Empowering the Uncontainable

Meritocracy and conspicuous consumption are dirty dancing partners. Value is personal, and price is a blunt tool for exchange. Price is a way to “put a number on anything”, even if it shouldn’t be boxed in that way. 

Demonstrating your wealth via things you can see can be an attempt to put a price on yourself. To show what you are worth. If you buy the idea that people with more merit, have higher prices, and so in a hand-to-mouth world... consume more. Another way of thinking of money and price is a tool to build the capacity to cope with life. Not about ranking or comparison, but rather about endurance and resilience. 

If you snap the need to (always) listen to price, you can internalise the way you look at value. You are not extracting yourself from life, in all its glory, and with all its challenges. You are building capacity which requires support. You can’t do it alone. 

Wealth is built in containers. We need to recognise our communities, and see how the containers we build exist within bigger containers. Trust in the bigger container is part of Adam Smith’s argument in favour of win-win capitalism versus win-lose mercantilism (battleship diplomacy with nations competing). He was able to show that freedom of movement in capital, goods, services, and people is win-win. 

You need to give things shape and form to make money, but those containers can morph and empower the uncontainable.

Changing Shape and Form

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.

Beyond Etch-a-Sketch

Time is the foundation of property rights. If you know that whatever you are going to do is going to get etch-a-sketched, then you rightly will think with a temporary mindset. Live in the now. You can’t trust there will be a tomorrow. 

If you know you have got a plot of family land for the next thousand years, and no one is ever going to take it from you... the connection to that land will run deep. If you feel a connection to your future family, you will be willing to build something where each generation successively acts as custodians. 

That is why really deep, old money, is family wealth. Where you have family constitutions, and succession planning, and even set up family offices that employ lawyers, accountants, investment professionals and others to help with the complexity of support structures. You are training the grandchildren to take the reins of the family one day. There is a connection across time. 

That is very different from someone who plans to consume their money during their life time... no inheritance, no worries! 

Real wealth is built over incredibly long timeframes. Not even necessarily at high rates of return. Slow, stable, reliably positive return that just keeps quietly coming. 

You may worry if the return is too high, because that raises the possibility of an explosion in the other direction.

Spending and Earning

Sustainability is the key to compounding. Although what you do matters, what you are doing now matters less if you can’t carry on doing it. 

An engine is capital that earns (on average) more than you spend (on average). As soon as that balance of consumption and creativity changes, the clock starts ticking. 

If money can sustainably make money, and we can spend less than the money sustainably makes... there is no reason that can’t carry on forever. If the sustainability is cared for. 

For money to make money, you need to ask very pragmatic questions. 

How is money made? What is wanted? Where is the scarcity? What are the skills and knowledge needed for those specific requirements? Are too many people already working on those problems? How are decisions made? What are the containers those decisions are being made in? What are the barriers to entry? What are the barriers to exit? What frameworks of understanding and action are we using? How are we communicating? What agreements do we have? 

You can only be freed from the constraints of these questions if you have control of the balance between money coming in, and money going out.

hanging from the see saw

Enough to go Around

If you tie your identity and incentives to your job and pay, the stress and shocks of money will drive your anxiety. Hunter-Gatherers may have also lived hand-to-mouth, but that is a false analogy because they were living off the land (a form of capital which produced opportunity). They had the option of moving in tough times. We live in containers which restrict our movement (countries, job qualifications) and do not all have the option of a menu of skills which provide almost certain payback if mastered (hunting and gathering). 

Modern hand-to-mouth living means spending all you earn, without the option of earning more if that is not enough. When there is more than enough, simply consuming it. Adjusting spending up if income rises. The trick is to slowly separate from that. To see value in things that are abundant, and put your money to work solving scarcity. “Democratic Goods” are things where there is sufficient supply that everyone who wants it, can have it... at a reasonable price. 

Price surges when there is not enough to go around. Price surges when we borrow to buy at a price we can’t afford... because there is not enough to go around. If you can find and see value in things where there is sustainably enough to go around, you can detach from the relentless stresses and violent shocks of scarcity. 

Gathering Honey

Borrowing to Spend

Nothing, is a powerful disciplinarian. A floor to how low you can go. Saying “spend less than you earn” seems ridiculous without the dangerous helping hand of borrowing. If we can borrow, we can borrow to spend. Interest is the salary paid to money that is borrowed. Salaries are a commitment. The wage bill comes whether or not the customers turn up. The interest is due with no concern to what was done with the money. 

It is one thing to borrow money and put it to work productively. Where it creates more than the salary it is paid. There may even be a gap between when the money is earned and when the salary is paid... so the salary is an advance of expected/known/hoped-for (but distant) pay-back. 

It is a completely different thing if we borrow to spend. If we sink into a swamp of debt-financed consumption. Some have no choice. They pay ridiculous interest rates (because they are “high risk”) for short term emergency loans. Ironically, the lowest salary for money gets paid to those who have the most proof they do not need the support. 

Most lending is income-based. The obvious one is mortgages (3-4.5x salary) where you borrow a multiple of your formal income (the lender is trusting the employer’s commitment). Then people end up borrowing as much as they can to buy as big a house as they can. The demand goes up. The prices go up... not because of value creation, but because of the hot air.

Property Prices: An International Balloon Festival

Within Your Means

Spend less than you earn. Easier said than done. Unless you have outside sources of support, the only way to create space is to “live within your means”. The only way to build an outside source of support, is to live *aggressively* within your means. That completely changes your relationship with money. 

Money is not something you spend. It is not even something you save... for something. It is something you put to work. The real engine behind capitalism is not simply profit. It is reinvestment. Solving a problem for less than the demanded price, and putting the difference back to work. This snaps the connection between wealth and conspicuous consumption. Those living large are not putting their money to work. They are firing it. 

Conspicuous consumption is a stupidity tax. You do not build wealth by getting more stuff and bigger things. You build wealth by severing the connection between what you need and what you earn through hand-to-mouth income. Wealth is not what you spend. Wealth is your capacity to make your own decisions. To choose how to respond. 

What you spend conspicuously can be the opposite of building wealth if it is fed through debt. Then the interest payments gradually grow until your labour feeds someone else's consumption. Building wealth is not about how much you earn. 

Building wealth is about a sustainable gap between what you earn and what you spend. 

Pieter Brueghel

Whose Milestone?

Part of how we are weighed and measured is how much income we make. The assumption being that salary (the price of our labour) is a useful direct form of comparison. Spending can be directly tied to income in a hand-to-mouth world. 

Spending becomes the conspicuous symbol of whether our life is a success or not. A long shopping list of age-measured milestones. “By this age, I need to have done this”, in order to be regarded as meeting expectations. 

It is often community-based. Financial planning can be a team sport. There is an entry ticket price attached to who you spend time with. If you are part of a community, you are measured by its standards. Even smack-in-the-face-obviously wealthy people may not feel wealthy because it is relative to their expectations, and they may feel like they are failing. You can be the 100th richest person in the world, comparing yourself to the 99 with more. 

Unless you can detach from that craziness, you are always going to be treading water. You are always going to feel like you are not in control.

Managing your own Milestones

Escape Plan

Building wealth requires a plan. Before that, if you are trapped, you need an escape plan. If you are in a situation where you don’t have the ability to earn, or are stuck where you don’t own enough of what you earn. If what comes in is used to pay interest on previous consumption. 

Building only starts when there is forward momentum. Good debt is where money is borrowed, and given a productive job. The money is not borrowed and consumed, but earns a salary. The money gets paid. There is still risk. The borrower takes on the risk of not being able to pay the salary, because what is produced does not cover the costs. If you commit to salaries, you have to pay even when there is not money. Or close shop. The wage bill comes each month, and you have to meet it. Like if you have borrowed and consumed, and still have to pay interest. It becomes the cost of waking up. 

Building only happens with space. With construction rather than destruction. With a source of income. With control of expenses. If you then want to separate yourself from the anxiety of hand-to-mouth living, the escape plan can morph into a growth plan.

Resource Depletion and Consumption

The Unseen

My oldest brother is very dangerous over short distances. Like Gimli in the Lord of the Rings. My middle brother is more like Legolas, preferring long distances and floating seemingly effortlessly over obstacles surviving on leaf-wrapped Lembas bread. Thousands of years of thoughts hidden in a head we don’t have access to. People have different approaches to life, and we must be aware of that. 

Some knowledge is conspicuous and conscious. Some knowledge is embodied and relational. Our decisions are constructed by contrasts, what is present, and what is absent. What you see is not all there is. 

Debt is the best example of that. There is good debt and bad debt. If you don’t know the difference, you should probably avoid debt altogether. Bad debt is the opposite of capital. Once spent, it produces nothing but still needs to be fed. It takes on a life of its own and sucks on the life of those who are still living. You can pay back significantly more than initially borrowed as you start paying interest on interest. Strangled by debt traps. Even those living conspicuously “successful” lives may be digging deeper holes with each breath. 

The process of stilling the waves of money anxiety, through building a buffer, then building capital (an engine), often starts with dealing with the unseen.

Difficult Questions

We do not all have the same skills and knowledge. We do not all have the same barriers to entry. We have different opportunities. We have different sources of funding. We are consuming resources unsustainably, yet the average global GDP is only about $11,500 per person. Can you live on $11,500 a year and still create space to save?

If you are earning more than that, can you reduce your consumption to that level? Yet, there is a whole swathe of the world’s population living in poverty. How do we raise people out of poverty, when we can’t all consume the amount that is being consumed by those who are consuming too much?

How do we incentivize if consuming more is not an option? How do you get someone out of bed in the morning, if you are asking them to have a worse day than yesterday? Every day?

These are difficult questions that require some fundamental reframing of how we make our decisions. 

Framing and Structure

Good Enough

It feels good to receive acknowledgement and recognition. To be seen and respected. To move onto the next stage of detachment and a really deep knowledge of what is going on, you have to let go of the idea that it is all about you. The constant internal battles about whether you, personally, are good enough. Whether others are good enough. You have to let go of the idea that we work to fund our lifestyle and consumption and respect. We think of liberty as about the individual, but ironically, the ultimate liberty is the freedom to realise it is not about you. The privilege to be working on issues that are bigger and connected to everything. The capacity to fully accept the world for what it is, because you are no longer being battered by waves that separate you from it. When you are able to genuinely see the world, want to understand it, and start asking the right questions rather than enforcing your own view of what the world should be like. To get there, you do need to deal with the rubbish getting in the way. Building space to breathe. 

Waste Generation per Capita

 

Allowing Space

If you are time rich, rather than money rich, you need to learn to create boundaries. It's very similar to the rich-rich when people start asking for money. People start using your time more conspicuously, if they feel entitled to it because they are busy. When you create space and someone else doesn’t. It's a little bit like being punctual. The people who aren't punctual arrive late and make people who are punctual, wait for them. Which even though it is perhaps not intentional, is a way of saying their time is more important. Tim Urban writes about chronically, late, insane people (Clips). He calls it time optimism. They (and he includes himself) always try fit too much in. I am typically on time, and part of the reason for that is I stop doing whatever I'm doing early. People like me are time pessimists because we leave gaps for the next thing. I do a lot of waiting. We need to build a whole new way of looking at respect and how we recognise people, if we're going to change the way we make our decisions around money. Allowing for gaps. Allowing for the things we can’t see. 

"Why I am always late" Tim Urban

 

Sparkling Inequality

Most people I know plan their finances in a bubble. Bryan Caplan points out that “normal people say what other people do, but do what other people do”. This is where the concept of Champagne Socialism comes in. When there is a stark disconnect between spoken politics and lifestyle. Consistency is ridiculously challenging. It can be paralysing because the task is tall. If you believe the world needs to consume less (climate change), the median GDP is roughly $10,000. I am not saying that number is a perfect measure, but if you believe we should consume less, do you believe you should not consume (personally) more than USD 10,000 a year? My friend Galeo talks of being a Half-Hearted Fanatic. Martyr’s do not survive. The median adult income in the UK is roughly $24,000 (adjusting for prices), and in South Africa it is about $4,750. If we are all aiming to consume sustainably, how do we nudge towards that goal? Our bubbles bump each other in our bigger bubble.

Fat Men Searching

Bob Dylan sings about fat men and thin men looking for dignity. Searching high, searching low. Have you seen dignity? It is one of my biggest quibbles with Adam Smith’s “The Wealth of Nations”. He chips away at the idea of wealth creation as a battle to the death, but doesn’t quite let go of the linear development of the age. There is still the idea of more is better. He just argues we can all have more. Against barriers. For mobility. But he also argues for a greater expense for supporting the dignity of the monarch in an opulent society. “As in point of dignity a monarch is more raised above his subjects“. One of the biggest obstacles to financial security, and even adequate climate responses, is “the lifestyles to which we are accustomed.” Tying dignity to conspicuous consumption. If you want to become financially secure, one of the most powerful tools is to become a Minimalism Geek. Get a copy of “Seneca – letters from a Stoic” and chew on the lessons on how to become immune to life’s setbacks. What people see without effort, is not who you are.

Wealth as Opulence

Louis XIV of France "The Sun King"

Reigned 1643 -1715

Find Shelter

First, find shelter. It is impossible to build if you don’t survive each day. Warmth, sustenance, and protection from the elements aren’t negotiable. To still financial waves, there is groundwork that needs doing first. If you are spending more than you are earning regularly, you are bleeding. Stem the flow. If you are being knocked back to the start irregularly but reliably, you need to find refuge. Living aggressively within your means may feel like a lack of ambition. It is the opposite. There is way more to learn from people with less than us, than from people with more. More is the distraction. We can only see the conspicuous. We can’t see other people’s storms. We can’t see other people’s foundations. Shelter is normally internal and subtle. The ability to breathe slowly, smoothly, and at length. Then with time, and constraint, you can build each day, on the day that came before, for the day that comes tomorrow. With strength, flexibility, and control.

Desert Storm

Simplicity and Self-Reliance

I grew up in the Methodist Church which emphasised, among other things, two key values – avoiding conspicuous consumption, and self-reliance. There were regular debates over any money spent on renovations to the church buildings. The focus was on functionality. The founding stories were based in a break away from flashiness. A foundation of simplicity. I was in the English bubble of Apartheid South Africa, but the self-reliance stories of the missionaries, criminals, impoverished, refugees, and fortune seekers resonated with those of the Afrikaans bubble (and I had Romeo and Juliet style crossing of family stars). Protestants protesting. Fleeing the European religious wars. Hard tales and hard heroes from frontiers, like Wolraad Woltemade and Racheltjie De Beer. It didn’t surprise me when I discovered that the first stories of Racheltjie appeared a few months after those of American heroine Hazel Miner, who saved her brother in the Spring blizzard of 1920. Legal Apartheid ended and I left the church, but history and founding stories soak deep. Even if they pick up flavours that resonate from elsewhere.    

Self-Sacrifice

Drip Feeding

Lots of people are paid substantial incomes but are not financially independent. You can make £100,000 a year a still be as addicted to income as someone earning R100,000 a year. Spending adjusts as fast (if not faster, given increased ability to borrow) as income. It is super tempting to spend your income even before you have earned it (borrow and spend). Living off a Basic Income paid by an Engine requires substantial internal discipline. Unlike a salary which drip feeds you, an Engine is there. It has a paper value. You can fire it by selling it off and spending it. Particularly challenging is the Alternative Worlds presented by friends who have chosen different paths. You can’t see the Engine. It is working. You can see an income you spend, in the lifestyle it affords. Part of shifting to a Buffer & Engine mindset, and weaning ourselves off income-dependence requires an ability to move beyond drip-feeding.

Total Parenteral Nutrition (TPN)

Worth It

How will you feel in the morning? How will you feel on Monday? I like to buy Democratic Goods. Those where the price is low enough that everyone who wants them can mostly afford them. Dividends of being Cultural Billionaires, sharing in societies compounded cumulative skills and knowledge. Price is relative. Just because the price is high tells you very little about its relationship to value. But a low absolute price does reduce the amount of Due Diligence you need to do. The bigger the number and the less you know, the more research is required. The bigger the number, the fewer other people (also researching) are likely also buying. Bigger number, smaller market. In tiny markets, the story becomes more important. It becomes easier for there to be different knowledge on the part of the buyer and seller, and smoke and mirrors in between. The bigger the absolute price, the more dangerous the epiphany, “I am worth it”. Of course, you are worth it. That doesn’t mean people won’t try sell you a story to get a chunk of that worth. “Is everyone else worth it too?” is a good follow up question.

Is everyone else worth it too?

Finding Space

How do we wean ourselves off structural income dependence? Even most of the wealthy live hand-to-mouth in a fragile way. We don’t look at wealth by stress testing. We look at the surface. We live on the edge. Few people suddenly become all Zen when they reach a level of income or capital where they feel they have “Enough”. The incentives of bigger, better, more, provide more immediate gratification than the incentive of deep soaked security. We stretch. We push. We reach. Income Detachment starts with space between spending and income. It is hard to motivate for Buffer and Capital building. There is no shiny new thing on offer. A Buffer just removes the noise. An Emergency Fund of 3-6 months spending. A productive Engine should generate income over time, but spending more than 2-5% of it is likely to put it under pressure. You can go Cold Turkey and extract yourself from spending-based environments, but we are in this together. Wealth creation is a team sport. It is a long-term venture. Across generations. Embedded in culture and relationships. We have to value the ability to breathe, and gradually build our lung capacity.