The thing about investing money is that it's pretty hard for an individual to do much better than 5-15% per year consistently, depending on your risk tolerance and connections (my best investments have been putting money to work with friends' businesses). Five to fifteen percent is pretty good, but it's inside-the-box thinking to stop there. What else can we do with our money?
As a disclaimer, I have a good portion of my money in investments that make a return like that. It's good to grow your cash and I'm not saying you shouldn't. But what if you diversify your portfolio beyond earning a financial return?
After all, the point of money is utility, so why aren't we thinking one step further and thinking about how we can earn the most utility on money?
I love to find situations where my capital is preserved, grows a little, or is consumed very slowly, but which yields me a lot of utility as a result. For example, I bought my RV for $18k, plus probably $15k over its life in repairs, and maybe another $6k in improvements. I sold it last week for $30k, so I lost $9k over the eight years I owned it.
That's not a great investment, especially when you count the parking fees I paid for 4-5 years, until you think about the utility. For that small loss I had a worry-free place to live in San Francisco. I bought myself the ability to have fixed living costs indefinitely, the freedom from having a landlord, and a really cool experience.
There are all sorts of professionals who are competing for every last dollar of return on investment. I probably couldn't buy and sell vehicles and expect to make a huge profit because there are plenty of other people doing the same thing and they are better at it than I am. But no one is competing on the utility side, so my returns can be much higher. If you estimate I saved $1500/mo in rent, which is probably conservative, I saved $144,000 in rent over eight years.
That means my net "profit" was around $11k per year. That's almost a thirty-percent (non-compounding) return, consistently over eight years.
The RV is a really obvious example, because it saved me actual money.
Art is a more abstract example. I love buying art. I don't have a ton of art, but every piece I have is something that I would go out of my way to see in art museums. I buy my art very slowly and carefully and would estimate that if I liquidated my small collection patiently I could probably get twice what I spent.
It's hard to put a numeric value on having a little art collection, but to me it's well worth it even if I can never sell at a profit. I love seeing great art throughout my day, and I like being able to share the stories behind different pieces with my guests.
When I first moved to Vegas I bought a 1995 Mercedes C class for $2500. It idles a little bit rough, the hood has a small wrinkle in it from where it must have been in some fender bender, and the driver's side door doesn't lock automatically with the rest of the doors. But it gets 35 miles a gallon, has a nice wood and leather interior, and is one of the most reliable Mercedes built. The utility I get out of that car is far greater than I could get in pure returns on $2500. Plus I sold half of it to my friend, which halved my cost but maybe only decreased utility by 10-20%.
I think most people would have bought, financed, or leased a car that cost $10-20k. Same utility, much higher price.
Because all I ever think about, at least for big purchases, is utility on investment, my life is full of these sorts of things. The condo in Vegas, the Island, the place in Budapest, watches, home improvement projects, clothing, etc.
The end result of all of this is that a large portion of my discretionary spending goes to things that will both make my life cheaper and better in the future. I'll never have to pay rent or a mortgage again if I don't want to, nor would I have to pay for an airbnb or hotel if I just go to the island and Budapest. I'll never have to buy a watch again. I get mental stimulation every day from looking at my art. I have my own little tea room in my place in Vegas so that I can host people for free.
In the same way that debt compounds to make life miserable, investing in utility compounds in the other direction. Every year I have fewer and fewer mandatory expenses, so I can use more of my money to invest further in utility and/or to invest for a return which can perpetually fund my extremely low living costs. I have a lifestyle that is really exciting and satisfying to me, and it costs me under $1000 per month, a large portion of which is my private chef (aka Chipotle).
Whenever you're about to spend a lot of money on something, really dig deep and ask yourself what sort of utility you're getting from it. What's the real utility on that leased BMW? Is there a smaller amount of money you could spend to get the same or similar utility? Is the utility you're gaining actually useful to you? Remember that if you save money in one area you can deploy it somewhere else to get more utility. Don't allow yourself to spend large amounts of money on something that isn't going to bring you a lot of utility.
And when you're thinking about investing money, think beyond pure financial returns. How could you invest money that would lower your cost of living for years to come? How could you spend it to permanently make your life better? What resource could you buy that would create experiences for you and your friends?
This is one of those concepts that just seems so obvious to me, and yet I see very few people doing it. Most people's expenses increase all the time, as if it's some law of nature that this is how life has to be. But with good capital allocation you can continually increase your quality of life and lower your costs. That's how you buy freedom, in a way.
Photo is the helicopter my friend and I got to ride in for free. You can get a lot of cool free things in Vegas, but maybe not as many as San Francisco.
The response to my coaching post was way bigger than expected, and the stories were also more compelling than I expected. I'm really excited to work with everyone, but it will take me a while to add so many people in a manageable way. If you want to be on the waiting list, let me know.
I was on the phone a couple days ago with my friend Hayden. After hearing about my plan to continue up to San Francisco, he predicted that within a year I would be living "somewhere posh". I doubt it. I really just love living in this RV, and can't imagine circumstances that would make me move out (famous last words). There are certainly upgrades I'd like to do (more solar, more batteries, more water capacity), but for now I have no inclination to move out.
Why do I love it so much? What makes me so willing to give up things like adequate floor space for a trash can? Here are six of my favorite things about living in an RV.
Moving becomes easy. As I skateboarded over to my favorite Ethiopian restaurant (Rahel on Fairfax), I realized that I am basically a Los Angeles resident. Not for tax purposes, of course, but I feel the same as when I lived here a few years ago. Visiting somewhere, complete with sightseeing, hotels, and rental cars, feels different than living somewhere. I may only plan on being here for a few weeks, but I feel like a resident.
You can't control definitively whether you'll succeed or fail, but you do get to set the parameters. The way I live my life, I will either be an big success or a huge failure. There are a variety of potential paths ahead of me, and zero of them lead to comfortable success or minor failure. None of them lead to numb mediocrity.
How do you adjust these parameters? You set goals and accept risks. If you set goals low and don't accept many risks, you have no chance of huge success or huge failure. You'll end up somewhere in the middle. Maybe you'll end up a bit better off than you expected, or a bit down on your luck, but you'll be somewhere in the range of "fine". On the other hand, you can set extremely high goals, leave yourself no reasonable plan B, and take massive risks to get those goals. It's the only way you'll even reach them, but you may fall short and crash.
In my case, I've put all of my eggs in the SETT basket. I hope it becomes a huge success that makes me a lot of money, gives me some power to improve conversation on the internet, and all that. At this point I've invested two years of my life into it, with no plans of changing that allocation going forward. I've passed up many smaller opportunities that could have made me money. I do have some money saved up, but it's hard to count it as a backup plan when I know with certainty that if SETT failed I'd use it to start another company and go all in.
I work as smart as I can, I live frugally, and I plan for contingencies-- I'm not reckless, but when a calculated risk presents itself, I'm all over it.