The Voluntary Life: October 2012

30 October 2012

82 Savings Vs Wage Slavery

This episode is about saving money and it's relationship with freedom. Many people are trapped in a "wage slavery" lifestyle, living from month to month. Although their income rises during their career, their expenses scale correspondingly (or even lead ahead, creating debt). There are two approaches to developing the savings that allow get you out of this trap:

  • One route is to increase earnings without increasing expenses, creating savings. The difficulty with this approach is that the higher the income, the bigger the tendency or temptation to spend more on a more comfortable lifestyle.
  • The other approach is to decrease expenses without decreasing earnings, by focussing on minimising living expenses as much as possible. The challenge with this approach is to do so without losing income (for example, moving to a low cost location might not make it possible to keep a well paid job).

Jake talks about his experience focussing on the first approach and discusses some of the benefits in terms of freedom that saving provides:

  • Developing an emergency fund of approximately 3 months expenses reduces a huge amount of stress associated with living month to month and enables you to cope with unexpected expenses or irregular cashflow.
  • Developing savings to cover 1 year of expenses opens up a huge degree of freedom, for example to start your own business, to leave a job if you don't like it or even to change your life in other ways such as by emigrating to another country.
This podcast and blog summary contains only personal opinions, it does not constitute financial advice and I am not a financial advisor.

Podcast Episode

22 October 2012

81 Freedom From Debt

This episode is about the freedom that comes from getting out of debt.

We live in a time when being in debt is the norm in our society. The basis of the debt culture lies in government policies (such as inflating the money supply and artificially lowering interest rates) that actively incentivise individuals to get into debt. These government policies filter through into opportunities for debt everywhere that are encouraged by mainstream culture. For example: student loans for college, credit for consumer goods,  the mainstream ideal of home ownership and the mortgage debt that goes with it. Debt becomes a way of life for most people, which can lead to rationalising it and being over-optimistic about it's impact.

Ultimately debt always reduces your financial freedom. It is always restricting the freedom of action of  your future self. Jake talks about his experience of being in debt and getting out of debt. The podcast goes on to focus on the benefits of being debt free:

  • The main benefit is in increasing your freedom of action when you are out of debt
  • When debt is cleared it removes a constant source of worry
  • Deciding on how to use your money can be a pleasure again and an aspect of freedom
  • Removing debt is an aspect of self-care: it is financial self-care
This podcast and blog summary contains only my personal opinions, it does not constitute financial advice and I am not a financial advisor.

Podcast episode

15 October 2012

80 Financial Freedom Milestones

This episode is a about the significant milestones along the way towards achieving financial freedom. In my opinion, reaching each of these milestones brings you closer to being financially free and it is useful to take a step back and consider what the steps along the way of your journey will be. Some milestones to consider are suggested:

Financial independence or "paying your own way", whereby you are sustaining yourself from your job or work income on a month to month basis. You are not living off parents, not living from significant subsidies from your family, not accumulating student debt and not accumulating credit card debt. It's important to note role how going to college significantly delays reaching this milestone and how many people do not achieve this milestone until they are in their 30s or later.

Achieving positive net worth, whereby your assets are greater than your liabilities. This is often what people mean when they talk about "getting out of debt" (although that is not exactly the same). It is important to be aware that consumer credit and mortgate debt can significantly hinder or delay you reaching this goal.

Making your first investment, for example by purchasing an income producing asset like shares or bonds.  The key distinction is that this is not just money you haven't used yet which you are putting aside until  you spend it, it is money you do not intend to ever spend. You are putting this money to work for you creating income. Although a lot of people consider purchasing a house with a mortgage as their first big investment, a property for your own use is really a consumption item.

Net worth surpasses annual expenses- in other words, your savings (assets) could keep you going for 1 year if you needed to. This means you have a significant safety buffer, but if you did have to use your savings it would mean that you consume your capital and you would be back to square 1.

Annual passive investment income becomes larger than your annual expenses: this is real financial freedom, as  you can now live off your passive income. For this to be sustainable it needs to take into account the effect of inflation, taxes etc. However, once you can sustainably live from your passive income, you are financially free.

This podcast and blog summary contains only my personal opinions, it does not constitute financial advice and I am not a financial advisor.

Podcast Episode

8 October 2012

79 Entrepreneurship Part 11: Free Your Ass And Your Mind Will Follow

This episode is about the entrepreneurial mindset. What kind of thinking do you need to be an entrepreneur? More importantly, how will doing entrepreneurship change the way that you think? Jake talks about some key aspects of the entrepreneurial mentality including:

  • cultivating optimism and perseverance
  • using the trial and error method
  • acceptance of failure and the possibility of failure
  • a deep rooted focus on sales
  • a results-oriented outlook
  • thrift and developing a reluctance to spend time or money without demonstrated good value
  • being market oriented and having a tendency to look for voluntary solutions in all of life

1 October 2012

78 Entrepreneurship Part 10: Going Into Business With Others

This episode is about the issue of shared ownership in business. It covers key questions that anyone considering going into business with others will face, including:

  • Should you go into business with others or be a sole owner-entrepreneur?
  • If you do go into business with others, how will you split ownership?
  • How will you ensure that the owners are all incentivised to add value to the business? In other words, how will you avoid the free-rider problem?
  • How are you going to make decisions together efficiently and avoid deadlock?
  • What will you do if the owners no longer want to work together, or one of them wants out?
Jake provides his own experience in facing these questions and summarises some of the options available to consider. It's up to you to decide what the best choices are for your own business. This podcast will help you make these decisions.