Ground Floor-The Dichotomies
Destination My FI
Congratulations, you have decided to explore or are already on your destination to FI (financial independence)! Many have made this journey, including myself. How have we done it? How hard was it? How long did it take? Well, the answer is not that simple. You will find that each book or blog you read, each podcast you listen to, each person you meet that has made it to FI, will have a different story. That is because each of us has a unique life and a unique prospective. We all have successes and failures. Maybe you are at the beginning. Maybe you are well on your way. Either way, I hope this blog will give you much to think about. Some of the ideas may be things you have heard before, but hopefully some of this will be new.
As I reflect on my destination to FI, I have tried to consider the lessons I have learned. How I can share my experiences, thoughts, and ideas about money and personal finance with others. I have given much thought as to where to start writing. Although, in time, I plan to cover a wide range of topics surrounding money, managing money, investing money and FI, I thought we’d begin our destination on the ground floor. The very basics of money, lenders and debtors, and savers vs. spenders. I want to get into the somewhat philosophical world of money. As we begin to talk about this, think about your relationship with money. Let Destination My FI begin!
Dichotomies Exist
Do you ever notice the dichotomy that exists in the world we live? There are 2 sides to so many things. If there is an up, there is a down. An in has an out. A right has a left. A hot has a cold. A start has a stop. A good has an evil. The day has the night. You get the point.
When it comes to money, there are dichotomies that exist there as well. As an example, there are the rich and there are the poor. There are savers and then there are spenders. There are lenders and then there are debtors.
Have you ever thought about where you fall when it comes to these “sides?” You could be one or the other, and sometimes both. But what exactly is money? Some think it’s good. Some think it’s completely evil. We all need it, to some degree. Some people don’t give it a second thought, while others obsess over it. It can destroy families and friendships, while it can help others achieve their dreams. Or does it? What is it? What are the ideas we have about it? Let’s begin to explore.
Money
Money is nothing more than a tool. It’s really neither good or bad, as much as a hammer cannot be good or bad. You can use a hammer to build a house or you can use it to harm someone, God forbid. But money is more than just a tool. It represents something. A measure of something.
Let’s say I sell cast iron skillets and you sell knitted sweaters. Each has its value. It’s usually tied to the materials they are made from and/or the time and energy it took to produce them. One could be worth more than the other. That too could be skewed by cultural popularity, available supply, demand, etc. But the idea that I would lug all my heavy cast iron skillets to market to trade for your sweaters would be impractical. And then how do we break down the transaction? If the skillets were worth more than the sweaters, would I give you part of a skillet? Would I be forced to buy more sweaters for one complete skillet? It just doesn’t work!
Sure, many people (including myself) have romanticized visions of a time where we all did the work we love, taking our wares out to market and bartering for the things we want and need. That might work in a closed community where all the neighboring families depend on each other for survival. But that doesn’t exactly work in our modern world with an ever-growing global economy.
In comes money. A tool that is exchanged to pay for goods and services. It is used as a measure of their values on the market. Now I can sell my cast iron skillets for a handful of dollars. I can then take the dollars needed to buy sweaters and purchase the one I want from you. You, on the other hand, can sell your sweaters for the amount of dollars they are worth and when you have enough, you can buy a skillet from me.
Lenders and Debtors
In our societies, there are lenders and there are debtors (or borrowers). Lenders let someone else (the debtor) use their resources (usually money), for a specified length of time (term), for a fee (interest). The debtor borrows resources (usually money) from someone (the lender), and uses it for a specified length of time (term), and pays a fee (interest) to use it. It’s amazing how switching a few words means a totally equal and opposite condition. One makes money letting someone use their money. The other pays someone money to use money they don’t have. If you are the lender, the compounding of interest can grow the money you already have making it go farther. If you are the debtor, the compounding interest can be costly and reduce the money you have. It can make it harder to get ahead.
Savers and Spenders
Like lenders and debtors, savers and spenders are on opposite sides. Savers save and often invest their money. Doing so allows that power of compounding interest help their money to grow. What is compounding interest? It essentially is interest (money) earned on both the initial investment and the accumulated interest from previous periods (BTW-This works the same way on loans). By saving and investing money, the saver can earn more money. Spenders simply spend their money. At best, they use up their money earned, buying themselves the things they want or need. But once it’s gone, it’s gone! At worst, they use credit cards and other methods to borrow money, paying more for the items they buy than they were bought for. This is the negative side of compound interest.
Ok, so I admit that I am writing these examples in the simplest of terms. My intention here is just to show that there is a great divide here. If you think about people you know who are successful with money, they generally are good savers and investors. They purposely look for ways and opportunities to grow their money. To make their money work for them.
When you think of the people you know around you who haven’t been quite as successful with their money, it is often because they are constantly chasing payments. Trying to catch up. Buying things on credit cards, loans, and other schemes that make it harder for them to get ahead.
Before the daggers come out, I must mention sometimes debt makes sense. We will not get into that at this time. I also want to point out that the examples above are not always the case, just commonly the case.
Why don’t we know more about money?
There are many theories as to why people are often lacking the financial know how to be successful. There are many reasons, but I personally believe there are two primary reasons.
One, people in general don’t talk specifics when it comes to money. When we do, we often don’t tell the whole story (intentionally or unintentionally). As an example, occasionally I would hear a story at the office of someone who won big at the casino. Funny though, I never ever heard any stories of anyone losing big. Or someone gets something like a new pool. You don’t hear about the payment that will keep them strapped for many years.
Two, the entities that are loaning money are savvier than us. They are very good about making us feel good about the money we are borrowing. It will build our credit. It is just leveraging our money, so we can get the things we need (or think we need).
If we are going to get a control on our finances, we need to learn about personal finance. Even though there are countless resources at our fingertips, many people won’t even begin to look.
You are different!
You are not the average person though! Otherwise, you would not be here at Destination My FI. If you are reading this, most likely you are looking at other books, blogs, and podcasts. That is a great start!
Begin to think about your own conceptions of money and personal finance. Where did you learn them? Are they correct? What have you observed about people who manage their finances well and those who do not?
I have found that the more you read, dig for explanation, and speak with those who are successful in the world of personal finance, the more I will grow and learn.
I am glad you are here. I hope you are inspired to call out your own “Destination My FI!”