“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” – Nassim Taleb
There are people who will strongly disagree with some of the things I have to say in this post. In fact, I’m going to take aim at what have become some of the foundational ideas of our culture. They may feel uncomfortable, but I urge you to try and read them with an open mind. While I write this on my startup blog (as it’s relevant to achieving sufficient freedom to start a startup without an income), the concepts here have much broader applicability to any middle class life.
Money is the largest source of stress for Americans. While there is a certainly a percentage of Americans who live with insufficient incomes to cover the needs of themselves or their families, I’m sure that percentage is much smaller than the number of Americans who are currently stressed about money. Most of this stress is ultimately caused by our culture’s imposed poor understanding of money. At this point you’re going to expect me to tell you to save more and spend less, but I believe you’ll take care of that yourself once understand what we’re actually talking about.
Our misunderstanding usually gets into full swing when we go out and get our first 9-5 salary job. The consistency and reliability of the income makes us start viewing it as an allowance, and stop understanding it as a resource we are given in exchange for our time. Once income is framed as an allowance, we find ourselves doing the same thing any kid with an allowance does; we spend it. We begin to view our income as a question of cash flow, attempting to balance the amount I spend every month with the amount I make every month. This blind spot we develop to what our income is and what we are paid it for introduces stress and risk into our lives
While cash flow is important to maintain (and credit cards are more than willing to help in that arena), it is only a single way to view the problem, and not a sufficient one. There’s a reason that publicly traded companies are required to file three different financial statements:
To try and reset the framing on this, let’s pretend you’re a farmer (bear with me). What you do every day is spend 8 hours farming hay, and then sell that hay for money. All I’ve done is add an additional proxy in the middle; time for hay, hay for money. You have an agreement with a hay wholesaler who will purchase 8 hours worth of production of hay 5 days a week. In fact, this relationship becomes so stable you view it as a given that your income will show up every week, as long as you continue to spend 8 hours each day farming.
But then something happens. The market for hay encounters a shift; new, more efficient hay production methods have made your cost of hay too high for your wholesaler, and the market is flooded with this new hay. Suddenly no-one is looking for your hay anymore. You are still capable of producing your product, but there’s no market willing to compensate you for it. You felt so safe in your trust of your reliable income, that you’ve left yourself no buffer, and have committed to inescapable financial commitments dependent on that income. You’re probably not a literal farmer, but you’re very likely a figurative farmer of spreadsheets and meetings.
This is the nightmare scenario for so many middle-class suburban families. It is a scenario that no-one has taught them how to prepare for, or equipped them with the understanding to expect. This is the almost direct result of a culture that tells you that you must spend what you earn, and try to increase what you earn so you can spend more. We are taught that the amount of money you can spend is your score in life, and the higher that number is the greater your status. To a degree, this is true. There is certainly a degree of respect that is granted you if you drive a nice car and wear nice clothes. You can own a bigger house than your friends, and furnish it with more expensive furniture. With the earning potential of the average American, that house can be very big, and can be furnished with very expensive furniture. The tradeoff, however, is that in exchange for these things you own, you had to trade a resource you worked hard to collect. Money.
When you go to the furniture store and buy a brand new couch, you convert $5000 of your resources into an object worth much less. The liquidation value of that couch as soon as it shows up in your living room is probably less than 50% of the purchase price, and worse, you now “need” that couch. You have become addicted to that couch. The emotional cost of liquidating it is so high that you don’t even view it as an option, even later when what you need is money more than couches. For most consumers, however, they’re not aware this has happened because that is not how they have it framed. The actual framing goes along these lines:
I earn $7,000 per month, which means I can spend $7,000 per month. I’m going to be smart and get the interest free purchase plan from the store, so that I can pay off this $5,000 couch a month at a time, with some of that $7,000 I’m entitled to spend.
Note the absence of any concept other than cash flow. The idea that you are throwing away $2500 of your hard earned net-worth and locking up the remaining $2500 in the illiquid market of used couches doesn’t cross your mind. Probably more present in your thoughts is the colleague who you know makes less money than you, but has a nicer couch. You need to re-establish your status by showing you can afford a better one.
The good news is this isn’t your fault. We live in an economy, culture, and social structure which are all designed to get you to spend your money. Our current economy is truly dependent on middle class consumers spending as much as possible, and government programs are even put in place to try and get you to spend more of it. The bad news is that even though this behaviour isn’t your fault, you’re the one who will pay the price.
It doesn’t have to be this way. by understanding money better, and understanding the penalties you’re paying for converting your hard earned resource into consumer goods (and the limited rewards those consumer goods will give you), you can start to treat your manage your resources more effectively. You can start the break the salary addiction.