What Money Can Teach You About Life

Seek maximum returns

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Real life and finance actually have a lot in common. The concepts that drive good financial decisions also drive good life decisions for maximizing effort and minimizing wasted time.

Look at the time to complete a project through the lens of finance to make better real time decisions.

Opportunity Cost

Any time you spend doing one thing is time you cannot spend doing something else. If the potential payoff an activity is significantly smaller then it isn’t worth the effort.

This is opportunity cost.

Opportunity cost is the idea of losing out on potential gains from an activity because the time and effort was allocated to something with less potential.

How to apply this in life: Take time to regularly reflect on if the actions you are taking have the potential to give an outsized payoff. Or is there something that if you spend an equivalent amount of time or effort would yield a higher return?

Compounding Returns

Activities that build momentum over time provide a great payoff. In finance, compounding returns deliver returns on the initial investment and the culmination of all previous returns. It’s the snowball effect.

Over time, the effort compounds so much that the positive effects are self-perpetuating. The sum is greater than all the individual contributions.

The same is true in life.

If you make decisions that consistently push you towards the life you want, eventually the ideal state becomes inevitable. The culmination of the individual actions and decisions delivers more results than you could have achieved on a linear scale.

Addition by Subtraction

The Pareto Rule perpetuates the concept that 80% of results come from 20% of your actions. If you can focus on just identifying and increasing the 20% then you will get much higher results in less time.

Addition by subtraction is the idea that you can make more progress by removing dead weight than by adding more. In finance, it is about finding the most profitable investments and holding a narrow focus instead of mass diversification. When the money is spread too thin, even if some positions move well, each position isn’t large enough for the outcome to be meaningful.

Sometimes in life, we progress more by doing less. This is where concepts like minimalism come into play. By stripping away all the distractions of lesser goals, you can have clear and more substantial progress to the desired outcome.

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