Thoughts on “Quit Like a Millionaire” by Kristy Shen and Bryce Leung

Anyone who knows me understands that personal finance is a big part of my journey. Straight out of college I was immersed in the topic as an employee of Dave Ramsey. Later, Dolly and I used his methods to become debt free. Most recently we made a down payment on a house where we can establish some roots as a family. I’ve largely been following the Ramsey plan for over a decade, and the far-off vision was always to retire at sixty-five with a paid-off house and enough savings to last for the rest of our lives.

With the next milestone on the distant horizon, I was kind of on auto-pilot. That was until someone at my current job brought up the concept of FI/RE – being financially independent and retiring early. I had heard the idea before, but frankly I forgot about it because it seemed like it would never apply to me. This time, my mind wandered a bit what it would be like to work only when I wanted to, or for our family to travel the states for months at a time. I did some very light research. It turns out that FI/RE almost always boils down to having enough of the the right kinds of investments that one can live off of the residual income alone while the principal remains level. Was that possible for us? A coworker in the chat mentioned the book Quit Like a Millionaire as a practical summary of how early retirement can be achieved. From a place of daydream inspiration, I bought the Kindle version and read the whole thing in a single weekend.

I’ll first say that I think the title is terrible. A better title may be How to Retire Early, but I guess the publisher wanted something more provocative. The book doesn’t jump right into the details of investing, however. The first few chapters are about the female author’s life growing up poor in communist China, which helps to give context for her mindset around wealth. The meat of the information arrives in the middle chapters: how does one actually do this? The very short answer is that, statistically, if you can save twenty-five times your annual expenses into a diversified portfolio, you can withdraw four percent per year indefinitely.

Now, for most people that is a big number to save. For the authors, it meant that they had to invest literally $1 million. Astonishingly, they were able to do this by age thirty-one. The math experts among us will determine that the authors must live on $40,000 per year, and actually that’s what they require as a married couple. How is that possible? This is where certain circumstances and views give the author a distinct advantage over most people, myself included.

Firstly, the authors have no children, which is a choice I respect. Secondly, they explicitly denounce home ownership. I can see their perspective in some ways; it is a large expense, and someone with a million dollar portfolio can pay rent indefinitely if they want to. Thirdly, their hedge against inflation is to move to another part of the world for a while. They specifically mention living in southeast Asia and eastern Europe. I’m sure those are wonderful places, but if periodically packing up and moving across the globe is a prerequisite for this financial plan, that’s quite a hurdle. Lastly, they advocate for never owning a car. That may be possible in some scenarios, but certainly not mine. Altogether, it explains how they are able to live well on a modest annual withdrawal from their investments. They do cite a few other “early retirees” that have kids and own homes, though they don’t delve into the exact details of their finances; I may follow up on some of those references later.

The cost-of-living question aside, I think the book does a solid job laying out the details of the financial plan. Concepts such as portfolio rebalancing, the “yield shield,” and the “cash cushion” make a lot of practical sense. Nothing with investments is guaranteed, and their methods largely account for that. I found it particularly interesting how they use legal and above-board methods to avoid taxes when withdrawing from retirement accounts before the standard age thresholds. If the federal government provides vehicles to sidestep taxes, I will certainly take them. So far, so good, even if my situation doesn’t completely align with theirs. It may be possible yet, even with a substantially larger cost of living.

Things took a turn, however, when they began to rebut common criticisms of their plan. For anyone who isn’t working, health insurance would rightfully be a huge concern. In one section, the authors advocate taking advantage of large subsidies offered by the Affordable Care Act, also known as Obamacare, since the low cost of living typically puts one under income thresholds which allow that. Call me crazy, but someone with a $1 million net worth should not be getting any subsidies from the government, even if their annual income is small on paper. The authors’ personal solution for healthcare seems to be seeking it outside of the United States, either through “expat insurance” or countries with liberal policies around socialized medicine. For me, all of this was the largest sticking point. None of the above are reasonable solutions for me and my family, so we would have to figure out a different way to manage the huge cost of health insurance should we ever shoot for early retirement. There were other facets such as children’s education which would be problematic for me with the solutions they offer.

From that point in the book, it became clear that their particular approach is not a fit for me and my family. Dubious civics aside, it seems like a very self-centered, if austere, existence. Sure, it’s cheaper to go live in another country for a while, but what about investing in a community? What about being available for family? Personal needs may be met, but what about meeting the needs of others? In an appendix, the authors provide budgets for the years they were saving toward financial independence. Notably, charitable giving and gifts are effectively zero. That is not the way I would choose to utilize my income and wealth, both now and once it is large, growing, and tax-sheltered. For someone with my worldview and convictions, the methods described here don’t work – often for practical reasons, but more often for ethical ones.

Would I love to retire at age forty or forty-five? Of course. It’s a lovely daydream. However, with a family that is striving for community and sharing the blessings we’ve been given, there are higher goals to attain. I plan to follow up on some of the other FI/RE advocates who have kids and homes, but for now I guess I’ll get back to Baby Step 6 – paying off the mortgage early.

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My Cashless Month

Back in July, I read The End of Money, a book about phasing out physical currency in the developed world. The author gives numerous reasons that he believes it’s in everyone’s best interest to go ahead and shift to using cash as little as possible. As one who tries to implement truth and practicality whenever I encounter it, I was intrigued. For me, there could hardly be a larger shift in the handling of my day-to-day finances; I’ve been using a cash-based envelope system for my entire adult life. Could I make the jump to transacting and tracking all of my expenditures electronically? Would it be that much more convenient and helpful? I decided to try it for a couple of months.

Being somewhat tech-savvy, I first sought out the right tool for the job, ultimately landing on Mint.com due to its good reviews and easy-to-use mobile app. Within a few days, I had connected all of my accounts with their read-only system, even my HSA which I never check due to the credit union’s subpar online banking. I have to admit that it was quite nice to see a full financial picture in one place for the first time. Prior to integrating with Mint, I had to log into four or five different sites to check balances, and if I actually cared to sum any of the figures, that was up to me. With Mint’s mobile app, I could easily see daily fluctuations in retirement accounts (for better or worse), and their basic analytics even showed that my portfolio has drastically underperformed the major indexes this year, a fact that I would never spend the time to unearth myself. So far so good. This cashless thing may work out.

When it came time to port my budget over to Mint, however, is when I felt the first friction. Perhaps rightfully so, everything in Mint revolves around “the month.” Budgets are created for the upcoming month with expected income declared and expenses divvied into numerous categories. This may work fine for someone who gets paid bi-monthly, but I currently receive my paycheck every two weeks, meaning my income will seldom, if ever, fall at the beginning and end of the month. Because their system of tracking expenses focuses on staying “in the green,” I would start off in the red immediately. You don’t get paid until the 6th this month, but you spent $10 at Chipotle on the 2nd? You, sir, are in the red, regardless of the balance in your checking account. To say this is annoying is putting it lightly. Though it would be a foundational shift to their system, allowing users to set budgets for specified date ranges would make a world of difference. In my case, it would make the tool actually useful.

The other hurdle I encountered in using Mint was the delay in posting transactions. When spending cash, it is literally instant; you can see the bills dwindling in your wallet each time you visit the grocery store or a coffee shop. With today’s financial network (which stems from the 1970’s), it often takes three or four days for “credit” transactions to clear. This is a big problem for someone trying to make the most of their income. Unless one wants to keep a tally of expenses in his head (which defeats the purpose), there’s a tendency to be overly-cautious or overly-carless. Frankly, I took the latter approach. Once the mess of delayed transactions in Mint seemed too difficult to reconcile and untangle, I kept telling myself I would figure it out later. That time never came, and I still haven’t fully pored through bank statements to assess the damage done. Suffice it to say, I know that I overspent considerably on restaurants and other social fun.

A final consideration, one which Wolman mentioned in his book, is that spontaneous generosity is seldom possible. Were I to come across someone selling a street paper or in need of a couple dollars, I was effectively powerless to help. It became all too easy to give the calloused response, “I don’t have any cash. Sorry.” While I try to be judicious in giving money to strangers, I found my heart becoming hard due to not even having to wrestle with the thought. In a sense, carrying no cash distanced me even further from those in need, shutting down the conversation before it could even begin. “Suppose you see a brother or sister who has no food or clothing, and you say, ‘Good-bye and have a good day; stay warm and eat well’—but then you don’t give that person any food or clothing. What good does that do?” (James 2:15-16). Coupled with the reckless spending I fell into, I did not like who I was becoming. Swiping my card all over the place and budgeting via mobile app, I became too hip, self-indulged, and uncaring.

So where does this leave me? As of my last payday, I made the ritual trek to an ATM and withdrew the cash I would need for the next two weeks. Ultimately, my attempts to go cashless left me feeling out of control, both in the sense that it was too easy to spend carelessly, and in the sense that I invested much more time managing money day-to-day, my finances effectively controlling me. I have returned to my trusty Google Docs spreadsheet whereby I spend five minutes each payday allotting funds, withdraw the necessary cash, and have few worries as I open my wallet for the next couple of weeks. Simple? Sure. But it works, and ultimately, going cashless did not work for me.

Until financial systems are advanced enough to eliminate transactional lag, until there is a well-integrated budgeting tool which is flexible enough to fit any situation, and until those in desperate circumstances are able to deal in money electronically, I will likely be carrying cash. The truth is that I have always done a hybrid system, paying many bills online and being paid via direct deposit, and I imagine that most people do. At this stage in the game, it doesn’t make sense to be an extremist and eliminate cash, even if that’s where society ultimately ends up.

Thoughts on “The End of Money” by David Wolman

 

Given the first six years of my adult life, my relationship to cash and personal finance is somewhat interesting. Straight out of college, I got a job working on Dave Ramsey’s web team. For those unfamiliar, the radio host and author espouses a back-to-basics approach to finances. The cornerstones of his message are avoiding debt in all its forms, saving up for emergencies and large purchases, and utilizing cash for day-to-day expenses. As I favor myself a common-sense person, I’ve been using this system since I was twenty-two. In specific, I’ve used the “envelope system,” literally driving to an ATM each payday to withdraw the cash needed for food, entertainment, and other expenses for the next couple of weeks. I have to say, thus far it has worked great for me and kept me from a number of monetary pitfalls.

That said, I was intrigued when I first spotted The End of Money by David Wolman. I confess that as much as I love learning and being challenged, sometimes I do avoid a book if I think the author’s biases and intent seem too obvious. Why take the time if I already know what they’re going to say, right? Indeed I have my own biases against credit card companies, banks, and their influence on our culture. That said, I finally consumed this book in audio form on a recent road trip, and it has given me some things to think about.

Though the initial chapter meanders through more of a narrative style, explaining how the author came to be interested in the topic at hand (and possible ties between the Apocalypse and a cashless society), the pace soon picks up with a history of money tracing back to its earliest appearances in civilization. While interesting to a fact-collector such as myself, the truly compelling portions come thereafter. I will only hit the highlights and sections which I found of particular interest.

Wolman points out that the notion of cash is so ingrained in modern Western culture that we are often blind to its costs. It is always assumed to be the cheapest way to do business for both consumer and merchant, but this can be far from true. First, there are the vast sums of government money required to mint, distribute, and monitor currency. The exact figures escape me, but I believe them to be in the billions per year. (As a fiscal conservative, anything that can be done to shrink the federal budget is a plus in my book.) Then there is the infrastructure required to shuffle money around, from bank vaults to armored cars to guards who attend it each step of the way. Lastly, there is the real cost of time involved in transacting with cash; if time really is money, the labor involved in businesses making change and keeping denominations on-site is more than negligible. True there are card processing fees (usually three percent) for vendors to account for, but in many cases the costs of manpower are higher. Could the efficiencies of moving to more of a cashless society actually spur economic growth? I think there are too many variables to say, but it’s a thought worth entertaining.

Further, there is often a psychological comfort to having cash in hand, as if it is the safest form of money. True, having a tangible representation may be one step above digits stored on a remote server, but there is nothing intrinsically valuable about coins, and much less bills. The reality is that we already live in a cashless society, passing around tokens of little worth, and we have since leaving the gold standard. There is nothing but good faith backing the dollar sign, whether it is on a screen or a piece of paper. As one driven by logic, I admit that this fact is compelling given the potential efficiencies mentioned above. There is nothing inherently safer about hard currency, and in fact the risk of carrying it may be greater in some cases with regard to loss and personal safety.

The last section which I found compelling deals with the argument that cash is actually a system which keeps the poor impoverished. It took quite a bit of explaining, but in the end I can see where the author is coming from. To those of us in developed nations, swinging by the ATM is an inconvenience, but to those without access to transportation or infrastructure, dealing in cash bears a much higher cost. Wolman states that the average cost of a bank visit for a consumer is around one dollar, considering time, effort, and other factors. To one who earns only a few dollars a day, this is a true hardship. In economies where electronic money transfer has been put into the hands of many via cell phone banking, growth has always followed. Saving money electronically is easier than hoarding bills which are always at the risk of being stolen. People seem able to lift themselves out of poverty more easily when the efficiency of electronic payment enters the picture. From this perspective, there may even be a philanthropic element to phasing out cash.

All of these points have led me to try an experiment. For the next month, I am going to try dealing in cash as little as possible. For a technology professional like myself, this may seem a little late in coming, but my method has worked well to this point, so I saw no need to mess with it. Given new information, however, I’m willing to take a second look. (This in no way changes my decision to live below my means and avoid credit at all costs, however.) I will be utilizing Mint.com to budget, track, and categorize spending, with the end goal being that I stick to my budget as well as a cash-based system. Honestly, I’m skeptical after years of having the psychological advantage of seeing bills dwindle from envelopes as the month wore on, but should the experiment succeed, I see no reason to continue making trips to the ATM. I may even gain more insight by having financial information to dig into in digital form. Ultimately, however, I am a pragmatist, and I will stick with whatever works best, regardless of the insights provided by the book.

Overall, David Wolman delivers an interesting and thought-provoking read on the nature of cash and its role in our society. Though it is thick on history and may meander from the central topic at times, the information he presents is clear and generally without bias, even if his personal worldview does poke through in a few editorial remarks. I say it’s worth a read for anyone loosely interested in economics or cultural trends.

The End of Money is available via audio book from the Nashville Public Library and multiple formats on Amazon.com.