[0:02]In 2003, professional boxer and heavyweight champion Mike Tyson filed for bankruptcy with $23 million in debt, despite having received over $300 million during the course of his career. Which poses a great question about money itself, because a great deal of our actions or our motivations in life have an underlying desire or need to acquire it. But what's the point in acquiring it if the great issue seems to be with our ability to manage it? 78% of workers in the U.S. were reportedly living paycheck to paycheck in 2017.
[0:41]Americans now have the highest credit card debt in history. You didn't learn anything. Debt is an invisible burden being carried by the country's most vulnerable.
[0:58]Of course, these statistics are reflective of the UK and the US, but consider for a moment your own attitude towards money and how money exists in your own life. What is money to you? Does it seem to enter your life and immediately leave once you have it? Has it ever placed you in a vulnerable position? A vulnerability that drew you closer to a get rich quick scheme or a guru telling you that you can get rich if you just bought their course? Whilst my entire channel aims to tackle these topics to some degree or another, I realized that our perceptions of money are sometimes more crucial than our ability to generate it. Especially when our very brains are wired in such a way that prevents us from being financially sensible. Does it really matter if you're earning more than six figures a year, if by the end of that year, you have nothing left to show for it? Where is the disconnect? It's time we solved that mystery, and not only that, but explore a better framework for understanding money, a framework commonly taught in personal finance, but oftentimes missed in formal education. The Money Trap
[2:09]A question. What is money? Or rather, what does money represent? When you make a purchase from Amazon, when you're paid for your time working at a job, what is the significance of money in these transactions? Money is commonly defined as a medium of exchange, an instrument that facilitates the sale, purchase, or trade of goods between parties. But I don't think this says much about what money actually represents. I think a better way of looking at money is an expression of value. You hand over a certain amount of money to purchase something because you perceive its value to be equivalent to the amount of money that you handed over. Of course, the price is often not determined by you as an individual but the market as a whole, but hone in on this one point. Money equals value. Why is that so important? Because often we give money a moral significance. A quote that I'm sure you've heard, money is the root of all evil. We look at someone who seems to have a large amount of wealth and think, they got lucky. Who did they take advantage of? Who had to lose in order for them to gain? And never, what value was created in order to generate that money? Understanding that money is simply value is the best way to understanding that money is not necessarily evil, nor does it make a person evil. Sure, there are things such as scammers who convince you that what they have to sell is worth value, but that doesn't say much about money, more so than it does their own morals. Money simply opens your options and broadens your horizons. The choices you make with that money have everything to do with your own moral dispositions. So, money is an expression of value. Now what? How does this change the reality of a person living paycheck to paycheck or someone who is consumed by credit card debt? The simple mention of money equals value changes nothing. It may make me see money in a different light, but what part of that is actionable advice? To answer that question, I'll pose you another question. What is your relationship with money?
[4:07]Money will come into your life and it will leave. This is a relationship that is often expressed by your income and expenses. Another practical way of expressing this, which I particularly like, is your production versus your consumption. For the most part, money will enter your life because you have produced some form of value, and for most of us, this value will come in the form of labor, a job. Money will leave when you have consumed something. A Netflix subscription, a new car, a house. In many ways, we can look at the net worth of an individual as a metric for determining their relationship between consumption and production. Now, cast your mind back to those statistics I mentioned at the start of this video. What part of the consumption versus production relationship do you think is at fault here? Consider yourself for a moment. Think about all the money that has entered your life and left. How much of that do you still have in possession today or invested into some sort of asset? And which part of this relationship do you feel is unbalanced or needs improving? The likelihood is both. But for most of us, the biggest issue lies in our consumption. Remember the career builder study that found that 78% of American workers were living paycheck to paycheck. Well, it also found that of the workers who made $100,000 or more a year, one in ten of them were living paycheck to paycheck. Now, you could argue that someone earning six figures a year may still like to earn more, but when you are paid a figure that is well above the average wage and the cost of living, and yet you still somehow find a way to spend it all, I'd argue that your relationship with consuming must be fixed before you even consider your relationship with production. As any wealthy celebrity who's filed for bankruptcy can show us, production means nothing when you have a problem with consumption.
[6:04]A rat race, an endless, self-defeating, or pointless pursuit. Sometimes the rat race is conflated with working a 9-to-5 job. It's a comparison often used by certain individuals to guilt you into buying programs and books for them, but this seems extremely unfair. Mostly because it aims to villainize a job and excludes the fact that there are those who either love or are perfectly fine with their jobs, or have other aspirations aside from their 9-to-5. A real rat race is one that is living on a financial edge, being one paycheck away from broke, constantly. A feeling as though the moment money enters your life, it immediately disappears. And the more responsibilities you have, the more dangerous this relationship becomes. The loss of a job, an unexpected health accident, or any unexpected circumstance for that matter can throw your entire financial position into turmoil. And consider the mental consequences of living on this financial edge. Your job no longer becomes an option. It becomes a necessity in order to keep funding your lifestyle or to keep paying off debt. To quote Tyler Durden from Fight Club, the things you own, end up owning you. What's the silver lining? It doesn't have to continue like that. The first stepping stone in personal finance will have you drawing an awareness to your relationship with money. This is often done by journaling your monthly expenses, categorized as housing, transportation, food, utilities, entertainment, and so on. It's about understanding yourself as a consumer, but this part is tough. In behavioral finance, this feeling can often be labeled as the ostrich effect, which is our tendency to want to avoid negative financial information. It's that feeling you get when you refuse to look at your bank account after a night out, fearing what it might show. And yet once you pass this stage, it's time for you to take control over your behavior as a consumer using a budget. This often involves the idea of budgeting. Deciding each month how much you aim to spend on each of these categories and sticking to it. It's about systematically looking at what you consume and finding ways in which you can minimize these things to ultimately live below your means. In other words, having a lifestyle that still leaves you with enough money to save and invest in some form or another. It's also important to note that before you ever decide to invest, one of the most common practices in personal finance is to keep an emergency fund, a specific amount of savings that you hold onto in case of an emergency. This fund would typically hold three to six months worth of expenses. The idea, however, of living below your means is an important one. Because why would we choose to do otherwise? Why would we choose to live a lifestyle that we cannot afford or one that places us on this financial edge? I could make an entire video on our cognitive biases. The ostrich effect is just one of which can affect your financial position. Then there's hyperbolic discounting, a tendency to favor short-term rewards as opposed to greater rewards in the future. This is you choosing to purchase a new pair of shoes instead of saving that money towards a future investment. Or there's social proof, our tendency to think and act as others around us think and act. When the people around you are buying one thing, you buy it too, or when the people around you establish money as a means of evil, you're likely to assume the same thing too. The phrase keeping up with the Joneses summarizes this great problem of consumption. It's a phrase defined by Google as trying to emulate or not be outdone by one's neighbors. They buy a new Porsche, you buy one too. They have nice clothes, you get some too. They renovate their home, you do it too, all in the attempt of impressing or trying to keep up with others due to some form of social pressure. Only in today's world, the Joneses are not literal neighbors. They're far more present than that. We are all vulnerable to social approval. We really care what other people think of us. But the problem is we're measuring our self-worth by how many people like what we're posting. Governor of the Bank of Canada stated it succinctly for most Canadians, debt is a fact of life at least at some point.
[10:08]To be clear, I'm not saying that purchasing an expensive piece of clothing, jewelry or a sports car is a bad thing, nor do I think consuming is a bad thing. The aim of this video isn't to philosophize about the repercussions of a materialistic view of the world. It's about drawing an awareness to who you are as a consumer. Do you care more about appearing as though you have wealth or actually having wealth? The rat race isn't about working a 9-to-5 job, but living life on such an edge that it means that you are chasing the next thing. Whether a paycheck or a material possession, such that your greater life goals and ambitions are placed in the background in order to continue this race. A budget and keeping account of your expenses have proven time and time again to work and draw you out of this race. It's fun to talk about making money or imagining having as much wealth as possible, but what's the point when your relationship with money as a consumer means losing it all or having to work non-stop in order to fund that lifestyle? That is the real rat race. But with all of that being said, let's talk about making money. Now, the stuff we teach here and have for almost 30 years, is proven. What's up you guys? It's Graham here. So, we got to take a moment and talk about what's going on in the stock market because as we're finishing up the week, stocks are up. Personal finance channels like Graham Stephan or Dave Ramsey are great for learning how to work on your consumption side of the equation. But if there was one thing I wish they spoke more about, it would be their ability to make money. And I understand why they don't do this. It's easier to reduce your expenses and the amount that you consume than it is to increase your income. When speaking to a mass audience, giving the advice that will work for most people is typically the best choice. We see that there are entire communities built up around focusing on frugality. The Fire community is one example of this, a movement that adopts the strategy of living extremely frugally, saving and investing as early as possible with the intentions of retiring as early as possible. Minimalists also share a similar view to the Fire community, although more deep-rooted in philosophical positions about the world and materialism at large. People like Graham Stephan or Dave Ramsey promote strategies that fall in the spectrum of living frugally, saving a lot of money and investing in the long run. And there's nothing inherently wrong with this strategy. It works for a wider range of people with varying degrees of income. But let's be honest, Graham Stephan doesn't rely on cutting coupons or living an incredibly frugal lifestyle to be making $100 to $200,000 a month from YouTube. Nor does Dave Ramsey rely on these strategies to have an estimated net worth of $55 million. These people are utilizing a means of production at mass scale. In my video, The Untold Truth About Money, I talked about money being equivalent to your perceived value in the market. And the most impactful way of increasing your value is finding a problem in the market, creating a solution for that problem, and selling the solution to the market at scale. This is the entrepreneurial route. A successful business at scale is able to produce a large amount of value to a society such that your production side of the equation grows exponentially in comparison to a standard job. But this isn't a route that everyone can take, nor should they try to. It's about reflecting on your own capabilities and whether entrepreneurship is best suited to your direction. With that being said, increasing your production doesn't have to just come from the strict definition of a business. Graham Stephan uses YouTube as a vehicle to produce something, in this case, videos about personal finance at mass scale. It's one reason that I chose to create videos on YouTube as well. It's a vehicle to produce something, in this case, documentary style videos at a mass scale, to a point where I can now do it full-time and build a business around it. Producing is about providing relative value to the market in some shape or form. I utilized my skills with acting, presenting, storytelling, and video editing to create videos that I hope to be somewhat entertaining and educational. And thankfully, the market responded positively. Your form of production may be developing an app or software that is solving a problem you believe the market would pay money for its solution, or perhaps a fitness brand that is branded extremely well and utilizes its community better than most other fitness brands. As I believe is the case with Ben Francis and what he did with Gymshark. For most people, labor in the form of a standard 9-to-5 job will be their means of production. But this doesn't mean that your ability to produce stops there. Understanding yourself as a producer is about understanding ways in which you can produce value to the market. If you can produce value at a large scale, then it means earning money at a large scale. The internet has thankfully provided a great deal of opportunity for us to be able to produce something and put it out to the market. Whether the market actually wants what you have produced can only be determined once you've released whatever it is that you've produced. So, to summarize, it's first important to bring awareness to yourself as a consumer, understanding what you purchase and why you purchase by journaling your consumption and then giving yourself a budget to manage and control that consumption. Producing then becomes a matter of maximizing the amount of value you can bring into society through a job, a business or some other means of production. This is a framework that has helped me greatly, as I'm sure it's helped countless others who have a vested interest in making money. It's going to add up to something big. Like, this isn't just sushi we're talking about anymore. Like, this is, this is substantial. Yeah. And then to go from that to like this. Focusing. That is that $170,454. Yeah. That's insane.
[15:41]Hello, hello my friends, before you click off the video just yet, I want to say one thing, thank you so much for watching to the end of this video. You watching to this point is hopefully proof that I've provided some kind of value to you in some way or another, so be sure to hit the like button. And if you want to see more videos around the topics of business, money, finance in general, then be sure to hit the subscribe button. I've also got a Patreon where I post behind the scenes stuff and I do questions and answers and I've got a bunch of other exciting plans for it, so if that interests you and you'd like to support the channel further, do check it out. The link is in the description below. Now, for me personally, combining what I know about personal finance and entrepreneurship has really helped me the most, and as I mentioned, this YouTube channel was one way in which I knew I could produce some kind of value into the market at scale. If you want to do more extra reading on the subjects if it interests you, there's two really good books on personal finance related stuff. The Millionaire Next Door and Your Money or Your Life, these are really good personal finance books. And of course, if you know me, you know I really love MJ DeMarco's work, so check them out if you want to also see the entrepreneurship side of stuff. But with all of that being said, my friends, I hope you have a wonderful rest of the day. I will catch you in the next video or on my Instagram or Twitter if you have me on there, as usual, hand to head, salute.
