“There is the possibility that consciousness grows faster than inflation,” Joe Dominguez once remarked. This was already after Joe and Vicki Robin co-authored the Financial Independence (FI) cult-classic Your Money or Your Life. Joe and Vicki’s nine-step program is as much about The Psychology of Money as it is about the practical steps. Joe’s comment regarding inflation is noted in an audio presentation of Transforming Your Relationship with Money. You can hear Joe’s explanation which starts around 1:03 in this clip. Joe’s comments were in the 1970’s and 1980’s when rampant inflation was consistently in the high single-digits or teens.
Trying to dispel not spell inflation? Try Growing Consciousness as You are Trading Your Life Energy for Money
Your Money or Your Life Lessons About Life Energy
The classic, Your Money or Your Life, is about understanding that you are trading your life energy for money. In turn, you are cashing in this life energy to purchase things. In theory, once you consciously understand how much time you need to invest working just to purchase something, you will adjust your spending habits. The intention is that you will better control your purchases. You will likely find you need less and want less. Your time is finite. No need to waste time to earn money for frivolous purchases. Only must haves and true passion spending will suffice. Which is why consciousness grows faster than inflation, because you do not buy for the sake of buying.
An Example of Life Energy at Work
By now, if you have been following financial blogs, you have heard of the coffee example. For the sake of argument, let’s use the coffee argument. For example, let’s say you are paid $20 per hour. I hate to pick on Starbuck’s, especially since, full disclosure, we own Starbucks stock. Let’s just say that you like your Starbucks and enjoy a $5 coffee everyday. So basically you need to work 15 minutes to pay for your $5 coffee. Even more since I’m not taking out taxes on your $20 per hour job. Depending a how much you love your Starbucks, you may think it is worth every dime. Not to mention the time it takes to drive or walk to Starbucks and wait in line for your coffee. The point is that your time has value too.
Being Conscious of How You Spend Money Allows You to Beat Inflation
Alternatively, you could buy a very basic coffee pot for $10. Yes, you can get a basic coffee pot for $10 as we have one from Kohl’s. You could buy a bag of Starbucks coffee grounds for about $8 retail and 100 coffee filters for $2. Let’s say you also need a coffee mug and this costs you $5. So you spent $25 dollars for your coffee maker, mug, coffee grounds and filters. So you have to work one hour and 15 minutes for all these items, actually longer when you factor in taxes. However, you end up with a much cheaper cup of coffee at home over time. How is this possible? Your fixed costs in the purchase of the coffee pot and coffee mug are not reoccurring.
Let’s say that you get 20 cups of coffee from the $8 bag (this seems a little low, but for the sake of argument, we will use 20. So now, each cup of coffee is 20 divided by $8.00 or 0.40 cents per cup, about 0.50 cents per cup when you factor in the coffee filter, water and electricity. Suddenly you can have 10 cups of the store version of Starbucks coffee, rather than grabbing it from your local Starbucks.
A Deeper Dive Into the Math
Purchasing 20 cups of $5 coffee from Starbucks would have cost you $100. Calculating your savings $100 – $25 for the example above = $75 for the initial 20 cups. Then your costs are even further reduced because you are only buying the $8 bag of coffee. Plus, occasionally $2 for coffee filters. If you make another 20 cups of coffee with your coffee maker it is $10. At this rate, your savings is $100 – $10 = $90. Suddenly your $5 per day times 365 day Starbucks habit which equals $1,825 a year versus a rate of high estimate of $0.50 per cup of coffee rate for 365 days of is $182.50 per year. This becomes a total savings of $1,825 – $182.50 = $1,642.50. This is serious money. One can visibly see how you can fund a $1,000 Emergency Fund in one year.
Debt Averse and In Debt
If you know me, you know I have always been debt averse. Admittedly, I would rather go without something than being indebted to someone else. While I grew up middle-class, I had every possible advantage in life. I understand better than most the privileges I had in life. A topic I may elaborate on more in a future post. But I always tried not to take advantage of my parents, even though there were times they made that ask easy.
I entered into my marriage eyes wide-open that my spouse had college student loans and a commercial car loan. In fairness, from day one, when we were struggling to rub two nickels together, we were tackling debt. Further, I was struggling to find full-time work in my college area of study. At first, I was not doing much better than the equivalent of my college jobs. We were making advance payments to rid ourselves of this debt as fast as possible. As far as I was concerned our backs were against the wall. We needed to get this noose off from around our necks as quickly as possible, within the confines of what was legal and moral.
Losing sight of the Goal
Finally, I got a “real job” and our income essentially more than doubled over night. We had been paying ahead and paying down debt even when we were barely getting by. But with seemingly “massive” amounts of money, we were making double, or triple monthly payments to wipe out each debt. Once the car loan was gone, we went after the college loans with even greater vengeance. Writing that last check felt amazing. Literally, I felt a debt burden lifted off my shoulders.
But then we got a little lax. However, given our “massive” incomes, back in the day, I used to spend the equivalent of $10 -1$12 a day on lunch at the office. I wanted the break and excuse to get out of the office. It was an adjustment to grind out an 8 to 10 hour day just being at work. It was not like college when you had breaks in your schedule and holidays off.
Both my spouse and I enjoyed the escape and social aspect to lunches out. Further, and quite candidly, I thought I deserved it. After all, between my spouse and I, we were making about 75% of what my father was earning in a one-income family.
My spouse and I were living in an apartment and “saving” for a house. But we were distracted, or at least I was, because work was “hard.” Weekends meant time on the links to play 18 holes at least once, if not twice.
Wake Up Call From A Man Who Actually Did Back-Breaking Work
I was feeling pretty darn good about my financial place in life. Admittedly, I was getting too big for my britches, living a “good life.” At one point, my grandfather scoffed at not just one, but two pairs of golf shoes, I displayed for him. My grandfather reminded me of struggling to feed a family during the Great Depression and never playing golf a day in his life.
At my age, my grandfather was working at a “good job” doing back-breaking work laying track for the railroad. My grandfather was out there busting his ass in blistering heat and freezing cold. My grandfather did “back-breaking” work for multiple decades. The most amazing thing about it is that my grandfather did not complain about the work. He found joy in the work. He was always an avid railroad guy. I know my father’s love of trains was a direct-result of my grandfather’s affinity for the railroad.
Undeniably, my grandfather took only a handful of days off a year from work. My grandfather took one day off each summer to paint the garage. Further, my grandfather worked on Saturdays and as a devout Catholic, he was strict about not working on Sundays. Typically, my grandfather only took two other days to “vacation” up north driving the family to spend a night or two at a relative’s lake cottage. Why you may ask? It’s easy, if my grandfather did not work, he did not get paid. If my grandfather did not get paid, his family could not survive. My father described these “vacations” to me and said he had never been out of the state until he joined the military.
180 degree turn in Consciousness
Nothing is quite as sobering as your grandfather politely chiding you for being a spendthrift. My grandfather’s mantra was to lead by example, simply, it’s not how much you earn, it’s how much you save and spend. My grandfather was the epitome of Consciousness Grows Faster Than Inflation.
Needless to say, my interaction with my grandfather related to the two pairs of golf shoes, was a wake up call. My grandfather was not impressed with my material wares or my leisure-filled weekends. My grandfather did not begrudge me, he just wanted me to get my head out of my ass and not spend like it was growing on trees.
Undoubtedly, I have pissed away at least tens of thousands of dollars. Scarily, I did this during some periods where we were living on one-income and banking the rest. Unquestionably, I tried to justify my bad behavior because we could “afford” to live a little spendthrift. In reality, my actions were unconsciously pissing money away. We call this “Operating like an FI idiot” and I can be an expert. When I finally regained consciousness, I realized I could not “afford” to waste any life energy in exchange for useless stuff. Suddenly, my spouse and I had an intensity to tackle all forms of debt.
Consciousness Grows Faster Than Inflation Applies to Big Decisions Too
Beyond the small ball importance of saving a few dollars each week, there are the major decisions that heavily impact your financial position. If you have purchased a house in the past few years, you know inflation has had a major impact on this industry. We believe in Family FI. We have described how one can still live a luxurious life while working towards Family FI. One of the smartest financial decisions we made was to save at least 20-percent for a down-payment for a house, combined with buying less house than our approved mortgage limit. You need to know your financial situation, goals, and limits better than the “experts” at the bank. Being conscious and conscientious about your spending is an effective way to beat inflation. It requires amazing discipline and a clear vision for what you or your family want out of life long-term.
Investing in your financial future also requires you and/or your family to make intentional decisions about paying yourself first. At the very least, prioritizing utilizing pre-tax or post-tax retirement accounts or other tax advantage savings vehicles.
Great Depression Mindset
Getting back to the basics is one of the best ways to beat inflation. My parents lived through The Great Depression and like most during this era learned to live without. Today’s home mortgage rates may appears high by recent standards, but todays rates are in line with historical averages. My parents had a home mortgage in the 1970’s and 1980’s that exceeded double digits. Crazy high mortgages were not uncommon back then. My father was financially clueless but he taught me some of The Psychology of Money most important lessons. Growing up in the Great Depression, my parents were poor but always felt they lived a blessed and rich life.
My parent’s budget adjusted in times of high inflation or lower incomes. My parents paid themselves first and also lived within their means despite the ups and downs of the economy. This is what Joe Dominguez means when he states, “consciousness grows faster than inflation.”
Utilizing Consciousness to Grow Money Faster Applies to More Than Just Inflation
If your job is based strictly on commission or you are a small business owner, chances are you already know what I am talking about. Living on an income that fluctuates up and down should require you to be both conscious and conscientious as to how you are saving and spending your money.
For my grandfather The Psychology of Money was all about paying in cash. Simply put if my grandfather did not have the money they did not buy it. It’s a major reason my grandparents rented a flat for over three decades even though in this time span they surely could have paid off a 30 year mortgage. I’m not suggesting this is the smart money play. I’m merely revealing this is how deeply ingrained my grandfather’s, and presumably, my grandmother’s habits to avoid debt at all costs.
Get Back to the Basics
When we want to conquer inflation in our household, we get back to the basics. This starts with consciousness growing faster than inflation and being cognizant of every purchase. Delaying purchases and not buying on impulse are keys. Try growing your consciousness. What do you have to lose?
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