Spending Discipline

Spending discipline is not just a personal decision. Choices have consequences. It is much easier to be “harsh” or stoic, if it is just you. The yogic idea of Tapas is the opposite of a holiday. “Tap” means “to be hot”, but the practice is embracing difficulty in order to gain comfort in it. Where the heat births inner strength. Holidays are normally where we release the pressure built up in a 5-day work, 2-day recovery cycle. Something we look forward to, and use as a reward. With Tapas it is in the other direction. You remove the pleasures and complexity, and when you return to real life you suddenly see the flavour and joy. 

Much of what we spend is habitual and deeply intertwined with our community. “Nothing kills an activist like a mortgage and school fees”. The more extreme measures of cutting back expenses (in order to build buffers of emergency funds and capital to support you in difficulty), become challenging when money going out is not a voluntary pleasure. Fixed expenses are things you no longer make decisions about. They just happen. Like living in a particular area because that is where the school or job is. Moving would have real consequences. Real trade-offs. So even when there are cheaper options, they are not your options. 

When you start the journey of financial planning by writing a list of how you spend, there will be steady outflows that are fixed and regular, and bursts that variable and voluntary. There will be items that feel like your choice and others that feel chosen for you. Every journey towards more autonomy and consent, starts with “where are you”. 

Write that list. See where you are starting from.

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. 

 

Powering Creativity

Money is a blunt incentive. A way of getting commitment when you don’t have a deeper connection to the cause. Like salt, fat, and sugar in cooking, it is the easiest thing to grab at. To turn to more as the default answer. My preference is to get to a point where you take money off the table. If you think of money anxiety as temporary waves, used to push us one way or the other, then stillness allows you to focus on what is truly important and worth identifying with. You don’t want to identify with money. You do want to identify with your purpose. This means internalising disciplines. Internalising ambition. Internalising decision making. Creating buffers to absorb the waves, and engines to power your creativity.

Turbo Generator

Outsourcing Discipline

Some of the best investors I know don’t believe you need financial advisors or asset managers. Unfortunately, “you don’t need me” isn’t a good business idea even if it is true. There are no Gods of investing and there are no real secrets left. If you want to build wealth, there is more than enough information out there to self-educate. Teaching is an underpaid profession partly because it genuinely solves the problem. It empowers people to be self-sufficient. Good business ideas require the person to be an ongoing part of the problem solving. To create a Pantheon of chosen ones for mortals to put their faith in. Content creation also struggles (thanks social media) because there are plenty of people willing to share Zeitgeist ideas and knowledge for free. Even if you are just sipping on the collective tasters. Money is made in containers. That is what Asset Managers charge for. The Illusion. The protection. The due diligence of the machine that backs the process. The Custodians, Lawyers, Auditors, Compliance Officers, Administrators that turn a simple process into the shining land of Oz. That, you can’t do yourself. Obviously, there is a difference between being able to do something, and actually doing it. Consistently. That is what you are paying for. Paying to outsource your saving discipline.

Wealth is built in Containers

Sustainable and Consistent

Competitive advantages are hard to sustain. Sustainability rather than size is the important force. Opening to the magic of compounding. The most appealing ideas are those that hide in the open. Deep-soaked over time through consistent application. We all have a good idea of how to stay fit and eat healthily. Most of us don’t. Fad diets, massive weight loss, fast muscle gain etc. are not particularly impressive. The important part of a fast isn’t the fast. It is breaking the fast. Breaking it gently in a way that there is a fundamental shift. The fast may be the shock that brings attention, but it is the awareness and action that brings the long-term results. The same is true of building Capital. You can destroy a lot of things in a single day. To build something of value, more important than what you do on a particular day, is what you do every day. Sustainably.

The beauty of time and consistency - drip, drip, drip

By Default

The law is changing in the UK, so that all citizens are organ donors should they die. By default. You can opt out if you want to. Evidence shows that that is how we make most of our decisions. By default. This is largely how we solve the work problem. By getting a job. That outsources what we have to do, and means that (by default) we get up every week day and pitch up to work. It also means we look for work. We create work. Work for work’s sake. There is no minimum wage for your time when you have sold it all. This means you stop making the decision about whether individual units of energy are worth expending. Work expands to fill the space. This all makes sense. Consciously deciding on things is hard. It is why we embed our habits. It is why in the areas we claim mastery, we are able to act at a much deeper level than conscious decision making. The key is awareness. Knowing what your defaults are, and if you are comfortable with that. Otherwise… change the laws you make for yourself.

Wealth Building

Wealth building takes time. We love stories of outliers and exponential shifts. There is no shortage of discontent pedlars who will sell you the secrets to 10X your life. Long-term investing is way less sexy than that, and way more powerful. Not everyone can be Roger Federer. Trying to be Roger Federer can lead to a lifetime of disappointment and anxious self-attack. Everyone can be themselves. Everyone can start from where they are, and build an empowering container for their particular form of creativity. If they are prepared to truly commit to long-term wealth creation. Where wealth is mastery. This isn’t get-rich-quick. This isn’t a 6-month plan to turnaround your life. A 15-year plan is more powerful. Particularly if it starts with acceptance rather than turnaround. Simply and honestly looking at the skills and knowledge you have, and the menu that is available. There may be options you are shutting off from by Rogering yourself.

External Discipline

“Can’t” is a powerful external discipline. When you live Hand-to-Mouth, spending decisions are splitting decisions. There isn’t anything left at the end, so choices are forced. The money is gone. A challenge with building Capital is that gradually the discipline must be internalised. There is “money left”. Except the money has a job. If limits aren’t “artificially” placed, then the money is fired. Given the challenges of Climate Change, the analogy of cutting down trees and digging up coal is appropriate. Yes, we can burn Fossil Fuels. Is it sustainable? A Burnt Tree produces no fruit, no oxygen and no shade. The initial stages of building Capital are the toughest. Even if you can wrestle a gap between hand and mouth, there are always unexpected expenses. Some possible form of spending must be seen as less important than the saving and investing. Less important than building. Building Capital starts with building a Buffer. Then comes the challenge of shifting from a Consumer to a Custodial mindset. When “Can’t” takes the long-view.

Forest or Wood?

Rainforest

Hand-to-mouth living enforces external discipline. You can only spend what you have. If you get paid once a month, and run out, you have to wait till the next pay-check. Living off Capital requires internalised discipline. A long-term sustainability perspective. Think of the Tropical rainforests. The “lungs of the planet”. We can cut them down and sell the wood, if we are only thinking about our lives. Living off Capital requires a “sustainable drawdown”. You have to spend less than is made, despite there being more “available”. This requires a fundamental shift from a consumer mindset, to us becoming custodians.

Rainforest

Not Loaded

Most people who are rich don't think of themselves as rich. An income of about $32,400 a year for your family puts you in the richest 1% in the world. That is about £25,000 or R460,000. 'Rich' is normally defined in more relative terms. Relative to your friends, family, and the people you don't like but seem to be doing better than you. Rich is those other people who should be paying more tax.

Rather than income, an alternative measure is Engine size. The study I am referencing says $770,000 would put you in the '1% club'. That is if all you have, less all you owe, has a market value of more than that. Some lower combination of income and a smaller Engine would also do the trick.

The problem is, someone who has $770,000 would be considered loaded by most people.  Perhaps even by themselves. That is a lot of money. Isn't it? Surely you could spare a little bit to go on a nice holiday? Buy a bigger house? Have a few extra meals at fancy restaurants? You are Rich!

No.

Living off an Engine requires a completely different mindset. It requires an internalised discipline. If you are living hand-to-mouth off $32,400 a year, you get $2,700 a month into your account. Then all the bills and taxes get deducted. As an accountant, nurse or school teacher in a rich country, you are probably in the club. Yet, you won't feel rich. Each month, you will probably feel like you are just getting by.

If you had a $770,000 Engine, and worked on things that didn't pay money (but that you valued) you wouldn't be able to just go large. You would have to think of it as a salary paid in advance. You have to be disciplined enough not to spend the money just because it is there.

People often get the wrong impression of what the super Rich like Mark Zuckerberg and Jeff Bezoz actually have. They think you can just take the number that gets quoted for them and divide it amongst the masses. Like it is a big pool of Gold Coins. The latest quote I heard for Bezoz was $160 Billion. He doesn't have that. If he was to sell everything, today, or even over the next year, I can guarantee the number of Gold Coins would be far, far, far, less than that.

Similarly, a $770,000 Engine would require discipline. It is 'a lot of money' but it isn't. Like looking at the Fossil Fuels we have, and saying, 'but there is so much?'. There isn't if you consider the very long term, and the consequences.

Part of living off an Engine is shifting to a 'custodial mindset' rather than a consumer mindset. As a consumer living hand-to-mouth, you run out of money some time before pay day. You are forced to wait. As someone living off an Engine, you can always start selling off bits of the Engine. The consequences won't be felt immediately. They will eventually be felt.

I chose to start living off an Engine about 4 years ago. I have to pretend to earn an imaginary amount, and create a discipline around that. An internalised discipline. One that means I live a lifestyle that is similar to that of the person living on a salary of the imaginary amount I aim at.

This frees me up. I am Time Rich. I am able to spend time with people I care about, read, write and learn things. That is what I love. I am a Universal Basic Income activist. I would love to see Community Wealth Funds that provide UBIs to their community. It would be wonderful for the benefits of basic Financial Security to spread to everyone. I wouldn't be able to do that anymore if lost my spending discipline. If I started spending more than my Engine can sustainably make. 

Time Rich Grandfather Clocks

(i.e. clocks my Grandfather made)

It is worth remembering that not all we see is as it is. Some constraints are external, some are internal. We make up some rules for ourselves. Some rules are made up for us. Those rules have consequences. We can't avoid rules. The best we can do, is be kind to each other, and help empower people to have a part in the making of the rules. Rules that work for us.

Fruit and Tree

I think you should build an Engine. An Engine is an investment that (on average) earns more than you spend. An Engine gives you the freedom to spend your time on things that are difficult (or impossible) to monetize. 

A big part of monetizing things is articulating them. Putting into words what it is you can do or make, and finding people that believe they will be better off with that thing/service than with the money you are asking for. That is hard. Ridiculously hard. I love writing and communication and have been writing a blog almost every day for four years. I still get a lot of people saying they have no idea what I am talking about. That I have no idea what I am talking about. That I am unclear. That I am confused. 

Perhaps it is because I am not trying to make money? The truth is, I am confused. The world is confusing. I love being lost in the grass. Learning little bits at a time, and trying to find connections. Admitting, openly, that a lot of things make no sense. Admitting, openly, that not everything can be simply explained by a cause and effect.

That isn't how you make money quickly. Money rewards clarity and obvious short-term benefits. Money doesn't tend to support introspection and challenge. 'Do this, and I guarantee your problem will be solved.'

An Engine won't solve all your problems. It may actually just give you a new set of even more confusing challenges.

One challenge is the 'Fruit and Tree' problem. Living hand to mouth provides a form of discipline. If there is no Fruit, you don't eat. If you are living off an Engine, there is always the option of eating the Tree. Chopping down pieces to burn.

An Engine requires internalised discipline. You have to "pretend" all you have is the Fruit. You can't sustainably cut down the Tree or you will be back to the hand-to-mouth world. 

Engines don't tend to earn in a straight line either. My Engine is currently acting more like a Buffer. This year, my Engine has lost rather than made money. This means I am living off the Tree. This is okay from a long-term perspective, but it is not sustainable. If my Engine is genuinely doing a good job, things will turn out okay. If not, I will be back to living hand-to-mouth. Fuzziness is a privilege. Hunger is crystal clear.

Living off Fruit

Magic Time

Derren Brown debunks magicians. A lot of things seem like magic. Things we don't understand. British Science Fiction Writer Arthur C. Clark famously said, 'Any technology sufficiently advanced is indistinguishable from magic.' The way Brown debunks magic is by showing that he is able to perform the same tricks.

Derren Brown

I believe investing is the same. There are no magic tricks. The key things in your control are (1) how much you spend, and (2) how much you invest. How much you start with, get given, earn, or how much your money earns are much less under your control. Seth Klarman said, 'The real secret to investing is that there is no secret to investing. Every important aspect of value investing has been made available to the public many times over, beginning in 1934 with the first edition of Security Analysis. That so many people fail to follow this timeless and almost foolproof approach enables those who adopt it to remain successful.'

Most of the stories we hear are about the big successes and failures. Stories on the edges. The majority of us need to deal with reality. Not magic. Do the research. Find out what your options are. Find out what you need to do to increase your number of options. Pick one. Make a plan. Surround yourself with people who can help you stick to your plan.

I believe in building Engines. An Engine is something that can earn more than you spend. An Engine is something that can free you to make non-monetary decisions. That takes time, not magic. Time is the only magic I believe in. There is no short-cut. It takes delayed gratification, discipline, calm, and patience. Engine Building is far more about Emotional Intelligence than being book smart.

Huge returns are mostly luck. You can't plan for that. Epic failures are a lot easier to plan for. The best investment strategy is to avoid being stupid. Howard Marks said, 'When there is nothing particularly clever to do, the potential pitfall lies in insisting on being clever.' Once a solid plan is in place, normally the best thing to do is nothing.

The strategy I support is a 15-year plan. If somehow you can get your spending under control, so that with discipline you can match dollar-for-dollar what you spend and what you invest, then you will be well on track. What that investment earns is much less under your control. But, if it is in a vehicle that is left alone, I don't think 5% (after all expenses) is a completely unreasonable long-term goal. If you are lucky, a little more will shorten the time required. A little less will lengthen it.

If you are able to match your spending for 15 years, and your investment earns 5% a year after expenses, you will have a powerful Engine.

Invest 50%. For 15 years. At 5%.

50-15-5

This is not magic. Although the results are magical.

Reflections of a man in his 30s (Lister Kom)

Lister and I overlapped at university, but got to know each other better when we started in the same team in our first job. We were both studying and working, and were early birds to the office to try and get the day's 'bite of the elephant' out of the way so it didn't hang over us. Combining the angst of adjusting from university to the real world with studies isn't easy. It is always great when the team you are in has people in a similar boat, who are also people you enjoy spending time with. Lister and I were the usual suspects when it came to 'Tea at Ten'. There are few problems that can't be solved with tea. More than ten years from that tea, and a little less green, Lister reflects on a few lessons.

Reflections of a man in his 30s
by Lister Kom

As I reflect on the past 35 years, particularly the last 15, it's dawning on me that life continuously dishes out lessons to each of us. Whether we take notice of such or not, it's really up to us. Here particularly, I would like to share my reflections on just three. Pride, discipline and stereotyping.

1. Pride

There I was, in my stance, drenched in sweat; with pounding music, in the background, numbing the pain of exercise. I was totally focused on the routine, listening to the buoyant instructor in the front. Suddenly, "go down", I heard a mumble next to me. I turned around. "Go down like this", he mumbles again, at the same time demonstrating the action [one knee touching the floor]. My first thought, "Who the hell does this loser next to me think he is?". How dare he disturb my tempo! What a nerve! Anyway, I thought, I'll wait until the session is over. The problem with postponing a confrontation, time just seems to draaaaag. I lost focus in the class. Session ended.

As I exit the class, I happen to come across "Mr Know-It-All", still adamant about correcting my technique. In a spur of the moment, I concocted a response: "The day I see a string of muscle on that obese body of yours, then you qualify to correct my technique." End of conversation! I didn't bother to wait for a response.

Now, reflecting on this incident, why did I respond in this rude, pride-filled manner? Why couldn't I accept correction from this gentleman. He meant no harm. PRIDE! My pride couldn't allow me to receive this harmless advice. Pride also makes you selective who you receive advice from. Over time, I've had to accept that advice can come from anyone and I always need to be ready to receive it. It doesn't cost me anything. Also, accepting advice without being defensive allows humility to prevail, which is a noble trait indeed.

2. Discipline

My daughter is 7 years old, currently doing grade 2. If all goes well, in 2026, she'll be doing her first year of tertiary. Assuming an educational inflation of 6% pa, a typical 4-year degree will cost my R800,000 at that time. What! This is enough to scare the living daylights of any middle income earner who hasn't thought about this. This reality faces a lot of us young parents. Most of us, we choose to bury our heads in sand and pray that a miracle (e.g. bursary) will happen when the time comes. Some of us find comfort in the meagre savings of R200 pm in education plans. Well, given this dilemma, I've learnt to rely on three buddies to assist me. Namely compound interest, time and discipline.

If I started saving R1000pm when my child was born and increase this yearly by inflation of 6% i.e. R1000 in the first year, R1060 in the following year etc. If I put this in a savings vehicle which gives me 8% p.a., then in 18 years when my child completes matric, I would have roughly R750,000. Of this great sum, I would have only paid R380,000 in total... the rest would have been supplemented by my friend, compound interest. And I'll have peace of mind about tertiary costs. Now, if I started saving when my child was 5 years old, when she turns 18, I'll only have R385,000, almost half of the R750,000... just because I ignored my other friend, time, for 5 years.

Lastly, all of this cannot be done without the other buddy, discipline. Discipline forces you to say "no" to unnecessary debt e.g. credit cards. Scott Adams, the creator of the Dilbert comic strip, calls credit cards "the crack cocaine of the financial world." I've learnt the hard way, not to allow myself to be seduced. It's all to easy to easy onto the slippery slope - and slide down into overwhelming debts. Within no time, you end up paying that R1000 you were meant to save, on credit card repayments.

3. Stereotyping

A few years ago, I witnessed my dearest parent cowering under the arrogance of a bank consultant, due to a misunderstanding about a credit card statement. The consultant ended the conversation in these words, "you better pay that R350 tomorrow, otherwise we will nullify your card". Mom begged me to call this consultant, as she could not bring herself to explain, to a white consultant, the mistake the bank had made in this matter. Not paying much attention to how I handled the matter, it was resolved. What sat heavy in my heart though, was how we would ever overcome this deeply entrenched "fear of other races".

This fear is not only limited to confrontational situations, but also fear to empower a person from another race. In corporates, nepotism is mostly acceptable when it's done by white colleagues. Business opportunities to supply the company are offered to family members, only if they are white. A black colleague brings some blankets to work to sell from a car boot, she gets fired immediately. In government institutions, it's the other way around... this black vs white spat. This is all due to stereotyping. It hampers us from having great human-to-human interaction. It also hampers us from reaching out to each other and offering a hand. Instead, loathsome distrust shakes its head despicably.

There is a long way to overcoming this, but hopefully we all eat this elephant one bite at a time. At times, I take a few steps back, but I strive to never give up! I continue to reflect every chance I get.