If you really believe the headline, then we have a lot of deprogramming to put you through.
In and of itself, money is nothing. People who complain about money, or its absence in their lives, or its influence in the world at large, are missing the point. Money is an abstraction, a mechanism for keeping score. It’s a representation of tangible goods and services. As a society, we’ve decided to use money because it’s infinitely easier than bartering everything would be.
Marissa Meyer doesn’t have more money than you so much as her capitalizing on her particular combination of talents, background, luck and other attributes have enabled her to amass more stuff than you. That’s a distinction and a difference. The stuff, exchangeable for other stuff (and that exchangeability is one definition of money), builds upon itself and allows its owner to propagate and maintain a lifestyle. If you earmark a chunk of that stuff for investing – i.e., allow other people to use the representation of your stuff, in the hopes of generating still more stuff, to be distributed among all the parties involved in the investment transaction – and you get a sufficient return, you can keep doing this indefinitely and free yourself from the hassle of going into an office or on a jobsite every day. Correspondingly, you can then spend your time on other pursuits that transcend commuting, pleasing your boss, sitting through racial sensitivity workshops and many of the other banalities of modern life in a developed society.
In case it isn’t obvious, we’re generalizing here, well past the parameters of that amorphous topic called “personal finance”. It’s about self-actualization, which is more than just a term used in a famous paper by some long-dead academic looking to earn credentials.
If you clicked on the link, you’ll notice that most people you know spend the majority of their lives on the 2nd level (from the bottom) of the pyramid.
This is how our Bronze Age antecedents lived. Or our subsistence farming brethren who dwell today on the steppes of Bashkortostan. Or pretty much every non-domesticated species of animal. We’re supposed to be beyond this. For 99% of human history, the most important task at hand has been ensuring you have a full belly. We don’t have to do this anymore. Go to your neighborhood supermarket, and for the price of a couple hours’ wages you can find enough protein, fats and carbohydrates to keep you alive for a few more days. No threshing, gathering, planting, sowing, digging, silage, nor sunup-to-sundown workdays required. Just a couple hours of your time, which you might very well have spent in an air-conditioned office, on an ergonomic chair.
For us at CYC, even that couple of hours is too much time. Which brings us to a fundamental truth about making money, something the poor and permanently struggling are too dumb to figure out:
The relationship between effort rendered and reward received is not linear.
You can complain about this, you can say it isn’t fair. You might as well complain about the weather. The line italicized above is the text of a natural law. (Hyrum W. Smith: “A natural law is one that cannot be repealed.”) If you work twice as hard as your neighbor, you probably won’t make twice as much money. The assembly-line employee who creates widgets at twice the speed of her less competent co-worker is an abstraction, too, and not a particularly elegant one. There’s a limit to how many widgets you can create, at least with your own hands, and thus a (modest) upper bound to how much stuff you can exchange your time as a widget-maker for.
So you have to leverage. For most people who are smart enough to sniff the 3rd level of the pyramid, this means going to college. The theory is that an additional 4 or more years of taking notes in various classrooms will enable you to increase the ratio at which you receive stuff in exchange for a fixed amount of time.
Ask this 30-year-old child how that’s working out for him.
Education is swell. Deferring real life while fooling yourself into thinking you’re doing something worthwhile is not. A computer science degree will guarantee you a profound change in your ability to convert your time into stuff. A women’s studies degree will not, and hopefully that goes without saying. The latter won’t help you convert your time into stuff any better than a high school diploma will. In fact, the diploma on its own will do a far better job, seeing as it didn’t directly cost its holder thousands of dollars to earn.
So you have to leverage beyond mere education. Which means borrowing money in anticipation of greater returns. The vast majority of wealth on the planet – the ever-growing mass of everything from furniture to office buildings to surfboards – is the result of some people borrowing from others to finance their desires. On the individual level it can mean going to the bank, and borrowing money that other people have deposited there, so you can buy a house. Which saves you from exchanging too many of your hours at work so you can rent a place to live, from a landlord who figured out this leverage thing a long time ago.
The balances in your 401(k) investments – mutual funds, etc. Technically most of that is equity and not debt, but you’re still forking over money to the managers of the funds’ components so they can make more stuff. Which is leverage, again. Leverage is supposed to be mutually beneficial, and it usually is.
But most of the benefits accrue to the person who’s initiating the leverage. The investor who finds a plot of land on which to build an industrial park that will eventually house some paying tenants, but needs some partners to chip in. The car salesman who figured out that financing cars pays better than selling them does. The tradesman who cashes out said 401(k), gladly paying the 10% penalty, so he can start his own contracting firm. The working stiff who decides that being an investor sounds more rewarding than waiting for a raise.
Sure, they might fail, at least initially. That’s not the point. The point is that the alternative – punching a clock as life ticks away – is the real risky behavior.