Embrace the desire to make money
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My theory is that this rarely actually happens. People rarely reach a point and think "ok, I have enough money now; I'll go work at a charity." Mostly due to the hedonic treadmill:
http://en.wikipedia.org/wiki/Hedonic_treadmill
This is actually empirically testable to some degree. I recall a recent study asking millionaires if they had enough money, and most of them said something like "no, I won't feel secure until I have 10-20 mil."
That's a rational response, given that's about the minimum necessary to provide high current income ($100-200k/year), securely growing with inflation, without touching the principal. That's basically the definition of financial security. The study indicates that empirically, rich people tend to make sound financial decision, which isn't shocking.
I feel like I'm in crazy town. What kind of definition is that? So, anyone with less than 15-20 million in the bank is financially insecure. Just like the article, which claims that "go[ing] out to expensive bars all the time in the City" is some kind of unfortunate necessity for people with high-paying jobs.
Is it just me or is there a serious lack of perspective going on here?
Depending on your age, yes. If you are old enough you can draw down your savings, though that's a tricky game because if you live too long you run out of money. If you can't stop working and maintain a comfortable standard of living for the rest of your life, you are financially insecure.
Is it just me or is there a serious lack of perspective going on here?
There is, you should really try to figure out what you would actually need to live the rest of your life comfortably if you were unable to work. Maybe you want to live like a college student forever, in which case, you would probably need less than $10 million, but if you don't, taking 70% of your salary as an assumption, then multiplying that by 100 wouldn't be a terrible estimate.
There's a good book on this topic called "Your Money or Your Life" and one of the nice things they do there is focus not just on the supply side (how much money you need), but also on the demand side (by reducing what you think you need). For example, I like fine meals (like, multi-course meals upwards of $250), but I could probably go without another one for the rest of my life, or cut back. Heck, if I was retired, I could probably teach myself to make just as good food.
So if you are 25 years old and cannot retire today and never work a day for the rest of your life, you are financially insecure?
Financial security is the model of protecting lifestyle with cash. If you're protecting your lifestyle with something else other than cash, then you don't have financial security, but you still may have security.
Basically it's very simple. If you have a big enough chunk of cash in the bank, you can generate enough income from it to secure your lifestyle. (defined in terms of expenditures) You can then use your cash to protect yourself in ways other people cannot. Cash is a cool thing to be able to use because everybody you're going to want to deal with accepts it. If instead you're using skills to protect your relationship, or even worse, a job, then you'll only be protected so long as you can derive cash from those assets.
Personally, I protect my lifestyle with my web development skills which I can take with me to any of a large number of companies who will give me cash. This affords me a great amount of security against hardship, but it isn't financial security. For one, I still have to work.
Also the world could decide that web development blows and it could suddenly be much more difficult to find a job. I would be forced to take whatever job I could find to secure my lifestyle, and then my security would only last as long as the job does.
Financial security is best because cash will (probably) never go out of style.
But you can also consider the term like this thread to mean that you are totally secure financially for life - even if you were to become unable to work.
So in you're case you may be secure for now, but you're not yet secure for life. Very few 25 year olds are already financially secure for life, though.
* Note that I define this as owning a house and supporting a family without having to worry about money, not living a jet-setting life of extreme luxury or whatever.
Peer pressure, opportunity, and the pressures of the job (which makes you feel that you deserve a good time after all this hard work - work hard play hard) conspire to make it very hard not to indulge in an expensive social life when you're in a banking job.
Some people will resist that and save up anyway. Usually those who resist the pull the best are those with young children - another major financial drain.
I personally don't need £20m in the bank to feel financially secure, because I rely on my ability to earn more, and I account for that. £20m sounds about right if you want a very high likelihood of being able to retire on a perma-holiday for the rest of your life, though. I'd find that terribly tedious, myself, which is why I don't need anywhere near £20m!
Consider the high costs of health care, security and such. Also consider that you may want residences in different nations due to the uncertain in the political climate.
Poor mans solution: keep in touch with family in other nations.
It may be that you are correct in your assertions around financial security, but the notion of the hedonic treadmill is broader than that.
High income doesn't always imply high net worth. In 2011, fewer than 1.1% of households had over $5 million in assets. Given that at least 98.9% of households don't actually have enough money to provide moderately high current income indefinitely, everyone thinking they need 15-20% more is more of an indication of a failure in planning and basic financial literacy, not an indicator that they don't actually need more money. I think I need $10-20 million, indexed in real terms, assuming I don't step up my quality of life expectations, which is more than 20% beyond what I have today.
Think of it this way, you're walking down the street in San Francisco, and you get attacked by a hobo (http://www.huffingtonpost.com/2013/06/11/naked-subway-man-vi...), which causes brain damage, leaving you unable to work in your current profession. How many years until you have to make a serious quality of life reduction?
The whole hedonic treadmill is kind of like saying that even the people with the most food today, think they will likely need more food in the future, which isn't really shocking.
During this 15 year break, I could easily notch away at the big circle of knowledge, generate side income, write books/tutorials and contribute to companies/individuals in software aspects.
I would also be able to work at night. I have a reversed circadian rhythm. I spend most of my nights getting 2-4 hours of sleep and murmuring about math and programming during the other 4-6 hours. A typical job schedule holds back my productivity.
My happiness is defined by obtaining/spreading knowledge. 40,000 (post-tax) a year is more than enough to maintain a household of three, take vacations, and stay on top of technology.
I wanted to have exams proctored at 7PM-9PM. My logic and reasoning fall extremely short at 8AM. I can sleep for 12 hours from 8PM to 8AM and still feel exhausted. Nothing is as rewarding as the sleep I get during daytime hours.
Nootroics, amphetamines, melatonin, all seem to fail.
40,000 was mainly a number based around family, mortgage, food, transportation, classes, hazard/maintenance(car/home/health/life) and conferences.
It would be interesting to see how low I could get that number while mitigating the natural risks of family life.
Inflation chipping away your savings is a given, but investments that match or beat inflation have no guarantees.
How much of the savings would remain after 15 years? Would you still feel secure going back to work in your 16th year with no money in the bank for your car/home/health/life?
That doesnt sound healthy, you should reverse your reversed circadian rhythm. I dont buy that this is given to you and you cant change it. When i get up at 6 a couple of days in the row its hard at first but after a while it wake up at 6 without an alarm (provided i go to bet early enough). If i stay awake until 2 all the time, i wont get up before 9. Thats a habit and you can change it.
It is possible that the grandparent is simply habitually nocturnal... but it's equally possible that something else is happening.
Money is just a proxy.
Power is also just a proxy to happiness [0]. The power to make yourself happy.
Concrete actions combine to give us access to abstract values which we position towards our purpose of reaching our favourite abstract concept "happiness."
We often seek happiness as an end. But good advice might be to "Invest in lines, not dots."
[0] We assume that if we can change things quickly we will be able to keep up with our hedonic treadmills. (The reality is that this won't work without control over our minds, since our desires can also upgrade quickly.)
I agree with the author's advice, accepting that it was directed towards entrepreneurs. However, it's also perfectly fine to not desire more money than you already have.
For example, lifestyle is a choice. Whether you're bootstrapping your own start-up, or working as a highly paid employee, you freely choose how to spend your money. Lifestyle inflation may be real, but it's almost entirely avoidable. It's a matter of discipline.
Secondly, the article is comparing the risk of losing an investment vs. the risk of losing a source of income. Very different things. If you invest countless hours and tens of thousands of dollars in a failed start-up, that is gone. Hundreds of thousand of dollars in opportunity cost down the drain. If you lose your job, what do you really lose? No, you get to keep all the money you earned so far, and chances are, you're even getting a nice severance package. And you go out and find another job within a few months at the most. Where's the "risk"? You're not putting anything on the line.
I'm not saying that being employed is superior to starting your own business. It's just that this sounds more like self-justification, presenting a skewed picture.
That's probably true at the seven-digit level, but most of my tech friends who are in finance work no more than a 9 hour day, 5 days a week. The only exception is Citadel, though this situation may be characteristic of the Chicago finance industry rather than NY, London, or Singapore.
Several of my friends made the shift to that industry partially for the money but mainly to get off of the long hours and travel of consulting gigs, the gaming industry, and small companies.
Before changing the world, change the world inside you and directly around you.
One of the things that gets missed in "making money" is how a sliver of tech talent can solve such huge problems for the average person.
PG hit the nail on the head in encouraging everyone to simply solving problems the average non-tech person has, whom are the majority. Solving your own problems has merit if your problems aren't rare, or can be a financial engine.
It's an opportunity to grow beyond where too many techs are today... they simply don't see how many people are so passionate about what they do that they are willing to do the most unreasonable thing: calculate, track, and manage things by pen and paper, or whatever they can get in a spreadsheet.
To me, when I see someone do something by hand, manually, because they're so passionate to get it done, or have no choice, it's a mirror to me. How the hell do my talents add value if others are stuck with what they're doing because no one is giving them any attention?
Instead, we have techs justify what they're doing to be something grand and great to "make it up", or some how make life more worthwhile?
Maybe, part of this is from an preference to relate to a keyboard instead of relating to others. Maybe its a part of maturity and starting to see one's self as part of a bigger whole. The need for an ability to shift lenses is critical, because hiding behind a keyboard is not ok anymore, the world has arrived on our doorsteps asking to solve problems with tech.
Software can either make people's lives much harder or easier. Being on the right side of the equation, even if it's giving up a few hours a week just to solve anyone's problems with a script will uncover more opportunities for creating value (read: the right ones will be dying to pay you something to keep your attention).
Ironically perhaps, most of all, is the fact that having a financial engine lets you drive and pursue more of the things you want with your time and by being able to pay for the time of others.
Walking into any small business and saying "If I could save or make you anywhere between $500 and $2000 a month, would you be interested?" without a problem identified to solve finds more opportunities than anyone can imagine.
The #1 cost in any business is labour, if you save people time, and create a business case of how many hours literally are saved per week, and how many dollars are printed.
Learning to add and create value, however is at the root of not being able to make money, and understanding one's own value, genuinely and bringing that to a conversation is something that's always worth working on.
But most of the flows of money in the world are actually between businesses as they progressively transform products en route to the final consumer. And businesses are, in some ways, much easier to sell to.
Not an original idea. I got it from reading Hayek: http://chester.id.au/2013/01/05/on-selling-to-consumers/
One thing that struck me from what you said is that its up to techs to learn to relate to the rest of the world trying to make their lives easier with tech, and for the most part, are ending up working for technology, instead of technology working for them.
The best part of my current contracting work is that while it isn't HN-glamorous, I save real people I talk to real hours of horrible tedium by automating away busywork. It also pays pretty well.
For example, some businesses are at capacity because they have some bottleneck that they can't break through with their existing processes. Often you can create software that helps them eliminate some of their bottlenecks and thereby make it possible for them to capture money that they know they have been leaving on the table. They'll value this much higher than a product that would just save them money on labor costs in my experience. And if you can figure out a way to tie the cost of your product directly to their profit, you'll create a feedback loop that will be very valuable to both you and your customers.
I'm not killing myself working 7 days a week, balancing a startup and a regular job, spending almost my every waking hour working in some fashion, forgoing vacations, a social life, a girlfriend, partying, etc. - all just for my health. In fact, my health is most likely suffering from this lifestyle.
But when I look at the potential: building a profitable, growing company that could give me the financial freedom to live the rest of my life more "on my own terms"... having the freedom to travel to exotic locations, have fun adventures, engage in projects that just plain interest me (as opposed to having to be motivated by financial returns), etc... that makes it all seem worthwhile.
It's not about money, it's about power. And I mean 'power' in the full sense of the word: the autonomy, money and status/connections to do what you want - whether that's changing the world, giving your family a good life (relative to their peers)
It's basically what lhnz says: It's not really the money per-se that matters, it's the freedom that having plenty of money allows you, that matters. I'm not out to own a yacht, a private jet, or 7 mansions in 6 countries or anything... I don't need to be Larry Ellison rich, but I'd like to get to "FU money" level.
That's not my only reason for trying to build a startup, but it's definitely one of them.
or dating a supermodel
I like the way you think! Preferably a 6' tall, redheaded supermodel with a Scottish accent. :-)
One detail, though:
> somehow, many if not most people working in these high-wage jobs don't accumulate all that much money.
This sounds plausible, but I'd prefer to see it backed up by statistics.
Another well-studied effect is that lifestyle tends to rise to meet rising income levels. This is partially driven by the aforementioned effect -- rising income tends to put you in jobs, or in neighborhoods, or generally in physical proximity with other high earners -- and partially driven by the fact that you tend to develop more expensive tastes and habits as you climb the income ladder.
I'm writing this from my iPad on the train, and so I am too lazy to tab over and look up the particular studies or sources. But start by Googling C.N. Parkinson -- the same Parkinson who famously quipped that work expands to meet the time available for its completion -- who stated that expenditures rise to meet income. Plenty of people have taken this observation and run with it in actual studies.
[1]: http://www.amazon.com/The-Millionaire-Next-Door-ebook/dp/B00...
The relationship seems strongest at the top: the average net worth of someone with a top-1% income is 40x the U.S. mean net worth. People with 95th-99th percentile incomes are at about 7x the mean net worth; those with 90th-95th percentile incomes are at about 2x the mean net worth; those with 50th-90th percentile incomes are at 2/3rds the mean, and those in the bottom 50% of incomes, roughly 1/20th of the mean.
So the people with really high incomes (say, $300k+) seem to, as a general trend, also have substantial wealth, whether because they accumulated it, or already had it. It would be interesting to have more fine-grained data on net-worth distributions within each of those income categories.
A friend of mine left IB to found this: http://trotify.com/
Such a mission is probably on top of the Maslow's hierarchy [1]. Starting first by making sure you can sustain your family seems more natural to me!
Now I know that people went broke and miserable and also changed the world, but being happy feels like a achievement, too :-)
[1] https://en.wikipedia.org/wiki/Maslow's_hierarchy_of_needs
Maslow's hierarchy was never supposed to be a prescriptive account of how we ought to live.
I don't take the hierarchy as prescriptive either, I just noticed that it matched, mostly, my baby steps to change the world.
If so, then I don't think so. I am running a bootstrapped startup (https://www.wisecashhq.com) and sustaining my family right now (and I expect, 99.9% sure, that the startup will make a better future for them, as well).
This just requires picking a model where you can sustain your startup and your family, there's no need to dichotimize between both here.
I didn't understand what you mean with "it doesn't account for planning into the future"? I do believe that securing resources, health and property does account for planning into the future, actually.
That's ridiculous, and symbolizes what's wrong with the current startup culture. Fine, go ahead and change the world for the better, but a startup is a business and the primary goal of a business is to turn a profit. If you can combine profit and world-changing, that's great, but don't forget the priorities. If that doesn't fit you, start a charity instead.
Similarly, a business (but especially a startup) exists primarily to change the world, to disrupt an industry, or simply to do something in a better way. To do that, it needs to make money. Sometimes due to its pioneering nature, it makes an extraordinary amount of money. But its primary goal isn't to make money.
People do startups for a variety of reasons, one of which is maybe to make money. But like Evernote's CEO Phil Libin has said, it's not an easy way to make money: http://thenextweb.com/video/2012/04/27/evernote-ceo-phil-lib...
But I agree with the article that startup founders shouldn't be shy about making money. Startups should be realistic - without making money, they can't achieve their goals.
Of course if it doesn't at least break even eventually, a startup is not really a useful tool for achieving anything.
If the founders aren't interested in turning a profit, a charity will serve them better.
[1] http://www.taxresearch.org.uk/Blog/2013/01/07/companies-do-n...
Removing something from its semantically natural label implies that it's not fine.
But people don't, so I assume that goals don't work like that.
I might want to make the world a better place while still living in a nice house. Maybe that's not logical, but it seems to be the case that advancing your primary goal a short way with your money may not be as satisfying as advancing your secondary goal a long way with the same money.
I suppose a more formal way of expressing that idea would be to say that your goals are weighted as multiples of how interested you are in the results of those goals. If I value a world-changing company twice as much as I value a nice house, then all that needs to happen is that a given sum of money is twice as likely to get me a nice house as it is to get me a really nice company.
Which lines up with the idea that when your company is small and you don't have a lot of money it's probably not a good idea to be buying huge houses, but later on a few hundred k here and there probably won't make a lot of difference to the health of the company.
However, I also think you're confusing profits with wages. Non-profit organization employees can have quite high wages, but that doesn't impact whether the goal of the organization is to turn a profit.
There really is nothing wrong with being money driven. Ultimately, it's hard for your business/startup/company/corporation to make any significant difference to anything if they aren't established as a financially valuable organisation.
I think there are enough people striving to be rich in this world, and not enough people working to make it better. This is especially true of engineers. I find that most people I find trying to save the world are activists, while as an engineer, I know I can change the world in a very immediate and practical way. I'm fine with making a good $100k salary, I don't need to make $100 million to be happy. There's something to be said for a healthy balance between making a good salary, and doing something worth while. There are enough entrepreneurs just trying to get their social app to be sold to Google or Yahoo or Facebook. There are DEFINITELY not enough Engineers without Borders.
As for money there are various sums of riches that lead to various life scenarios. At 6 million, I could take a few years off, switch careers and "retire" with a careful eye to expenses. At 10 million, no real job necessary beyond hobbies. At 40 million, I could really invest in projects I believe in and make big differences in many peoples lives. (I currently do assist people and contribute time and resources to various communities, but having serious capital would allow for economy of scale...)
All said, I don't want money, I want the security and the leverage to do good for myself and others. No bling or bottle popping wanted...
I don't know if I'm there yet. If anyone has any advice for me, I'm all ears.
I'm reminded of the King of the Hill episode "Orange You Sad I Did Say Banana?" where Kahn (who always wants to be rich) becomes convinced that the should be in touch with his roots and not want or care for money. In the end he realizes that the people trying to convince him not to be rich are the rich people and he was happier being true to himself.
I came out and told my friends during one of our talks about being "real" artists. Some of my friends stopped being friends with me and I got closer to one of my friends that felt the same way. (she never said anything before because she felt ashamed.)
The biggest changes have been that I've been happier and I make more money than I ever did. I don't feel like I "sold out" or any of that nonsense I hear from time to time. I moved across the country and I have no regrets.
The downside is that my happiness is probably tied a little more with money than it was before. It can be really hard to see the positive side of life when a large financial burden comes along or I lose my source of income. Overall I think it's been a net positive change. If nothing else I don't feel guilty anymore.
Some very useful insights. I'm currently working on the same for myself.
I care, though, about the fact that money brings me time, and as such more freedom to do whatever I like.
I do not know where you took that from...
Most of the people (EU-based) I know that are bootstrapping their own (profitable, not dead) startup or service seem to be minded similarly, too.
I just make sure I have enough money to not have to think about money, so it actually gets out of the way.
I care, though, about the fact that money brings me time, and as such more freedom to do whatever I like.
These two statements are contradictory. The whole point of having it is that it is stored value that can provide you with the things you actually need; time, in your case.
Similarly, I don't care much about H alone, but I definitely enjoy H2O!
However, if you did not have money, you would either:
a) Be comfortable living the most basic lifestyle humanly possible.
b) Be working so you can afford yourself the lifestyle you want.
Clearly, you are not in group A since you have a more than comfortable lifestyle, so it's B. You did contradict yourself.
Later you divide the whole humanity in A, B (and C). I certainly do not consider this is correct, and believe there are many more cases to be considered.
I cannot see what could possibly go wrong, going from here, in terms of deciding that people contradict themselves, logic, etc!
Feel free to consider I contradict myself - I certainly do not agree.
To which you replied (but edited later):
Okay thanks for pointing out exactly how I typed my
paragraph. Did you offer any sort of rebuttal? No. Stop
being a baby.
I'm now back to my regular schedule, arms uncrossed (I rarely cross them, mind you), actually. Have a nice end of day (sincerely).
In many cases I've found trying to monetize content makes it worse. Not always, but sometimes the right choice from an intellectual perspective is to improve an existing article somewhere else, whether by editing Wikipedia, or sending in corrections to the Stanford Encyclopedia of Philosophy, or sending a documentation-related pull request to a project on GitHub. The alternative, if I put monetization first, would be to always find a way I could "own" the content: it needs to be published on my domain, where I get the credit and SEO and personal-branding out of it, and can put AdSense or Amazon Affiliate links on it. Instead of fixing the Wikipedia article or the docs, write a linkbaity blog post mocking their errors, for example, and submit it to HN. Not as constructive, but many people do exactly that. Decisions that are good for monetization don't always magically align with non-monetary goals like improving publicly accessible information, and sometimes they're in direct conflict. In that case, I don't think it's necessarily laudable to prioritize monetization.
Everyone his hobbies. If your hobby can land you some money so you can get a roof and some food, then you're already a good way to becoming an happy man.
I love to build cool shit. My salary does not matter to me. Of course, it is fairly high so perhaps I have the luxury to say that, but if my basic needs were taken care of, I'd be just about as happy just building things in Ruby.
But if you're like most of my friends you'll also have two kids and a mortgage. At that point your appetite to take risks is reduced because it's not just about you any more.
On the whole though I'd agree. The risk/reward profile of startups is pretty different to that of employment in a high paying industry. And I would be willing to bet that on average employment returns are higher than startup returns.
The mindset you describe is good to make yourself happy, and useful in that context, but useless to make your life better (by any metric).
I believe one can be both happy and have the ambition to continually make the world a better place through one's achievements.
I have no idea why we came down from the trees. It's quite nice up there.
Probably worth making that point separately in a later article. Thanks for bringing it up!
Edit - And please keep writing!
That's not necessarily bad, but it often is, and frequently has both bad personal and economic consequences.
Of course it's not even clear what we're talking about since "making money" isn't really defined in the article, and the kinds of salaries that are easily within reach of, I would assert, most professional HN readers (who are programmers), are airily dismissed with the claim of heavy taxation (which are actually near historical lows), and the costs of "maintaining a certain lifestyle" which is more or less a personal choice. If you are a person living in NYC or SF and you make $125,000 a year, and are unable to max out your 401k AND save at least a grand a month, then you are making extremely poor decisions. Now, that may not be the kind of money the author has in mind, but it ain't bad, and you can lead a decent lifestyle and save at the same time without much effort.
There is, I think, some small truth to the claim that there is more talk of changing the world in SV than at, say, Lehman Brothers, but I think it's slightly naive not to see that this is often a thin tissue over the desire to make money. Not too many people go into to business and don't want to make money and a lot of it if they can. Talk of changing the world is prevalent precisely because the current software revolution makes it astoundingly more likely that you can make money AND change the world. That's certainly not true if you start a bodega and probably not true if you start a hedge fund. But in software it is. Software companies are changing the world in ways that are both trivial and profound, and some of them are even making a boatload of money at it. I don't see a lack of people who want to make money anywhere. I see a set of people who recognize that they can potentially have an outsized impact on the world and make a lot of money because software makes this massively more likely than at any time in the past.
It just seems to me that the author both assumes a problem that doesn't really exist, and proposes an answer to said problem that is presented as more sure and easier than it actually is. But anyway I think the confusion is because we shift from getting rich at the beginning to "make enough money to be comfortable" at the end, so it's slightly confused: it's not about all out self-interested greediness he tells us, except at the end it is. And the social consequences of that mindset are just conveniently ignored. In the end there just doesn't have to be strong competition between the desire to make money and the desire to also do decent things in the world. It only seems that way when one of those desires (the first one) is grossly out of whack.
If you limit your world view to that group then I'm sure it seems like everybody is in it to change the world, and a goal of making money is not noble.
I'm not a part of that group, so I don't really see that at all. Nobody that I personally know has any problem with making money. Not that we're all chasing money either, just that there's certainly no conflicting feelings going on.
I hope people read this and absorb the message. If you're trying to hustle or build something the odds are already against, you can't afford to ignore "the making money part". To channel Mark Suster, ring the fucking cash register.
Given that venture capital investment is one of the best (if riskiest) ways to make money, I really think it is time to throw out the accredited-investor law and open it up to everyone. This will flood the world with startup capital, allowing more breathing room for real innovation (read: world-changing) to occur.
I agree that if no bottom line is made at all, you're in trouble. I can't find the post now, but there's a great blog post out there about realizing that you have to make yourself valuable to SOMEone, SOMEhow in a way that will make them pay you, whether you like it or not...
I wonder if this isn't over optimistic. I find it too easy to imagine that even more money would upend the productive world while frantically scrambling for the next hypersocialgamified instacandygrambook.
From the votes, I am apparently the only one.