Thursday, June 20, 2013

Money: Making peace with the past

The first step in the program introduced in YMOYL involves the following:

A. Find out how much money you have earned in your lifetime-the sum total of your gross income, from the very first penny you ever earned to your most recent paycheck

B. Find out your net worth by creating a personal balance sheet of your assets and liabilities

The purpose of this exercise is to get you to ground zero, to locate you in time and space. The authors emphasize that this should be done as accurately as possible, preferably to the penny….or at least to the dollar. In step B, you are supposed to add the value all of your assets that you could possible sell (craigslist, amazon, ebay). It took me some time to gather all this information. And I was definitely not able to count every cent that I have earned, or to put an accurate price tag on everything I own. But I did my best.

Here is what I found:

Total Money earned: 326,000 USD

My Net worth: -128,000 USD
(my student loan is the biggest culprit for this insane number)
My Consumer Debt: 9,858 USD

After going through step A, adding together all of the money I have earned through my life, I wasn’t sure what to think. I have no sense of whether this number is small or big. Actually it is a bit more than I expected, but still it is kind of abstract to me. If I had every cent that I ever earned in a saving account, I would be able to pay off my student loan. On the other hand, I would barely be able to buy a decent home for my family without a loan. It is perhaps shocking how much time and energy the average person spends in the labor market just to afford their house/apartment. I also can't help thinking about whether it was rational of me to spend all this money on my education.... I guess time will tell.

Doing step B, at first I was a bit shocked how little I have to show for my paychecks. I don’t really have any big assets. I don’t own an apartment, or a car…where has all the money gone? (well I guess food, rent, education, books, travels, clothes, too many cafe lattes....). On the other hand, going through every shelf and every drawer I was still amazed by the abundance in my life. So much stuff. So much luxary and convenience really, when you stop to think about it...

Not surprisingly I found my net worth to be negative (I thought it was nice of the authors to point that net worth does not equal self worth;)). I have managed to spend more than I have earned. In some sense this represents lack of freedom. Because borrowed money, is borrowed time. I owe many working days, in order to pay off my loans and credit card debts.

I have been super bothered by my credit card debt. Although when I look at the consumer debt next to these other 2 numbers, it doesn't look as overwhelming as it used to. But in any case. That is my first goal, to get rid of that consumer debt. At this point I am not sure how long it will take....a year? 5 years? but to start with this number should go down by some number of dollars every single month.

So the fog is cleared. I've stepped on the scale. No shame, no blame. This is where I am at.

And now I can start building up a healthier relationship with money.

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