Personally planning for the various futures

I often get stuck thinking about financial planning for the future.  So I wanted to explore some of the issues there.  To set things up you need to know that I measure wealth in terms of leisure time, not particularly assets.  Somewhere in my past someone suggested that you could measure societies by things like bubble gum and other leisure activities, and it stuck with me.  After coming to France as an American I recognized that I work as if I could be fired at any moment, and I don’t take my time off in the same way (in France I have the impression that people work intensely when at work and do no work thinking when off, in the states we take less time off but steal more moments of dinking during the long hours).  When I see couples struggling and friends (or myself) under stress I tend to think that job pressures, time pressures, money pressures are inevitably the cause, or if not the cause an obstacle to a solution (no time to sit and talk or have some quality time to reflect).  So when I imagine an ideal future there is little in the way of time pressure or financial pressure.  Moving on.

So why work?  On an optimistic side one could say, to feel like you’re creating something of value, work within a team framework, etc.  From a pessimistic perspective it’s just about money.  Odds are it’s somewhere in between, but I tend to think that under no financial pressure one could work with others to create something of value just for love, a sense of worth, or the accomplishment of mastery (e.g. open source programmers).  I suspect that knowing how to creatively  spend your free time is one of the non-financial rewards of education.  So I’ll ignore the creative benefits for the moment and focus on the economic side.

My long-term personal finance perspective is focused mostly on reoccurring events.  That is, I work to minimize the amount of money that has to be paid out each month, and work to maximize the amount that comes in (without any of my effort).  If ever the amount that comes in without effort exceeds the amount needed each month you are financially free to choose what your day will consist of.  This is the starting point for a great many of my financial thoughts, a less rosy way of saying that would be, this viewpoint is the place where my certainty begins to run out.  For instance, by owning private property or paper investments am I perpetuating a system of hierarchal exploitation?  In the sense that I couldn’t fully rebel against a social system which is paying for my leisure.  If I own government bonds am I a war profiteer?  Maybe I take the categorical imperative too seriously, if my actions were to become universal law what would the world look like, could everyone have their needs met without labor?  If so, at what cost?  I’ll probably never become a captain of industry because of these thoughts, at least not without a different perspective.  Anyhow, because of such dilemmas and my practical axiom of maximizing in-flow minus out-flow, I began to mentally explore the notion of spending as little as possible while having a high quality of life.  Find some optimal combination of cost of living/quality of life/leisure time.  If you’re into exploring systems of equations you know that you have to come up with some boundary conditions.  Since I am clearly a bit uncomfortable creating massive revenue streams then I would need to think about minimizing my monthly consumption, that’s one constraint.  Another constraint to consider is how my perception of quality of life changes as my consumption might drop.  Finally, how much time would it take to achieve a given economic state, would that time be up-front or every recurring?

Sara and I have worked on decreasing our monthly life budget while maintaining a high quality of life.  My cooking natural meals at home we eat healthier, spend more time together, and spend less.  Life without a car or cell phone is freeing and wonderful here in Lyon which has nice public transportation including a top-notch bike rental system (essentially 15 euros for a year of unlimited biking).  Sara also has a knack for finding high quality output on any budget.  We’ve eliminated all of our debt and began our savings by living this way (on one (not so large) salary).  We downgraded the size of our apartment from our first year to our next, which means having less stuff, buying less stuff (being less tempted to buy because we don’t have room and wouldn’t want to ship it anyhow), and generally less clutter/faster cleaning.  It is nice to work in this direction, getting down more to the essentials of life.  I should point out that such changes have to take place gradually, growing up in a typical American house with a TV you end up with the instincts of the perfect consumer (happiness is perpetually one purchase away), so a cultural shift (which is destined to be slow and gradual) has to take place to increase quality of life while decreasing the size of our consumption package.

So what about the future?  Well what are the limits of decreasing the monthly cost of living within the constraints of being who we are?  Is it possible to get a monthly cost of 0?  Probably not.  I’ve found many people on the Internet living as homesteaders, found permaculturists, and others (haven’t met very many in real life so my sense of certainty is not very high either).  For one, there’s very few places that you can live without property taxes.  I could imagine growing my own food in a way which takes a minimal amount of human hours (search permaculture), and many herbal teas and things can help prevent a great deal of medical problems, but some problems really will want medical attention (pregnancy, broken bones, cancer) and some things are not worth the effort to make yourself.  We could also build a home from Cobb or plop up a yurt, but often local building laws wouldn’t allow you to live in such structures… So some life money will be needed.  If that’s the case then one really has to have some stream of income to cover those expenses.

As soon as you admit that you need to invest or have savings then you have to think about the future of society.  You become invested in what happens because the stability of the worlds’ systems becomes tied to the stability of your life.  I heard the notion that once people begin seeking comfort and aren’t nomadic then a world like ours becomes almost inevitable.  Which is more or less what I’m claiming here, on a personal finance level.  So how does one go about thinking about the future (in terms of how the individual will be impacted)?  I’ve heard two basic perspectives the futurist/technologist and the doom and gloomer approach.  Both perspectives only make sense in view of some problems which have been proposed about the next 10-20-50 years.  Some basic problems which are in the public consciousness are the cost/supply of energy, the forthcoming sovereign debt crises, and the ecological impact of modern life.  I suppose the doom and gloomers are those who see the problems and suggest that we will be unable to solve them in time (and then project what the impact of the unsolved problems would be), while the techologists believe we will be able to overcome the problems via human ingenuity (and then project what such a prosperous future might look like).  Maybe there is some middle party of economists who think that the free market will fix everything as needed.  Anyhow, all three problems I listed would have a huge impact (either in solved or unsolved form) on any sort of retirement planning.

When I say the cost of energy I’m thinking of the concept of “peak oil”.  It’s suggested that our demand for oil will continue to grow beyond our capacity to match the demand causing prices to begin skyrocketing sometime in the next X number of years.  I’ve heard some suggest that increased energy prices would force more clever folks into energy production causing a solution to appear before we know it, others have suggested that we’ll keep discovering more oil (some think it might in fact be a renewable resource), while others see a shift from oil back to coal when the price is right.  If the price of oil climbs and no alternative becomes cost efficient then I do believe that life as we know it would be quickly altered.  In the post-WWII world, oil has been an extremely cheap source of energy and many advances have come about because of that cheap oil including our global transportation networks, our current system of farming/food production (our pesticides and fertilizers are derived from oil), even our highway systems/suburbs are designed on the notion that cheap personal travel is available to anyone, and of course much of the power grid is oil based.  If the cost of oil were to become high without a real replacement then the cost of living and the cost of doing business would rise (meaning the wages wouldn’t likely keep up).  In such an eventuality one could imagine food riots, tough/cold winters, extremely expensive electricity, extremely expensive travel.  How would you prepare for such a thing?  Growing at least some of your own food, having passive heating/cooling in your house (via clever design), maybe a root cellar, and having planned for a post-oil monthly budget seems like something worth thinking about.  What about investments in such an outcome?  Well owning some index fund that follows the price per barrel of crude oil seems like a good paper asset hedge, producing enough food or lumber that you could sell surplus would be wise too.  What if the technologists are right?  In that world maybe we have this chlorophyll-based energy paint that you would paint on the side of your house so that all of your electric needs are met via the sun.  Maybe we all have some magic bullet basement generator that gives us each unlimited and cheap energy… in that case the monthly budget won’t be going up, so there’s not much to plan for.  Invest in video game companies or servers or even electric cars, since everyone could be doing super computing and charging up at home.  I’m not too worried about this outcome other than making your oil investments worthless (maybe they would still be used for producing plastics and the pesticides/fertilizers).

Sovereign debt, this one is scary.  I’ve seen no shortage of opinions that many industrialized countries will see their expenditures far out-pace their available budgets as more baby boomers reach ‘retirement age’.  This would mean cuts in many government/public services, police, teachers, defense, health care, decreased retirement funds, and increased  retirement ages.  The fear here is civil unrest and the potential threat of massive inflation.  If that were to happen then paper assets (including savings/currency) lose their value, you get forced back into the work pool because your savings become worthless.  It’s hard to imagine this being allowed to happen and I have no real expertise in the workings of international financial markets (in fact, it is kind of lame that I would need such expertise to think about the future).  The concept that you could work hard, save well, invest in low-risk bonds, retire, and finally have your investment stream inflated to essentially nothing is frightening enough to give it some thought.  In such an event you would want real assets, land, trees, maybe even some vacuum-packed disposable razors or toilet paper rolls (for selling/bartering in the event of a currency crash).  Again the ability to grow your own food would be essential.  In this case you might also want to know some survival medicine or have some such supplies in your cellar.  In theory, when inflation hits the price of stocks would rise to match the inflation (same with commodity backed holdings) so again, index funds seem like something to have.  I haven’t heard much in the way of optimistic outcomes for the sovereign debt world, just that the powers that be would do what they can to make sure the dollar doesn’t experience inflation via currency wars or drastic cuts, etc.  The ‘best’ positive outcome on this front would be if the world economy could grow fast enough to prevent this from happening I suppose (although infinite exponential growth just never really seems stable to me so this might not be a positive eventuality).  I suspect that learning the basics of community creating/protecting would be nice in the event of some sort of collapse, but there are plenty of gangs which already exist outside of the law and are well organized… Anyhow, let’s hope it doesn’t come to this one, but if it did, try to own (whatever that would mean) real assets.  The monthly budget would be out the window, or could just be measured in terms of value of investments which are commodity-based minus cost of real life goods (for instance any fixed rate mortgage payments would become dirt cheap in an inflationary world).

Finally there is the ecological problems.  I don’t particularly mean global warming either.  As an individual owning a tiny piece of land you have many natural flows which are out of your control.  Water that runs off from higher land through your land, air quality, animal migrations, radiation, noise, etc.  You could have a nice place set up and growing, the neighboring plot could be bought, turned into an industrial plant and you could end up with plummeting land values and toxic levels of who knows what in your soil killing off your crops.  Your food crops could be cross fertilized with GMO’s and you could be sued for it later on (happens a lot apparently).  The point here is that you can’t really hermit away, per say.  On a more global scale I do suspect that the weather is getting more and more extreme, highest highs, lowest lows, longest hurricane seasons, worst this worst that.  This might be partially to do with a lack of well kept records after X number of years in the past, but I suspect that it has more to do with deforestation, as (from what I’ve heard) the forests tend to have a mitigating effect on extreme weather.  Balancing temperatures, reducing wind strengths from the seas, creating better humidity for crop growth, etc.  On the global warming side I’ve also seen the notion that many cool cities of today could be underwater within 100-200 years (a bit past my lifespan, maybe).  I suppose that these concerns aren’t as controllable by an individual, and to plan a personal retirement in light of them would mean choosing lifestyle components that are based on the most robust plants (learning to eat Jerusalem Artichokes, or make weed smoothies, or investing in bamboo construction companies).  These concerns are actually the most compelling reasons to get involved in how things are done, because it would take the effort of many people to get things more in balance (you could plant trees on your own and try not to economically support companies which directly contribute to climate instability but really collective effort would be required).  On the optimistic side one could imagine a world in which we control the weather in real-time, grow things indoors with all of our extra energy, or have personal replicators which could make food out of raw material… who knows.  The little kid who read and re-read Jurassic Park tends to think that we aren’t so good at overcoming complex systems via technology as we don’t quite know what the impact of our interference would be.  Anyhow, maybe having some partially indoor food growing abilities would help in the face of whacky weather, also learning how to purify/test water without too much expense would be nice.

So, there it is, thinking about investing in the future means having a robust (well hedged) financial portfolio, and I’m inclined to want to be able to grow my own food for the worst case scenarios.  Learning to live happily on very little is a nice skill too.

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