Time and Effort

If you are living hand-to-mouth, you have no option but to solve the immediate problems in the way you are most confident works. 

Building space, to take knocks (Short Term - Resilience) and give you confidence that sufficient time is available (Long Term – Endurance), allows you to look at problems differently. You can afford to try something different. 

This is the capacity that allows firms, countries, and people to invest in research and development. To allocate money to potential. Most people are looking for quick fixes and easy solutions. The higher your required rate of return, the shorter the time frame that is considered. 

One of the strongest competitive advantages you can have is willingness and capacity to commit to obvious, but hard, challenges. Where everyone knows the answer, but it is too much effort. 

Like getting fit and eating healthily. The further down the road the payoff for effort is, the more support you need till that pay off arrives. 

Most of us know how to run, and have done since we were kids. Few of us have run marathons because of the hours of training and effort required. A lot of people just don’t want to run marathons. Some want to. Theoretically. Maybe. Probably not. 

A common skill many Olympians share is the capacity to not have to earn money during the time they are training. Time and effort are significant barriers.

Time and Effort

to overcome barriers

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.

Foggy Window

The relationship between price and value is a signal. It is a powerful signal that allows us to communicate with each other. Personal value cannot be expressed in a number. We express it anyway... through decisions and price. 

Our values change. Our bodies change. Our bodies regenerate every 7-10 years with new cells replacing old ones. We learn based on what we experience. Our value set changes based on the evolving relationships and the connections we have to the world. Our interactions evolve with the environment around us. 

The way we communicate is complex. We grapple with issues. We reflect on our past. Heroes rise. Heroes fall. New perspectives raise uncomfortable questions and interpretations of our stories. The relationship between price and personal value becomes a tool in value creation. 

The problem is we set up that communication in a hand-to-mouth way. We, as living evolving stories and bodies, become productive assets tied to blunt price tools. Our egos, sense of respect, and self-worth get tied to “what we will be when we grow up”. Society used to create blunt roles, castes, and classes, providing repugnant clarity. When you were confused about a situation, authority would instruct you. 

Now it is more complicated. We are unpacking, and figuring things out. 

Another blunt tool for self-definition is money. We never earn enough. We want more. Valuable actions that don’t make money, get lost in our ability to communicate if we live very different lives... with money the foggy window between world views.

Unclear Price

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

Space for Choice

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

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

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

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

Space for Choice, Space for Creativity

Extended Challenges

When a country isn’t wealthy enough (e.g. South Africa), or even if a country is wealthy enough (e.g. the United Kingdom), to have a solid safety net, we start pushing responsibility to owners and managers saying, “they need to look after the employees and create jobs.” In some ways, I think that is fair. Firms can use team language when convenient and treat people (employees and clients) as disposable tools at other times. The danger with that is the condescending idea that there is a class of people responsible for looking after people, and an underclass of dependents doing their bidding for a hand-to-mouth living. Both decision-making and responsibility can be shared in a way consistent with autonomy and consent. If we build proper resilience and endurance. If we aren’t solely reliant on salaries or welfare. What happens when companies go bust? What happens when countries can’t tax more or borrow more? As we have seen during the Covid crisis, a large number of the institutions we rely on are not designed for extended periods of challenge. To be creative, you need the capacity to survive the winter. Wealth creation is at its heart, risk management. 

Ice Age Earth

Building Support

A good idea is not enough. If you are deciding to invest in a company, you do not just look at their product pitch. As important are solvency and liquidity. Solvency recognises the fact that what you see is not the full picture. Add up the value of everything the company has (Assets), and subtract everything they owe (Liabilities), and what is left is closer to the truth of what is supporting the idea (Owner’s Equity). Support is the unsung hero that makes potential sing. In a crisis situation, price and value can disconnect dramatically. Which means if most of what you see is liabilities, the price of what the company has can evaporate. A fundamental principle of wealth creation is not to be a forced buyer or a forced seller. If you put yourself in a corner, you are no longer a decision maker, and your “good idea” will get you nowhere. Liquidity is the same principle, but clear and present danger. No one sees long term potential if current expenses cannot be paid. What is true for companies is true for people. To see each other’s potential, we need to build capital and buffers. To lift our eyes from hand-to-mouth living and crisis-to-crisis survival. To empower good ideas, you need to support decision making.

Price is not Value

Do not get too obsessed with the specific skills and knowledge which you think will provide the reward you are looking for. Price is not value. What determines how much you get paid for something is supply and demand. Price and value can disconnect for long periods and to extreme levels. The key is to disconnect your value creation from having to care excessively about price. To do that, you need to pay attention to capital and containers. Capital creates space. Containers get you paid. Space snaps the hand to mouth connection that forces you to dip into markets to care about supply and demand. A salary is just the price of your labour. The price of your skills and knowledge. Those are affected by how many other people can do what you do, and whether those paying you need/want you specifically to do the work. You do need to listen to the market to see what skills and knowledge are being rewarded now. You do need to build the capacity to adjust as supply and demand changes. The more you are able to convert your earning ability into capital, the less you will need to care about what other people think things are worth. Particularly, what they think you are worth. 

Decision Maker with Money

My first job after university was in Risk Product Development. My focus area was Earning Ability. Money is made by solving problems for decision-makers with money. In a hand-to-mouth economy, without capital-backed decision-making, you only get to make decisions on how to spend money if you have earned it from another decision-maker. First, you have to find a job. Then you have to do a job. Then you gradually get breathing space if you get paid more than you need to spend. When you venture into the land of discretionary (by choice) spending. Then you can either consume that money or put it to work. To start, you are at risk. Unless you have someone to turn to, there is the danger that something goes wrong, and you cannot work. Something goes wrong, and you cannot do your daily tasks. Something goes wrong, and you cannot do the work you were trained to do. Or you cannot do any work. The question “How much capital would I need if I couldn’t work?” is the starting point for the target size of the Engine you need to make your own decisions. Until then, something might go wrong.

Three-Horsepower Engine

Aluminium Wrap

In an income-addicted, hand-to-mouth, economy your standard of living is connected directly to the price of your labour (your salary). This is precarious if the work disappears or the set of problems that need solving changes. Price is not value. Price discovery is hard. It is a negotiation between the ask and the offer. If lots of people can solve a valuable problem, its price will be low. Aluminium used to be prized as special cutlery for the wealthy. Now we wrap food in it, cook, and discard. Supply and Demand. A good rule of thumb for if an industry is broken is if the price for the same thing keeps going up. That means we are not finding better solutions. Prices should go down. We need to wean ourself off defining ourselves and our lives by our income source. Like the Government Pension Fund of Norway (known as the Oil Fund) which gradually shifted investment from oil to a broad basket of international investments that are independent of the Norwegian Economy.

Human Voice

“Poverty is not a lack of character. It is a lack of cash,” points out Rutger Bregman. Two fundamental principles in stilling the waves of money anxiety are (1) Never be a Forced Seller, and (2) Never be a Forced Buyer. Avoid being put in a corner. Get yourself in a position where you can say yes, or no. Become a decision maker. Price is not value. It is a way of listening to supply and demand. Adding force or scarcity is a way of price swallowing value whole. The key source of force is basic living needs and unexpected emergencies. Things you cannot say no to, that stop you from building or breathing. To avoid force, you need to snap the hand-to-mouth connection of depending on your earning ability. Overcoming any debt traps, then building an emergency fund of cash. Gradually putting money to work, and building your lung capacity. The breath to say no. Price does not listen to those with no voice.

Spectrogram of the Human Voice

Given Time

I am not that interested in the first five years, if that is all that is on offer. I believe in compounding and foundation building. If you are living hand-to-mouth, neither of those factors are relevant. If you are simply being paid for the work you do, and that gets consumed. Money is made in containers. If you help build a container, you want to have a stake in that container. Ownership. The kind that exists beyond you. Real wealth is created over the long term. Through owning the container. Through owning the barriers to entry. Even fifteen years is short. Compounding is just starting to kick in. We judge ourselves over short periods like months, quarters, and years. What is your 100-year plan? What is your 1,000-year plan? What is your plan that has nothing to do with you?

The Cango Caves

Universal Basic Buffer

A Universal Basic Income doesn’t have to be funded through hand-to-mouth tax redistribution. It could be funded by Capital. Paid as a dividend to the owners of that Capital. The challenge is obviously time. Capital needs to be built. There are always competing priorities, and putting money to work rather than spending it on pressing needs can mess with the head. Building Capital isn’t a “rainy day fund”. Building Capital isn’t storing or hoarding. It is shifting from a consumption to a custodial mindset. Shifting from cutting down the trees to living off the fruit. Capital building starts as buffer building. Expenses are noisy, and do make loud demands. Sometimes cutting down the trees is the right thing to do. Eventually, with spending constraint, you can get the buffer to be big enough to handle unexpected needs. At that point, Capital can get a proper job with a long-term perspective. A baby step to a Capital funded UBI may be a Universal Basic Buffer. Aim for Capital that would only last for 6 months if constantly drawn on. Then 1 year. Then 5 years. Then, one day, a secure permanent financial base to everyone. A societal foundation for creativity.

Seeing through the noise

Different Lifeboats

I have been extraordinarily fortunate during the Covid Lockdown. I am very aware of the “same storm, different lifeboats” debate around the costs of shutting the hand-to-mouth economy down. I am a Soutie with one foot in the UK and one in SA, so am very aware of the different levels of government support available under Global Apartheid with single government monopolies, and barriers to entry and exit for luck-of-the-draw citizens. It is 6 years since I stepped away from the corporate world, feeling I had a big enough engine to finance my own (generous in relative terms) basic income. Most of my work since then has been unpaid. I started supplementing this by starting a small business 3.5 years ago, but have had no paying clients since March. My Buffer and Engine have kept me going.  My Engine will need repair, and I do feel an obligation to figure out a way to do some monetizable work. The Covid Crisis has been a strange exercise in alternative parallel realities. Different Governments. Different Engines. Different Buffers. Different Values. Yet, we somehow need to gradually improve our ability to cooperate constructively. Space for difference, but with a capacity to handle the noise. 

The Start of the Life-Boat (1906 Postcard)

People with Capital

Most people live hand to mouth. All companies need capital to run their businesses. They can’t just rely on the equivalent of the work and pay-check cycle of employment. Some clients sign contracts, and great businesses have a way of developing sufficient client loyalty that they have a predictable stream of income. There are Capital light businesses but even they need enough Capital to pay the people involved. The payroll is the list of employees and how much they have to be paid. When things go badly, you still need to pay the staff if you want them to stay. No matter how good the business idea, the business needs a war chest that can get them through the challenging periods. The only thing that is certain is challenging periods. That is why so many businesses fail. A good business idea isn’t sufficient. Investing is about risk management as much as it is about creativity. The idea that people can live hand to mouth is an illusion whose time has passed. Risk management should start from the bottom up. With people, with capital.

Fist to Mouth

Creative Destruction dismantles long standing ways of doing things in order to make way for innovation. It scales the idea of “making yourself redundant”. There is a punch you in the face obvious problem with making yourself redundant. It requires trust. Fool me once, shame on you style. When you realise that someone has the ability to cut you loose like a gangrenous limb, after solving their problem, one option is to make yourself irreplaceable. To stop trusting. To create artificial barriers to entry and negotiating power. Little secrets people don’t want known. Stuff they know you know they wouldn’t want in the newspaper. Dirt. The only way to truly want creative destruction is to be an owner. Then, and only then, do you have an incentive for the problem to be solved. Otherwise, the real incentive is to make sure you, personally, are a part of the problem solving. You want the problems to go on. To release the power of creative destruction, we have to detach our identities from problems. To build buffers of cash, and engines of capital, that support us beyond hand to mouth living. That make us celebrate a job no longer being necessary, because it means a problem has been sustainably solved.

Solid Base

What I enjoyed most about my introduction to Yoga in 2009 was the simplicity of the base. Swami Vishnudevananda talked about 5 key points. Proper exercise, breathing, relaxation, diet, and mental health (thinking and meditation). Whatever the challenge, there is a point of return. A first principle. Start from the basics. Slow things down. I think of this in the way I think of just how good my mother was at raising me. I am completely comfortable being lost in the grass while learning, because of the security of my base. I couldn’t have had a more solid foundation. She was that foundation. Returning there just requires closing my eyes. That is why I think individuals need a secure foundation more than they need to “know their place” (have a hand to mouth job). That place is fragile, their place shouldn’t be. I don’t believe in fear and wolves at the door as the ideal motivator. True creativity comes when people are secure in their place. That comes through getting the basics right. Starting from a point of strength. Then stretching into the chaos.

Start with Space

We live in a hand-to-mouth, pass-the-parcel, kick-the-can, pay-as-you-go economy. That has underlying assumptions and puts you at the mercy of feast and famine cycles. Creative destruction is both powerful and useful. For survivors. To survive, you need to build in a “margin of safety”. Meaning you have to leave space. To build space. The only thing you can plan for is that things won’t go according to plan. Hand-to-mouth means spending everything you earn. Pass-the-parcel means if your customers don’t get paid, you don’t get paid. Kick-the-can means spending now because you assume future growth will be able to pay for current spending. Pay-as-you-go means one generation pays for the next. Think of Pensions as the predecessor idea to Basic Income. The big question then was also how do you pay for it? The answer then? Working people pay directly to retirees. Retirees die, working people retire, and children start working. Merry-go-round. Until people live longer and people have fewer children. The way to build, is first to build space. Then build engines.

Not Corn

Rich lists don’t show the resources people have hoarded. The figure isn’t the same as a weight. It isn’t a pile of bags of corn that could be divided up by the kilogram. You can figure out your own Net Worth. Net Worth is the value of the assets a person owns, minus the money they owe. Owning an asset doesn’t mean you “have” the asset. Asset Managers themselves don’t even have the Assets. They use Custodian Banks who keep a record, but the Assets are companies doing work. The Share Prices are a combination of the Tangible (stuff you can touch) Assets (Factories, Equipment, etc. that could be sold) included in a quote of what the market would pay for ownership of future profits. Like someone giving you money now, up front, for the salary you are going to earn going forward (not that unlike a Mortgage Loan). Worthless if the work isn’t done. The beauty of Public Equity is that it penalises hoarding and rewards Capital that solves real problems for real people.

Well Covered

My rule of thumb for insurance, is to buy cover for the risks you can’t handle, while building capital to handle as much of it as you can yourself. Perhaps it is the Self-Reliance that was beaten into me by South African folklore. I push back hard on most people who talk of being “against hand-outs” when it comes to charity. Most of the time that push back doesn’t come armed with a mirror. The boundary between a hand-out and privilege is unclear to me. Privilege is compounded entitlement made invisible. Before you can start building breathing space, you have no choice but to rely on others. No one is self-made. Gradually, you can reduce that reliance. By building Capital. The only way to build that self-reliance is by snapping the connection between income and expenses. Self-reliance is a privilege. It is also one that frees you up to give back. If you get to the point where you no longer need to consume everything that is coming in. Separating consumption and creativity is the key to sustainability. The key to handling risk.