8 THINGS YOU NEED TO KNOW ABOUT MONEY THAT WILL CHANGE YOUR LIFE
As some of you know, before my MBA I got a Bachelor’s degree in Philosophy, which at the time qualified me to ask why you want fries with your meal. Due to this educational background, I often get asked what my “philosophy” is with regards to money. This is not a short blog post, but in order to keep you awake, here are the main points:
- Money has two purposes- to spend or give away
- Investing is the conscious decision to spend/give less now so you can spend/give more later
- Your first obligation is to yourself, then the world around you
- The way we spend money fundamentally changes the world
- The world has a dramatic impact on our lives and how we spend our money
- Money represents freedom and power
- The role of every individual (and business) is to create, extract, and redistribute value
- Financial planning is not just planning for your life, but your impact on the world
1- Money has two purposes- to spend or give away
This may seem obvious (or maybe not), but it is worth getting out of the way. We work, get paid, then decide what to do with our money. Some will be spent on bills, some will be spent on food and entertainment, but we should (hopefully) have money left over that we don’t have an immediate need for. We can choose to save that money to be spent another time, or we can give it to someone who needs it more than we do. That may be our church, a family member in need, or a charitable organization that will make better use of it, especially if that use is a cause that we care about. The point is, there should be a plan for every dollar, because no one has the goal to be the richest person in the graveyard (except maybe Scrooge McDuck).
2- Investing represents the conscious decision to spend/give less now so you can spend/give more later
This is also fairly self-evident, but the whole reason to invest your money is so that is grows, allowing that initial capital to have greater impact in the future than it would now. Investing $1 now will allow you to have 5 times the impact in 30 years, which is why many wealthy families set up charitable trusts to distribute their money after they pass, rather than giving away more during their lifetime.
3- Your first obligation is to yourself, then the world around you
While it is probably obvious by now that I am a big advocate of charitable giving, there is something I must make abundantly clear: you can’t help anyone else if your own needs aren’t taken care of. I don’t just mean your immediate needs, but your future needs as well. If you aren’t financially secure in your long term goals, you have no business giving money to others, because if you give to the point of being bereft, then others will have to take care of you, which defeats the whole point of giving. With that said, I believe the purpose of life is to be fulfilled and to make the world a better place. So if you are financially secure enough to live life on your terms indefinitely, you are obligated to give in such a way to make your desired impact. This may mean leaving money to your family, business, charity, or any manner of things.
4- The way we spend money fundamentally changes the world
Think about how Wal-Mart has changed the retail landscape over the last few decades- this company uses its enormous economies of scale to offer a huge selection of items at a steep discount to the local mom & pop stores. Individually, millions of people made the decision that they would rather shop at Wal-Mart, and the local stores were forced to close. Wal-Mart is notorious for poor employment conditions and is economically detached from the region, while the owners of local stores likely treated their employees well and were involved in the community, spending their money at local businesses and giving to local organizations. Even though this economic consequence involved millions of people, those people made that decision individually, and it had a real, lasting effect on the world. You can extrapolate this out to every area of the world, you don’t need me to drone on any more!
5- The world has a dramatic impact on our lives and how we spend our money
The point here is the same as above, only reversed. If we spend our money supporting companies that pollute the environment, then eventually a disproportionate amount of our money will be spent on healthcare and other related expenses which could have been avoided in the first place. The way we spend money changes the world, which is then reflected back on us and influences our future decisions.
6- Money represents freedom and power
This statement may cause you to cringe, but it is true. And it isn’t a bad thing! Ultimately, in a capitalist society, we are bound to work in order to continue our existence at our preferred standard of living. While this may not be pleasant early in your career, if you are a diligent saver/investor, you will eventually get to the point where you no longer have to work, and can spend your time fishing, volunteering, or trying to beat your high score on Guitar Hero. If you save appropriately, you are giving your future self enormous freedom to act in the world as you please. You can accumulate enough wealth to start a non-profit, forgoing or taking a small salary in order to put the dollars you raise to their best use. You may decide to become an angel investor, giving innovative companies the capital they need to expand. Alternatively, you might just decide to live out the rest of your days in peace in comfort, leaving whatever wealth is left to your family and a select few charities. When you save diligently enough to create such wealth, you have enormous freedom and power.
7- The role of every individual (and business) is to create, extract, and redistribute value
This one I could write an entire book on, but I will keep it short and sweet. We all try our best to create the most value at work and in our businesses (ok, maybe not all, we all know that lazy coworker!). We should also be compensated appropriately for that value; if we aren’t, we should look for another employer/customer that does recognize and compensate that value. Just this year, I have counseled plenty of individuals to ask for raises and for businesses to raise prices. You should be compensated appropriately not just for your own personal gain, but because you have a moral obligation to do so. This is because when we are compensated according to our value, we will redistribute (spend/give/save) in proportion to that value. By maximizing the value we create and extract, we can then maximize the impact we have on the world. If you are still confused, go back and reread points 1 through 6.
8- Financial planning is not just planning for your life, but your impact on the world
One response I hate hearing more than anything when I tell someone what I do is “so you do investments?” Yes, I do investments, but that is such a miniscule part of financial planning. The real reason I began Leetown Advisors was to help good people live better lives, and to help impactors have greater effect, and ultimately I want to see people leave their fingerprint on the universe, as if to say “I was here and I made a difference”. Leetown is my effort to do the same, and the goal is to grow it into something that endures long beyond me and to leave a legacy of service and devotion to making the world a better place. That is what financial planning is! I wrote this because I am frequently asked why I started my own firm and what makes me different from everyone else. I hope the answer to that is now abundantly clear, and that I can continue to make a difference for many more decades.
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