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

Survival Models

From 2014 to 2021, the main source of my income was no longer a salary. I stripped back my spending dramatically, and was attempting to live off my Engine. Aiming to spend less on average, than my Capital made. Straight out of the Financial Independence, Retire Early” F.I.R.E. playbook. 

It meant giving up certain things (e.g. I had a room at Wimbledon Art Studios for four years) and reducing others (e.g. cheaper rent, less take-out, cheaper holidays). When stripping back your spending, you learn more from those with less. It is eye-opening to see what people, without options, get by on. 

Still, I exceeded on the spending side and my Capital was far noisier than a salary. Imagine pay day coming, and your boss asking for a deposit! 

In theory, I could have run my Engine down to zero. In reality, my “internal Engine” wouldn’t go to zero. I wouldn’t be starting from scratch. The thought experiment of if every *thing* was taken from you, what would you have? Relationships, skills, knowledge, social capital, and the opportunities presented by being part of the community you are a part of. You can also build the capacity to start again with more ease, if you need to. Even if the situation is very different. 

Like rewriting an essay you lose when your computer crashes. Second time, you may be more effective. The first course I repeated at university, was ironically called “Survival Models” (previously called Mortality). The second time I did it, I had the big picture, and suddenly things made sense. Helping people one page behind, is also a great way to take your next step. 

When I decided to go back to work, it was partly because I no longer had confidence that my Engine was sustainable. I could repair and rebuild it better with the stability of a salary as support. I could also repeat something I had done before (working!), and help people one page behind.

Surviving

Building Capacity

Building the capacity for long-term thinking, is a form of exercise. Running a marathon is not a one-day event. It starts on the first training run. 

Developing a movement culture to gradually increase your strength. Putting yourself under controlled stress to learn about yourself. To build your skills and knowledge in a way that you believe you are capable in difficult situations. Reflecting on how you react. Seeing what kind of support you need. 

The body has a use it or lose it efficiency that comes standard. Once confident in similar situations, auto-pilot gets turned on, but where you don’t use something regularly it disappears. 

Which means you need to build up capacity to stay involved and stay conscious. Part of endurance is reserves. The ability to pull on extra when you need to go deep. Very physical requirements that come from eating properly, cooking properly, and recognising what your body needs beyond what it craves. 

A very sad legacy of Apartheid was promising sports stars coming through where despite “picked from nowhere” support, the gap of early childhood nutrition meant their body didn’t have the structural back-up for sustained performance without injury. Grounding matters. Consistency matters. Back-up and reserves, matter. 

When running a marathon, you need to take on nutrition and water regularly even before you need it. Otherwise, if you only respond when you do need it... it is already too late.

Reliable and Sustainable

There is often a disturbing amount of truth in oversimplifications. One is that the path to wealth is shopkeeper-professional-entrepreneur-bust and repeat in four generations. 

To start building wealth you need to first find breathing space between what you are earning and what you spend. You need to snap the hand-to-mouth connection. Gradually you build capacity to think about risk differently as you have more faith in your own grounding. When you have sufficient capital for a deep sense of knowledge that you are going to fundamentally be okay. 

Then you can build that base up to be an engine. An engine earns more on average than you spend on average. At that point, particularly if the engine is earning comfortably more than you spend, it starts growing. Compounding kicks in. Growth on growth. Even without you earning. Then it is no longer just about you, your earning capacity, and your consumption. Decisions extend beyond you and even your lifetime. Impact scales. Work is no longer about financing your needs. 

If you have sufficient capital, it can become a muse. Not all ideas are good business ideas. If you have the capital, they don’t need to be. Good ideas, that are not good business ideas, can be funded by good ideas that are good business ideas. Good businesses reliably and sustainably generate a growing stream of cash.

Hesiod and the Muse

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

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

Managing Projections

Calm and clear decision-making starts with managing expectations. If your desire for returns is too high, you open yourself to a new world of dangerous projections. Visions of alternative lives, problems solved, and trouble-free existence. Dreams of replicating the lives of outliers who seem to orbit different realities. 

The numbers get ridiculous quickly. A good day, month, year, or even decade, is not put in context. It gets “extrapolated” with blind spots, a ruler, and a poke in our vulnerable desires. 

 That is why Ponzi Schemes attract victims. They are not sustainable. The numbers don’t add up. They convince new people to join, and the first exchange of money is from those joining the scheme. Joiners are promised a multiple of the money they give. 

The money does not work. Nothing is made. It sounds exciting. It can even be wrapped in other clothes that make it seem caring/ community-based/ not-about-the-money. No one asks “how does this end?” or “why does this make money?”. The new money comes from recruits, and recruits run out. 

Money is made by doing the work. Understand the work.

Projecting

Small Sustainable Adjustments

“Stubborn Attachments” by Tyler Cowen talks about some of the problems of financial decision-making across time. How do we balance actions and long-term consequences in guiding our choices? 

Discounting cashflows is one way to take into account the “Time Value” of money. A Dollar today is worth more than a Dollar in 5 years' time. Making decisions based on discounted cash flows ends up almost ignoring 15–20-year time frames. The underlying assumption is you can reinvest at the end of the period. 

I take the essence of his argument as a focus on Maximum Sustainable Return. Sustainability is key. You need endurance to make sure you are in it for the long run. To extend what you are doing to the next generation, and the generation after that. To adapt your thinking from 5-year plans to 1,000-year plans. Consequences beyond "you". Where BIG interventions fizzle, but small sustainable actions have big long-term effects. 

Epiphanies, vanity projects, and conspicuous victories are much less impactful than small sustainable adjustments. “Most people overestimate what they can achieve in a year and underestimate what they can achieve in ten years.” (Amara’s Law). 

Time is the most powerful investment force.

Le Temps

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

The Conversation

Financial planning is much less about number crunching and much more about understanding. A planner is more therapist than mathematician. Like a good therapist, the crucial factor is rapport. That you have a connection and that you respect them. But most of the work in therapy is done by you. There are some basic rules and structures (like country specific tax laws, and company specific product processes) they will know, but in most cases the financial planners have administration teams that help them with that. They will have some areas of knowledge that you don’t have, and act like a teacher. Their main job is the conversation. More them understanding you, than you understanding anything else. Understanding the way you see and respond to the world and setting up an (adjustable) plan that you can sustain. That you can sustain through various risks. Allowing you to build the capital to absorb and feed off uncertainty, and the containers to create and hold the things you value.

Sustaining turns chaos into music

 

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. 

 

In Between

Actions have consequences. Both intended and unintended. The desire to count and maximise has the unintended consequence of undervaluing the future. If you make your decisions by simplifying complexity down to two simple numbers (Return and Risk), the result is a just-watching-your-feet time horizon. The underlying assumption is you will have the opportunity to make a different decision for the next time frame that does consider the future when its turn comes. Aiming for returns of 15-20% would mean anything beyond a 5 to 10-year time horizon almost does not enter your consideration. The most powerful investment forces are space and time. Space between production and consumption. Time between contribution and extraction. Rather than short sprints, thinking with a long timeframe in mind allows you to focus on sustainability and consistency. A long timeframe forces you to think of things that cannot be simplified into numbers.

Observable Universe Logarithmic Map

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.

Wildly Constrained

“Rewilding is about letting nature take care of itself, enabling natural processes to shape land and sea, repair damaged ecosystems and restore degraded landscapes. Through rewilding, wildlife’s natural rhythms create wilder, more biodiverse habits” (rewildingeurope.com). Rewilding is David Attenborough’s call to arms in his witness statement, “A Life on our Planet”. He points out that “a species can only thrive when everything around it thrives too.” I don’t buy into Abundance culture. I can’t, having been born in Apartheid South Africa. The world has constraints. We have to solve the dual problem that we are consuming too much, and yet masses of us are living in poverty. In “Stubborn Attachments”, Tyler Cowen talks about Maximum Sustainable Growth. We need to grow our way out of poverty, while rethinking growth. Rethinking consumption. Rethinking how we impose ourselves on the world. And getting wilder.

Finding Clean Energy

From a standing start, a big enough Capital Engine to give you complete financial independence is an incredibly ambitious project. Even if you have plenty of non-explicit (inheritance that isn’t capital) hereditary privilege like wealthy friends, door-opening education, the right profile, and the right passport. Ideally, you would be spending less than the dividend yield of your money’s portfolio of jobs. Ideally, for that dividend yield to be sustainable and grow a bit each year, it would be lower than 3.5% (the rule of thumb sustainable drawdown rate). That means you would need more than 28 times your annual spending. If you are in the circles that can afford to build that kind of breathing space, your entry ticket to those circles (spending) is probably high, making the required Engine size bigger. Reality is probably closer to reducing the control of monetary constraints. A little stronger. A little more flexible. A little more control.

Solar Settlement at Schlierberg

Produces more Energy than they Consume

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 Battlefield

 “Tatra sthitau yatno bhyasah” Yoga Sutras

Abhyasa is the continuous effort towards firmly establishing the restraint of thought waves.

Stilling the waves of money anxiety requires developing a sustainable practice over a long period of time. It isn’t about “get rich quick” schemes and easy solutions. One of the main texts in Yoga is the Bhagavad Gita, which tells the story of Arjuna on the Battlefield. The chaos is going nowhere. The practice you develop is to find that point of calm within the struggle. To cope. It isn’t just moments of silence found in practicing meditation, outside of life. The aim is to develop new scripts, habits, actions and reflections that combine to deal with whatever life throws. To have the endurance and resilience to draw from and see through the chaos. Each day. For the long term. With commitment and focus.

Arjuna

Stand Up

Part of my practice of Yoga has been reining in my inner competitive South African male. Cumulative hours of pre-Rugby match pep talks mean there is enough “Pick Me” and “Stand up and be counted” in my deep soaked scripts to power many Bobby Skinstad commentary sessions. Although the headstand is a big part of the Sivananda style of yoga I follow, it isn’t the point. Aggressively trying to get into postures leads to injuries. Instead, Tim Minchin style “micro-ambition” is better. Small, achievable, sustainable goals that build good habits. One step at a time. Slightly deeper. Slightly more relaxed. Stilling the waves of money anxiety starts with acknowledging where you are. Being aware. Then gradually building a practice.

Trusting the Container

The Holy Grail is a direct, sustainable, relationship with decision makers with money, where you have their trust and confidence. Trust that you intend to solve their problem. Confidence that you can. Relationship building is one of the strongest barriers to entry. Trust is built from multiple layers and signals to show that the words and ideas being exchanged mean the same thing to both people. A lot is lost in translation between worlds. This is why nepotism and prejudice are so powerful. In a world of complexity, friendship, community, and emotional connection are a way of cutting through the noise. A lot of business has nothing to do with business. The specific problem being solved is far less relevant, than the sustainability (and containability) of the connection. Building trust in the container of the relationship.

"The Damsel of the Sanct Grael"

Rossetti (1874)

Muy BIEN

“A Basic Income is a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement. (1) Periodic - It is paid at regular intervals (for example every month), not as a once-off grant. ,(2) Cash Payment – It is paid in an appropriate medium of exchange, allowing those who receive it to decide what they spend it on, (3) Individual – It is paid on an individual basis, and not (for example) to households, (4) Universal – It is paid to all without a means test, (5) It is paid without a requirement to work or to demonstrate a willingness to work” https://basicincome.org/about-basic-income/. There are a variety of pilot projects going on which make different simplifying assumptions to turn Basic Income into a reality. I like the idea of Community Wealth Funds. Building Communities with strong financial foundations, through voluntary short-term commitment to transfers from those with the capacity to fund the project, and the long-term building of Capital to make the idea sustainable. With sufficient time, we can build Engines to fund basic incomes for all.

basicincome.org/about-basic-income/