Why make money?

I want to be rich.

Your reaction may be “duh, who doesn’t?“, or to write me off as shallow. Either way, we probably have completely different ways of thinking about wealth and money. So allow me to elaborate on my philosophy of money — what it represents, why and how I want to make it.

The real value of money is that it buys a far more important resource — freedom. Lack of money constrains you, as you are forced to work in order to make it. Because I’m strongly motivated by freedom, I made it a goal to reach financial independence.

There is a certain amount that we need to make in order to survive. That amount depends mainly on where you live (which country, city, or village). Beyond survival, having more coin incrementally improves the standard of living. A large house in a desirable area is generally better than a studio above a sweatshop. Fresh, organic food is better than cheap fast food. And, even though this advantage is being eroded by online learning, good education also requires capital.

But let’s take a step back and discuss why what purpose money serves. Money is arguably one of the greatest inventions of humanity, and one of the crucial tools that allowed the transition from loosely structured tribes into highly organized societies. It enables large-scale specialization of labor, which means that you don’t need to grow your own food or make your own clothes. You get those things in exchange for money, which you get by providing some other value to society. To have access to modern society’s many wonders, you need to play by its rules, and that means you need to make money.

But how much money? After our basic needs are met, we still tend to want more and more. We get hooked on getting the newest gadgets, quality clothes, large homes… Partly to blame is the need to compete with your peers over who can appear the most successful, fueled by online social media, which exposes us to curated daily updates of the rich and beautiful Californians.

Another reason is filling the existential void. For most of human history, we had to devote a significant portion of our time and energy to survival. The purpose of life was to find or grow food, build shelter and fend off wild animals. Modern society is largely taking care of these needs, and all of us are faced with the question: what’s next? Today, accelerated by the decline of religion and other traditional institutions, we are expected to find the answers ourselves, and it’s bloody difficult. A lot of us turn to the pursuit of money and social status.

That’s why people stay in jobs they hate but can’t admit it to themselves, making more money than they know what to do with. The hunt for the envy of others comes from a lack of understanding of what is truly important in life. It’s aggravated by rigid social expectations and ignorance that other paths are possible.

Say you manage to shed the need to follow the path society laid out for you and you wish to make a change. You still need to make money.

Would you still do your job if you weren’t getting paid? If yes, congratulations, but you’re in the minority. The truth is, most of us would prefer to do things that bring us joy and excitement, rather than work in our prime years. What would you do if you didn’t have to work for a living?

Common answers would be travel, spend time with family, work on creative or artistic pursuits. In general, stuff that feels meaningful and enjoyable. And it’s not necessarily selfish — you can work with disabled kids or start a charity if you wish. Anyway, do you really want to cram all the stuff that makes life worth living into evenings and weekends, or delay it until retirement in your 60s?

I certainly don’t. Below are three alternative paths that I’ve adhered to at different times in my life. I’ve jumped between them, but now I realize they’re quite complementary and not mutually exclusive.

A few years ago, while working full-time as a software engineer, I discovered the FIRE community🔥. That stands for Financial Independence, Retire Early. The idea is to make money from a full-time job, lower your living expenses and save brutally. Invest those savings in an asset with a good risk-to-reward ratio (preferably a broad index fund). The common rule of thumb is to aim at 25 times your annual living expenses (for me and my partner, that’s roughly £600,000, based on our current costs). Then, according to a certain study, you can withdraw 4% of your assets per year and be reasonably sure that you’ll never run out. Et voilà, you’re financially independent.

£600k is a lot of money but it’s less than you might expect. You don’t need to be a multimillionaire to be financially independent. If I had stayed in my software engineering career, I estimated I could reach that target in around 11 years. Retirement in my late 30s would not be bad at all, but I had to quit because I simply found a full-time job too constraining.

Another route would be to make as much money as quickly as possible, from running a business and potentially selling it. Owning equity is far superior to renting out your time. But it’s also more difficult and risky. Fortunately, that also makes it more interesting and exciting. You can still use the 25x rule here — if you manage to save up enough money from business proceeds and/or the sale, you’re financially independent.

Yet another option is to have a lifestyle business. That’s the kind of company that you don’t necessarily want to grow, to employ more people and increase revenue indefinitely. The goal is to make just enough money to pay for the life you want to lead, without costing you too much time and stress. And ideally, the work itself is something you enjoy. It may sound too good to be true but is in fact very possible, if only you’re willing to think and act unconventionally.

And if you have a lifestyle business up and running, you can still save and invest money it generates (FIRE-style) or grow and sell it for a big payout. But in the meantime, you enjoy the process. The trick is to find something that makes money that you also reasonably enjoy and that allows you the time and freedom to do other activities you like in the meantime.

That’s it for today. I hope I inspired you to think about making money differently. I’d love to hear your thoughts in the comments below or on social media.

Lastly, some resources I’ve found very useful:

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