[Photo by Alexander Mils on Unsplash]
The Odysseus Files, Issue 8
Architecting Your Ithaca, Part 1
Sustainability, Legacy, and Mapping Your Journey
[Note: this is Part 1 of a miniseries within the broader Odysseus Files called “Architecting Your Ithaca.” These miniseries will group broad topics thematically, helping you connect the dots between them more easily.]
TL;DR - Scroll to the end for the takeaways!
To start off, a warm welcome to the wave of new subscribers this week. Heads up: The Odysseus Files can be a bit of a weird place sometimes. We talk a lot about building a sustainable business and the many (unsustainable) challenges entrepreneurs face. But this sits within the broader narrative of the chaotic world we live in (with all the fundamental shifts we all feel happening), how we respond to change, and how we build sustainable lives of resilience and impact.
Ultimately, The Odysseus Files is about building an enduring legacy: creating the tools of leverage (our businesses) to step back and intentionally craft the future we want for our children and their children. No matter what the world can throw at them.
It’s about building for decades, not just the next quarter.
To set the stage, the narrative unfolding here puts you in the shoes of Odysseus, Homer’s hero who led the Greeks to victory against the Trojans through his Trojan Horse ploy. At the end of the war, he sets sail for his home, Ithaca - only to face a 10-year journey of harrowing danger and adventure.
For you and I, as we board our ships for the journey to whatever our own Ithaca is (our vision for our businesses and, ultimately, lives and legacies), The Odysseus Files is about getting clear on defining our Ithaca and taking the time to map out the journey to get there. It’s not trying to figure out every detail so much as it is having a clear-eyed view of what’s ahead and having the big picture vision as your north star.
For more context to this narrative, jump back into the archives here and read Issues 1-3, especially.
And in the meantime, let’s jump into this week’s issue.
Thinking Holistically
Last week, we left off with the following:
“Worldbuilding. Start with your brand vision. Alignment. The intellectual entrepreneur. Odysseus vs Achilles. ‘Build a castle, not a village.’ If you read regularly, some of these ideas and concepts will be starting to jump out at you as consistent themes. Threads that keep popping up.
The promise behind The Odysseus Files is to tie these threads together into a framework for how to think about crafting a sustainable business that supports a lifestyle you love and a legacy you can be proud of.”
The last four issues, within the miniseries on “Build a castle, not a village,” have started to unpeel the layers on the problems facing entrepreneurs within today’s business environment, especially the creator economy. We’ve argued for the need to build from the ground up, to start with your brand vision. And we’ve talked about the need to build for sustainability - to build for decades, not just the next quarter.
But our businesses don’t exist in a vacuum, of course. Crafting sustainable businesses creates greater sustainability in our personal lives, but the vice versa is also true. Carrying this theme of sustainability into all areas of life will only come back to strengthen the brands we’re building.
On that note, we’ll be back to the “Build a castle, not a village” series to uncover a framework for designing a sustainable brand, but first, we’re going to spend a few weeks looking at sustainability from a more holistic perspective.
Beginning with financial sustainability, the topic of today’s issue.
Building Financial Sustainability
As entrepreneurs, are we optimizing for financial sustainability in our personal lives?
The first question, of course, is what do we mean by this? (And why does it matter?)
Let’s start with this definition: financial sustainability equals the ability to maintain financial security regardless of external circumstances or your own time spent.
In a first and obvious statement, a 9-5 doesn’t cut it. A single source of income where 100% control over that source rests with a 3rd party that is, by definition, certain to protect its own interests over yours is the clearest antithesis to the definition above.
As entrepreneurs, many of us chose this path specifically for the freedom it brings from the above constraints.
But let’s dig a little deeper.
The Data
We Americans are not doing a great job of creating financial sustainability. Millennials in particular have been at the forefront of feeling this - especially since most of us hit the job and housing markets around or not long after the 2008 crash.
We’ve known for a long time that our careers would never play out the way our parents’ did (which is why we figured out pretty quickly that switching jobs every few years gave us far more leverage over our income growth than staying with one company for decades). But even then, the numbers don’t look great for us:
After adjusting for inflation, the average hourly wage in 2018 had about the same purchasing power as that in 1978; in real terms, average hourly earnings peaked in January of 1973 (where, adjusted for inflation, it was the equivalent of $23.68 in 2018 dollars). (Source)
Those of us who grew up in the 80s & 90s can feel this viscerally: as kids, households could be supported on a single income, family vacations were normal, and a 6-figure income felt like the “I made it” level; today, these standards are only possible in a limited and shrinking number of spots in the country.
For millennials in particular (those born between 1981 and 1996), the pandemic years doubled our overall wealth, but that increase largely was in the form of real estate prices increasing for those who happened to purchase before 2020. For those who didn’t, they can expect to have their net worth building set back several years.
The difference can be seen just in the increase in housing costs from 2020 to 2023:
The national median home price jumped from $266,300 to $359,000
The average interest rate increased from 3.64% to 7.13%
Based on these numbers, the average monthly mortgage cost (principal & interest only) has spiked from $1,174 to $1,935, a nearly 65% increase
(Source)
This sits on top of the average $38,294 in student loans millennials carry.
This provides a rough starting point. But 2023’s high inflation and interest rates have revealed plenty of other cracks in the fabric of our financial system:
78% of respondents in one survey said it would be hard to meet financial obligations if their paychecks were delayed
More than one-third of Americans said they couldn’t afford to cover a $400 emergency expense
65% of respondents report living paycheck to paycheck (including 51% of those making 6-figures and up)
Consumers increasingly rely on debt to cover living expenses: U.S. credit-card debt hit a record $1.03 trillion in the 2nd quarter of 2023
Speaking of consumer debt:
Consumer debt increased to $16.84 trillion in Q2 of 2023; the largest rate increases were in the credit card and personal loan categories (Source)
The increase in consumer debt from Q2 2013 (the lowest point since before the 2008 crash) to Q1 2019 was from $11.15T to $13.67T, a 22.6% bump over roughly six years; in comparison, the increase from Q1 2019 to Q2 2023 was 23.2% in about four years (2013 source; 2019 source)
Based on a current-dollar GDP in Q3 2023 of $27.62T, consumer debt is equivalent to nearly 61% of our GDP (Source)
We’re not doing well preparing for the future either:
Around 50% of American households report having nothing saved in retirement accounts
Only 40% of those households nearing retirement age report having over $100,000 across all financial assets (checking & savings and retirement accounts, stocks, bonds, CDs, etc.)
Households with pensions went from making up 50% of the population in 1989 to 25% in 2019, pushing more elderly people to rely on Social Security alone (Source)
40% of elder Americans rely fully on Social Security for retirement - but the average payout for Social Security recipients in 2023 is only $22,000/year (40% source; payout source)
The trust fund helping to finance Social Security is on schedule to run out within 10 years, meaning some 66 million recipients will see roughly a quarter drop in SS income (Source)
And we’re not even touching on the macroeconomic issues: geopolitical tensions that can skyrocket oil prices; a trade war with China; a shift in global trade deals away from the U.S. dollar; ballooning national debt; fragile supply chains; a bad bond market. Any and all of these can keep inflation up, maintaining pressure on an already-squeezed system.
Of course, all of the above just sticks numbers on what we already know: within the normal economic fluctuations of recessions and recovery, there are some long term shifts happening in personal economics. A lot of people don’t have safety nets as it is; more pressure will push them over the edge. The middle class is getting squeezed - the money and career decisions we make determine whether that squeeze pushes us into the upper class or lower.
How do we make our finances more resilient for what’s ahead?
The Answer
I had to confront this question in March of this year, when I got laid off from my corporate job three months before my son’s due date.
At the time, I didn’t see a path to surviving on less than what I was making. (In fact, before losing my job I’d been actively planning my path to a 20% pay bump.)
In hindsight, getting laid off was liberating. Not just because of the time freedom to be with my family during my son’s birth and to later launch my business, but also because it slapped my wife and I with the reality of what we could actually make work.
I also quickly felt the impact of previous money decisions we’d made that turned out to significantly strengthen our position:
Splitting all of our expenses across multiple credit cards (and paying them off every month!) provided an easy budget-tracking method without having to track individual receipts
Doing a cash-out refinance on our first house paid off most of my student debt, saving money on interest (less than a year later we sold the house for a healthy profit)
Excess government stimulus cash went to buying used cars outright (so no car payments) as well as paying down more student loans
The lessons to us have been obvious:
Figure out the number you need to actually survive (not the one where your cost of living rises to match your earnings)
Categorize your expenses so that you know in advance which ones to get rid of if something goes sideways
Get ruthless about eliminating & avoiding as much consumer debt as possible
But don’t be afraid to leverage good debt in the pursuit of assets that will work for you
This last point touches on an important mindset shift for most entrepreneurs, freelancers, small business owners, and employees:
In his book Rich Dad Poor Dad Robert Kiyosaki describes his Cashflow quadrant concept. Each corner of the quadrant is a separate role:
Employee - trades time for a single source of active income
Freelancer - trades time for a few sources of active income
Business owner - trades time for multiple sources of active and (semi) passive income, depending on how well he or she can build assets and create systems
Investor - puts money to work making more money through ownership of assets that grant leverage
The first two categories are high risk and unsustainable: your finances are dependent on your time spent and on who’s buying that time. The third category carries the risk that the owner simply builds him or herself another job: financial sustainability depends on how well the owner can shave off time from running the business to work on creating long term opportunities for leverage.
The sweet spot here for you and I is to bring the perspective of the investor - with the emphasis on ownership, asset acquisition/creation, and leverage - into our businesses.
In cybersecurity, there’s an exercise called red teaming. This is when ethical hackers (the “red team”) attempt to infiltrate your security system while your own team (the “blue team”) tries to keep them out. The value play of this exercise is to identify and plug weaknesses in a system.
When thinking about leverage and ownership and resilience in your business, you can apply this concept of testing for weaknesses: test your business model by asking yourself how it would hold up under various conditions. For example, what would happen to it during a recession? What about a change of direction in your industry? What if it became prohibitively difficult or expensive to get new leads/customers online, or to deliver your product/service online? (In escalating order: your primary marketing platform gets blacked out for a period of time; you get de-platformed; current digital channels get too expensive/noisy/difficult to use; you lose internet access for weeks to months.)
Creators aren’t used to thinking beyond what channels they should use to promote their content or which monetization methods will best compensate them for their time spent creating.
But stepping back to get a comprehensive, holistic view of your financial resiliency - both personally and in your business - can make the difference between crashing and burning or thriving even in the midst of chaos and change. Hopefully, you’re building for the latter.
Takeaways
This week’s takeaways for you:
Financial sustainability equals the ability to maintain financial security regardless of external circumstances or your own time spent
We don’t need the numbers to know this (but I found them for you anyway…), but our way of “doing” personal finance as a society isn’t sustainable
Building financial sustainability into our lives and businesses comes down to two broad things: 1) make smart money moves in advance, before things go sideways (like knowing your numbers, cleaning up bad debt, and leveraging good debt) and 2) think like an investor in your business (create/acquire assets that help you leverage your time, money, strengths, and energy)
Use a “red teaming” exercise (from cybersecurity) to “future-proof” your business and personal life by asking how your finances would hold up given a range of possible scenarios (such as a recession or loss of access to a platform you use)
There’s vastly more that could be said on this issue (obviously), but we’ll leave it at this: build for decades, not just next quarter. Take this thinking into everything you do, from your personal life to your business. The result? You’ll keep moving up, even when everyone else is crashing down.
Sources:
Drew Desilver, “For most U.S. workers, wages have barely budged in decades,” Pew Research Center, 2018.
Robert Farrington, “Why Millennials Can’t Seem to Get Ahead,” Forbes, 2023.
Erica Sweeney, “Most Americans Living Paycheck to Paycheck This Year, Survey Finds,” Investopedia, 2023.
Megan Leonhardt, “Living Paycheck to Paycheck is Common, Even Among Those Who Make More Than $100,000,” Barron’s, 2023.
Chris Horymski, “Experian Study: U.S. Consumer Debt Reaches $16.84 Trillion in Q2 2023,” Experian, 2023.
Reuters, “Consumer Debt Fell by 0.7% Last Quarter,” New York Times, 2013.
“Quarterly Report on Household Debt and Credit,” Federal Reserve Bank of New York, 2019.
“Gross Domestic Product, Third Quarter 2023 (Advance Estimate),” Bureau of Economic Analysis, 2023.
“Half of American households have no retirement savings,” USAFacts, 2023.
“New Report: 40% of Older Americans Rely Solely on Social Security for Retirement Income,” National Institute on Retirement Security, 2020
Scott Horsley, “Social Security is now expected to run short of cash by 2033,” NPR, 2023.