Framework for Release

Financial Yoga is a framework for release from seeing yourself as a productive asset. An asset is not simply something you have. 

It is true that you can buy and sell things that are not productive. They can be referred to as an asset, even though they do not do anything. They may even go up in price if more people want the thing, and more is not made. 

Cash can be a wasting asset. Something that reduces in value because of inflation and costs (e.g. in a money market fund, or because of bank charges). 

What makes an asset something that can release the necessity for you to earn money, is when the asset itself earns money. If that money is reinvested, then the asset can grow, and earn more. By working rather than wasting. 

Property can be a productive asset, if you get rent from it, but you are not making anything. So if you live in the property, you should not consider it an asset. You are consuming what it produces. The same for cars if you are driving them for you. For most people who own them, their house and car is not there biggest asset. They are. Their capacity to earn is. 

Productive assets are not valued for what they are, they are valued for what they produce. That is why you do not want to be a productive asset. Not all good ideas are good business ideas. Not everything we should do, should make money. 

Count yourself lucky if the thing you are passionate about, and competent at, is also something that makes money. To finance the difficult-to-monetize good ideas, you need to solve the funding problem and generate energy from good business ideas.

Release

Space for Choice

Barriers are how people stop other people from providing certain skills. We all need to eat. Our livelihoods, dreams, responsibilities, and view of ourselves are often wrapped in the “lifestyle to which we are accustomed”. The respect. The security. If you are lucky, the love of what you actually do every day. 

Creative Destruction is when someone comes up with a better way to solve the problem. The “Porter 5 Forces” talks about the intensity of competitive rivalry, the threat of new entrants, the threat of substitutes (alternative ways of solving the problem), the bargaining power of suppliers (the costs of solving the problem for clients), and the bargaining power of buyers (how empowered and willing are they). If who we are is tied to how we get paid, we are going to be very anxious. 

In Life Insurance and Pensions, the theory marries Assets (that make money) to Liabilities (the money that needs paying)… effectively institutionalizing hand-to-mouth living. The idea being that the smaller the assets needed (capital requirement) the higher the return. The problem is the work the capital can do gets defined by the nature of the liabilities. The same is true for individuals. If you don’t build a buffer or capital, then what you can do gets defined by what you must do. That sounds like an unhappy marriage to me. 

Choice comes from space. Choice comes with the ability to adapt as creation genuinely solves problems. Choice comes from us not relying on the problems to remain unsolved in order to feed ourselves.

Space for Choice, Space for Creativity

Cold and Warm

An Asset is something that generates cash or grows in value. It isn’t what it is that defines it, it is what it does. What it generates. A Price is a clearing mechanism. A crude communication tool to shift resources around to where they are valued most. Money-backed Supply and Demand are the two biggest factors. A high price is a better indication of scarcity, than of the intrinsic value to the holder. Neither of these ideas sit well emotionally. Doing is visible and external. Possession and desire are fuzzy and internal. Assets and Prices become deeply personal stories we tell ourselves. I believe that separating the warm stories we tell ourselves from cold numbers we use is very powerful. By creating Engines through building Capital, it is possible to release our stories from the numbers.

War Chest

Cash is a placeholder rather than a thing. That's why it doesn't get paid very much. It is like a teenager sitting at home waiting to go to university, or get a job. It still eats (inflation) but it is definitely only earning minimum wage if anything. Bonds are like working for someone else. They need a salary, so they take the cash and build something for someone else. Equity is a slice of ownership in a business. The money only gets paid if it creates something people are willing to pay for. So why hold Cash? Since, like the teenager, it may be useful if you need an extra set of hands. Bonds and Equity are like the friend/family that is always busy because work comes first. A War Chest is when you hold more cash that you would otherwise because of a potentially exciting opportunity. Google, Apple, Amazon etc. hold big War Chests of cash so that they can buy the next Google, Apple, or Amazon if it pops its head up.