An Alley-Oop Subscriber writes in:
Please tell me if this is inappropriate, but I’d like to pick your brain on managing your finances. What has worked for you and where should I start?
Finances are a big can of worms, so simplifying is no easy feat.
But for the sake of having a crack, here goes:
When it comes to finances, the first thing we need to understand is what separates low-income earners and high-income earners.
Because there is a lot of BS around money (a lot of which I’ve perpetuated over the years).
To start, this is what these two types of people have in common:
1) The amount of time available to them
2) Their ability to solve problems for others
3) The opportunity to solve bigger problems than what they’re currently solving.
Here is what they don’t have in common:
1) How they THINK about the time they have, the money in their possession, and the problems they want to solve.
To illustrate this point, let’s go to the highest net worth individual in the world — Elon Musk.
His mission is to put humanity on Mars.
This is a feat that won’t be achieved before his own death.
Despite not being alive to see this goal achieved — he is in hot pursuit anyway.
Elon is operating on a ridiculously long time horizon.
He’s also solving a ridiculously large problem.
And as a result, attracts a ridiculously large amount of capital.
How he thinks about time, problems and money is the only thing separating him from lower-income individuals.
Some might argue that the degree to which he is successful…
Is directly proportional to the degree to which he solves the future’s problems.
The bigger the problem and the further away it is, the bigger the reward.
Compare that to someone who is homeless.
They operate in survival mode; existing in the here and now.
What’s the next meal?
Where will I sleep tonight?
Where will I get more money from?
This is, of course, a necessity.
Yet, it reveals something important.
So important that writing it out gives me shivers.
“You move away from what you don’t understand and what you don’t understand will move away from you.”
Let that sink in.
That is why I’ve become obsessed with two things:
It might sound strange, but the decisions Lachy and I are making aren’t for this year or the next… they are for the next decade.
We are already thinking about how AA interfaces with the Olympics… in 2032.
We have made a concerted effort to move away from the here and now, and drag the time horizon with us a decade into the future.
In doing so, we’ve created clarity about our business vision, and, our financial future (once we announce it, it will all make sense).
The benefit to this is that the here and now become crystal clear. When you can see something far away, you’re even more clear the closer it gets to being in front of you.
Even into next year, we can see where our revenues are coming from, where our expenses will show up, and how to navigate the uncertain variables.
I came up with a model to help explain this, I’ve drawn it below:
U = Understanding
R = Reality
A = Affinity
I = Income
It’s a model to show the interconnectedness of how I think about finances.
I think it might be helpful to you.
Here’s how it works.
1. When you understand your finances, you’re grounded in reality, not hypotheticals and forecasts.
2. Having a better sense of reality creates an affinity toward wealth creation because you now know what is working and what isn’t.
3. When you have a greater affinity toward wealth creation, you develop a better understanding of what works and what doesn’t.
4. All of which leads to an expansion of income.
It’s a virtuous cycle.
Or, it can be a vicious one depending on which way you look at it…
1. Less understanding of your finances moves you farther away from reality, and in turn, makes you more likely to want to put your head in the sand, lowering your affinity toward wealth creation.
It’s simple but it makes complete sense.
Anyway, these are just some of the thoughts I expand upon in the Alley-Oop, amongst other things.
If you want the answers to questions like this, then you’ll want to subscribe before it goes to the printers in a couple of days.
You can do that here:
Just one of these ideas could be worth a year’s price of admission if you apply it.
Like Lewis. He’s a gun, has been working his butt off, and deserves the opportunity.
Imagine getting a gig with a professional sporting team… What could that do for your credibility and authority?
I’ll be rooting for him!
– Karl Goodman