Submitted by Charles Hugh-Smith of OfTwoMinds blog,
is serfdom, capital in all its forms is freedom. The only leverage available to
all is extreme frugality in service of accumulating productive
There are only three ways
to better oneself financially: marry someone with money, inherit money or
accumulate capital/savings and invest it in productive assets. (We'll leave out
lobbying the Federal government for a fat contract, faking disability, selling
derivatives designed to default and other criminal activities.)
The only way to accumulate
capital to invest is to spend considerably less than you earn. For a variety
of reasons, humans seem predisposed to spend more as their income rises. Thus
the person making $30,000 a year imagines that if only they could earn $100,000
a year, they could save half of their net income. Yet when that happy day
arrives, they generally find their expenses have risen in tandem with their
income, and the anticipated ease of saving large chunks of money never
What qualifies as extreme
frugality? Saving a third of one's net income is a good start, though
putting aside half of one's net income is even better.
The lower one's income, the
more creative one has to be to save a significant percentage of one's net
income. On the plus side, the income tax burden for lower-income workers is low,
so relatively little of gross income is lost to taxes.
The second half of the job
is investing the accumulated capital in productive assets and/or
enterprises. The root of capitalism is capital, and that includes not just
financial capital (cash) but social capital (the value of one's networks and
associations) and human capital (one's skills and experience and ability to
master new knowledge and skills).
Cash invested in tools and new
skills and collaborative networks can leverage a relatively modest sum of cash
capital into a significant income stream, something that cannot be said of
financial investments in a zero-interest rate world.
We hear a lot about the
rising cost of college and the impossibility of getting a degree without loans
or tens of thousands of dollars contributed by parents. I think my own
experience is instructive, as there is another path: extreme
At 19, my two sets of parents
were unable to provide me with more than a rust-bucket old car. My father sent
me an airline ticket to visit him, but nobody ponied up any cash for tuition,
books, or living expenses.
Step One was eliminating housing
costs until I earned enough to pay rent. By good fortune, I was able to
secure a work-trade housing situation: I was given a room filled with boxes of
accounting records, and a path through the boxes to a bathroom and tiny
kitchenette in trade for yard work.
Step Two: cut all other
expenses to the bone. Since I was working for a remodeling contractor, I needed
the car to get to the various jobsites, but I bicycled whenever possible to save
on gasoline. I prepared all my own meals and avoided buying snacks, drinks, etc.
until my income rose enough to swing such luxuries. I can count the number of
drinks or meals I bought on campus in four years on one hand.
Music purchased: none. (We
played our own music or listened to the radio on the jobsite.) Clothes purchased
new: none. (That's what church jumble sales/bazaars are for: $1 shirts, etc.)
And so on.
Step Three: find a job with
upside earnings and skills. I'd worked in snack bars and mowed lawns, but
construction opened up opportunities to advance my skills and gain sufficient
proficiency to deserve a raise in pay.
Since I wasn't guaranteed any
opportunity for advancement, I volunteered to work Saturdays for my bosses or
anyone else on the crew who had sidework on the weekends. I volunteered my
construction services to community groups to gain experience (there's nothing
like being responsible for the project, as opposed to just following orders) and
open access to new networks of productive, accomplished people.
For example, I rebuilt the
rotted redwood rear steps to the historic Agee House in the back of Manoa Valley
for free. (Sadly, this wonderful building burned down a few years
In business, the word "hustle"
has the negative connotation of high pressure sales or a scam. In sports, it has
a positive connotation of devoting more energy and effort as a means of
compensating for lower skills or physical size. Step Three requires hustle: when
you don't have any advantages of capital, connections or skills, you have to
acquire those by hustle and initiative.
Step Four: apply for obscure,
small-sum scholarships. $500 may not sound like a lot, but it means competition
will be lower and if you get it, that's $500 you don't have to earn. As you
build your networks in the community, put the word out you're looking for small
scholarships for next semester's tuition. In general, people tend to respond
more positively to helping you with a specific goal rather than an open-ended or
undefined goal such as "I need money for college."
Step Five: work productively
and ambitiously, i.e. work a lot but work smart. It never occurred to me that
working 25+ hours a week and taking a full load of classes (4-5 classes and 15+
credits a semester) was something to bemoan--I was having a great time, and
earned a 3.5 grade point average and my B.A. in four years.
60-hour work weeks should be
considered the minimum effort necessary--but only if those hours are 100%
productive work, not hours interrupted with games, phone calls, goofing off,
etc. Those 60 hours are flat-out, power-out-the-work hours, not hours diluted by
half-effort, distractions, etc.
Step Six: learn to do things
yourself that cost money, such as maintaining your car. It's not that hard to
change the oil and other basics of maintenance.
If you push yourself and
maintain a disciplined life, huge amounts of work can be ground through in a few
hours. This is as true of digging a ditch as it is of plowing through texts and
Tuition at the state
university I attended (the University of Hawaii at Manoa) has risen enormously
in the decades since I worked my way through college (roughly $9,000 a year
now), but it's still possible to work one's way through if the student pursues
all six steps assiduously and with perseverance and hustle and secures full-time
work in summers.
One reason I did not bemoan
working long hours and practicing extreme frugality was that this was still the
default setting in a few dwindling enclaves of our culture and economy. The
idea that you could borrow money for everything you wanted had not yet conquered
the culture and economy: thrift in service of big goals was still a cultural
In other words, what I did
wasn't heroic or unusual; it was the norm.
I should mention that my
university years overlapped with the deepest recession (at that time) since the
Great Depression: 1973-74. Work was hard to come by, gasoline skyrocketed in
price, and inflation started to outpace wages, especially in the low-wage jobs
typically available to college students.
It was not a cakewalk by any
The upside of relentlessly
pursuing Steps One - Six is tremendous: personal integrity, financial
independence, and the other powerful freedoms that accrue to these
foundations. Measured by income and things I owned, I was "poor." But
measured by independence and by skills and networks gained, I was wealthy in
many important ways.
Extreme frugality enabled me
to not just finish college in four years but to buy a (cheap) parcel of land
while still a student with cash and have a substantial savings account by
I don't look back on those
years of voluntary deprivation in service of independence, freedom, knowledge,
and social and human capital as "poor me:" I see them as the extremely positive,
productive template that I have followed in the decades since. I never did marry
or inherit money, and so whatever I have now is the direct result of extreme
frugality in service of integrity, independence and the accrual of capital that
can be productively invested.
The only leverage available to
all is extreme frugality in service of accumulating savings that can be
productively invested in building human, social and financial
Debt is serfdom, capital in
all its forms is freedom.