01 January 2006


The perception of personal freedom is a fundamental part of what makes me happy.

The perception of a lack of personal freedom – the feeling of being overly constrained due to a sense of duty. This is a source of a lot of aggression, violence and dissatisfaction.

Getting one’s self to the point where there is an element of freedom – that can be a source of calm. Because of this, I spend a lot of time reminding myself that life is a choice – there are implications of each choice and not all of these are pleasant but... it is still _always_ a choice.

Being sick is getting _real_ old and winter has worn out its welcome in gWorld. That’s most likely because the illness isn’t hitting the road. I’m reduced to long walks around Montpellier – I've got this hot walking buddy that accompanies me -- walking her gordo.

December has reminded me about the athletic edge that I gave myself from avoiding the need to bunker-down and do “yet another” session in the cold. I knew that there was a reason that I started living in the tropics and swapping hemispheres.

Financial Freedom

What do you think when you hear those words? I think that most people would think about being able to _spend_ whatever they want.

Dietary Freedom

Is that about being able to _eat_ whatever we want?

Sexual Freedom?

How about that one?

In a consumer society we often think that additional happiness comes from being able to consume more – spend more; eat more; fool around more; drink more… whatever grabs our fancy.

It comes back to what I wrote about intent.

If we take away the controls then (at least initially) we can get a bit slack. Drop by any university campus and you can see that in action.

Lately, my thoughts have been on financial freedom. I'm a planner and I've used December to plan through 2006 (first) then through to my 40th (last week) and most recently through to my 50th (last few days).

When we understand how certain things support key long term goals -- that can make little short term inconveniences appear in a different light.

The trade off between the quick & easy option and investing for later return -- making that decision frequently -- building that into our core habits. That is a key element of the process of achievement. Nutritional success, financial freedom, many things are built upon the consistent application of this habit.

So here is what we did...

In the fall, we tracked every single expenditure we made in a 30-day period, right down to our lattes.

Many people prefer not to have this info staring them in the face. I've worked with some highly successful people that have no idea what and where they spend their money. They are rarely financially free.

I knew the number was going to be large. When I returned to the workforce, I had ratcheted my overheads back up to Hong Kong levels, telling myself that "I could afford it" and I could, today.

Later, I asked myself:
...what happiness was my incremental expenditure buying today?
...what was the potential cost tomorrow in terms of my freedom?

Going back to fulltime corporate work involved an element of sacrifice, a fairly compensated sacrifice but... if I simply blew all that compensation (because "I could") then the actual return on time invested would be pretty low. Nil, acutally.

Not surprisingly, as I get older, I realise more and more than personal satisfaction received relative to time invested, is an important consideration. Perhaps the only consideration once we are on track in our lives.

With our cash outlay tracking, I asked Monica to guess the ending figure in advance -- let's call her guess X. By the end of Week One we were at 1.5 of X. Ten days in we were at 2X and we finished up the month at 3X.

Most people can only name 35% of their monthly expenditure. I did a little better with my initial prediction being 85% of the total. To be fair to M, she didn't have the benefit of seeing what I was spending on the road starting up my company. She did well given the lack of transparency, what she didn't realise was that our household expenditure was 3x what she saw, suppose that I wanted to make that point. She's the more fiscally prudent member of the team so it wasn't required.

Armed with the base line figure, I projected out a full year including: personal expenditure (mainly travel for me); business overheads (office, staff and more travel); health insurance; rentals; and holidays.

With all those outgoings starting me in the face, my potential sources of income started to look a heck of a lot more attractive. Situations that appears to impinge my freedom rapidly changed into attractive ways for me to cover my overheads.

I also clearly saw that the easiest way to avoid items that irritate, or impinge, is to remove the expenditure that they are required to finance.

How does all this relate to freedom?

I need to set the scene for that.

Peter Drucker did a series a few years ago for the Economist (worth reading and if you have an on-line subscription you can review). One of the, many, interesting concepts was that human resources are the means of production in a knowledge based economy. Put plainly, when the "factory floor" is a desk with DSL, then YOU are the capital that drives your business. The implication being that if you are a smart person with marketable skills then you aren't tied to your employer. At least, in the same way as if you were a manual employee in the 'old' manufacturing based firms of the past.

Dental hygenist;
Paralegal or lawyer;
Marketing ececutive;
and on and on...

All of these positions are highly mobile. You need an office from which to work and other members of a skilled team but... you are highly mobile with a good skill set.

What can constrain that flexibility?

Mortgage payments;
Car payments;
Any form of personal debt;
The perception that you _need_ to live at a certain level of _expenditure_;

All of the above created (and sustained) by a high personal expenditure relative to personal savings.

To be able to utilise the freedom inherent in our skills is a key requirement to leverage one's self in a knowledge based economy. More plainly, in many things, you'll only negotiate your best deal when you are willing to walk away from the table.

Indeed, I'd say that it is an essential part of being able to get a fair price for one's services. Employee turnover is costly and inconvenient -- increasingly so as we become more and more ingrained within a successful organization.

So there's a double whammy -- personal overspending increases our reliance on our sources of income; and reduces the personal freedom that comes from savings exceeding expenditure.

Personal financial freedom being the ability to live the way we want, rather than spend whatever we want. One doesn't need to be financially rich to be free in this sense.

There are only a few sectors (and people) where external sources of capital enable long term deficit spending. When I think about that I come up with charismatic entrepreneurs and the US Government.

Phew, that was a long aside.

That was the set-up for building my strategy from 40 to 50 years old. Those can be highly productive years for the well placed knowledge worker. By then, we will have 15-30 years of work experience and a pretty good contacts network (or at least had a fair shot at building our network).

Network is a good way to consider it. If it is all about human capital then access to people and education become more and more valuable. I was trying to get to that in my MBA piece. The value lying in attaining access to, education from, the very best people.

In our 40s, we are old enough to give backers comfort that we know what are are doing, but not so old that people are concerned about our being too old to follow through. There is a clear age bias that starts to creep in from 55 onwards. I have witnessed that, and been a part of it.

Setting one's self up so that at 50, you have a high degree of financial freedom, that is very valuable in my book. Financial freedom defined as being able to live the way we want and work for who we want (most likely ourselves).

Now 13 years is the furthest that I've ever looked out. Generally, for business and personal planning, the furthest I plan is five years. Those five year plans change radically every one to two years. Knowing that change is going to happen, and not being married to the plan, is essential for success in a constanly changing environment (be it your company or your body).

Why did I look out so far this time?

My 2005 review showed me two things: (a) that I was on track from an NAV (net asset value) point of view; and (b) my overheads had jumped up significatly.

I wanted to figure out what was required to stay on track. Could I truly afford to live the way I thought? Like all good financial analysis, I built up a little spreadsheet for that...

The next step (for me) was to take a closer look at my expenditure and figure out if we are getting value for money on each line item. Nothing radical in business but how often do we do that personally? The personal annual budget -- worth considering on January 1st.

If you got this far then well done!

That was quite a mind dump and so I'll finish up with a little story for you.

It's not about me, although I do live a bit like the central character.

"Bob" started his career at 20. He sold retail for minimum wage in a small town. Not many people know that about him but he'll happily tell you about his background if you ask.

Given that he's an expert in his field, most people that meet him want to get some free consulting from him. So that ask him about what he knows. I was lucky, the first time I met him, I was tired so I simply listened while he told me the story of what he did.

Bob was good at retail. He knew a lot about his product range and was an avid user of the brands that he sold. Over time, some of his customers asked him for consultancy advice. At first, Bob couldn't believe that people would value his advice. He was flattered and worked for free. Eventually, his customers became paying clients.

Roll forward twenty five years. Bob's been a student of his field and the "science" of business. He's moved from retail, to consultancy to the founder of his own consultancy company.

Step by step.
Piece by piece.
Day by day.
Year by year.

Recently, "Steve" was talking to me about Bob. Steve wasn't talking about this story. Steve mentioned (with a slight tinge of envy) that Bob was taking another month-long cycling vacation. He was saying that it would sure be nice to have the financial freedom to do stuff like that.

Get it?
If you do then you are lucky.

Most people only see the vacation.

Choose wisely.



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