Financial Education: How the Sausage Is Made Vol. 3 (transcript) (Patreon)

By Sam

Hugo writes; Hey Sam

How can someone living check-to-check plan any kind of retirement?

Dear Hugo,

If you are literally living paycheck-to-paycheck and all of your money is going directly to bills, then you can't plan for retirement. Retirement accounts are about using today's disposable income for future spending. If you have no excess, then you have nothing to earmark for retirement.

Suppose you have a steady job with retirement benefits and debt that doesn't have to be paid off for a very long time. In that case, one of the least expensive ways to save for retirement is to allocate a small percentage of your paycheck directly into your company's retirement plan. This will also give you some tax advantages.

In addition, if your company has matching contributions, where they match your contribution up to a certain percentage, this will also boost your retirement savings. If you can afford to put money away, matching contributions is something you should consider because companies offer it in place of better pay.

Even with all that said, will this prove to be enough money to live on, especially as people live longer? Probably not. Poverty doesn't end because you get old; it often gets worse. This is why we need more social safety nets, if not outright abolishment of the capitalist system.

Kahlil writes, Yo Sam

Can I abandon credit and live?

Dear Kahlil,

No, because that assumes some sort of autonomy over credit which you do not have. You might be able to find yourself in a situation where your credit isn't a factor, but that window shrinks the older you get. If you live with your family and they own their home, for instance. If you don't own but rent, you will need credit, or someone you live with will need credit. But using someone else's credit isn't really abandoning credit.

Credit checks are also used for most jobs. If you're incredibly wealthy, you also won't need credit because you can pay for everything upfront and either don't need a job to live or can get a job through nepotism.

However, not needing it is not the same as abandoning it. You can't abandon credit even if you wanted to; otherwise, everyone with a low credit score would have already abandoned it. There's also a separate credit system used by the banks. If you have a negative record with the banking system but were lucky enough to get a job, how will you cash your check without a bank account? This is where predatory finance comes in again.

Then there's rental history which is its own form of credit where once evicted, you either won't be able to rent again or be subject to predatory rental practices. Both of which are legal. Really think about that. In the US, being denied housing is legal.

This same punitive financial system also applies to countries. That's something I want people to really understand because if you hate being victim-blamed, then don't victim blame countries who also have to play by the same rules you do. If you want to say, "Well, that's not the fault of the financial system," then we can also say that about you.

H writes; Dear Sam

What is the simplest and safest place to start investing?

Dear H,

There is no simple, and there is no safe. Capitalism doesn't promise you equality or even a better life—that requires guarantees. Capitalism promises the poor nothing. You're not even guaranteed to stay in your current financial situation because even if you're poor, there's always the risk that you can become poorer.

There's even a risk to improving your life because using your savings to invest could also mean losing your savings and ending up poorer than when you started. Starting a business makes that even more likely. This is how fucked up capitalism is. The only paths for social mobility can leave you worse off than when you started. It's not carrot or stick; it's carrot and stick.

Why there is no simple is because understanding regulatory rules to investment strategies are not things most people learn in school. Not to mention learning how to use online or mobile investment platforms. It's similar to learning a new language as an adult.

Some platforms gamify this learning, but this also induces gambling behavior, except your playing with real money.

There are three risks to investing: the market, the platform, and you.

You have been conditioned and traumatized by a capitalist superstructure, and the investing platform will try to use this knowledge to influence your behavior. The market itself might scare you into making rash decisions. Or crash on you when you need your money most. That often coincides because if the market is crashing, the poorest people will feel it the most, which means they will need money, which they might no longer have.

The rich will fuck up the market and make the poor pay for their behavior. Then when the poor sell out, the rich will buy their stocks cheap, then later sell it back to them at a profit and repeat this cycle over and over.

If you have the money and the want to invest and the time to educate yourself, then remove yourself from the equation. And by money to invest, I mean money outside of your emergency savings. Emergency savings being the money you'll need if you lose your paycheck-to-paycheck job.

The simplest and easiest way to invest then is through your employer's retirement plan. The second would be starting your own individual retirement account (an IRA). How much you can contribute is based on the type of retirement account and your age. So you'll want to double-check as those figures change over time.

Figuring out what you want to invest in may take a couple of days of investigation, but once that's done, making your contributions automatic will have you spending less time on the platform, less time checking the market, and make your investment decisions less impulsive. Automatic contributions will also give you the advantage of dollar-cost averaging.

However, you'll want to keep your eye on your financial situation and see if there are times you need to turn off automatic contributions.

The advantage of an IRA is the flexibility. IRAs are for everyone; you can be employed or self-employed and still open one. You can open one even if your employer offers their own retirement plan. You also get more investment options, which can mean paying less in fees. Many employers have relationships with financial institutions, which might mean limited investment options and higher fees.

Investing outside of your retirement means you not only have emergency money but have also maxed out your retirement contributions with money left over.

Who opens up non-retirement accounts? People who don't want to lock up their money until they're 59 ½.

However, there is some leeway with retirement accounts, such as taking money out for a home or borrowing against your retirement.

If you want to invest outside of a retirement account, you should still use a similar strategy for your individual account as you would for your retirement account. 

Going back to end times investing—is only having money in an account you can't touch until you're a retiree the best idea? Maybe not. But unless you're already rich and can do insider trading, the only protection you have is time. Of course, rich people also have time along with numerous other advantages. But for you, time is the ONLY thing you have.

The longer you can keep money in your account, the better. And by longer, I don't mean five years but decades. This is why investors who are not wealthy only hear about retirement accounts because anything shorter term might mean not staying in the market long enough to withstand downturns. But, of course, there is still the chance that even after waiting decades, you can retire during a massive market downturn. But if you need that money to live and you can't wait for the market to recover, what are you supposed to do? You're fucked.

This is why as people get closer to their retirement age, they begin to convert their equities into something more stable, such as fixed-income securities or just cash.

The extremely wealthy can work until they die, even if they probably shouldn't. Who will fire the old politician, Supreme Court Justice, or CEO?

But for everyone else, there will be a point where capitalist society won't want them in the labor market. So fixed-income can make sense for people looking to preserve what they already have. Eventually, you have to give up on chasing the American Dream and realize you're never going to catch that carrot.

Rosa writes; Dear Sam

My family has been poor my whole life. Calls from numbers I don't recognize freak me out. Thinking about money stresses me out. Is this normal?

Dear Rosa,

Yes, this is normal if you're poor. Just as you can financially dominate and oppress people, you can also be financially traumatized and dominated. How can you enforce an oppressive system if you don't cause enough fear to elicit trauma? Just like other forms of trauma from oppression, it is meant to reinforce the system.

Part of liberation means not only dealing with trauma from white supremacy and misogyny but also financial trauma from capitalism. This also means deconditioning, so we don't replicate those same behaviors. So we ourselves don't reinforce the carrot and stick.

J writes; Hi Sam.

I find myself extremely torn when I meet with my financial advisor. I set aside stuff for retirement and all that knowing it is such a privilege and is using the system to my benefit. But what am I supposed to do? I don't want to be without a safety net, for my partner to be without one. He has zero retirement and lives a total subsistence life, BUT he really benefits from my financial means and my family's privilege. I don't come from money or something but was taught how to deal with money. I do have hundreds of thousands in student loan debt. Is it worth trying to invest in stocks/companies/funds that are socially conscious? Is that even a real fucking thing? 

I am self-employed, private practice, and sometimes it feels unethical to work with big companies, but not doing so would make it impossible to work for myself and support my family. How does one balance their safety and security with knowing it is on the backs of people all over the world? What should we give up? How much?

Is using my money to directly support people on GoFundMe actually useful, or does it actually support a barbaric system, namely supporting crowdfunding instead of national healthcare and social safety nets? Why is talking about this taboo with lefty circles?

Should I boycott Amazon or other national retailers?

What are the worst ways to use money/spend money/donate money that feeds the system and perpetuates disparity?

Hi J,

If you feel torn, it means you have a functioning moral compass. If you feel torn for the rest of your life, it means you stayed honest with yourself.

To your first question: is socially conscious investing a real thing? No. But using your money like a supervillain is definitely a real thing, like investing in the military-industrial complex, cigarette companies, alcohol brands, and oil companies. Some ETFs will avoid buying any companies like that. You can be more precise with individual stocks, but many of the companies you might feel good about aren't publicly traded. REI, for instance, is a co-op, and Patagonia is still private. One metric people might want to consider then is looking at employee satisfaction.

Recently, there has been a lot of negative press about meme stocks and crypto, especially since they became popular. Still, if you compare them to the top 100 companies, it would be hard to say they're worse. The problem with the trendy meme stocks and cryptocurrencies isn't that they're colonizing the Global South, it's that they're speculative. So though the top 100 companies will do more evil, they're more likely to be around for the long run than a speculative crypto about a Shiba Inu. These companies will ruthlessly do whatever they can to remain dominant and eternal.

Why they'll last is also why they're worse and vice versa; they're entrenched into the fabric of our reality, whereas crypto and meme stocks don't have that hegemony. They can come and go, which is why they have a worse reputation, but also why their harm is limited in scope. It's comparing gambling to Amazon. Is gambling worse than Amazon? No. But are you more likely to lose your money gambling than with Amazon? Yes.

Inversely, fixed-income securities like US government bonds, notes, and bills may be less speculative than meme stocks and crypto, but you are directly funding US imperialism.

Capitalism has us confusing personal safety with morals, but they're unrelated. Safe can be evil as fuck, and risky can sometimes be pretty benign as far as harming anyone outside of yourself. For instance, people buy gold for safety, but gold also comes with private armies that oppress small countries and massacre locals. (Look into Canada.)

This also goes to your question about, "why is this taboo?" Well, with what I just laid out, there is no good answer. It's all degrees of bad or, at best benign. Many lefties want to believe there are purely good solutions for every situation, so they will also attack socialist movements and revolutions for not finding an absolutely moral path.

Rather than admit sometimes there is none, they'd rather not talk about it, which does more harm than good, just as not talking about your feelings does more harm than good.

The second reason this is taboo is because of financial trauma. For many people, it triggers shame, anger, anxiety, and panic. Most lefties are utopian idealists who are poor. For all these reasons, this is not a pleasant conversation for lefties.

I'd add one more thing, which is more an indictment of US education, but anything related to finance, economics, numbers, and math is misery for many Americans. A lot of it might be related to how schools use the factory system and categorize kids. Nerds and jocks. Math person, not a math person.

Many Americans never learned to enjoy math and bought into the idea they aren't a math person. But, unfortunately, the educational system has defined them, and part of deconditioning from reactionary culture is letting go of these artificially imposed limitations.

With your implied question about student debt, it seemed to ask whether you should invest or just pay off your student loans early. Some of that depends on whether your loans are with private lenders or not.

If it's private, based on the terms, there is a possibility the loan moves on to your family. Also, if you take out loans for your children, they can pass on to them if you die. If you're in these situations and you don't want to possibly burden your family after you're gone, it may make more sense to pay off your loans.

If you're not in this situation, it might make more sense to stick to your payment schedule and not go beyond that since student loan interests tend to be relatively low and tax-deductible (unless you make too much money), and the loans themselves come with more deferment options. For some people with hundreds of thousands in student loans, it's a loan they'll carry until they die, extending the timetable through refinancing (so long as they qualify), and whatever they have left when they die will be forgiven. So that also has to be considered.

Why can they forgive this loan? Because the federal government can dismiss these loans outright at any time because even student loans are backed by the US government.

The US government deferred payments for student loans throughout the pandemic, and it did not collapse the US economy. They also had an eviction moratorium. The housing market still went up, and so did the stock market. It's not that they can't forgive loans; it's that if they do, the whole idea of scarcity that capitalism is based on weakens. So they won't.

As far as how much you can do with your business, you have to figure out a number that you feel can provide your family with safety while still doing what you can to make your service less cost-prohibitive.

For private practices, whether you're a doctor, dentist, therapist, physical therapist, or a lawyer, you can think about how much pro bono work you can take on, how much volunteering of services you can provide, whether sliding-scale is a possibility, and so on. This is also true for other types of self-employment and freelance work. 

For example, some graphic designers volunteer their service to organizations. Likewise, some martial arts instructors provide free training to at-risk populations.

As far as GoFundMe, should it exist? No. Does it make sense sometimes? Yes. Should you be constantly scrolling through GoFundMe looking for things to fund? No. If something pops up from an activist you trust and it makes sense, should you support it? Sure.

As far as boycotts, if a strike or a labor movement asks for consumers to strategically boycott to have their demands met, does it make sense? Yes. Do permanent boycotts make sense? Based on the reason, sure. Should you try to buy from local small retailers and stores? Yes. Should you ONLY buy from smaller retailers? See, here's the problem again, we are subsumed, so wholly avoiding certain retailers is again privilege, and low-income communities don't have that privilege.

This is why restrictive diets are also a privilege. In theory, it makes sense, but poor people need as many options available to them because their biggest constraint is money, so adding more constraints on top of money constraints does more harm than good and punishes the poor. This is to say their net is already tiny to begin with, so they want to cast that small net as wide as possible.

For rich people, constraints like saying no to specific retailers or only buying locally sourced organic foods can be easy because that's their only constraint. Their infinitely large net has only slightly gotten smaller, but really they've had to sacrifice nothing. It's like dividing infinity by half, it's still infinity.

Believe me, lacking money leaves you with so few options for anything, you already have to be miserably miserly. If you add another constraint on top of that, you can go from a few options to almost nothing. It's like trying to slice a piece of paper even thinner.

The worst way to donate money is to blindly trust nonprofits and charities. Be cautious of charities that try to trigger a knee-jerk emotional response. Instead, it's better to find activists you trust or look to local organizations and see where they say your money would be best served.

Labor, housing, and political organizations, or even independent journalists and educators online can very much use your money.

I'd be cautious of anything related to medical research, awareness, or groups promising to use your money to aid poor countries.

Something I've done in the past is to raise money for a specific cancer hospital to help cover treatments.

R writes; Dear Sam

I wanted to ask if it was worth it for young fighters to hold off on going professional too early due to how easy it is for us to get exploited by our coaches, managers, and gyms despite the fact that at the end of the day because we're independent contractors we're always going to take the fall when bad shit happens?

Gyms are big on being seen as "family," which leaves fighters risking their careers to make their family proud even if they're being exploited. Me wanting to protect my value and longevity might create animosity for being "disloyal."

Also, is it common for fighters to form LLCs for themselves as professional athletes? Is it useful to do so as a pro fighter?

Dear R,

We all have heard about how exploitative promoters can be, but it sounds like you know from experience the same thing can happen with managers and gyms. Loyalty is a really manipulative tool. If something is mutually beneficial, it won't require loyalty.

Combat sports are the least regulated sports. Turning professional as young as possible and putting yourself in the open market would leave you little to bargain with. Let alone you're a young person fighting grown adults in their prime before your brain has developed.

If you get red flags about your training situation, trust your instincts. If you don't feel you're ready and your coaches push you to turn pro, question their motives. This sport is all about consent.

Pro fighters sometimes wash out in their early 30s. Starting early sometimes means ending your career that much earlier. You want to make sure you've had enough sparring and amateur fights, then slowly build up your pro career.

What slow means depends on the combat sport. If you've had too many pro fights early on, it'll be hard to find appropriate competition.

Going pro too early and fighting full-time also means this is what you have to do for a living, then fighting has to serve as your primary source of income. This can turn your MMA career into MMA hunger games. You're no longer building a career or shooting to become a champion, you're fighting only to feed yourself. Also, this might mean dropping out of school, which can create more financial consequences down the line.

Even with all that said, few fighters will make enough to live, and fewer still will make enough to retire. Many fighters go into debt fighting. So even if you do everything right, it's still a brutal way to live. It might be best to consider fighting something you try while you're young enough, rather than a career.

As far as your tax question, there are tax professionals who work with professional athletes. Most of the highest-paid athletes are actually employees, so they can't incorporate for their salaries but can do so for their endorsements and their other business dealings. But see how that works? Unionized athletes make the most money.

However, combat sports athletes are self-employed but less free than their self-employed counterparts in golf and tennis. Or perhaps they're the freest since they're in the most capitalistic sports. And many MMA fighters and fans do believe that.

However, in practical terms, it's the worst of all worlds, especially in kickboxing, bare-knuckle, and MMA, where there is no Ali Act.

So you technically can incorporate, but should you? A lot of that depends on how much you make and who your promoter is. Since MMA, kickboxing, and bare-knuckle have fewer worker rights, they may not be willing to pay you as a corporation. But, again, this is talking about a career that leaves the fighter with very little leverage. This is why nearly all fighters attempt to make money on social media where they can incorporate and be fully self-employed.

In other major sports, being on social media is a choice. For combat sports, it's a requirement to also be a full-time influencer. So being a pro fighter doesn't just mean fighting, it means a whole lot more. Plus, there's damage to your brain and body. Weigh all this information carefully.

Jack writes; Yo Sam

Finance question from someone who went six figures into student loan debt: How much debt is "okay" to carry? I never had credit card debt, but in college, I just wasn't paying attention to how quickly the loans were piling up until it was too late. Then compound interest, and long periods I wasn't earning enough to pay even the monthly repayments amounts on the 25-year plan, so I PAID to pause the loans for a time, during which I wasn't penalized for missing payments, but the interest kept accruing. Truly insane.

Or what about the debt-to-income ratio, and what do you think about those financial subreddits?

Hi Jack,

The question of "okay to carry" or even debt-to-income assumes these are metrics within a borrower's control, which they often aren't. Just like your ability to pay back your loans wasn't always in your control. Many with high-paying jobs will still only pay what they have to, staying on a fixed schedule. They will carry what they have to carry. Most people only pay off their homes when they sell. Like I said, debt isn't necessarily a problem for everyone.

If you're wealthy, you might carry debt just because you can, but you might also be able to pay it off at will if a loan officer tells you to. If you have surplus income, you can begin to pay off your debt quicker, but that's not the same as affecting your debt at will. As you pointed out, when you're poor, you might have to PAY to pause loans you can't pay. How ridiculous is that?

However, knowing all the names and metrics for things beyond your control gives the illusion of control but isn't all that useful. Some people might need to learn ways to fix their credit because they need to buy a car, rent an apartment, or buy a house. Most banks and credit cards now offer services that track your credit score. If you can't bank because you have poor bank credit and still want to get your credit reports for free, each credit bureau will give you a free credit report once a year. This is important to know so you don't accidentally go to one of those sites that make you pay for something you can get for free. Why do these scam sites exist, and why are they allowed? Because scams like that are legal in a capitalist democracy, that's why.

With your credit report, you can find things that have gone to collections or are delinquent. They stay on your record for seven years. See if any of them are mistakes, and even if they aren't, you can try to get your creditor to take it off your credit report anyway. That's what all those high-priced services that promise to fix your credit do, call and write emails and letters on your behalf. You can also negotiate deals with collections agencies.

Something else you can do is get a secured credit card, use it for one bill every month, then automatically pay it off before interest accumulates. 

There are also now online checking account alternatives like Venmo, PayPal, Chime, Aspiration, Acorns, and Fold that may be more lenient about your credit status for opening an account.

Credit is a ridiculous system that financializes trustworthiness and says rich people are trustworthy and poor people, especially racialized minorities, are not. It makes racism and classism look like math when it's just pre-existing inequality, justified with numbers. Credit is a thing because we don't give out enough human rights. What would credit be if housing and school were a right?

How are you supposed to rent an apartment if you're a young person whose parents are poor and you have no rental history or credit? Your parents can co-sign, but what if their credit is also poor? Without rental history, no parents to co-sign, no credit, how can you buy a house?

Under these constraints, how are people not supposed to break these arbitrary rules to survive? It's placed to set poor racialized people up for failure, then they're depicted as criminals and exploiters of the system. Please. Get the fuck out of here.

Capitalist economics is all about behavioral determinism. The economic situation determines behavior. Economists will use this to explain the behaviors of the rich, like the bad actors in any financial crisis, but conveniently they forget about behavioral economics when it comes to poor people and BIPOC. For them, it's always explained as moral failings, especially for BIPOC countries.

As far as financial subreddits, they can be pretty good as far as asking questions or finding someone who had the same question or problem you had. Treat it like YouTube. YouTube is great for how-to videos, but anything beyond that can take you down a rabbit hole of trash and shitty people.

S writes; Dear Sam

What is amortization?

Dear S,

It's the predetermined schedule to pay off a loan. You see this most often with homes and student loans.

Sparky writes; Hi Sam

Can you explain the difference between daily simple interest vs. fixed-rate payment?

Hi Sparky.

Daily simple interest means a loan where the interest accrues daily, not monthly, but in return, you can pay off your loan ahead of schedule without penalty. Fixed-rate means the payments are fixed and interest accrues monthly, but making extra payments or paying it off early come with penalties. Often you won't have a choice in which kind of loan you get.

By now, you should be noticing a pattern emerging. When you're poor in capitalism, you don't have that many options. So most personal finance books are full of options you can't use. They call that financial freedom.