3700: The Evolution of the Meaning of Money by Jacob Lund Fisker of Early Retirement Extreme on Money Mindset

[00:00:00] This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. Propel Fitness Water with Gatorade electrolytes, zero sugar, and vitamins.

[00:00:30] Propel Hydrates Better Than Water to help you get the most out of your workout and get back to your best self. What propels you? Propel with Gatorade electrolytes. This is Optimal Finance Daily, The Evolution of the Meaning of Money by Jacob Lund Fisker of EarlyRetirementExtreme.com. I'm your narrator Justin Malek here reading to you every day to help you save more, earn more, and invest the rest.

[00:00:57] Today's post starts off a bit abstract, but stick with it. I think it's worth it. And I'll share my thoughts at the end. So with that, let's get right to it as we optimize your life. The Evolution of the Meaning of Money by Jacob Lund Fisker of EarlyRetirementExtreme.com. One of the interesting things to me is to understand specifics as they relate to a greater whole.

[00:01:27] In short, to see the bigger picture. Another word for this is abstraction, but abstraction does not always apply. Consider the field of expertise, morals, or simply personal development. In those cases, specifics cannot simply be abstracted. Rather, there seems to be a trajectory from one step to the next with several overlaps, where the next step sometimes grows out as an extension of the previous step,

[00:01:57] and other times as a reaction to the previous step. It could easily be argued that there's no trajectory. Some people never change, and thus their knowledge, skills, and attitude stay the same for most of their life. I know many rocks like that. People, too. Over the time, I have definitely noticed a specific change in terms of my attitude towards money. I'll divide these attitudes into four stages.

[00:02:23] I've also noticed that different people's attitudes about money sometimes collide, just like different types of morals collide, when one person is motivated by being good, the next by the law, the third by agreement, and the last by doing right. As such, I have a lot of fun taking stabs at emergency funds and index investing, because I see them completely different than those who are just discovering them. Stage zero.

[00:02:52] At this stage, money is something you don't have, but which you want, so you can spend it on something. An apt description of the attitude towards money at this stage is that it burns a hole in your pocket. Credit, if used, is typically not handled wisely. The focus is on the minimum monthly payment because that is what you need to pay. If credit is not used, money is saved up to be spent.

[00:03:19] In this case, the savings account will have a sawtooth pattern to it. This stage does most of the struggling because it is very much about living in the moment. With liabilities, a job loss will cause instant problems. Stage one. Most personal finance education concerns stage one. In order to avoid the struggling, a six-month emergency fund is established to protect against job loss.

[00:03:47] People also start saving money for some distant retirement, where they plan to spend the money in their accounts. This is essentially a somewhat wiser way of living at stage zero. The person has realized that it may not always be possible to work. What these two stages have in common, though, is the work to spend, or earn to buy, thinking. They're mainly different in that whereas stage zero does not care about net worth,

[00:04:15] I'm guessing because it's effectively zero. Stage one is busy adding up everything from retirement accounts to houses, cars, jet skis, and jewelry. Stage zero and stage one are different in degree. Stage one is essentially stage zero with some savings that are only used in special circumstances. It takes a leap of imagination to reach the next two stages. Stage two.

[00:04:44] Here, it's realized that money can be used to make money to exactly the same degree as work can be used to make money. The $100 payout in dividends every three months from a $10,000 investment is exactly the same as the $100 paid for, say, eight hours of work. People in stage one will object and say that they can't live on $100 every three months. Good point.

[00:05:13] To stay in stage one thinking, in order to pull off stage two, you need a 250-month emergency fund. This is so far off the six-month emergency fund of stage one that it's not even a difference of degree, it's a difference in kind. Different rules apply now. Now, most people will not be able to save 250 months worth of regular expenses, say, $60,000 a year, over a lifetime.

[00:05:43] There are two solutions. Earn 10 times more, or spend 10 times less. Not everybody can do the former, but everybody can do the latter. Once it is realized that the money a stage two person gets from dividends, interest, covered calls, or capital gains buys exactly the same as money earned by work, stage two is achieved. Actually, the tax rate is typically lower.

[00:06:12] Guess who writes the tax laws? A person in stage two is equally interested in net worth, but only counts the assets that can effectively be used to make money, such as stocks or funds in broker accounts and rental property. House, car, bling-bling, and other consumables are not counted. Stage three. This stage moves beyond net worth. Here, you own businesses,

[00:06:42] not stocks or funds. The businesses pay you, and you are much less concerned with net worth and much more concerned about cash flow and the quality of earnings, whether they be from rentals or stocks. Much effort will be spent thinking about how to maximize cash flow based on assets than cash flow based on earned income. In this stage, an additional 1% of return can mean a big change in income.

[00:07:11] A 10% drop in the market can wipe out years of earlier savings. Daily stock market fluctuations easily exceed the monthly paycheck, and yet you don't worry about that. Stage two and three are also fairly similar, with stage three representing a more sophisticated version of stage two. The difference is in the way the assets are managed. Stage three is more active.

[00:07:39] And stage four. This stage moves beyond money. Either you have so much money you can't possibly spend it all, or you've found ways to live without using money at all. Maybe you're a billionaire, or maybe you're a monk. If stage one is struggle independence, and stage two and three are financial independence, stage four is economic independence, and it is different in kind from stage two and three.

[00:08:13] You just listened to the post titled, The Evolution of the Meaning of Money, by Jacob Lund Fisker of earlyretirementextreme.com. I'll be right back with my commentary. You've heard me talk about how I started tracking every dollar in and out of my life back in 2010. It began as a business school assignment, and I liked it so much, I never stopped. For years, that meant a spreadsheet I updated by hand. Now, Monarch does it for me. It tracks everything, accounts,

[00:08:43] investments, savings goals, and spending, all in one place. And going automatic showed me something my spreadsheet never did. My savings rate had slipped as my lifestyle crept up. It's like having a financial advisor in your pocket, flagging spending spikes before they become a problem. My favorite part is just asking the AI assistant, can I afford this vacation without touching my savings? And getting a real answer. Write your own money story with Monarch.

[00:09:13] Use code OPTIMAL at Monarch.com to get your first year of Monarch Core half off at just $50. That's 50% off your first year at Monarch.com with code OPTIMAL. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome

[00:09:43] is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. Thank you to Jacob. Jacob, this one is a bit more of a brain bender than our usual. And the language is tougher in the beginning, but I think it's a good exercise to think about money in terms of stages. What stood out to me is the one from what he calls stage one to stage two. Stage one is basically

[00:10:12] where most money advice lives. Build a six-month emergency fund, spend less than you earn, and save for retirement. All good stuff, but it's still really trading your time for money and then spending that money, living paycheck to paycheck. The shift to stage two is when it clicks that money can also do the working. His example is simple. $100 in dividends from your investments is exactly the same $100 as you'd get

[00:10:42] for a day of work, except you didn't have to show up for it. And once you really feel that, not just know it on paper, it kind of changes everything. Your savings stop being a pile you're protecting and start being basically employees earning for you. I think a lot of us get stuck at stage one for years just saving harder without ever making that mental leap. So something to keep in mind, every dollar you invest

[00:11:11] is like a tiny worker you get to hire, one that never sleeps and never asks for a raise. And that's a very valuable thing. So thank you to Jacob and thank you for being here. I really appreciate you being here every day. Have a great rest of your day and I'll see you tomorrow where your optimal life awaits.