Understanding Money Gives You Choice

Money can be pretty confusing. Between 401k, roth IRAs, budgets, futures, options, interest rates, and credit scores- the acronyms and implications are mind numbing. However, the one thing we can all agree upon is that money is a useful tool (when used correctly) that can make our lives better.

MoneyAs important as money has become in our society, it is strangely absent from our school or public curriculum. Some were fortunate to have family members that understood money and were able to teach about its power. But the vast majority of Americans have never really been taught the basic principles of how money operates.

Often we default into our money habits and patterns. Rarely do we actively align our spending, savings, and overall consumption with our goals. We tend to follow our friends, facebook, family, sally mae, marketers, and bankers. My point is simple: The value in understanding money is more about understanding the priorities in our lives and figuring out what is actually important.

Buy Your Freedom First
Money works pretty hard. It is either working for you or against you, but it is always working. Money can buy a lot of things- but one of the most valuable things money can buy is freedom. Having a little bit of money gives you an incredible amount of choice. That is the primary driver for our family’s money decisions. We love the idea of having lots of options. Move across the world? Go on vacation? Help a friend in need? Quit our jobs? Retire at 40? With a little bit of forethought, all of these crazy options can be available. It simply takes a little bit of planning, prioritizing, encouragement, and excitement.

One of the biggest decisions my wife and I made when we got married was to consider and prepare for the idea of having a stay-at-home parent. My mother worked outside the home throughout my childhood and my wife’s mother primarily worked at home. We knew going into marriage that children were important to both of us and we wanted to have the option to stay at home if we desired. So we planned ahead. We started by getting completely out of debt and living only off one income. We predecided a percentage of our income we wanted to live off of (you already do this whether you realize it or not) and have stuck to that. In addition, we keep our fixed expenses low by sharing a car, riding our bikes, using cloth diapers, planning meals, cooking at home, staying fit, using $10 a month IPhone plans, growing food, living in a modest house (850sf. for 4), buying quality goods, pay no interest, and having lots of incredible relationships.

The Process
I often write about various aspects of the process of being intentional with your money. Finish this section and you will have all you need to get started. The first step is simply to clarify your goals. This begins with understanding why you want to be successful with money. Is it about living stress free? Traveling the world? Providing for your children? Feeling under control? Have enough to not work when you are 95? Giving it all away? Define what it means to be happy with money. If you are in a relationship, you must understand what your significant other thinks as well! It is imperative to get on the same page.

The next steps are simple but not easy.
(1) Build an Emergency Fund
(2) Get out of Debt
(3) Invest and plan for the future.

Unexpected things will happen every few years. When you don’t have money, every negative event is not only a crisis but also a financial crisis. If you are really sick or wreck your vehicle, it is much easier to heal when you are not completely worried about money. I’m not a big fan of debt. I love the idea of being completely debt free and the burden that decreases with that freedom. Debt sucks the life out of your income. Whether it is credit cards, student loans, or house payments, they all affect your cash flow and risk. It is never easier than today to get out of debt. But it does take prioritization or we will all still be in debt when we get ready to retire. The last component is planning for the future. This includes purchasing a home, saving for kids’ college, retirement savings, and investing. Each aspect is part of an overall plan to be strategic about your money and time. Think through where you want to be in five or ten years. If you like where you are, continue, but if you want to be in a different place ten years from now you must begin the process today.

I’m a reader. And chances are good that if you are engaging with this text you have the incredible ability to read as well. That is good news. You can learn almost anything about money if you are willing to spend just a tiny bit of time reading about it. I try and read every popular book written about finance so you don’t have to. Really, if there is one book that boils all the information down into entertaining and manageable steps it would be Dave Ramsey’s Total Money Makeover. No book is perfect, but big Dave does a fantastic and humorous job of working through all the steps to become financially successful. The best part is that it is easy for a complete beginner or seasoned financial veteran to read. It also makes great reading for a reluctant spouse, parent, or friend. If you are looking for Stage II advanced reading you can check out the classic Your Money or Your Life.

One of the joys of having money is the ability to give it away. It is pretty neat how lucky we are to live in a time and place filled with so much abundance. I think one of the best ways to generate peace with our money is to start systematically giving some away on a regular basis. It obviously benefits the organizations or individuals that we give to, but it equally helps us prioritize our money and be more intentional. Ms. SE and I still view ourselves as managers of the money we receive. This makes it much easier to take care of what comes in, enjoy a little bit of it, and help lots of other people. If you had lots of money to give away, who would you help out?

Money is powerful. It is worth your time and energy to understand how it works. It is either working for you or against you and the earlier we take control the better lives we will live. I hope I’ve whetted your appetite for a little financial independence and thinking. Feel free to hit me up on twitter or facebook if you have any questions. And, when you are financially free in a few years, travel the world, work any job you would like, give lots of money away, and live a stress free life. Get the process started today.

Photo: @EricGjerde

2 thoughts on “Understanding Money Gives You Choice

  1. Having an emergency fund and getting out of debt set a firm foundation for any household. Once I started investing I didn’t realize how important costs/expense ratios were. Paying that 1 to 2% over years and years has a huge impact on your savings. That and proper diversification (we use very low cost index funds) and asset allocation (stocks/bonds). You are right, there is a lot to learn at every stage. A do-it-yourself base of knowledge is so important. You cannot put a price on that knowledge.

  2. You are absolutely right about the absence of education on the topic of money. I have reflected on my own education and wondered how it can be that I got no instruction on how to buy a house or what a dividend is. But learned everything there is to know about the Krebs cycle and solving 3×3 matrices. Neither of the latter have served me much.