Opportunity Costs

It is no big news that the ability of the human mind, to think perfectly rational and logical, is at best unimpressive.

We come preprogrammed with all sorts of mental biases, that we should be aware of, when we make important decisions, in order to account for any illogical proclivities.

I have benefited immensely myself, from learning about concepts such as The Sunk Cost Fallacy, Confirmation Bias and other ways in which we aren’t able to think clearly.

I discovered another flaw in my own thinking a year back, when I was still in my full-time position, and I was considering leaving it for a more uncertain job situation.

Back then, I hadn’t finally decided to quit yet.

A friend told me that a TED conference was being held in Copenhagen, and he asked me if I wanted to go. When I discovered that I couldn’t, because it was held during my regular working hours, I was reminded of what I was losing by staying with my company.

I primarily wanted to go that conference for my own entertainments sake, but I could never know what kind of interesting people I would meet there, and what opportunities that would present.

And I still don’t know what could have happened.

The point is, back then, my brain was mostly thinking in terms of having nothing (no job) or having something (a job) when I contemplated quitting.

I think that we all tent to do this. We underestimate the potential opportunities that lies ahead – when they are unknown –  if we decide to free our schedule from whatever it is we are doing right now.

I am not saying, that everyone should quit their job and open themselves up to unknown opportunties, obviously not.

I am just saying that we usually have potentially great options ahead of us, when we decide to stray off the fully known path, and that is something.

Our brains can’t really assign the correct value to this optionality, when it constructs it’s algorithms for decision making, and therefore we have to do it consciously for it.

Remember that just because the future is unknown, it doesn’t make it bad or dangerous by default. A positive outcome is just as likely if you work hard to influence it.

Derfor virker det at få en personlig træner

Jeg arbejder til daglig som personlig træner, og oplever en stigende interesse for faget for tiden.

Personlig træner branchen ser ud til at have det godt i disse opgangsår, hvor økonomien har det godt, og derfor tænker jeg ofte på hvor længe dette boom i branchen mon kan holde ved. De flestes anser det nemlig som en udpræget luksusvare, som man køber når man har luft i økonomien og vil være lidt god ved sig selv.

Når man, som jeg, står på den anden side af det, opdager man dog også, at mange hyrer en personlig træner af streng nødvendighed, fordi alt andet de har prøvet for at forbedre deres livsstil har fejlet dem.

Der er for mig heller ingen tvivl om, at når først en klient har truffet beslutningen om at hyre en PT’er, stiger oddsene for at der endelig bliver gjort noget ved træningslivet markant.

Med dette indlæg vil jeg forsøge at udpensle, hvorfor jeg tror det virker at få en personlig træner.

De nedenstående overskrifter står i prioriteret rækkefølge, hvoraf den første (efter min mening) er den vigtigste.

Det koster penge

Man skulle ikke umiddelbart tro, at jeg har incitament til at minde læseren om, at en personlig træner er dyr – og at det blandt andet af denne simple grund virker.

Personlige trænere kan man få i mange forskellige pris-, forløb-, og klippekortsordninger. Mange steder ser du i prisoversigten forløb der koster mere end 30.000 kr.

Det er basal menneskelig psykologi, at vi føler os forpligtede på noget som vi har betalt penge for.

Hvis du nogensinde skulle befinde dig i en situation, hvor du har betalt 10.000 kr. for en personlig træner, som du aldrig får brugt, så ligner du en stor idiot i dine venners og families øjne – og ingen har lyst til at ligne en stor idiot.

Hvis du i samme scenarie ligger derhjemme og føler dig doven på sofaen, og har en aftale med en træner, vil det føles som en stor økonomisk og social omkostning, hvis du vælger at brænde ham eller hende af. Dét gør det mere sandsynligt at du indledningsvist kommer afsted.

Man er forpligtet overfor en anden person

Ikke nok med at vi mennesker ikke vil ligne fjolser overfor venner og familie, så har vi slet ikke lyst til at gøre det i fremmedes øjne.

Det at man har et professionelt forhold til en fremmed person, tilføjer en yderligere dimension af pligtfølelse. Hvad en komplet fremmed personlig træner tænker om os, har underligt nok en stærk psykologisk effekt!

De første to punkter jeg nu har nævnt har udelukkende handlet om, hvordan en PT’er sikre dig at du rent faktisk kommer afsted til træning.

Det kan måske undre nogen at disse punkter er prioriterede som de vigtigste, men det er nu engang det aller vigtigste at træningen først og fremmest finder sted.

Der er nul beslutningsomkostninger

Der ligger et meget større mental aspekt i træning end mange tror. Selv det at skulle beslutte på egen hånd hvordan man skal træne kan skabe en barriere.

Ikke nok med at man er træt og udkørt efter en lang arbejdsdag, så skal man også til at forholde sig til hvilke øvelser man skal lave og hvordan, når man træner på egen hånd.

En af de store værdier som en PT’er tilvejebringer er, at han eller hun træffer alle beslutningerne for en.

Er det best at træne cardio? Styrketræning? Full-body program? Split Program? Maskiner? Håndvægte? Forget about it! Din PT’er ved forhåbentligt hvad der er de bedste værktøjer for dig og dine behov.

En personlig træner er bedre til at se klientens fremskridt

Mange har en upræcis forståelse af, hvor fremskridtene i træningen først viser sig. Langt de fleste kommer til en personlig træner med et ønske om at skulle tabe sig, men hvis kropsvægten er det eneste parameter man måler på for at spore fremskridt, kan man hurtigt miste motivationen.

Fremskridt i træning udtrykkes som regel altid først som fremgang i klientens styrke.

Man kan stort set altid se det fra gang til gang, når man først begynder at styrketræne, og når en PT’er nøjagtigt noterer al vægt der bliver løftet i hver session, bliver fremskridtene nemme at forholde sig til.

I starten kan man derfor vælge at forholde sig til disse sekundære sejre, for at skabe motivation, og inden man får set sig om, er de primære parametre begyndt at flytte på sig – som for eksempel vægten.

At kunne se fremskridt er, efter min mening, den vigtigste forudsætning for motivation.

En personlig træner kan optimere træningen

Jeg nævner med vilje dette punkt som det sidste, for at vende det hele lidt på hovedet.

Jeg tror at rigtig mange går til en personlig træner, fordi de vil have træning der virker!

De vil have træning og vejledning som er så hylende effektiv, at de får resultater de aldrig har kunnet få på egen hånd.

Sandheden er imidlertid, at min rådgivning, optimering og træning aldrig bliver det der flytter bjerge. Det gør en forskel – naturligvis, men i træning vil den største sejr altid være at man overhovedet kommer afsted. Dernæst at motivationen forbliver høj. Og til sidst hvordan træningen er planlagt.

Dét kan man muligvis kalde at undersælge sig selv, men ikke desto mindre er det virkelighed.

I sidste ende ved vi alle hvad der skal til, for at vores livsstil kan betragtes som nogenlunde sund. Og vi er også alle klar over, hvordan man får sig lidt sved på panden og ømme muskler på egen hånd.

Udfordringen ligger primært i at gøre dette til hverdag for almindelige mennesker, som har tusinder af andre ting at tænke på i deres dagligdag.


Vil du vide mere om hvordan jeg specifikt kan hjælpe dig med at gøre træning til en del af din hverdag? Læs mere her

Acquire these 2 skills to increase your sense of freedom

Freedom is at the root of everything I write about on this blog.

I write about minimalism because it eliminates your dependents on stuff and your fascination for it.

I write about financial freedom because… Well, you can probably guess why.

The minimal and frugal way of life are both nice, because they increase the amount of free time you got. Once you’ve eliminated the worst expenses from your monthly budget, and thereby don’t have to work as much, what are you supposed to do with that time? I would suggest something that could increase your sense of freedom even further.

But let’s first define what freedom exactly is. In my view, it’s about being able to take one’s own needs, without the help from anybody else.

Freedom is taking care of yourself.

So, if you can manage to take care of your most basic needs, all by yourself, you are by my standards free to go about your life and care very little about the rest of the world.

And your most basic needs should be obvious: food and shelter.

Increasing your skills in the domains of acquiring food and shelter, are both very attainable and scalable to your level of ambitiousness:

You can learn how to bake bread with a sourdough starter or go to the end degree and produce your own flour.

Or you can learn how to do basic maintenance around the house, or actually build it from scratch.

That’s all up to you.

The point is, I think most people who feel trapped by life, can experience a higher sense of freedom by improving upon these two basic human skills.

A mindfulness exercise for anxiety: Let this moment unfold

Here is an exercise that I have been utilizing recently, whenever I deal with any kind of anxiety or worry about the future.
Usually, we worry about the future, based on the assumption that we can predict exactly what it is going to be like. But what we often end up finding out, is that the thing we were ruminating about was not that bad when it finally happened. Other times we realize that we aren’t able to predict the events that we really should be worried about.
We make our plans, and god laughs.
So this is were mindfulness and paying attention to the present moment comes into play.
The following thought experiment, is what I perform in moments of worry in my own life:
  • Stop and notice this current moment
  • Pay attention to every little detail about this moment you can (sounds, your breathing, the sensations in your body)
  • What is good about this moment? What is not happening right now, that you might worry about will happen later on?
  • Now think about what is going to happen next. What is the next moment you’ll notice going to be like? How is it going to be different from this current moment?
  • If you visualize your future as a long long series of moments that sit like pearls on a string – what are they going to be like? How likely is it, that they will be pretty similar to this moment, which you are grateful for?
If you believe in the power of mindfulness, the lesson here should be, that there is plenty about this current moment that you can find gratefulness in, and that the same is probably true for the next future moment that you will notice.
By extension, your future will most likely be relatively similar to this present moment, if you just take it for what it actually is.

Describe your dream day, to find out what you really need

When I was younger I used to read a lot of classic self-help books, a la the Tony Robbins and others.

One common theme I saw, was the concept of listing up anything (material) you want in life, in order to make the ultimate goal more concrete and attainable.

What Tony Robbins usually would have you discover, was that you are almost never farther than a semi-successful business idea away from having your most indulgent materialist goals met.

Now, an exercise I would like to propose instead, is to map out your ultimate dream day, in terms of what activities you want to do, for you to be as happy as possible, and then realize (*SPOILER ALERT) how little materialism is needed.

Let me be the center of attention for a moment, and showcase my own dream day:

  • 05:30 Wake up, make coffee for me and my wife and be present for when she wakes up (I am an early riser by nature – not something I pride myself in or proselytize)
  • 05:40 Read
  • 07:00 Make/eat breakfast
  • 08:00 Write/handle investments
  • 10:00 Gym time
  • 12:00 Lunch
  • 12:45 Cognitively non-demanding tasks: run errands, attend to a garden, go for a walk, meet for coffee with a friend (My mind is only capable of doing heavy processing earlier in the day)
  • 17:00 Prepare and eat dinner
  • 19:00 Social time/Relaxation with the wife (eg. watch a movie or talk)
  • 21:00 Slowing down, getting ready to sleep

Even this is eyeopening for me.

By mapping out the exact activities I want to do during, in my view, the best day of all time, I can learn that:

  • I don’t need a fancy car, clothes or other status symbols
  • I don’t need a gigantic place to live, however it might be nice to have small garden
  • I don’t need to spend time in expensive bars, restaurants and clubs.

I can also learn, that the actual cost of this lifestyle is practically very low, which makes it entirely possible, that I can gather the required funds for investment capital to make it all float, in a matter of a few years .

The problem with me doing this exercise before you get to do it, is that you probably can’t help but benchmark your dream day against mine. But try not to.

The idea here, is that you just get a handle on what you want to DO with your life. Not what you want to own, or how you want to be perceived by others.

According to what I believe in, this is a more logical way to prioritize your highest wishes.

Routine allows for optimization

The main reason why I advocate an everyday lifestyle that is heavily rooted in routine is because it allows for optimization. You cannot optimize chaos or randomness.

Therefore, you want to incorporate some degree of repetitiveness in your day to day behavior if you wish to live what you could call an optimized life.     

We are the sum of our actions, and therefore our habits make all the difference – Aristotle

About two years ago, me and my wife got into the habit of eating a salad every day for lunch, because we felt like that would be a healthy habit.

I bring up this example, because I can think of many ways in which this habit has changed and been optimized over time.

To mention some examples:

  • Over time, we replaced the lettuce component of the salad with some form of cabbage, because it was cheaper, easier, more filling and fibrous.
  • We bought a food processor at one point, to make the preparation of the salad for a whole week easier and quicker. This has been a great time-investment.
  • We came up with a system for how to prepare and store all components of the salad once a week, which has made it infinitely easier stick to.
  • We have learned a lot about where we generally can buy the best and cheapest ingredients, that we use on a continual basis.

As I said, this salad example is just an example. I am not trying to persuade you to make salads every day. Only to make you think about how you can have more routine in your life, so that it can be optimized, for whatever you want more of; time, quality, money, health?

What you end up optimizing for is dependent on your values.

Make them work for you

With the urbanization, gentrification and economic polarization of modern society, that the developed world is experiencing currently, it is getting increasingly normal to talk about “an elite” that supposedly controls everything and isolates itself from the rest of the common folk.

I don’t know if this phenomenon of an elite is anything particularly new in human history. However, it is clear that the wealth is now getting more concentrated in fewer rich people, and that the western middle-class is getting smaller.

You hear in the media that a lot of people is feeling disenfranchised due to this dynamic, and much of the successful election campaign of Donald Trump was build on this platform.

With this post, I am not going to make any political statement about the matter, but rather highlight how most people can feel like the come out on the winning side of this power struggle with a very simple strategy.

For more than a year now, I have promulgated the minimalist lifestyle as well as the concept of early retirement on this blog, and a funny side effect of this has been a change in my attitude towards the issue mentioned above.

I feel like a winner in the most widespread social battle of our time, and I am not even breaking a sweat in the meantime.

 

My solution

I lead a very simplistic lifestyle, spend my money only on the stuff that matters (which isn’t many things), work in a very low-stress position for a maximum of 30 hours a week, save most of my paycheck and invest it in stocks.

The last part is important.

People tend to forget, what actually happens when we buy stocks in a company: we become the owner – the ultimate CEO!

It is very easy to buy a stock, it requires almost nothing of you and anybody with half-a-decent salary is able to do it.

A guy working in Walmart can become the partial owner of Apple (not a stock recommendation) after a handful of paychecks, and suddenly Tim Cook is working for him!

I often think about how all of the phd’s and master degrees among my fellow citizens are stressing themselves out to give me a return on my investment. I’m not doing anything, I am just giving them 100 bucks, and let them figure out how to give me 105 or 110 back a year later.

They are sweating, I am not, and they are supposed to be the smartest people in the country ?

With a little frugality and minimalism, you too can become the true master of the corporate world in whatever country you live in, and take pleasure from the thought of how the most ambitious people are now working for you. If they are the elite, while working for you, I don’t know what that makes you!

Telling ourselves that we are irrational

You know about the old quote by Henry Ford:

Whether you think you can or whether you think you can’tyoure right.” ?

The essence of this is that our own attitude and perception of our capabilities plays a vital role in our odds of succeeding in anything. And I think it’s true.

Recently I have noticed many examples of people doubting their own capabilities/behavior in relation to their personal finances. They think they are irrational by nature and can’t be trusted with their own money.

Here are 3 examples of this:

  • In Denmark, we have a mandatory vacation fund, where employers are forced to take out a small portion of all employees paychecks, and pay it into this fund, so that employees can apply to have this money refunded to them, next time they can prove that they are going on vacation. Our government is basically saying: “you people aren’t responsible enough to be trusted with the long-term administration of your own money”. So they have decided to take them from us, however temporarily, pays us no interest in the meantime, and the worst part is that people are HAPPY about this arrangement. Even happy about the fact, that this isn’t a voluntary concept because they would not trust themselves to sign up for it, because they think of themselves as being economically irrational, and it is better to let Bigbrother handle their vacation money.
  • I was recently discussing the general concept of insurance with an otherwise really smart friend of mine. He told me how happy he had been about paying for the premium package with his insurance company because his policy had been triggered years earlier, which had meant a nice payday for him back then. After some quick calculations, though, we figured out that he had paid much more to his insurance company over the years, compared to the premium they had paid him on that particular day. He then said: “I know that I could have just saved all the money that I spent on insurance over the years, and been better off in the grand scheme of things, but nobody is able to act like that, so I am still happy with my decision”. (For the record, I am not against all insurance – topic for another day).
  • I also know a lot of people who feels like buying a home is more economically rational than renting because their housing loan serves as a mandatory savings account. I see how this can work, but buying a house in itself is not by default an effective way of saving up a lot of money – watch this video, to learn how renting can be just as smart IF you can manage to save and behave rationally!

I know that we are only humans, even myself :). And I don’t think that anyone has the capabilities to behave perfectly rational in all aspects of life.

However, I am a firm believer, that most people can behave mostly rational by cultivating the right automatic habits over time.

This is the type of journey I have been on for the past 2 years, whereas I didn’t used to save anything for the future when I was younger.

The point is that we can all strive to become more rational and be smarter with our attitudes towards money. But it all has to begin with a belief in our own ability to become exactly that, and that we can make anything happen if we just change one small thing at a time – without forcing it or overloading ourselves with commitments. It has to come slowly.

Micro-earnings

I think that most people are used to the idea of trying to save a dollar here and there. To the general public, it is widely acceptable to look for offers on everyday products, to make what you could call “micro-savings”.I call these “micro”, because it usually is a matter of very small amounts, that can only be significant if you look at the aggregate over time.

If you carry the micro-saving mindset day after day, it can definitely amount to something over a year, and this makes it worth it, to cultivate it as a habit.
Once you have cultivated the habit of looking for small savings in everything that you buy, you can begin looking for small earnings in your daily routine, to take it even a step further.

In my daily routine

I have begun looking for earning opportunities, in ways that doesn’t impact my quality of life. Even if they can only be regarded as “micro”-opportunities.

So far, I have found 2 sound ways to make a little bit extra:

1. I work part-time in a gym as personal trainer and assistant manager. So I spend a few hours in the gym every day, and I have noticed how people tend to leave their water bottles everywhere when they are done working out. Since I have to clean up their mess, I take the bottles to the recycling system in the supermarked next door, which returns a small amount of money for me. (This system might not exist all around the world?). It has no negative influence on my day at all, and if I had to guess, this will probably earn me around 200$ a year.

2. I have found a few ways to make a little bit extra on the internet, by doing completely mindless tasks. One is taking surveys, the other is working for Amazon Mturk. These won’t make you a lot, but I try to combine them with other tasks, to make it all more productive. Currently, I want to learn to speak Persian (my wife’s native language), so I listen to my language podcast, while working on these sites, to earn a little extra.

All of this extra income is truly “extra”, since it does have a negative impact on what I already earn – no opportunity cost. It is therefore most likely, that it will get invested and added to my nest egg, which gives it even more meaning, once it starts to generate passive income via interests.

My question is: can you also find opportunities to make micro-earnings throughout your day?

My first year of working on early retirement: how is it going?

It has now been almost exactly a year since I discovered the early retirement community on the internet when I was immediately hooked.

I found that early retirement was the next logical step to pursue, for a minimalist who seldomly has found a job that he truly enjoyed.

Early retirement is not something I aim for because I dream about laying on the couch all day. It is something I fantasize about because there are many things I want to do in life, that won’t necessarily earn me any money, and so I just need a lot of time.

If there is anything you want to accomplish in life, you must track your own progress, in order to stay on course and fully optimize for success.

So as you might have read about in an earlier post , I keep track of my overall progress in a spreadsheet, on how far I have come in my journey to financial independence.

The basic idea is that I calculate how much of monthly expenses can be covered by the passive income I generate, and so I can either cut back on expenses or generate more passive income to make progress on this goal.

Currently, I only have 2 passive sources of income:

  1. I put aside money every month, and invest them in either stocks, mutual funds or index funds. The basic assumption in almost all early retirement plans is that you should be able to withdraw 4% of your total investment every year and still leave room for continual growth of your nest egg.
  2. Income from this and other blogs, which is comprised of Google Adsense ads and Amazon affiliate links.

At the moment, the majority of my passive income stems from the investments, but as I see and up-trending tendency in my blog income, I hope this might not be the case within the next few years.

 

Getting to the point

So as you can see in the graph below, I have been able to generate enough passive income recently, that it corresponds to about 7% of my total expenses.

skaermbillede-2017-01-10-kl-07-25-55

(The only setback that is visible in the graph, is explained by me cashing out some of my investments, in preparation for quitting my job in the fall of 2016)

This might not seem like a lot, but then again, this actually means that I am retired 2 days out of every month, which is a little uplifting to think about ?

Where do we go from here

It is important to understand, that I don’t actually take these 2 days off every month, and I don’t withdraw the 4% from the investments every year (yet), which means all of my passive income gets reinvested.

This way, I should see even faster and faster progress every month from here on out, which should result in a more exponentially shaped continuation of the graph above – especially if stock prices keeps going up.

One of my goals for 2017 is to make that graph reach 20% by December, and I will, of course, keep you updated on whether I reach this goal or not.

This first year of working on this goal has made me optimistic about the possibility of reaching retirement within 10 years (max) from when I began, which means I should be able to leave the rat race once I get to the age of 37. Let’s see 🙂