I’ve been reading ‘self-improvement’ books for the last five years. Some of those books dealt with financial and life management, where you leverage the money you earn to create more value for yourself. But until you reach that point in your life, it’s only a theoretical exercise to engage with – there is no point in thinking deeply into investing options or buying your way into freedom until you have money to buy options. I’m sure there are self-improvement adherents who will vehemently disagree with this, but the reality is you aren’t going to gain access to the game by saving money not buying lattes or avocado toast unless you are playing a really long game with a lot of good luck.
I’ve now hit a point in my life where options have opened up for my family, and we can make choices and trade-offs to build out a lifestyle that works best for our goals. This is not to say that all options are available to us – we have to carefully look at the tradeoffs and determine whether the downsides of any option are something we are comfortable living with (e.g. to pay for a given option, should we, say, reduce from two cars to one).
Part of this exercise is critically examining each of our assumptions and systems to determine if they are moving us towards what we want, or if they need to change to better align with what we want. This is where the concept of leverage has entered my mind, because when evaluating costs or expenses, it’s important to note that not all expenses are net negative. Some expenditures end up buying more value than what we spend on them.
This is the game in a nutshell – you trade your time for money. Money represents quantified time and effort that can be exchanged in markets with mixed goods. I spend time at work and my employer gives me money in return. I then take that money to purchases goods or services.
Until now, most of the way I thought about the game was surface-level transactions of 1:1 value transfer – I work x-hours for y-dollars. I then trade y-dollars for a good or service with a transactional value of y-dollars. I haven’t really given much thought to the value (that is, how much I value it subjectively) of the good or service provided back to me, and whether that value is higher than what I’m spending. I suppose I’ve thought about it in an abstract way, such as I receive more enjoyment from the thing than the money I spent on it; the opportunity cost is not higher than the value I’m getting from it.
By focusing on the surface-level transactions, the only metric that was critical was to ensure the revenue was not exceeded by the expenses, that I wasn’t spending more money to buy value than I was getting in exchange for my labour. It’s worked up until now, but the direction my family wants to head requires me to think more deeply about what those expenses are buying us.
Ideally, I should be seeking to engage leverage – I trade time for money, then use the money to buy time in greater quantities. What might this look like?
- With my wages, I can lease or own a car. The money I spend on the car frees me up to commute to work on my own terms. I could get to work more cheaply, such as public transportation or cycling (ignoring environmental costs in this calculation), but then I’m trading cost for time. Having my own vehicle is more convenient, more comfortable, and faster, allowing me to maximize time at work and time at home.
- With my wages, I can pay for cleaners to clean my house. This frees up more leisure time and cuts down on bickering in the house. It is cheaper for me to buy the supplies and do it myself, but I value the leisure and time with my family more than the cost.
- With my wages, I can pay for daycare for our child. My spouse or I could quit our job to care for our child at home full time and save the money. However, the money we spend on childcare frees us up to earn multiples of what we spend for the childcare – e.g. at $1,000/month, we would spend $12,000/year for daycare so that we can make north of 5x of that in our jobs.
This is not an easy exercise as many of our expenses feel necessary on the one hand, or scary large in context. However at this point in our lives, we have to accept that our raw effort will only diminish (I can’t work all-nighters like I used to without significant physical cost), and there are no more hours in a day we can squeeze out through discipline and efficiency. We must now turn to leverage and force multipliers to translate what we have into higher value.