In economic theory we learn that every single one of us is trying to maximize our “Utility”. Utility is defined in various ways however, the underlying concept for utility is that we as humans do whatever it takes to maximize our utility. This could be in the form of happiness gained from having more money, a family, good health etc. Since we’ve focused primarily on income for the past few posts lets look at how to maximize your lifetime utility.
Our Framework for Utilitarianism
First Pillar – Health & Energy: This is the first pillar to any type of *long-term* utility maximization framework. This is also extremely complex because health does not simply mean you get to walk around. If you’re 25 years old and you can barely run or bench press your own weight, your health is actually sub-par. Health means that you’re in the top 10% for your age bracket. If you’re forty years old and you can still crank out sprints, squat a large amount of weight and look significantly younger than your true age… You’re winning in this category without a doubt. Without your health you cannot help your family, your friends, your bank account or anyone else in your life that is important to you.
Second Pillar – Time: If your health is in check, the next item you’re fighting is time. Time is not valued equally. We’re not talking about the ”future value of a dollar” but the future value of your time. If you’re 20 years old, we have no doubt your ability to both crank out long hours of work and party all night is sky high. Try this at 50 and it’ll be tough! No one likes to talk about this but life is also a game of time maximization or efficiency. “If you could spend $10M between the ages of 20 and 40 or if you could spend $100M between the ages of 60 and 80… which one would you choose?” We’d choose option number 1 in a heartbeat! Remember… Getting rich is easy. Getting rich young enough to enjoy it is a different story.
Third Pillar – Freedom: Once your health is in check and you’ve recognized the importance of succeeding quickly, you’ll find that your freedom is the third most important item to check off. If you’re making good money and are healthy, the next “dopamine rush” will come from overall freedom. In our case, freedom is living a private life without needing to answer to anyone. For others, it may be the freedom to simply work anywhere in the world. Typically, “freedom” is earned by having a large net worth.
Fourth Pillar – Your Family: Many people derive a material amount of happiness or “utility” from having a family. Two people gave up 18 years of their lives to give all of us a chance at the game of life. Not being able to pay it back or help them when they are close to their deathbeds is beyond repulsive in our opinion. Finally, if they are pulling you down, yes you should walk away. Just remember they did give you the shot in the first place so holding a grudge will not help you long-term.
Fifth Pillar – Self to Self Comparisons: There is no point in comparing yourself to anyone else. That person likely has a host of largely different problems than you have. We all know the multi-millionaires out there that crawl up into a ball when their wives come around… or the happy go lucky vagabond that can’t afford to pay for sushi. Comparisons to other people do not contribute anything to your utility. If you’re making the right risk adjusted decisions on a consistent basis there is no reason to worry about comparisons because you made the right decision at that *point* in time. Overall, we would take a look at the table below to get a solid understanding of how we view the Five Pillars. (Click to enlarge map)
Reading the Table: The chart is simplistic however it can be understood as follows: #1 Health and Energy: no matter what we do the available energy we have declines over time, knowing this you’ll want to use money as a tool to offset the energy reductions. The conclusion is to accumulate assets in your 20s and by the 30-50 time frame you’re spending more without going negative, #2 Time: No one can pay to get their time back. Each day (by definition) we’re closer to the curtain call so your time should become more valuable over the years (even Bill Gates can’t go back in time!), #3 Freedom: with correct decision makings, your amount of freedom should increase every single decade with a goal of being set sometime between 30 and 50 at minimum, #4 Family: in an ideal world this will remain as a constant positive. If you have a good relationship with your family and decide for or against having a family, the amount of utility should always be maximized because it is within your control and #5 Self Comparisons: Similar to freedom, we should all learn to only compare ourselves to our past selves. Look back a year and if you have the same beliefs, that’s not a good sign! This is a skill that will be learned over time and ideally executed upon in the 30-40 range.
Reverse Engineer Utilitarianism
Another concept we’ve been flirting with is reverse engineering Utilitarianism. Given the number of punches that life that will throw your way, by simply avoiding the pitfalls you’ll reverse engineer utilitarianism.
#1 Avoid Getting Burned Twice: This can be in the form of being burned from a business, consumer purchases or even health. Being foolish once (touching the hot stove) is acceptable, continuously touching it is not. As an example, the vast majority of our readers are aware of affiliate marketing (cloaking) and the sketchy underworld of online sales. Maybe you were fooled once by a purchase that wasn’t even pre-loaded with aggressive copy, we’ll say that’s okay…. Once.
Next time, take a step back and ask “What is the person selling and can I check the claims”. If someone is selling testosterone boosters but readily takes anabolic steroids and injects exogenous testosterone… Why in the world do they have to use the steroids and TRT therapy if the product is so good? Another example would be diet pills where a proclaimed doctor is 50 pounds overweight but shells out “weight loss pills”… if they worked why is the seller overweight? So on and so forth. To avoid getting burned twice learn the lesson of what to look for next time instead of getting upset about it. Most will just get angry and upset which achieves nothing. Find the systematic approach to solve the issue instead.
#2 Make Statistically Intelligent Decisions: We know. The live it up today crowd is going to say you might get hit by a bus tomorrow so you better burn through everything you got! This is simply crazy talk as most people are not going to be hit by a bus and you can reverse engineer your life expectancy as well. Instead of commuting by car (extremely dangerous proposition), try to structure your life around walking and airlines instead. By making broad intelligent decisions you’ll likely live until the average age (somewhere around 80) and you can go ahead and take risks (without risk life is boring) since you’ve structured your life around statistically bad decisions that don’t add value to your life.
#3 Jump a Decade: We’ve used this trick maybe 100 times. Every 3-5 years sit down and ask “what can I do in this decade that I won’t be able to do later”. This question will bring up both small and large items such as attending a rap concert or deciding to have a family. If you find that you’ve never had a specific life experience that is eroding away (tougher to do in the future) go ahead and pencil it in for this year. You’ll reduce the amount of regrets you’ll have on your death bed some 400 fold! In addition, you can also do this on a 5 year basis as well (shorter mental jumps).
#4 Look Back Three Years: Every three years take a look back and decide if you missed anything. If you do this in your 20s you’ll get a resounding no. This becomes significantly more complex as you get older since you put a large amount of time into increasing your net worth. A broad stroke look at the past three years prevents an “event gap”. If we only do this once eery 5-10 years it will be very easy to look back and say “I wish i didn’t take life so seriously” a common complaint amongst individuals on their deathbeds.
#5 Reverse Engineer Your Happiness: The last thing we’ve added to the list is reverse engineering happiness. We’ve explained many times that it is 100% normal to be unhappy in your 20s. Most successful people are filled with intensity at age 20 as they have a lot to prove (see the chart – Pillar 5) which does not lead to consistent happiness. Happiness is earned (a mental choice) and tracking your overall happiness with life (if it’s improving or not) is critical to reverse engineering long-term utility. If you’ve gone from being easily angered to only “sometimes” angered, call that a win over the course of a couple of years. Make sure this is going up every single year.
Reverse Engineer Utilitarianism
This has been a much more “philosophical” post than we have done in the past. Importantly, there is no way that this framework will align for everyone. For example it certainly is possible to have kids in your 40s and it is possible to hit financial independence in a single year! Anything is possible. We have simply outlined a broad stroke idea for key turning points. The key turning points in our view include: 1) energy declines starting sometime between 30-40, 2) consistent decrease in time making each day more “valuable” from an energy perspective, 3) freedom as a necessity to increase utility as we believe people would be happier with autonomy over an extra $20-30K in income, 4) a decision point is eventually crossed when it comes to having a family and one cannot turn back on this due to point number 2 and 5) comparing yourself to only your previous self is a skill that is acquired over time. Finally, if you’re interested in maximizing your utility we have no doubt that Efficiency will help you do so.