Posted by Canadian Dream on April 20, 2011
Ok, confession time. As a student I had the experience of being broke a few times, but I can honestly say I’ve never been poor in my life. So what is the difference? Mmm, to me it is a rather fine line between the two states yet still a big difference.
Being broke is the simple state of being without money. It might be right before your next pay cheque, so while you are without money you are not without hope of more money. Being poor is a completely different mind set, you don’t have any money, but you also don’t have any hope of more money. So at that point worries of having a place to live or having enough to eat come forward. So I have experienced the first state of being broke, but I’ve never been poor.
I grew up firmly in the middle class (or upper middle class depending on your definition). So I never went to bed hungry (unless I had been a stubborn idiot and tried to say I won’t eat supper because I didn’t like it). I grew up always having that security behind me, so I didn’t worry about going hungry or having a place to sleep. This carried forward even during my broke times as a student. I always knew if push came to shove I could always beg for some grocery money from my parents and get it (not that I ever did it). Yet this background level of security has marked me with my approach to money.
I’m not afraid of living on a low amount of spending. I don’t equate a low level of spending with being poor or a lack of security. As such my retirement plan can contain a modest level of spending ($27,000/yr) that might scare the crap out of others, but I’m fine with it.
You see money really isn’t just money. Money is also your hopes, dreams, fears all wrapped up in the guise of numbers at your bank or bills in your pocket. Your childhood can mark your relationship with money, so if you have ever been poor that will affect you greatly and likely for life. That desire to never been poor again can drive people to odd savings targets that are really too rich and they can often fall into a cycle of never having enough money or things. I know I will never be that way, but I do understand how that can drive people in their retirement planning (I’ve had several long discussions with people who have been poor).
I’ve a bit of the opposite of that since I don’t equate a lower level of spending as risky. Actually I would argue the opposite is true. A lower level of spending in your life actually allows more savings and thus better security at a much younger age than others. Also by leaving work while you are younger allows you more time to earn money at other opportunities, that might not exist when you get older and have poorer health. So while I’m planning an early retirement that might scare you, I would argue I’m going to be better off than most people at that age. I won’t have to work, so layoffs won’t be a worry, food will always be at the table and I will never be forced to move out of my home by the bank or a landlord. I just might spend my entire like never knowing the feeling of being poor.
So how about you? Have you ever been poor or broke? How did the experience change your relationship with money?
Posted by Dave on April 19, 2011
This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
…Or any kind of investing that would require me to take on debt. I have read many articles and books on real estate investing and utilizing the Smith Maneuver to increase investing potential. Personally, I just don’t find it very appealing. I have no interest in taking on debt as part of an investment, no matter what the possible upside of the investment may entail.
I have spent most of my adult life paying off or keeping myself from getting into debt. I am currently using almost 75% of each of my paycheques in an attempt to rid of my mortgage as quickly as possible. Perhaps my mind is too closed off in taking on “good” debt in order to profit, but the idea of taking on substantial personal debt in an attempt to increase wealth just goes against everything I have spent the last decade or so doing.
One factor that may impact my perception is my investing window – my mortgage (if my current cash-flow remains unchanged) will be paid off in a period of five and half years (I currently have three and a half left). I am hoping to retire at age 45, which will mean I will have ten years to save and invest:
- At retirement, if I invested in real estate, I would still have an enormous mortgage on my personal balance sheet. Also, much of my retirement savings would be locked up on one asset, which to me is not really ideal.
- In the same manner, if I chose the Smith Maneuver (at current dividend yields) I can’t see being all that much further ahead than my current plan of paying off my mortgage in as short of period as possible and then investing afterward.
In the end though, it comes down to my comfort level – I would much rather make what could be a risky stock investment with my own money, knowing that I could lose 100% than be on the hook with a bank’s money. I am not comfortable with debt and probably never will be, the upside potential of leveraging investments just doesn’t seem to balance with the downside. At some point I will invest in a REIT to get exposure to real estate, I just can’t see myself being a landlord.
I’m wondering if anyone out there is doing the Smith Maneuver? Am I looking at this the wrong way – is this a goldmine that I’m missing out on due to my aversion to debt? What about real estate – are you making money renting a house (or something bigger) for cashflow?
Posted by Robert on April 18, 2011
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.
A couple weeks ago, my family went to visit a friend of my wife’s. They were roommates in university over a decade ago, but they’ve kept in touch since then. Her friend married a man who is older than her and who came from a family of “old money”. We spent a day with them, and on the long drive home, my wife and I got to talking about some of the differences between what I’ll refer to as the middle class and the monied class.
We’re all people, with similar needs and desires. He and I are both intelligent and both work long hours. We both love our family and try to spend as much time as we can with our children. We both try to run a profitable business, although on a somewhat different scale. We both like to own nice things, and I find that they were generous with what they have.
The main difference between middle class and monied class seems to be in their way of thinking. The middle class appears dominated by a mentality of scarcity. This is the rat race, the idea that I’m competing against everyone else. The pie, so to speak, is only so big, and if I’m to get more, I’ll have to take it from someone else’s slice. On the other hand, if someone else is earning more, that must mean that I’m losing the race. This type of mentality is responsible for the effort to keep up with the Joneses that we find in so much of suburbia. It feels like there’s a constant comparison with everyone based on how much we can earn and how much we can buy.
The monied class, conversely, differs in their mentality of plenty. They understand that they already have enough to survive. Over and above that, their effort and creativity is used to generate more value, whether jobs or economic growth or profit or income. They see that what goes around comes around, so they help each other out. They network, they share ideas and they support each other. I wouldn’t be surprised to find that competition is often much less fierce in the monied class versus the middle class. These people are generally involved in charitable efforts because they honestly believe that there’s enough for everyone.
Some people honestly struggle to accumulate any money at all. I understand that. When we are able to earn income and have some resources to manage, the way we think about and relate to our money and to others around us has a great impact on our enjoyment and our success.
How can we tell when we have enough to survive? Do we sometimes profit at the expense of another human being in need? What have you learned from others who have been successful managing their resources?
