If you are looking to escape a mundane existence for something a little more spicey or unorthodox then the internet really is going to be the tool to get you on your way. I will write about self-employment and the role the internet can play on other posts but this is not the specific context I am talking about now. It's just whatever you think you may want to do for interest or career, you will able to research to the nines before making any commitment or risking anything more than some time.
Want to be a professional photographer and relocate to Italy? Check out forums and blogs of people that have done one or other or both. You soon get a feel of the practicalities of your ideal from reading real experiences of others. Don't be instantly put off, it's just that what ever dream we want to pursue is going to have plenty of challenges and at least initial research prepares us.
The next step of this research process can be blogging, depending on your interest. Say you want to be an art restorer then having to write about restoration techniques a few times a week will test just how passionate you are about this subject. If you have run out of steam by week two or three then may be this dream isn't for you after all. Too tired to read a screen after your day job? Youtube is great for all sorts of personal accounts and professionals putting themselves out there talking about what they do.
This research phase is not in itself going to change your life but it can greatly enhance your chances of making the right moves. When we had to rely on libraries for research, making an informed decision on virtually anything significant was ludicrously difficult compared to the online access we have now. Don't take this for granted and use it as fully as you are able.
Having whims and wants is great but acting on them impulsively can be truely destructive. If we act boldly on the wrong initiative it will make us twice shy for taking brave steps again. Your time is valuable so invest at least two or three weeks or part time research around anything you are seriously curious about. Then bin it if you are getting the wrong vibes online or use your research for taking things further.
Tuesday, September 13, 2011
Monday, September 12, 2011
Changing Career and Mid-Career Dreams
Small children are more focused and persistent than most adults. Picture a 4 year old girl who wants her dad to give her a biscuit. She knows she is not meant to have one and that the request is unreasonable and yet she asks for one. Only, she does not ask once but on and on and on until wearily her father, decades her senior, gives in under the "pressure". She can endure numerous knock backs as she only needs one yes. I fully approve the dad in this example eventually giving in as he ultimately rewards her persistence. He also encourages the girl to dare to expect the unreasonable and demand it. As we grow older we forget this and knock backs somehow become so unpleasant it usually seems preferable not to ask or expect.
Astronaut to Loss Adjuster
When we are children we dare to dream to do what we find exciting. Don't worry, I am not about to say we should all strive to become astronauts. However, we start off with our ideal ambitions and then gradually adjust these downwards to what is practical and realistic. Astronaut at 8 years old can become adjusted to Loss Adjuster at 30. In many ways, this is a good thing as the world as we know it would not function otherwise. A reality is that it's a very lucky few who know exactly what they want to do at 16 or 21 and can spend their youth chasing their passion relentlessly forging a life that is as close to their passion as possible.
The Scrap for Security
Most of us have to scrap to find almost any niche in the world where we can pay the bills. This means that during these years of scrap and toil dreams become understandably compromised for practical realities. We should not be ashamed of doing this but should be proud of ourselves. Nobody handed you anything on a plate. Had your father been a tycoon you could have spent 10 years in LA honing your skills and contacts as a film director. That's not the reality for most of us. So your a middle manager in an open plan office with a health plan and a pension? Good for you. You live responsibly, pay your taxes, care for friends, family and others and you have found a niche all by your self. The niche is probably one you never knew existed at the age of 8 or even 18 but you found it and it means you are self reliant. This is arguably the hardest thing many people in the world have to do in their life. Again, you should be pleased with yourself even if you do not jump out of bed with excitement every Monday morning.
Security as a Platform
If you do jump out of bed every Monday morning relishing the working week ahead then you do not need to read much further. However, if this is not the case you do not have to resign yourself that the next few decades will be more of the same. Rather than seeing this comfortable world of security you have made for yourself out of hard work as confining and restrictive, start to see it as a platform or spring board. You probably have some savings, or if not you at least have a trade of some description which currently pays the bills. Now, you can keep on with more of the same and build this security to enable you to do what you want in retirement but that fills few of us with inspiration. Or, you can look to leverage your current situation as a secure platform to pursue those buried dreams that you gave up on long ago.
Dusting off the Dreams
When we are in the middle of our careers and busy living life we tend to forget our old dreams and forget that if we persist our demands will probably be met. When we are young we chat excitedly amongst each other about all the things we want to do and how we don't want to compromise or sell ourselves out. Whilst we were young, we were the same people with the same intellect as we have today. It is easy to dismiss our young selves as naive and laugh of our early notions of what life would be like as exuberance. Now you are into a career but still have a few decades stretched ahead of you now is the time to dust off those old dreams you had when you were young or new ones you have found. Then, start to feel how you felt when you were younger, that anything really is possible if you put your mind to it. Make a list of all the things you remember wanting, no matter how silly they are. Do not overlay your "wisdom" at this stage of what is practical. For example, you may have wanted to be a pro footballer which may now be impossible. However, it reminds you of your passion and interest in the sport and you can dare to dream you could do something connected with it. Once you have put as full a list down as possible then for each one you can doodle ideas of what you could in relation to your dream.
De-Risk Career Changes
Career changes appear risky and scary. The bigger the change or more secure you are now the less likely that any change will come about. Therefore, look for ways to take out the scariness of starting to pursue your dreams. A great example is the British comedian John Bishop. Midway into a career he was a company sales rep with house, mortgage, and family. He then started doing a bit of comedy performing on a part-time basis along side his "sensible" life. After a few years, he had enough confidence that he could make a living from it he gave up his day job. Naturally the first year or two were no doubt tense but he had a good insight into the probability of success. As a result, he now does something he surely loves and the rest off us get some great entertainment. His brand of humor relies on his years of adult experience. Paradoxically the opportunity to chase his dream may have not been possible when he was 20 but was so when he was 38.
Too Young to Do, Too Old to dream
The example of John Bishop illustrates a temporal miss-match for many of us between ambition and ability. When we are young we have ambition and fire in our belly in bucket loads. However, we often know little of how the world works and for various reasons may not actually have the tools to hone in our dream. As we get older, the fire in our belly dulls but our life skill set grows. What you should try and do is drag your ambition and dreams up from your young self and sit them squarely next to your current worldly wisdom. Making a list of dreams, coupled with ideas of how to chase them is a good way of structuring your thinking. You will be able to see opportunities that were not possible when your dreams originally burned strong.
Astronaut to Loss Adjuster
When we are children we dare to dream to do what we find exciting. Don't worry, I am not about to say we should all strive to become astronauts. However, we start off with our ideal ambitions and then gradually adjust these downwards to what is practical and realistic. Astronaut at 8 years old can become adjusted to Loss Adjuster at 30. In many ways, this is a good thing as the world as we know it would not function otherwise. A reality is that it's a very lucky few who know exactly what they want to do at 16 or 21 and can spend their youth chasing their passion relentlessly forging a life that is as close to their passion as possible.
The Scrap for Security
Most of us have to scrap to find almost any niche in the world where we can pay the bills. This means that during these years of scrap and toil dreams become understandably compromised for practical realities. We should not be ashamed of doing this but should be proud of ourselves. Nobody handed you anything on a plate. Had your father been a tycoon you could have spent 10 years in LA honing your skills and contacts as a film director. That's not the reality for most of us. So your a middle manager in an open plan office with a health plan and a pension? Good for you. You live responsibly, pay your taxes, care for friends, family and others and you have found a niche all by your self. The niche is probably one you never knew existed at the age of 8 or even 18 but you found it and it means you are self reliant. This is arguably the hardest thing many people in the world have to do in their life. Again, you should be pleased with yourself even if you do not jump out of bed with excitement every Monday morning.
Security as a Platform
If you do jump out of bed every Monday morning relishing the working week ahead then you do not need to read much further. However, if this is not the case you do not have to resign yourself that the next few decades will be more of the same. Rather than seeing this comfortable world of security you have made for yourself out of hard work as confining and restrictive, start to see it as a platform or spring board. You probably have some savings, or if not you at least have a trade of some description which currently pays the bills. Now, you can keep on with more of the same and build this security to enable you to do what you want in retirement but that fills few of us with inspiration. Or, you can look to leverage your current situation as a secure platform to pursue those buried dreams that you gave up on long ago.
Dusting off the Dreams
When we are in the middle of our careers and busy living life we tend to forget our old dreams and forget that if we persist our demands will probably be met. When we are young we chat excitedly amongst each other about all the things we want to do and how we don't want to compromise or sell ourselves out. Whilst we were young, we were the same people with the same intellect as we have today. It is easy to dismiss our young selves as naive and laugh of our early notions of what life would be like as exuberance. Now you are into a career but still have a few decades stretched ahead of you now is the time to dust off those old dreams you had when you were young or new ones you have found. Then, start to feel how you felt when you were younger, that anything really is possible if you put your mind to it. Make a list of all the things you remember wanting, no matter how silly they are. Do not overlay your "wisdom" at this stage of what is practical. For example, you may have wanted to be a pro footballer which may now be impossible. However, it reminds you of your passion and interest in the sport and you can dare to dream you could do something connected with it. Once you have put as full a list down as possible then for each one you can doodle ideas of what you could in relation to your dream.
De-Risk Career Changes
Career changes appear risky and scary. The bigger the change or more secure you are now the less likely that any change will come about. Therefore, look for ways to take out the scariness of starting to pursue your dreams. A great example is the British comedian John Bishop. Midway into a career he was a company sales rep with house, mortgage, and family. He then started doing a bit of comedy performing on a part-time basis along side his "sensible" life. After a few years, he had enough confidence that he could make a living from it he gave up his day job. Naturally the first year or two were no doubt tense but he had a good insight into the probability of success. As a result, he now does something he surely loves and the rest off us get some great entertainment. His brand of humor relies on his years of adult experience. Paradoxically the opportunity to chase his dream may have not been possible when he was 20 but was so when he was 38.
Too Young to Do, Too Old to dream
The example of John Bishop illustrates a temporal miss-match for many of us between ambition and ability. When we are young we have ambition and fire in our belly in bucket loads. However, we often know little of how the world works and for various reasons may not actually have the tools to hone in our dream. As we get older, the fire in our belly dulls but our life skill set grows. What you should try and do is drag your ambition and dreams up from your young self and sit them squarely next to your current worldly wisdom. Making a list of dreams, coupled with ideas of how to chase them is a good way of structuring your thinking. You will be able to see opportunities that were not possible when your dreams originally burned strong.
Limitations of Goals
We are constantly told the importance of goals. I feel goals represent a huge risk to you achieving what you want to do.
To illustrate, lets look at an example. I'm not musical at all, can't play a note, but I envy people who create widely enjoyed music. Take The Rolling Stones. Mick Jagger and Keith Richards started playing blues music together for hours on end, day in day out, in a small bedsit. They were essentially music nerds devouring music from the US and perfecting the skill to mimic the style. Quite simple, they loved it and their feel for the anatomy of good music couple with growing guitar skills then grew into their own creative process. Now, I have not met either of them but I will bet that neither of them set goals to make Xmillion $, sell out stadiums, have platinum albums. Had they done so, they would probably have failed and we would never of heard of them. Had that been their goal, it is likely they would have surveyed the music scene at that time and tried to produce music to gain a share of the existing market. Instead, the created their own unique style from their passion, and it so happened that there were plenty of people who loved it.
Similarly, some comedy writers say they write what they find funny and just hope others will too. If no one else does at least they have pleased one person!
Very short-term goals may be useful to help structure our activity but there a plenty of successful people who have followed their dreams and say they never had any kind of plan.
A 50 year old man today is starting to work on his passion and he hopes to be doing it for about 30 years providing. How can he possibly anticipate the twists and turns that this new and exciting path will take him? And if he sets goals then how does he know these will be the ones that ultimately fulfill him the most. He might quite rightly set objectives that reflect his passion eg "I want to write poetry that I enjoy and at least a few others genuinely enjoy". Such an objective lets his passion find the best path. It might not be selling 1m books but it might be reading at local hospices and enriching peoples lives. Goals have a habit of becoming too rigid, and if we change them or fail to attain them we become disillusioned or feel we are a quitter. One can observe people setting goals and attaining them from being focused and dedicated. Take a businessman who says he wants profit of $1m in 5 years. He gets there one year early. Hooray. So what, is he now wonderfully happy? Chances are he is pleased for a few weeks but then he says to himself now what? What was the point of all the work? What am I really passionate about? He has essentially deferred asking himself the important questions for four years. How many of us have met an entrepreneur who smugly states "At the age of ..... I wrote down everything I wanted including a Rolls Royce, a yacht, and I got every single one of them". These goals are essentially a shopping list incapable of giving guidance into a happy and fulfilling life. It is easy to get fixated on these types of goals and feel a strange kind of contentment striving towards them. I suggest this is a weak, transient type of contentment that diverts us away from tackling our real wants. Often people who live by these sorts of goals end up miserable when they attain them.
To illustrate, lets look at an example. I'm not musical at all, can't play a note, but I envy people who create widely enjoyed music. Take The Rolling Stones. Mick Jagger and Keith Richards started playing blues music together for hours on end, day in day out, in a small bedsit. They were essentially music nerds devouring music from the US and perfecting the skill to mimic the style. Quite simple, they loved it and their feel for the anatomy of good music couple with growing guitar skills then grew into their own creative process. Now, I have not met either of them but I will bet that neither of them set goals to make Xmillion $, sell out stadiums, have platinum albums. Had they done so, they would probably have failed and we would never of heard of them. Had that been their goal, it is likely they would have surveyed the music scene at that time and tried to produce music to gain a share of the existing market. Instead, the created their own unique style from their passion, and it so happened that there were plenty of people who loved it.
Similarly, some comedy writers say they write what they find funny and just hope others will too. If no one else does at least they have pleased one person!
Very short-term goals may be useful to help structure our activity but there a plenty of successful people who have followed their dreams and say they never had any kind of plan.
A 50 year old man today is starting to work on his passion and he hopes to be doing it for about 30 years providing. How can he possibly anticipate the twists and turns that this new and exciting path will take him? And if he sets goals then how does he know these will be the ones that ultimately fulfill him the most. He might quite rightly set objectives that reflect his passion eg "I want to write poetry that I enjoy and at least a few others genuinely enjoy". Such an objective lets his passion find the best path. It might not be selling 1m books but it might be reading at local hospices and enriching peoples lives. Goals have a habit of becoming too rigid, and if we change them or fail to attain them we become disillusioned or feel we are a quitter. One can observe people setting goals and attaining them from being focused and dedicated. Take a businessman who says he wants profit of $1m in 5 years. He gets there one year early. Hooray. So what, is he now wonderfully happy? Chances are he is pleased for a few weeks but then he says to himself now what? What was the point of all the work? What am I really passionate about? He has essentially deferred asking himself the important questions for four years. How many of us have met an entrepreneur who smugly states "At the age of ..... I wrote down everything I wanted including a Rolls Royce, a yacht, and I got every single one of them". These goals are essentially a shopping list incapable of giving guidance into a happy and fulfilling life. It is easy to get fixated on these types of goals and feel a strange kind of contentment striving towards them. I suggest this is a weak, transient type of contentment that diverts us away from tackling our real wants. Often people who live by these sorts of goals end up miserable when they attain them.
Get Used to Dreaming Again
There is a good reason why lots of people do jobs they don't like and then accumulate the trappings that lock them into that lifestyle. It is not because they lack intelligence but I do believe it is because to do so is easier than chasing their dreams.
Fear of Doing Our Dream Job
This sounds bizarre - surely we all want to pursue what we really want to do with our lives? To some extent, yes, but I believe that in many of us there is a conflict here largely based on fear that we either won't cut it in our dream job/pursuit or if we do then it won't actually make us as happy as hoped. Whilst I am not a fan of jobs that compel you to dedicate 60 hours a week, 50 weeks a year, they are cathartic for so many and enables them to reach a kind of contentment in that it is their duty for their family etc. These lives are so demanding we never have time to really reflect on what we are really passionate and excited about.
Fear of Losing what You Have
Again this is a rational and sensible fear, particularly when you have a family. In my view this is the biggest hurdle that stops people living a life they are excited about. They get trapped by this fear over the course of many years by climbing their career, building their income and then accumulating trappings of success that requires them to maintain or grow their income a the same level. The fear may not even be their own but a spouse who when you tell them you are going to pack your job in instantly say "what about the mortgage, school fees etc". They have a good point. Whilst many people achieve their dreams from starting out with nothing, most of us defer chasing our dreams until later in life when we have a great deal to lose. The bundle of stuff we fear losing then becomes the reason to never actually do what we want to do until maybe we retire. The way to beat this is to turn it on its head. The fact you have been slogging away for years actually means you can have a platform of relative security to pursue your dreams provided you are willing to initially or permanently downsize you lifestyle. If you, or your partner, are not willing to do this then again how committed to the dream are you?
Peer Group Perceptions
How is it going to feel when you turn up to the BBQ with all your social group and announce you have given up your senior role to become a writer? If you think they will be 100% supportive you have wonderful family and friends - congratulations. The reality is that peers may find it unsettling and make them reflect on their own lives to an extent that they find it hard to be supportive. This is human nature and does not warrant losing social connections over. Often peers just need time to get used to the idea you have broken rank. As Gore Viddel once said "A part of me dies every time a friend succeeds". This is a wonderfully candid comment about how we assess our own life in relation to our peers.
Stop Competing with Peers
Trying to compete with peers is pointless because we all competing in our own unique event that has no ultimate score. It's a bit like spending forty years swimming in a a pool. At the end of forty years, you've been swimming as fast as you can constantly and go to the referee. You say "I've swam 231,562 lengths of the pool, surely I've won!" The referee says "Unfortunately not. It's a draw. Your best friend from college shot an arrow into a target at 20 yards, 35 years ago". This intentionally makes no sense to make the point that competing with other people is ridiculous. Everybody has a different start in life, recieves different amounts of luck and assistance each year, has different responsibilities are contented by their own unique factors in life.
Multiple Dreams - Better than One?
If you have one dream that burns inside you that you just know that you have to do it then this is potentially exciting. One question, if the passion is so strong if you are not doing anything about it now you have to ask yourself why not. There may be a conflict inside you that is holding you back - part of that dream you are not comfortable with.
Instead, most of have two, three or more things that we think would be nice to do. Pick you dream portfolio to pieces and dip you toe in all of them to test the water to see how each feels.
Look before you Jump
The fear of actualising a dream and it not turning out to be as good as you hoped is a rational one, after all we all know the grass does tend to appear greener on the other side. Therefore, any action should be proceeded by careful consideration and research. Staying in something you don't like is not great but jumping ship into the unknown is hazardous to your well being as well.
Fear of Doing Our Dream Job
This sounds bizarre - surely we all want to pursue what we really want to do with our lives? To some extent, yes, but I believe that in many of us there is a conflict here largely based on fear that we either won't cut it in our dream job/pursuit or if we do then it won't actually make us as happy as hoped. Whilst I am not a fan of jobs that compel you to dedicate 60 hours a week, 50 weeks a year, they are cathartic for so many and enables them to reach a kind of contentment in that it is their duty for their family etc. These lives are so demanding we never have time to really reflect on what we are really passionate and excited about.
Fear of Losing what You Have
Again this is a rational and sensible fear, particularly when you have a family. In my view this is the biggest hurdle that stops people living a life they are excited about. They get trapped by this fear over the course of many years by climbing their career, building their income and then accumulating trappings of success that requires them to maintain or grow their income a the same level. The fear may not even be their own but a spouse who when you tell them you are going to pack your job in instantly say "what about the mortgage, school fees etc". They have a good point. Whilst many people achieve their dreams from starting out with nothing, most of us defer chasing our dreams until later in life when we have a great deal to lose. The bundle of stuff we fear losing then becomes the reason to never actually do what we want to do until maybe we retire. The way to beat this is to turn it on its head. The fact you have been slogging away for years actually means you can have a platform of relative security to pursue your dreams provided you are willing to initially or permanently downsize you lifestyle. If you, or your partner, are not willing to do this then again how committed to the dream are you?
Peer Group Perceptions
How is it going to feel when you turn up to the BBQ with all your social group and announce you have given up your senior role to become a writer? If you think they will be 100% supportive you have wonderful family and friends - congratulations. The reality is that peers may find it unsettling and make them reflect on their own lives to an extent that they find it hard to be supportive. This is human nature and does not warrant losing social connections over. Often peers just need time to get used to the idea you have broken rank. As Gore Viddel once said "A part of me dies every time a friend succeeds". This is a wonderfully candid comment about how we assess our own life in relation to our peers.
Stop Competing with Peers
Trying to compete with peers is pointless because we all competing in our own unique event that has no ultimate score. It's a bit like spending forty years swimming in a a pool. At the end of forty years, you've been swimming as fast as you can constantly and go to the referee. You say "I've swam 231,562 lengths of the pool, surely I've won!" The referee says "Unfortunately not. It's a draw. Your best friend from college shot an arrow into a target at 20 yards, 35 years ago". This intentionally makes no sense to make the point that competing with other people is ridiculous. Everybody has a different start in life, recieves different amounts of luck and assistance each year, has different responsibilities are contented by their own unique factors in life.
Multiple Dreams - Better than One?
If you have one dream that burns inside you that you just know that you have to do it then this is potentially exciting. One question, if the passion is so strong if you are not doing anything about it now you have to ask yourself why not. There may be a conflict inside you that is holding you back - part of that dream you are not comfortable with.
Instead, most of have two, three or more things that we think would be nice to do. Pick you dream portfolio to pieces and dip you toe in all of them to test the water to see how each feels.
Look before you Jump
The fear of actualising a dream and it not turning out to be as good as you hoped is a rational one, after all we all know the grass does tend to appear greener on the other side. Therefore, any action should be proceeded by careful consideration and research. Staying in something you don't like is not great but jumping ship into the unknown is hazardous to your well being as well.
Thursday, September 8, 2011
Expenditure Traps
A bizarre thing happens when our income increases - expenditure seems to increase in almost exact correlation. If you are doing exactly what you want where you want this could make some sense, after all you can't take the money with you to your grave. However, if like me you are a wannabe escaper from a hum drum existence you can not let this happen.
You should be looking to drive a wedge between them - look to decrease your monthly out goings whilst you income increases. This is not easy but it is definitely possible and in this article I will discuss pitfalls to avoid and habits to adopt.
Networth vs Cashflow
Forget net worth as an objective and focus on positive cash flow - more specifically aim to be generating, robust free cash every month. If you are earning $2000 net but your out goings are $2000 you have zero free cash flow being generated. Again, this may be fine but if you are wanting to escape your current life style to something new then this is a problem.
In this example, the problem is not that the income is too small or that the expenditure is too large but their size in relation to each other. If your overheads are really cut back to the bone and they still run at $2000 then clearly the focus has to be on generating more income to achieve a differential. BUT when you do start generating extra income do not do the following;
Try to upgrade into a bigger flat/house
Take on more debt - mortgage or otherwise
Treat yourself to a nicer car
Start buying designer cloths
This all seems obvious but we are all human and experience the thrill of thinking now we're doing better we could afford this and that. Try to enjoy the feeling of having chunks of cash left over every month that accumulate in your account. It will make you fell stronger, more robust, less insecure and less fearful of exploring new avenues and starting to think what you really want to do with your life. If you think "Well, we can now get the bigger house that's up the street and its a good investment" stop and say do I really need it, does it have the potential to radically change my life.
I enjoy climbing and mountaineering and often day to day living creates similar sensations. For most of us there are years of uphill struggle mixed with elation, excitement but also fear. Fear can paralyse us both on the mountain and behind closed doors in our homes. We start feeling everything is going to unravel and we will fall down. This is a real and rational fear and you should not ignore it but aim to beat it. Financial robustness goes a long way to beating much of those fears. Being careful with money goes some way to keeping the fear out of your household. In my opinion, you should avoid any type of credit other than a mortgage. If you can avoid a mortgage then even better but you will be in a minority. Cars are financial killers and if you buy on finance you often pay interest but you are normally buying more car than you should so and are getting killed on deprecation. Just paying $10,000 for a car is probably going to cost you $2000 this year on depreciation alone. If you have two of those in your household they stealthily suck a lot of money away from you.
Nice cars and houses are great but my point is aim to get them on your terms when your are sufficiently robust they do not dictate your life. Lets say you are earning $150,000, lucky you, and have a bit of cash and you stretch and borrow enough to buy a $1m home that you've always dreamt of. DON'T. Great income and good savings should create a robust household but as soon as you use these to stretch to the house you are instantly on the back the cliff edge. Worst case next month you lose your income and all your savings are locked up in the house which you lose a few weeks later. You've gone from being well off to poor in weeks - really unforgivable. An alternative which I urge you to consider is to say we will buy a more modest house, say $200,000, have little or no mortgage payments to make each month. Keep a modest car or two with no finance, and all that's got to come out of your $12000 gross a month is hundreds rather than thousands of dollars a month. Therefore, every month your income continues you build up your reserves. If you lose your income next month you can take in a lodger or mow lawns until you find another IT director role or start another business. Not great but you keep your family in your home and you have a platform to get your income back up.
All of this sounds obvious but houses are a financial trap because they are seen as an investment when so often they are extravagance. What the credit crunch showed us was that there were vast numbers of people who were comparatively wealthy one month and the next they had absolutely nothing. They were earning enough and had saved enough to get lured into a seemingly low risk financial decision which turned out to be ruinous.
The reality is that a great deal of expenditure is driven by what our neighbours/family/friends will think of us and assess our level of success. Whilst arguably this does matter to some degree we should make sure it does not nobble us at the beginning of a race that is decades long and ultimately is with only ourselves. I know I have heard stories of couples with kids achieving a level of success, and then buying a property far grander than they need for them and two kids. Then business/jobs don't go to plan and they loose pretty much everything. For a short period of time peers chat away about how well they are doing, but the children are often effected for life by the experience of seeing their parents lose everything.
In my opinion, if you are doing well at the moment then good on you. Just please, please resist collecting houses, cars etc to communicate to others how well you are doing until those purchases are zero threat to your robustness.
For more frugality-based articles, visit http://www.controlyourcash.com
You should be looking to drive a wedge between them - look to decrease your monthly out goings whilst you income increases. This is not easy but it is definitely possible and in this article I will discuss pitfalls to avoid and habits to adopt.
Networth vs Cashflow
Forget net worth as an objective and focus on positive cash flow - more specifically aim to be generating, robust free cash every month. If you are earning $2000 net but your out goings are $2000 you have zero free cash flow being generated. Again, this may be fine but if you are wanting to escape your current life style to something new then this is a problem.
In this example, the problem is not that the income is too small or that the expenditure is too large but their size in relation to each other. If your overheads are really cut back to the bone and they still run at $2000 then clearly the focus has to be on generating more income to achieve a differential. BUT when you do start generating extra income do not do the following;
Try to upgrade into a bigger flat/house
Take on more debt - mortgage or otherwise
Treat yourself to a nicer car
Start buying designer cloths
This all seems obvious but we are all human and experience the thrill of thinking now we're doing better we could afford this and that. Try to enjoy the feeling of having chunks of cash left over every month that accumulate in your account. It will make you fell stronger, more robust, less insecure and less fearful of exploring new avenues and starting to think what you really want to do with your life. If you think "Well, we can now get the bigger house that's up the street and its a good investment" stop and say do I really need it, does it have the potential to radically change my life.
I enjoy climbing and mountaineering and often day to day living creates similar sensations. For most of us there are years of uphill struggle mixed with elation, excitement but also fear. Fear can paralyse us both on the mountain and behind closed doors in our homes. We start feeling everything is going to unravel and we will fall down. This is a real and rational fear and you should not ignore it but aim to beat it. Financial robustness goes a long way to beating much of those fears. Being careful with money goes some way to keeping the fear out of your household. In my opinion, you should avoid any type of credit other than a mortgage. If you can avoid a mortgage then even better but you will be in a minority. Cars are financial killers and if you buy on finance you often pay interest but you are normally buying more car than you should so and are getting killed on deprecation. Just paying $10,000 for a car is probably going to cost you $2000 this year on depreciation alone. If you have two of those in your household they stealthily suck a lot of money away from you.
Nice cars and houses are great but my point is aim to get them on your terms when your are sufficiently robust they do not dictate your life. Lets say you are earning $150,000, lucky you, and have a bit of cash and you stretch and borrow enough to buy a $1m home that you've always dreamt of. DON'T. Great income and good savings should create a robust household but as soon as you use these to stretch to the house you are instantly on the back the cliff edge. Worst case next month you lose your income and all your savings are locked up in the house which you lose a few weeks later. You've gone from being well off to poor in weeks - really unforgivable. An alternative which I urge you to consider is to say we will buy a more modest house, say $200,000, have little or no mortgage payments to make each month. Keep a modest car or two with no finance, and all that's got to come out of your $12000 gross a month is hundreds rather than thousands of dollars a month. Therefore, every month your income continues you build up your reserves. If you lose your income next month you can take in a lodger or mow lawns until you find another IT director role or start another business. Not great but you keep your family in your home and you have a platform to get your income back up.
All of this sounds obvious but houses are a financial trap because they are seen as an investment when so often they are extravagance. What the credit crunch showed us was that there were vast numbers of people who were comparatively wealthy one month and the next they had absolutely nothing. They were earning enough and had saved enough to get lured into a seemingly low risk financial decision which turned out to be ruinous.
The reality is that a great deal of expenditure is driven by what our neighbours/family/friends will think of us and assess our level of success. Whilst arguably this does matter to some degree we should make sure it does not nobble us at the beginning of a race that is decades long and ultimately is with only ourselves. I know I have heard stories of couples with kids achieving a level of success, and then buying a property far grander than they need for them and two kids. Then business/jobs don't go to plan and they loose pretty much everything. For a short period of time peers chat away about how well they are doing, but the children are often effected for life by the experience of seeing their parents lose everything.
In my opinion, if you are doing well at the moment then good on you. Just please, please resist collecting houses, cars etc to communicate to others how well you are doing until those purchases are zero threat to your robustness.
For more frugality-based articles, visit http://www.controlyourcash.com
Wednesday, September 7, 2011
A Life Less Ordinary (but not too much less!)
This blog is all about the concept of escaping....
For as long as I can remember I have not been driven by something singular and tangible like money but a nebulous desire to escape the confines that adult life puts upon the majority of us. I believe this urge lies within a vast number of people and the minority actually seem to do it.
Rock stars clearly have something in them that wants to "stick it to the man" and this must be on the same spectrum. This blog is for everyone who feels they too are on this spectrum of desire to do something a little bit different with their lives than would be perceived as "normal" by parents, peers, teachers and others.
Don't get me wrong, I have no desire to be an odd ball or outcast - the bulk of what ordinary entails I embrace whole heartedly. I want to responsibly look after my family and pay taxes, it's just I don't want to feel that I have lived my life by other peoples terms and rules.
In future posts I will write about the components of life that impact most of us and how we can make each a little or a lot less ordinary, mostly by incremental changes. A big feature of this will be work/income and how we should aim to control this rather than let it dictate what kind of life we have. This is not to say I will be saying self-employment is the only route as I do not think it is as polarised as this.
I am also passionate about how we spend money and the social norms that again take control of our spending if we are not careful. For example, having a nice house is great but not if it locks you into a life in which you have a feeling of dread every Sunday night.
Why do I feel like writing this?
Well, I m not yet half way through my working life but feel I am starting to escape a confining existence. This is exciting but at times I also wrestle with fear it all might come crashing down.
For as long as I can remember I have not been driven by something singular and tangible like money but a nebulous desire to escape the confines that adult life puts upon the majority of us. I believe this urge lies within a vast number of people and the minority actually seem to do it.
Rock stars clearly have something in them that wants to "stick it to the man" and this must be on the same spectrum. This blog is for everyone who feels they too are on this spectrum of desire to do something a little bit different with their lives than would be perceived as "normal" by parents, peers, teachers and others.
Don't get me wrong, I have no desire to be an odd ball or outcast - the bulk of what ordinary entails I embrace whole heartedly. I want to responsibly look after my family and pay taxes, it's just I don't want to feel that I have lived my life by other peoples terms and rules.
In future posts I will write about the components of life that impact most of us and how we can make each a little or a lot less ordinary, mostly by incremental changes. A big feature of this will be work/income and how we should aim to control this rather than let it dictate what kind of life we have. This is not to say I will be saying self-employment is the only route as I do not think it is as polarised as this.
I am also passionate about how we spend money and the social norms that again take control of our spending if we are not careful. For example, having a nice house is great but not if it locks you into a life in which you have a feeling of dread every Sunday night.
Why do I feel like writing this?
Well, I m not yet half way through my working life but feel I am starting to escape a confining existence. This is exciting but at times I also wrestle with fear it all might come crashing down.
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