Making and Spending Money

November 12, 2019
Confidence: possible

I read an excellent blog post yesterday: Making Money Isn’t Magic. It’s a great look at strategies for generating cash. Several techniques that won’t get you rich quick, though they will clearly work given a year or two of preparation. And significantly less lead time if you come ready.

Anyway, this got me thinking about my approach to this money stuff — which is notably different than how most people seem to think about it. My family is aggressively the upper middle class. With the notable exception of a failed startup in the extended parts of the tree, every one of them works as a professional or at a not-for-profit. You name it, we got it. From engineering to law to medicine to police to university professor — my family has flourished by having a job and working for the man.

Tried and true, it’s a strategy that’s been working for us for generations — at least as far back in the lineage as I’m privy to.

With the exception of my uncle, there isn’t a shred of entrepreneurship anywhere in the blood. My family is particularly risk averse; not only in business, but also in temperament. The emphasis is and has always been on credentials and a good job with a good salary. Although no one would explicitly say it, I suspect they equate a hard day’s work with both financial success and with honesty. To make money without exchanging it for time at a linear rate is both unfathomable and immoral.

Me, I’m much more of a libertarian than my family is. Its the source of no end of (mostly) good-hearted ribbing at the Maguire-family dinner table. I believe that money is just and foremost a measure of value. We exchange money for things we care about more than money — otherwise tautologically we’d hold on to it.

If someone is willing to give you money, it means you are creating value for them one way or another. They must think it’s worthwhile. This was the first big hurdle in debugging my brain about money — and huge shoutout to Josh Kaufman for spending an evening setting me straight. Where things go weirder is on the other side of that transaction. Just because someone is willing to pay me to do something doesn’t mean I must do it. Even if the money is really good.

Last week I stopped responding to a recruiter trying to place me at a job offering me half a million in salary. Tempting to be sure, but he got miffed when I asked to use Hangouts instead of doing a phone call. I don’t have a phone, you see. But instead of just saying yes, he got grumpy. I’m not sure if he’s lazy, inflexible, or incompetent, but either way, it reflects poorly on both him and the company. I don’t need the money, so why would I subject myself to that kind of an environment?

My rule of thumb is that the more a job pays, the more unpleasant it is. This is not a deep truth about the universe, but it seems to be a good heuristic nevertheless. If a job were good, they wouldn’t need to pay people so much to fill it.

Clearly this company thinks I’m worth the pay, but are they worth my time and attention?

The interesting thing about knowing how to make money is that it makes you care less about it. Once it stops being hard, you can just stay prepared and make some whenever you need it. I can’t generate $10k overnight, but certainly could in two weeks — probably in one if my life depended on it.

This is unfathomable to most people in most of the world. Nobody in Ottawa would give me an apartment because I didn’t have any “steady income.” They didn’t care that I could pay the entire lease upfront, nor that I actually offered it to them to get around the income “issue!”

There’s an excellent quote in the Elon Musk biography:

Every time Tesla interacted with Detroit it received a reminder of how the once-great city had been separated from its own can-do culture. Tesla tried to lease a small office in Detroit. The costs were incredibly low compared with space in Silicon Valley, but the city’s bureaucracy made getting just a basic office an ordeal. The building’s owner wanted to see seven years of audited financials from Tesla, which was still a private company. Then the building owner wanted about two years’ worth of advanced rent. Tesla had about $50 million in the bank and could have bought the building outright. “In Silicon Valley, you say you’re backed by a venture capitalist, and that’s the end of the negotiation,” Tarpenning said. “But everything was like that in Detroit.”

Ashlee Vance, Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future

Money really and truly is just a number in a computer somewhere — especially in the 21st century. So long as you have enough runway to last you until you’re prepared to make more, you’re fine. But this is where it breaks down for most people. Most people are under prepared and their spending is too damn high!

A few years before I retired (but after I had decided to,) I started judging amounts by how much of my retirement they would consume. After a few months of living well in Lithuania, I calculated that I could live on $25 a day, housing included. That meant every $25 I spent, I got one fewer day of not working. $25 doesn’t buy a hell of a lot; it doesn’t buy a thing! It’s meaningless psychologically, but my brain sure as heck understands the value of having a day off. And I’d gladly buy a lot of days off at $25 a piece!

I found myself doing the math before every transaction — and, almost always — realized it wasn’t a worthwhile trade. That’s a powerful technique they don’t teach you in school.

I’m not saying you too should measure your life in terms of $25-per-day retirement, but by god, measure it in terms of something meaningful to you! If you’re saving money, what are you saving it for? If you don’t set a concrete, specific goal, you’ll never get there — forever making money you don’t need to spend on things you don’t really want.

Is “owning” a mortgaged house really worth the down payment and mandated years of slavery to pay off the rest of it? I’m not so sure, but I do know how much life you can buy for that same down payment. And I guarantee you that the grind to make the mortgage payment gets in the way of a lot of preparation to make money.

Out of all my professional engineering friends, I’m probably the poorest of all of them, likely by a factor of 5x or more. But I haven’t worked a job in two years. I travel all around the world on a whim, and spend month at a time living on tropical islands and doing scuba everyday. Amazingly, despite this, my bank account has the same number it showed the day I quit working.

I don’t live off the interest or any “safe” strategy like that — I just have lots of time and energy to create. And that’s the kind of stuff that people find valuable and are willing to pay me for. Is it a lot of money? No, it works out to about minimum wage, but that pays for rent, food, travel, and diving vacations. Crucially, it’s not a minimum wage that I need to spend 40 hours a week earning.

Meanwhile, every time I go to visit my professional friends, I’m struck by just how miserable they are. And what’s worse is they don’t even notice it — not even after breaking into tears at the mall food court. But this is a choice that they are making, every day. It’s the safe path that I inherited from my upper-middle class upbringing, and likely they from theirs. But all you need to do is pay rent and food. Literally all the rest is non-essential bonus stuff.

Find a way to take care of that part, and then spend a lot of time thinking about what you want your life to look like. How much money do you need to make that happen?

One common objection I hear to this is “but I don’t know, so I will keep making money until I figure it out.” This would indeed be a good strategy if it weren’t based on a fundamental misunderstanding. Deciding what you want your life to look like is scary as hell (“what if I get it wrong?”) and so defaulting to the status quo is a defense mechanism.

Instead, we must ask ourselves whether we want the rest of your life to look like it does now. We must come to grips with the fact that this is all it’s ever going to be, unless we change it. This is all we get. Lets try our best not to squander it.