“Money is a solved problem”

[Fish]

Hey Fish, wanna start a 'money is a solved problem' thread and expound on what you said? I don't want to clog S's journal, but I have a lot of questions about what you and S mean when you say that.

For me, "money is a solved problem" means two things:

1. Income is sufficient to cover expenses, and flows to me on very favorable terms. I can act according to my nature and the money follows.
2. I have enough money (by my own standards - see below).

On the first point: There's a continuum between wage slavery and financial independence, with "FU" somewhere between the two. At one extreme, one is completely dependent and must accept any terms of employment, even if unfavorable. At the other end, there is no need for earned income so work is completely optional and only accepted as it fits with the individual's goals and desires.

I'm not FI, but I see that milestone not as freedom from work, but rather freedom to live according to one's own nature. And framed in that way, it doesn't require a huge amount of accumulated capital to implement. Instead, I just work a job that's appropriate to my nature. I don't use an alarm clock. I spend my days working on problems that are interesting to me. I'm generally free to show up and leave whenever, and won't hesitate to take a time out during the day if I get inspired on some non-work matter during business hours. It wasn't always like this. But I think of the job like the comfy chair in the living room: that is, nothing special when brand-new, but over time it conforms to the demands of its occupant and becomes uniquely comfortable to that person in the process. This explains much of the reluctance to change as expressed in the Career Advice for Fish thread.

The second part refers to money goals. These may range from paying this month's rent, to accumulating an emergency fund, saving a down payment for a house, paying off the mortgage, attaining financial independence. Each of these standard goals is several times more difficult than the preceding one. Even if pursued efficiently, it would take years to achieve all of these goals. Here we happen to focus on the hardest goal, and in such company it's easy to feel that a stash of 10x expenses is inadequate while civilians outside the PF-sphere perceive this level of wealth to be unattainable for themselves.

I’ve twice before brought up this Seth Godin quote about money being a personal narrative once past your needs point. Dwelling on it, I’ve decided that there’s no reason that net worth must be <= 3% SWR to feel like I have enough money. If I really want to quit my job and do something different for a few years, that freedom already exists. There’s no need for my personal happiness to be coupled to additional wealth. I have enough for the present and I’m living in such a way that there will be enough in the future too.

In essence, I’m trying to reap the psychological benefits of being FI without the stash. It’s mostly in the mind. Unless your hobby is swimming around in a cash vault like Scrooge McDuck, a huge pile of money isn’t really needed. You really only need the stuff you use every day. So just get the stuff, live responsibly, and don’t worry so much about not having reached the FI target.

JD Roth (now back at GRS!) sums it up best by saying that “money is a side effect, not a goal.”

[suomalainen]

To add to @fish, what struck me was that I had in my mind this idea that I have to be a full-time wage slave until I am FI, and that after I am FI, I can do what I want. FI is just a made-up number that signifies "I don't have to work". So, in my mind I had bifurcated my life into a "working and saving" section and a "not working and drawing down savings" section. No space in between.

The switch flipped, "money is a solved problem", when I realized that my FI number does not have to be reached by savings alone. Once it gets to a certain size, it will grow on its own and getting to my FI number is a statistical certainty (ha! past results do not guarantee future returns...). So the problem of accumulating my FI number has been solved. The other two parts of the equation are:

1) When do I want to reach my FI number? In other words, when do I want to be in a position where I am able to survive on investments alone, when I'm unable or totally unwilling to work?
2) How do I want to get there? Maximizing income at the expense of free time or satisficing my income for the benefit of satisfactory free time? What if I work super hard at the expense of enjoying life only to die the day I hit my FI number and hand in my two weeks' notice?

Once I realized that I could work without saving (i.e., part time) and still reach my FI number, the options multiplied.

[J_]

Interesting. You both have solved it in your mind. But in reality?
When you loose job, or get sick, or get old with no lust in work anymore, or if...
Then mind-solving wil not pay your groceries.

Nevertheless, I think for a transition time it can be useful mindset.

[bryan]

I thought this would be a discussion on "money" itself being solved. e.g. legal tender, gold, bank notes, silver, bushels of tobacco, goats, bitcoins, etc. Oh well

As far as wealth or acquiring wealth being a solved problem.. I think the majority of the world's population might disagree? Or maybe they are all content subsistence farming/working. Reality is how you perceive it I guess.

[jacob]

Ha! I see JD has been studying the web-of-goals approach

Note that he also has a financial stage guide on moneyboss. And here on these forums, we have the ERE Wheaton levels.

To connect some of @Fish's statements, if we draw a scale from serfdom over FU to FI, and then tag Seth Godin's quote to the post-FI stage, where money becomes a narrative which is often a narrative of "score-keeping" measured in $$ instead of bling or fancy cars which is more indicative of consumers. It's that kind of score-keeping that drives CEO et al. salaries. Past a certain point, consumption no longer scales with income. It's at that point that score-keeping becomes important insofar one goes down that narrative. Most of the excess money goes into the financial stratosphere that I talked about elsewhere in some other thread.

I see three dimensions to the solution space/volume. (internal/external) x (relative years) x (absolute amount).

Internal/external: I don't particularly like this idea but it depends on how you really approach it. If you have a web-of-goal approach where money is a side-effect of living and not a "must accumulate 25x of my high salary job and sit on my ass forever after because internet", then it's all good. However, the internal approach does have a stench of "I don't need to save anything/become FIRE as long as I find work I'm passionate about". In reality that attitude has mercilessly melted snowflakes left and right, at least in the blogosphere.

Relative years: This is the one I've traditionally promoted, highlighting that what matters isn't the absolute amount ("one million dollaahs") but the relative amount. Same point made in YMOYL [just not measured in years]. This is why we state our NWs as 10x or 26x or 68x here ... other than being secretive about it; because that's effectively what matters when "a man is an island".

Absolute amount: I'm beginning to develop an appreciation of absolute amounts, like the proverbial "$1M". On the social level, there's much less explanation requires if you're a "millionaire" than if you go into a "I have 35x my annual spending... Sure, but it draws interest and according to historical investment returns ... Right, what this means is that ... So, for each $100, you can get $2 in yield, so .. you understand? " Also, whereas there are non-monetary solutions to things like housing, food, transportation, ... there are some things that ONLY have dollar-solutions such as medical operations, legal services, visas, ... and various business opportunities.

This is related to how the general price level is calibrated. At ~1 jacob, I'm really competing (or rather being backstopped) by the fact that 95%+ of the population spends more than me on things like housing, food, and transportation. This means that the economy is arranged such that my spending level is quite robust in terms of the essentials I get for my spending. If things become more expensive, a lot of poor people will be complaining. (Incidentally, I'm also investing in such a way in that if tax laws change, a lot of rich people's campaign contributions will be talking).

However, there are "wants" that are calibrated more to what the middle class is spending or can afford. That's about 4x+ jacobs. Here it helps being a millionaire because $1M effectively draws a middle-class yield. The price level for middle-class dollar solutions are thus set at this level. At this level one has to prioritize but generally you have access to whatever the consumerist middle class can afford.

To be above that, one needs $2M ... at this point, your passive yield can afford more than most consumers can, so prices for exclusive services (like longterm stay visas) are set with this in mind.

[suomalainen]

When you loose job, or get sick, or get old with no lust in work anymore, or if...

None of those things are assumed away. Whether you've reached your FI number or not, whether you're working full time or part time, whether you are old or young, you will need to have the flexibility and skills to tackle problems that come up.

There is no "safe" amount of money after which all of your problems will disappear. The mind-trick here is to choose which path you want: (1) maximize money all the way to your FI number and then do web of goals or (2) do web of goals from the start (ok, fine, "start" here is really when you've got a big chunk of your FI number saved)?

Note that neither 1 nor 2 are problem free. They're just different problems.

[jacob]

FWIW, I've pursued option (2) from the get go. I've figured that optimizes my lifetime happiness. Get to FI ASAP and then scaling up spending if desired ... rather than the other way around.

Money makes tackling problems easier. Back in my mobile travel days I used to say/think that as long as you have cash, you can keep going. Being stuck on a Bavarian train station at 10pm with $200 in your pocket is easy. You have several options. Having $1.25 in your pocket is a whole other ball game. You have almost no options.

Now ... on can think of this in terms of yield or asset mindset. With interest rates as low as they are, this makes for some crazy behavior. If you're in the yield frame of mind, you might behave according to since you only have $1000/year from $100,000 at 1% yield, you better be very careful about your choices... but you could also be in an asset-frame-of-mind and conclude that $100,000 will get you most anywhere in an emergency---as long as they're not annual.

So in a sense, there's a fork between total assets for spending and total yield for spending that will determine how you feel about money. And in a ~ZIRP environment, those are very different.

[CS]

Ha! In some ways I feel poorer than I ever have as an adult because now:
1. Money is for more earning more money, not spending outright
2. Repeat, don't spend principal.
Also
3. Save more if possible.

This, at a time, when I have far and away the most assets I have ever had. My mind is catching up - in the meantime the cognitive dissonance hurts.

[BRUTE]

to brute, it feels a bit like dieting or working out. it has to be effective, but it also has to be sustainable for the particular individual in question. different humans have different desires and wants and interests. for Dear Leader Jacob, presumably, living at 1 jacob is comfortable and building up the skills to do it was probably somewhat interesting and fun. for others, it won't be, or they have very different desires.

the whole "web of goals thing" never really resonated with brute, because it seems quite clear that nobody really chooses their goals. thus, it's more about goal discovery than about goal setting. besides getting lucky in quickly finding out what one wants, the best strategy brute has found is trying out lots of things and iterating quickly.

[IlliniDave]

FWIW, I've pursued option (2) from the get go. I've figured that optimizes my lifetime happiness. Get to FI ASAP and then scaling up spending if desired ... rather than the other way around.
...
So in a sense, there's a fork between total assets for spending and total yield for spending that will determine how you feel about money. And in a ~ZIRP environment, those are very different.

I wrote a post last evening that more wordily said the same as the first part of the excerpt, but it was lost in the ether or I forgot to submit. At the get-go I wasn't deliberate about it, it was just sort of the default we fresh young corporate professionals were implicitly nudged towards. Once I became deliberate about it, it became the only solution in my mind due mostly to age rather than lack of ability to consider other alternatives.

The second bit of the excerpt is an interesting distinction I hadn't really thought about explicitly. Being more of a both-and than either-or person much of the time subconsciously led me to adopt more/less a bucket outlook (X dollars in the kitty for spending, Y dollars for growth/emergency/heirs). If you have two pieces of cake you can eat one and still have one. I compute things like multiples and WR percentages to communicate with others and to a lesser extent measure where I am versus conventional "wisdom". I suppose maybe the Trinity/SWR concept is another attempt to hybridize.

[SustainableHappiness]

There seems to be a Wheaton level aspect to a view of money too. Or at least for me it's been an evolution from one view, absolute value, to a relative value and as my relative value as increased to FU state, it's become the internal/external.

However I think the primary driver of this, hasn't actually been my relationship to money, it's been my relationship to goals. The number was a goal to strive for, solid, absolute and shiny in the distance. Relative net worth became a fluid concept, in that I could manipulate it by changing my NOW instead of waiting for more money, much more present focused. Then we get to the internal/external, which I assume to means as an oversimplification, each day I need to make as much money as I need that day. This is the most present focused and also allows for the most flexibility.

The web of goals approach goes hand in hand (in my mind) with the most present focused approach because it places on goals as interdependent and of equal importance in terms of how fast you want to reach them. It provides structure for a present focused approach as opposed to having a goal and finding structure afterwards. Why do I give a shit about this?

Because as mentioned my relationship to goals has changed after watching myself and people I am close to crash and burn repeatedly after creating a...I don't know, spear of goals, that is, a point at the end that does all the work and a structure built simple to deliver that final point. The crazy thing, is the crash and burn typically comes after SUCCEEDING at that final goal! That is what makes it even more devastating. This is also what has happened to me as I've slowly been reaching towards and achieving the FU money and FI goals.

I like your statement Fish, "Money is a solved problem" because it reminds me that money is just one more part of the system to have an enjoyable day. However, the real shit kick is that this is all spouted from a position created through the journey towards the absolute number. Damn.

[jennypenny]

So are you (some of you) breaking this down into two options? Using the diet analogy ...
#1 -- Finding a healthy diet and trusting that sticking to the diet will result in a 100lb weight loss
#2 -- Losing the 100lbs as fast as possible by any means necessary (like juicing or fasting or potato diet) and then figuring out what you want to add back into your diet afterwards, if anything.

Is that right?

[black_son_of_gray]

Two points to add to a great discussion:

First, all of this reminds me of how billionaires think about how much inheritance to leave to their children, with the current trend (which I first heard about from Buffett) being something like: "you should have the opportunity to do whatever you want to do, but you can't do nothing". Once you get about half way to FI, you've basically given yourself this kind of situation: 1) enough money to go try new things, explore new careers or opportunities without immediate fear and with great flexibility, but 2) you still have a certain ultimate pressure do something, lest your financial position dwindle slowly like sand in an hourglass. If what you want is 1, then you don't need FI money. If you feel like you need 2 so that you stay engaged in life, then you don't necessarily want FI money.

Second, the variable amounts of time that people have before old age/death, means that the problem of money is "solved" differently depending on the timescale. Over long timescales, the money problem is solved by having a medium pot of money (e.g. 10x expenses) at an early age (e.g. late 20's/early 30's) accruing a slightly positive real return over decades. Over short timescales, the money problem is solved by having a medium pot of money (e.g. 10x expenses) at a late age (e.g. 70's,80's) and presumably access to other support mechanisms (e.g. SS, pension, etc.). In the former case, the large,open-ended amount of time let's a medium pot of money grow; in the latter case, the short, close-ended amount of time let's a medium pot of money be accurately matched to the more-easily-predicted time frame*.

*[Macabre thought: The closer to your predicted lifespan you are, the less you should worry about unexpectedly large medical expenses. Which is better: 1) to die at 86 because you couldn't afford a massive operation with poor prospects, or 2) to die at 90 after surviving a massive operation with poor prospects. #2 means you lived ~5% longer and at a time when quality of life was probably lower, but probably also necessitated working (harder/longer/less enjoyably) for some amount of time during the high-quality-of-life years to be able to afford it. Probably the worst time for unexpectedly large medical expenses is in the 50s/early 60s.]

[suomalainen]

@jp yes, that’s roughly analogous to how my perspective morphed. I guess I’d draw a bit of a distinction that it’s about how your focus changes.

Option 1, healthy diet, slow weight loss - you’re not laser focused on weight loss so you have mental/emotional capacity to think about and enjoy other things while you lose weight, albeit slowly.

Option 2, “crash” diet, fast weight loss - you’re laser focused on weight loss and it consumes your thoughts 100%, on the theory that once you achieve your weight loss goal, THEN you can finally live (think about other things).

I guess I got to the point where my impatience exceeded my capacity to deal with it and I was “broken” enough to think that there could be another way to do it and something in @fish’s response registered. Also as @jason said in his journal upon reaching lower-case fu money, it’s the same situation, you just look at it differently.

Edit: in either option, you have to think about food both before and after reaching your goal weight. The “money is solved” approach is knowing you have selected a healthy diet that will get you there, freeing you up to think about other things earlier, hopefully leading to a more balanced and enjoyable life earlier.

[IlliniDave]

jp, I'm not *that* fat, geez!

That analogy first brought to mind spending down after retirement rather than accumulation. Assuming you are equating fattening the coffers with thinnin the body, it seems like those are the two extremes of a continuum rather than the two options of a binary world. I'm very focused on aggressive accumulation but in my spending I've got a couple Jacobs of stop-and-smell-the-roses spending going on which seems to put me somewhere in the middle.

[jennypenny]

So 'solved' only means you've figured out how to solve the problem, not necessarily executed it? That would mean that the person who's changed their diet and lost 5 out of 100 lbs has solved their weight problem because they've changed their diet? Hm.

The person who's lost 100lbs will have a completely different relationship to food than the person who's trying to lose 100lbs. To the person just beginning their diet, food is an adversary. To the person who's already lost the weight, food is something they've conquered.

Let's say someone acquires FU$ and then realizes that money is a tool. For them, they are correct, but that doesn't mean that they should tell someone with no money saved up that money is just a tool. Money isn't a tool to the person without any, is it?

Maybe it's all about relationships. If so, a simpler way to put it might be that money is a solved problem once it no longer controls what you do.

I'm probably just getting hung up on language again.

[J_]

FWIW: I started from a kind of "standard middle class" situation. Made graphs of income each year, incomes of DW and me were rather steep rising in our thirties, but saving did not. Only we could keep our mortgage reasonable compared to the value of the (growing) homes. At about forty I got the idea of saving and investing. From that time on everything changed: I started my own business. Project based so that I could (more or less) decide about my workload, I learned to live with less money spending and still enjoying life. Because I saw (and see) it as a challenge to study and work for, so my mindset was from the beginning positive.

Then, still learning to be happy with less spending, I made my mind up of what's enough at 43. I thought for me it will be about the equivalent of what we call now, 2 or 3 Jacobs per person. 7 years later I reached FI, and now, 20 years later that is still the case, with enough reserve*. Reserve because my spending can decrease easily and without heartpain, as well as circumstances can change for the worse and for that I have extra funding.
So for for more than a quarter of a century I find this an optimal way of life. During those last FI 20 years I have been doing profitable en enjoying (real estate) projects from time to time . The most recent one was two years ago.

Thatswhy I can appreciate the mindset of the OP, it is not blind working to FI and then be relieved. Working with some urge to FI by learning DIY skills, spending less, saving the rest, and ejoying such way of life is (for me) the best way.

*As I still do not like investing in shares and the like, I wait and wait till interest will rise. Instead of learning about investing in shares I rather do a real estate project from time to time.

[jacob]

@jp - There are two ways of weasel-phrasing that diet metaphor and it seems to depend on how big a deal those extra 100 pounds is seen. The way I read it, you and S_ phrased it in a way that 100# wasn't that big of a deal, but suppose it was seen as a five-alarm fire, then the options read more like this:

1. Prolonged unhealthy weight, slow diet solution that prolongs the unhealthy condition but preserves the immediate ability to enjoy good food and not spending much effort on physical activity knowing that a healthy weight obtains 10-20 years from now.
2. Fast convergence towards a healthy weight through a complete lifestyle and value change because the current condition is unacceptable.

It doesn't really seem much different than paying off debt, really. The only question is where one personally thinks the starting line is. For most people, it might be $0/networth in absolute terms or "paying the bills" in relative terms. For someone with a default starting line at FI having a NW of $0 is [experienced to be] as bad as a normal person being $150k in 4% debt... a five-alarm problem.

I think the "insight" here is whether FI is considered the starting line or the finishing line or some other line. If you think of FI as the starting line for "real life" rather than the finishing line, then I surmise that one's attitude of scramble-level at <FI is more along the lines of someone who showed up late for a race AFTER the starting gun sounded.

Edit/Add: You posted again before I finished, but yes. If someone is already #100 too fat and considered that their baseline, then getting to the starting line [of normal weight] is seen as an accomplishment. Whereas, someone who were never fat would not see getting back to the default/baseline as a cause for celebration. More like "what were you waiting for already?!"

[IlliniDave]

jp, I think I am hung up on diction too. Yes, to me a problem is solved when it's solved. Many times the solution requires more than just knowing the how-to, it requires considerable follow up.

But I'm not the OP and his take is a little different than mine and I'm trying to get my head around his usage of the word.

I would tend to substitute the term "goal" for "problem". To me having a goal and having some idea how to achieve it and even working towards it isn't the same as attaining it. In the OP item 2 an example list of financial goals is given. I just happened to make the last goal in his list my goal. The other things were intermediate steps I hit along the way, like starting the engine of my vehicle at the beginning of a trip back home to visit Mom (the goal), refilling the gas tank along the way, making all the turns, etc. There's nothing wrong with making goals of the intermediate steps, or even stopping before getting to the last goal on the list.

To the person without money can still be looked at as a tool, just one they don't have. I don't know about "just" a tool though. What would it be to someone without it? I don't have a ready answer.

[jacob]

In the OP, the problem is "solved" in the same sense that an artillery shell that has been fired and left the barrel will eventually hit its target^H^H^H^H...what it was initially aimed at. Since the shell is in-flight, the target is not destroyed yet, but it will be once the shell hits, so as far as the "gun" is concerned, the problem is solved ... and the gun can start aiming at other targets. In psych-terms, the "gun" has internalized the solution. At an additional level of abstraction, whoever did the ballistic calculation might consider the problem solved after designing the targeting system.

BTW, all this is subject to trivial random factors and various levels of abstraction, etc. I think we can keep it simple w/o obfuscating it with details #WLOG IOW, I don't think diction is super-important as long as people aren't fooling themselves.

As J_ noted ... it's the difference between solving it in your mind vs solving it in reality. A bird in the hand is worth ten in the bush, right...