Letter 81: Managing & Spending Money (Part 2)

15 more thoughts and ideas about money

Continuing on from last week’s Letter, here are a lot more thoughts on the topic of money.

Once again, in no particular order:

1. There’s no shame in buying status if you know you’re buying status, just don’t confuse it with utility

2. Don’t just diversify assets, also diversify income streams

3. Your biggest financial asset often isn’t your portfolio, it’s your earning power based on your skills and expertise

4. There’s nuggets of truth to the whole “mo money mo problems” thing

5. Taxes are usually the single biggest expense you’ll ever have so you might as well optimize them

6. When you’re rich you have 100 problems, when you’re ill you have 1 problem

7. There are two ways to feel rich: have more, or want less

8. The marginal value of money falls off a cliff pretty quickly

9. Spending money on removing friction and saving time is one of the best ways you can spend money

10. The best luxury is generosity, spending money on others will make you feel the richest

11. Renting vs owning is mostly about psychology, not math

12. Your money system should be boring

13. Spend money to expand the surface area of your luck

14. Liquidity is king

15. Consider lifestyle arbitrage

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1. There’s no shame in buying status if you know you’re buying status, just don’t confuse it with utility

We live in a world where people are obsessed with playing status games. Humans love to show off and one-up each other. A nicer house, car, watch. Fancier restaurants and travel destinations to light up the Instagram feed. The latest iPhone. Designer clothes and bags. Luxury watches. Expensive JPEGs.

There’s nothing inherently wrong with buying these things, as long as you adhere to a couple of key principles:

1. Do so within your means. This is what ruins most people. They stretch themselves too thin and even take on debt to buy things they can’t afford, purely (or at least largely) because they want to impress the people around them. Don’t do this.

2. Don’t confuse status with utility. I see this all the time, both in the crypto space and in the real world. Ah I need a house to live in, a car to get to work in, clothes to wear, a phone to do stuff with. Sure, but do you need that marble countertop in your kitchen? Do you need the latest iPhone, or will an old Android phone suffice for 99% of your purposes?
   
   That NFT you bought because you’re hoping for an airdrop and future utility, is that really why you bought it, or was it so that you could change your PFP on social media and have people think something of you?

If you’re buying status and know that you’re buying status and can afford to buy status and it makes you feel better for whatever reason, more power to you.

If not, though, maybe reconsider your purchasing habits. Status is a game that ought to be played when you’ve already won the money game; playing it too early will only delay your victory in the game that matters.

Remember that the only person you really need to impress is yourself. One of my favourite authors and writers on money, Morgan Housel, came up with the man in the car paradox which I absolutely love:

source: https://investmentbooks.substack.com/p/the-man-in-the-car-paradox

2. Don’t just diversify assets, also diversify income streams