It's Not About The Money

Steve discusses an iPad purchase and its accompanying sheet music adventures. Tyler finds a surprise bank account. An acquaintance buys a house for cheap. 

Having cash available is doubly beneficial--it protects you from unexpected risks and it lets you take advantage of unexpected lucky opportunities. 

  • (00:00) - Esoteric spreadsheets
  • (05:37) - What is optionality?
  • (10:16) - Risk and luck
  • (13:19) - Savings gap
  • (15:33) - Steve buys an iPad for sheet music
  • (19:52) - Tyler squirrels away money so he'll forget about it
  • (21:31) - How do you define financial independence?
 

Links: 

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Steve Nay: 

Tyler Smith: 

Creators & Guests

Host
Steve Nay
Strategic tax advisor for solopreneurs. Enrolled Agent; Owner of Daybreak Tax LLC
Host
Tyler Smith
Financial coach for working professionals

What is It's Not About The Money?

Solopreneurs and small business owners: learn about leadership, operations, entrepreneurship, productivity, taxes, client creation, marketing, bookkeeping, and more.

[00:00:00] Steve: Alright, Tyler, I have a question for you that I, I have no idea what you're going to say to this, but, um, what weird things do you use spreadsheets for? Like a spreadsheet can do almost anything you want it to do. So I've seen spreadsheets used for all kinds of stuff and I'm curious what's what, what are the weird things that you use spreadsheets for?

[00:00:22] Tyler: Okay. I love this question. I have to tell you, I'm actually a recovering spreadsheet for everything person.

[00:00:29] Steve: Okay. I can relate.

[00:00:32] Tyler: but, uh, a few years ago, a friend of mine changed my life by telling me what he does. So he, uh, just has one spreadsheet now and it's called like the file name is "when you need a spreadsheet."

[00:00:48] Steve: Okay.

[00:00:49] Tyler: And so, because I used to have, like, I'd go, I'd, oh, I got a problem to solve, time to make a spreadsheet, go make a spreadsheet, throw it in my Google Drive. I just have like dozens of them floating around. I wouldn't know what any of them were for, you know. Uh, so now I only have, I have one, but, uh, I've, I've moved over to Notion and the, and so it's like, it's like databases now.

So spreadsheets are kind of in my past, but since you asked about spreadsheets specifically, I'm afraid my answer isn't too weird. Well, I think the one that, oh, well, okay, there's two. I'll mention there's one that, uh, and this isn't fancy, I don't even know why I do it, but every pay stub I enter into a spreadsheet.

For my job with all the deductions and everything, and it goes back like as, actually I'll look it up, it goes back many, many years, like since I had my first job ever. So I have, for some reason, I track all my pay stubs and, and, and a spreadsheet. And then the other thing that I use a spreadsheet for currently, um, is modeling my retirement contributions.

Like, you know, how, what percentage of my gross income do I want to save? Am I saving all the different, like, elements of that and like I play with, you know, what would it look like if I did this or this? And, and so yeah, nothing, nothing too crazy these days with spreadsheets. Like I said, I'm, I'm recovering.

What about you?

[00:02:06] Steve: Okay. Uh, what I, I wish that I had a spreadsheet of my paychecks all the way back. 'cause that would be fascinating to see, but I haven't done that. With all the, all the deductions and everything.

[00:02:20] Tyler: Yeah.

[00:02:22] Steve: Uh, let's see. The, the first one that comes to mind is I have one tracking my utility bills.

[00:02:30] Tyler: Oh, that's a good one.

[00:02:32] Steve: Most of 'em like the gas bill and the water bill, it's just the total on the bill. I don't have like, how many gallons of water we used or whatever. Uh, which, you know, maybe that would be useful to know, but, or interesting to know. Probably not useful, but, uh, but on the electricity side, 'cause we have solar panels on the house.

I used to get telemetry from the, the, what's it called? Not the transformer, the, the thing that converts it from direct to current to alternating current

or the other way around.

[00:03:08] Tyler: Yeah, you got me. I, I, I am a linguist and a musician. I don't know anything about that, but.

[00:03:15] Steve: Well, I used to get telemetry from the system on the side of the house right before it goes into the electric meter, off to the grid. Uh, that would tell me how much it produced every, every day. And then, uh, or, well, yes, and then total. I would total it up at the end of the month. Take the electric bill, see how much we had consumed from the grid, how much we had sold back to the grid, and then, Add in how much we had produced.

And then I had this, this cool little graph with four lines going on it of like how much electricity we used. Uh, but, uh, the, the telemetry piece broke when the, uh, the cellular networks turned off their 3G and, uh, yeah. 'cause it was, it was using a three G radio and I never, I never paid the $400 to buy a new module to swap it out.

[00:04:09] Tyler: Fascinating. Well, it's funny you say you wish you had your, you wish you had your pay stubs going all the way back. I'd be curious to know my utilities going all the way back, so interesting.

[00:04:19] Steve: I have, oh, there's another interesting one that, uh, I don't really keep up anymore, but it's the cell phone plan usage specifically about the data. And the interesting trend I've noticed on that one is that my data usage has gone up over the years, over the, uh, it was like 10 years that I've had that one.

But the price has largely stayed the same, which has been very interesting. And most of the plans I've had over those years have not been like unlimited plans. They've been capped at a certain amount, but the, the, uh, the caps keep going up and the price stays roughly the same. Uh, all else being equal.

[00:05:01] Tyler: Interesting. And you wouldn't know that if you hadn't tracked it in a spreadsheet.

[00:05:06] Steve: Yeah. So, I don't know. It's fun being a nerd.

Hello there. Dear listener, I am Steve.

[00:05:19] Tyler: And I'm Tyler, and this is, it's not about the money where we discuss a wide range of topics related to creating and running small businesses.

[00:05:27] Steve: Tyler and I are small business owners ourselves, and we are just trying to make sense of this crazy world. One podcast at a time. And today we are going to talk about something called optionality.

Does that word mean anything to you when I first say it, Tyler?

[00:05:49] Tyler: I was actually hoping you would explain it to me in the context of that you're hoping to talk about it in, but I mean, it's got the word option in there. So what it means to me at the outset of this conversation is giving yourself options.

[00:06:02] Steve: Mm-hmm. Yeah, that's the, that's the gist of it. So the way I see optionality is, uh, and this was kind of inspired by a book we read recently called The Psychology of Money, uh, where it, it talks about cash and having cash on hand, like might seem like a poor investment choice because you could be making. A lot of returns on it if you had invested it in X, Y, Z.

Uh, on the other hand, if you've got the cash available and something comes along that you want to take advantage of, uh, now it was worth having it sit there in a savings account earning nothing because you can take advantage of this opportunity, whether that's an investment or a purchase that you want to make or you want to take the family on vacation or whatever it might be.

Uh, but having that, Um, option there available. The, the freedom to be able to do something with that money.

[00:07:03] Tyler: Hmm. Yeah, I remember reading about that in the book and it kind of was challenging for me because I'm very much a fan of the, You Need a Budget method, as you know. And the, you know, rule number one in that method is to give every dollar job, even the money that you're saving, right? So you should be saving for specific things.

But in The Psychology of Money, he argues that. Saving money just because is a good thing. And I can't disagree with that, even if it like, uh, makes me a little uncomfortable from a budgeting perspective, right. Because I like things to be earmarked. But yeah, that's, that's what I, I remember distinctly having that, like, that was a challenge to the way that I think about things.

Uh, but I liked it and I think the reason. You know, I'm just realizing right now maybe why I liked it, even though it challenged me, is because subconsciously I realized that if I did that, I would just have money. Like, and that gives me optionality, right? It's like flexibility. That's so, that's interesting.

[00:08:05] Steve: Right. And, and I do still love the YNAB rule of embrace your true expenses. But, uh, a point they also made in that book was you, uh, you may not know what the expenses are going to be. You can plan so far as you can plan, but the things that you don't know are the things that you, by definition do not know are going to happen.

And so even just having savings that was not set aside for anything so that when an emergency comes up that you didn't think about, didn't plan for, well, it's okay. You've got the cash.

[00:08:37] Tyler: Right. I mean, I had a situation like that, uh, uh, in my past where I had the opportunity if I wanted to, to buy into a company I was working for. At the time, man, I wish real bad that I would've had a lot more cash just lying around. 'cause I, you know, I thought it was a good opportunity. I wanted to put in as much as I could, but I was limited by the amount of cash that I had on hand.

And so, I dunno if that's a good example to me of like, it would've been nice to just have been saving money just for, just because you know, you can get around, you can, you can work around the YNAB issue, just create a budget category called, Optionality or for, for my next unplanned investment opportunity or something like that.

Right.

[00:09:19] Steve: Yeah. Mm-hmm. Uh, when I was younger, I had a colleague at work who had bought a house in, I don't know, 2009 probably.

And I, I remember thinking this was a few years after that, and I remember thinking, how did he, how can he afford to buy this house? Uh, you know, how did it get into it? And now I realize, He was in a situation where he had the cash available.

House prices are really low because we just had the crisis in 2008. Uh, he's in a perfect position to buy something for really cheap that then five years later was worth a whole lot more than he paid for it. Uh, and if he hadn't had the cash just available or if he had had, um, already taken on a mortgage and was suddenly underwater on it because of the crash, then he would not have been able to take that opportunity.

[00:10:16] Tyler: Yeah, man, I love this. And it flies in the face of so many of the quote unquote financial gurus on the internet, on the TikTok, you know, did I just say on the TikTok, I'm officially an old person now. Oh man. Anyway. Or it's like, you know, never say, you know, you should be investing every penny, uh, in whatever the stock market.

Bitcoin, I don't care. You know, it's just 'cause any money that's just sitting there earning very little interest, although interest rates are going up right now, uh, it's just, it's just a waste-- wasted opportunity. Right. But the thing about saving money is it's, it's like a, uh, what's the opposite of a double-edged sword?

I, it's a double. It's a, it's a, uh, It's a double version of a trifecta. Nevermind. We're gonna go basically, it, it, it, it not only, it has two really huge benefits and it has to do with risk and luck, right? So like, if you have money sitting around, you're able to take advantage of lucky opportunities. And on the other hand, if you have money sitting around, you're protected against unplanned emergencies.

I mean,

[00:11:24] Steve: Yeah, I like that way of looking at it. It's doubly beneficial.

[00:11:28] Tyler: Doubly beneficial. There we go. Yes.

[00:11:31] Steve: So let me read a quote from, uh, Psychology of Money That's right along this, these lines, uh, "savings in the bank that earn 0% interest might actually generate an extraordinary return if they give you the flexibility to take a job with a lower salary, but more purpose or wait for investment opportunities that come when those without flexibility turn desperate."

[00:11:56] Tyler: I love that.

[00:11:57] Steve: So that's just kind of a, another way of, uh, explaining it of like, yes, I, I understand that the money is sitting in a checking, uh, account or a savings account and it's earning absolutely nothing but the possibility like the, uh, the risk insurance that that gives me. And also the optionality of being able to take an opportunity in the future if it presents itself is, is worth that cost for me.

[00:12:25] Tyler: Well, uh, let's do a tie in with the title of our podcast. It's not about the money, you know, having the money, you know, uh, I think this is a comment that you made earlier, which is, Having money in the bank can have enormous returns. I don't think, you know, that's not referencing financial returns necessarily, but it's returns in term in terms of peace of mind or whatever else, right?

Optionality like we're talking about. Like, everything has a price. Having money in the bank. If there's an opportunity cost, the price you're paying is maybe not, not getting your 12% a year return or whatever, you know, in the stock market. But what you might be getting as a return is a 50 x return when, when you get a random opportunity to buy a rental property, or, I mean, I don't know.

I'm making

[00:13:16] Steve: Mm-hmm.

Mm-hmm.

[00:13:17] Tyler: I, yeah.

[00:13:19] Steve: I think you had another quote that I really liked, and I don't remember where it was, but it was also along these lines,

[00:13:27] Tyler: It's from the same book. I mean, this might as well be the Psychology of Money Book Club, part two.

[00:13:31] Steve: part two.

[00:13:33] Tyler: But, um, it's that the, the biggest single point of failure with money. This is kind of a long sentence, so I'm gonna read it slow, slowly. "The biggest single point of failure with money is a sole reliance on a paycheck to fund short term spending needs." So, It's not that. So solely relying on a paycheck is bad in and of itself, but if you're relying on that paycheck for your shortest term, spending needs, groceries, utilities, rent, all these things, and you don't have a savings gap between what you think your expenses are and what they might be in the future, then that is a point of failure, right?

Because all it takes is missing one paycheck and boom, financial trouble right away,

[00:14:18] Steve: Okay. Yeah.

[00:14:20] Tyler: And so, uh, yes, there, there's multiple ways you can address this. Yes, you could get multiple streams of income, but that's not necessary. It could definitely help, and it's definitely a way to diversify, but also you could solve this problem by just having a buffer, right?

Creating a savings gap,

[00:14:38] Steve: Mm-hmm.

[00:14:39] Tyler: you're not reliant on that paycheck, that next paycheck for all of your short needs, short-term spending needs.

[00:14:47] Steve: I like that. So that could be an emergency fund that's six months long, so you've got a six month runway of you lose your job, you've got plenty of time to get a new one. Or it could be you're just like a one extra month ahead. And so you'll be okay next month and in the meantime you can cut things back.

Change your living arrangements, whatever it is, while you're finding another source of income.

[00:15:15] Tyler: Yeah, I mean the, the, the size of your savings gap is gonna be up to you and your personal circumstances. I mean, a lot of families I know have like a dual income, so they might need a smaller savings gap for those short term spending needs.

[00:15:29] Steve: Right.

[00:15:30] Tyler: But yeah, I.

[00:15:33] Steve: So I wanna tell you a story about, um, me saving for nothing in particular. My wife and I have our family budget, and then we also have fun money that I, each of us gets to do whatever we want with. And I, being a nerd, have a YNAB budget for that money. There's a,

[00:15:55] Tyler: This is why we're friends. Steve, I just wanna point that

[00:15:57] Steve: because we talk about this stuff all the time together. Yes. There, there's a line in that budget for savings. Well, okay, there's two lines. There's a savings line and there's an emergency fund line, uh, which sounds superfluous because this is just spending money. This is fun money to do whatever I want short term, but anyway.

[00:16:19] Tyler: you, you've, you've exploded a single line in your family budget into its own complete budget with its own emergency fund.

[00:16:27] Steve: Yes, exactly. Uh, right. Totally unnecessary. But because I did that and I had several hundred dollars sitting in there, when last year I decided I would like to buy an iPad because I want to be able to pull up sheet music on it for this choir that I'm in. Uh, I had the money and so I could buy the iPad and, uh, do the thing that I wanted just right then.

Uh, where, uh, without that I would've had to say, okay, I would like to buy an iPad. It will take me X, y, z, time to save up that money, and then eventually I can get it. You know, there's nothing wrong with that either. It's just not quite as fun as, um, like, oh, here's this opportunity. I joined this choir. I would've like to be able to read the music on here and also do a bunch of other things that I've always wanted an iPad for.

I can do it! 'cause I have the money here.

[00:17:21] Tyler: Yep. That is an amazing story. But I have to tell you, I got really distracted when you said that you wanted to use your iPad to read sheet music, because I'm a musician and I see people doing that, and it gives me the hugest anxiety. Like what? And it shouldn't, I know. It's like 2023 people can handle this stuff at like, what if the screen goes to sleep in the middle of your song?

What if the battery die? It kills me. I can't

[00:17:43] Steve: Uh, well,

[00:17:44] Tyler: with my music the whole time. But good

[00:17:45] Steve: is the problem. Okay, so I, I use it, uh, we'll, we'll go down this rabbit trail for a minute. I use it primarily in, in the choir during rehearsals, so I don't have to do anything else with my hands. I'm just holding the iPad. I can turn the pages, uh, if the screen turns off, that's fine. But I also use it for playing piano, accompaniments sometimes.

And that, uh, I do run into those problems all the time where I swiped the wrong way and now I'm on the wrong page, or the, the screen is starting to dimm and I

still need this. So I, I've got, yeah, it's, so that's a mess. And I don't, uh, necessarily recommend that, uh, as a pianist, but as a, as a choral singer, it works great.

[00:18:28] Tyler: and I do see people do it. I, there's a professional accompanist in the area here where I live, and she's all iPad now. And I just, you know, there I'm, I mean, I'm feel like, uh, oh man, I'm getting older. 'cause I'm like, I'm sure there's a setting. About when the screen goes to sleep that I could mess. I just haven't figured, you know.

Anyway, sorry for the distraction, but that was,

[00:18:47] Steve: no, one more

[00:18:48] Tyler: the Okay.

[00:18:49] Steve: before we leave this topic. There's a, the, the app that I use has a feature where it can watch your facial expressions through the camera. And if you, uh, if you pull your, your mouth over to one side, you can have it turn the page that direction or the other direction.

Uh, well, which sounds nice except, uh, then if you're, if you're laughing or talking or anything in the middle, all of a sudden your pages are flipping and you don't know where you ended up. Uh, so I don't use that feature anymore.

[00:19:18] Tyler: Oh wait, this is an app just for sheet music reading, like so there's an app for it. Okay, well that makes me feel a little better, I guess. That's interesting. I mean, you know, paper has its problems too. I played at a wedding once and the wind blew and my music was all flying across the field and that was terrible.

So, iPad wouldn't have had that problem anyway. Okay. Well thanks for sharing. Okay, so opt, so that's great. You were able to just buy an iPad on a whim because you had, you know, savings within savings within savings there. That, that's cool. Just for no reason.

[00:19:48] Steve: Right. Yeah. Optionality.

[00:19:52] Tyler: You know, that reminds me of a story from when I was in grad school.

This was before I was a regular budgeter. But, um, one of my solutions to not being a regular budgeter was to squirrel away money and hide it from myself in ways that I would maybe forget about it. And this is actually pretty common I've learned, is I've worked with people on their personal finances. You know, people have like a dozen savings accounts and I.

Uh, you know, hide money for themselves, essentially. Right. So I was doing that. So I graduated college, I went off to grad school. When I got back two years later, uh, I had an account that I had completely forgotten about at a local credit union that had like $4,000 sitting in it from, from like my job when I was in college.

Right. And see, I, I don't know if I can recommend that. I, I mean, you should know what, what, what is available to you. And it, it was just kind of funny 'cause that, yeah, that was the way that I, and you know, It actually helped me get a nice little head start. Um, as I got into my first job, started paying off my student loans.

So yeah, again, optionality.

[00:20:53] Steve: All right. Uh, we used to have a book, a big thick book, and it had a couple hundred dollars, uh, just in like $20 bills stuffed in between the pages.

[00:21:04] Tyler: Ooh,

[00:21:04] Steve: I don't know if it's still in there, in that book. We still have the book, but.

[00:21:09] Tyler: the kids probably found it.

[00:21:13] Steve: Uh, yeah, but, uh, kind of a similar reason to what you're describing of just there's, there is cash available on hand in the house if we ever needed it, but we will probably just forget that it's there and we're not ever going to use it unless something terrible happens.

[00:21:31] Tyler: So here's a, since we've been talking about this, I've just kind of been scrolling through my notes, uh, from the Psychology of Money, and here's a thought from it that's directly related to this. It says, wealth is created by suppressing what you could buy today in order to have more stuff or options in the future.

I guess that goes without saying, but

[00:21:54] Steve: You have a sacrifice, that principle of sacrifice.

[00:21:57] Tyler: yeah. And, uh, I think optionality has a lot to do with what people think of when they think about financial independence in general, right? Like

[00:22:06] Steve: Oh

[00:22:06] Tyler: it's, it's easy to think like, oh, I wanna be rich so I don't have to work. Okay? That's one definition of what it means to be financially independent. But, uh, Independence is more than not having to work, I would say. It's the ability to wake up in the morning and have some ability, you know, some degree of control over what you're gonna do that day. And yeah, I guess that's maximized when you don't have a job 'cause you're retired or something. Right. But, you know, you, you, the, the more savings that you have, the more that's likely to occur. And I like the idea that financial independence doesn't necessarily mean that you'll stop working. It just means that you get to do the kind of work you want to do with the people that you like at the times that you want to and that kind of thing.

[00:22:54] Steve: Yeah.

[00:22:55] Tyler: And I plagiarized that from the book in case anyone is, is wondering.

there you go.

[00:23:01] Steve: Right, and uh, and that could mean you're still working at a nine to five job, but then you one day decide, you know what, I'm gonna start a business doing something completely different, and you've got the runway to be able to do it.

[00:23:17] Tyler: and, and, and just like, I love the idea, you know, of being a full-time employee with the ability to quit at any time. Not because I want to quit. Because I could like, if, if, if it got too intense, if the, you know, the company changed or I got like a really terrible boss boss or something, you know, it, it's, that's kind of like an example of extreme independence while having a full-time job.

Right. The ability to not need the job for a while. That's a really powerful form of optionality, I think. Wow.

[00:23:54] Steve: and the, the sense of control that you can have over your own life is psychologically really valuable. Like I was reading an article recently, I. About, uh, return to office mandates that a lot of companies are, are going through at this, at the time we're recording this in 2023. You know, who knows what the, what this will look like in the future.

But,

[00:24:18] Tyler: Exactly.

[00:24:20] Steve: uh, but the, the, the study was something like the. Companies that were forcing it, forcing employees to return to the office, were seeing higher attrition or lower employee satisfaction or something than the ones that still had flexible arrangements or where the, the employees still had some say in where and when they were gonna work.

[00:24:46] Tyler: yeah. Uh, I remember in a previous episode you had brought up the hedonic treadmill, which is this idea that we adjust, you know, when we buy something new or shiny, We're happy for a while, but our happiness returns to baseline pretty quickly after that. And then we just have to keep buying more things in in this context or experiencing new things to kind of experience that high or that that happiness.

But if I remember correctly, in reading one of the articles I've read in the past about the hedonic treadmill, there are a few things that can permanently increase your baseline, and one of them was moving closer to work and having a shorter commute. So for people who are getting used now to not having a commute at all, It's like a powerful, like, it doesn't surprise me that people are pushing back really hard and going back to the office because it's actually some kind of like deep psychological thing that they're fighting against.

You know, they've, in theory, these people's baseline of happiness has been raised and now they're trying to like, you know, unintentionally probably, but, you know, push it back down and like, that's not, people don't like that.

[00:25:49] Steve: Yeah, and that, and that could be even if you didn't move out into the country, Because you think now my job's remote or you know, even if you're just still in the same house like I am, where I could commute back to the office that I used to go to every day before the pandemic. And it wasn't a big deal to me.

'cause that was just how we did work. And now, now my commute is just down the hall to the office, don't have to leave the house.

[00:26:16] Tyler: a better way.

[00:26:19] Steve: Well, optionality, I give it a 10 out of 10 would

[00:26:22] Tyler: definitely, definitely. And you know, again, it's funny, we talk about all these different angles on personal finance and different terms. Optionality is one of those, at the end of the day, almost remind everybody just spend less than you make. And you will have all these things. You'll have optionality, you'll have security, you'll have independence.

It's really not complicated. The tough part is figuring out how to behave in a way to, to, to execute on that.

[00:26:52] Steve: Mm-hmm. And then getting yourself to actually do it, because it, all makes sense up here in my head. If I could just get, get the guy in the mirror to do the things,

[00:27:03] Tyler: rational, but is it reasonable?

[00:27:06] Steve: Yeah. Mm-hmm.

[00:27:06] Tyler: To an earlier episode there, but yeah. Okay. Well thanks for a great conversation about optionality. Hopefully it stirred some thoughts in everybody gave you something to think about

[00:27:20] Steve: you can always write to us at hello@notaboutmoney.com.

[00:27:25] Tyler: and as always, we'll see you next time on It's Not About The Money.