Sustainable Reality

When learning to breathe properly, controlling the exhalation is fundamental. In calming your financial anxiety, spending discipline is as, if not more, important than earning. 

Anuloma Viloma is alternate nostril breathing. You inhale-retain-exhale in a 1:4:2 pattern. For example, you inhale for three seconds, retain for twelves seconds (4x3), and exhale for six seconds (2x3). Slowly and with control. Alternating which nostril you are bringing air in with, and from which nostril you are letting it go. It takes concentration. That is half the point. Closing your eyes and focusing on the count. 

Slowing down the breath leads to deeper outcomes. A deep breath is not a race. You can then gradually expand the sustainable pattern for more repetitions and extend the inhalation-retention-exhalation cycle. “Get Rich Quick” is a form of shallow, fast, breathing. There are lots of people who will sell you solutions to your financial problems in just six months. A sustainable reality is slower, starts more simply, and builds towards a pattern you can maintain.

Alternate Nostril Breathing

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

See the Value

One of the ways to gain control of your spending is to select where you place value. To find value in the plentiful rather than in the scarce. Spending is often a team sport, and changing your habits can be incredibly difficult. 

Like trying to become more vegetarian in a South African meat-eating culture. It is painless to change habits if the tweak feels better. If it is simple to make vegetarian food, and you enjoy how it tastes, it will be a smoother transition to eating less meat. If you feel like you are punishing yourself and being a martyr because everyone else is eating what you want, and you don’t like what is on your plate, it is going to be incredibly difficult. We get a quota of self-discipline, and if you use it all up in one area, it can explode in another. “Everything in moderation, including moderation”. 

Build changes to behaviour realistically, gradually, and sustainably. Planning is not about epiphanies. Break-through-weekends are followed by Monday alarm clocks and deep soaked patterns. To make real change, see the value in things that you did not before. Tweak your drivers and incentives. Deep, slow, conscious re-programming. The self-imposed limits stop feeling like chains because you experience the world differently. 

“Save more later” is an approach where the goal is not to adjust your spending up if your income goes up, or you get an unexpected boost. Where you snap the sense that life is better if you spend more, and spoil yourself because “you are worth it”. Reward yourself with the abundant. Put your money to work.

Changing Habits

Under Pressure

You can get into a situation where you do have a stable, decent, income, and yet are still not able to still the waves of money anxiety. Trapped with a big portion of that income servicing past consumption. Where you are not paying enough to get the hovering debt to shrink. Struggling for scraps to feed the beast. Cornered there, it is difficult to get to the point where “your money is making money”. 

Finding stillness requires both a source of income and control of spending. External forces make that difficult. The goal is shifting that challenge internally. Where you are the one creating the discipline. Limits don’t disappear, but you want their form to be your conscious choice. Where the boundaries are not “there is no money” or “I owe someone money” or “you must do this for money”. 

Where your money is available and working, and you can choose not to harass it or have it harass you. Where your money is capable of absorbing your shocks and stress in bad times. Where you are capable of repairing and building your capital in good times. Getting to this point, even with a job or stable business, can be difficult if you are under spending pressure from your own behaviour or your chosen community. You need to gain control of the collisions in your container.

Pressure through Collisions in a Closed Container

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

Becoming Accustomed

Pause before you look at people who are richer than you to learn about money. If you want to create a buffer for the noise. If you want space to breathe, then the best place to look is how you spend money. How could you live on half of what you spend? The best place to learn is from people who are living on half of what you are. The key to stilling the waves of money anxiety is the relationship between income and expenses. The ins and outs, and the balance between the two.

Someone who is earning a lot of money, but spending even more, will be progressively getting more into debt. Making it increasingly hard to reduce their expenses. Becoming accustomed to a lifestyle they can not afford. Even if their income is growing, they are not on the path to financial freedom. They are going to be stressed, and full of money anxiety. Whereas someone who is earning half of what you do, can offer you lessons on how to gradually build up a buffer.

The Dance of Ins and Outs

Inhale and Exhale

Stilling the waves of money anxiety starts with understanding where you are. Like meditation, thoughts will continue to come through your head. It is not a fight. You do not do meditation well or badly. There are no rankings or elimination rounds. When a thought comes into your head, it is the point to acknowledge it. Greet it. Politely let it pass. Then go back to your breathing. Financial Security is also about the inhalation (income) and exhalation (spending), and the relationship between the two. You want to breathe in slowly, and with control, and breathe out slowly, and with control. Spending has fixed parts and variable parts. If you keep a record, you can see some patterns. Even the variable parts have regular highs and lows. You can get a sense of the lung capacity needed. There will still be shocks, when spending is way higher than normal. For that, you need a buffer or support. To build that, always starts in the same place, for everyone. Where they are. Where you are. With a breath, and understanding where you are, is. So you can let it pass.

Building Lung Capacity

Dry Your Muffin Eyes

A standard question when talking about investments is “what return can I expect?”. Howard Marks warns us to never forget the 6-ft man who drowned in a river that was 5-ft deep, on average. When I stepped away from the corporate world to live off an Engine, I did it with open eyes and hope. A salary can secure the 5-ft, but an Engine invested in Equity feels every rock. One Equity Fund pot for my engine has ranged in calendar after-fee performance (since my Aug ’14 leap) from -20.9% to 28.8% with an average of 4.0%. Simply put, not enough and bumpy. In addition, my spending has overshot my ambitions, despite my self-proclaimed self-discipline. Like Climate Change, there comes a point where you realise things are not sustainable… even if you could delude yourself for a few more years. Reluctantly, I am having to re-engage with the constraints of money making. Very aware that I am doing this from a significantly more privileged position than most. As a good friend would say, “Dry your muffin eyes”.

The Space Between

Earning £100,000 a year can still be filled with anxiety if you are spending £120,000 a year. If you are living on the edge of your capacity to borrow and pay interest. If you are pushing forward and up as hard and as fast as you can. Earning R100,000 a year can be Zen-like if you have the self-discipline of a Langa Gogo, spending R80,000 a year a putting some to work. Those are extremes, but the point is the only comparison necessary is spending and income, and the space between. Not other people. Vrittis, are the thought waves of the mind. Yoga creates a system to control these waves. A path of self-restraint that brings focus to the things that are most important. Creating the ability to move with intention, rather than being moved by what the world throws at us.

Being Played

A Grudge Purchase is something you feel you have to buy, rather than something you want to buy. When you do your planning of how to spend your income, Discretionary Spending is what you do with what is left over after your needs are met. Clearly not everyone considers the same things either reasonable, necessary, desirable, or pleasurable. Often the best place to learn about financial planning is not from people with twice as much as you, but from people with half as much who still seem to come away with something extra. The delusion we have is that more coming in solves the problem. What really controls the financial waves is the relationship between what comes in, what goes out, and how much autonomy you have over the difference. That is the difference between playing and being played.

Dum and Dee

People don’t need to be Productive Assets. Yet we know it costs money to live. You can’t opt out of reality. “Asset Liability Matching” (ALM) is a tool used by Actuaries to manage the risk of future obligations. If you know you are going to have to pay a variable amount in the future, it helps if the assets   put aside to pay that amount vary in the same way. The “Lifestyle to which you are accustomed” is lazy man’s ALM. You spend whatever you earn. When the month’s money runs out, you self-isolate till pay day. The only discipline required is to earn more money. The only solution available is income and work. Doing more. But you can also reduce risk by initially building a buffer (Emergency Funds) and then gradually building an Engine (Capital that can earn money by working). This requires new types of discipline. The money is “there” but not there to be spent. Your Lifestyle has to be within self-regulated constraints. Spending chunks of the Engine is firing your money. Our primary liability is the money we have to spend. Matching that to your income will mean you have to be a Productive Asset. Matched to your spending. Detachment is the first step to freedom.

Don't match your Income and Spending

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.

Big and Fragile

The size of your work income doesn’t determine your financial security. You can earn £10,000 a month in London and be more fragile than someone spending R4,000 (about £175) a month in rural South Africa (an estimate of the living wage for an individual). Work Income is fragile. Ask 2020. Hand-to-mouth living doesn’t work if the hands are tied. A Pass-the-Parcel economy doesn’t work if the music stops playing. A work income is usually the initial source of financial security. But what you do with it matters. The key is what you spend. Price indicates scarcity, not value. So if you want to maximise value, be a Cultural Billionaire. Spend on things everyone can afford. Democratic goods. Build a Buffer/Emergency Fund that covers 3-6 months of expenses (for the unexpected). Invest in an Engine that earns an income independent of your hands. Invest in your Community. Be wary of committing to fixed expenses that keep knocking at the door when you are at home because the work has gone. Your financial security is determined by your ability to endure and capacity to cope. Strong and flexible provides the foundation for creativity, learning, and building a meaningful life. Autonomy matters, not size.

Osmar Schindler (1888)