The Ownership Experience

 

Thank you for reading and commenting on the first two Financial Freedom Newsletter. It's been really fun to talk about this. I've taught PUGS Financial Freedom six times in the last year and I've found that so many people have never gotten any education about money and I've found teaching how to take control of your financial life so rewarding. It's been a gift to me.

To recap, I achieved financial independence 3 years ago at age 42 after living on $20,000 and investing everything else for twenty years. In essense, I bought time instead of things or even "experiences." And with the freedom to do what I want, I started PUGS.

Here's a short case study of Olivia and Devin, who took the course this year. Two things I love: they're now able to talk more openly about the financial future. And Olivia has the knowledge and plan to retire in 16 years! 

Q: You talk about the "only two (or three) numbers you know to achieve financial freedom"? What are they?

A: Personal finance really relies on two numbers, which creates the third. You need to know your annual salary and your annual expenses. As we talked about in blog post 1, most people know their income but don't keep a budget and have no idea what their annual consumption is and how to control it. When you subtract your annual consumption from your annual income, you get your annual profit. Once you have your annual profit, you can project how long it will take for you to retire. If you have an annual profit of 50%, you achieve financial freedom in 16 years. 

I know many of you have this first objection: "But Douglas, there's no way I can save half my income each year!" That may or may not be true, but to paraphrase former Blazer Rasheed Wallace, math don't lie. Since there are only three numbers to play with I have only three suggestions:

  • My first go-to is: are you keeping a budget? Do you know what goes to needs, what goes to wants, and what goes to bullshit? That's a core exercise in the course. How you cut into all three of those categories will reduce your consumption.
  • You can find ways to increase income. We talk about having an entreprenuerial mindset to your career, possibly starting your own business, or at least running a side hustle. Your current income is in no way the cap on your income potential. 
  • Lastly, you can target a different number of years to financial freedom. 
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Is it worth it? Two answers. First, yes. Working towards financial independence means you create some discipline around money in your life and get to spend your life doing what's valuable to you, on your terms. Spend time with family. Travel. Create your art. Make a difference in people's lives. Second, the alternative is SO bad. If you don't plan for financial independence, what happens as you get older? The average American has less than $60,000 in their 401k when they hit retirement age, not nearly enough to live for the following 20 years, even with Social Security. They can either rely on the income of their children or rely on an increasingly fraying social security net. I think it's much better to provide income for your future self now.

I'm almost done with creating the online course! I'm testing out the links and prepping the online community platform. The course will run November and December and it will help people start 2018 with a sense of empowerment over your financial future. And the people I know interested, would make a great cohort. Stay tuned and watch your email for a notice when I open registration. 

I would love your comments on this blog or on social media. Thank you again for this opportunity. 

The Transformation

Thanks for reading last week's article about how I reached financial independence at age 42 by living on $20,000 a year for 20 years. I got a lot of great responses and interesting comments. I decided to follow up with an article about what happens AFTER you reach financial independence.

This weekend, I asked on Facebook: "If you didn't have to work anymore, what would you do with your time? Assume living at your current standard of living, that you didn't win the lotto or something." You can see what people said here.

It's interesting to note that people don't say that they would do nothing. Independent of needing money, people want work to provide meaning and purpose in their lives. The famous blogger Mr Money Mustasche believes the real purpose of work is to create, that our fundamental desire as human being is not to be lazy but to engage in continual creative effort and learning.  You can see that desire in what people wrote. 

Same with me. When I got laid off 3 years ago, I looked at my finances and realized that I didn't have to work anymore. That's when I founded PUGS. (Actually, I had started PUGS as a side hustle a month before getting laid off, but hadn't intended it to be this big of a project). Here's the interesting thing: once you achieve financial freedom, you have to be honest about what's truly important to you. You don't have anymore excuses for doing what you care about.

My mission in life, one that I wrote in 2000, after my layoff/firing as a intellectual property lawyer in San Francisco, is "I want to help people learn and feel closer to their communities." When I hit financial freedom, I decided to live my life fully that way. That's why I decided to make PUGS. 

That's not to say I do it full time. Again, my health is important to me. So I play soccer 5 times a week. My family and friends are important to me. So I travel about once a month to see them. I also get to teach what I want and when I want. That's the transformation you get when you can make decisions with your life independent of money. 

Most people, when asked what's important to them, say these things:

  • Friendship

  • Family

  • Freedom

  • Health

  • Meaningful work

  • Privacy

  • Community

  • Philosophy of Life

Most people have never been asked to contemplate the question"What do you hope to achieve in your life and what kind of person do you want to be?" If you get a moment, take 15-20 minutes and just write freely, without regard to grammar or spelling. Be concrete: who would you spend more time with? (I go see my parents every few months) How would you live healthier? (I go play soccer every weekday) How much would you sleep? (I take a nap everyday) What places would you see? (This year, I've visited Vancouver, Chicago, Montreal, Spain, Portugal, Berlin, Brussels, and Iceland). The point is not all the cool things I've done. The point is to imagine the life you want, the values you want to live by, and way you want to contribute to this world. It's also the things you get to opt out of: the 40 hour workweek, two weeks of vacation, participating in an economic system you have qualms with. If you do this exercise, you'll see the transformation that's possible for you.

All it takes is financial freedom:

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Haha. Leave a question or a comment below if you want me to answer it my next blog post. In it, I'll answer a few more of your financial freedom questions and talk about how to make it all happen. That will happen in the couple of days. 

The Opportunity

Hey, I'm Douglas. I'm the founder of PUGS.

I created PUGS three years ago after retiring at age 42. Of course, the first question people ask is how I retired at age 42. Here's the story.

I grew up in an immigrant family who fled the Communists for the U.S.. Money was tight. When I was in college, my personal budget was $5,000. When I graduated, I got a job as a paralegal at the Justice Department and made $25,000 and spent $15,000. I felt rich! I was spending literally three times more than I was used to. I decided then and there, philosophically, environmentally, financially, that that amount was **enough** to make me happy. So I decided that that was what I was going to spend annually from there on out. Since then, I've had jobs as a corporate lawyer at $150,000 and jobs as a Quaker schoolteacher at $30,000 and everything in between. But each year, I only spent $15,000 (now $25,000 through inflation) and invested everything else. When I got laid off 3 years ago, I realized that I had made enough money not to have to work anymore.

A major key is keeping a tight lid on expenses: I need a smaller nest egg to produce the annual passive income I need. Also, having a rigorously tight budget means I had a lot of freedom even during those 20 years. I had two separate periods where I didn't work for 2 year stretches because I wanted to switch careers. 

The big thing I've discovered about financial freedom is you get to do what you truly want with your life. Do you care about your health? I play soccer and take naps everyday. Do you care about your relationships? I get to travel to see family when I want and vacation with my friends when I want. Do you want to make a positive impact? I get to create PUGS and enact the vision of what I want in the world. I think the best thing you can buy with your money isn't things or experiences, it's your freedom.

Visiting my former student jasper in sydney in 2014

Visiting my former student jasper in sydney in 2014

People can't imagine saving enough to gain financial freedom. Or thinking about money causes a lot of anxiety so they avoid it. But I think those attitudes and beliefs being from lack of education, which cause a lack of empowerment. Most people weren't taught financial literacy when they were young. Their parents didn't teach them and they certainly were taught this in school. But avoidance is a really bad strategy.  56% of Americans have less than $10,000 in retirement savings. Looking at people closer to retirement age, Americans average $60,000 in their 401k at retirement. That's not nearly enough to fund 20 years of retirement, especially with the upcoming crisis in Social Security. 

I got a number of outstanding questions when I asked the PUGS mailing list what questions they had about Financial Freedom. 

How should I be investing my money and thinking about the future? How should I keep track of my spending without feeling like I'm counting pennies? The way I think about it is annual profit. Take a company, say Apple Computer. When you ask Apple Computer who much they made last year, they tell you their profit ($37 billion in 2016, BTW). They take their gross income (sales from phones and computers etc) and subtract all their expenses (salaries, materials etc). But when you ask a person how much money they make, they tell you their salary. In other words, they tell you their gross income without thinking about their expenses. I want to offer a new way of thinking: what's your annual profit? How much money do you have after all your expenses? That's what you're using to buy your financial freedom. I think that shift in thinking helps you stop thinking about counting pennies and towards building a future you want. 

 

How does a couple whose individual relationships with money differ negotiate and deal successfully with their differences?

How do I change my relationship with money/scarcity and how to know what "enough" looks like (spiritually and financially).

How can I get out of the cycle of saying (every single month): My god, we spent a lot! Next month we have to do better?

These are all great questions individually and yet there's a common theme to them. Money is never about money; it's about your relationship to money. We all grow up with money scripts, unconscious stories we've learned and then tell ourselves about money: it's evil, or it's love, or it's never enough. Part of financial freedom is becoming aware of those money scripts and learning to tell a new story of money in your life. For couples, understanding that they come with different scripts and desires is so important to coming to a joint understanding of what they want together. 

The best personal finance book out there is Your Money or Your Life. It talks about how "most people’s money problems are actually connected to a lack of fundamental direction in their life." If you deepen into your values and what you really care about (your children, being healthy, learning, making a difference), knowing what "enough" is and actually keeping a budget becomes a lot easier. 

In the next blog post, I'll talk about the how thinking about money is really thinking about deeper questions about your sense of purpose and discovering what makes you happy. 

Thoughts? Feel free to add a question or contribute to the comments section below.