Tag: finances

The Separation Trap: When “Separate but Equal” Hides Unfairness

~ cafebedouin

The Basic Problem

When two people or groups have different needs, there are two ways to handle it:

  1. Merge the resources and divide them based on who needs what
  2. Keep resources separate and let each side handle their own needs

The second option sounds fair. It sounds like independence and respect for differences. But it usually makes inequality worse.

Here’s why.

The Core Mechanism

Separation turns resource splits from visible decisions into invisible facts.

Let’s say you and your friend start a business together. You put in $80,000. Your friend puts in $20,000.

If you keep the money separate:

  • You have $80,000 to work with
  • Your friend has $20,000 to work with
  • This split just becomes “how things are”

If you merge the money:

  • The business has $100,000
  • Every spending decision is a choice: “Should we invest in your project or mine?”
  • The 80/20 split is visible in every conversation

Separate accounts make the original inequality disappear from view.

Why This Matters

Once the split becomes invisible, several things happen automatically:

  1. You can’t compare anymore. With separate pots of money, there’s no way to see if things are actually fair. You each just have “yours.”
  2. The person with less can’t negotiate. If your friend needs $10,000 for an important business expense, they can’t argue that the business should pay for it. They just “don’t have the money.”
  3. It feels like independence, not inequality. Your friend isn’t being cheated – they have their own account! But they’re permanently working with a quarter of the resources.
  4. Nobody has to justify the split. With merged resources, you’d have to explain why you’re taking 80% of the profits. With separate accounts, that’s just the starting point.

Real Examples

Marriage finances: When couples keep separate accounts, the person who earns more keeps that advantage forever. Every spending decision gets made from “your money” vs “my money” instead of “our money for our household.”

School systems: When rich and poor neighborhoods have separate school systems, the funding inequality just becomes background. Nobody has to justify why one school gets $20,000 per student and another gets $8,000. They’re just “different schools.”

Healthcare: When wealthy people use private hospitals and everyone else uses public hospitals, the public system never gets better. The people with power to demand improvements have left the system.

The Guide: When to Merge vs Stay Separate

Merge resources when:

  • You’re actually trying to build something together (a household, a community, a project)
  • The initial split wasn’t fair and you know it
  • Decisions affect both parties equally
  • You want accountability for how resources get used
  • The weaker party needs protection

Stay separate when:

  • You’re genuinely independent with no shared goals
  • Both parties truly have equal resources and power
  • Neither party’s decisions significantly affect the other
  • There’s a real risk of exploitation going the other direction
  • You’re testing out a relationship before deeper commitment

The Key Question

Ask yourself: “Is the separation serving a shared purpose, or is it protecting someone’s advantage?”

If you can’t clearly explain how the separation helps both parties equally, it’s probably hiding inequality.

The Hard Truth

Separation feels like respect for differences. It feels like independence and autonomy.

But when resources are unequal, separation is almost always a way to lock in that inequality without having to defend it.

Real fairness requires:

  • Visible resource pools
  • Ongoing negotiation
  • Accountability for splits
  • Shared stakes in outcomes

This is why married couples with truly merged finances tend to be more stable. It’s not about romance or trust. It’s about making every resource decision visible and negotiable instead of locked in at the start.

Bottom Line

When someone suggests “separate but equal,” ask: “Separate from what accountability?”

The separation itself is usually the answer.

Bogleheads

~ cafebedouin

“Welcome to the Bogleheads® wiki, a collaborative undertaking by members of the Bogleheads Community. This wiki is a reference resource for investors. Bogleheads emphasize starting early, living below one’s means, regular saving, broad diversification, and sticking to one’s investment plan.”

–https://www.bogleheads.org/

Never heard of it. But, the emphasis seems right. Bookmarking.

Safe Withdrawal Rate for Early Retirees & What It Means for Retirement

~ cafebedouin

* The 4% rule is actually very safe for a 30-year retirement

* A withdrawal rate of 3.5% can be considered the floor, no matter how long the retirement time horizon

-“Safe Withdrawal Rate for Early Retirees“, MadFientist.com. October 19. 2015.

I thought this was interesting because it gives you a target for retirement. According to the American Community Survey, the median household income in the United States was $62,860 in 2019. Median earnings for a worker was $41,537 (Table A-6). Thresholds for poverty for a single person are $13,300 if they are below 65 years of age and $12,261 if they are older than 65 years old (Table B-1). Let’s calculate:

  • $12,261 / 0.035 = ~$350,315
  • $13,300 / 0.035 = ~$380,000
  • $41,537 / 0.035 = ~$1,186,772
  • $62,860 / 0.035 = ~$1,796,000

Now, let’s go the other direction. How long would it take you to reach these thresholds, if you managed to save 20% of your total income?

  • $350,315 / ($12,261 * 20%) = ~142 years
  • $380,000 / ($13,300 * 20%) = ~155 years
  • $1,186,772 / ($41,537 * 20%) = ~143 years
  • $1,796,000 / ($62,860 * 20%) = ~142 years

Since we are multiplying by 0.035, it is obvious these numbers would all be around the same. Equally obvious, you either need to quadruple the savings rate or the annual salary, or double both, in order to retire after 35 years of work.

Which really brings us to the point of this exercise, the only people that can look to be an early retiree are either a) using leverage to build equity, such as real estate and renting, b) investing in some kind of investment vehicle that returns at least a 7% rate of return (using the rule of 72, this gives us a doubling of savings roughly every 10 years), or c) radically increase your savings rate by living as frugally as possible, or d) have a much higher than median salary.

Doing the calculations over with a 7% interest rate, it takes about 35 years with a 20% savings rate for every income level mentioned above to get the necessary savings to do a safe withdrawal rate that replaces income. It’s rather sobering when you work through the numbers when someone starts talking about safe withdrawal rates and early retirement. Who is this advice for?

It can be done. If you are smart enough to do this kind of calculation before you go to work, you have a relatively high income, you pool your resources with a partner, you get a sizable inheritance, you get involved with index funds early or you do real estate. These are the options. Otherwise, you are working your whole life.

Sweet Enough

~ cafebedouin

“It’s not how much you have. It’s the difference between what you have and what you spend. If you have more than you spend, you’re rich. If you spend more than you have, you’re not. If you live cheaply, it’s easy to be free.”

—Derek Sivers, “How I got rich on the other hand.” sive.rs. October 30, 2019.

“Money: enough. Additional windfalls don’t seem to bring me any lasting joy, but I also don’t have so much money that it makes me nervous. It’s enough to feel safe and empowered, and that’s all I need. Meanwhile, giving away money has brought me lasting happiness, without creating a feeling of shortage or regret.”

—Mr. Money Mustache, “The Sweet Spot.” mrmoneymustache.com. August 4, 2020.

If You Want to Be Happy, Spend Your Bonus On Your Coworkers | Jeremiah Stanghini

~ cafebedouin

“How would you react if your company made a slight change to your bonuses this year. Instead of receiving your usual 1% or 10% bonus, depending on your industry, what if your boss said you had to donate that money to a charity or that you had to spend that money on your fellow coworkers?

I’d imagine that you probably wouldn’t be too happy, am I right? That bonus you were looking forward to at the end of the year is “yours” and you should get to spend it on you and your family. Except, research shows that’s not the case. In fact, the research indicates that spending the money on someone other than yourself actually leads to greater happiness. More than that, it can lead to your improved performance at work.”

—Jeremiah Stanghini. “If You Want to Be Happy, Spend Your Bonus On Your Coworkers.” jeremiahstanghini.com. September 20, 2013.

Do X. Evaluate. Do X Differently.

~ cafebedouin

“Why don’t you just try X for 30 days and see if your life gets better?

Today, roughly two-thirds of the population will make New Year’s resolutions. The most common resolutions:

  • Eat healthier
  • Get more exercise
  • Save money
  • Take better care of ourselves
  • Read more
  • Make new friends
  • Learn a new skill / hobby

Looking at this in the context of having recently read James Clear’s Atomic Habits, he makes a really interesting point that these kinds of improvements require tackling three aspects of the problem: identity, systems and goals.

For example, instead of resolving to eat better, we might resolve to become vegetarian. This is adopting a new identity that shapes the kind of food choices we make into healthier alternatives. You could also make it smaller, and maybe adopt an identity as a “water-drinker”.

You can extend these to the other resolutions. Instead of resolving to exercise more, decide to become a runner. Instead of saving money, you could become a person that pays cash or pays your entire credit card bill every month.

Identity feeds into systems. If you are going to become vegetarian, will you eat dairy and eggs? If you will occasionally eat meat, say during Thanksgiving, how often will you need to eat a vegetarian diet to think of yourself as vegetarian? What does a healthy vegetarian diet look like?

Same goes for running. How many miles and how many days per week do you need to run to think of yourself as a runner?

These, in turn, lead to goals. If you run sporadically, then setting a consistent schedule will result in more exercise, just as consistently eating vegetarian will result in eating better.

Goals have the problem that life gets in the way, and we give up on them. If your goal is to run a marathon, you cannot continue if you get injured or develop a cold that prevents you from following a training program. If you think of yourself as a runner, being sick is only a momentary set-back. But, the minute you know you can run again, you need to start. Otherwise, you aren’t proving to yourself your identity that you are a runner.

The start of a new year is an excellent time to think through the kind of person you want to be and the identities you want to adopt. But, the beginning of the month, of the week or each new day are good times to start trying to be a different, better person too.

Don’t let the inevitable failures that life throws in the way of each of us stop you from pursuing being the kind of person you want to be. The question isn’t whether you always eat healthier, but whether, in the main, you are eating better than you were before. You need to have systems and goals in place to get feedback on your progress, and you need to build in flexibility to change course. Do, evaluate, and do it differently. The goal is to be the person you want and not the number of miles you ran in a given week, that’s just the feedback.