MONEY // That Awkward Chapter

“We just don’t have enough people being good examples of what a responsible relationship with money should look like.”

Mikey Taylor

Potentially, it’s a British thing. Maybe it’s a global phenomenon. I know living in the US right now there’s always one way to kill a vibe and that’s to start talking politics or money, both of which definitely put the cat amongst the pigeons.

There always seems to be a few stories that people tell themselves:

It’s rude to talk about money.
Money is the root of all evil.
Rich people are the worst.
Poor people are the worst.

People seem very happy to have their head stuck in the sand, ignoring most things about money, rather than actually understanding it. After all, for the majority of people it’s what enables us to have choices in the world.

I find it pretty crazy the number of people who likely make way more money than me who couldn’t begin to tell you what the interest rate on their mortgage is, or whether a 6% rate of return on investment is good or bad. I was keen on speaking to Mikey Taylor about this from Commune Capital and he hit the nail on the head; “We just don’t have enough people being good examples of what a responsible relationship with money should look like.” That’s something I hadn’t really thought about, but it does seem like we have poor role models combined with a school system that you leave without any real knowledge of this stuff, so we instantly all feel like we are somewhat clueless in this space.

I mean imagine if you didn’t take any English classes and someone asked you about spelling, we’d likely all try and change the subject really quick.

Ryan Rothwell, the derivatives trader mentioned this when chatting to him; “It’s almost like a coded language to put people like you and I off understanding what’s going on.”

Because of the widespread smoke and mirrors around money I wanted to try and provide a few things that I wish I had known when I was a teenager. This isn’t supposed to be a preachy self-help guide, but the following insights have been super valuable to me personally, and all concepts I wish I knew earlier.

Inflation

I’m sure you’ve heard your parents or grandparents say, “In my day a Snickers only cost 30p,” and whilst you recoil from someone recollecting from the past, it is true. Stuff gets more expensive over time. Well, except TVs and home electronics it seems. They get cheaper as better technology comes out, but most consumable goods, the stuff you buy everyday gets more expensive year on year. Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time, usually one year. Often expressed as a percentage inflation thus indicates a decrease in the purchasing power of a nation’s currency. Inflation is like the pulse by which an economy and its health is measured. If it’s growing at say 2%, it’s healthy. If it’s at 5% it means the economy is likely too hot and ready to crash. If there is no inflation, then it means the economy is likely in trouble already so that’s where governments try to keep things around that 2% mark. The other thing to always look at with inflation is the interest rates you get from a bank. Say inflation is 3% a year and the banks are giving you 1% interest to hold your money at their bank, you’re effectively losing 2% of your money each year. That said this plays into the next one, inflation can be an amazing thing if you buy things that go up in value over time, like say housing. So, if you buy a house for $100k and each year there is 2.15% inflation (average inflation rate) it will be worth roughly $153k in 20 years which as you see below is where leverage becomes a wonderful tool. (Note, since writing this it seems that high inflation is on the way for 2022 with supply chain shortages and material shortages exacerbating the problem.)

Leverage

In financial terms leverage is when you acquire an asset (hopefully a good asset) using some of someone else’s money, hopefully from the bank. I can use a real-world example from myself, I bought a rental property for $360k in 2014. For that I needed 20% deposit, so around $60k, and had been saving for a long time after working for 10 years already by this point. So, I invested my $60k and then by using the bank’s money, I was able to control an asset worth $360k. That’s why real estate is so good. There aren’t many areas you can do this, you certainly can’t in traditional stock market trading (i appreciate leveraged trading is a thing but for the average person on the street thats quite a jump.) That property I was then able to rent for $3k a month, the payment was $2k for my mortgage and so makes $12k a year. Which is a return of 20% per year against the amount put down, which is a great investment and that’s before any equity (increase in price of the house) and way more than you could get by putting it in the bank. The other beautiful thing with this kind of leverage refers to the point above. That asset purchased for $360k the year after with 2% inflation will now be worth $367k the year after, $375k the year after that. That’s all before you get into the tax advantages that you get, obviously country by country, state by state dependent (the ability to write off your taxes, write off mortgage interest, updates to the property).

Real estate is a great way to save money as every month you are essentially paying into your own bank account and at the end of the loan you will own an asset out right. This takes me to my next one:

Passive Income

This is one you may hear spoken about quite often. The easiest way to think about this is money that comes in whilst you are sleeping. So, for a rental property, every night you go to sleep someone is paying you money to live in one of your properties. Or if you have a successful YouTube channel, whilst you are getting your beauty sleep there are people on the other side of the world watching your video and you are collecting the ad revenue from it. Or if you own stocks in a company, you put your money with them and if it’s a dividend stock (where they pay you a return at the end of each quarter), or an equity play (hoping the price goes up), they are running the company with the intent of growing your investment. Passive income is a great source of income as it means you don’t need to go to work to earn it. Set it and forget it.

401Ks/retirement plans

This is something that I slept on for a long time. I wish I had started earlier. Even working at Nike where they offer a matching program on retirement savings, I didn’t start it until I was 35. Way too late. However, better late than never and also as I have said through this book, I don’t have all the answers. I put out the question of things we wish we knew as teenagers about money on LinkedIn and Kalle Crafton, a brand strategist from Portland, hit me up and said, “the most important thing I’d say is that the power of putting a lot towards retirement early is not just so you have more when you retire (which can be such a boring and far-away benefit), but it’s so you can retire early, or work less sooner, or shift careers without stress any number of other benefits that don’t force you to empathise with your 65/70 year old self.”

That’s something I hadn’t even begun to think about as I had always thought of pensions saving as for the future, but as he says the quicker you start, the more flexibility you have in later life for any career changes you wish to make.

Compound Interest

Another person I reached out to on this is Nelson Wormstead, creator of #makeyourownluckmondays on YouTube said, “I wish I knew about understanding the power of compound interest... Especially with the benefits of starting a plan as a teenager to invest a small amount into the S&P 500 and watch the 63 year average of 9.8% returns compound for decades!” Which is another good thing I am also just learning as sometimes just adding small amounts continuously can really help in the long term. Again, I am learning these things as I go. It’s never too late.

Debt

One of the first books that I ever read that switched me on to understanding the world of money was Rich Dad, Poor Dad by Robert Kiyosaki. I would urge everyone to read it. He has multiple books which speak to a few key theories. One is that there are two kinds of debt - good debt, and bad debt.

Good debt is when you borrow money to buy things that will go up in value and put money in your pocket each month. So, the example of the rental property I bought above would be good debt. I borrowed 300k to buy that property which brings in 12k a year for me in profit. If it’s structured correctly then you can pay back the principal and interest in a way that you still gain financially from it every month.

Bad debt is when you use debt (credit card or loans) to buy stuff like cars, TVs, Phones, go on holiday. Basically, anything that you could have saved to buy, but used credit to do it. It’s a bad debt because you will end up paying more for that money than if you had just saved up and bought it.

Student Debt

When it comes to debt, no chapter would be complete without mentioning debt and student loans. It’s something that I hope in the next few years gets seriously figured out as to whether or not companies still require degrees for jobs. It gives me hope talking to The Dingo as he said that in Silicon Valley quite a few companies are now don’t require degrees as the skills they demand aren’t always taught in schools and can be sought out much quicker outside of the traditional education system.

However, I imagine that being translated to the wider economy may take a while. I do hope there will be a shift to more vocational, on-the-job learning as they have in Germany and parts of Europe. If it is still deemed essential to have a degree for certain jobs, then I do think a radical overhaul is needed into how much it costs. Until that’s done, I guess we’re on our own. I will be the first one to call myself out on this one. I have a degree in international business. That’s what it says on my resume. What it doesn’t say is where I studied and how much it cost. In hindsight I potentially sacrificed some of the contacts I would have gained at a better college, which could have opened a few doors for me. That said, it’s never been a lack of people I knew that has held me back.

On the plus side, enabling me to leave college without debt was huge and whilst throughout this book I am extolling the virtues of not studying in many cases, for me, it was essential in order to get my visa and subsequent green card to the US. At the time, without knowing what I wanted to do I just aimed to give myself what I thought would be the best chance of success in future.

I would say these choices are all to be made by the individual, but go into them with your eyes open. In order to get through college without major debts I worked throughout my three years and so was able to get myself through the course and into the workforce without any student debt. My life hack for this? Well, I figured the best paying jobs that suited my schedule.

Being a college student, whilst people will tell you it’s busy, let’s be honest, we had 10 hours of lectures a week – 10 hours! That’s enough to pretty much have a full time job alongside it. My thing was that I worked three mornings a week in a ‘wet house,’ so a home for alcoholics where instead of arresting them on the street every night, the local government set up wet houses to help curb street crime and drunken behavior by having people in safe and secure accommodation. I would go in first thing in the morning and cook and clean for these four 50-65 year-old alcoholics. They had the best stories you can imagine. Going to watch Led Zeppelin at the Isle of White Festival on acid, watching them belt out Stairway To Heaven sounded like a pretty epic few days. That was 12 hours a week at $10 an hour.

I would then work nights over the weekends in residential homes for people with learning disabilities as a nursing assistant. Those night shifts on the weekend, since it was via an agency, was (at the time) amazing money, like $18 an hour and a 12-hour shift so you would earn over $200 a night. I’d try to do that twice a week and then the three mornings in the wet house each week I could earn up to $500 so it meant around $2k a month, which just meant I had the ability to live without the need to get into debt.

Those jobs are there, you just have to be willing to do the hard yards to find them and then show up. Yes, they suck at times, but the tradeoff of leaving college, being debt free with the choice of what you want to do is priceless. I know some people need to go to the best university if they want to be a lawyer or doctor, but for me I just wanted a degree without being bound to debt.

The average debt that students leave college with is around $30,000 but I have heard numerous stories of people with over $100,000 in student debt (7-8% of students in Oregon and California have that amount in loans) which basically means you are chained to getting a job as quickly as you can without the option to go explore, drop out, pivot etc.

Jen Yih put it well, “don’t get yourself into debt. If you’re at $0 in your 20’s, you’re free from being forced into the system. Going ‘against the grain’ is scary when no one’s doing it your way, but going with the social flow scares the shit out of me, as I don’t really agree with the social set of norms that have been established.”

All that being said, I believe a lot of this is individual choice based on where you want to end up. If you have a specific goal and need a degree for a visa or want to become a doctor, for sure a degree is needed, but again it doesn’t have to mean endless years of repaying.

Interest Rates

Ok, hold firm, we’re nearly there. This whistle stop tour is nearly done. As I say I’m pretty sure I could write a whole book on money. Maybe that’s my second book, but one thing that you do need to understand is interest rates. So, when you borrow money, that’s the amount that you are tied to paying back. Always remember, an interest rate is the amount you have to pay back each year, not over the full term of the loan.

So, for example, if you buy a house for 120k with a loan for 100k and the interest rate is 4%, that means each year before you start down the principal you need to pay $4,000 of debt. That’s how over 30 years you end up paying way more back than the 100k you owe, but that’s manageable if you have a fixed rate and so know what is expected of you each month. Where interest rates get sketchy are when you have a variable rate and all of a sudden interest rates explode upwards and you are struggling to meet the payment. My dad told me when he bought our family home in the 90s our house cost 100k and the interest rate went to 15% so he had to pay $15,000 a year just in interest. So, if you can buy property with a fixed 30-year interest rate I would go for it every day of the week.

Don’t get variable rates on bad debts (buying cars and TVs) and then not pay them straight away. That’s how most people end up bankrupt - well, that and medical bills, but maybe that’s the third book.

Property

I know I have mentioned it a few times here but for me, this is the thing I understand the easiest. You buy a physical property using some of your money, some from the bank. You receive the income, tax advantages and have fixed interest rates with ideally appreciating property value, or increasing rents over time. To me it seems like a win every time. I would advise buying a house as soon as you can scrape together any kind of money. In the US they even offer first time loans where you only need 3% down. So, say that 100k property you only need 3k. Get a second job and start saving. In the long term it will help set you up.

There are two other routes within property that can help if buying a place seems daunting, as it will help take care of the mortgage payment every month. If you wanted help, buying a duplex as a first-time property is a good idea as you get cheap lending but then can get someone else to move into the other side of the property and usually that helps pay most of the mortgage. The same theory applies to house hacking where you buy a four bedroom single family house and rent out the rooms, so they can help pay the mortgage for you. College is a great time to do this as everyone needs accommodation and there usually is a lack of nicely maintained places. One thing we have done for 10 years is that every time we have travelled, we have rented out our apartment or house, wherever we were living at the time, on Air BnB or to friends coming to town.
It means that each time we leave for a decent length trip we pull down the family pictures, moving our clothes into one cupboard which we lock and then people have the house to themselves.

I first got into this when I was working in athlete management with Nike. I had a pretty locked down plan that I would be away for say 12 weeks a year at events. Each of those weeks we could usually rent for say 800 euros a time. It meant that would help pay for our trips away and provide some added income on the side too. We’ve been doing that in Portland and over a 10-year period, yes, it’s a lot of packing and unpacking but it has meant a great way of earning more income.

The story from Bryan Fox pays this off in terms of his own vision of what income can mean, “Currently, I live in a house where someone else is renting the basement and I’m a 36 year old, married man. Maybe four times a month I see the renters and we have an awkward conversation, but it’s just work to me, which provides income. That’s kind of the way I think about it. If someone gives you $1,500 dollars a month to have four awkward interactions per month. Would you do it? Hell yeah you would.”

There are another two ideas which don’t even involve buying a house. Take a look at the story of Ryan Rothwell, he wanted to live in London for work but not pay London prices. So he found a four bedroom house to rent and was allowed to sublet the rooms and so effectively was able to live rent free for four years. That’s around $40,000 in savings right there. The final example in this space is Petra Knapp. She’s also saving for a property and so decided to move into her van and live in the parking lot at work. Yes, it might seem extreme, but these moves at the age Petra is will set her up so well down the line. This setup also means that her weekends are spent discovering the Pacific Northwest in a red fire truck, which is a pretty epic way of living.

My point with all of these options with housing is that it’s just being effective with how we spend our money, because for many of us it takes 30-40% of our income every month and so if you are trying to get ahead, knowing every possible hack in this space will help. Do the maths of how much rent you might pay over the years and getting this one right will go a long way.

So, there we go. A one stop shop for all things money. I have had this chapter in my head for years as honestly, I wish someone had told me this at 15 or 25 as it would have helped me get moving way quicker. I started to understand this stuff at 27 and even though I wish I had known this earlier, it has helped me so much. Get started early and find like minded people. Find those people to bounce ideas off, to learn from and challenge each other. It isn’t easy but, well, nothing worth doing ever was.

One of the best paragraphs I read in this book about money came from an inspirational yoga teacher I have had the pleasure to practice with, Dray Gardner, who speaks to the need for those good heads around us on the journey:

“When you love yourself, you set your boundaries. You tell your friends and you start to align yourself with people who are like minded going in the same direction. You know my dad always told me growing up. If you hang with nine broke friends, you’re bound to be the tenth one.”