Afford Anything - Myths about Money - Are Your Ideas Holding You Back?

Episode Date: July 24, 2017

#87: A week and a half ago, I flew to Portland for the World Domination Summit -- a conference with an admittedly eyebrow-raising title. The conference is hosted by Chris Guillebeau, the New York Times best-selling author of multiple books, including The Art of Non-Conformity. He was also a previous guest on this podcast. I've wanted to check out WDS for years, so I was thrilled when Chris asked me to give a presentation there. Then he mentioned that my presentation should be three hours long, which sounded terrifying. But that's all the more reason to say yes. I choose my own eyebrow-raising topic, How to Afford Anything, and ... promptly procrastinated on planning for several months. Yeah, that definitely happened. #guilty Then, at the beginning of July, I flew into a frenzy, called a few friends for advice, scanned over several books, watched multiple talks for inspiration, and isolated myself in a remote, empty house for several days. (Past guest Cal Newport would call this a "deep work retreat.") The result was a half-day workshop that synthesized many of the ideas about money that I've formed after six years of nonstop reading, writing, talking and thinking about this topic. In today's episode, I share the first part of this presentation. Today's episode focuses on myths, assumptions and limiting beliefs that we hold around money, work and life. This is the first of a three-part series. In episodes 89 and 91, I'll share the second and third parts of the talk. You can catch the slides (and watch this as a video) on http://YouTube.com/affordanything Enjoy! Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every decision that you make is a tradeoff against something else. And that's true, not just for your money, but also your time, your focus, your energy, your attention, anything in your life that's a scarce or limited resource. And I'm not saying that to promote a scarcity mindset. I believe in abundance. But that being said, you do have to make decisions, tradeoffs every single day. And so the question becomes twofold. What is most important to you?

And how do you align your day-to-day decision-making? in a way that reflects those priorities, those things that are important to you. Answering those questions is a lifetime practice, and that's what this podcast is here to explore. My name's Paula Pant. I am the host of the Afford Anything podcast. Recently, I gave a talk at a conference. So, okay, so the name of the conference is the World Domination Summit, which admittedly is a little bit of a interesting name. When you go to a restaurant and the server is like, oh, what conference are you here for? And you're like, well, it's called the World Domination Summit.

It's full of people who want to dominate the world. Oh, never mind. But anyway, it's this awesome conference, very lifestyle-oriented. It happens annually in Portland, Oregon. And I was invited to give a three-hour-long workshop on how to afford anything, which, admittedly, the title of that talk is also kind of a large claim, how to afford anything. Like, okay, well, maybe next year I'll give the talk on how to fly and have an invisibility cloak. So today, in today's podcast episode, I want to share with you the presentation that I made.

Here, of course, on this podcast, you'll get the audio version. If you want to see the slides, head to the show notes for this episode at afford anything.com slash episode 87, where you can get the slides for today's talk. I'll also have a video of this posted to YouTube with the slides so that you can see it. in all its glory. But since this was a three hour-long presentation, and I assume you don't want to listen to a three-hour-long podcast episode, I am going to divide this into three episodes. So right now, episode 87, I'm going to give the first one-third of the talk, which is myths and limiting beliefs and unquestioned assumptions that we hold about money, things that society teaches us

about money that aren't necessarily true. So that's what we're going to cover today in episode 87. And that was the first one-third of my talk. Two weeks from now, in episode 89, we're going to cover the middle portion of my talk, which are 11 illuminating questions about money and life. So I'm going to walk you through a series of questions that I want you to ask yourself that can help you figure out what is truly most important to you. And when I did this with the audience, I got some very surprising answers. People often surprised themselves with the answers that they came up with. So that is what's coming up in episode 89. And then finally, in episode 91, I'm going to go through the third portion of my talk,

which are different frameworks around how to organize work and life, as well as how to balance present with future so that you're not too cheap and not too spendy and how to grow the gap between what you earn and what you spend. So that's what's coming up. That's episodes 87, episode 89, and episode 91, each one covering one hour of the three-hour-long presentation that I gave at the World Domination Summit. The episodes in between the even-numbered episodes, episodes 88 and episode 90, are, as always, the ones in which I answer questions that come from you, the listeners.

So that's what's on the docket. Without any further delay, how to afford anything, but not everything. So how many of you have said something like, I want to X. I want to finally quit my job. I want to backpack across South America for six months. I want to start my own business or drive cross-country with a camper trailer or climb Mount Kilimanjaro or start an animal shelter. I'm betting that you and your friends and family and probably everybody that you know has something that they want to do, but you're hindered by the

idea that you can't afford it. When I was in college, I really wanted to travel. I wanted to study abroad. But the study abroad programs at my university were very expensive, between $15,000 to $20,000 per semester. That price tag didn't seem worth it. So rather than give up, up on the dream, I asked myself, how can I do this? How can I creatively hack this a little bit? And what I realized is that I didn't actually want to study. I just wanted to go abroad. And when I figured that out, I realized that instead of taking a formal study abroad program, what I could do is graduate, work for a couple of years, save up some money, and then quit my job and go travel. And so that's what I did. I graduated from college in 2005. I got a job at a small

newspaper as an entry-level newspaper reporter, my starting salary was $21,000 per year. Of course, that was in $2,000, so you've got to adjust for inflation. But that was what I made. I made a salary of $21,000 per year working full-time as a newspaper reporter. I started a side hustle as a freelance writer for various websites and magazines. I made ballpark around an extra $800 a month-ish through my side hustle. Some months, you know, a little bit more, some months a little bit less. But $800 a month times 12 months a year, times three years, over the course of three years, I saved $25,000 through having that side hustle. I lived on my salary and I saved all of my side hustle income after taxes. And so after three years of working at this very low-paying job

and having a side hustle that brought in an extra 800 a month, I was able to quit my job. So in 2008, I quit my job. And after that, I traveled very slowly, going to 17 countries over the span of 27 months. I went primarily to countries where the dollar exchange rate really worked in my favor. I went to Cambodia and Lao and Myanmar, places where I could travel from country to country by bus rather than by airplane, which was much cheaper. And, you know, once I got there, I would stay in that country for a long period of time because transit is very expensive. So I would go to Cambodia and I'd spend three weeks there. And that made the trip cheaper in a number of different ways. Not only did it reduce transit costs, but also I could find cheaper accommodation. I could buy food at the market or at grocery stores rather than eating out all the time. In Bali, for example, I rented a house out in the hillside for two months. That house cost, I think, on average, somewhere between $12 to $14 a night.

Beautiful house. So at any rate, I traveled at an average cost of about $1,000 per month, and that allowed me to travel for 27 months, just shy of two and a half years. Like I said, during that time, I covered 17 countries. At this point in my life, I have now been to more than 40 countries, all of which I have spent a minimum of one week in that country, and many of which I've spent. three, four, five, six weeks there. Slow travel is a big piece of how I really experience where I'm at, as well as how I make it almost counterintuitively more affordable. It's oftentimes more affordable to spend six weeks in a country than it is one week. And when I say more affordable, I mean, your price per day is just so much cheaper.

So at any rate, the broader point that I'm trying to make is that when I traveled, when I quit my job and spent the next two years overseas, I had a lot of friends who said, oh, I would love love to do something like that, but I can't afford it. And yet, these friends lived in much nicer apartments than I did. They drove much nicer cars than I did. They went to coffee shops where they bought fancy drinks. They went to bars where they got $14 martinis. They got pedicures. They got their hair done at salons. They had cable subscriptions and magazine subscriptions. They flew home for Thanksgiving. They did all of these things that I didn't do. And yet they told me that they couldn't afford it. And that was originally why I started to afford anything, the blog, is because I wanted to spread the idea that you can actually afford it. You can afford anything. You just can't afford

everything. And so to start this session, I invite you to ask yourself two questions. Number one, what are your dreams? What are your goals? What are your goals? What is it that you would love to do? And number two, how much in dollars and cents, how much do you think this will cost? Put an actual price tag on it. By the end of this talk, here are my goals. I want you to question some of the assumptions that you've had about money. I want you to estimate the actual cost of your goals and dreams.

And then I want you to create a timeline and a plan that will help get you there. Now, I've broken this talk up into three parts. In the first part, we're going to go over a lot of myths and limiting beliefs around money. In the second part, I'm going to ask you 11 questions that will clarify what your priorities are. And in the third part, we're going to go over, we're going to blend those two together. We're going to go over some ideas about how to balance the present with the future, how to be not too cheap yet not too spendy, and how to grow the gap between your earnings and your spending. So let's get started.

And we'll start with questioning your limiting beliefs around money. Limiting belief number one, money is scarce. How many of you think this? Like, oh, money is scarce, so I really have to hold on to it. I have to clutch money with closed fists. It's hard to part with money. Money is hard to come by. Money is hard to make.

How many of you think that? And is it actually true? Or does that become a self-fulfilling problem? Is it the case that the more you believe that money is scarce, the more it actually is scarce in your life? Now, I don't mean to sound like woo-woo, law of attraction. Like, I don't mean to sound all hippie crystals on you. You do have to do more than just think positively. You do have to actually show up for work.

You do have to actually make a plan. Start a business. Put up a website. Start pitching people. That's how you, quote-unquote, attract money into your life as you hustle. You work for it. you are not likely to take that kind of radical action. If deep down, you believe that money is something that is scarce and that probably won't appear in your life.

By believing money is scarce, we oftentimes set ourselves up to focus more on saving than we do on earning. And, you know, I have no objection to saving, of course. But it is a problem when clipping coupons or using up a bar of soap to its intent, or ripping dryer sheets in half, or stockpiling toilet paper because it was on sale at Costco, or hoarding a garage full of junk because you found it at a yard sale and it was such a good deal. It's a problem when that stuff becomes more important than actually creating something and putting it out there in the world that people will pay you for. All of those frugality hacks, the 53 ways to save money, that all comes from deep down

a belief that it is more worth your time to penny pinch than it is to create abundance. And I would urge you to question that assumption. Saving is great. I absolutely do not believe in wasting money. And I am particularly a proponent of focusing on the big three, housing, transportation, and food. But once you've 80-20ed that, once you've cut most of the waste out of your life and you're not being, profligate in your spending, at that point, it's time to start questioning where your focus is. So that is limiting belief number one or myth number one that I wanted to address, the idea that money is scarce.

And if you find yourself having doubts, if you find yourself constantly asking, what if, oh, I'd love to quit my job, but what about health insurance? What about, I'd love to start a business, but what about the prospect of failure? How am I going to support my family? If you find yourself living by what-ifs and making your decisions based from a place of fear rather than opportunity, ask yourself if that's where you really want to be. All right, the next myth or the next limiting belief that I want to address. Myth number two. It's not what you earn.

It's what you spend. This is half true. What you spend matters, but what you earn also matters. It's both. It's what you earn. and what you spend. Because the thing is, the more money you earn, the more options you have in life.

Money brings you options. It brings you choices. So if you jump from making $30,000 a year to $160,000 a year, guess what? You now have a lot more choices. And if you make $160,000 a year and continue living the way you did

back when you made $30, you know how much you can save? Ha hashtag a lot So whenever you hear somebody say Oh, it's not what you earn, it's what you spend It's both All right, the next myth that I want to cover Myth number three

Money doesn't matter All you need is love Money does matter If it didn't Why on earth would you wake up to an alarm clock Particularly during the winter When it's like cold outside and dark Why would you wake up to an alarm

get out of a warm bed, scrape snow and ice off your windshield, and then sit and bumper-to-bumper traffic, all to go to a job that you don't even like, so that you can answer emails and shuffle some paper around and deal with a passive-aggressive supervisor who's giving you shit for something that's not even your fault. Like, why would you put yourself through that with your one short life

and then turn around and claim that money doesn't matter? That doesn't make any sense. When people say that money doesn't matter, I think oftentimes what they mean is that buying unnecessary crap doesn't matter. Lamborghinis don't matter. Sure, I absolutely agree with that. Having a Gucci handbag doesn't matter. But money matters. Money is the thing that gives you the opportunities, the choices, the freedom to be your most authentic self, to do work that you actually care about doing.

to wake up to an alarm clock because you're going to create art or volunteer at a hospital or do something that really ignites your passion. That's the ultimate reason to wake up to an alarm. That's the reason that you hope that you wake up to an alarm is because you're doing something that is meaningful, something that's your calling, not something that you have to do so that you can keep the electricity on in your house. The thing is, until you reach financial independence, you will be trading time for money.

And time is your most valuable asset. Because your time is your life. And there's nothing that's more valuable than your life. So why would you trade the thing that matters most, the thing that is most valuable, which is your time? Why would you trade that for money and then claim that money doesn't matter? Clearly it matters. Otherwise you wouldn't trade your time away for it.

The next myth that I want to address, is that money is the root of all evil. So the actual quote, this comes from 1 Timothy chapter 6 verse 10. It says, for the love of money is the root of all evil. Money itself is not the root of all evil. Loving it too much is, in other words, greed is. But money itself is just a tool. It's like a hammer.

You can use a hammer to build a house or torture a kitten. Regardless of how you use that hammer, the hammer itself is not evil. The hammer is just an inanimate object. It is the person wielding the hammer who chooses whether to use it for the benefit of society or for uncompassionate purposes. The thing is, money just amplifies who you already are. If you are already kind of an a little and then you get a bunch of money,

now you're just an a-oh with money. But if you're a good person, a decent person, you have money, then the way that you handle and spend your money reflects that. Money doesn't change you. I think that's another myth or another misconception. Certainly, it changes what you think about. It changes some of the considerations that go into your decision making. Absolutely. It changes the types of problems that you have. But it doesn't change fundamentally who you are. It merely amplifies it. It allows you to express who you are. in a much louder, more obvious way.

If you're a materialistic hyper-consumer princess, but you just didn't have very much money, and then all of a sudden you got money, well, guess what? That money would amplify that tendency that was already there within you. Likewise, if you're the hard-charging CEO entrepreneurial type, but you never had much money,

and then suddenly you get some, and you invest it all into growing this massive business, well, guess what? Money's just amplified. the fact that you've always been that hard-charging CEO type, that money is just allowing you to be more of who you are. If you're someone who value spending a lot of time with your family, well, having money is going to free up your time,

which will allow you to do more of that. So at any rate, whenever you hear people say that money is the root of all evil, just remember, we should neither blame nor praise money. Money is nothing more than a tool. It is our job to learn how to use that tool in the most optimal authentic way that we can. We'll come back to the episode in just a moment, but first, do you travel a lot? If you listen to this podcast, I assume you probably do. The luggage that you carry with you when you travel makes a big difference, right?

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It has, this is my favorite part, built-in USB chargers so you can charge your devices while you're in transit. And it uses really high-quality materials. So the result is luggage that's beautifully, functionally minimal. It's luggage that really helps you not have to think about your luggage. It helps you be able to focus on your trip rather than constantly fight with your luggage. Give them a try by heading to awaytravel.com slash paula. That's away travel, a-w-a-y-travel.com slash Paula, P-A-U-L-A. I want to send a call out to anyone listening who is an entrepreneur who has a web,

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for free for two months, go to shipstation.com, click on the part of the banner that says heard our ad and then just type in the offer code Paula. That will give you two free months. That's right, a two-month free trial. Shipstation.com, that's S-H-I-P-P-Station.com, click on the little part that says, hurt our ad, and type in the offer code Paula, P-A-U-L-A. All right, the next myth. Money causes conflict.

Mo money, no problems. Yeah, I think a lot of this script comes from, when you were a child, if you saw your parents arguing about money, then the impression that a lot of people get is that money is the cause of conflict because, like, oh, look, mom and dad are arguing about money again. And so I think a lot of children learn to associate money with fighting. And then they grow up with this idea that money is the cause of conflict. Really, money is a representation of values and priorities. because it is limited, you need to make decisions, trade-offs, around how you spend it.

And so an argument about money fundamentally is really an argument about values. What do you value more? Eating organic food or cutting your food budget so that you can boost your savings rate. I can't tell you which one of those answers to choose. That's a values question. And so when you have two people, when you have a couple fighting about that, it's not the money they're fighting about. It's the priorities. Okay, the next myth, it's a shame we have to think about money so much.

And for those of you who are a longtime podcast listeners, you might remember me telling the story about the time that I was talking to somebody. He asked, you know, I met a random person literally on the street. I was having a conversation with a stranger on a sidewalk. And he asked what I did for a living. and I said, oh, I'm a blogger and podcaster. I said, what topic do you cover? And I said, money. And he said, oh, it's a shame we have to think about money so much.

Really? Is it? Why? Why? What about money is shameful? Why is thinking about money shameful? What's behind that? This is sort of a rhetorical question.

If you can resonate with that or if you know somebody who can, if there's a part of you that thinks, oh, yeah, it is a shame that we have to think about money so much. when instead we could be thinking about something that's more noble. I invite you to ask yourself where that idea comes from. Why is money shameful? Why is money not noble? Particularly given that it is a representation of our values, our opportunities, our time, our freedom, our choices. Given that money is symbolic of all of those things, why do we feel negativity around it?

Why do we feel shame around talking about it, thinking about it, admitting that we think about it all the time. I think about money all the freaking time. It's great. I love thinking about it. I love thinking about what it means, the meaningfulness of money. I love thinking about the opportunities that it presents. I love thinking about how to earn more of it. I love the game. I have to admit, that's why I still actually struggle with the full quote for the love of money is the root of all evil. I'm like, ah, I do kind of love, I mean, I love thinking about it. If I didn't, I wouldn't host a blog and a podcast about it. If I didn't love writing about it and reading about it and thinking about it and talking about it all the time, it's a fascinating topic.

But if you feel shame or embarrassment about the fact that you think about it, or if you know someone who does, rhetorical question here, I invite you to ask yourself, where's that coming from? Where's that negativity coming from? What assumptions are underneath that? Okay, the next myth. Rich people are scum. Wow. And this one, I mean, this one bothers me because oftentimes the people who say this are people who would agree with the statement that you should not judge a person based on their socioeconomic class.

And yet, in the same breath, they will also say, dear, rich people don't care. Rich people suck. I think part of this myth comes from a deep-seated belief that the person who's saying that the person who says, oh, rich people suck, believes deep down that they themselves will never be rich, nor will any of their friends or family. And so a reasonable coping mechanism is to otherize the wealthy, to otherize the rich, to create an us versus them mindset. And as we know from history, us versus them mindsets are never positive for our society. That is not a mindset that we should ever encourage.

And if you agree that it's wrong to judge people based on their socioeconomic class, well, guess what? That works both ways. Or in all ways, that works in every direction. The next myth. The only way to make money is by taking advantage of others. That life is a zero-sum game. When one person wins, another person loses.

That any money that you make, you've made off the backs of some. somebody else. That profits are evil and that by owning a business and making profits, you are necessarily taking advantage of others. This is a myth, it's a limiting belief. It's one that I struggle with. As a business owner, I struggle with guilt about making money. I wonder if I deserve it. I wonder if I'm worthy. I wonder if the other party is receiving adequate value to justify that compensation. And I have to constantly remind myself that this myth, that the only way to make money is by taking advantage of others is absolutely false. The best way to make money is through win-win situations, situations in which both parties are supremely happy with the

transaction, where one plus one is greater than two and the whole is greater than the sum of its parts because I specialize in one thing and the other party specializes in another or needs another. And so the exchange that we have benefits us both. And we both walk away feeling as though we had made a great deal. You know, every time I put out a real estate income report, you know, those of you who might be tuning in for the first time or who aren't familiar with this show or with me, I release on my blog, which is afford anything.com, I release the actual numbers from all of my rental property investments. So I'm totally transparent about exactly how much comes in as gross top line revenue

and exactly what the expenses are and then what the remaining cash flow is. And every time I do that, or almost every time, I invariably get some comments from people who are like, oh, it's wrong that you're making money off the backs of your tenants. It's absolutely wrong to make profits as a landlord. You should be renting out those properties at cost. otherwise you're just taking advantage of your tenants. You're taking advantage of people who are poorer than you. Aren't you just a slum lord?

This is why I hate the rich. The thing is, what is the alternative? Is the alternative that we live in a society in which nobody is a renter and nobody is a landlord? If that were the case, we would live in a society in which the only way to move would be by buying and selling. a house. And so nobody would have any mobility. Is that what they're suggesting? Are they suggesting that we eradicate renting as an institution such that nobody could go to college or move to a new city for a new job or just move to a city just because they want to be in that city unless they knew somebody there that they could move in with? Is that the suggestion? Is that the proposal?

Because that sounds like a far less mobile society. That's not one that I would want to live in? Or if that's not their proposal, then what exactly is their proposal? Is it that we all just stay in hotels? Or are hotels taking advantage of people who need short-term housing in a city? And if hotels are okay, then what's the cut-off? Is it like 30 days, 60 days? You see what I'm getting at here. My tenants and I have an agreement. They need short-term housing in increments of one to two years, and they want that housing to be renovated and maintained in a good condition. I agree to provide that housing short-term one-to-two-year increments, and I agree to give them the exclusive rights to that housing, and to handle all of the maintenance and repairs associated with that

housing. In return, they agree to pay me for that, as well as take reasonable care of the property. So we have an agreement, and that agreement works for both of us mutually. My tenants are getting what they need, which is a place to live, that they enjoy, and that's maintained in good condition. And I'm getting what I need, which is compensation for that. And yet there are so many people who believe that somehow one party is getting taken advantage of in this situation. And that belief is based purely on the fact that profits exist. We live in a world where more money is being created every day. As value is created, as people's needs and wants are met,

the supply of money in the world grows. And as individuals, you and me, our role, is to participate in that in ways that create win-win situations with everyone with whom we interact, with every transaction that we make, always create win-wins. And so the next time you hear this myth that the only way to make money is by taking advantage of others, ask yourself if that isn't based on the premise that transactions occur in a win-lose cycle rather than a win-win. All right, the next myth that I want to cover. This is the last myth I'm going to cover before we move on,

is that it's better to be poor and happy than rich and miserable. Really? Why can't you be rich and happy? It's a bit of a false association, isn't it? That all poor people are happy, that all rich people are sad? You know, there's one story that I was really struck by. Those of you who are longtime listeners might remember that way back earlier in this show I interviewed J.D. Roth. J.D. is a guy. He's a good friend of mine. He started a blog called Get Rich Slowly, and he sold that blog for an undisclosed sum, which we all speculate was in the millions. He's never actually said that. That's entirely my speculation. But he obtained a very large amount of money overnight, or almost overnight. One of the things that he told me is that when that happened, he took a look at the rest of his life.

He saw the problems and he realized he could no longer use money as an excuse. He was unhappy with his relationship. He was unhappy with his weight and his health and his eating habits. He was suddenly very rich and he was happy about his financial situation, but he was unhappy about these other facets in his life. And what he realized at that time is that he had gone his entire life using money, as an excuse in these other facets of his life. Oh, I can't eat healthy because I don't have the money. I can't go to the gym because gym memberships are expensive and I don't have the time because I have to work. I can't work on my

relationship or get out of a bad relationship because, you know, money time excuses. When he got money, all of his excuses were taken away and he had to face the reality that money wasn't the problem. It was never the problem. The problem was him, and that if he wanted to solve these issues, it was up to him to do it. Essentially, getting money was the trigger for him to realize that he needed to take radical responsibility in every facet of his life. And so he did. He started eating healthier. He started exercising. He lost weight. He left a relationship that was unhealthy and got into a new better one. It wasn't the money per se that made him happy. But money didn't hinder his happiness either. In fact, it provided him with the kick in the pants to take the radical responsibility, to take the action necessary to improve his life in every facet. I had lunch with JD when I was in Portland last week, and I told him how much that story resonated with me, how much it stuck.

And I think he was happy to hear it. Rich and happy. Now let's look at some of the studies between the correlation between money and happiness. there have been, of course, many studies, and as often happens in the world of research, there are studies with contradictory findings. Here's a small survey of some of what's been hypothesized. One recent study that was done in 2015 defined happiness as a reduction in negative emotions. And they found that up to the first, this particular study found that up to the first $200,000 in income in the U.S., the more money. the more money a family has generally the fewer negative emotions that that family has.

However, the study also found that as we got to upper and upper levels of income, that correlation between money and happiness, or in this case, money and unhappiness, you know, money and lack of negative emotions, that correlation began to diminish, meaning that the marginal utility of every additional utility of every additional dollar after a certain point was less and less until it reached about, actually about 160,000 was really where marginal gains began to approach zero, and at 200,000, the gains just disappeared entirely. So those were the findings of one particular study, as quoted by CNBC. Now, there was another study that was done in 2013, and I'm using the Wall Street Journal report on this study as my source for this. This particular study also purports a correlation between money and happiness. But I think more interestingly, it showed a strong correlation

between lack of money and unhappiness. So in other words, there may be a correlation between money and happiness. And there are many discussions in the world of research as to what that cutoff point is, what the marginal utility of every dollar above a certain point is. That's something that researchers are going to be debating ad nauseum forever. But one thing that we can be sure of, or at least as reasonably sure as any research can find, is that there is certainly a very strong correlation between lack of money and unhappiness. Money may or may not make you happy, but a lack of it is highly likely to make you unhappy. Now, here's something else that I thought was interesting. There have also been studies done on the correlation between discretionary purchases and happiness. Now,

remember, discretionary purchases and your income or your net worth are not the same thing whatsoever. But in some of the studies that have been done between the correlation between spending and happiness, the majority of Americans self-report that spending money on experiences rather than on objects correlates with greater degrees of happiness. And one of the hypotheses behind this is something called nostalgia bias. So nostalgia bias states that memories tend to get rosier with time. For example, if you take your kids to Disney World, five years later, you're not going to remember the long lines or how hot it was or the fact that your five-year-old threw a temper tantrum in the backseat. You're not going to remember those negative aspects of the trip. You're going to remember the best of the trip, rosier memories.

And so due to nostalgia bias, our memory of an experience tends to improve over time, whereas objects depreciate. And that's one of the hypotheses behind why many Americans, according to a wide variety of studies, have reported that spending money on experiences rather than stuff makes them happier. It could just be that our brains are wired that way. But I think the bottom line is, for most people, and I think for most people who are listening to this, would probably agree, If you use your money to buy time, to buy experiences, to buy freedom, to buy more choices, to buy more opportunities, yeah, that has a pretty good chance of correlating with happiness. If you use your money to buy useless plastic junk that's just going to end up in the garbage, well, I mean, I don't think I really have to complete this sentence. I think you know how this is going to end. Okay, actually, I said that that was going to be the final myth, but let's talk about one more myth.

All right. So myth, saving enough is hard. And specifically, let's say that you have a somewhat audacious goal, a somewhat unconventional goal. Let's say that you want to save enough money to take a one year sabbatical. You want to take one year off of work unpaid, a one year leave of absence. Saving enough for that on its face may seem to be hard. How on earth could you save enough money to cover one year's worth of living expenses. How long is that going to take? Well, let's look at the numbers. Let's assume that you have a take-home pay of $50,000 after taxes and after other paycheck deductions such as retirement contributions. Let's also assume that you're financially solvent, meaning that you don't have any high-interest debt, you have emergency savings,

so that all of the money that you do save from your take-home pay can go towards, your one-year sabbatical fund or your one-year travel fund. Based on those assumptions, with a take-home income of $50,000, how long would it take you to cover your cost of living? Well, first of all, we know what your take-home income is. We don't know what your cost of living is. We don't know what your expenses are. So let's take a look at a chart that plays with these possibilities, right?

If you take home $50,000 and you save 10% of that take-home pay, your cost of living is $45,000. You're saving $5,000, you're living on the other $45, right? Simple enough. If you take home $50,000 and you save 20% of that, well, then you save $10,000 a year and you live on the other $40,000. So as you can see, there's this relationship in which the more money you're saving, the less money you actually need to save because your saving rate is higher and your cost of living is lower, right? if you take home $50,000 and you save 30% of it, then your cost of living is only 35,000 a year, and you're saving the other 15,000.

So that's the relationship between your income, your savings rate, and your cost of living. Now let's zoom out and take a look at how long it would take you to be able to take one year off. And by the way, this chart was inspired by the talk that was given at the World Domination Summit in 2016 by J.D. Roth and Mr. Money Mustache, the two of them co-presented this talk and they had a chart very similar to this. And I had lunch with JD. He suggested that I look over their slides before the talk and I was like, JD, that is awesome. Do you mind if I use that?

And he was like, go for it. So full credit to those guys for coming up with this. All right, take a look at this. So let's say your cost of living, not your income, but your expenses are $45,000 a year, right? And you've got an income of $50,000, so you are saving $5,000 a year. Well, at that rate, at that 10% savings rate, you can cover a full year sabbatical after only nine years, which is pretty cool. That's more than what the average American household would know that they would be able to do, right? Work nine years, take a full year off.

Work nine more years, take another full year off. Once a decade, you could have a total sabbatical from work just with a 10% savings rate. But let's say that you doubled your savings rate. you went from 10% to 20%. Well, guess how soon you can take that sabbatical? By doubling your savings rate, your timeline more than gets cut in half. Your timeline goes from once every nine years to once every four years. So if you have a take-home pay of 50,000 a year and you save 20% of it,

which means that you save $10,000 per year and your cost of living is $40,000, then, well, you're saving 10K a year. your cost of living's 40K, it's going to take you four years. And if you up that savings rate even further, if you up it to 30%, once every 2.3 years, you can take a full year off. That's with a 30% savings rate, which is by mainstream American standards a lot, but by the standards of I know a lot of people who are listening to this podcast and who read the Afford Anything blog, 30% savings rate is a doable rate.

It's a rate that a lot of those of you who are listening already have achieved. Think about the power of that. You can take an entire year off work every 2.3 years. If you were to call up your buddies or call up some of your cousins, people who you don't talk to very often and who aren't into this money thing, and you were to tell them something like that, imagine what they would say or what assumptions they would make. Whoa, are you secretly loaded?

Did you get like some crazy inheritance? Did you win the lottery? how an earth could you do that? I would love to do something like that, but I can't afford it. The thing is, once we apply a little bit of math to our goals, and I'm not talking high-level advanced calculus, I'm talking basic arithmetic. Once we apply middle school math to the things that we want most,

we transition from disempowering statements like I can't afford it to empowering statements like, how can I afford it? and how soon can I afford it? And what we also see is that there is a relationship between timeline and intensity. The more intensely we save, the closer that timeline to our goals becomes. Conversely, if we casually save, we can still reach our goals. It'll just take longer. It's like trying to cover the distance of a mile.

Walking versus running. Running is more intense, so you cover a mile faster. Walking will still get you there. less intense. So it'll take longer, but you'll still reach the one mile mark. So now the only decision that you need to make for yourself is, well, do I want to walk or do I want to run? Or somewhere in the middle, do I want to jog? And there's nothing wrong with any of those answers. You can complete that one mile in whichever way feels right for you, so long as you understand the relationship between time and intensity. And so long as you don't disempower yourself by saying, oh, that might

mile, that's so far away. It'll never happen. So I'm going to wrap up the last piece of this talk by touching on the idea, and I'm going to elaborate on this in the next sections of this talk, which are coming out in upcoming episodes. But I do want to touch on the idea that cutting back is the only way to save money. It is not. Remember, as we discussed earlier, that idea, it's not what you earn, it's what you spend. And I said, well, actually, it's both. So sure, cutting back is one way to save money, but you could also earn more. Because what we're really talking about, whenever I talk about saving money, what I'm really referring to is paying attention to the gap between what you earn and what you spend. Between those two, hopefully there's a gap.

Hopefully you're not spending more than you earn. So between your earning and your spending, there is some sort of a gap. Your job is to make that gap as wide as possible. Your job is to grow the gap. And there are two ways to do so. You can either earn more or you can spend less or some combination of the two. Spending less has some element of immediate gratification to it, counterintuitively. Spending less has the immediate gratification because you can do it today and there's an instant payoff.

You can immediately see results. because by the end of this week you could have saved X amount of money as compared to what you otherwise would have spent. But of course, if you only cut back, there's a floor there. There's only so much that you could cut back. Earning more gives you like unlimited upward potential, but it doesn't have that same immediate gratification. It takes longer. And it introduces a whole list of other psychological hangups such as fear of failure, self-fail. doubt questions of worthiness, particularly if you're trying to earn more through an entrepreneurial route. So I'm going to talk about this more in episode 91. That's the one where we'll really

dive into growing the gap between earning and spending. But I just wanted to close out, since we have been talking about the relationship between timeline and intensity and how to run the math on how long it'll take you to reach your goals, I did want to kind of touch on that a little bit because it is not about saving in the traditional sense of the word. It's really about growing the gap. So with that being said, I'm now going to wrap up part one of my three-part presentation that I gave at the World Domination Summit, 2017. As I said, in part two, which will air in episode 89, which is two weeks from today, I'm going to ask 11 very deep, illuminating questions about your life, your values, your priorities, questions that I hope will

help you figure out what's most important to you. So that's coming up two weeks from now in episode 89. And then in episode 91, we're going to talk about how to grow the gap between your earnings and your spending. We're going to talk about how to balance the present in the future so that you're not too cheap nor too spendy. We're going to try to synthesize together a lot of the concepts that we've talked about in today's episode as well as in episode 89, which is going to air two weeks from now. So thank you so much for being part of of this amazing audience, this amazing experience. My name is Paula Pantt.

This is the Afford Anything podcast. You can catch a video of this with the slides at YouTube.com slash afford anything. That's YouTube.com slash afford anything. And if you want to read the show notes, you can find those at Afford Anything.com slash episode 87. This is Paula Pantt, signing off. I'll catch you next week.