3 weeks ago I was reminded of the biggest reason for my desire to leave my paid corporate employment: I value my time too much to let others control it.

I was sitting in my office plugging away at my work, when I got an email from our HR specialist telling me and the 60+ other people in my office that in a week we would be required to take a 2.5 day class on leadership essentials.  There was no warning, there was no flexibility on scheduling, there was no consideration for critical short-term tasks associated with our projects, and worst of all, there was no consideration for who should be taking the class.  It was peanut-butter spread across the entire organization and every person had to take it. It was an attack on our personal choice of how we could use our time.

As someone who values my time greatly, I took this personally.

I realize there are people with far more leadership experience than me, but as an engineer I would say I have far more experience and leadership training than my job requires.  Last year I left a position managing a team of 11 engineers that were in charge of supporting half a billion dollars worth of products in the field.  In that role, I voluntarily took many leadership courses so I could be my best in the job. After awhile I left that job because I no longer wanted to lead – it just wasn’t fun for me.  But when this new leadership class was rolled out, no one asked me whether I needed the course, and no one asked whether I had a desire to lead.  It gets worse in that I’m one of the few people in the office currently facing critical short-term milestones on a program with a key customer – and now I would have to either work more hours or fail in my project.

Obviously, you can see where this is going.  I had to sit in a classroom for 2.5 days straight, then go home and work all night on my customer project in order to stay on schedule.  During each classroom break, and after each day of class, everyone complained about how boring and worthless the course was – but what shocked me was the general consensus of my salary paid peers who collectively came to the same conclusion of: “Oh well, I still get paid the same.  If they want to waste their money on this, so be it.”  In hindsight it shouldn’t have shocked me, because this is how the average salary man thinks: they trade their time for money.  When they do this, they willingly give up control of that time and how it’s used by the company is of no concern of theirs.  To me, this is a sad way to approach anything, especially something that will control much of your life from age 22 to 65 for the average person.

This is where I (and most of the readers here) differ in thought process as compared to most of the working class – we value our time enough to consider what is worth doing and what isn’t, and we take offense to being forced to do anything that isn’t valuable to ourselves, or friends and family, or the world at large.  We see the world as an opportunity for adventure, challenges, leisure, and fun – but those things are only possible when we control our time.

I know I’ve talked a lot about “early retirement” on this site, but the purpose of this post isn’t just about that.  There are many ways to strive towards escaping the golden handcuffs that a salary has on you.  Early retirement is obviously a pretty ideal scenario, but more importantly, it’s a reminder of the benefits of driving down expenses and having an aggressive savings plan.  Look at it this way, if you save 75% of your income, then each year you work allows for up to 3 years of unemployment.  This gives you back control:

1. You can take a lower paying job if your current job is unfulfilling to you.
2. You can make decisions that go against the grain, even at the risk of making your employer angry and, worst case, being let go.
3. You can take risks at your job that others are afraid to make, giving you a leg up on the competition
4. You can leave paid employment altogether, and start your own gig with several years of buffer to get things rolling.

As I see it, the further you get ahead with your savings, the more you control your time.  Saving for an early retirement may be the end goal with total control of your time, but saving towards and early retirement is an incremental path with incremental benefits, and the path can can start at any time.  So whether you are almost there like me, or you’re 55 and only now beginning to save, or you are 21 and about to start your first job – the opportunity is there to begin taking control.

First off, I apologize for the hiatus on BNL.  Despite no longer being financially dependent on my corporate job, I’m still unable to consciously under-perform at my job.  Hence, for the next 13 months or so until I quit my paid employment, as long as duty calls I’m stuck working very hard in short increments.  April was one of those times.  And that means less time for writing….  But enough of that, let’s get back to business.

Many of the readers here weren’t around back in November 2011, so you may want to go back and read this post where I discuss my first ventures into real estate investing via financing home rehab projects.  Since I had plenty of capital but lacked experience, I decided I would buy myself a pseudo-apprenticeship.  The basic deal was this:  My partner does the work (finds the house, contracts out the rehab work, sells the house), and I finance the work while also learning from her.  Once the house is sold, we split the profits 50/50.  To cover the unlikely but potential result of a net loss, our contract also had us also splitting any losses 50/50.  Many readers viewed this as risky and unwise, but I saw it as a chance to learn the ropes of real estate and foreclosure rehab.  And if I made some money along the way, all the better.  After all, that money was sitting in the cash portion of my Permanent Portfolio, so I wasn’t in need of high returns – I mostly just wanted to avoid a loss.

Well, it turns out I did make some money, but more importantly I learned a lot.  Let’s summarize:

Original Forecasted Numbers

My hope was to close the deal in under 6 months, resulting in roughly a 16% net annualized return on my investment, but I knew all these assumptions were filled with optimism.  Still, $18K profit between the two of us left us with plenty of margin of safety so I was willing to take the deal and see what happens.  I knew 18% NAR was unlikely, but since that money was sitting in cash as part of my Permanent Portfolio, anything above 0% was a net gain.

Final Numbers

As expected, my profits were not as good as the optimistic forecast, but I still consider it a net success. Let’s look at the numbers, then we’ll net out the experiment as a whole.

Originally I had planned on posting images of the house after the rehab, but unfortunately I never made it to the house when all the work was complete.  Let’s just say it looked a heck of a lot better than the images in my original post.

There were three variables I considered to be optimistic in the original forecast and, as expected, all three ended up being just that.  First was the sale price: rather than getting $150K for the house, we only got $143K.  We probably could have held out for more, but we were both ready to cash in and move on.  The second variable was the cost for rehab.  Actually, we ended up pretty close to our forecast on this one, only a few hundred dollars over budget.  The third variable was the time to sell.  Instead of taking 4-6 months, we ended up taking closer to 8 months from the time I invested the money to the time that I get paid.  This doesn’t affect the ROI, but it does affect the annualized return.  All in all, I received a NAR of about 7.8%.  Financially, I consider this a moderate success.

Since the stock market is up 20% since I made the investment, it’s easy to view this as a financial failure.  But I don’t believe in market timing, so I don’t view it this way.  Instead, I consider the fact that the money would have been sitting in cash as part of my portfolio allocation, so this is $6K I wouldn’t have made otherwise.  Further, since I saw the investment as low risk with plenty of margin of safety (unlike the stock market that is subject to the short term whims of Mr. Market), I think 7.8% NAR on a short term investment is not so bad.

But more important than the financial results, I gained a lot of knowledge about real estate investment and I met some people that can help me in the future.  Let’s walk through some of the side benefits of this experiment.

I learned about other investment types

Through my partner Julie, I learned about other investment methods that I had not previously been aware of.  I learned about investing with an SDIRA and I learned about some pretty successful Private Equity Real Estate firms, something I’ve already capitalized on and have turned it into a steady $267 per month income into my IRA.  I also learned about hard money lending, something I may try out soon.  My partner in this experiment, Julie, also does rehab projects with hard money, so I may do another investment with her as a hard money lender.

I learned a lot about how to choose a house and when to buy it

When I agreed to invest with Julie, I explained that I wanted this to be a learning experience for me. As part of our agreement, I was a silent partner but I was also free to join in on any parts of the project at my choosing.  Essentially, I was paid a 7.8% annualized return to be an apprentice.  As part of that agreement, I voluntarily attended the house closing and met the brokers and agents that she worked with.  I met some of the contractors, and asked them many questions about the process of rehabbing houses.  I even met some other investors I could look to partner with in the future.  I had no idea how many people are involved in the process!  Now, I’m much more educated.

I also learned about the importance of timing when it comes to rehabbing a house for a short-term flip.  It turns out, buying a foreclosure in late Autumn in Colorado is unwise timing.  For example, the yard needed a lot of “curb appeal” improvements, but that’s not possible heading into the Winter.  We couldn’t add sod or seed the lawn and we couldn’t plant flowers.  Additionally, there’s very few houses selling in January relative to Spring/Summer when school is ending.  So while we had the work done on the house in January, no one was buying.  As soon as the snow melted, we saw a huge increase in interest and subsequently sold the house as soon as traffic picked up.

I built confidence to try this out myself

I won’t lie, I knew nothing about the process of buying and fixing up a beat-up foreclosed home.  Besides having no carpentry/plumbing/eletrician skills, I also didn’t know how to look for the right kind of house in a lower price range, how to value it for eventual sale/rental, or how to gauge the cost of labor and materials.  I did the basic homework on contracts and partnerships to make sure I was legally covered from getting screwed by my partner, but I knew little more than that.  My learning style is not to read about things, but rather to get in there and do it.  Now, I have the knowledge and confidence to try another rehab on my own.

In fact, my wife and I have already made arrangements to meet with a real estate agent on Thursday to start looking for our own home to rehab and rent out.  Of course, I’ll document that project here, so stay tuned!

I always get a kick out of the financial and personal advice given in mainstream financial and business magazines such as Money, Kiplinger, and Forbes.  The advice can usually be paraphrased as “Here is how to do things 3% better than the average thoughtless drone sitting in the cubicle next to you.” **  And the early retirement articles are the worst, because their definition of “early retirement” usually means retiring before turning 60.  So I thought it would be fun to take a completely random article about early retirement from one of these websites and see how it compares to an genuine early retirement (before turning 40).

(**) I suppose this makes sense, though, since most of the authors are experts in journalism rather than in the topic they are writing about.  Unlike blogs, where often the author is not so good at the journalism piece, but they are more likely to be experts and passionate about the topic they write about.

So I googled “Forbes early retirement” and found this article which is written as a contrarian piece against early retirement.  Fair enough, I’m up for a debate, so let’s break down their top 10 list one at a time.

1. Easier access to retirement accounts

Technically, this is true.  After 59.5 years, it certainly is easier to gain access to your 401k and IRA accounts.  But the details of this in the Forbes article is absolutely wrong.  They state that you can’t access money in your 401k until you are at least 55 without a penalty.  This is untrue, you can move that money into a Roth IRA, sit on it for 5 years, then pull the original money out (not the gains) penalty free (you do have to pay taxes, of course).  You can also use the 72(t) rule to withdrawal money.  With the 72(t) rule, with $500K in retirement accounts, you could pull out about $10K-$15K per year up until age 60, at which point you gain full access.  There are, of course, negatives to using the 72(t) rule, but that’s beyond the scope of this debate.

The author also seems to rely on an assumption that the vast majority of savings are in tax-sheltered accounts.  However, for many people with high incomes, they could easily be maxing out their 401K and still have enough left over to be saving in taxable accounts.  For me, over 60% of my savings are in taxable accounts, which most likely makes early withdrawal from my IRA irrelevant.

2. More Savings

Of course, this is true.  If you work longer, you’ll save more.  But the author hasn’t considered the marginal utility of money.  Once you have enough money saved, there’s no need for more.  In other words, it’s not about having more, it’s about having enough.  And enough is usually far less than people think if they are creative, and adventurous.  Besides, this is just another way of saying “you need to have enough money to retire” much like #1 above.

3. Buy stocks low

Here, the author makes a pair of bad assumptions.  First, she assumes stocks are at a low point on a cycle.  But making a retirement decision based on what you think you know about the future market is a very bad idea.  Market timing is bad enough with stock purchases, let’s not try to time your retirement with the market.

4. More investment earnings

This is true, of course.  The longer you work, the more time you give your investments to grow.  But this is really just a duplicate of #2, and my response is the same.  Once you have enough to retire and live your desired lifestyle, the additional earnings are irrelevant.  So far we are 4 arguments into the article, and they are all different ways of saying “make sure you have enough money before you retire.”

5. Higher Social Security benefits

We’re talking about early retirement, which means you are 20 at least 20 years away from collecting any social security. I would advise against having any dependence on social security, even if you are more optimistic about it’s future than I am.

6. Possibly higher pension benefits

My first rebuttal of this argument is that so few people still have pension benefits. And even if you do work a job that gets a pension, then this is still no different than the previous 5 points about having enough money.

7. Lower health care expenses.

OK Forbes, this is getting ridiculous.  All you are talking about is money.  Yes, I will concede your point that there are various reasons why working longer has financial benefits.  Let’s merge points #1-#7 together as one argument.

8. More home equity

Sort of, but there’s no reason you can’t pay off your mortgage before an “early” retirement as opposed to a “late” or “normal” retirement.  It doesn’t require you to be working, it requires money.  Which leads me to my next point, this is no different than the previous 7 arguments.  Whether you you look at paying off your mortgage as a reduced expense (no mortgage payment) or as an income (reverse mortgage) it’s still just about money.

9. Fewer years to draw down savings

Hmmm, very unique – another point about money. Nothing to see here.

10. Will you be emotionally ready to retire?

Finally, after 9 different arguments all centered around money – author Liz has brought new material.  She has brought up a very important point that needs to be considered.

The author sites Warren Buffet and Bill Gates as people who continue to work even though they don’t need to.  This is a good point.  And if you asked them if they’d continue to work if it were unpaid, I’ll bet you they would say yes.  In fact, both of them have given away much of their money and have pledged to give nearly all of it away in the future.  To them, work stopped being about money long ago.

But Bill and Warren are anomalies and hard to relate to, since they have more money than most of us can comprehend.  Let’s bring it back down to earth and review a conversation I had recently with my 62 year old mother-in-law, who was questioning the wisdom of my retiring early.  After some debate, I asked her if she would work for free (like Bill and Warren I’m presuming).  While she is not yet financially independent, I asked her whether she would work if she was FI.  After a little thought, she didn’t know her answer and it was getting late, so we all went to bed.

The next morning at breakfast, she said “You know, I couldn’t sleep last night thinking about your question.”  Having mostly forgotten our conversation since it wasn’t quite as important to me than it apparently was to her (or maybe it was the Kentucky Bourbon Barrel Ale I was drinking during our game of Trivial Pursuit that night), I had to ask her to remind me of the question.  She said that see was up for hours laying in bed, wondering if she would keep working if the job didn’t pay.  (By the way, I have a ton of respect for a 62 year old woman who is mostly set in her ways, yet is willing to listen to her 33 year old son-in-law with such a socially unaccepted philosophy).  She said that she would work for free, that she really truly likes her job.

And this is really the whole point of an extremely early retirement. I am currently 34 years old, and in the peak of my physical and mental health.  My social life is primarily my wife and my two young kids. My personal fulfillment comes in raising the kids, and providing for my family.  While my job can offer me some fulfillment and some social benefits, these are needs I don’t need my job to fulfill.  My mother-in-law, on the other hand, is on the downward slope of her physical health, and has already raised her three daughters who have now begun their own families.  Her job, it seems, fulfills her personal needs.

Let’s Wrap This Up

I think the Forbes article boils down to two things to consider before retiring early.  First, you need to have enough money to fund your desired lifestyle.  This is the first, and most obvious consideration – and can usually be answered with simple math (you need 300-400 times your monthly expenses accessible savings).

Second, you need to consider whether you are mentally and emotionally prepared for retirement, or if some critical personal needs such as social belonging, self-esteem, and sense of fulfillment are dependent on your job.  Of course, this is a dynamic consideration, which is what makes the term “early retirement” sort of ambiguous and definitely dynamic.  I suspect that in my situation there will come a time where I don’t meet all of my personal needs from my hobbies and my family.  That time may come when my kids are teenagers and don’t think daddy is so cool anymore, or when they leave home and start there new lives.  Maybe sooner.  If that day comes, and nothing else fills my personal needs, then return to work is always possible. The same applies to everyone – life situations change, and the value received from having a job rises and falls.  When considering early retirement, I suggest you consider the present and the near future situation, and not consider it a permanent and irreversible decision.

This is picture of Hugh MacLeod’s interpretation of a company hierarchy.  It’s accuracy breeds sadness.  Once the hierarchy is understood, it becomes clear why most large companies end up as the same sad soul-crushing environment. It turns out, the standard corporate environment isn’t due to poor  or evil leadership – it’s just an undeniable process.

Let’s dig into an interpretation of the cartoon, then we can circle back to see if there’s a happy place inside a corporation for the brave new life.

The Process

At the birth of a new company, the founding entrepreneur has visions of money, power, and prestige – combined with just enough ego and arrogance (or maybe just confidence) to take the plunge into entrepreneurship. Of course, this is a generalization, but I think it’s accurate in most situations, and in the end I believe it doesn’t much matter (more on that below). As I said, this is an undeniable process.  As the company begins to see success, the ego of the entrepreneur is fed, and greed is likely to take over. Eventually, the Corporate Sociopath is bred.

Corporate Sociopath (noun) - A person whose professional behavior lacks morality, and whose actions use manipulation and game-planning in order to achieve money, power, and prestige.

Of course, not all company owners will become corporate sociopaths, but this doesn’t matter.  If the owner is not a sociopath (making him either a clueless or a loser in the MacLeod’s trichotomy), then eventually a sociopath will gain control.  It might happen through a buy-out, or through manipulation – but it is destined to eventually happen.  The Sociopath is like an athlete on performance enhancing drugs, determined to win at any cost – and willing to do whatever it takes.  The Sociopath is willing to use manipulation and undermining techniques to gain control, and is persistent with his intents.

Now let’s back up in time a bit…  While the company is growing, it needs employees. This is where the Corporate Losers come in.

Corporate Loser (noun) - A person who is competent with their work and shows professional morality and integrity, and is aware of the lacking morality in corporate leadership (Corporate Sociopaths). Corporate losers do not have loyalty to their company since they are aware of how disloyal the company is to them, however they rarely leave soul-crushing employment because of self-instilled fear, laziness, or lack of creativity.

The Corporate Losers are quite aware of how the sociopaths are benefiting from the losers’ hard work and ingenuity, all-the-while only receiving small raises and plastic plaques of praise for their efforts. Over time, they begin to challenge the leadership of the sociopaths, so the leadership needs a shield. This is where the Corporate Clueless come in.

Corporate Clueless (noun) - 1. A person who is loyal to their company, completely unaware of how disloyal the company is to them. The corporate clueless person will always follow management directions, honored to even get the attention of their sociopathic leadership. The Clueless create a communication and hierarchical gap between the sociopaths and the losers, and also can be  easily manipulated to be the fall guy for the sociopath when things go wrong.

The Corporate Clueless are enablers for the sociopaths on two fronts:

1. First, as the scapegoat, they allow the sociopaths to take risks for the business while incurring no personal risk because they have a corporate clueless person to act as the fall guy.  One such obvious use of the scapegoat is the creation of a small task force to initiate some risky change to the bureaucracy. In this scenario, you’ll see an “executive sponsor” (Sociopath) who creates the team and gives “recommendations” on the outcome, then assigns a “task force leader” (Clueless).  Of course, the Sociopath controls the outcome.  If the outcome is successful, the Clueless “team leader” gets a plaque and public recognition, while the Sociopath gets a 7-figure bonus. If the outcome is failure, the Clueless gets blamed of incompetence with no real punishment (after all, he will be needed again), the Corporate Losers get some new token bureaucratic process improvement plan institutionalized.  Most importantly, when the new initiative fails, the Corporate Sociopath faces no punishment at all.

1. Second, the Corporate Clueless create an important shield between the Losers and the Sociopaths. The Sociopaths always want more (eg. ideas, designs, efficiency, hours logged, etc) for less. The Losers are aware of this, and it makes them angry – almost enough to leave the company.  This is no good for the Sociopaths end goals (bigger bonuses), but fortunately for them they have the Clueless layer of management to shield them.  The Losers are angry, but all they can do is complain to the Clueless – who the Losers know to be incompetent.  And how can the Losers be angry at someone who is doing their best, but just happens to be incompetent.  After all, there is no ill-will by the Clueless… Sigh…

Once this hierarchy is set up (by no divine plan, but instead an undeniable process), the corporation runs smoothly as an entity, despite the frustrations of most of the employees. The Sociopaths are able to take risks for the corporation without incurring professional risks – and if most of the risks are wise then the company can succeed. The Clueless and Losers benefit from this success (although they get less of a share of the benefits than they would like), and everyone maintains employment.  It’s actually a pretty sustainable ecosystem, despite all the negatives.

* This is probably a good time to defend the naming convention of our three antagonists. Sociopath, Clueless, and Loser obviously all have negative connotations. I’m using these terms, primarily, to stay true to the MacLeod Company Hierarchy graphic. But they should not be judged negatively as all evil or derogatory terms, but instead I wish to just view them as personality types in respect to how the individuals act within the corporate environment. The three titles could also be called “confident leader”, “extreme loyalist”, and “moral hard worker.” This would be completely accurate and would remove the negative titles, but for the sake of this article I’m going to keep the original titles.

** This is probably also a good time to admit that prior to my Brave New Life metamorphosis, I was a corporate sociopath.  I viewed my job as a game, with the goal to keep moving up and gaining more power and money.  While I never threw people under the metaphorical bus, I did take shortcuts, use others to my advantage through manipulation, and take more credit where I probably should have passed it on. Since I viewed employment and my career as only a game, I never felt guilt for any of this (no more than one might feel guilty for shooting an enemy in a video game – which I realize might sound ridiculous to may, but that just shows how the Corporate Sociopath thinks!).  Ultimately, I was rewarded with a fast track to executive leadership (a path I left mid-stride when I became more conscious of my life and priorities).

So What Do You Do If You Don’t Want To Be Part Of The Pyramid?

While I plan to retire soon at a young age and drop out of MacLeod’s Company Hierarchy, I’m fully aware that not everyone is within a few months of retirement.  Even if you’re saving at a reasonably high rate, you still may have many years of work to do, and it doesn’t have to be miserable.

So I wish to posit to you a 4th personality to the MacLeod hierarchy: The Corporate Conscious.

Corporate Conscious (noun) - A person capable of leadership and ingenuity, capable of taking risks with the awareness and acceptance of the potential failure, compassionate towards superiors, peers, and underlings. This person is aware and conscious of the business and politics of the world around them, and capable of using this awareness when the outcome is profitable and moral. Most important, this person is conscious of the fact that the company needs him (or her) more than he (or she) needs the the company.

Let’s pick apart the particulars of the Corporate Conscious.

1. A person capable of leadership and ingenuity, capable of taking risks with the awareness and acceptance of the potential failure

In other words, the Corporate Conscious (CC) is capable of competent leadership.  As a conscious person, the CC can relate to each person that they are leading, and can lead by example, by motivation, by inspiration, or by logical arument – whatever is necessary given the situation and the team’s (or individual’s) personality. The CC is also not afraid to take calculated risks, knowing that if the odds are in their favor that it’s better to fail occasionally than never at all.  With these traits, the CC is capable of both entrepreneurship, as well as formal leadership.

2. compassionate towards superiors, peers, and underlings

The CC is a compassionate person.  This further strengthens the leadership qualities described above when dealing with underlings, and even peers. Additionally, the compassion displayed towards superiors (usually Sociopaths) shows empathy towards the tough decisions leaders must make for the good of the company.  This makes “fitting in” easier at all levels.

3. This person is aware and conscious of the business and politics of the world around them, capable of using this awareness when the outcome is profitable and moral

The CC is no fool.  He is aware that the majority of the people in power are the Corporate Sociopaths, and not fellow CC’s.   But he’s also aware that he doesn’t need to join in on the immorality and he doesn’t need to make decisions that benefit himself at the cost of others, but rather he can use his strengths of total metaphysical awareness to gain the same positive outcome without compromising his morality.  He is also capable of the use of politics (which, by the way, are not inherently bad as the Losers will proclaim) but he recognizes that they are only bad because they are so often used with unethical or immoral intents (Sociopath’s gain).

4. Most important, this person is conscious of the fact that the company needs him (or her) more than he (or she) needs the the company.

As I said above, the CC is no fool.  Only a fool believes a company has loyalty.  Individuals may have loyalty, but the entity of a corporation is not a person (despite some tax laws that argue otherwise) and it does NOT have loyalty.  That doesn’t mean corporations are inherently evil, just that they will always struggle to stay afloat, which sometimes means throwing perceived dead weight overboard.  And sometimes this dead weight is you or me.

By recognizing this lack of loyalty by the company, the CC shows no loyalty in return.  That doesn’t mean he will jump ship every 6 months, it just means that he knows his value as an intelligent hard worker that the company needs more than he needs it, and therefore is willing to take actions that are sometimes risky, that may not be consistent with what the Sociopath desires, and might be downright mutinous at times.  In the end, this is rewarding in itself and rarely has a negative outcome.

Remember:

Worker bees can leave.
Even drones can fly away.
The Queen is their slave.

 

 

-Chuck Palahniuk, Fight Club

Conclusion

I wish to draw two conclusions with the observations above:

First, too much attention is drawn towards early retirement and financial independence (I have been guilty of this), but I believe both of these achievements are points along a spectrum. By saving at a high rate, let’s say 50%, you are building up courage to be a Corporate Conscious.  Each month you save at 50%, you give yourself a month of buffer for unemployment. Build up enough buffer, and you can confidently be a CC without fear.  Of course, this buffer is not necessary to be a Corporate Conscious, but it provides confidence to go against the grain (this was true in my case, anyways).

Second, MacLeod’s company hierarchy is mostly true, despite it being such a sad and hopeless picture.  But, there is an alternative and it starts with people like you and me who are willing to escape the unconsciousness of the three positions within his hierarchy and transcend them into Consciousness.  I’ve personally done this, and it works, even in a huge, old, technical corporation with sociopathic leadership, layers of Clueless middle management, and a soulless and sad layer of Loser employees.  If it can be done there, it can be done anywhere.

After wrapping up my “Core Principles” series, I thought it might be fun to follow up some articles on how certain lifestyle examples of the Brave New Life (BNL) can be explained to the common cubicle dweller, since we all deal with them.  In doing so, I came up with the idea to add a little animation (literally) and some humor*. Using the Xtranormal.com desktop application (for free, by the way) I put together a little cartoon to explain the BNL/MMM/ERE practice of riding your bike to work.

Let me know if you enjoy the cartoon.  I actually have the idea of a series of several follow up episodes if ya’ll enjoy it. So let me know through comments and/or “likes” on youtube.**

(*) I’m not an expert in the field of humor, so I’ll beg your leniency if you find this lame.

(**) I really had fun learning the xtranormal software tool and feel I got a lot better at it as I went, and I’m excited to write some new and better videos on the same theme.

This is the last of the core principles of the Brave New Life.  It’s also the most important.

The Brave New Life is about awareness – awareness of your self, awareness of your environment, and awareness of your thoughts.  It’s about living a deliberate life, making deliberate decisions, and having deliberate thoughts.  I could go on and on about it, but I decided to let someone else do the talking.

David Foster Wallace was a philosopher, a novelist, and a genius. Below, I’ve created a video (actually it’s 2 parts) featuring a commencement speech given by Wallace in 2005, 3 years before his death. In just 23 minutes, Wallace was able to define and describe a concept that took me 33 years to figure out for myself.

This isn’t your standard commencement speech filled with excitement and mindless optimism.  That’s not to say it’s not an optimistic message, because it is… but it’s also a humbling, sobering and realistic message about adult life.  In his words, it’s “about LIFE before death” filled with awareness and consciousness.  It’s about deliberately deciding not only what you spend your time thinking about, but also how you think about it.  No amount of knowledge can replace your ability to actually think.

I didn’t attend my own commencement, I was in too much of a hurry to start my life (or so I thought).  But had I been in attendance for this speech, I know I would not have appreciated it.  I probably would have left disappointed, because I was too young and too foolish to hear the capital-T truth that David Foster Wallace shares in his speech.

This is the most important of the core principles because it is the rich soil that allows the other principles to grow.  I’ve listened to this speech a dozen times over the past few months, and each time I do, I learn some new insight from Wallace that I hadn’t previously caught – and hadn’t considered on my own.  The video is 23 minutes long, I hope you’ll watch the entire video and enjoy it as much as I did.

This is a guest post from my wife, in response to my recent article about getting her on board to our new lifestyle.  Feel free to use the comments section for any follow-up questions you have for her, as she represents someone more reluctant to dive into our frugal lifestyle than most others on this site.

Hmm, let me see if I can recall how the brainwashing began…  BNL has always been better at saving money than me. When we first got married we had many “discussions” over our budget (which was really quite generous looking back). Each January we would agree on the year’s budget (including a monthly amount of money for me to spend specifically at Target with no questions asked – this was the most important part of the budget!). I think this is where he got me started. We lived for years with this budgeting approach, as long as we stayed within the budget or even a reasonable amount over, everyone was happy. It was only after we had kids that BNL really started talking about a different way of life. I happily quit my job when my son was born to stay home full time. Fortunately, we were able to maintain the same lifestyle as when we were both working, since we were already budgeting and living well below our means. Still, we lived in a huge house, had huge bills, and didn’t really restrict ourselves all that much. I bought what I needed for the kids and us. Life was good in my opinion.

Then one day BNL started talking about quitting his job and retiring early. That threw me for a loop. As in, that was not predictable. I’m fairly predictable, feel like I’m pretty normal, grew up in a “normal” family, have “normal” thoughts/plans/dreams/etc. BNL started challenging me on what is important to me, what is really truly important.  Mainly, we talked about doing what’s best for our kids and simply being happy. Not having a nicer couch, not living in a big house, not spending lots of money eating out. I wanted to live a happy life and raise my kids to the best of my ability – I think that’s where he sold me on the whole picture.

Moving to a smaller house was such a positive change for us. But let me see if I can remember how I started to think it could be better for us….hmm, I guess it was mostly about making my life easier. It is hard to keep a big house clean. It’s hard to pick up toys from all over a big house. And I began to question the value of having a large excessive house. I guess BNL got into my brain… So it all just aligned with BNL taking a new job and moving across the country. Seemed like a good time to downsize.  It really is less stressful to have less stuff. In this house the bills are much smaller and there’s less space (almost half the size of our last house) to clean up and fill up. We aren’t missing the big house with big bills and a big pool and yard to maintain at all. And of course there is the benefit that BNL can ride his bike to work and we sold the second car. I’m not about to give up my car, especially with 2 kids, but I am in the process of researching a more fuel efficient smaller car that will serve our needs just as much as a gas-guzzling 3 row SUV. No one ever told me that having kids doesn’t really mean you need an SUV or minivan. I thought that was a given before I started really thinking about things.

One of my primary motivators is doing what’s best for my kids. I have read a lot of books recently on simplified parenting. One of my favorites is Simplicity Parenting: Using the Extraordinary Power of Less to Raise Calmer, Happier, and More Secure Kids by Kim John Payne. It really struck a note with me. One of the things he stresses is that kids don’t need an excessive amount of toys. It made me feel better about really paring down the stuff they have because I came to realize the negative mental impacts from forcing too many toys on them. Payne also wants kids to not watch any TV. I’m almost sold on this, but can’t seem to break my own personal ties to watching TV! (If it were up to BNL, we wouldn’t even have a TV anymore…)

I’m not a saint or as perfect as BNL (Editors note: Sarcasm detected!). I still have materialistic desires, but I don’t get out of control or compromise our family’s finances. I have money set aside which earns dividends that I can spend freely however I wish. If I want to splurge on a Coach purse or spa massage then I can do that! I sell stuff on craigslist to get rid of having too much stuff, then I buy a latte at Starbucks. This way I feel like I can stick to a budget and spend less overall, but still have a little freedom for the little things that make me happy.

I still have a goal to continue to reduce the amount we spend on food, which I think will get easier when BNL quits working and we have more time to jointly plan meals, shop sales, find recipes for cheaper cooking, etc. So we don’t stress over it too much now. We have room to improve and luckily lots of time to do it in the future!

For many years I thought BNL was stealing our money (and I still joke to him that he has all this money saved somewhere that I don’t have access to) and investing it all online and I would never see it again. Who knew that would be the reason that he would be able to retire early, have more time with our family, and enable us to break out of the rut and become financially independent, something I never knew I wanted but now can’t wait to begin.  Wonders never cease. He pretends he had this big master plan all along, but I think he just stumbled down the right path

One final thought on BNL’s article about my acceptance of our new life: Just so it’s clear, I get a haircut as needed.  I am not going to let BNL cut my hair!

I’ve managed to get writer’s block while trying to finish my last 2 posts in my core principle series, so I thought I’d take a minute to provide an update on my Lending Club investments.

I’ve been investing in Lending Club for a little over 6 months, so it’s probably a good time for an update anyways.  I originally wrote about my strategy (which was using a filter on lendstats.com to find the most optimal notes to invest in) and I targeted a 14%-15% overall return on investment.  So far, things are looking good.  If you haven’t read the lending club investment strategy post, I recommend you go back and read that before you read this update.

The Funding Process

In order to increase my overall ROI with Lending Club, I set up a pretty strict filter on lendstats.com.  I only invest in high return loans, and filter out high risk characteristics such as loans for education or loans to people that have not held long term employment.  Historically, the data has shown that these loans are more likely to default.  Because my filter was so strict, I’ve found it a slow process to get $10,000 invested in active loans while diversifying at $25/loan.  About 2 months ago, I transitioned from $25/note to $50/note so I could get the rest of my money actively invested.

Currently, I have almost all $10,000 invested in active loans.  In order to accomplish this I spent about 5 minutes per week to look for loans and click a bunch of buttons to confirm the loans.  Now that most of my money is actively loaned out, I expect that time to drop to about 5 minutes per month to reinvest my profits.

In order to purchase new loans, all I need to do is click on this link.  The scroll down to the bottom and click on the links under “Active Listings.”

The Results

Up until last month, I had an annualized return of 16% and no loan defaults.  This past month, I saw two notes default (I knew that was coming, since Lending Club shows that the borrower was over 60 days late on payment).  What’s interesting is that both of these notes were loans I made before I created the loan filter I described above.  What’s even more interesting is that these non-filtered loans were categorized as “low risk” by Lending Club.  In a way, these defaults were a positive sign that my filter was working.

Here are the numbers:

I’ve made a total of 283 loans with an account that I initially opened with $10,000.  Of the 283 notes I’ve purchased, 97 were considered “low risk” and were not part of my filter.  Of those 97 loans, 2 have defaulted and 4 are late and at risk of default.  Overall, not good.  On the other hand, 186 loans were chosen using my loan filter and classified as “high risk” (averaging over a 19% return).  Of those 186 loans, I have no defaults and no late payments in the 6 months since I began the experiment.

While not conclusive, these are pretty exciting numbers!  There is a statisticaly significant difference between my filtered loans and the unfiltered loans.  I’m now considering raising my investment from $10K to $20K, which could quickly grow to about $250/month of passive income.

Feel free to ask any specific questions about my Lending Club experience in the comments below.

Here is a snapshot of my investments:

A few items for full disclosure:

1. If you sign up for LendingClub.com from this site, I get $25.  It’s not the purpose for writing the update (I would write the same article regardless of this income), but I want to be open about it.  So far I’ve made $250 in commissions over the past few months.  If you’re one of the people that signed up after reading my results, I’d love to hear about your results!

2. While my personal results are currently good, there is still significant risk in this investment – as with any investment.  Keep in mind that my $10K investment is still only 1% of my overall investment portfolio, so this is still a relatively small personal investment.  I may go up to 2%, but probably not more.

I’ve been getting an increase in emails lately that are asking a common question, so I thought I’d take a short break from the Core Principles series to address it. The question that has been asked many times can be summarized like this:

“Hey, Brave. I’m totally on board with everything you’re saying and want a similar lifestyle for myself. The problem is, my husband/wife/boyfriend/girlfriend just isn’t on board. Did you have any problems like this?”

The short answer is “Yes!”

My wife has always had major reservations with my financial strategy. In fact, despite the fact that we started dating when we were 16 and married at 25, we’re only now becoming aligned in our financial decisions at the age of 33. I always wanted to save and invest, she always wanted to spend. It makes sense, though, because she grew up with the typical middle-class baby boomer parents that believed “the good life” was achieved by buying it. Her dad’s motto on spending all of his money and having no savings is “you can’t take it with you,” as if the fact that your money is useless in the afterlife is an excuse to spend more than you make today. They are now 65 and have no savings and a small pension.

So, as with most couples with different financial perspectives, we argued a lot. Luckily I knew I was right and she was wrong, so I stayed persistent. (Just kidding, honey) OK, I’ll be honest – we were both wrong. The reason we argued about money wasn’t because we disagreed, it was because we were trying to have a rational discussion based on irrational opinions. She was equating “spending” with “happiness” because that’s what her parents and friends did, and because that’s what the people on TV told her to do.  I, on the other hand, was just a money-hoarding cheapskate with no real purpose or strategy.  We were both wrong because neither of us had deliberately come up with a strategy.

Luckily, I finally saw the error of my ways.  And now I’ve put together a simple guide on getting your spouse to embrace the brave new life.

Step 1 – Create a personal strategy for yourself

This is the most important step.  You should have your own set of core principles.  You can use mine, or you can create your own.  But if you want to convince anyone to change their ways, you first need a solid and complete philosophy of your own.  Frugality for the sake of frugality is a life of deprivation, and you’re not going to get anyone on board by advertising deprivation.

Now start living those principles.  Don’t talk about it, don’t plead your case, don’t ask anyone to change, just live by your philosophy.  ”Be the change you want to see in the world,” as Gandhi would say.  Show that you can spend less and be happy.  Heck, show how you can be even happier with less stuff burdening you.

In my particular case, I didn’t quite follow this advice (I didn’t know any better).  I started by encouraging my wife to work with me to start getting rid of excessive “stuff” in our house.  I pointed out that we were constantly picking things up, constantly re-arranging our stuff to make room on a shelf for more stuff.  I was repeatedly getting upset because I couldn’t find my keys that were, of course, under a bunch of stuff on the table. It was time-consuming and mentally unhealthy for me to always be so frustrated.  So we started out small, just taking boxes of stuff to Goodwill. Once we did this, I found that my wife actually liked it. She practically got addicted to it. And so we expanded the effort, we talked about having less utensils and plates in the kitchen, less toys on the shelves, less knick-knacks on the mantle, less pictures on the wall, etc. It became easier to keep the house clean, and this made us both happy. Thus began a foundation for my wife’s frugality because there’s no better way to avoid having excessive stuff than to never buy it in the first place.

Eventually, this led to larger changes.  For example, we talked about how having a smaller house would mean less stuff, and less rooms to keep clean.  This is something that would never have been acceptable to my wife had she not taken the mental baby steps of learning to let go of material things.

It’s also important not to ask too much of your significant other.  For example, I decided to sell my car.  I’m not asking my wife to do the same thing, especially since we have 2 little kids at home.  I choose to cut my own hair, rather than pay someone.  I don’t ask my wife to do the same (OK fine, I’ll admit it, I did offer to cut her hair for her to save a few bucks).

Once you begun making the changes for yourself, then you can begin casually mentioning the benefits you’re receiving.  ”Wow, it sure is nice to be able to eat desert guilt free since I bike 10 miles to work every day,” or “Check this out honey, just got another dividend check.  $150 bucks for doing nothing, can you believe it?”

Step 2 – Find common grounds

Once you have a solid philosophy, you can begin searching for common ground between you and your significant other.  Obviously you must share some common desires, goals, or priorities or you likely wouldn’t be together.  This is where it becomes so important to have your own set of core principles.

My wife an I are very different in many ways.  She likes to spend money, I like to save it.  I make decisions based on environmental sustainability, she doesn’t.  I would prefer to bike to the store, she’d rather take a car.

But we also share some common priorities.  We love each other and our kids.  We value our kids’ educations, and are very interested in learning about alternative forms of education besides traditional classroom settings. We are, for the most part, both introverted and would prefer to spend time at home watching a movie than going out to a party.  We both see the value of a simple life.  And finally, although she won’t admit it, we both enjoy doing things a little different than everyone else.

So these common grounds were the things I focused on when first getting my wife to embrace the brave new life.  For example, she would have never moved into a smaller house if I had simply proposed it as a way to save money.  However, a smaller house saves time cleaning, and I knew she’d appreciate that.  A smaller house meant the family would be closer together, and I knew she’d appreciate that too.  So I focused on these things when we first discussed it.  Once we got serious about it, and we recognized that an early retirement was possible (and all the side benefits that came with an early retirement), I could then bring up the huge financial benefits of a smaller house.

Step 3 – Show the benefits of investing

When you focus on not spending, you’re focusing on deprivation.  You’re fighting the natural human desire to have things now, rather than later.  Instead, focus on the benefits of having investments.  And don’t talk about it, show it!  Here’s how I did it:

2 years ago, my wife got a $25K inheritance. We share our finances, but I told her that she should keep this money to herself. I suggested that she open a separate bank account, I’ll have no access to see how she’s spending it, so for the first time since our marriage she could spend as frivolously as she desired. At first, she was going to upgrade her car, then just spend the remainder on various little things like clothes, expensive salon haircuts, and occasional massages. While reminding her that it was er decision, I suggested that she might want to consider investing in dividend paying funds. I told her that I’d be happy to help her put together a little portfolio consisting of 50% reliable dividend stocks and 50% Treasury Bonds. It would yield her about $85/month for eternity, while slowly growing in capital and dividend payouts. She had never considered anything like this, but she liked it and we set it up. Then I realized something: It wasn’t until this time that she truly understood the amazing power of making money work for her. It was at this time I realized what a bad husband and terrible person I was. I realized that I had spent a decade asking my wife to make deprive herself of things in order to save money, but I never taught her about the benefits.

But all is good now.  With her passive income, she can go get a massage, get $50 haircuts, or buy other luxuries – and not ever deplete into her capital.  Actually, her capital gains are up quite nicely.

If I could do it again, I would have given her $25K the day we married and taught her the wonders of investing and getting passive income.  In fact, I will probably do something like this when my kids get a little older, so they can learn this lesson while young.

Step 4 – Discuss the benefits of financial independence

The point of saving money is to increase financial security and, eventually, achieve financial independence.  What you do with your independence is up to you.  But no one can deny that there are huge benefits!

For me, it’s retirement from the corporate life.  I’ll free up time to relax at home, venture out into various small entrepreneurial gigs, ride my bike, read, write, and stare into space.  But none of those things do any good for my wife, other than perhaps give her a happier husband.  So instead, I talked to her about how she and our kids will benefit.

My kids will have their daddy around to play with.  Daddy is a little more silly than mommy, so with him they get dance parties, wrestling time, and random spontaneous games like “bounce the bouncy ball off the kitchen wall into the basket.”  Since our personalities are so different, we talked about benefits of having both of us in their daily lives.  We both want to be proactive in our kids’ educations, and the more I’m around the more we can each spend with them exploring and learning.

But mostly, I know my wife’s real motive.  She knows that the more I’m home during the day, the more she gets to take naps!  :)  So I talked about that to.

That’s it

With these 4 steps, you can show your significant other a vision of a better life that they may not have seen before.  Don’t assume they already see it, you need to show it to them.

That’s really all there is to it.  First you come up with a total philosophy for yourself and start living it.  Then you start showing (not talking about) how a simpler life is a better life, how investing money can create passive income, and how that passive income can ultimately result in financial independence.  Finally, you show them what life will be like when financial independence is reached.  Everyone’s goals and strategies will be different, of course, but I think this outline should work for most couples.

And if all else fails, point your significant other to sites like mine, MMM, ERE, or suggest they read Your Money Or Your Life.  For some reason, the words of a random anonymous guy like me writing on a blog can sometimes be more persuasive than the words from your own spouse.  (Seriously, I have personal experience from this)

I’m sure some of you will have a personal situation that I haven’t solved in this post. That’s OK, put it in the comments below. I’m sure our collective brain can come up with some solutions.

And if you have other suggestions that worked for you, we would all benefit from you sharing them here.

Last week a blogger colleague of mine and a guy I greatly respect, Mr. Money Mustache,  asked me whether I would like to guest post one of my “brave new life” core principle series articles on his site while he’s out of town snowboarding.  While I find myself intimidated by his large audience, I decided to do it anyways.

So…  The next installment of the series is located  on his site here.  Hopefully you’ll appreciate the post, and if you’re new to MMM I highly recommend you check out the rest of his site.

Core Principle #5: Understand The Marginal Utility of Money