Monday, July 30, 2018

People as Productive Assets

Many middle-income people consider their home, or car, their greatest asset. If they own one. In most cases they are wrong. A productive asset is something that generates an income. For most salary earners, they are their biggest asset. It sucks thinking of yourself as a cash machine. Most lower and middle-income people have to work because they live hand to mouth. Even if and as their income gets bigger, their mouth just stretches to accommodate. Your house and your car can't feed you.

I like to think of investing as a way of emancipating labour. Freeing our time from the constraints imposed by having to make money. If somehow you can break the tie between what you spend, and what you earn, then there is a path towards this kind of freedom.

It starts with controlling expense. Living within your means. Then, being able to build a Buffer. That provides the breathing room to be able to think beyond the next meal or the bills that are due. You can't plan ahead if you are fighting fires. This is why I am a Universal Basic Income activist. I believe everyone should have sufficient income that the option of reflection is available. Even if it is basic. Everyone should have the option to press pause, and plan.

Once there is sufficient to live, then you can start to build an Engine. An Engine is like a Mini-Me. It starts small, and grows as you feed it and find it work. Unless you are born into wealth, it is unlikely that your Engine will be able to earn more than you to start. With time, that is a possibility. There is no magic wand, it does take time and sacrifice. Delayed Gratification. You have to choose to build your Engine rather than improving your house, getting a better car, or living it large. No one can see your Engine. You won't look wealthy.

Eventually, your Mini-Me may grow to a size where it earns more than it costs you to live. The less it costs you to live, the smaller the Engine required to set you free. At that point, the magic starts. You become someone who is working because you want to. The money becomes a bonus. You may even choose to do work that doesn't pay well, but is rewarding in other ways. What you want to do, and why you want to do it become the key questions rather than how much it pays.

People are more than Productive Assets.


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