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Wednesday, March 29, 2017

Money as a Renewable Resource

Posted by Robert on November 29, 2010

This is a guest post by Robert, who lives in Calgary and works as a financial adviser. He is married, has three kids and plans to retire at age 35.  Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.

My kids don’t really understand what I do at work. They know I leave each day to go to the office, and I come back around supper time. They also know that when we go grocery shopping, I bring my credit card and I use it to pay. So they’ve come up with the idea that, while I’m at work, I make money and put it onto the credit card. And I guess that isn’t so far from the truth. My boys were watching cartoons the other day and there was an episode where the kids were being the parents and vice versa. The kids decided to take all the money out of the bank to buy toys and ice cream. My boys, of course, didn’t see the humour in this “plan”. To them, it just made sense.

The decisions that we make about money flow from our ideas about money. The reason my boys would empty the bank account and buy toys and ice cream is because they see money as a renewable resource. If we spend our money now, Dad just goes to work and earns more. Then we can buy more things. If we can’t buy something now, we keep working until we can. And in many ways, they’re right. I suspect that many adults have never moved beyond the concept of money as a renewable resource.

In my own personal finances, there are some ways I relate to money as a renewable resource. Most of these involve automatic or recurring payments. When I was first married, we rented an apartment. As long as I earned money, I could pay rent. If I stopped paying, I would have nothing to show for it (ie. home equity). Debt feels very similar to rent. Now that we own a house, I have a mortgage. I make monthly payments to be allowed to continue living here. With most mortgages, however,  missing a payment is almost as serious as missing a rent payment. My food budget is another example of treating my money as a renewable resource. Each month I earn money because, short of stockpiling food, each month I need to buy food to feed my family.

I used to wonder why some people save while others don’t. I also wondered why some people could spend so much money. I think the answer is in the way they view money. These people, like my kids, see money solely as a renewable resource. Every month, there will be more money, so there’s no reason to save and there’s no reason not to spend it all. At the extreme, these people have no qualms committing all their money to debt payments, to the full extent their bank will allow it. And much of the time, this works fine.

One character from The Office, Creed Bratton said something that struck me. He said, “The only difference between me and a homeless man is this job.” That’s probably true of far more people than we would like to admit. This is where people get into trouble if they can no longer work. Whether they lose their job or become sick or disabled, their ability to generate income is their only way of maintaining their lifestyle. If these people lose their jobs, they must make radical changes to their spending. Personally, I prefer more predictability.

In what scenarios do you see money as a renewable resource?

Comments

11 Responses to “Money as a Renewable Resource”
  1. Being a freelancer (in Canada no less, where the markets are small and not as dynamic as the U.S. due to sheer population), I know that my time is more valuable than working like crazy.

    I suppose I could work 80 hours a week, burn myself out and make double my salary working 2 projects at once, but what’s the point?

    I’d rather have the time off in between contracts and wait for a good one to come along than to take a bunch of crappy ones to use up my time and charge less than what I am worth.

    Money for me, is renewable, it comes and goes and is much easier to earn and accumulate than it is to just save what you earn so you don’t have that kind of pressure on you.

    Time for me, is much more finite. If you give up your years working for STUFF, you can never get that time lost back, no matter how much money you have.

  2. Simply spending all your money each month is plain stupid. What is required is to have a fair sum of money in a large chunk that you can rent out to the banks and the interest generated means you can live off the interest and have that most valuable gift of all, TIME. Time is far more valuable than money as it can not be saved but only spent. Your goal should be to make as much time for yourself, as possible.

  3. Robert says:

    David, I forgot to set ground rules. Let’s not judge people by how they manage money. We all do stuff that’s “stupid”, in some area of our lives. Personally, I don’t drive as well as I think I do.

    My goal was to try and understand WHY people spend everything without saving. It’s a fact that many people do it, and that won’t be changed by preaching. I wondered what the underlying reason might be, and I think I may be on to something. Only after understanding what causes people to (in our opinion) overspend, can we help them see things differently. You obviously have a different conception of money than what I presented. Are there people who hold the concept I tried to describe, or is that unrealistic? Do you care to share your concept of money?

  4. Moshe Milevski’s writing strikes a great balance between time and money and illuminates some of the tradeoffs. Not that I expect the average person read a personal finance book by an academic :) I don’t follow it exactly because with my business it’s hard to estimate my future earnings potential but the broad outline is similar. I don’t even have a fixed “retirement” plan but I’ve seen that a few simple moves can compound over time and give me more options in the future.

  5. Robert says:

    I think there’s a big difference between a book by an academic and an academic book. Professor Milevski’s writing is quite accessible. I’d be interested to hear if you think his writing addresses the renewability of the money resource, to coin a term. He basically capitalizes a persons earnings potential, which you’ve realized is problematic. I’m talking about a paradigm of how people relate to money. It’s related in some ways, which I’ll address in my next post.

  6. It’s a good point, but some people can’t even be reached with a personal finance cartoon if there is such a thing :)

    The book is applicable to this because it addresses limits and non-renewability. For a lot of people this is the reality; once they have earned their income for a year (or chosen not to work) it comes out of a fairly fixed total that will be available in their future. Maybe it’s like lottery winners – they know the total but it’s so large that they can’t see the impact until it’s too late.

    In this context you need to be prepared with replacements. What really motivates me is that with a bit of smart planning I can open up more options and flexibility long before I run out of earning potential.

  7. Robert says:

    Yup, that’s pretty much how I see it. I wonder how you can change someone’s perspective?

  8. I’ve made pretty much every mistake in business but I still haven’t done something as hard as that :)

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