Next Generation

The tragic thing about compound interest or capital compounding is that most people won't actually get to experience it. Even those of us who are good at delaying gratification (saving before we spend, rather than spending before we repay our loans) are still...

...saving or investing with the intent to spend.

Compounding only truly kicks in when you've got a lot of money, and when you're not constantly drawing from it.

Think in really simple terms: half a million Rand, 10% of that is R50,000; a million Rand, 10% of that is R100,000. It's *the same 10%*, the same merit, the same skill, the same performance—but it's twice as much money.

Why? Because you started with twice as much.

In reality, at the beginning, most of us have hardly anything to invest, so it's barely growing. Later, when we actually have money, we're often spending it, so we're continuously interrupting our capital's growth.

Very few people reach that point of soaring, where you're spending so little of your capital that it can compound properly.

That's when the magic kicks in.

Maybe the real answer is planting trees for the next generation.

Changing Story

We only have one life, and as we grow older we tell ourselves a story about ourselves. It is hard not to grow attached to the story, and want it to make sense. 

As if we need to explain or justify ourselves, our path, and our identity to others or to typically our harshest critic – ourselves. Most other people don’t care about our stories as much as we think they do. They are too busy beating themselves up about their own. 

Capital on the other hand, is inanimate. It can be allocated to any problem, and can move around the world (if the rules allow) to change shape and form almost instantly to apply itself to different problem-solving. “Permanent Capital” is valuable, because it is sufficiently patient to wait for compounding to kick in rather than seeking short-term returns, but it is still detached enough to be available to move should the need arise. 

Much of our opportunity as people is tied to the lottery of birth, which means our meritocracy has individualized denominators. Our potential is grounded in artificial and temporary constraints. Grounded in biases and boundaries. 

Freedom of movement of goods, services, capital, and people looks to chip away at the weight of those constraints. We should be able to solve problems wherever they are, and have people from wherever they are and whatever their irrelevant constraints are solve them if they want to. 

We can dismantle the illusions that separate opportunity. If you have freedom of movement for Capital, Goods, and Services, but not for people... that has a name. Apartheid. You get areas around the world that are far better at mixing groups so that you don’t have bubbles of wealth.

Moving between illusions of difference

Soaked in Stories

We are soaked in stories. The story I was soaked in included tales of self-reliance. There is no inheritance. There are no parents to provide financial support beyond childhood. You must sort yourself out. The Government is there to support people who don’t have anything at a deeper level than just zero in the bank account. You don't "dip into poverty". Poverty is structural scarcity. 

Government is there to help people who have obstacles stopping them from helping themselves, and get out of the way of others. Although, that “self” reliance doesn’t adequately reflect the support I got in getting to a position to be self-reliant. 

In the UK, the Government is viewed more as a service. More like something you have paid for, so the government owes you. Even well-off people get extra back-up. The financial crutches and boosts for those around my left foot during Covid blew my Soutie mind relative to what was available to people who surrounded my right foot (I am stretched over both country shaped containers). The relationship with government is different. Everyone expects support. Even the wealthy expect extra financial firepower from their parents. 

History matters and that is effectively what capital is. Capital is built up Karma of the past. It is actions, consequences, and expectations. Built up through containers that have led us to where we are. Capital is what has been allowed to compound. 

The massive wealth accumulation that has happened in the last couple of hundred years since the Industrial Revolution has compounded. Although it doesn’t feel like it, if you look over a long enough time frame, we have improved our coordination and reduced our prejudice. There is less sexism, racism, homophobia, and general prejudice that prevents us from coordinating. 

One of the hardest parts of gathering knowledge is unlearning. New learning is easier than the barriers that exist at an unconscious level, which take a lot more work to unpack. Financial capital is just easier to count.

No for Now

One way to pay for a Universal Basic Income would be to build up the capital to dedicate to it. 

That is true of everything. Not all good ideas are good business ideas, but you can pay for good ideas that can’t pay for themselves. Our spending choices are seldom made in isolation. There are trade offs. 

This is why it is so hard to build up capital when immediate needs are forced decisions. Many people borrow for emergencies because they have no other choice. They can’t afford to wait. This means they end up paying more than they can afford, because the price includes interest. If they couldn’t afford to pay upfront, they may struggle to pay the loan off... so they can end up paying interest on interest. They can’t afford to wait OR to borrow. 

Each spending decision is not simply about whether you want the thing or not. Spending decisions have consequences. If you open one door, what door does it close? Broad Framing is the abilty to stand back and evaluate your decisions in context. Saying, “No” to one thing may enable you to say “Yes” to another thing that is more important to you. 

Being able to hold onto things that are important in the long term is one of our biggest challenges. Giving equal weight to our future selves. Building capital is a cost effective and powerful way to prevent forced short-term decisions... if you can fight off the short-term decisions that stop you from building capital!

Tristan da Cunha

The World's most isolated island

Decisions are not made in isolation.

Build It

The global population is due to tick up to 8 billion. So in reality, any practical implementation of a Universal Basic Income is going to have to have simplifying assumptions. “Human Rights” are a goal... an agreement of how we should live. We then need to build that reality. 

I prefer the model of bottom-up collaborative savings vehicles, or “Community Wealth Funds”. A Stokvel 2.0 or a “Stokvel that went to Harvard”. England was in a bad way after the Napoleonic Wars. One of the ways we used to deal with hard times was to head to frontiers. We don’t really have the ability to head somewhere with nothing but a strong backbone and willingness to work. The area the 1820 Settlers arrived in had been a warzone between the isiXhosa and Dutch settlers for more than a hundred years. They had cattle markets, and that was where the word Stokvel came from. An Afrikaans name given by isiXhosa people to an English market, and made their own. 

“Collective Savings Vehicles” are not uniquely South African, and the mixed-kitchen origin of the idea would have come from and gone all over. There are growing Sovereign Wealth Funds, like Norway’s Oil Fund. Australia has changed the countries savings culture over time through the gradual introduction of powerful Superannuation Funds. 

Wealth needs to be built over time. It is a slow process that has to start somewhere, and with protection, can slowly gather increasing momentum. The key question is “how do you sustainably pay for a good idea?”

Nguni Cattle

Imagining a Post Work World

In order to consider a “post-work” world, I had to do some reading about minimalism, and explore the reasons why we get tied into expensive lifestyles. 

The default can be to commit to paying off the debt of expenses that end up controlling us. Each spending decision has unintended consequences. Minimalism doesn’t mean you don’t like the thing you don’t buy. It isn’t a case of “I don’t want it”... normally you do want it. The better question is, “in the broader context, is it worth it?”. 

At the time when I stopped working, I was single, and I had no dependents. I believed I could sustain paying for the things I valued if I held a broader context in mind. 

I get quite defensive of the younger version of me. The problem with being contrarian, and doing something that is different, is that almost everyone tells you that you are wrong before you do the thing that is different. Still, I took my shot. So, when I had to go back to work, there was an awareness of the obvious and plentiful, I-told-you-so retorts. 

The world is complicated. Plans change. I still believe it is possible to live off capital in a post-work world. There are consequences. I learnt a lot in my 6 years of attempting to step away from the world of money. So, I try and be compassionate to the younger version of Trevor that stopped working. 

I still think strategizing around how to release ourselves from the constraints of how to make money is something worth giving energy to. I still want to figure out a way to direct less of my time and energy to thinking about money. What I did realise about a year and a half in what just how fortunate my bubble of friends and colleagues were. 

There are obviously stresses, but decisions have consequences. There are tradeoffs. People make choices. Honestly reflecting on choices and constraints is a privilege.

Contrarian Choices

Stupidity Tax

Conspicuous Consumption is a stupidity tax. As is hoarding. The image of Scrooge McDuck is not one of someone who is good with money. 

People who are good with money are constantly putting it back to work. Lazy assets get eaten away by inflation and fees. Lazy spending is firing money. Even though someone with capital is building reserves, those reserves are working. 

If you are a fundamental investor, that work is something tangible you can understand and explain. That capital is connected to other people and providing something we collectively want or need. It provides breathing capacity for the owner by working for others. 

We do need the layer of what is now called responsible investing, impact investing, or the inclusion of ESG (Environment, Social, Governance) issues in decision making. The importance of including qualitative issues in decisions that are normally driven by numbers. Recognising circles of competence with people who understand money, but may be less conscious of unintended consequences of broader societal impacts. Making sure that good business ideas are also good ideas that are consistent with our ethics and values. 

It is not just the conspicuous that matters when it comes to endurance. It is also behaviours, patterns, and things as basic as sleep. Understanding the processes and science behind sleep. Where the direct connection to “productivity” isn’t obvious. Understanding how unconscious learning gets processed and connections get made. Where what we are aware of and unaware of gets connected and pushed into our subconscious if we are sleeping, eating, relaxing, breathing, exercising, and looking after our mental health properly.

Ant Bridge Crossing

If you do manage to break free from the hand-to-mouth cycle, you will have to internalise spending discipline in a way that is far from ordinary... and very misunderstood. 

One of the tricks of the ability to hold shares of real businesses, is that wealth has to work. Instead of resources being hoarded, they get reinvested. In factories, in services, and various other forms of problem-solving. 

A twist on the story of the Ant and the Grasshopper. The Ant still works all summer to build up a supply of food for when she can’t work. During the winter, the food isn’t stored... it is still working somewhere else. The hard bit is that it is still not there to spend... beyond meeting the planned needs of the Ant not being able to earn and still having to eat. Every dollar that is consumed beyond that is a dollar fired. 

When there is nothing there, you don’t need discipline not to spend it. If you live paycheck to paycheck... there is never “extra”. The Grasshopper may look at the paper pile (the actual pile has been reinvested), and say... but you have plenty! 

Building breathing space in a world where most people don’t have it raises lots of existential questions. It is incredibly hard to build capital, partly because there are always profound needs and emergencies. 

You have to genuinely believe that the capital is ALSO working on solving problems. Balancing immediate needs with a structural long-term path to deeper breathing. If we always consume everything we make, we will never reach collective freedom.

Still Working

50-15-5-Rule

Money can make money. 

A path to freeing yourself from being a productive asset is the 50-15-5-Rule. If you have an income stream because YOU are a productive asset being paid for your work, and you have capacity to gain significant control over your expenses, you can apply this rule. 

It starts by not consuming everything you produce. 

If you can invest half (50%) every year, for 15 years, and your money makes 5% real return (paid $5 for each $100 that works, AFTER all expenses and inflation)… then your capital can grow to the point where your money makes as much money as you were spending. 

These are aggressive assumptions. Investing half is hard. 15 years is long. 5% is proper work for proper money. 

All that said... it is possible to get to the point where you have an engine. 

An engine is capital that (on average), earns more than you spend (on average). 

If you sustainably spend less than your money sustainably earns, then you are no longer bound by the constraints of money on how you spend your time and energy.

Half

Productive Assets

Financial Yoga is practicing what you identify with. Releasing yourself from “being” a productive asset. 

You can count some things. After a certain period, when you have done something conspicuous and explicit... it counts. You can demonstrate to others without them also having to do the work to understand. You have evidence as proof that you have been productive. 

 

There is a difference between something you consume, and something that works. If you get $100, and you buy and eat an incredibly fancy, overpriced, doughnut... it is gone. You consumed it. If you buy a ring, the ring doesn’t change. It is something you have that doesn’t DO anything. 

A productive asset is something you invest in, which does a job. Instead of $100, there is $110 at the end of the year. It makes $10 by solving problems. The next year, more money works and so the money makes $11. Now there is $121. It starts compounding. That is a productive asset. The wealthy person doesn’t actually “have” their wealth... it is working. 

I am all for productive assets rather than excessive consumption or hoarding. I just don’t want to BE the productive asset as my full identity. I have looked at the rules of the game, and I don’t want to play! Building Capital can gradually release us from being weighed, measured, and defined by what others can see and count us explicitly doing.

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

Holding Good Ideas

Unless you start from within a container of opportunity, and with capital, finding an income has to be the point of departure. The reality is that there are not enough jobs available. “Full Employment” is the situation where there is no one willing and able to work, who cannot find it because no one wants, needs, or can afford their labour. That is what wealthy countries (the containers in which we manage work and government and social security) aim for. 

South Africa has structural Great Depression levels of unemployment. US unemployment rose to 23% in the 1930s. South Africa's unemployment rate reached 33% in 2021. The lowest it has been since 1994 was briefly 22% in 2008. 

“You have to be creative” is the standard hollow advice, but I am very aware that I have never been an entrepreneur. I took the formal route. I did formal in-demand qualifications and I got one of the scarce jobs. That is how I built my engine. The reality is an engine allows you the freedom to think creatively. When I needed to top up and repair my engine, it became obvious that entrepreneurship (without a big cushion) is not my skillset. I would need to adjust my skills or accommodate different ways of finding an income. 

Good ideas are not enough. Not every good idea is a good business idea. Good business ideas exist within structured containers with sustainable capital. 

Once you do have an income, you are in a fortunate position to take on the challenge of spending less than you earn. To build capital. To build a container. To hold your good ideas.

United States Unemployment

Waves of Life

The vast majority of people, even those earning a lot of money, live hand-to-mouth. One way to view meritocracy is that it shifts capital to where it is working the hardest. Another way to view meritocracy is that people who are "better", deserve to live better lives. That how much you spend should be in line with how much value you add to society. For that to be “true”, people need to spend what they earn, and be paid what they are worth. That is not how capital, money, or price works. 

One of the challenges of building capital is that there are always emergencies. There are always events that can stop you and set you back to zero and hand-to-mouth. 

In Australia, they have famously changed national saving habits and built huge superannuation funds. One of the philosophical questions is whether people should be able to access their retirement savings in emergencies. For proponents of Universal Basic Income, a key question stands around whether lenders should have a claim over those payments. Can you borrow against that guaranteed stream of money?

In the early stages of building capital, the waves of life can destroy any capacity to protect, cultivate, and invest in merit. It is hard to grow capital when it is being harassed. It is hard to see each other when we are living hand-to-mouth. 

Reserves and Containers

There is a long list of stupid things I have done. In 2014, it could seem like a very risky thing to be doing for me to have stepped away from the corporate world. No longer having the certainty of a salary. No longer wanting to work for money. But you need to unpack conspicuous risk. When you look at a salary, it is not as safe as you think. The idea of a job for life is not there anymore. You are dependent on the financial well-being of the company you work for. Part of stilling your own waves of money anxiety is being able to understand business in general. How do you know whether a (your employer’s) business is in a position to survive? Businesses are more fragile than we think. It isn’t just about how good their product/idea is. The strength of their reserves (capital) and container (barriers to entry) matter even more. Pushing responsibility to owners/managers to still our financial anxiety when creative destruction constantly attacks the forces of supply and demand, is structural risk. Structural stupidity. I got to have a stab at another way of approaching life, because I had built reserves and a container separate from my job or the companies I was working at.

Smuts Trolley Races Teams

The Signal

Until you are the decision maker, there are lots of people who will be in positions to choose the options that are available to you. Good ideas are not sufficient without financing and a container. Someone must have the money. Someone must own the money vehicle. Until that person is you, you will have to convince people. Skills and knowledge will need to be conspicuous. A clear offer. Although there are other paths, one of the tools for conspicuous skill is formal education. Arguably, you are not paying for the education/information (that is largely free now), you are paying for (1) exclusivity (for them to reject other candidates), (2) network (for them to accept other candidates who will become colleagues/friends), and (3) the signal to the person with money who gets to impact your fate. You are buying privilege. Beyond the knowledge, exam and study technique become essential. Establishing a habit of breaking down barriers. The process of absorbing information in a limited time, and then performing in an artificially constructed signal factory. 

"The Signal"

William Powell Firth  (1858)

 

Defining Container

It is horrible not getting the job you want. It is worth remembering you are likely not the only one who did not get it. With so few great jobs, there are normally plenty of candidates for those roles. It would not pay well if we create work-for-work-sake. Just because we want people to have those jobs. There are limits and there are constraints to what is required. Beyond a specific role’s requirements, understanding some generic business skills is important. These are the kind of skills that that are going to be with you throughout your life whatever your “source of wealth” is. However you build your wealth, you need financial literacy. Capital helps you make money. Through financing and risk management. Supporting your skills and knowledge. Developing an understanding of the containers in which all that happens is equally important. The accounting/law/product that creates the shape and form for what you are doing. Detaching a little to understand the things that are not specifically about you and what you do. You need some awareness around that to have a plan for how you are going to build your freedom, your autonomy, and your ability to make decisions. So that one fragile job/opportunity does not become your defining container. 

 

 

Work Giver

There are formal skills that are easy to quantify/articulate and are specific to the jobs that require technical knowledge. For those, you just need to know what they are and do the work. There are other less obvious barriers to entry. It is not just about skills and knowledge (“Merit”). It is also about supply and demand. How many people have that ability? Why choose you? If there is an oversupply of people in the area that you are interested in, it is going to be difficult to get those jobs. Not because of you. Because of your choice. Qualitative and subjective filtering processes give lots of wiggle room to those selecting who gets the job. In a world where demand for jobs outweighs the number of jobs on offer, employers become guardians of opportunity. The German word for employer is arbeitgeber – work giver. The employer will be faced with similar supply and demand questions one level up. What is the problem they are solving, and how many other employers are solving it? Do they have the Capital needed to solve the problems? Can they solve the problem in a container with barriers to entry? It is not just about you. It is not just about merit. When building wealth, capital and containers matter. 

The Container Matters

Trees and Fruit

If you are able to build Capital, you have to internalise discipline. Because you *can* spend Capital. If you stop it working. If you turn it into cash. Then consume it. It depends on the story you tell yourself. You can look at money as trees and fruit. You can live off the fruit, but if you start cutting down trees, there is going to come a tipping point where sustainability comes into question. “No Money” will again be the enforcer of discipline. It is analogous to the planet and our natural resources. While we were growing, and while we were living hand-to-mouth, we have not adequately considered the sustainability of our environment. You have to think in a long-term fashion. Normal panic is, “I am not going to be okay at the end of the month.” It is a different type of worry you have when you change the way you look at money. You have to realise when “this is not sustainable”. You might have to change your habits even if you are okay for the next three to five years. Because you are not okay... for ever. And that worries you. That is an important worry to have. One that requires a change in the way you act. 

 

Consuming or Reinvesting

“No decision” can be “the decision”. Building wealth is capital allocation. Getting money a job. If  everything there is, is spent, there is nothing to put to work. If you are going to build capital, you first need to build buffers that control for the waves that knock you off course. To do that, instead of “nothing left” being the enforcer of discipline, you need to internalise self-discipline so extra is allowed to exist. Not extra in the sense of a Scrooge McDuck pool of hoarded coins. Extra in the sense of reinvestment. Extra in the sense of circle of life rain-cycles, where energy is neither consumed nor destroyed, but just changes shape and form. It is the story of the Ant and the Grasshopper and Aesop's Fables. The Ant works hard during the Summer and builds up a lot of reserves. And when it gets to Winter where there is nothing to eat, Ant has extra. Grasshopper plays during the Summer, when it is beautiful, and there is plenty, and there is enough to eat. But then when it gets to Winter doesn't have enough. If you are going to build capital and buffers... the money is there, but it is not there. Which is quite abstract. The money is working at a job. It is not there to be spent.

Consuming vs Reinvesting

Solved Problem

Investing is a solved problem. As Seth Klarman points out, “the real secret to investing is that there is no secret to investing”. The unsolved problem is that most people don’t do it. Most people still live hand-to-mouth. A lot of people are stuck in debt traps which is “reverse investing”. Like the underworld of Stranger Things, you work to pay for past consumption or misfortune. Three key factors in investing are (1) competence, (2) relationships, and (3) beliefs. I don’t believe in Gods of investing. I do look out for red competence flags. You have to do your due diligence. Like romantic relationships – we form connections with people. The grass isn’t always greener. Improving our investing habits starts where we are. Our beliefs are path dependent. There is an element of this in the “how” of investing. You have to choose a path that resonates for you so you can stick to it. The basics are pretty simple. Find a way to earn. Spend less than you earn. Get the difference a job. 

too many live hand-to-mouth