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Money epiphany

My money epiphany occurred at 8:21am on a Thursday. As a thoroughly exploited, freshly minted graduate accountant, I emerged from the office bleary-eyed after a nightmare month end all-nighter.

I was heading home for a quick shower and change of clothes, when a fire engine red Lotus Elise sports car roared past me before screeching to a stop in the parking space next to my crappy student car.

My boss climbed out, looking remarkably fresh and rested, which was unsurprising given he had no doubt spent the night sleeping soundly in a nice warm comfortable bed.

He nodded hello, before pausing and asking where I was headed. I replied that I’d been working all night. Again. I would be back in half an hour.

The boss looked thoughtful, made some vague promise about having to remember all the extra effort I had been doing at bonus time, and then told me to pick him up some breakfast on my way back to the office.

Without waiting for an answer he headed inside, bound for his corner office.

When I reached my car I realised the boss had badly parked his sports car, half blocking me in. I briefly considered etching some thoughtful parking advice into his car bonnet with my keys, but I was so tired I couldn’t remember how to spell “inconsiderate”.

As I carefully performed a 20 point turn to extricate my car from its parking space without denting my boss’s shiny new Lotus, I reflected on our relative lots in life.

When Work Goes Wrong

When Work Goes Wrong. Image credit: LegoJalex.

Money epiphany: Compounding applies to time as well as money

By working in someone else’s business, any great work I did would earn profits for them.

If I owned the business, any great work I did would make profits for me.

If I then employed others, the great work they performed would also make profits for me.

In time I should be able to employ a manager to operate my business, which (all going well) would free up my time for other pursuits while the business continued to make profits for me.

In short: it is good to be the boss!

it is good to be the boss!

Bonus time… screwed with my trousers on

A couple of months later bonus time arrived. My boss made a big fuss about how much he appreciated all our effort, and presented each staff member with a cheque for a moderate sum.

Being an accountant, I automatically ran the numbers in my head.

I divided the bonus amount by the number of unpaid overtime hours I had worked.

It turned out I was making less per additional hour than I earned doing my paper route as an 11 year old!

Over the next couple of weeks, I sought advice from family and friends. Almost all were salaried employees, who talked about “paying dues” and “climbing the ladder”.

However none of them drove new red sports cars. Nor did any of them take off for surfing or skiing holidays nearly as often as my boss did.

Escaping life as a wage slave

Some months later I left life as a permanent employee, and started working for myself.

Twenty years on that one decision has generated me more wealth than any other.

Over the years I have accumulated a diversified collection of income streams including business ownership, direct real estate investing, a stock/bond porfolio, and equity investing in businesses owned by others.

In many ways I am grateful to that balding, pot-bellied, middle-aged boss with the red sports car.

He gave me the opportunity to start my career after university, after I had been rejected by 74 other potential employers.

He exploited me ruthlessly, which taught me the importance of control, and maintaining a strong negotiating position.

He demonstrated that life is lived by our own self imposed constraints. This includes:

  • Control over how we invest our time
  • Establishing for ourselves the value of our time
  • Being consciously aware that every hour worked has an opportunity cost.

Next Steps

  • What was your money epiphany?
  • Consider whether you reap the rewards of your efforts. Are you making money for yourself, or somebody else?
  • If you liked this post then please share it with your friends.
Disclaimer: I may receive a (very) small commission from any purchase you make via links on this website.
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The long game

The highlight of my week was watching as Elon Musk’s SpaceX successfully launched a rocket capable of carrying a sizeable payload into space. I applaud their marvellous achievement.

For bonus points, they managed to successfully land two out of a possible three booster rockets for reuse in future launches.

To give credit where credit is due, Musk put his money where his mouth is. Not only did he spend USD$90 million on the launch, but he bet his own car on the outcome. He was either going to be the proud owner of the first sports car to drive to Mars… or the former owner of a flaming wreck!

Childhood dreams

Elon Musk had a dream of going to Mars, as most 7-year-old boys do. Unlike the rest of us, he played the long game and developed a collection of complementary businesses that generated the required income streams and technology necessary to achieve that dream. His net worth was estimated in the region of USD$20bn at the time he launched his Tesla into space.

The TOGAF Enterprise Architecture Framework can be summarised as identifying the current state, the desired future stare, and the incremental steps required to move from the former to the later.

Musk has successfully applied this approach. He identified the core components required to achieve his Mars dream, and then figured out how to make each one not just self-funding but also commercially successful. In turn each component contributes the cash flow and technology advances required to realise his strategic dream.

Playing the long game

Musk founded SpaceX in 2002, the same company that entertained me this week.

He then helped start Tesla in 2003, roughly 6 years after Toyota released the first hybrid-powered Prius. Since then Telsa has been developing a self-driving capability that will significantly reduce the time lost to traffic congestion, though at a cost of making millions of low skilled truck and taxi drivers structurally redundant.

Tesla

Tesla autonomous cars and batteries. Image credit: Arthuriel.

By 2006 SpaceX had proven reliable enough for NASA to award the outsourcing contract to service the International Space Station. By 2011 NASA was comfortable enough with the service provided to decommission the space shuttle.

Also in 2006, he helped start SolarCity. The stated goal was to expedite the world from a “dig it up or burn it down” energy generation method towards a more sustainable, infinitely renewable,  solar-powered future.

In 2015 SolarCity started selling a product called Powerwall, providing a battery backup option for solar power. This used the same battery technology that powered Tesla cars, allowing a further commercialisation of the battery technology.

By 2016 SolarCity had launched a roof tile product that harvests solar energy. What would your preference be: a roofing product that generates a passive income stream, or one that depreciates at the same rate yet earns nothing? That is a no-brainer.

Great ideas sustainably pay for themselves

Telsa cars have become an iconic fashion statement, with an 18-month waiting list. Much like Apple does with iPhones, Telsa could charge whatever prices they liked and still have customers queuing around the block.

The SolarCity power generation and storage capabilities more than pay for themselves within their useful lives. This creates a win-win, as the consumer ultimately lowers their power bills and their carbon footprint.

The money from those endeavours helps fund the development of the space ships, stepping ever closer to realising Musk’s boyhood dream. To me that looks like winning, regardless of whether you appreciated the humour of sending a Tesla driven by a David Bowie loving crash test dummy to Mars.

Next Steps

  • Have a think about your dreams, and how you could “go big” to achieve them.
  • Take stock of your diversified income streams. If they don’t fund your desired lifestyle figure out a way to remedy that shortcoming!
  • If you liked this post then please share it with your friends.
Disclaimer: I may receive a (very) small commission from any purchase you make via links on this website.
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Smarter spending

If the internet’s entire collective personal finance wisdom were distilled to a t-shirt slogan it would say: “spend less than you earn”.

That is great advice, yet living has unavoidable costs associated with it. We all have bills to pay, groceries to buy, the tax man to appease, and so on.

There are a number of smarter shopping things anyone can do offset or reduce the cost of purchasing things there were going to buy anyway.

Cash back portals

Websites such as Quidco and Topcashback operate an affiliate commission sharing business model.

Customers sign up for a (free) account, then via a portal click through to the online stores they would have shopped at anyway. Any purchases subsequently made generate a small commission for the portal, who then split it with the customer.

Shopping using these programmes effectively results in the customer receiving a discount in the range of 1% to 10% on the purchases they were already going to make.

Reward cards

There are plenty of websites dedicated to “travel hacking”, essentially the pursuit of loyalty/frequent flyer programme reward points. These kinds of points are easy to accrue but notoriously difficult to effectively use if (like me) you are trapped in the peak school holiday travelling windows.

A more usable smarter shopping alternative to the pursuit of travel reward points is cash back” credit cards. Retail chains such as Amazon and John Lewis offer credit cards that reward usage with gift vouchers. The cash back rate is typically around 1% of the card balance, though some brands incentivise purchases in their own stores.

Always pay your card balances off in full every month to avoid the loan shark level interest payments.

Cash back bank accounts

There are some current accounts that offer a similar cash back” facility to the credit cards described above. Run the numbers on these however. The monthly account keeping fees may exceed the accrued reward value. Remember bank fees are optional.

Paying bills

In January 2018 it became illegal in Europe for merchants to penalise customers for paying via debit or credit cards.

This means it is time to revisit the decision about whether to pay recurring bills via direct debit.

Now that the invoice amount must be the same regardless of payment method, paying your utility bills and insurance premiums with a reward credit card becomes an attractive smarter shopping option.

Trappist Monk

Smarter spending, whether you live large or are frugal like a Trappist monk. Image credit: Brick Warriors.

Voucher codes

Stores are perpetually on sale. Only impatient people paying full price for things. Before making a purchase, Google for voucher codes or promo codes being offered by the store you are shopping at. Common discounts such as free shipping or additional percentages off the advertised prices are easy to find.

Conclusion

This post has outlined some free and easy smarter shopping ways to pay save money on goods and services you were going to purchase anyway. None require an additional investment of your time, which is your most valuable commodity.

Next Steps

  • Do your homework, then take out an appropriate reward generating credit card for your spending pattern.
  • Reconsider direct debit payment options, it may now be preferrable to pay bills via a reward card.
  • If you liked this post then please share it with your friends.
Disclaimer: I may receive a (very) small commission from any purchase you make via links on this website.
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Self harm and own goals

The Darwin Awards are one of the longest running internet jokes, celebrating the fact that humans have an unceasing ability to invent new and unique ways to do themselves harm.

Asphyxiating as a result of flatulence in a poorly ventilated confined space? It’s there.

Playing Russian Roulette with a loaded bazooka? It is probably there too.

Regardless of whether they are true, every cautionary (though often hilarious) tale documents a creative method that somebody supposedly applied to remove themselves from the gene pool.

This tendancy to self harm is prevalent through all walks of life.

Smokers.

Boxers and NFL stars who play their sport despite knowing it causes them irrevocable harm.

Athletes from all codes who load themselves up on pain killers so they can get back in the game, regardless of how much additional damage they will do to whatever injury was hurting them.

We have all known dieters who shun proper meals like a martyr, then sabotage themselves by tucking into snacks in between meals. How many of us have chowed down on a dodgy kebab or greasy cheeseburger after a night at the pub, purchased from establishments that we would never consider frequenting while sober?

Financial self harm

Then there are the obvious financial “own goals”.

Consumer debt like credit cards and car loans.

Having a vast tribe of kids, without the income required to support them.

Remaining in a relationship with somebody who has a gambling or dependency problem.

Less obvious own goals

Running up vast amounts of student debt to qualify for a career that has poor earnings prospects, no matter how noble the calling. Nurses. Teachers. Scientists. Forestry workers. Police.

Earnings by major occupation group 2017

Earnings by major occupation group.

The sunk cost fallacy of hanging on to an underwater investment because to sell would realise an “on paper” loss, or the avoidance of selling a winner because of the capital gains tax a sale would incur.

Less considered own goals

Choosing to reside in a country where the cost of healthcare makes the determination about whether to seek help from the medical profession a business decision.

Healthcare spending per capita

Healthcare spending per capita

Pursuing an education at a tertiary institution where earning a degree requires the student to incur the equivalent of a new car (or a paid off residential property!) worth of student debt.

International Tuition Fee Comparison

International Tuition Fee Comparison

Following the conventional advice of pouring all your savings into age restricted pension plans when you are planning to escape the rat race in your 30s or 40s. Doh!

Margin lending. To buy commodities futures. Or bitcoin. Is there such a thing as a financial Darwin award? There should be.

Macro level self harm

No I’m not talking about the economic cost of  Brexit or Catalonian independence here, though both would qualify.

How about pursuing a career in someone else’s business, as opposed to starting your own?

What about climbing the career ladder within your current firm, rather than pursuing more attractive offers elsewhere?

The self harm of opportunity cost

Sucking up an epic daily commute, wasting your life in traffic or on a train “for the family” when you could actually be spending that time with “the family” instead.

Avoiding taking holidays while the kids are young, or extending your house, until the point where your kids have left home or no longer want to holiday with you.

Sucking up a job that makes you miserable every day on the promise that things will somehow magically get better without you doing anything to help yourself.

Postponing actually living your life until some arbitrary future date… only to be felled by a cancer diagnosis, or a divorce.

Every choice has consequences, not all of them obvious. Make considered choices, do what makes you happy, and try to avoid scoring own goals or receiving the next Darwin award!

Next Steps

  • How many of your lifestyle or investment choices are doing you more harm than good?
  • If the answer is not zero then help yourself by doing something about it. Today.
  • If you liked this post then please share it with your friends.
Disclaimer: I may receive a (very) small commission from any purchase you make via links on this website.
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Concise writing leads to clear thinking

Winston Churchill is famous for being a man who got things done.

Before becoming a politician, Churchill was a journalist and a successful author. It would be fair to say that he knew a thing or two about effective communication.

In 1940 Churchill issued a memo titled “Brevity to his staff, extolling the virtues of concise effective writing.

“To do our work, we all have to read a mass of papers. Nearly all of them are far too long. This wastes time, while energy has to be spent in looking for the essential points…”

“… the discipline of setting out the real points concisely will prove an aid to clearer thinking…”

Winston Churchill encourages brevity

Winston Churchill encourages brevity. Image credit: Minifigures.com.

Wealth is measured in time

I am a strong believer that wealth is actually measured in time, not money.

Steven Pressfield shares that view:

“When you understand that nobody wants to read your shit, your mind becomes powerfully concentrated. You begin to understand that writing/reading is, above all, a transaction. The reader donates his time and attention, which are supremely valuable commodities. In return, you the writer must give him something worthy of his gift to you.”

Amazon is a company renowned for striving for constant improvement and efficiency. Jeff Bezos is quoted as saying:

“The traditional kind of corporate meeting starts with a presentation. Somebody gets up in front of the room and presents with a powerpoint presentation, some type of slide show.  In our view you get very little information, you get bullet points.  This is easy for the presenter, but difficult for the audience.  And so instead, all of our meetings are structured around a 6 page narrative memo…. If you have a traditional ppt presentation, executives interrupt.  If you read the whole 6 page memo, on page 2 you have a question but on on page 4 that question is answered.”

Brad Porter discusses the application of Bezos’ approach in practice:

“First, it requires the team writing the document to really deeply understand their own space, gather their data, understand their operating tenets and be able to communicate them clearly. The second thing it does is a great document enables our senior executives to internalize a whole new space they may not be familiar with in 30 minutes of reading thus greatly optimizing how quickly and how many different initiatives these leaders can review.”

Effective concise communication

The teams I run at client sites follow some simple rules of thumb for effective concise communication:

  1. Emails should be no longer than 5 sentences. If you can’t articulate the ask of your recipient that concisely, then you are wasting their time.
  2. Documents should be no more than about 500 words (1 printed page). If you can’t effectively explain something on a single page then you don’t understand it well enough. There is a reason all those high school essays took the form “Write 500 words on…“!
  3. Slide decks should contain no more than 5 concise slides that:
    • summarise the issue
    • outline the decision required
    • present viable options
    • and make a recommendation.

It is what you say that enables the assembled attendees to make a well informed decision, your slides are merely a memory aide.

Slide decks are not documents, nor are they an alternative to attending the meeting.

Analysis

Slide decks are not an alternative to attending the meeting. Image credit: The Brothers Brick.

Self documentation

Finally if the content of a document will become outdated then writing it is a waste of time.

Living documentation such as Wikis (with version history and change tracking) and diagrams generated from underlying maintained datasets provide a timely representation of how things look right now… the requirements captured at the start of the project should evolve into the user manual at the end of the project.

If you find yourself duplicating content from elsewhere then you are doing it wrong.

Next Steps

  • Consider what value your audience is receiving from investing their time in reading your writing.
  • If your verbosity knows know bounds then draft, edit, and draft again. Steven King’s formula for successful writing is “2nd Draft = 1st Draft – 10%
  • If you liked this post then please share it with your friends.
Disclaimer: I may receive a (very) small commission from any purchase you make via links on this website.
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