#18 How to save sustainably (and break up with money worries for good)

Episode Overview

In the first of two episodes, Ryan and Terry explain their 6 week hiatus, and lift the lid on exactly how their approach to money management differs from what’s out there.

Key Topics
Mentioned Resources

Ryan:   Hello and welcome back to the passive income projects. Terry, we’ve been on a bit of a hiatus haven’t we?

Terry: I wouldn’t call it a hiatus, we’ve actually been quite busy. Haven’t we?

The last episode that we did with gab. We got a lot of people reaching out  excited about her story but there was this sort of theme or tone of cynicism That must be great for gab Gabs must be special

Ryan: but she is special

Terry: is special but what we found interesting was just how much Baggage we hold around this area  And doubt we have that it’s possible to do this stuff so  basically we’ve gone away and collated all the information to back this up because we couldn’t Explain exactly how it works and tell gab story in one episode that would have taken hours and hours yeah so we haven’t been doing nothing it’s been a hiatus from podcasting but we’ve definitely been doing a lot of work

Ryan: Yeah So it’s been a research block hasn’t it really

Terry: Yeah it has We’ve pretty much gone away and said  what happens do we need to compile and how do we need to communicate this So that People can say exactly how this works And I remember at the start of the podcast we said we’re going to give the listeners everything from the program and if you want to do it yourself you can do it yourself And this is us living up to that

Ryan: I don’t know It actually makes me a little bit nervous to think about

Terry: it’s the life’s work Isn’t

Ryan: Oh it’s like probably a good two years of just testing refining gathering experience evidence and now it’s just saying all right here it is

Terry: And what we’ve learned along the way we we started out with what works for us and then over time you start figuring out what just works Yeah And once those patterns start to emerge then we’ve just codify those patterns and that’s actually what we’re going to be talking about What are these patterns How does this actually work so that if you’re listening at home and you want to give this a go for yourself you can definitely do that

Ryan: Yeah And there’s going to be a lot of resources that come along with this episode as well So you’ve written a very in depth blog post

 Terry: I wouldn’t call it a blog I call it an ultimate guide

Ryan: a thesis

Terry: I did an honors thesis and this thing’s nearly as long as it’s not nearly as many references

Ryan: So there’s plenty of  evidence has a lot of research that backs this up now which is really cool And this is going to be part one of two part series It

Terry: That’s right Yeah So in this first part we’re really just going to discuss what did the source of money worries and stress  because the thing about gab story that I think is interesting and the thing we’re really trying to emphasize is it’s not so much the fact that she’s saving money that’s great but it’s more how she’s been able to do that and what our experience has been along the way She’s not somebody that’s Sticking to this rigid  approach She’s managed to find a way that works with her And we’re going to pull the curtains back on how this whole thing works because it is very different to anything that’s out there and we know that cause we’ve seen everything that’s out there it actually throws a lot of the conventional wisdom on its head Everything you’ve been taught and learned about how to manage your money it’s actually wrong So we’re going to be explaining why that is in this episode and then we’re gonna be showing you how to overcome all that in the second episode

Ryan: Yeah I’m really excited by this too because I think it’s so easy for us to attach ideas about investing or about having a certain amount of savings or all these different things  when we get to that point we’re going to be In this place of Nirvana Yeah it’s projecting outwards What we’re talking about is an internal state of know gab hasn’t reached financial independence but she feels wealthy

Terry: Yeah the key point and we talk about escaping the right race When we say that we’re not saying be financially free in the sense that you don’t have to go to work We’re saying get off the mouse wheel and there was a comment that gab made in that episode if you’ll listen to it where she says I actually don’t feel stressed about work anymore Cause I don’t feel like I have to Clore and scrape and scratch for that next promotion Cause I already feel like I’m on track and I don’t feel like I have to go and change who I am or  give up more of my time while off to earn more money Cause I’ve already spent it in my mind That’s what we’re talking about getting to that place

Ryan: Yep

Terry: And it’s so possible it’s very easy to learn In fact we teach it in 12 weeks really we’re just trying to explain how this whole thing works pull the curtains back on and  eliminate what’s in the why and where we go astray and why most of us struggle to save sustainably in this way where we actually enjoy the process

Ryan: yeah Cool So effectively what we’re saying is we all want to be free of money wineries and that’s the only reason we want money

Terry: that’s So if I said to you I’m going to give you $2 million but your stress is going to triple you You wouldn’t really want the money Would you Cause you think That having that money is going to help you stress less and when we explain why that’s not the case

 but that whole idea that assumption it causes us to focus on the wrong things  it’s almost like we fall prey to these ideas that sell us that That reality because we think they’re going to solve our stress problem with money And it just doesn’t work that way there’s 7 million Aussies that admit that they struggle to sleep at night because there’s something called Fofo which is fear of finding out Now Australia is supposed to be one of the richest countries in the world So if all these solutions are supposedly working and work why do we still feel poor It’s because they miss the core of money worries And that’s what we’re going to be discussing What is at the core of money-wise there’s specifically one question I’m going to work through that through this episode

Ryan: Yeah No So this is all about getting to a place where money isn’t a stressor in your life   Gabs a bit of a shining light where she feels like a bit of a Zen money master and there’s a lot of other people we work with that feel like that and it’s uncovering why that is what leads to that point in time

Terry: yeah that’s right And Yes It’s about helping you achieve your goals but without having to force yourself to live a life that you hate to get there or rely on willpower all the way Yeah Because it’s possible to do that but we’ll talk about why that’s a really bad idea later on and just stop wasting your time Cause we always talk about how time is the number one resource right So if you’re worried about money all the way along to achieving whatever your number is You’ve traded your most valuable asset which is your time Cause you spent it worrying for tomorrow’s money That’s no way to get wealthy I would actually argue that’s a way to get poor So we’re saying how do we get to the point  where you’re actually enjoying the journey on route to the destination

Ryan: Yep Yeah I love it So if you’re able to embed this method into the way that you manage your money I can promise you that you might spend a little bit more time mapping out managing your money but you will spend a way less time thinking about it Why less

Terry: That is what that’s categorically What Every one of our members sisters isn’t

it I just don’t spend any time worrying about money anymore I spend more time thinking about it but that’s because I spent no time thinking about it before so it’s not a huge burden on your time but the payoff is massive

Ryan:  it’s about feeling like you’re leaning on the front foot as opposed to on the back foot and reacting So it’s all about getting into that proactive  stance

Terry: spot on

Ryan: now I so where do we start

 Terry: So let’s talk about  the way we’re conditioned to think about happiness and success and all that sort of thing and how savings ties into all that because this is where we go wrong We go wrong with this faulty assumption in our mind which is the idea that if you just save more money then you’re going to stress less And that’s actually not the case Is it like we’ve seen and we see people that come to us and they know how to save They have saved They’ve got money set aside but they still stressing

Ryan: yeah we say this all the time Don’t we=   it makes me think back to a couple that we worked with where pretty much every time we spoke to them it felt like they were about a month away from bankruptcy but on the balance sheet they had a net worth in the millions but it was the way that things were configured in the way that they were managing their money And I guess the way that they thought about their money as well always made them feel poor  so the financial position doesn’t really matter As much as the way that your you’re working with it

Terry: Yeah A hundred percent And  we see it time and time again the guy’s account to us They have the capacity to save and sometimes they are saving but just that they’re not doing it consistently and they’re not doing it in a way that helps them Stressless  actually some of the time is stressing more about it So what’s interesting about this idea is that this whole thing of once I save more then I’ll stress less It’s just a derivative of another idea which is when you’re successful then you’ll be happy And the interesting thing about that idea is that we know that’s not true Yeah there’s a really cool Ted talk by a Harvard psychologist called Shawn Achor and he’s a guy who wrote the book called the happiness advantage to highly recommend checking this Ted talk out It’s very funny

Ryan: Yeah It’s not dry at all

Terry: It’s very funny but the key point that he makes as opposed to of psychologist is we know categorically now that it’s not Success that leads to happiness It’s actually the other way around it’s happiness that leads to success And to boil it down to one case stat that he brings in that talk  only two 10% of our longterm Happiness can be predicted by war We have our external reality but we’re spending 90% or more of our time worrying about changing that external reality instead of figuring out how do we change that internal reality Yeah so this idea it actually causes us to go down a garden track  And when we go down that track we fall prey to all these ideas where people sell us these shortcuts these solutions that promise to help us stack more cash because the implication being once you’ve got more cash then you’ll have less worries And it’s just never true

Ryan: yeah  I actually just finished reading a book called the Buddhist on death row And it’s a story about a guy in America his name’s Jarvis masters who got wrongfully convicted for murdering a golf ball I was in a juvenile he just happened to be a part of the gang that data And he took up Buddhism and has spent the last 40 years practicing while on death row that entire time So he’s been in  for 40 years and he’s been able to find  and in a state of enlightenment  yet there’s so many people living a normal life that can’t find that sense of

Terry: Yeah They’ve got an external reality That’s far superior but internally much poorer Yeah Yeah It’s interesting Isn’t it  So  this is Cottonwood leads us to talking about where we call them personal finance prescriptions it’s the barefoot bucket system It’s remade Sadie’s automate everything It’s all these kinds of ideas where it’s plan on a page just follow this and then guess what’s going to happen You’re going to say money then your life is going to be fantastic that’s what we’re talking about When we talk about personal finance prescriptions and Yeah full respect to these guys Like they’ve absolutely helped people save money when they haven’t been able to save money that I read all these books I used all these tools They’re actually great for doing that thing but they’re not going to help you stress less about money So when we talk about the holes and the gaps this is what we’re talking about How there is this  incomplete truth that these are going to change your world your internal reality when they’re actually not

Ryan: it gets confusing because it actually does help you stress less for a start because you feel like you’re doing something and it’s not till Lighter when life changes it starts to break down and you start to if you almost feel like a failure like I remember back to when I first got a job Thinking back he is now my first thought was all right let’s set up a an automated system 20% there 10% there

whatever and for me it was like Oh yeah I’m figuring this out I do this

I’m adulting

I’ve got this shit sorted I’m gonna be able to buy a car all

Terry: that

stuff

Ryan: Yeah And and it wasn’t until a few things changed And all of a sudden I was trying to make my lifestyle fit within 20% of my income and things like that And  then you start to shift money around a lot So you’re now working against that that system that you’ve created 

Terry: you feel like a failure too right

Ryan: you feel like yeah that’s it you start to say maybe I’ve got a self control issue

Terry: you internalize that failure recast it as one of your own character when an actual fact This rigid system It’s just not fitting your life

and that’s what happens like again I coming to us having read the barefoot investor having read roommates like this kind of book and I counsel us and I come with baggage they honestly think they don’t and have what it takes It’s about them instead of Really interrogating the system they use and said does that system work for me

Does

that system work with the way I’m wired  the natural inclinations I have or does it work against me and some of them do to a point but they don’t actually help you work with reality And that’s what we’re talking about Like they’re all about ignoring reality

Ryan: That’s the key point Yeah Yep

Terry: So what’s interesting is I think we see people  go to one or two ways like what you said Where it works to a point and then it breaks down and then you internalize a failure recast it as one of your own character or you go the other way If you’re an obsessive personality what you’ll do is you will form fit your life to fit that prescription

And

That’s not really freeing you financially That’s enslaving Yeah You are running your whole life based on what this formula tells you to do that’s not afraid of and what’s

Ryan: doesn’t make me feel free

Terry: what’s curious to me is if you go and read a lot of these fire bloggers it’s almost like they have a crisis of identity when they get to that number because they realized that man I’ve been destroying myself at this number and nothing’s changed Nothing’s changing here for me there’s a great blog on Reddit and I’ll put this in the show notes I can’t think of the title right now but  it’s in the ultimate guide I’ve got a link to it and there’s a guy who talks about how he basically ruined his relationship because of his pursuit of financial independence He ignored his partner and her wants and basically just dogmatically stuck to these formulas to the point where he pushed her out of his life Yeah that’s not freedom That’s nothing pairing about that so this happens all the time People tying themselves in knots and they get there and they realized they traded the time they had for that money that they wanted in the future And it wasn’t

Ryan: said

Terry: I was talking to One of our members yesterday And she said she’s got a friend who has nearly paid off her house And they’ve been working  for years to be able to do this which is a fantastic achievement But then she made a comment that really stuck out and she said then we can get back to living and and the member that I was talking to said we’re not doing that

Ryan: yeah

Terry: so what we see is there’s these two different types of people there’s people that fail and then collect these baggage and then start to convince themselves that it’s not possible for them They’ve got self-controlled problems and they just can’t figure it out and then you’ve got this other person who Form fits their life to these rigid prescriptions obsesses about it And yes they make progress and they achieve a level of success But what’s interesting is as soon as I hit that number what do they do They go and create another number So they’re always shifting the goalposts on themselves Never actually reaching that place This external reality it just doesn’t exist It’s a Mirage

Ryan: this is just society now right  it’s a feels like a disease where it’s once you get to that point the world tells you that you’ll always want more or that you should want more so if you don’t want more you’re not ambitious

enough

Terry: Yeah Yeah That’s right That’s the big one If you don’t want more you know what Ambitious I think that’s spot on And again like what we said before this is not us controlling our money This is money controlling us We’re not acting as the creator of our existence There were just a pawn in somebody else’s game So you’ve just tried it one rat race for another you might’ve achieved financial independence but the way you achieved it was you tried to one rat race for another

one And that’s

another one that you’ll stay on

Ryan: yeah So what’s the what’s that called when you’re continually pushing what’s the research behind always pushing that away into the future

Terry: Yeah It’s called hedonic adaptation

hedonic adaptation just this idea that we very quickly adapt to our external reality whatever that is So as soon as we changed that external reality and we get to that place We adapt again And then we look for another extended reality So it’s almost like we’re on this treadmill They call it a hedonic treadmill and it’s you’ve got this vision in front of you and you’re just running and you’re just going nowhere and ultimately it’s always a Mirage We run towards the Mirage We get there We realize that some Mirage and we see another Mirage So it’s this endless exhausting cycle where we’re focusing so narrowly on this one thing and ignoring the fact that internal change in state is what we’re after the external reality is almost irrelevant

Ryan: Yeah it always makes me think about  mindfulness and meditation where I think it’s it might be Buddhism as well Is it where they talk about if you’re always thinking about the future you probably gonna feel anxious And if you spend too much time in the past you’re likely to feel a sense of depression and the only way to really feel A comfortable state of mind is to be in the present And that Mirage is always just that future  state that you’re imagining that is different from now

Terry: Yeah And this gets to the source of money worries Cause fear only exists in the future So when we talk about what is the source of money worries this is where it’s really important to understand it is not a lack of money in the bank It is not a lack of money made every month What it is this question that basically rips us out of the present and takes us to the future and it’s this question that if it’s unanswered it just sits there at the edge of our awareness and it distracts us all day and it’s this one simple question Am I going to be okay if we can’t answer that question then we’re going to be stressed about money No matter how much we have I know people that are millionaires and still have this question so it’s just about getting to the crux of that

Ryan: yeah So pretty much everything we do everything we talk about is helping us  have the evidence available to ourselves to be able to answer that question

Terry: That’s why it’s the way we interact with money that matters We need to interact with money in a way that allows us to answer that question at any point in time And going back to what I said before about gaps comment I don’t feel like I need to worry about that next promotion or whatever And that’s because she can answer the question Am I going to be okay Yes I’m going to be okay I don’t have to go and change myself to try to get that promotion  or spend more time to do that because she knows the answer to that question Yes I’m going to be okay

Ryan: Yeah I think she’s still going to work towards it’s just not the rush is it I’m not feeling rushed to be able to have to do that right away

Terry: Yeah And I just I think the key point that she was making is when we’re narrowly focused on that next thing we’re not doing the current thing very well And because of the hat she’s actually better at a job She’s probably more likely to get promoted And this is the key point we’re making right change that internal state and the external reality follows Just get the order

Ryan: Happiness leads to success

 Terry: exactly So we need to be able to manage money in a way that helps us answer that question any day in any way

Ryan: Yep

And the result is the best version of you shows up to work The best version of you shows up to relationships all those things you make better decisions with your money because you’ve got a clear state of mind

Terry: Yep  What’s interesting about what you said before about Buddhism is that there’s actually these five hindrances to a clear understanding of truth and spiritual progress in Buddhism And one of these is doubt Yeah So what the Buddha says is basically to dispel doubt is to advance progress And so we need to manage money in a way that helps us dispel that doubt and this is way what we’re talking about differs so much from these personal finance prescriptions because those prescriptions don’t necessarily help you dispel doubt

that don’t really help you work with reality They actually sometimes make you ignore it They don’t want you to think about it They actually demand that you don’t just follow the prescription Yeah So none of those things help you answer that question necessarily So when we talk about the answer to this we need to figure out a why to help us feel that sense of contentment Now be able to answer that question

Ryan: Okay So if saving won’t save us and personal finance prescriptions aren’t helping what are we doing instead

Terry: we needed to adopt a mindful money practice and that’s what we talk about That’s what we teach it’s very different From the idea that there’s a formula that you follow that you just pick up this formula you read it on a page is playing on a page You go and implement it and then your life’s going to be grand and mindful money Practice is something you master is something that you work on It’s a skill that you develop a prescription something that you take And what’s interesting about a prescription Is it usually a prescription works For a set period of time for people with a very specific set of conditions and a very narrow subset of those people So I know for me when I first read the barefoot investor worked fantastically when I was 23 single had a steady paying job unbelievable for helping me save But then as we said before my lifestyle has to change I get a partner she’s got different ideas about money we’ve got to try to reconcile those We’re going to try to manage it together Big part of our relationship then we have kids we go and get it just as your life starts to get more and more complex there’s more moving parts These rigid prescriptions they break down they either break down or you force your life to fit them And yeah that sucks as we’ve discussed So the biggest difference is this mindful money practice that we talk about We call it money mapping it is designed specifically To dispel that doubt by dealing with the crippling question that creates it that question of am I going to be okay Everything that we do is designed to help our members answer that question Am I going to be okay

Ryan: Yeah So effectively what you’re saying is personal finance prescriptions are like bandaids to the problem whereas mindful money practices getting to the source it’s getting to the healing the wound from behind Yeah and like you mentioned before about it being a practice a skill that you develop over time I think of it like a muscle right It’s instead of us force fitting ourselves into these boundaries it’s more just building a muscle a skill and like any skill as people as humans we get a deep sense of fulfillment from being really good at something And this is one of those things where  Gabs a perfect example I myself personally know I love it it’s something that you get better at over time Yeah I remember we talked about Jiro dreams of sushi Lots of episodes ago which is the perfect  symbolic documentary about mastery of a certain skill

Terry: Yeah

Ryan: this is another one of those and you can get a lot of fulfillment at being really good at a mindful money practice

Terry: Absolutely When this starts to click it’s that’s the most satisfying part for me when I see this happen with our members because it’s literally like you’ve gone from feeling like you’re not in control You don’t have what it takes This is all very confusing too Hang on a second I know how this works I’ve got this sorted and that is an addictive feeling It’s a very empowering feeling it’s a catalyst I think for changing all these other areas of their life gab talked about how The work that she does with us it doesn’t just stop at the money So I think it’s just it’s just opened our eyes to a whole lot of other areas and this happens a lot

Ryan: Yeah It’s a gateway to personal

Terry: development

Yeah That  shadow area that we don’t want to look at But if we can lean into that discomfort we’ll actually see that money is not this monster it’s an illusion we’ve created and it’s been created for us And once you get through that you start to ask yourself if I can conquer this what else could I conquer Yeah and it becomes very inspiring in that way

Ryan: Yeah

Terry: So I really want to distinguish even further like what is the big difference between these two things So I think the best way to understand the difference between what we call mindful money practice for us money mapping our method And these prescriptions is the way we work with reality So there’s this guy Herbert Simon he’s passed away now Bless him but he was a very smart bloke He won a Nobel peace prize for economics and he came up with this idea of satisficing right And the main insight to this when you’re having to make decisions with incomplete information you can do one of two things You can find optimum solutions for a simplified reality That’s what we call a personal finance prescription

Yep Ignore reality Or warp it change it to make it suit or you can find satisfactory solutions for more realistic world Dassault were talking about we don’t warp reality We don’t simplify it We work with reality all times cause the more we work with reality the more we can deal with it and that really does get to the crux of that source of money Whereas when you’re working with reality you don’t have to live in hope You don’t have to hope the things don’t change  you can work with the smarter part of your brain to figure out what you want to do with reality so I think that’s the really key point to make between mindful money practice and these personal finance prescriptions Would you agree

Ryan: definitely And that’s just texts me back to a conversation I had yesterday with a lady where we were talking about the difference between a prescription in a mindful money practice and What we found with the prescription is we often use boundaries instead of having to make decisions which can be a dangerous thing because we actually remove your own opportunity to choose and create your life

Terry: That’s exactly right  you’re not controlling your money You’re ignoring it You’re not controlling your life You’re ignoring it And you’re absolving yourself of the responsibility to choose And as you say that choice is how you create your existence

Ryan: Oh the reality is money under arts Most of the experiences we want to create for ourselves  and If you remove your own ability to decide how you want to use it then you’re removing your own ability to choose how you want to create your life

Terry: You’re abdicating the throne You were the King and you basically said someone else run the show

Ryan: joker

Terry: That’s what’s that’s what’s going on so yeah so that is the biggest difference And that’s what we’re going to be discussing in the next episode Cause we’ve basically now codified how to cultivate this mindful morning practice Codafide into seven really simple principles

Ryan: Yeah So maybe we should run through those seven principles and  make that distinguishment between the prescription and the model money practice And then we can go really deep into it Next episode

Terry: Yeah Cool There’s a table and I’m going to refer straight from the table from this guide that I’ve written So you’ll see this table in the guide on the left you’ve got personal finance prescriptions and on the right you’ve got a mind for money practice for us money mapping so on the left personal finance prescriptions what do they do They focus on savings right We focus on funding life goals That’s what we do in a math money practice A personal finance prescription is a set and forget solution mindful money practice We calibrate it monthly personal finance prescription it’s based on the average month a simplified reality Whereas we base our plans and intentions on the actual month personal finance prescription helps you allocate new money that you’ve just earned We don’t do that with a mindful money practice We allocate old money that you’ve kept so that we can decouple earning from spending a personal finance for strips and works with percentages We work with real numbers at all times personal finance prescription is reviewed annually or never whereas a mafia money practice is reviewed monthly We always want to close that feedback loop as quick as possible And then the last one is a personal finance prescription is optimized for what you can save Whereas mafia money practice is optimized for how you spend and we’ll talk about why all those things are important in the next episode but that’s the key difference between what we’re talking about and these personal finance prescriptions =that= we’ve discussed earlier on the episode So we’re going to bring together all the science We’re going to talk about exactly how these principles work so that if you did want to start to try to build this skill for yourself you’d basically have a roadmap to do that 

Ryan: Want to give away  you will have literally everything you need tonight For us It’s been as we said before probably two years worth of a lot of hard work a lot of lessons a lot of obsessive experimentation and then a lot of research to find why do the things work so it’s definitely it’s pulling back the curtain

Terry: It is I feel a bit vulnerable but that’s all right that’s always a good thing but I think that’s the key point you make There is this is evidence based there is a lot of science behind this and we’re going to talk about that science in the next episode we’re not going to bang over the head with the research itself If you want all that you can go to the ultimate guide and it’s all there for you  but we’re going to work through exactly how all this works

Ryan: Yeah Perfect Where’s the ultimate God

Terry: ultimate God is going to be found in the show notes

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