Floating Your Boat - Musings on Wherewithal (Income)

Well it comes in pretty handy on this planet, Pal!

Tony Rice, speaking of Money

Floating Your Boat - Musings on Wherewithal (Income)

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.

Anke and I work for money. 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 we grapple with how  to honestly generate income, without giving life over to its pursuit.

Gotta warn ya; I'm short on answers. What follows are a number of things that have influenced our 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.

*****

Useful Books:

Voyaging on a Small Income by Annie Hill

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:

Step 1. How much money has come into your life and what do you have to show for it?

Step 2. Being in the present: Tracking your life energy

Step 3. Where is it all going: Monthly tabulation

Step 4. Three questions that will transform your life

Step 5. Making life energy visible: Your wall chart

Step 6. Respecting your life energy: Minimizing spending

Step 7. Respecting your life energy: Maximizing income

Step 8. Capital and the crossover point

Step 9. Securing your financial independence

*****

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 forgit it!

*****

Useful Terms:

Gross Income - All money and resources which enter your possession.

Overheads - All money and resources required to provide Necessaries (vs. Electives).

Expenditures - All money spent for Overheads plus Electives.

Net Income = Gross Income minus income related Overheads.

Disposable aka Surplus Income = Net Income - Overheads.

I note that Net Income could be deemed Profit, and would agree at the venture level. At the household level, however, I'd rather think of Disposable Income as Profit, having subtracted necessary living Overheads. They are themselves income related for households, though they tend to be considered in separate accountings.

*****

Asset - Anything which increases net income.

Liability - Anything which decreases net income.

Capital - Assets which exclusively produce income.

The first two are from Robert Kiyosaki’s Rich Dad and Poor Dad.

Under these definitions one could argue that Assets are Capital. I've drawn what I find to be a useful distinction for integrating the terms with others presented here.

*****

Return On Investment (ROI)

ROI can be positive, neutral or negative. This is a good standard from distinguishing Asset from Liability.

*****

Cost / Benefit  Analysis

Similar... used to clarify Returns.

Key concept: Costs and benefits are yin and yang... related opposites each containing the seed of the other!

*****

Three (honest) ways to come by what the Pardeys call Freedom Chips:

• Income from Hourly Wage / Salary
  
• Income from Piece-Work
  
• Income from Capital (invested).

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, income secondary.
• Do what pays best, satisfaction secondary.

The first can be prolonged, but more satisfying.

The second can be less satisfying, but less prolonged.

Often that 'something you love' is not your dream aka 'what you most love'. It can be the seductive difference between living the dream and living something else. 

Either way, while working toward the dream, we can accumulate habits, addictions, obligations and encumbrances that prevent us from realizing the dream. Cave opararius! (Worker beware!)

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, reputation).

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.

We are most interested interested in accumulating Intellectual Capital. It's big advantage is that it can be pursued on our own terms, and once created and producing income, needs little to no further investment from us. In particular, it's resistant against declining energies as we age.

*****

Subsistence Model

Subsistence farms worked for generations by three simple principles: 

1. Forage or grow all food, fuel and materials.
2. DIY what you can.
3. Find a 'cash cow' to generate cash income for what remains.

The 'cash cow' could be any asset in reach of the first two, which can be exchanged for cash. It might be an actual cow, wild chokecherry wine, herbs, etc..

In my great-grandfather's case, he had a good eye for skinny horses. Bought 'em cheap, fattened 'em up on his surplus corn and sold them at a good profit. This cash went to purchase metals and salt, mostly. Lived to 97 years, subsisting all the way.

*****

Commodity vs. Value Added

If one's cash 'cow' is a commodity, consider adding value with labor or synergy. 

For example, choke cherries are a commodity. Choke cherry wine is value added, and may well fetch a better price. Choke cherry liquor further adds synergy with, say, distilled alcohol from home-grown grain. 

[NOTE: These examples have legal issues!]

Depends on what the market will bear, which is itself a corollary of supply and demand.

*****

Compounded Returns

Compound - to re-invest Return On Investment as Capital.

Compounded Income (Returns on Capital) grow one's Capital exponentially.

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 14 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 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.

Our Path Through the Wilderness 

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 and arranging intellectual capital:

The first (actually pretty macro, on our scale) is the AK Permanent 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.

One important factor, I believe, is savings. Not in the sense of 'money in the bank', but in moneys NOT given out (I call 'em shadow dollars). 

DIY, KISS, live-aboard vessels, foraged food, fuel and materials, and bargain shopping save tens of thousands each year in overheads, transport and rent. 

Such savings are the shadow of actual income; a penny we don't have to earn is as if a penny had been earned AND spent! It doesn't show on the books as income (being net zero), but precious life energy is freed from the need to produce income (cash flow) for other pursuits. Freed in the very act living the dream!

And where do we invest these thousands upon thousands we avoided having to earn? In free time, of course. Low-stress lives and (presumably) consequent good health are themselves paying propositions (assets). 

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 begrudged time poured down a vestigial rat-hole of needed income. We have not chosen efficient means of earning money, though we're pretty good at saving it.

Work in progress...