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Fair winds!

Dave and Anke
triloboats swirly 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

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:

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 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...


    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.

      1. Hi Gomez,

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

    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

      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

    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.

    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.

      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