just have to wait and see what comes out next time around. Maybe it will be better.

Is Too

Monday, May 27, 2013

Before I get into the nuts and bolts of the personal finance books I’ve been reading, and the various philosophies that go with the various approaches, I just want to get one thing out of the way.

In the spirit of There are Two Kinds of People in the World, I will say that when it comes to keeping track of things, there are definitely two kinds of people: People who like to track data and people who do not like to track data.

Neither of these approaches is right or wrong, and neither is better or worse than the other.

The benefit of tracking data is that you end up with … data. Data is useful. It tells you exactly what is happening. Data doesn’t lie, it is what it is. This is how much time it took to do that project. This is how you spent your money.

Some people enjoy the process of gathering data, they like to see a story unfold in front of them, they like to have a record of what happened. Gathering data helps some people feel like they know where they are, where they are going, and how long it might to take to get there.

Many people, however, loathe the process of gathering data. They find it tedious and time-consuming and difficult and unpleasant. (It is especially unpleasant when you don’t like what the data says. I ate how much?) It takes all of kinds of energy that they would rather be spending on things they actually enjoy doing.

But just as extroverts have trouble understanding introverts, and don’t see how anyone could possibly rather stay home and read a book than go to a party, people who do not enjoy tracking data cannot imagine that anyone in their right mind could possibly feel differently.

This bias comes up repeatedly in the book All Your Worth by Elizabeth Warren and Amelia Warren Tyagi, which I am currently reading. They emphasize over and over again that their approach does not require ongoing data tracking, because, in their words, “That is not living.”

So before I get into my analysis of the book, I just want to offer this public service announcement.

Life is made up of all kinds of experiences. Some of them are wonderful and some of them are awful and some of them are tedious and some of them are exhilarating.

Everything you do is living. Everything you do is life.

Changing your baby’s diaper and watching a movie and fixing breakfast and breaking your arm falling off a ladder and vacationing in Bali and mowing the lawn and talking on the phone and building sand castles and paying bills and playing tennis and watching other people play tennis and cleaning the toilet and going to the French Laundry for dinner. And looking at your receipts and bank statements to see how much you spent, and adding it up and thinking about whether maybe next month you could spend a little less and still be just as happy.

That is all life, it is all living.

And don’t let anyone tell you that it isn’t.