I've been thinking about people who are "good with money" lately. Certainly, being "good with money" is superior to being "bad with money" - people who are bad with money spend a lot of their life in unnecessary stress. Generally, being "bad with money" would mean not being in control of your spending, having debt unnecessarily (if you're just carrying around a lump of debt, you only need to cut your spending in the short term to get rid of it, and then you can go back to your old spending levels debt free), and otherwise not managing their finances well.
Yet, "good with money" by itself doesn't predict success all that well. Oh, to be sure, it helps a lot. But we all know people who you'd call good with money who aren't successful in general.
I've been thinking on the reason why - and I think it's because money is only one of many resources. You've also assets, both securitized assets (stocks, bonds, real estate, whatever) and assets that are more intangible and impossible to buy/sell/trade as a security - more amorphous things like prestige, credentials, and of course, skills and experience.
I also think the word "resource" isn't the best particular word, since there's a lot of things that are resource-like that aren't really resources... obviously our relationships aren't resources, but can also be invested in similar to a resource. You can go out of your way to do nice things for people who have done right by you, you can be thoughtful, you can go out of your way to travel to a place if someone you really admire is there.
Being good with money guarantees none of the above.
There's some people who are "bad with money" who are good with other resources. Yeah, their spending is haphazard and they've got debt that doesn't make good sense to have, and they don't manage the debt all that well... and yet, they're good at picking up prestige, credentials, and they spend the time and money to take care of people, improve their relationships, and otherwise are "good with resources" (except money, in this case).
Some people are good at controlling their spending and managing debt and finances, but they never deploy their money intelligently towards getting new skills, credentials, prestige, securitized assets, and building relationships. Money is only one resource, after all.
So we could look at it like this -
Bad with money, good with other resources: Will have stress and money problems, but will be connected, respected, skilled, and so on. This person always has a little stress for money reasons, but carries considerable earning power with them so probably doesn't get into too much trouble (hopefully).
Good with money, bad with other resources: Builds a fat bank account, but never converts it into anything really interesting. Earning power doesn't rise so much, except to the extent they buy securitized assets.
Bad with money, bad with other resources: Life will be a total mess. Constantly stressed out with money. Spends money on stupid shit when has it. Doesn't build skills, abilities, prestige, credentials. Doesn't take good care of other people and invest into relationships. In line for a very hard life if nothing changes.
Good with money, good with other resources: Manages finances intelligently. Builds a fat bank account, and then intelligently looks for other situations to deploy the cash in the bank to serve them well. Goes through periods of spending a bit more to increase their earning power, and then keeps spending flat or low to bank even more cash, which then gets deployed into even better things. Life is pretty sweet.
I want to be in that last category. But bad-with-money/good-with-other-resources might not be such a bad category. Those people actually probably exceed good-with-money/bad-with-other-resources overall. (But try to move into the final category - it's a pretty sweet category!)
You might call me "bad with money." Certainly, most people who are "good with money, bad with resources" would call me "bad with money". I almost always carry some debt, and sometimes spend extravagantly on non-essentials while in said debt.
But to me, debt is just another resource. I've never been in the kind of debt that I couldn't pull myself out of with a few months to a year of hard cutting, and when I've drifted towards the "year" end of that spectrum, I've always cut back to a more reasonable level.
This is because, as I sense it, my value return on money lately has been higher than the interest rate charged. Anyone with decent credit can get reasonable amounts of money at less than 10% per year. Now, anyone "good with money" will tell you that this isn't a very good interest rate. And, if you're optimizing for money, it's not. However, I try to optimize across all of my resources, and I am getting very exceptional returns on my skill building, relationship building, character building, and reputation building investments.
I try not to spend much on entirely frivolous pursuits. For example, I don't own a car, even thought it would make my life much more convenient, because it wouldn't actually raise my total resource value. Certainly some in quality of life, but quality of life can also be improved through meditation, which is cheaper.
But I do spend lavishly on important things. For example, I just participated in throwing a great friend a really incredible bachelor party. That is a memory we will share forever, and when he thinks of his closest and most trusted friends, I will always be among the first on the list, because I always prioritize his friendship. This guy is one of the most incredible humans I know. This is a hugely valuable resource, and to me, the investment in that party will return WELL over 10% per year it compounds.
Car -> frivolous. Party -> savvy investment.
Am I bad with money?
If you were going to build an empire, how would you do it?
I've been thinking on this lately. I want to choose the imperial path first, last, and always. Every decision I make ought to be to the end of building. We can get into the "why" of it and philosophy another time, but I think pretty much the meaning of life is to expand, the mid-term goal of humanity ought to be to spread outside of Planet Earth and diversity our habitats a little bit, and I'd like to participate in doing that.
That's a really long discussion though, so we'll save that for another time. Yesterday I was in a really nice cafe and I was thinking, "You know, I want to always be choosing the empire-building way. When choosing between options, when prioritizing, when picking activities, when picking projects - I want to choose expansion and empire."
I thought about that and I don't have any really good heuristics for what's conducive to expansion and what isn't. So today I went to a cool little Vietnamese restaurant where the owner is friendly, got some coffee and tea and bread, and started brainstorming a little bit.
I think that the way most people spend money is absolutely nuts. I see people buying things they can't really afford, or things that will have no lasting impact on their lives whatsoever, and I cringe. Be frugal, I want to yell.
On the other hand, there are people who go way out of their way to save a dollar, even When spending that dollar would really make their life better, or create some lasting memory that would impact them long after the dollar was gone. Don't be cheap, be frugal, I want to yell.
Maybe a better phrase for frugal, at least the way I think of it, is financially-efficient. And just like most mistakes I see people make, this one stems from not actually thinking about decisions and just going with the flow.
Money should only be spent if you have it, first of all. Just because everyone else has a car doesn't mean that you are somehow entitled to one, too. If you don't have money for a car, don't buy one. Never finance anything, with the possible exception of a house. Even then, I think it's usually a bad idea.