Far better it is to dare mighty things, to win glorious triumphs, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much, because they live in the gray twilight that knows neither victory nor defeat.

Theodore Roosevelt, The Strenuous Life

By , on August 19, 2010

Money and Finance

If asked to simplify personal finance in a few paragraphs, perhaps describing money as either freedom money or treadmill money would do the job.

Treadmill money is used for recurring expenses, whether the obligation is mandatory or arises from a note or other obligation you voluntarily or even foolishly incurred. It is income taxes, mortgage expenses, insurance expenses, child support and other court ordered payments such as traffic fines. It even includes the amount you save regularly; the obligation is to yourself (that’s why so few of us save enough; doing so is a matter of discipline). Repayment is a recurring obligation to a specific entity. There is little freedom in that.

Freedom money is the cash you have in your pocket, or available for immediate payoff of the credit you use. It even includes money used for the purchase of food and other necessities; you have exercised choice in what you buy, from whom you buy it, and when you buy it. You have almost total freedom with that particular expense.

The most detailed advice of the best financial consultants can be translated into something very simple. Drive down your treadmill expenses so that you have enough freedom money to satisfy your needs. Having the treadmill absorb too much, through mortgages, car loans and credit card debt may be okay if you have a lot of patience and continue to reduce debt without incurring more, but it is absolutely dull and boring. My observation from personal experience is that the drudgery of debt repayment is far worse than the instantaneous pleasure of a purchase on credit, even for houses and cars.

Although the idea mentioned above struck some as accurate, my wife remembers one boss who took great pleasure in simply being able to pay his bills as they became due because his parents struggled greatly to pay for the necessities of life. His “treadmill” expenses created a thrill so that the distiction between treadmill and freedom money was irrelevant to him.

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