To be Without

Tapas means “to be without”. Not in a way that does harm. Similar to the idea of Lent, or the ideas put forward by the Stoics. If you can get used to periods of very little, then they lose their ability to create anxiety. You know you can cope. It gives you a firm foundation from which to build. One way to imagine this is as the opposite of a holiday. If you spent two weeks a year, or a day a month very simply. Coming back to normal feels like a treat. In the opposite way, things we really enjoy can lose their edge if they become something we are used to. The Financial Freedom built through the practice of Financial Yoga is not about a path to more in a conspicuous sense. It is partly reducing the power of Financial Waves to induce fear, by conquering some of those fears directly.

Cornerstone

Barriers to Entry include base expenses. The price of a seat at the table before you even have any money coming in. The cost of getting out of bed in the morning. In my industry, this includes professional indemnity insurance, regulatory oversight (to ensure compliance with financial authorities), and the necessary software to protect client data. That is just to talk to people. If you want to manage money for them, there is a whole host of other protections to put in place (custodian banks, accountants, administrators, lawyers). Like home mortgages, banks lend to people who can prove they have the money coming in. To get started, you need a cornerstone client. Someone with money and the problem you know how to solve that can reliably cover your expenses. Ideally, you could be your own cornerstone. If you had Capital that reliably covered your base expenses. Without a cornerstone, it is difficult to build.

Church of Saint Paul in Macau (1602)

Fixed, Internal, and Absolute

In Balancing Postures, you find your balance by picking a fixed point to focus on. You still your breath and fix your gaze. Gradually, for longer periods, you can close your eyes as you internalise that point of focus. One of the most powerful techniques for financial stability is picking absolute targets. Most commonly people adjust their spending to their income. That makes sense when you are living in poverty, and you have no choice but to live hand to mouth. Beyond that basic level, living within your means is the most reliable tool within your control, to extend your control. Detaching spending from income. The “lifestyle to which you become accustomed” can be your greatest asset or a moving target that keeps you wobbling, grasping and falling. Once you have secured your base, core strength can give you the flexibility to move with control. Pick a point. Build a base.

Don't Ask Jason

Jason would be my first call if I needed help burying a body. He would ask no questions. This is not a public confession of intent, or guilt. It is just as suggestion. If you suspect me of murder, don’t ask Jason if I did it. Loyalty is hard wired into us as a way of defeating mortality. We learn through death. Which is why Max Planck said, “Science progresses one funeral at a time”. It is much harder to unlearn than to learn. Death is a communal feature rather than a glitch. The Curse of Knowledge is that knowing one thing can make it harder to know, or even see, another. What we know is Path Dependent. The set of decisions people face is limited (or increased) by decisions made in the past. Hereditary Privilege is a feature. We care that the next generation will have more options. Loyalty means we can see and protect the good, even in the face of bad. Even very bad. It is also a glitch if it restricts the options of others. Removing structural bias means universally raising the basic options we all have. Having foundational loyalty to all.

History Matters

Paying Attention

Insurance is a Grudge Purchase. You don’t see the benefits when things are going well. When things go wrong, it is tough to feel good about it being only less bad than you wanted. The first insurance companies were Mutual Societies. People who knew each other getting together in coffee shops to spread the risks of dying in war, or of betting their entire fortune on a single venture across the stormy seas. People who knew each other. Communities spreading the risk. Two of the best forms of insurance are Community and Education. When Winter comes, as it always does, fear is not there because of the confidence in the roots. You don’t begrudge giving support when you feel connected. To past investment. To future springs. To each other. Mudita is the opposite of the better-known emotion of Schadenfreude. Mudita is the sympathetic or vicarious joy that comes from delighting in other people’s well-being. To experience Mudita, we need to “pay the premium” of building relationships. Paying attention. Seeing relevance. Building meaning.

Foundation Building

We don’t have to live hand-to-mouth. Capital can earn money that can finance our needs, and in good times wants. It can provide a buffer for the knocks. Then how we spend our time ceases to be filtered through the question “how can this make money?”. We can free ourselves from a pass-the-parcel economy where a break in the chain causes us to all fall down. We can afford to do care work that doesn’t pay. A challenge with this is “Agency Risk”. There has to be trust and alignment of interest if the managers are not the owners. A lot of risk management focuses on performance. What you can see. What you can see isn’t all there is. Risk control is holistic. If managers get rewarded in good times, but feel no pain in bad, interests aren’t aligned. If (some of the) managers co-invest (for show) but have substantial other assets and safety nets, interests aren’t aligned. The advantage of scale is that standard solutions can spread, and be provided by fewer people. The disadvantage is that things become abstract, confusing, and distant. Without a solid, explicitly-aligned, universal foundation, trust is bound to be superficial and dependent on a fragile illusion being maintained.

Foundation Building

Being Able

“The Forwards win the match. The Backs determine the scoreline”. Sometimes what is true in Rugby, is true in life. In 117 appearances for the Springboks, prop forward Tendai Mtawarira (“The Beast”) scored just two tries. That wasn’t his job. The Corona Virus has brought to the front of our consciousness the importance of Endurance and Resilience. The importance of a strong Base. Being able to hold still. With strength. It has highlighted the importance of being able to take the hits. Being able to push forward a few centimetres at a time. Human Beings aren’t simply productive assets in a chain of pass-the-parcel hand-to-mouth living. The foundation is simple. The foundation is being. Being able. Health, Housing, Education, and Food win the match. Meritocracy, Property Rights, Incentives, Passion, Trade, Free Movement, Supply and Demand determine the scoreline.

First, Secure the Base

Firm Foundation

Businesses can live hand-to-mouth in the same way as people do. Pay-check to pay-check. They can require things to run smoothly in order to keep going. Like people can live conspicuously fancy lives, but be scurrying behind the scenes to maintain the illusion. Superficially successful companies can be over-reliant on good times. Money from the customers immediately being used to pay staff and suppliers as the show must go on. A person having an Engine or Capital to sustain an income if they can’t work, is similar to a business having Capital Reserves to eat into when times are tough. There are plenty of Investing Rule Number Ones to go around. My favourite is “Never be a forced Seller. Never be a forced Buyer”. But the real first goal is survival. Survival is the force behind decisions we don’t want to make, but make anyway. Having a buffer to get you through periods when that thing you do can’t be done. Whatever your purpose is, whatever meaning you want to create, whatever you want to be… it all comes down to the strength of the foundation. It’s all about the Base.

pic: www.benmolyneux.co.uk

Time for Basic Income

Interest is the salary of money. Money that works for someone else. The theory of reducing interest rates is that banks can then loan that money to businesses for less. Which makes things that previously weren’t profitable to invest in profitable. It also means people who live off interest get less. It is a transfer of wealth from people who lend to people who borrow. Whether or not businesses take the bait and invest. If there is general uncertainty they may choose not to. Businesses need to survive. Continuing paying workers who aren’t working when customers aren’t paying, is as difficult as continuing being a customer when work (and the wallet) dries up. Things grind to a halt. Paying workers when they don’t work is also effectively a regressive tax (higher earners get more). A Basic Income would give everyone the same, and wouldn’t place the burden on job creators who are likely under pressure. Cash in hand. Unlike businesses unsure whether to invest, people aren’t unsure whether to survive. A Basic Income can be the catalyst that lights the fire. Both to stay alive while it is cold, and to warm things up when the winds calm.

pic: www.benmolyneux.co.uk

Financial Yoga

“Yoga is stilling the waves of the mind.” My wife recently asked me when I was at my happiest. Two moments sprung to mind. When I was doing my first Yoga Teacher Training, and the period when we got together. A few months before we met, I had done the sums and made peace with a simple life in exchange for release from the Corporate World. Clearly that peace was sexy. It got me the girl. Yoga talks of three levels of relaxation – physical (no niggles), mental (no anxiety), and spiritual (no concern over you vs others). I am at my happiest when I am at my most calm. Not worried about now, but also not worried about a week from now, or a year. My “Financial Yoga” is based on this. A deeply secure foundation, where the uncertainty is upside. A comfort with the base. That doesn’t mean inactivity. Ironically, stilling the waves opens up creativity. That is the heart of the idea of Wu-Wei (Action through Inaction). Start with a buffer to reduce the noise. Build a base. Then from the stillness that comes the creativity that matters will flow.

Yoga (and silliness) in the Mountains

Solid Foundations

Consumption Inequality bothers me more than Income or Wealth Inequality. Scarcity is a reality. This highlights Conspicuous Consumption in a world where a Billion people still live on less than $2 a day. Most people live hand-to-mouth. For most people Income is a proxy for Consumption, and few have the ability to build Wealth. Some have the ability, but not the desire or discipline. You can live a debt-financed life where your consumption exceeds your high income, and still have negative wealth. Building sufficient Capital to finance your consumption detaches the power income and wealth have over you. It doesn’t mean you can do anything. It forges internal resolve and the ability to respond. Reduces anxiety. Gives perspective. If you have a secure base powering your endurance, and the resilience to adjust, you are in a fundamentally different place from constantly hunting for the next meal. I don’t think fear for survival is a motivator for the kind of creativity that inspires. We build from solid foundations.

Gapminder.org

Holy Cow

Milk doesn’t come from the shops. It comes from Cows. Most of the products we now end up using are assembled from bits that come from all over the world. The words we use have danced off the tongues of hundreds of thousands of people as they criss-cross the globe. Sharing flavours. Bending structure. Breaking rules. What you see isn’t all there is. The problem with bowing down at the alter of the obvious, the conspicuous, and the evident, is it cuts us off from the stuff you can’t count. Quantitative Finance likes to boil decisions down to two numbers. Return and Risk. The problem is, you don’t actually get paid for taking risk. In the long run, you get paid for adding value. Value is a deeply complicated, often abstract, internal, personal, and relational story. It is important to regularly remind yourself where your milk comes from. To look for, and retain awareness of, the source.

A calf and a Sadhu

Friends, Family and Foundations

A lot of businesses start with a form of nepotism which could also just be called pragmatism. Friends or family who trust each other, and have some driving reason they are prepared to work for less than they would “just getting a job”. The most successful business person I have worked with said it took him seven years to earn what he was earning before, “at a job”. That is after survivorship bias. Most small businesses fail. Self-identified Meritocracy rewards Executive Management ridiculously well, ignoring the years of sweat investment in getting the machine going. The marginal decision gets one sided credit (things going wrong aren’t symmetrically punished) and ignores the leverage of the institution building that has come before. The most pragmatic path seems to be to hop on the gravy train of lopsided meritocracy until you have enough of a buffer, and a few mates you trust. Then you can have a crack at going it on your own. That is what we call “self-made”.

Thankless but Important

Being Productive

An Engine is Capital which earns (on average) more than you spend (on average). Capital can earn money in the same way as people can for their labour. Both can be productive assets. Either as lenders (being paid interest/salaries) or as owners (being paid through dividends and growth). Both can be weighed and measured by concepts like Meritocracy. Afrikaans has an appropriate saying for the idea of treating people as productive assets. It gives “’n klein bietjie kots in my mond”, which translates as… a little bit of vomit in my mouth. Money and Capital are fungible. That means they can be put to multiple uses, and one dollar is exactly the same as another. One person is not exactly the same as another. Money can get 20 jobs (or 1000), but a person typically has to focus on one (although jobs for life are now rare). A Base is Capital which earns (on average) more than you need to spend. A Base can provide you with a Basic Income. A Basic Income provides space to breathe, removes the panic, and empowers you to make basic choices beyond survival as a productive asset.

Full Time

There is a fair amount of evidence that we only choose if forced to. Normally we go with the default. One default that grates my goat is the five day work week. We have a limited amount of energy, and the default is us selling this energy for a hand-to-mouth salary. The one investment idea that has gained acceptance is the Pension. Invest for when you can't work. That is still hand-to-mouth, it is just your younger hand feeding your older mouth. There is a whole other world through the looking glass when you snap the connection between production and consumption. When what you make gets reinvested rather than consumed. The rules of the game are completely different once you start building. You can only do that once you have more than you need. Build a Base that pays you what you need to consume. Build an Engine that pays you want to consume. Magic starts beyond consumption. When the default no longer swallows your creativity.

Full Time worth celebrating

Beware the Price

"Never forget the 6-foot-tall man who drowned crossing the stream that was 5 feet deep on average." Howard Marks The price we pay for things is an average. For the people who believe the value is higher, it is a bargain. For the people who think it is lower, it isn't worth it. It is very unlikely to be "correct" because value is personal, and isn't quantifiable.

Being personal, value is complicated, ambiguous, relational, and fluctuates with time and our moods. When things are hard, we often choose something easier to grab on to. It is easy to price things by time, or anything you can count. Charge by word. Charge by hour. Charge by weight. Charge by person. Price is an admission that we don't know the answer. Instead it is the dance of supply and demand, that grabs onto anything you can count. Sometimes inappropriately. However much there is of something, and how much people want. If there isn't enough, the price goes up. If there is too much, the price goes down. That signals to people who can choose what to produce and consume, where they should focus their energy.

I am passionate about spreading the idea that you don't have to be defined by the things you can count. Sometimes you do what you have to. That allows you to do what you want to do. It is true that we have to accept the way the world is before we can change it. You can build Capital by playing by the world's rules. You can build an Engine by doing things that can be counted. 

Then you can set yourself free to do the things that count. 

Step one is to stop the bleeding. You can't build Capital if you are spending more than you earn. Step two is to build a Buffer. That is sufficient Capital to handle the bumps and curve balls that life throws at you. Enough to look up. To Breathe. To plan. Step three is to build a Base. That is sufficient Capital to pay yourself a Basic Income. A Basic Income is enough to remove panic. Enough to participate in the community beyond mere survival. To be swimming rather than just not drowning. Step Four is to gradually build an Engine that can earn on average what you would like to be spending.

Beyond that point lies the freedom to choose what counts. Note that the size of the Buffers and Engines are also quite personal. The more simple the life you are comfortable with, the smaller they need to be. The more control you have over what you spend, the smaller they need to be. The more pleasure you can find in things that are plentiful (low price) rather than things that are rare (high price), the smaller the Engine needs to be.

A high price is a better indication of scarcity than value. That isn't what counts.

Cross the river safely

Runway

Financial Security is about sustainability. If you have a deep sense that things are not only secure now, but that they will be going forward. That doesn't mean you can live frivolously, but you don't need to panic. You can plan. You can build. You can live. 

In order to build Financial Security, you may have a period of time where the 'Outs are bigger than the Ins'. Either this is external bleeding and needs immediate and decisive First Aid, or it may be investing. A Runway is how long you have to build if your Ins are Bigger than your outs. It is a form of a Buffer when you aren't living within your means.

Normally I think of a Buffer as something to smooth the bumps of life. To allow for the expected-unexpected events, and even some of the unexpected-unexpected ones. 

If you have a Base that is independent of you, and doesn't require you to be a "productive asset"... then you have an unlimited Runway. You can invest deeply in Research and Development. You can build a really secure competitive advantage, because most people can't afford that sort of stress-free "time out". The same way some people can invest in University Education, while others need to go out and get a job immediately. 

But if you are living above your Baseline, then your Runway has a time limit. A period after which some tough decisions will need to be made. Financial Planning, like exercise or dieting, doesn't require you to believe in it in order to have an impact on your life.

Empowering Consent

The first goal is to stop the bleeding. To get to the point where the Outs are less than the Ins. To live within your means. Then you build a Buffer. A gap between the Ins and Outs. The cost of living isn't smooth. We get caught off guard by unexpected expenses that aren't part of the plan. You can plan for the expected unexpected. That is a Buffer. Some Capital that builds resilience. 

These are short term measures.

For true Freedom, you need to build a base. A foundation that is independent of you as a productive asset. For most of us, our labour keeps us alive if we are lucky enough to have a job. A Base would be sufficient Capital that survival isn't the objective. A simple roof over your head. Warmth and security to allow a sense of calm to soak deep. Food and water to keep you sustained. A Base isn't the dream house. It is the foundation. A base gives you sufficient freedom to say No. Empowerment in the form of Consent. If you do something, it is because you want to, rather than because you have to. Yes carries very little information if No was not an option.

When you are living within your means, and you have a Buffer for the bumps, and a Base to give you confidence... you are in a position to build an Engine. An Engine is a Muse. A Patron. A Breadwinner. An Engine is the pragmatist that accepts the way the world works so that you don't have to. An Engine can take the abuses of failure because it doesn't have an identity to defend. An Engine can do multiple jobs so that you can focus on the things that really matter. An Engine is bigger than a Base, and works for money so that you can work for whatever you want.

A Community Wealth Fund would be a big Engine that can provide a Base to a number of people. When security and confidence go viral, trust becomes the community superpower. The Endurance to sustain a thriving community, the Resilience not to get knocked off track, and the Creativity to create the kind of world we want to live in. Every day.

First Aid

I believe in Engine and Buffer building. In snapping the idea that people are productive assets defined by the work we do. A Buffer is some Capital that you have built up, that means that you are no longer living purely hand-to-mouth. It provides breathing space and resilience. It means that bumps don't break you. A sufficiently big Buffer, unused, can start to grow into an Engine. An Engine is a Muse. It earns the money so that you don't *need* to. It doesn't mean the work you do might not still make money, but that money becomes a bonus. You could choose to completely focus on something that doesn't make money. Like raising a family, creating art, or working a country mile from a wallet. Like putting in a chunk of unpaid time, that might one day lead to an opportunity to work in an area you would love to be.

Step One is more pragmatic. Step One is First Aid. You have to stop the bleeding. Apply pressure to the wound. The pumping heart of Financial Security is that your Ins are bigger than your Outs. There is a minimum amount you need to survive. If you don't have that, any idea of putting some aside is a hypothetical campfire story. Far too many people on this shared rock are not even at that point.

We spend a lot of time in Dreamland. Thinking of where we want to end up. I believe it is all about the base. The deep underlying confidence that you will be okay. Some of us are lucky. We come from communities where we know that to be true. The bank of Mom and Dad stands ready to step in. Friends and Family have spare rooms. Spare couches. A web of people care about us and stand ready to pick us up if we fall. There are jobs we could get at the drop of a hat, but don't, because they are "beneath us". We can move to cheaper houses. We can move to cheaper areas. We have options. A lot of people have no options.

Even if you have options. I still believe it is all about the base. Start where you are. Take control of the bleeding. Make sure you can get the Outs less than the Ins. Then start to build a Base. A floor to the worst case scenario. Grounding. Then you can explore. Then you can shoot for anything you want.

1. Stop the Bleeding

2. Build a Buffer

3. Build a Base

4. Build an Engine