A few weeks ago I presented How to Have Money Forever at Northwood High school. I loved it, and it went well. (I did talk a lot at the expense of hearing from students. I chalk that up to it being the pilot presentation.)
The take-away messages were: 1) always pay your credit card bill in full, and 2) provide your Future Self with options. I asked the class, “how much of your credit card should you pay at the end of the billing cycle?” five times during the hour. That’s a credit card practice that everyone should follow. But providing your Future Self with options is more abstract.
Your Future Self
You don’t know what your Future Self will do or be. But, you can be sure she will appreciate having options. The future is a question mark for everyone: your Future Self may have diminished earning capacity due to illness or family obligations. Or, she may have goals beyond your current imagining: to work on a farm, volunteer full time, be a philanthropist, write books, raise children. Whatever the circumstances, your Future Self will have more power and possibilities with options. You can pay it forward.
This is why debt is an emergency! The more people to whom you owe money each month, the less you can provide your Future Self with options. The average indebted consumer in the United States owes >$15,000! Having negative money means having diminished options (not all debt is created equal. I’m talking about consumer debt, not mortgages.)
These come in many forms, including:
- Skills: are you an expert in something specific? Do you have a quantifiable, coveted skill? Are you good with people? Do you have a degree? Are you skilled in a trade?
- A Network: are you connected with people? Do you use social networks? Do you seek out and introduce yourself to leaders in your field? Do you follow their work? Do you attend events?
- Money: do you have investments earning compound interest? Do you have an emergency fund, or F-you money? Do you spend a lot less than you make every month? Do you have multiple income streams?
Many of the trappings of middle class America oppose your ability to accumulate wealth (like debt).
The US economy is heavily based on consumption: buying things, using them, and discarding them. We (humans) have a tendency to compare one another, leading to keeping up with the Joneses. We learn that bigger is better, especially if that’s what everyone else has: house, car, education, activities, food, clothes, etc. All of these cost money.
How much more will you actually enjoy a luxury car than an average, used one? At first a lux car probably feels amazing, but after awhile it just feels like Your Car. Ultimately, any car that gets from point A to point B and is not unsafe or insufferably uncomfortable probably feels about the same.
It’s not that you should never have nice things. It’s just that you should only buy nice things in accordance with your values and priorities. And if you want to accumulate wealth for your Future Self, one of your priorities is likely not spending a high percentage of your income on luxury stuff.*
“But YOLO!” you may be thinking. “I’m only young once! If I can’t have fun now, what’s the point?”
Well, yes. Living should be fun perhaps most of the time, and fun often costs money (and money costs work). Splurge sometimes: get froyo, go see movies. Treat yourself. However, the difference between a treat and a lifestyle may be the difference between a lot of options and a few. Remember, you will be YOLO-ing forever. As your goals, needs, body, and responsibilities change, you’ll be more and more grateful that your Past Self set you up with financial options.
* Some argue to focus on earning more money, rather than just having a high savings rate. I argue to focus on both.
(photo taken by Amanuel Awoke)