The Power of Money — What PF Blogs Don’t Teach You

Every Monday is Intents and Purchases day at Living Behind the Curve.

I’m gonna take another swipe at the Personal Finance blogosphere. This might turn into a regular series. Please, helmets on.

A couple of things happened this weekend that really changed how I look at money and its place in my life. First, I read Rich Dad, Poor Dad. Love it or hate it, I think it’s become a perennial classic in modern personal finance literature. (There will be a full detailed book review in the near future, I promise.) Secondly, Dani basically sat me down for a financial meeting Saturday night and laid out a whole buttload of research she’s done on how we can restructure our finances to end up ahead of the game even if her new job becomes a worst-case scenario. While it hasn’t changed how I plan to use and treat my money much, my whole understanding of the process changed dramatically. The concepts of frugality, retirement, and asset were abstracts to me, I realized, but not any more.

The PF community, I think, suffers from the fact that most of its members became members in their attempt to recover from debt. PF bloggers are really, really good at getting people out of debt, and it’s a vitally important learning resource for millions of people. The problem I see is that once these people are out of debt, the PF zeitgeist starts to break down. We learn to live below our means because that’s what got us in trouble in the first place, we learn to be frugal so we can pay off our credit cards. And then, once the credit cards are gone, we pay off the cars! And the mortgage! And then we get a high-interest savings account and marvel at the power of compound interest!

This isn’t a bad way to look at everything, necessarily, but what I see is a whole community of risk-adverse cheapskates who are absolutely terrified of debt. In fact, PF community members have a nasty habit of portraying themselves as recovering victims of their own stupidity. Considering the source, it’s understandable, but it’s not healthy, and it’s not the best way.

I’ve said before that money isn’t a possession for its own sake, and it’s not some sort of evil enemy, it’s a tool. I’m going to amend my previous statement: money is potential power. Money does things, and money can make things happen, but in and of itself it doesn’t do much of anything. It’s just like a battery. When you plug batteries into your gizmos, your gizmos do things, but on their own, batteries just sit there, holding potential.

What the average person doesn’t seem to know, and what the PF community does a piss-poor job at communicating, is that we as citizens of the first world have enormous financial potential with the money we have right now. This includes those in debt and the poor. Almost nobody knows this because financial education is somewhere between abysmal and nonexistent, and because we exist in cultures that encourage us to fritter away our money on bullshit, and therefore become powerless. (If you’re at all familiar with political activism of almost any stripe, this should be a familiar concept.)

Personal finance should be about taking your money and maximizing it’s impact. The PF community does that… sorta… maybe… but most of the time, they get caught up in paying off those god damn credit cards. That’s a totally important thing, since we all know just how crippling consumer debt can be, but it’s not seeing the forest for the trees.

We need to reenvision personal finance. If money is power, then every dollar you bring home that you aren’t compelled to spend represents your power potential. Remember, money in and of itself doesn’t do anything. Your power potential is cumulative. If you have $500 after paying your bills in a month, you don’t have $500 f0r the month, you now have $500 more. It’s tempting to think of budgeting in cyclical months, but if credit card companies can treat your debt cumulatively with their compounding fees and interest, you can do that with your own money, and I think you should. And, it doesn’t matter if you have only a little money. Next month, you’ll have a little more. Even a little bit of money is potential power.

If money is potential power, and that potential power is cumulative, then frugality is the first step to increasing your rate of accumulation by decreasing the compulsion to spend. I don’t mean “stop compulsively shopping”, but you should stop that to. It’s the simple formula of “the less you spend, the more you save”. If you can reduce your power consumption, the power company will compel you to pay less. If you have no credit card debt, you aren’t compelled to feed a Visa.

If you’re spending your money on crap, you are essentially giving your power to the merchants, and you are never compelled to buy crap. You get stuff, and the merchants get profit that they can leverage into building their business, destroying their competitor, or buying a congressman to change industry regulations in the merchant’s favor. It may not be a lot of money to you or the merchant, but the merchants know that little bits here and there accumulate, and so should you. Being in debt is worse — when you buy things on credit, you’re traveling through time and giving away power from your future! Be frugal, hang on to the little bits, and they will accumulate for you too.

So, if money is potential power, and frugality allows you to maximize its accumulation, Personal Finance is the practice that realizes the power of your money. Saving, investment, philanthropy and mindful spending are all how you maximize your money’s power to your greatest benefit. Interest and investment begets more money. Philanthropy begets power to groups, ideas or problems that you feel needs it. Mindful spending begets satisfaction.

It’s all a process, and with a little work and a little luck, with time it speeds up. With a little more time, and a little more luck, the process becomes self-perpetuating, and the instant that happens, you’ve achieved financial independence. Retirement.

Freedom.

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None of this is news. It’s not even that original of an idea, but this concept suddenly popped up and slapped me hard across the face on Saturday night, everything fell into focus all at once. I haven’t heard a single person talking about money like this in the PF blogosphere, and hopefully if I put it out there, it’ll give someone else that “ah-ha!” moment so that like me, they now know what they need to do to achieve their goals.

Next week, Dani will be detailing the budgeting ideas she came up with that inspired this post. It’s not for the weak of heart — risks will be taken, and retirement plans will be plundered. Stay tuned.