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Summer is just beginning, which means that in my family as well as many others, people are graduating college and preparing to enter the workforce. I just heard that one of my cousins got a job. My first reaction was to be excited for her, and then the second was to be a little bit nervous: the habits she builds in her first few months of receiving a paycheck are very likely to affect her entire life an an enormous way.
While the amount of money you earn is important, what you do with that money is far more important. There is no shortage of people who make hundreds of thousands or millions who end up bankrupt or severely in debt. It happens all the time. But at the same time there are plenty of people who earn very little money but spend it wisely and never have a financial worry in their lives.
Money trouble is a leading cause of divorce. It's can be a huge source of stress. Not having enough money restricts your freedom, making it impossible to change jobs or to move to a different city.
Most Americans don't have enough money to handle an unexpected $1000 expense. This is MOST Americans, not just those who don't make a lot of money. And almost everyone will eventually have a $1000 expense they aren't expecting. A car breaks, they miss a flight, they get injured, their water heater floods, they get into a car accident, or they lose their job.
The most important benchmark, especially when you're starting out, is how many months of living expenses you have in the bank. If you can get this up to six or twelve, your whole life is probably going to be pretty easy. If it hovers at less than one month, you are always going to be stressed.
This benchmark is a function of two things: the amount of money you spend every month and the amount you have in the bank. If you have $12,000 in the bank, that could be six months of runway if you spend $2000 a month or three months if you spend $4000. So you want to work both angles: spend very little money and save as much you can.
Start off by understanding that by far the greatest luxury in the world is not worrying about money. No matter what your income is, you can work towards permanently achieving this luxury. So when I suggest things that sound like sacrifices, remember that you are sacrificing small luxuries now in order to earn this great luxury forever.
Housing will be your biggest expense. Spend as little as possible on a place that will not be stressful. In other words, get a small plain place, preferably with roommates. You were probably just living in a college dorm or with your parents, so don't jump too many rungs on the ladder just yet. Choose a location that is convenient for work and life and get the cheapest place you think you can find acceptable. Or maybe live with your parents for another year or two just to save money. It will cramp your lifestyle, but saving months or years of living expenses will improve your lifestyle by far more.
Never finance anything ever in your life except for a house, and even then think very hard about it. The only reason financing a house makes sense sometimes is because you would have been spending some amount of money on rent anyway. But even then the math doesn't always add up, because of property taxes, repairs, etc.
If you can't afford a $600 phone in cash, you certainly can't afford payments for it. At first these seem like a good idea because $20 a month for four years seems reasonable, whereas a $600 payment hurts.
But what happens is that you keep financing things, and soon you're spending a few hundred dollars a month on things you've bought in the past. And then if you lose that phone or you just want a new one, you have to start financing that phone, too. But you still owe the money on the old one, so you pay that, too.
Before you know it, a third of your salary is going towards things you've already bought. Now you only have two thirds to spend and save per month. And if you have the habit of financing things, that number is going to continue to go down.
Smart good people get into crippling debt all the time. Sometimes it happens suddenly because of a medical emergency, but usually it's from the slow accumulation of consumer debt. I've seen it happen to some of the smartest people I know, so it can definitely happen to you, too. If you don't want to end up in that sinkhole, make a hard rule for yourself to never ever get into debt no matter what.
Do not go into debt. Do not buy things you can't afford. If you have to finance it, you cannot afford it. You WANT to feel that sting of paying up front for something, because it reflects the actual cost of buying something. If it hurts too much, you should not buy it.
When you do buy things, buy things that are going to have lasting positive effects on you. For example, if you buy a bicycle because it's going to get you into better shape and save you money on taxis, that's great. If you buy healthy food (within reason), you are preventing disease, improving mental health, and giving yourself energy.
Do not buy things that aren't good values. Taxis are usually not a great value. Take the train or walk. Don't buy fancy food and drinks that you're not going to remember two months from now. Beware of anything that is a convenience, not a necessity. Keep your wardrobe simple and buy clothes that are versatile and will last. Don't spend $1500 a year on a gym when you could have spent $400. Each of these decisions will feel small, and a part of your brain will tell you that you can afford it, but it's the habit and pattern that matters.
Try to save half of your paycheck. This isn't even radical advice-- there's a huge community of people online who save eighty percent. If you do this, it will take you a year to save six months of living expenses. Do great work and aggressively ask for raises when you know that you have made yourself invaluable.
Don't worry too much about investing. Just keep the money sitting in a savings account. Simply by not paying finance charges and overdraft fees, you are benefiting from having that money sitting around. Once you have tens of thousands it's probably time to start investing, but that's a different blog post. Just watch your money pile up in your savings account and pat yourself on the back for buying yourself freedom.
Most people will read this and will rebel at the idea because their peers aren't doing it. But most peoples' peers are going to have financial trouble. This is not random chance or bad luck, it's because they are spending too much money and developing poor financial habits.
So what happens when you save up six months of living expenses? Well, first you've created a positive spiral and that number will probably keep increasing. Maybe some day that number gets to 18 months and you decide to take six months off to start a new project or travel the world. There's no other way to get that sort of freedom. Or maybe you want to move to a new city but want to take your time to find the right job. Now you have a buffer and it will result in you getting a job that will earn you more money or make you more fulfilled.
You can also capitalize on opportunities. Right now houses in Vegas are so cheap that if you have the cash you can permanently reduce your living expenses to a couple hundred bucks a month. My friends and I each spent a few months of living expenses to permanently own an island. We're going to do the same thing to buy a home in Budapest. If you don't have money saved, you just can't do these things. Rather than finance things that bring long-term debt, you can self-finance things that will bring permanent benefit.
You also have the opportunity to convert cash to assets. I bought a fancy watch and some museum-quality art. These are assets that will always be worth at least what I paid for them, so they actually cost me nothing. I bought a used watch for $1500 that's worth about $2000. So I can bang it up, wear it for a while, and then sell it if I want my money back. Contrast that to someone who finances the same watch, which would be $4000 for the new version. They'd end up paying thousands in interest and would lose money when they sold it later. Same with cars. I bought a twenty-year-old Mercedes for $2500 about a year ago (I also split it with a friend, so it really only cost me $1250). I could sell it for what I paid at any time. And even if it turns to dust tomorrow, at least I don't have any payments on it.
The point is that going into debt massively restricts options, while saving money creates options. Options are freedom.
To recap: congratulations on becoming a an adult! The way you handle your money over the next few months will be one of the biggest factors in your long term lifestyle and happiness. Sacrifice a little bit now, live below your means in a way which your peers won't, and live happily ever after because you've created momentum towards an amazing lifestyle that very few people actually achieve. And if you aren't just entering the workforce but aren't happy with your financial situation, use this as a wakeup call and follow the principles as closely as you can.
Photo is a cool bank of meters on the submarine at Pearl Harbor.
I'm on the island now, but I queued this post before going there. We have twelve people visiting this trip, which is by far the most we've ever had. In fact, I don't think we've ever had more than four before.
I'm not sure how I've made it my entire life without knowing that my grandmother was an only child. I'm sitting in a pizza place in Vermont with my grandmother, surrounded by my father and aunts, my cousins, and my cousins' children. We have so many people that we don't know how many to tell the hostess, and we can't even count. We just keep flowing in and taking all of the tables.
I had just told her how much I appreciated what she did for us kids. Every summer all of us kids would go up and stay with our grandparents for a week or two. It didn't seem like a huge deal back in the day, but now I understand that it was essentially a full time job. Laundry, food, and corralling us.
"I'm on only child," she says, "but I had lots of cousins I grew up with, so I wanted to make sure that you all had the same thing."
I look around at the visible evidence of her success. We're all really close. Some of us haven't seen each other for years, but it feels like we were just hanging out yesterday. Such a lovely group of people.
A entrepreneur friend of mine, who happens to be female, and I were talking. Another female entrepreneur had said that she couldn't get funding for her company because she was female, and that she would have easily gotten it if she was male.
Now, I have no idea if this is true or not. As a straight white male, basically no one has any biases against me. And I have enough female friends to know that women are, in some ways, treated worse than men. That's an unfortunate fact of modern life that seems to be changing in a positive direction. Venture capitalists seems like a smart enough bunch that they would see an opportunity if female entrepreneurs weren't getting the same amount of funding as their male peers, but again I have no firsthand experience so I don't really know.
My friend and I were talking about this and she said something that I thought was really smart. She said, "There are disadvantages to being female, but their are advantages to it, too. And either way, I'm going to do the best I can with what I've got."
What a perfect attitude. It's so obviously true, and it's both a diagnosis of the situation and a solution to it as well. She will be discriminated against in some cases because she's female. But she will also get some opportunities as a result. And either way, she's going to play the cards she's dealt to the best of her ability.
Making decisions is fascinating to me. Once you build a base level of competence, where you can trust that you will follow through with whatever you decide to do, you could say that your life is largely an exercise in decision making.
There's a concept we've all probably heard of, called paralysis of choice, where when given too many options, it becomes difficult to choose one specific one. There's a gelato place in Las Vegas called Gelatology that has twenty or so new flavors every day. It's nearly impossible to choose just one or two.
On the other end of the spectrum, I think when our choices are artificially narrowed, we have a tendency to forget that other choices exist.
I get asked a lot if I'm ever going to settle down. Right now I visit maybe twenty or thirty countries per year, plus another five or ten cities within the US. It's a pace that I find pretty comfortable, but there are downsides to it.
One of two things is true: either you will experience chaos in life, or you are setting your sights drastically too low. With even medium-sized goals, you're going to occasionally run into a time where you've underestimated a project, or someone has slacked and pushed work onto your plate, or a great opportunity arose and you had to scramble to try to take advantage. If this happens to you constantly you're probably doing something wrong, but the same is true if it never happens.
What you'd really want in these cases is to be able to bank time. You save up money partially so that if your car breaks down you don't have to pay for it all out of your next paycheck. If only you could do the same with time, storing up spare minutes here and there for when things really get chaotic.
You actually can do that, though, it just doesn't happen at Wells Fargo. In fact, I'm doing it now.
I'm on a flight from Tokyo to Melbourne right now. Nine hours, and most people are using the time watching movies or playing games on their phone. And most of them are probably on vacation from work anyway, so it makes sense.
I did the math again. Fifteen minutes to get to the car rental place, five minutes to check out, five minutes to wait for the shuttle, fifteen minutes to get to the airport, five minutes to get through security, two minutes to run to my gate. That was forty-seven minutes to get to a plane that was leaving in forty-five. I'd already given up on the idea of filling up the gas at a reasonable price; I was about to miss my flight to Japan.
It was the first time I saw my friend Neil in five years or so, so I pushed the timeline a little bit. And then I wanted to test out his Tesla, so I pushed it even further. What I hadn't counted on was that there was much more traffic on the way back than the way there.
I'm the last person in the world to admit defeat and become helpless. I'm tenacious (or stubborn, depending on who you ask), so I am always hustling and trying to make something work up until the buzzer. When there's anything left to do before giving up, I'll do it.
But sometimes you just get stuck. There was nothing I could do to get to the airport faster. If the shuttle took ten minutes instead of five, I couldn't change that. I could talk my way to the front of the line in security, but if I get flagged by the TSA, it's out of my control.
I woke up yesterday morning prepared to grind away at Cruise Sheet all day. This is actually a great type of day for me-- I love non-workout days when I have the whole day to block off and make huge amounts of progress. I always start the same way, though: tea and email.
In my email I had an offer for two free tickets to Nicki Minaj in Las Vegas at the new T-Mobile arena. I was in San Francisco. I immediately reserved them and emailed friends to see if anyone wanted to come. My friend Lenore, whose go-to Karaoke song is Super Bass, snagged a cheap flight and agreed to go.
I still got a ton of work done on the plane, but my day ended much differently than I had expected when I woke up.
The night before I was having dinner with a bunch of my friends. We talked about music, and people got on my case because I said that I wasn't a huge fan of any female artists. I'm not a big Nicki Minaj fan, although I do like a bunch of her songs and collaborations. The point being that I didn't go to Vegas because I was a huge Nicki Minaj fan, I went because it was a spontaneous adventure.
The past dozen or so years of my life have been dedicated mostly to learning and growth. Not totally singlemindedly, of course; I've traveled around and done fun things and have also put out a respectable body of work, but most of my focus has been on improvement.
And I needed it. I learned social skills, productivity, programming, writing, and some parts of ten languages. I built strong social circles in several cities composed of people I love and respect, built home bases in Las Vegas and San Francisco, and immersed myself in many different cultures around the world.
Time well spent.
Last night I had the idle thought that I should learn Korean. I miss learning languages, and Korean is a pretty good one. Then I thought about how I plan on spending more time in Budapest and how I should learn Hungarian, even though it is, by all accounts, impossible.
I never published it, but I wrote a post a while back about how watching TV was my canary in the coalmine. If I wanted to watch TV, that was a surefire sign that I wasn't fully engaged in my work, and that I needed to take a look at what was causing that.
I've gone way overboard with my remodel of my bathroom in Las Vegas. The floor tiles were these horrible vinyl tiles that were peeling up and weren't even in a grid. If I have to redo the floor, I may as well get black marble tiles. And if I'm going to put tiles down, I may as well put in in-floor heating.
I haven't taken a shower in my own home in many months. The corner shower had a broken door and I wanted a tub, so I ripped it out and put in a tub. But then I had to redo the walls to make them waterproof. And wouldn't it be cool if one wall was teak wood instead of just tile?
And that's where my Tuesday went. I grouted the two tile walls, sawed boards, and began to attach them to the wall.
During a six hour layover in Honolulu, my friend Brian and I went to the Honolulu Museum of Art. The museum is really cool and worth a visit for just about anyone passing through the city. They have the standard sort of stuff, but I was most impressed with their Asian collection. In particular, the Japanese woodblock prints stood out.
Usually I skim over the woodblocks, but their collection was stunning. I went around the room looking at all of them several times before leaving. I took pictures so that I could figure out later who the artist was.
Later, just out of curiousity, I started researching what it would take to buy a Japanese woodblock by a good artist. It was strictly aspirational, not something I intended on buying in the near future.
But I was surprised. Legitimate Japanese woodblocks from the 1800s, when the Shogun was in charge, go for one or two hundred. The ones that captivated me in the museum were by a guy named Ogata Gekko and were printed in the early 1900s, and were even cheaper.