In personal finance, a point comes when you can live in your own economy, at least in the US. Your spending and income become so detached from the mainstream economy that you can live in your own little fiscal bubble.
To enjoy your own economy it takes a few decisive steps – it’s no walk in the park but it ain’t brain surgery either. Spend less, consume less, generate multiple sources of income, diversify your investing, and watch the economy from the distance.
1. Spending less
Many Americans spend less by bordering on cheap, rather than being frugal. They buy cheaply manufactured goods and displace the majority of their lifestyle spending onto their employer (health insurance, life insurance, retirement).
Spending less in a consumer driven economy is like living in a tiny house in Bel Air – you’re going against the grain, which isn’t easy. But if you want the highest chance of success at amassing wealth and financial security, then spending less is the cornerstone of living in your own economy.
If you want to spend less, you need to budget. This is my YNAB budgeting workflow.
2. Consuming less
The first step is spending less – the form factor. The next level is consuming less – the function factor. Consuming less is much more potent when it comes to stepping out of your economy.
A basic example of consuming less would be owning an electric car over a gasoline powered car. Another example would be getting rid of K-cups and brewing your coffee with a French press. The best example, of course, would be not driving at all and not consuming any coffee.
If you use less water, electricity, gas, insurance, services, and products then you aren’t affected by manufacturing costs or trade wars or sanctions.
If a gallon of milk goes from $5 to $10, you won’t be affected because you aren’t consuming any milk. If gasoline prices go from $4 to $15, your operating costs for your folding bicycle won’t be affected.
Click here to learn how to live without a cell phone.
3. Multiple sources of income
Medicine makes a lot of money but having multiple independent sources of income adds more degrees of freedom. You can earn some money from investments, some from trading your knowledge, some from physical labor, some from storage, some from speculation, and some from renting out what you already own.
I never saw it coming but my medical career had an expiration date on it. I’m not sure how I would have fared if I didn’t have these other skills to generate income from.
Click here to learn how to earn an income from healthcare consulting.
4. Diversifying investments
I’ve beaten that ‘diversifying’ horse to death. There is diversifying and there is diversifying…. so yea, read the blog and diversify. Buying index funds isn’t diversifying. Buying stocks and bonds and REITs isn’t diversifying either.
But investing in assets which have very little correlation to each other can be a great way to protect the value of your net worth.
I invest in my own intellectual property and I sell it on this blog.
5. Decouple from systems
Look, I know I sound like a back-country prepper with some of the stuff I say. The point isn’t for you to go off of the reservation here. But you don’t have to drink the Kool-Aid either.
If you don’t see the value in a particular system, you can choose to decouple from it. You don’t have to own a car, a cell phone, or buy your health insurance from the marketplace. You don’t have to see patients in a brick and mortar clinic, you don’t have to invest all of your money in the US, and you don’t have to eat meat or dairy.
Click here to learn about health insurance which costs <$100/month.
Living in your own economy
When you’re living in your own economy, few things will rock your boat. Political upheaval, government furloughs, market crashes, hyperinflation, real estate bubbles, and major scandals will affect the financial lives of most Americans. But for you, who has designed your own economy, you are relatively sheltered from these economic events.
Your house, for example, was purchased with cash or at least you paid the mortgage off quickly. And you have spare rooms ready to be rented out on a short-term basis, if needed.
Another example might be the city where you live. Not only is it a progressive city with solid public transportation, but it won’t be rocked by economic decline because most of its residents have sustainable spending patterns.
Instead of spending $10k a year on vacations, you might have spent $40k and bought a small house in another country. Maybe you’re renting it out or maybe it’s your escape plan in case the economics in the US no longer make sense to you.
Finally, an example which hits close to home, you can create your own little economy by building your own platform even as an employee. Should you get fired by your boss, should you experience a hostile work environment, should you get fucked over by your licensing board, at least you have another platform from which you can earn money.