Category Archives: Life management

Decide based on principles – not results

A principle-based decision making framework. That is – I’ve come to realize – the key to success. Regardless of how you measure success. Let me explain.

Currently reading 7 Habits of Highly Effective People. (Sidenote: probably the most life changing book I’ve read in my life – I can’t believe I haven’t read it until now – just imagining how my life would have been if I read it when I was 20 or so.) The book mentioned principle-centered living a couple of times, and even dedicated a whole chapter to the subject. But it’s not until I read this part that I really got it:

“Where does intrinsic security come from? It doesn’t come from what other people think of us or how they treat us. It doesn’t come from the scripts they’ve handed us. It doesn’t come from our circumstances or our position. It comes from within. It comes from accurate paradigms and correct principles deep in our own mind and heart.”

Suddenly, it made sense. I’ve been wrestling with a big decision for a couple of weeks now. It is actually a life changing decision.

I’ve always had a hard time making big decisions. I could never really feel that “gut feeling” that people talk about. I try to foresee the future. I weigh pros and cons. I analyze potential outcomes. I do everything – but decide, and just go with the decision.

In one blow, after reading that sentence, I realized this: I’ve been making decisions based on wrong premises all my life. I’ve been trying to predict the best outcome. This isn’t principle-centered decision making. It is outcome-centered decision making.

“What will lead to the greatest outcome” – rather than “what is the right thing to do, based on what I believe is right?”

Ironically, I realize now, outcome-centered decision making leads to worse outcomes, for several  reasons.

First, it is prone to error. Nobody can predict the future.

Second, it is draining. By trying to predict the future, you will constantly end up evaluating your choice – never really “landing” in what’s the best course of action. Every bit of feedback you get along the way will make you question whether the choice you made will really lead to the best outcome, or if your other option was the better choice. You will end up constantly questioning yourself.

By making decision based on what’s the right choice – based on principles you believe in – regardless of outcome, you will be more centered. More firm. More trustworthy. Have greater integrity. Knowing what you believe in, and following that belief regardless of the possible outcome, does that to you.

And perhaps more importantly, the gut feeling can develop. Finally, it will be possible to feel what is right – because that feeling will be based on whether you are following your principles, or whether you are doing something wrong. Suddenly, it is possible again to listen to your emotions when making decisions.

This will save a lot of energy. Ironically, because you don’t waste a lot of energy questioning yourself, you will also become more productive. And, correct principles are time-tested. They are proven to work, through the history of people men throughout time. People who made the world a better place. People who were happy. So good principles are a good guide, and a great measuring stick for how well you are doing.

So what are the correct principles?

According to Covey, it’s the following:

  • Fairness
  • Integrity
  • Honesty
  • Human Dignity
  • Service
  • Quality and Excellence
  • Potential and Growth
  • Patience, Nurturing and Encouragement

And what do they mean? What is it, to be fair? What is it, to have integrity, honesty, to view people with dignity, and the other principles?

Well, that, I guess you have to decide for yourself. And that’s the part that I guess you can second-guess based on experience and feedback.

Share this!Share on FacebookShare on Google+Tweet about this on TwitterEmail this to someone

Why you should not focus on earning money if you want to secure your future

If you want to earn a lot of money, first ask yourself this question: why?

For most people, the purpose is safety. They want to feel that they will never be poor, that they will always be able to make enough money to support themselves and potentially also a family, and live a good life.

So they start collecting and amassing money. Seeing that number in their bank account grow makes them feel safe.

But there is a big problem with this approach.

The problem is that money is not permanent. During your lifetime, things will happen that will make you lose your money, or more accurately, the value that that money represents. Inflation, wars, government taking your assets, bank runs, and many other things that you cannot do anything about.

What you cannot lose, however, is what’s in your head.

Your knowledge is the most valuable thing you possess. Why? Because your knowledge determines your ability to make more money. And your ability to make money is permanent.

In the story if the golden  goose, a goose started laying golden egg for its farmer. But the farmer got greedy and killed the goose in order to pluck all the golden egg at once, only to he disappointed to not find any Egg inside the goose. In the process, he had also killed any hope of new golden egg in the future.

Let us for a moment pretend that there were a bunch of golden egg in the goose. Who has more freedom, who is more secure, who has more prosperity? The farmer that collected a bunch of egg, or the farmer who got one egg a week forever?

The farmer who waited would never have to worry about survival again, and he could do whatever he wanted with his time. The farmer who killed the goose could go and buy something really luxurious and cool, but then he would have to go back to his farm and spend his time producing food, and worrying about the future. Would you rather be the farmer with the cool thing, or the farmer who never again has to worry about survival and can spend his time on whatever he wants?

What would you do with your time, if you didn’t have to spend it earning money for survival?

If you think this type of freedom might be degenerating because it will make you lazy, I think you have a bigger problem. That of purpose and drive. If you need to be forced to do something in order to not fall into laziness, you unfortunately have lost the connection to what drives your from within. That passion for living, curiosity and internal drive to do something because you enjoy it, because you enjoy growing, and because you enjoy the feeling of pride in having contributed to something bigger.

But now we’re digressing. I guess what I’m trying to say is this: stop focusing on amassing money. Focus on growth and development. Focus on increasing your value to the market. Focus on learning things that others will pay you money for. That is the ultimate freedom, the ultimate security, and the ultimate path to creating it source of income that doesn’t rely on your time.

Share this!Share on FacebookShare on Google+Tweet about this on TwitterEmail this to someone

Life decision making process with acceptable worst case and unlimited upside

Barbell strategy decision making heuristic

When making an important, potentially life changing choice where some of the options may be irreversible, it is important to thoroughly analyze the different options before choosing one. But it is impossible to weigh options against each other if you don’t have objective criteria against which they can be measured.

I will propose here that because of the uncertainty in future prediction, and the existence of so called positive and negative “black swans” (unexpected, impossible to predict, high consequence events), the best strategy is the “barbell” strategy.

In the context of this post, a barbell strategy means that you choose the option which, given high volatility, the worst possible outcome (worst case) of your choice is acceptable, and most optionality.

(To understand the reasoning behind this and why optionality is good, it is probably best to read the thought-provocing book Antifragile by Nassim Nicholas Taleb.)

Thus, the decision making criteria against which you will measure your options will be as follows:

Which choice brings an acceptable worst case, while maximizing optionality?

Note that we are not looking for the BEST worst case, instead we are disqualifying all options which have non-acceptable worst case scenarios.

Out of the remaining, we are choosing the one which gives us most optionality.

What is optionality in the context of decision making?

Optionality can be defined as:

The ability to discover and take advantage of unexpected opportunities.

Notice that this is two pronged: discover and take advantage of. In general, in order to be able to take advantage of any opportunities, you have to control your own time.

In general, all of us have more or less control over our own time as defined by the below parameters:

  • The amount of free time we have
  • The amount of flexible time we have

In order to survive, we all have to fulfill a baseline living standard (at least food and shelter), which translates to a baseline income stream. This is non-free time, and the rest is free time. How much free time we have, then, is defined by how much of our time needs to be tied up to income-generating activies. (Notice that I say “needs to be tied up to” and not “is tied up to” – because if you tie up more of your time than necessary on such activities, that is a choice, thus defined as you choosing to spend your free time on income-generating activities rather than other activities.)

How much of our time needs to be tied up to income-generating activities is defined by the following factors:

  • The amount of money you already have “in the bank” which you can spend on both living and on opportunities before it “dries up”
  • How much time it costs you to get income (income is very cheap in terms of time if you have a passive income flow or if someone is simply handing you money for free, otherwise it is determined by your hourly rate – actual or calculated based on salary vs. time spent on job)
  • Your “happiness cost” of actual cost of living (meaning can you live really cheaply and still be happy, or do you need luxury roof over your head, food, activities in order to be happy?)

Based on all this, an example of a lifestyle which brings incredible amount of optionality would be as follows:

You live alone (don’t have to support anyone) in a house you fully own with no rent, you eat very cheap food with no demands, you meet a lot of interesting people through various online groups, and you have both a passive income stream exceeding your living standard plus a lot of money in the bank which you can spend on any opportunity you wish.

An example of a lifestyle with a very low degree of optionality (which unfortunately, as far as I can see most people in the western world seem to live under), is as follows:

High mortgage with borrowed money and bad housing market (basically already at this pointyour optionality is gone since you cannot get out of having to pay a certain amount of money per month in mortgage, forcing you to spend all your time on activities which bring immediate income, with no ability to focus your efforts on longer-term opportunities regardless of how good those opportunities may be), a large family with a luxurious (expensive) lifestyle to support, no money in the bank (or less money than debts even after including the value of your assets that you could potentially sell), a job that demands all your free time (even after minimizing the amount of sleep and family time you get – because now you can’t even spend your time on potential opportunities, even if you had the money to do it), and meeting only the same closed group circle of people (you meet only them, and they meet only you and each other – no outside influence) that you meet through your work and family every day – and, in addition to that, when meeting them you only have time and energy to talk about short-term work related issues rather than potential long-term opportunities (long term opportunities can be translated as simply “enjoying yourselves” and talking about ideas, things you have seen, gossiping, and philosophizing, since those activities are what breed ideas, and ideas are in fact long-term opportunities).

Note that in such a situation, regardless of whether you have superhuman intelligence, abilities, control over yourself, multitasking ability, and experience – there is simply no way that you can get out of that situation unless you do one of the following:

  • Being lucky and stumbling upon a more passive or higher income stream (since you can’t search for such income streams, you rely do have to rely on luck – luck such as someone randomly approaching you on the street and offering you a job, or you overhearing a conversation which prompts you to ask for a potential new job)
  • Reducing your living costs (most likely by reducing your lifestyle requirements, which though is very difficult considering you have a family to support – something you should have thought about before getting children), which will enable you to reduce your working hours by taking a new job

What is an acceptable worst case scenario when making decisions?

An acceptable worst case is:

Any option which is reversible (meaning even in the worst case, with the amount of time and/or money at your disposal before you die or loose your freedom permanently, you can return back to any of the previous good points you have been at from a free and flexible time at your disposal point of view, at an acceptable level of happiness)

With that worst case locked in, choose the option that brings most optionality. Optionality means that you can make many small bets, hoping that one of the bets will pay off big time (for example invest in businesses or stocks, starting companies, meeting a lot of people which can show new opportunities, etc.)

Some practical implications of this decision making heuristic

  • Education raises your worst case. With a degree, you always have a good chance to go off and take a lot of risky bets, but you can always change your mind and go back to a reasonably well paying job (assuming your degree doesn’t deteriorate when you don’t entertain it)
  • Taking rare, well paying jobs that forces you to work a lot are two-pronged: On one hand, they lock you into a rich lifestyle and reduces your possible worst case options – because if you try any other option, you will not likely be able to get back to your current situation. On the other hand, you can use these jobs as temporary platforms for saving money, which doesn’t put you in a situation which you can’t go back to easily as you haven’t really raised your living standards, plus having a lot of money in the bank is in itself an improvement of your worst case (the more money you have, the more flexibility you have in avoiding potentially irreversible situations).
  • The poorer you are able to live happily, the better your optionality is. Because whatever you do, you can’t do worse than you are doing today, but you have enormous upside. Basically, the poorer you are, the more free you are to use your time on anything you want (however, not having money in itself can be a limitation, as you may then not have access to tools, resources, geography that would give you optionality – so this is a tricky balancing act).
Share this!Share on FacebookShare on Google+Tweet about this on TwitterEmail this to someone