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?