It’s Time to Get Real About Your Finances

Moving from self-shame to self-love

I was born into a middle class family which knew nothing about money. At least nothing they were willing to teach me. Some in my family lived with chronic indebtedness, born of addiction, financial mismanagement, or self-loathing. Generation after generation racing to the bottom. Others in my family somehow flourished financially. Leading ostensibly “normal” suburban lives.

But it was all a great mystery. Why some in my family were haves and others were have-nots. So I grew up believing in the lottery of life: some of us would just never make it rich without divine intervention. Which was another way of saying there was nothing I could do to lift myself out of my circumstances, unless I got lucky. Mired in self-pity, completely disempowered. I had a vision of wealth born out of scarcity and envy. A poverty of the mind. I knew nothing about creating or maintaining a sustainable income, and was wholly unprepared for adulthood.

Society re-enforced my ignorance by perpetuating myths of GBTQ men involving ostracism, AIDS, and irresponsibility. Making it clear that there was no use planning for a future that would never come. We were doomed to die miserable and alone, my people. There was no hope of seeing our thirties, much less our retirement. So what use did we outcasts have for a 401(k)? Why should we start businesses when nobody would buy from pariahs? We were less living for the moment, than living as if there were no tomorrow.

Many heterosexual children are given a leg up in life. Parents help pay for initial mortgages, often as part of a wedding gift. Or they tuck tidy sums of money into checking accounts, just because. They groom their children for corporate positions through patrimony and influence. Recently this has been changing, but don’t let anyone ever tell you there is no American aristocracy. Little princes and princesses trained to inherit the world so they might perpetuate it. For future generations of happy, straight, white, cis men and women. Wrapped in a bubble of privilege and denial. Floating on, forever and ever, amen.

Too many GBTQ men on the other hand are kicked out of their homes. Left to fend for themselves. Carving a cleft in the rock of this world that they might climb into. Others are shunted to the corners of the family tree — ignored, or ridiculed, but certainly not invested in. In my case it became clear that there would be no safety nets. No guardrails. Everything I would earn I would have to earn myself. With my own two hands. Hustling. Driving. Pushing forward relentlessly. And that’s OK. I’m in good company. There are so many of us, of all genders, races, and sexual orientations who were denied advantages.

If you are a GBTQ man wondering how in the hell you will ever catch up to your straight peers of privilege, take heart. This article is for you. To give you the beginning of an education in a topic that is your birthright. Perhaps this education was stolen from you. Through the bigoted beliefs of your family. Or a society that would rather not think too much about who it banishes and the consequences of othering. There is a wealth of information out there, at your fingertips. Ready for the taking. And much of it free. All you have to do is acknowledge the reality of your situation, set aside your grief and your rage, and reach for it.

We are all born into this world in different circumstances. Some of us have parents who struggle to make ends meet. Others of us have families who have built wealth for generations. But the truth is all of us can learn how to be more financially free, no matter our mix of privilege and adversity. The road to freedom starts with our beliefs. When most of us think of “wealth,” we think of amassing large sums of cash. But wealth is much broader than money. It implies choice and opportunity. Freedom. Which means money is just a means to an end. And hoarding cash in a world of inequality is a moral minefield.

We achieve financial independence only when the cash flow from our investments exceeds our expenses. This independence can last a moment or a lifetime, depending on how we play our cards. It has nothing to do with how many assets we can accumulate. Cash is what you actually spend. That means cash is what you need. Assets are just a means to an end; a way to get you to cash.

It’s simple, really. But that doesn’t mean it’s easy. Sure the math involved is something that the average high school student could learn. But the art is in creating a life well-lived. The vision, self-awareness, discipline, and hustle. If it were both simple and easy, there would be a lot more gazillionaires. Financial independence is not a goal for all of us. We all have different values, wants, and needs. And the amount of money you have in the bank has nothing to do with your intrinsic value or worth.

We can be “wealthy” long before we achieve financial independence. To be wealthy we need just enough money to sustain our quality of life. To afford those choices and opportunities we hold dear. But we might still need to work a full-time job in order to fund that life. Or maybe even a full-time job with a side hustle. So that makes it different than financial independence. For example, you don’t have to be financially independent to start your own business. You just need enough money to cover your fixed costs and contribute to your variable costs, while maintaining your prudent reserve.

Wealth implies a certain price insensitivity. We can largely buy what we want without shopping around, or feeling limited by money. Or at least money is not a primary obstacle to our lifestyle. A wealthy life is based on relationships and experiences, rather than the accumulation of things. In fact the pursuit of objects for their own sake is one of the major pitfalls many experience on their path to financial independence.

Happiness is not tied to money. If you are able to pay your bills and feed your family, increased money often comes with diminishing returns. That means the effort you expend to make more money yields less and less happiness. It’s not that it makes you unhappy. It’s just that once your core expenses are covered, this extra money can’t compete with other facets of your life in terms of enhancing your daily experience. But even more importantly, the only way to keep something is to give it away. That is the true source of fulfillment.

Some back their way into financial independence through frugality. The old adage of spending less, saving more, and investing the difference wisely is perfectly viable. In fact it’s based on savings as a percentage of income and the rate of return on your investments relative to inflation. But what most don’t consider is the inevitable boundaries in this approach. There is just so far any of us can pare back our life and expenses. Often others are impacted: spouses, children, family, friends. So it’s just not viable after a certain point.

And at the end of the day, most start to wonder about all the experiences they are missing. Especially if they are young. Once youth passes us by, it’s gone forever. Money may come and go, but time relentlessly slips through our fingers. The extreme frugality and asceticism required by most to generate the required finances for investment can start to seem onerous. But luckily there are other ways to crack this nut.

If you are fortunate enough to have an income that allows you to save while paring back just a little on expenses, then you will generate a savings faster than you might otherwise imagine. For most of us this savings becomes our initial prudent reserve (6–12 months of anticipated expenses, depending on your situation). Sometimes life just requires a few thousand dollars from us out of the blue, so I recommend keeping your prudent reserve relatively liquid. In this case, I mean a savings account. Interest rates are at extreme lows at the moment, so those returns are negligible. But the value in this approach is in the liquidity of the investment (meaning you can draw from it a moment’s notice, with no fees). If you have yet to establish a prudent reserve, it likely means you are living from paycheck to paycheck. So you’ve got a lot of work to do. And this is job one.

After you have established a stable prudent reserve, it’s time to start planning an investment strategy and approach that works for you. We are all different. We have different wants and needs. And different risk tolerances. The key is to know yourself. And if you’re part of a family, it is critical you communicate clearly with everyone, so you can find an approach that works for all of you. This will likely involve compromise. But healthy communication now will save you massive heartache down the line. Focus on risks and rewards.

Ask yourself (and your family) these questions:

• How much money do I (personally) need (on an emotional, non-rational level) in my savings account in order to feel safe? What about for your family?
• How much longer do I want to work? What about your family?
• How much longer do I realistically think I can work (based on your anticipated mental and physical well-being)? What about your family?
• How much unsecured debt (typically refers to credit cards) do I (or we) hold? And what is our current repayment strategy and plan?
• How much secured debt (typically refers to mortgage, car payment, etc.) do I (or we) hold? And what is our current repayment strategy and plan?

Based on your answers to these questions, you can formulate an investing approach that everyone in your family can celebrate. As you can see, built into the questions above is the assumption that you can quantify your income and expenses, and then track and monitor those over time. If you have a simple financial portfolio, you might just use Excel to track this information. If your financial portfolio is more complex, there are numerous applications in the market to help you do this. The main thing is you track it reliably and consistently over time.

Also, implicit in these questions is the assumption that you pay down unsecured debt as quickly as possible (since this debt typically carries high interest rates). If you are not well on your way to eliminating unsecured debt, it is crucial you do this as soon as you have established a prudent reserve. In fact, paying down this debt is so important you might run low on your prudent reserve for a brief time. It just depends on the balance of your savings to your debt. In extreme cases, paying down this debt may not be an option. In those situations I advise you work quickly to either restructure your debt, seek outside assistance, or file for bankruptcy protection. Do not slip into a denial now that will cripple your opportunities in the long run.

When it comes to investing, there are several categories to consider:

• Paper (stocks and bonds)
• Business Entrepreneurship
• Real Estate

If you were to take a trip down to your local financial planner, most would hand you a form asking you basic questions about your income and expenses. Then they would put all that information into their magic box and spit out a list of recommended passive low-cost index funds for you. While this approach is certainly viable, there are several components you should be aware of.

First of all, very little positive growth and change has ever happened passively in my life. I have a bias towards action. I want to be involved. I want to understand where I’m putting my money. So I hate the idea of just handing a check over to someone, crossing my fingers and hoping for the best. Secondly, when money is involved I always want to understand the incentives of all players involved. If you have a financial planner, you might think about asking them how they actually get paid. If their pay is influencing their investment advice, it might be good to know about it!

But lastly, and perhaps most importantly, most of these financial planners will ask you all sorts of questions to which you will not have the answer. Things like “How long do you expect to live?” and “When do you want to retire?” And your answers to these questions are not trivial, where the math is concerned. Since there is no way you can know the answers, it means their calculation and subsequent advice will be based on a chain of assumptions.

It’s one thing for an insurance company to use actuarial tables for their customers in the aggregate. But in this case, your information is particular to you. And guesswork just isn’t good enough, based on the underlying math. Basically this approach is about developing a model of your financial planning in preparation for retirement. But models are wrong. That’s the whole point. If you are determined to work with a financial model, I recommend altering the underlying assumptions based on various criteria. That way you can stress test the results to determine a confidence interval, which over time might paint a picture closer to reality. But it will still be wrong. Maybe just not as wrong.

Investing inevitably involves risking capital on an unknowable future. The key word is “risk,” and risk management should be top of mind. Let’s take a look at the paper investment category, since it is generally what most people consider when they think of investing. It’s critical you understand the pros and cons of this investment category before dumping any money in it. The underlying math means that you need to be prepared for periodic drawdowns of up to 45%. And in history sometimes these drawdowns have lasted for years. In the most recent past, they have been brief, so while they have been news-making events, their impact on everyone’s portfolio has been somewhat limited. It’s the sustained drawdowns that should terrify you.

The math here is based on asymmetrically compounding gains and losses. For instance, if you start with $100 investment and you lose 10%, you actually have to make 11.1% to get back to even. A 10% loss equals an 11.1% gain to get back to even, which is what makes it asymmetric. But wait. It gets worse. A 25% loss equals a 33% gain to get back to even. A 50% loss equals a 100% gain to get back to even. You get the picture! But the math gets worse still. These are just mathematical relationships. But in the real world, it might take even longer for your portfolio to recovery, thanks to inflation, fees (which are often significant), unanticipated expenses, etc. That is a harsh reality all of us should consider before putting any money into this investment category.

But the good news is that over a long time horizon, this investment category will definitely pay off. It just won’t make you rich quickly. Have you ever read about a twenty-something millionaire getting rich by investing in mutual funds? Or other index funds for that matter? Of course not. The way to get rich quickly is by investing in other investment categories. So paper assets are great for the long haul, provided you can weather the inevitable storms along the way. And that’s also why earning wealth requires different strategies and tactics than maintaining wealth.

Business entrepreneurship is an investment category governed by entirely different math than paper investments. In this category, you are completely free from the compounding gains and losses that bound your paper investments. Which means you can make high rates of return very quickly. But the downside is time. Outside of love, time is our most precious resource. And you will find with any business you begin that your time is quickly drained. So you must take a long, hard look at your life before embarking down this road. Do you truly have the time and energy it requires to make a go of it? What will your friends and family think? If you’re young, you must recognize that you might be placing a portion of your youth on the line. That represents a vitality you will never reclaim. Are you ok with that? What sorts of guardrails can you create to ensure this business does not overtake your entire life? How can you leverage other assets (human resources, for instance) to regain some time?

The real estate investment category represents a sort of combination of paper and business entrepreneurship, when looking at the underlying mathematics. The upsides to real estate are huge. It takes little cash to get started (compared to paper assets) and little time (compared to business entrepreneurship). In fact, if you’re young you would do well to buy a small apartment building with a fully-amortized, fixed rate mortgage. If you live there you can simultaneously learn the ins and outs of being a landlord (while reaping the associated housing savings and tax benefits). The way the math works, by the time you own three or four buildings free and clear, you will most likely have achieved some level of financial independence.

The largest potential downside in real estate is the illiquidity of the market during times of credit deflation. If you own your property outright, you will be completely in the clear. You can just wait for the inevitable market return. But if you’re caught over-leveraged during a real estate downturn, you can lose your shirt. The problem is during these periods, supply often so exceeds demand that it’s impossible to unload your real estate for anything more than rock bottom prices. And if you need cash for any reason, it means you’re likely to lose a lot of money when selling your property.

Financial health is really quite simple, although putting the practices into place can take a lifetime of trial and error. Pay down all of your unsecured debt as fast as you can. Create a collaborative plan with your family to save more and spend less in a way that feels like abundance, rather than deprivation. Then invest the difference as wisely as you can, based on your wants, needs, values, and lifestyle.

There is no single path. No one-shoe-fits-all approach. It is both an art and a science. The “science” is the uncompromising underlying math behind each investment category. The “art” is the life you are living. The values you hold dear. The love that sustains you. That’s why it requires your active participation. So you can create a strategy specifically tailored to you. And build the life of your dreams. Such that you might be of more effective service to others.