Please visit our home site at www.TRILOBOATS.com.

Anke and I are building our next boat, and writing about it at ABargeInTheMaking.blogspot.com. Access to the net comes and goes, so I'll be writing in fits and spurts.

Please feel free to browse the archives, leave comments where you will and write, and I'll respond as I can.

Fair winds!

Dave and Anke
triloboats swirl gmail daughter com

Monday, January 16, 2012

Floating Your Boat - Musings on Wherewithal (Income)



Well it comes in pretty handy on this planet, Pal!
Tony Rice, speaking of Money

Money. Moola. Filthy lucre. I hate it. I want some!

The chain linking our culture to subsistent lifestyles has been broken. We're left reinventing the wheel in diminished environments. We are distracted from this pursuit by the need to generate income. Income fills the belly, shelters and clothes us until we can learn old ways in this new world.

We work for money. Period. We volunteer for like and love, on our own terms. You may love your job, but that's a lucky coincidence. Bottom line is, you're in it for the money.
I'm going to assume that you, like me, would rather be sailing.

So I grapple with how  to honestly come by money, without giving my life over to its pursuit. Gotta warn ya; I'm short on answers. What follows are a number of things that have influenced my thinking, over the years. You'll notice that the terms aren't exactly dictionary defined. As a group, they aren't even consistent. A pinch of this and a dash of that.

I'll share what I've got.

*****
Your Money or Your Life by Vicki Robin, Joe Domiquez and Monique Tilford
     [This book is associated with The New Road Map Foundation and Financial Integrity]
 
Economically, these books are identical. They both start with the same premises and arrive at the same conclusions. Their goal is financial freedom from return on capital, in order that you may get on with your life.

Annie's book is the more relevant (and fun!) for sailors, but I recommend them both. Together, they provide a backbone for thinking about money.

Both agree: Spend consciously!!!

YMoYL has a number of helpful methods and approaches, organized under Nine Steps:



*****

In Your Money or Your Life,  money is defined as something for which we trade chunks of our finite life energy. Money can be traded in turn for goods and services, but it's sort of a middle man; we could also say that we're purchasing goods and services with life energy.

Point is, in any cost / benefit analysis, cost is always and only meaningful in terms of life energy. And we want, of course, the greatest return for life energy expended.

*****

The Seven Laws of Money by Michael Phillips and Sally Raspberry

1. Do it! Money will come when you are doing the right thing.
2. Money has its own rules: records, budgets, savings, borrowing.
3. Money is a dream - a fantasy as alluring as the Pied Piper.
4. Money is a nightmare - in jail, robbery, fears of poverty.
5. You can never give money away.
6. You can never really receive money as a gift.
7. There are worlds without money.

(Read the full version here.) 

*****

Supply and Demand, Baby!!! Don'tchoo forget it!

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Gross Income - All money and resources which enter your possession.
Overhead - All money and resources required to provide necessaries.
Expenses - All money and resources given over to electives.
Expenditures - Overhead plus expenses.
Net Income - Gross income minus expenditures.
Surplus Income - Positive net income, to be invested in capital.

*****

Asset - Anything which increases net income.
Liability - Anything which decreases net income.
Capital - Assets or resources which generate income.

*****

Three (honest) ways to come by what the Pardeys call freedom chips:
  • Income from Hourly Wage / Salary
  • Income from Piece-Work
  • Income from Capital
The problem with the first two is that one directly trades life energy for income. When life energies wane or wander, income drops. In a full-blown emergency, it comes to an abrupt halt.

The enemy of all three is rising expectations. They tend to rise faster than income, leaving us racing to fall behind.

*****

Income from Hourly Wage / Salary

Two approaches:
  • Do something you love, or at least like, even when it pays less.
  • Do what pays best; don't have to like it, so long as you can tolerate it.

The first is slower, but less odious; the second may be odious, but ends sooner.

    Income from Piece-Work

    Two approaches:
    • Create art to sell, income secondary.
    • Create what sells, art secondary.

    Income from Capital
    • Monetary capital (lending at interest (banked funds,  bonds, direct loans), securities, etc).
    • Commodity capital (trade goods, exchange goods, property).
    • Intellectual capital (copyrighted material, patents, licensing).

    Both YMoYL and Voyaging on a Small Income both choose government bonds as being relatively stable and relatively easy to liquefy (cash out).

    Note: Thanks to various economic crises, the interest returned by gov't bonds has tanked, crippling the compound interest aspect of this type of investment.

      Compounded Returns

      Compounded returns grow one's assets exponentially. That is, if all returns are employed as capital.

      Compounded capital doubles (roughly) by the Rule of 70:

      Doubling Time =  70 divided by Rate of Return

      For example, any compounded pile of capital returning 5% in a year will double in about 12 years (70 divided by 5), all things being equal, and ignoring units.


      Trickle (or Micro) Streams of Income

      Multiple small income producing assets or endeavors that each produce a little. Added up they contribute to, or even cover one's entire budget.
       
      *****

      Organizing your assets:
      • Cash - Ready assets (cash) to cover monthly overhead and expenses (budgeted).
      • Cushion - Readily liquifiable assets to cover living overheads for, say, six months.
      • Capital - Income producing assets.


      *****

      We've dabbled in all of these, but followed none, as yet, to financial freedom.

      Over 20 some years, we've averaged expenditures of about $5K (recently showing alarming signs of abrupt increase). This includes cost of living plus out-of-pocket medical, boat-building offset by their sale, and frequent trips to Europe to visit Anke's family, as well as travel to visit mine. We pay all assessed taxes, but AK has no income tax and we fall well below the level of federal income tax, most years.

      Our approach favors micro-streams of income:

      The first (actually pretty macro, on our scale) is the AK Permenant Fund Dividend. This is a yearly, per capita dividend from public revenues from oil sales (of a public resource) that have been invested on behalf of resident's of Alaska.  Between us, it accounts for about 60% of yearly expenditures. That leaves about $2K/year (40%) to generate in other ways.

      Sales of TriloBoat plans are just ahead of breaking even, and just venturing into a substantial contribution... say 10%. In the longer term, I've got several writing projects that we hope will eventually cover the slack.

      Odd jobs are still necessary. We've done childcare, flipped pizza, landscaping/gardening/farmwork, boatwork, trailwork, and lately winter care-taking. If we can clear $10K on a given job, that averages to $2K (40%) over a period of five years.

      This totals 110%/year... with the extra going into 'cushion'. More or less.

      One important factor, I believe is savings. Not in the sense of 'money in the bank', but in moneys NOT given out. 
      DIY, KISS boats, forage and gardening, and living aboard, and bargain shopping save many thousands. I reckon rent saved counts toward the value of our boats, which always leaves us far ahead. Energy independence (wood and solar panel), along with no shoreside storage mean zero monthly bills.

      Savings are like the shadow of income; a penny saved is a penny earned; a penny saved is a penny you don't have to earn - life energies freed for other pursuits. Pennies of this sort don't tend to appear on the balance sheet, but they should.

      And where do we invest these thousands upon thousands we avoided having to earn? In free time, of course. Low-stress lives and consequent good health are paying propositions. We think. When our time comes, we intend to have left full lives of creative indolence in our wake, and consider ourselves already well into our gravy years.

      And yet, full financial freedom eludes us. Part of that is begrudging time poured down the rathole of income. We have not chosen efficient means of earning money, though we're pretty good at saving it.

      Work in progress...

      7 comments:

      1. "Im going to assume that you, oike me, would rather be sailing". One possibility is combining the two by operating a trading vessel. Same percentage of income too: a small hold for supplementing, a big one for full time biz endeavoring. Maybe a base(boat) and a smaller trader (security if trader sinks). Or a liveaboard large hold trader. Oil's running out. Someone has to fill this need.

        ReplyDelete
        Replies
        1. Hi Gomez,

          Check out www.sailtransportcompany.com/... they've gotten started in Puget Sound running sail and human-power only freight hauling and delivery.

          Delete
      2. Hi Dave,
        Here's a little something for when you get back from the Big Freeze. So much interesting material in this post. One bit that really jumped out at me from the 7 "laws" -- about that you can never give money away, and you can never receive a gift of money. Some fascinating ideas, as well as assumptions, there! No mention of "sharing" for example. Not that I think this is simple, especially when it comes to money, but still worthy of discussion!

        People share food, they share artwork, they share help with doing things, in the form of energy and/or expertise, and on and on. Not that I have the answer to this question, but I do puzzle on it: what's so unique about money that it can't be shared without a contract?

        And if we, as a society, could figure this out, maybe everybody could get to do more of what they/we would like to be doing, with this precious life energy!

        So I'm curious about your thoughts off in this direction!

        -- Shemaya

        ReplyDelete
        Replies
        1. Hi Shemaya,

          That is an odd pair of rules. Here they are in their full form:

          5. You can never give money away. Looked at over a period of time, money flows in certain channels, like electricity through wires. The wires define the relationship, and the flow is the significant thing to look at. The fifth law of money suggests that by looking at the gift in a larger or longer-term perspective, we will see that it is part of a two-way flow.

          6. You can never really receive money as a gift. Money is either borrowed or lent or possibly invested. It is never given or received without those concepts implicit in it. Giving money requires some payment; if it's not repaid the nightmare elements enter into it. A gift of money is really a contract; it's really a repayable loan, and it requires performance and an accounting of performance that is satisfactory to the giver.

          ***

          I can see how Law 5 sets up long-term relationships. A donation to, say, Doctors Without Borders, is both attracted and furthered by the quality of the services they provide. Should that quality change, so would the flow of money.

          To my way of thinking, though, a gift is not a gift if it comes with strings. I DO believe money can be gifted or shared. But add in the long term, and subsequent gifts/sharing may or may not be 'inspired'.

          I take Rule 6 as cautionary. I'm generally VERY leery about receiving money gifts or sharing as I DO often experience strings (ill defined or unspoken contract terms), and in myself, often feel obliged. Both very uncomfortable to me.

          In terms of sharing, I'm not so sure that money IS unique... when relationships are strong and functioning, no contract is necessary, but often when they change... WHOOBoy! Who owns what portion of which become big questions, whose answers depend on who shared what and how much, and upon which the remains of the relationships often founder. Contracts and accounts help immensely, though distasteful and imperfect.

          At some point, I'll write about what Anke and I refer to as 'the Gift Economy', which is how we handle domestic sharing.

          -Dave Z

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      3. Useful information ..I am very happy to read this article..thanks for giving us this useful information. Fantastic walk-through. I appreciate this post.

        ReplyDelete
      4. Hey, Dave - I never had US Govt stocks - they were UK. Now I hardly have any - Pete went off with them and when we divorced the returns from them were so low that the amount I had to invest wouldn't give me a liveable income. Now, for better or for worse, I have to use a Financial Advisor to look after my money. But at least I have enough both to live on and to save.

        ReplyDelete
        Replies
        1. HI Annie,

          Honored to have you join us! Your book has been very influential in our lives.

          Thanks for the correction (UK, rather than US gov't bonds)... I'll update the post accordingly.

          The extreme drop in world bond interest rates has been a sore loss to investors following this strategy. Their value, as I understand it, was in their secure and known return, plus relative ease of cashing out? Have you a 'next best thing' to suggest?

          Meanwhile, congratulations on having enough, something which can be achieved from many directions; especially the voluntary simplicity you've championed!

          Dave Z

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