Choices and Priorities

This week saw Dame Janet and her merry band of academic eggheads leave the Fed Funds rate alone.

The best, somewhat oblique comment I saw about this went along the lines of:

If the US economy is not sufficiently strong to accommodate a ONE QUARTER OF ONE PERCENT rate rise, just how weak is it?

In other words, the recovery is nothing like what we’re being told. You and I, fellow US taxpayer, have paid to bail out the big banks, to recapitalize their balance sheets, bring them back to profitability AND to mightily expand the federal government.

How do you feel about that and the fact that no-one has been charged, let alone done time? Yeah. Me too.

Time to go back to basics.

+ Saving is good and necessary, but unrewarded.

+ Independence from the need for any kind of financial aid is our aim.

+ The prize is a distant Budget Horizon, beyond our lifetime 😉

+ Cash-producing work is our lifeline until we have sufficient…

+ Recurrent income from businesses and/or investments.

+ Borrowing is only for you if you know precisely what you are doing, meaning…

+ Debt is bad for almost everyone. Including me.



Hourly Disconnect

A setting straight of the record: Passive Income is rarely passive. You have to work for it. I was thinking of this after yesterday’s post, pondering just how “passive” one is when you’re saving or being entrepreneurial. Not very. So.

My definition of Passive Income is money you receive not directly related to the hourly or daily work you applied to create that income. When you have a paid job, you work hourly, or daily or yearly for your wages or salary. You will receive the money for a specific duty or activity, a narrow range of clearly defined functions. Even if you are a CEO of a company, you are still expected to complete recognized, agreed-upon tasks. If you don’t do them, you’re fired.

Passive Income is about creating the assets that create the money. Those assets might be dividend-paying stocks you own, or you devise an app, or it might be a work of art – music, a book, video – for which people pay you. You’re putting stuff into the better side of your balance sheet in the anticipation that money will find its way to them, and so to you.

Clearly there’s nothing passive about any of this. When you are in the process of writing a book there is no cheque waiting at the end of the month. But you might find a royalty cheque in your mailbox for each of the subsequent thirty years. At that point it’s passive; not when you’re plugging away day after day. It’s income displacement to the future, if you like.

There’s the difference. Passive Income might even mean MORE work than you’d otherwise apply to a job. But you are working towards dependence on your own accumulated assets, not the largesse of an employer.

And the big, underplayed upside is that there is no way you can be fired. Yay.

Wages of Gloom

Geo-politics, fiscal rectitude, transparency, monetary policy, sovereign debt and constitutionality aside, the Obama years will be marked as an eon of gloom for wage-earners.

There ‘ain’t been nuthin’ in for us, that’s fer dayum sure.

I could link to statistical and commentary sites all showing that wages are stuck or reversing, with no hope for sustained change in sight, but what’s the point? If you are, like me, at the mercy of an arsehole employer, you already know all about it. And if you aren’t in need of a hourly job, you’re probably cruising along.

Those in the asset-owning class are the ones who have made out. Bubbles like never before seen are current in:

* stocks

* bonds

* (lots of) housing

* collectibles

…and all the stuff that doesn’t require actual day-to-day labor. You have had to own assets OR cashflow for the last ten years to have been successful. Even savers have been screwed over with zero rates.

What’s the lesson? Well, for one thing, consider your job a short-term tactic only. All, and I really mean all of your creative energy should be channeled into creating, finding, mining, uncovering, discovering, harnessing and making income from other than hourly work. It is that important. The success of the rest of our lives depends upon it.

Remember: governments are broke (US, Japan, Greece) or committed to failed enterprises (Germany to the EU) or just plain corrupt (almost everywhere else.) So counting on them for anything…well, you figure it out.

Remember: asset bubbles burst; they never, ever last. So all that stuff I listed above? Well…you figure it out.

Remember: income is what makes the world go around. Rents still must be paid; people will always need soap, shampoo and tile cleaner; people still have aspirations, and will work for you if you motivate them. At some point income-producing assets will reach reasonable prices worthy of us investing.

The only question is: Will you be ready when they do? Will you have the cashflow to take advantage?

Wages and Politicians be damned. Let’s get independent.

The Power of Small

I am mid-way through Malcolm Gladwell’s ‘Outliers’. This is another in his oeuvre of shining an inquisitive light onto ideas that we thought were settled…but that actually rely on folklore to survive. He’s a truth-teller I guess, applying clear-headed logic to neglected parts of our social civilization. Outliers attempts to figure out how mega-success in business (like that enjoyed by Bill Gates and Larry Ellison) can be applied to our own lives. It’s fascinating. We all like the stories of others’ fame and fortune so we can dream.

At some point the book will turn to applying one-in-a-million rocketship rides to our own less glittering lives. If you weren’t born in the right year, if you didn’t take up computer coding, if you didn’t struggle with out-of-fashion business ideas, then your life will not be as shiny. Don’t despair: there is something from Jeff Bezos’ life we can harness.

Which does not jive with my view. Yes, people might wonder what it’s like to be Donald Trump. Yes, they might even find themselves envious of the private jets and beautiful suits. But most of us understand that life’s just not like that. We think that mega-people leave sadness, disappointment and tears behind…but that is nuts. Of course they don’t. Money allows you to say “no” more often, but doesn’t exclude you from the complex up and downs of our social and physical universe.

So let’s not spend any time thinking we need to emulate the big boys. We all have our own pathway to bliss. First we need to define that, of course. Then we need to work, study and create the right attitude to stay on that path. Lots of small successes on that roadway will do more than any completely unlikely lottery-win one-off. The process is the thing.

Money is the mortar holding our house together. That’s where I’ve found myself, understanding clearly that the less time you need to spend making the money to keep your life moving forward, the sweeter the path. The other way works too; reduce your need for money as much as possible and you can do more with less. (This does have a limited possibility of improvement though. There is a floor defining the least amount of money your budget requires. You have to make some dosh to buy socks.)