Ep. 27 - Releasing the chains

PSA: Welcome to Q4! Bitcoin is up 10% this morning. I will continually harp on this until everyone I know owns some. It's the greatest investment of our generation. And we're still very, very early.

Alright, enough shilling. Two weeks ago I wrote about the erosion of our government issued currency (fiat) and the implications of continuous money printing. This leads to a debased currency, high inflation, and keeps everyone on the hampster wheel of life.

Ultimately, it erodes our freedom and sovereignty. With an eroding currency freedom to move cities, to quit your job, or to just live life on your terms becomes increasingly challenging. When your money is losing 5-10% annually it creates a toxic environment of short-term thinking, as saving for the future becomes unattainable for most.

A few years ago there were countless articles that claimed earning an annual salary up to $75k buys happiness, but anything greater than $75k does not. Basically, the law of diminishing returns was at play (the more I make does not translate into greater happiness). I understand this logic, but I think the number is completely wrong. It's bullshit actually. Life is expensive, especially in a major city (i.e., Vancouver). Unfortunately, true freedom lies far north of $75k annually.

Discussing money in this nature can make people uncomfortable. However, money is a tool. And it's the greatest tool available to achieve freedom and sovereignty over your own life. Typically, people don’t like talking about money. It can be uncomfortable. But, I think we've convinced ourselves that it's not important. We hear things like ‘find your passion and you won’t work a day in your life.’ This is bullshit. This happens for very few people. I know professional athletes that don’t like their job. Because guess what, showing up to the rink or the field everyday becomes a job very quickly. For 99% of people money is VERY important. And, the more you have, the more freedom you have.

Being chained to a job until your 70, even if you 'like it', is not freedom. In this article I want to reiterate over and over again that making money is a good thing, not a bad thing. Never be ashamed of it. Don’t feel guilty for wanting more, either.

But, the world is changing rapidly. The boomer generation could earn low-to-mid six-figures and sail off into the sunset. You could buy the house you wanted, the car, the vacations, and even a cabin if you like. You could continue working because you want to, not because you have to. This is no longer the case. The baby-boomer lifestyle is over.

In this article I will discuss three key areas impacting the future of personal wealth. I'll share where I think it’s heading, and how I am setting myself up for success.

• Inflation - We are potentially living through one of the largest inflationary periods of our generation. How can you protect yourself? Where should you be putting your money?
• Income - “The three most harmful addictions are heroin, carbohydrates, and a monthly salary” - Nassim Taleb. Your monthly expenses creep up with your monthly salary. Lifestyle creep is very real. How do we avoid this? How can we create distance?
• Big wins, small losses - You need skin in the game. You need to have a risk tolerance. You need to expose yourself to major returns with limited downside. How do we achieve this? Is it only achieved through luck?

Let's get into it.

Inflation

This is a tough one. Inflation can occur silently, especially when the Government maintains the narrative that ‘we are not in an inflationary period’ and 'it's transitory'. But, is that true? The narrative being pushed right now is that rising costs are the result of supply chain issues, combined with consolidation of capital, and cheap money. Let me explain.

There is no doubt that COVID caused an absolute mess with global supply chains. I won’t argue that, and I don’t think we need to delve too deep into that one. However, the second consideration is the consolidation of capital. What does this mean? Well, less money being spent on restaurants, commuting, and vacations has led to people spending more on specific items like home renovations (i.e., cost of lumber skyrocketing), outdoor activities (good luck trying to buy a bike), and personal development (online courses are booming). Then there is the cheap money. The ‘Fed’ and the Government of Canada have been pumping money into the economy at a ridiculous rate. Look at this graph below.

This is an unprecedented amount of money being injected into the economy. This has forced interest rates to historic lows, which has also fueled spending. This is why your parents split-level home is now worth $1.5m. It has created a perfect flywheel. The Fed lowers interest rates to spur economic activity, consumers purchase more and take on debt, prices increases, the Fed lowers interest rates again, people take on more debt because of the rising costs fueled by increased consumer spending, and so it goes. Then, we eventually find ourselves at a junction point where a slight increase in rates would bankrupt the country (and a lot of consumers).

So, how do we protect ourselves?

Don't hold cash. As I'm writing this, I currently hold about ~3 - 5% cash. The rest is invested in a host of items; equities, cryptocurrency, private placements, etc. Holding the dollar right now will literally eat away at your purchasing power.

The other way to outpace inflation is to supercharge your income or slash your expenses. Basically create distance, pile into investments, rinse and repeat.

Income

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary” - Nassim Taleb.

I love this quote from Nassim Taleb. Nothing is more true. This story plays out year after year. For example, you have a nice paying job earning $100k/annually. Over the course of ten years you receive appropriate raises as you climb the corporate ladder and you're now making $220k/annually. Not bad for ten years. However, during this time you have done the following: moved out of your one-bedroom apartment into a three bedroom townhome, financed a $40,000 SUV, went to Hawaii every year, bought a second vehicle because it's 'easier', and then bought an overpriced home for $2m because that's 'just what you do'. And, by year ten, you're bringing home $12k per month (after tax) and seeing $8k of it vanish immediately and then the other $4k disappears on ad-hoc expenses. Herein lies the addiction. You cannot leave your job because your lifestyle is dependent on it. You cannot lose your job. Or, you can, but then you're really fucked. It gives you no freedom. You are officially trapped.

So what do we do?

You have to create distance. Increase the topline and significantly decrease the bottom-line. Or at the very least, you keep the bottom-line the same for years. My partner and I have seen combined incomes increase nearly 500% over the last three years. We have worked hard to get there. However, we're still in our one bedroom apartment. We still cook almost all our meals. We don't do fancy things.

Also, I'm sorry to burst anyone's bubble, but the personal finance books that say you have to save 10% of your income are wrong. Frankly, it's not enough. 50% should be the goal. I understand this is a luxury, but there are ways to achieve it.

Why?

Why am I so passionate about this? I think it's because so much has changed from when I was growing up and learning about personal finance. I used to think six-figures was the holy grail. But I am very, very wrong. Take a look at this graph:

So do you make $895k? If so, congratulations! Wages have largely stagnated, especially over the last decade, leading to even more purchasing power erosion. This is why I am so bullish on self-employment. Carve your own path, command your own income, and don't fall victim to being priced out of your own country.

Big Wins, Small Losses

What do people like more than making money? Not losing it. How can you set yourself up for those life-changing returns, while simultaneously hedging your down-side risk? This, again, is where I defer to Nassim Taleb. Taleb built his wealth off the 'Black Swan' strategy (the book is a must read --> Black Swan). It's defined as "an event, positive or negative, that is deemed improbable yet causes massive consequences." Now, you want to be on the right side of those massive consequences.

So what do I do? I use the barbell approach. I'll have a set of 'risk-on' investments, and set of extremely safe investments. Also, I'm currently in the wealth building stage, not the maintaining stage, so this may look different for different people. Because remember, concentration builds wealth and diversification maintains wealth. Thus, I make large bets on a few investments and that's it. Currently, I've gone all in on the Crypto space (nearly 60% of my net worth is in Bitcoin), and private investments. The rest is in steady equities.

Do your due diligence. Put in the appropriate research, ask questions, and then make the bet.

Conclusion

The theme of this article is ownership over one's life. Put in the work and the time now, so you're not left on the sidelines a decade from now. Prepare, make logical bets, and enjoy the process.