Posts tagged financial independence
Back to Basics: Understanding the Money Game

Introducing the

Back to Basics Money Series

When you go mountain climbing, the first thing you’re told is not to look at the peak. Keep your eyes on the ground as you climb. You just keep climbing patiently, one step at a time. If you keep looking at the top, you’ll get frustrated.
— Akira Kurosawa

Ivan here.

Jennie and I have been wanting to do a ‘back to basics’ money series for a while. The timing just never seemed right. When you’re knee-deep in the process of self-improvement (financial or otherwise), it’s hard to come away with any useful insights beyond a list of tips and tricks. I think more important than telling people “what to do,” showing them the “why” and the “how” is what really empowers them to look at their own situation in a different light.

When it comes to money, there are very few formulas or “recipes” to follow that work for everyone’s situation.  

Our only goal for this series is to encourage people to go out of the norm of what’s “expected” and start thinking for themselves.

How We Got Here:

Money Means Freedom

back to the basics.png

The reason Jennie and I are launching this series today is because two things have happened:

  1. Last month, Jennie and I met our $40,000 RTW trip savings goal after a two year process of budgeting and saving.

  2. In the second quarter of 2018, we met our freelance goal of making at least $2,500 per month in consistent, remote income.

What this means is that our $40,000 RTW travel fund turned out to be unnecessary. Our travel will likely be more than covered by our income on the road.

Like we’ve said before: it was never about the $40k, just as it was never about travel. It was about the process of learning how to keep our heads down and climb the mountain - one step at a time. It was about understanding what our priorities were and what we were willing to sacrifice.

Even if the $40,000 were to vanish tomorrow, the money habits Jennie and I have acquired are ones we’ll have for the rest of our lives. Something that no one can ever take away.

Because once you understand the game, you’ll never run out of moves to play.

Why Money is Like the Game Jumanji

Money is like the game Jumanji:

  1. It’s inescapable: no matter how long you try to put it off, the game will find you whether you want to play or not. In the meantime, the sense of dread and anxiety grows stronger with each passing day.

  2. It preys on our hopes and fears: Too much hope is greed. Too much fear is panic. As human beings, we all go through cycles of overconfidence and insecurity. Money is saved and spent, prices rise and fall, and the game serves as the barometer for both the social mood and human nature.

  3. Jungle rules apply: Capitalism, even in its most regulated form, is a system of opportunity and exploitation. In this ecosystem, you’re either the pursuing or the pursued, the hunter or the hunted. In an economic system predicated on “growth,” standing still is moving backwards.  

When faced with this game, all of us need to make a decision on whether we want to be proactive or reactive. And it’s not easy. Sometimes, it can feel like you’re being whipped about by forces beyond your control. You might even start to believe that there’s something inherently wrong with you. Being poor and living paycheck to paycheck is just who you are, and there’s nothing you can do to change it.

This feeling is only half true. We don’t often get to pick the hands we’re dealt. Some things happen to us that we just can’t change, and at some point, we’re all going to have to weather some turbulence. And yet, there are always things that you can control.

So you need to make the decision: do you want to be proactive or reactive with your life?

The process of remembering who you are, and what you want, and how you respond to the ups and downs of your life will, over the long run, make all the difference in the world.

/Ivan inhales, begins rant

Life: It’s Not a Race & Nobody Knows Anything

First of all, fuck this noise.


What irritates me about articles like this is that not only is it counterproductive, it was also conceived and published to deliberately provoke a response. Specifically, anxiety and controversy. Why should we give a fuck about what “should” happen by when?

If we want to play the “should” game, I can do it too. For example, I think print media companies “should” be profitable by 2018. But if I were a betting man, I’d take the under on the profitability of MarketWatch and the chances it survives the next decade.**

[** Author’s note: I don’t need to guess. According to public filings, Marketwatch’s parent company News Corp, reported a $1.1B loss last quarter. You want to know how to make this company bleed? Stop giving them engagement and clicks].

This segues into my pet topic, which I’ll break down into three statements:

  1. Nobody knows anything.

  2. Everyone is just making it up as they go along.

  3. Everything is negotiable with the right kind of leverage.

“Nobody knows anything” is always my going assumption until someone proves otherwise.

You’ll be shocked how true this is. Some people are just better at pretending than others. Some like to hide behind a veneer of credibility, authority or “success,” but the truth is, they’re often plagued by the same sort of doubts and insecurities as you. Because they’re human. And no human being is deserving of our blind worship. When you actually peer under the hood of how the world works, you’ll be amazed that anything gets done at all.

The more you come to understand this, the less time you’ll waste wondering what’s wrong with you.

/ends rant

Topics We’ll Cover

in this Back To Basics Money Series

Over the next few months before Jennie and I leave for our RTW trip in September, we’ll cover five broad categories in this “back to basics” money series, including but not limited to the example topics we’ve listed below. We’ll try to publish these in chronological order, from the beginning of the process to the end:

1. Fundamentals of Budgeting

  • Hitting the reset button on your finances (“where is all my money going?”)

  • Finding your budget sweet spot (“how much money do I need?”)

  • Handling the emotions of budgeting (“how do I avoid my spending impulses?”)

2. How to Spend Less:

  • How much (insert item) can I realistically afford?

  • How to simplify and plan for the long term?

  • How to factor in fun and luxury purchases?

3. How To Earn More

3. Money Talk & Relationships:

  • How to manage financial anxiety

  • Marriage and finances

  • How to talk to your family about money

4. Investing in Yourself (Retirement, Education etc):  

  • Investing 101: from account creation to long term indexing

Stay tuned! See you next week.

The Hidden Cost of Home Buying

The public wants to be led, to be instructed, to be told what to do. They want reassurance. They will always move en masse, a mob, a herd, a group, because people want the safety of human company.
— Jesse Livermore

Homes & Opportunity Cost - The Origami Life

Ivan here. 

I hate to start the week with math, but that’s exactly what’s about to happen. 

A few months ago, I wrote a post titled “Why a House Is Not a Home,” and in it I questioned the conventional opinion that real estate is always a good investment. The point I made is that real estate, like any other asset, is not always "safe" and comes with opportunity costs that most people ignore. 

To drive this point home, I’m going to provide a real life example from a recent trip Jennie and I took to Denver. 

Housing Prices in Denver, Colorado

A member of Jennie’s extended family owns a house in Denver, which was purchased in the mid 1980s for $87,000, and is now worth $400,000 in 2017, supported by the hot real estate market in Colorado (and historically low interest rates). 

That’s a 460% return. 

Here’s the thing: on an annualized basis, assuming a thirty year horizon (it was longer but let’s use thirty for simplicity), the rate of return was 5.2% per year. 

Inflation over that period was 3.5%. 

5.2% minus 3.5% nets you a real return of 1.7% per year. This is assuming the original home was purchased in cash - that it wasn’t financed with a 30 year mortgage paying interest. If that’s the case, the real return would be less than 1% - maybe even negative. But I’m an optimist, so let’s go with 1%. To lock in this 1% return, you’d need to eventually sell this house and incur costs on top of that. 

At this point, I haven't factored in any of the pros and cons of owning real estate. Like a stable roof over your head to raise a family and the advantage of using leverage to boost your net worth. I also haven’t factored in the maintenance and remodeling required on a house over thirty years. As home values rise, generating wealth on paper, the additional property taxes you pay on the value of your home is a real cash outflow. 

I don’t care about any of the above. That’s largely a personal decision to be made based on personal values. 

What I care about is opportunity cost. 

The Opportunity Cost of Owning a Home

Homes & Opportunity Cost - The Origami Life

$87,000 invested in a low cost index fund by January 1, 1987, and held through ‘Black Monday’ ten months later, the dot-com bubble and the Great Recession would be worth $1,000,000 in 2017. Even if only half of it was available in 1987, it would still net you $500,000, enough to buy a decent sized retirement home in thirty years (no downsizing necessary) - even in a period of historically low borrowing costs and historically high home prices. 

Which means historically speaking, the opportunity cost of taking out a 30 year mortgage in your 20s is anywhere between half a million to a million dollars. 

Does this mean we should bet the farm on index funds in 2017? Alas, it’s not that simple.  

However, the prescription of a slow and consistent accumulation of low cost index funds over a long period of time, through the ups and downs of the market, will almost certainly outperform real estate on an inflation-adjusted basis.

It all depends on whether we have the emotional fortitude to be, as Warren Buffett says, fearful when others are greedy and greedy when others are fearful.” 

In practice, this means having the courage to stay the course when everyone else is calling for the end of the world. 

Our Takeaway

When it comes to home-buying, I’m not saying that one size fits all. I’m simply pointing out the hidden costs (and risks) of a long term mortgage.

This is just my personal opinion, but I think Americans have developed a disturbing comfort level with debt, debt that’s largely been subsidized by the federal government. This is great when interest rates are falling, but disastrous when the cycle turns or when half the jobs that exist today start to disappear

Which is to say that by taking out a mortgage in your twenties, you’re making an implicit bet on stability over growth. 

I guess it all depends on when we should value stability: 

a. when we’re young, ambitious and mobile, or
b. when we’re older and ready to settle down.

If reading this has made you a little more unsure about the buy vs. rent decision, then good. Only idiots are certain all the time. In fact, it’s their natural disposition. And while the ignorant have always occupied a fixed percentage of our population, they seem to have grown awfully confident these days.
And that's exactly when everyone else needs to get cautious. 

From Poverty To Middle Class & Forgetting My Roots

In short, I’m starting to lose perspective.

I’ve developed a middle class attitude towards the poor. This worries me because I realize that I’m only a few steps removed from having an upper class attitude towards the middle class.

Jennie here.

I’m the first member of my family to graduate from college, study abroad, and land a salaried position. I’m at a point now where I make four times as much as both of my parents combined. No matter how I slice it, I’ve “made it” in the world, with more choices than I ever could have imagined growing up.

The downside to my rise in the world is that recently, I’ve noticed that I’m starting to lose my ability to understand or empathize with my family’s financial situation. From my perspective, every member of my family seems almost hellbent on making the worst possible financial choices, even when the right ones are available and staring them in the face.  

I’ve developed a middle class attitude towards the poor. This worries me because I realize that I’m only a few steps removed from having an upper class attitude towards the middle class.

In short, I’m starting to lose perspective.

Growing Up Poor Changes You

I’ve forgotten how tough it was to deal with the daily stress of thinking about money and how it can quickly take over your life; being poor prevents you from thinking rationally, setting realistic goals, and makes it harder to accomplish even the most simple tasks.

This got me thinking back to my childhood.

Things Only Poor Kids Understand

  • You spend the majority of your life playing catch up. 
    Investing in the future was a foreign concept. For example, my parents wanted to save for my education, but couldn’t. So I never learned the value of long-term savings until much later on. When you’re poor, planning for the future just wasn’t feasible. I’ve spent the last few years shifting my mentality and learning the value of planning beyond the next month or next year.

  • You develop a paycheck-to-paycheck mentality.
    This was my entire life growing up. Because my parents were only high school educated, they didn’t have many options. I remember when I first moved out to Boston on my own with no job prospects, I had to borrow $2,500 from Ivan; I knew this money would only help me survive for a month or two at the longest. For the first six months in Boston, I worked several temp and retail jobs and lived paycheck to paycheck; most days felt overwhelming and stressful.

  • You’re a sucker for discounted, generic goods.
    My mom bought everything from food to clothes at discounted stores, sale prices, and often from generic brands. I used to see my mom buy clothes and when she got home -- she was excited because she had bought it at 80% or 90% off the original price. It didn’t matter whether or not she needed it. A sale was a sale.

  • Every day you’re reminded of how much it costs just to stay alive.
    My parents often had their routine, hushed conversations about money and how expensive it was to raise my siblings and I. The worst period was always around back-to-school season, when we would bring home the school supply lists. My parents would add up the costs knowing that it would come at the expense of next month’s groceries.

  • Financial ruin was always just around the corner.
    My family was one of the many families that benefited from Medicaid and WIC programs. I never had a consistent doctor throughout my entire childhood; we’d often go to clinics and see rotating doctors and nurses instead. I knew that breaking a bone or getting seriously sick could financially ruin my family. We simply couldn’t afford it.

Trying To Get Back To The Basics

Perspective Lens

More than anything, I just want to make my choices count.

When you’re stuck in the vicious cycle of poverty, all you feel is the constant burden of stress which leads to bad decisions and compounds other problems. This is the worst part growing up poor -- the feeling and perception that you have no control over your own life.

Since moving to Boston and getting my first salaried job, I’ve made the slow transition from being poor to being a middle-class citizen. I now have control over my life, my money, and my choices. This would have been unfathomable five years ago.

Here’s what I’ve learned from looking back:

  1. I don’t want to lose sight of who I was and how I got here.
    At the end of the day, my success was simply an amalgamation of my hard work, motivation from my parents and their expectations, my desperate need to end my life of poverty, and the right circumstances falling into place.

  2. Not falling into the trap of chasing “more” versus having enough.
    Growing up, I had aspirations to be rich just to get out of a bad situation -- poverty. But I realize now that what I was really vying for was to have choices. Moving forward, I don’t want to get caught up in chasing the “next” thing when it comes to financial and material possessions.

    More than anything, I just want to make my choices count.

I've talked about my experience with money and family in the past, if you're interested in reading more, check out these blogs:

The Story of My First Paycheck
Price is what you pay, value is what you get
— Warren Buffett

Ivan here. Let me tell you the story of my first paycheck. 

I remember it like it was yesterday. The year was 2012 on a midsummer’s afternoon in downtown Toronto. Friday. Despite the muggy weather, I was in a full suit enroute to a networking event in the financial district. 

I was 23, a newly minted management consultant fresh from training week (in Baltimore of all places), where I learned important consulting concepts like thought leadership (Googling things and making Powerpoints) and client relationship management (stepping over the lowest bar).  

But I digress. Enroute to this senior executive’s meet and greet, I happened to glance at my bank account on my phone and was shocked by the non-zero balance of $1,800. A decent two week's pay when you factored in Canadian taxes and maxed out retirement contributions. 

A wave of relief washed over me. Coming out of school with no debt and some savings, I chose to delay my start date by eight months to travel and spend time with Jennie. This also meant that towards the end of those eight months, I was reduced to a diet of omelettes for breakfast and lunch and Shin Ramen with American processed cheese for dinner (don’t knock it until you try it).

My relief was soon replaced by a sense of uneasiness. It was a feeling that would stay with me for the next three years. 

Is This It? 

From 2012 to 2015, through a combination of performance bonuses, raises, and promotions, my paycheck went up 5%, 10%, then finally 50%. While I was grateful for the influx of cash into my life, I noticed that the higher my price tag rose, the more uneasy I became. 

I couldn’t put my finger on why. Being a cautious person, I responded by downsizing my apartment and living like an ascetic monk. As a result, my savings account swelled to levels I’d never seen before. 

Yet the extra savings didn’t provide me with any additional feeling of security. The uneasiness only intensified. 

Late one night on the subway, as a colleague and I were heading home from a long day of work, I found myself wondering out loud,  

“Haven’t you ever thought there was more than this? The paychecks, the promotions, the mortgages, the kids. Retirement. I mean, these are all good things, and I’m not complaining - but can this be it?” 

There was a long pause as he looked at me.

“I know what you mean,” he said finally. As the train pulled out of another station, we both lapsed into silence. 

That first $80 paycheck made me feel richer than all the money in my savings account ever did.

That same evening I went home and wrote a short story in one sitting. I titled it Hunger. It’s about an ordinary guy rising through the ranks of a corporation. He was always hungry no matter how much food he consumed.  

Writing that story made me feel better. Better than I’d felt in years. The uneasiness went away. So I wrote another. And another. Then at the end of 2015, I wrote an investment article and published it on Seeking Alpha. People read it and commented on it. Unexpectedly, the site paid me $80 for it. 

Let me tell you, that first $80 made me feel richer than all the money in my savings account. 

You’ll Never Make It If You Fake It

I’m a writer and a capitalist. A strange combination. It means a part of me wants to tell the truth and write about real things magically, but the other part is just a sociopath looking for human weakness. 

The capitalist in me understands that people are always going to get paid less than they’re worth. Because if any of us were paid more than we’re worth, we’d eventually be fired and replaced. That’s the free market. Supply and demand. It also explains why everyone from investment bankers to billionaire hedge fund managers feel like they never get the compensation they deserve. To quote the novelist Haruki Murakami, "we're only compensated for what we have to put up with."

Our salaries are our price tags. With few exceptions, jobs are always scarcer than people. Therefore, most of us will always be sold at a discount.

But there’s something beyond the price tag. What we get out of our work: value. The things in life we would do for free if money wasn’t an issue. 

I knew where I derived my value. Being able to sit in a room, alone, reading and writing everyday was all I ever wanted since I was a kid - but the capitalist in me wanted to keep pretending, to keep chasing an elusive sense of security. Had I stayed, I never would have been able to quiet that nagging feeling, that I was sleepwalking through a series of milestones, waiting for my life to begin. 

Two Steps toward Happiness

Happiness is straightforward and can be achieved in two steps. 

  1. The first part is hard: You try to find something that energizes you and makes you feel good to wake up every morning, one where you don’t stray too far from your true self. 
  2. The second part’s easier: All you have to do is try to keep doing that thing for as long as you can afford to keep the lights on. 

At the end of the day, that’s financial freedom. I’ve learned that’s all money is good for. 

If you’re willing to consume less and focus on building value, for yourself and others, it takes less than you think to get everything you could ever ask for. 

And after that? They can't ever buy you again.