I have a somewhat unusual method of thinking about and managing money, which has worked out very well for me. Because money, saving, and spending is such an emotional issue, I believe that there is not a universal correct method for everyone. For example, a strategy that increases someone’s earnings by 5% but also increases their stress by 50% probably isn’t a good one.
So I present my ideas on finance not as empirical examples of perfect management, but rather something that works great for me and may work for people of similar mindsets.
The goals of my system are to minimize variance outside my control (e.g. stock market performance), maximize long term utility on assets, and minimize the chance I will ever have to do anything I don’t want to do. The end goal is not to have the most money possible or to earn the most possible, though both of those things can support my goals.
I don’t want outside variance because it inhibits my ability to plan. Accepting variance often increases long term rewards, so I am happy to accept some of it, but I never invest in the stock market because I believe that earning an average 7% per year is not worth putting my whole nest egg at stake.
Having a lot of money in the bank is fun, but eventually it will be spent. I find that there are a lot of ways to combine a little ingenuity and $100 to create a $1000 impact on my life. For example, buying my share of our private island was under $10,000, but the value I get annually out of owning an island is huge (and hard to quantify). So while I like to invest money in ways that will provide large returns, I’m also very happy to invest it in something that will make no financial return but will provide me with a lot of durable utility.
Last, the value of having my time available to me is priceless. I’d rather have all of my time free and no luxuries than have a private jet and a 60 hour a week job. So one of my primary concerns is keeping enough money away from risk that my runway is very long and hopefully infinite (due to returns on that money).
In practice, this means that I’m not very concerned with income over the short term. I believe that if I work on things that interest me with diligence and just a little bit of business savvy, I’ll make enough money over the long term. I could easily do things to make a lot more money but they wouldn’t be things I want to spend time on, so they would violate a core principle.
Instead I try to work on what I want to work on, and to monetize it as best I can without taking time away from the creative process.
I save the majority of the money I earn. That hasn’t always been the case, but even when I made much less money, I would usually save money every month. Sometimes there would be a few months in a row where I was slightly negative on savings, but I don’t worry too much about that.
Once I have that money, I am very protective of it. There are essentially three ways I’ll allocate it:
1. Cryptocurrency. I personally believe that cryptocurrency will yield a huge return long term and that the risk is relatively small (for Ethereum and Bitcoin). That’s my own opinion and not investment advice. I feel much safer having money in ETH and BTC than I would investing in an ETF. This allocation used to be used for stuff like playing poker or investing in Berkshire Hathaway (which I don’t do anymore).
2. Low/no risk investments. I have several opportunities where I can get 10-20% with no risk or slightly more with some risk but almost no chance of total loss. My current investments are providing working capital to friends’ businesses which have sterling track records, but in the past I put this money into Lending Club (which provided a great return before it became popular).
3. High utility assets. A significant portion of my money is in things like our island, the Budapest house, art, my primary residence in Las Vegas, a great watch, etc. The goal of all of these is to permanently increase my quality of life for a one time fee. I paid under $50k for my apartment, but it saves me $10k per year conservatively. That’s an easily quantifiable 20% return per year.
I would never go into debt for any reason. I just don’t want that liability hanging over my head, even if I can easily service the debt. I wouldn’t buy a house with a mortgage ever. I wouldn’t buy a house that wasn’t worth its price in utility to me. I think people buying $1M+ houses in SF are crazy. Maybe those values will go up, or maybe you’ll owe hundreds of thousands more than your house is worth. If my Vegas house drops to $0, I don’t care at all because it’s still valuable to me in utility.
I don’t currently invest in retirement accounts. I have a Roth IRA with a little money in it, but I find that the tax benefits are negated by the lack of flexibility. I think that might change and I continue to research it.
Last, I think of my income as a faucet that drains into my savings, not into my spending. If I have some windfall profit, it doesn’t even occur to me to spend it. I separate spending and saving as if they are two different things entirely. In my next post I’ll talk about how I spend money.
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Photo is a cool waterfall in the Azores. Expect a lot of photos from the Azores since it’s so beautiful and I took a ton.
LAST CHANCE FOR THE SUPERHUMAN 2 EVENT IN JUNE! More people wrote last week so we almost have enough to do it (if you wrote me and I haven’t written you back, it’s because I’m waiting to make sure the event happens). The event will be amazing and you can have your money back if it wasn’t great! If I don’t have enough people by next week I will cancel and try to do it later in the year.
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