Great Rewards Require Sacrifices

Life can be super easy. Especially in our modern, first-world, wealthy, high safety net society. There is no reason why you need to intentionally work your musculoskeletal system, exercise your brain, engage dynamically with others, compete, beat others, lose to someone who is better than you, or truly fail at something that matters to you at any given moment or period of time. However, these things are precisely what makes you a capable, successful human being.

There are good and meaningful rewards which are the product of deliberate and thoughtful sacrifice. In contrast, no deliberate efforts result in fleeting rewards which often carry long-term damage.

The Elimination of Sacrifice

We live in time like no other. You can easily get a brainless 8:00 - 4:30 job that pays reasonably well. You can transport yourself everywhere you need to go on the entire planet in plush, climate controlled comfort. You can never take a chance, never make a difficult decision. You can avoid ownership of mistakes and never be truly honest. You can get through an entire 24 hour period without walking more than 200 steps. You can live quite effortlessly packing two or even three times your healthy body weight--there's even battery powered mobile assistance if you get really big. You can eat all the crap you want, drink nothing but concoctions of toxins, and smoke or otherwise inhale poisons. You can easily design your life so you are never more than an arms length away from a super-size soda and a bag of Cheetos. You can inhabit an office chair and computer desk by day and your couch and video game controller by night.

However, there's a cost to this almost infinite illusion of wealth and easiness that has never before been experienced by any living thing on Earth. It turns out humans, like all living species, are not designed to function well over the long term with all this comfort. Living your life with no real exercise, drinking soda pop and beer, eating Cheetos and French fries, telling lies and half-truths, and having bugged out eyes from electronic screens while living vicariously through virtual personas are awful choices in the long run.

About fifteen, maybe twenty years of this physical and mental gluttony results in massive health problems. Heart attacks in your late-30s or early-40s. A diet of pharmaceuticals to try control every bodily function from cholesterol to blood pressure to glucose and insulin--all with nasty side effects. Your knees or hips need to be replaced because they are "worn out" (despite your obvious minimal use of these joints). The physical and emotional costs cannot be measured: depression, anxiety, pain, surgery, lethargy, and cerebral atrophy are no joke. These repercussions are an alarming over-correction to your years of self-inflicted, existential abuse.

These same products of physical, mental, and emotional health can seamlessly apply to financial health also. It's super easy in our society to live in an illusion of financial ease. Credit cards loaded with thousands of dollars in spending power come in the mail after completing a two minute online application. Your bank probably reminds you every month or so that you are pre-approved for a five figure line of credit. Every major and minor purchase can be financed with money you never earned--as long as you pay a monthly fee for the privilege. No one forces you to save a dime. And, if you're from B.C., you can apparently get by on a net negative savings rate for decades without repercussions.

However, this means a long-term miserable existence of reliance on others--the exact opposite of personal freedom and dignity. You will need a steady job with a bi-weekly paycheque, you need "free" government health care, you need CPP/OAS/GIS and other three-letter programs to provide for you financially, you need your rip-off bank that you probably hate, and you need an organized power that slowly strips away your freedom in order to serve you. It results in a vicious culture of dependence.

Even rare and seemingly positive events like winning the lottery or receiving massive inheritances are not true rewards. Often these instant, massive financial windfalls which are not earned cause long-term destruction. Families are torn apart, friendships quickly wither, the sudden millionaires develop mental health challenges, addictions are formed, and financial ruin is around the corner. Again, it is as if the natural order of things was broken. To correct the system some supernatural forces intervene, inevitably returning things to their original path. However, there's that familiar and rude over-correction as some strange, unexplained punishment is dished out for the disturbance of that natural order.

Cultivating Meaningful Rewards

The relationship between sacrifice and reward is most interesting. There are very few things in life that truly come easy in every sense for the long term. We need to work hard and strive diligently to cultivate good outcomes. Good outcomes, the ones that really are meaningful to us, are often the outcomes which seem the farthest away and most difficult to reach.

It turns out there are great long-term incentives in place that reward a little punishment and promote a little risk taking with regards to your personal well-being. Regular aerobic activity mixed with the occasional grueling physical punishment does wonders for your physical structure. A diet of greens and fungi, complex and fibrous carbohydrates, and quality whole meat keeps your body lean and your mind sharp. Regular reading, constant learning, and intense thoughtful debate with friends and acquaintances helps your mind age slower than your body. Telling the whole truth and owning your mistakes promotes others to trust you, grows your personal happiness, and completes your psychological processing.

Taking risks of various forms helps us experience the same emotions and thought processes that ensured our species survival and dominance in a world filled with much bigger, much scarier organisms. We are innately designed for challenges. When we are no longer challenged by survival necessities in the natural environment, we need to mimic those challenges in our modern world.

Likewise, true financial success earned through hard work, grit, and better decision making is often lasting financial success. The process of sacrifice brings the reward as well as the ability to manage that reward. Studies back this up, self-made millionaires are happier and more successful in life than inheritors. If you want to be wealthier and happier, you need to earn it. That means sacrifice and hard work; a continual process of getting your financial condition to a better and better place.

A Strategy for Meaningful Financial Rewards

Start with your spending. Carefully analyze everything you spend money on and determine the real value of the goods and services you acquire. Are they truly worthwhile, or are they a form of compensation for your personal laziness which results in long-term costs? Are you attempting to compensate for self-induced stress and unhappiness with "stuff"? Are you chasing the expectations of others to your own financial and emotional destruction? Sacrifice the unnecessary and meaningless extras in life. Instead, work towards a realistic, longer-term set of goals.

Begin saving. Once you've got complete control over your spending, you'll find there's a pile of cash left over at the end of every month. Hundreds or thousands can be funneled into savings or debt pay-down. While debt accumulation is a symptom of negative net production today, savings is simply storing your excess production for your future benefit. We can produce well for a long time, but as our body begins to break down with age that excess production of younger years comes in handy. The rewards of dedicated saving over time can be very fulfilling: you can move to a less stressful job, take a sabbatical to reorient yourself, enjoy an early retirement or semi-retirement, travel and explore, or contribute to the development of a better world around you.

Grow your savings with investing. There are countless ways you can put your excess production (savings) to work by contributing to other's ambitions and taking a fair portion of their return. While not without flaws, the concept of mutually beneficial financial relationships runs deep through our investing world. The emotional strength required to invest properly is a modern form of risk taking. When investing, you experience all the emotions that make you stronger: fear, greed, loss, gain. If you make logical and calculating decisions, the rewards will show themselves over time. However, if can't muster the strength and emotional control required for success, your results will be lackluster.

Over time, when done correctly, your overall wealth will grow exponentially as resources are funneled to productive endeavors. You can invest very passively, buying units of just one single ETF your entire life and watching the growth. You can also choose a strategy that limits drawdowns by converting your savings to safer bonds when business cycles change. Alternatively, you can invest aggressively to make the most of growing businesses while always keeping a large portion of your money in the safest assets.

The importance of these three elements of financial success are in precisely that order: spending control, savings growth, and investing. When all three elements are used together, the rewards will be nothing short of spectacular. But there are no true shortcuts.

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The Big 2017 Financial Review

As we’re well into 2018 by now, it’s time to share the Moose house numbers for 2017.

As you probably figured out by the regular monthly updates, 2017 was a big year for us. We hit some big financial milestones and our investments rocketed higher thanks to disciplined investing and favourable markets.

We started 2017 with around $442,000 in our investment accounts. On top of that, we have pensions which were valued at approximately $103,000. Our other assets and debts are trivial. We pay off our credit cards each month and we always carry a moderate balance in our chequing accounts to cover about 2 months of expenses.

We have been renting since 2016, so there are no real estate assets or associated debt. At the beginning of 2017, we owned two vehicles: both older models. The value of these vehicles would have been around $13,000 combined.

Savings Rate Information

Since we both have careers with defined benefit pensions and plenty of mandatory deductions, calculating the true savings rate can be a bit subjective. Do you include employer contributions to certain plans into income and expenses? If you include pensions, should you also include benefits and union dues? How much control do you have over these kinds of expenses?

I decided to keep things as simple as I could without distorting the numbers too much.

Basically I took our net income (which is the money actually deposited into our accounts) and added both our pension contributions and the employer contributions. This formed the denominator of the adjusted income number.

Then for savings—the numerator of the equation—I added our personal savings from net paycheques, our pension contributions, and the employer pension contributions. This isn’t a perfect calculation because my wife’s pension isn’t vested yet, meaning her employer contributions don’t go towards our net worth numbers. However, we’ll assume she will be in the pension plan at least until that becomes vested.

2017 Financial Information

I welcome any questions about these numbers, including suggestions on how I should better calculate savings rates!

Beginning Net Worth Data

Investment Accounts: $442,000
Pensions Value: $103,000
Vehicles: $13,000
2017 Starting Total Net Worth: $558,000

Income Data

Net Income: $113,000
Estimated Taxes: $30,800
Other Federal Deductions: $6,800
Benefits & Pension Payments: $22,900
2017 Combined Gross Income: $173,500
Other Gain: $4,300 asset sale from our truck

Expenses Data

House Rent Expense: $19,150
Tuition Expenses: $2,700
Other Living Expenses: $31,650
2017 Total Expenses: $53,500

Savings Data

Personal Savings: $63,500
Pension Contributions: $19,450
Employer Contributions: $24,550
2017 Total Adjusted Savings: $107,500
Savings Rate from Adjusted Income: 68.5%

Ending Net Worth Data

Investment Accounts: $671,000
Pensions Value: $135,000 (wife’s pension is not vested yet)
Vehicle: $7,000
2017 Ending Total Net Worth: $813,000

Summary Observations

Overall I'm very happy with our numbers for the year. Our expenses were kept pretty tight considering our lavish, first-world lifestyle. We eat like kings, we do a fair amount of entertaining, we live in a beautiful newer rental home, drive a nice and reliable vehicle, I ride a super-nice mountain bike, and we live in general luxury and comfort.

We keep our expenses under control mainly through limiting outside entertainment (bars, restaurants, big name concerts, etc.), choosing to rent a size-appropriate dwelling instead of buying a too-large, too-risky house, having just one older model vehicle (2010 Mazda), and focusing on basic and wholesome living. We buy staple groceries and cook nearly everything from scratch, we make our own wine, and we spend a lot of our spare time with friends at homes or outdoors, reading and studying, and enjoying fun volunteering activities.

In 2018, I expect that our rent expenses are going to drop a bit while education expenses will go up significantly. Our other living expenses will remain pretty comparable.

We've got a few vacations planned, but they're already partially paid for and part of our normal spending. Given our spending, we would need a net worth around $1.5 million to quit our jobs tomorrow and never work again without any reduction in spending power for the rest of our lives. (That's not the plan.)

Our income should go down a bit as I am trying to work less overtime and will be booking most of my overtime for more days off instead of pay. Unfortunately in my position it is nearly impossible not to work overtime as I am a shift worker with an odd schedule and working on some of my days off is part of the job and largely out of my control.

We are in the fortunate position where our household income is definitely higher than the Canadian average. The median total household income for couples in Edmonton area is around $120,000, so we would be solidly in the upper-middle class (approx. 70th percentile).

With two, full-time earners in this house, it makes sense that we earn above the average. Considering our education levels, we are right in the ballpark for average earners with my wife earning a bit below the average and myself earning above (mostly because of that overtime pay).

If you are looking to get ahead financially, Alberta is a good place to be!

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