In the book, he mostly talks about optimizing for optionality in the context of investments, but also, to some extent, in terms of life in general.
What he means by having optionality is “to have a way out”.
If you for example invest a large portion of your resources in a specific project, you should always have an executable exit strategy, if things starts to go south. You don’t want to be locked into a position.
The main idea is to have the maximum amount of freedom, and always be able to move on to the next thing, if the first one doesn’t work.
Now, if this key idea suits your personality, you can start applying it as a core value to your life.
I try to do so, because I like freedom and to have a lot of options.
Others don’t need that many options in life, and some doesn’t even want them. And so, they might have a lot to gain from committing to something more long term.
Below, I have listed a few areas of life, where you might be able to optimize for optionality/freedom if you want it:
You living situation
I think that buying a house is a gigantic commitment. Not necessarily a stupid one. I’m just saying, that I probably never will be able to stay in the same house for 30 years.
It is inconceivable to me, why the majority of the working middleclass is willing to take this risk, and make the commitment.
Yes, you can always just sell your house again, but what if it is in the middle of a recession? Then you lose your optionality.
Cars and other major assets
This is kind of the same as first point. Sure, you might be able to go out and buy a car, without having to commit to a 10-year loan. But since the value of cars depreciates so quickly, you will most likely feel committed to keep it for a very long time, so you can at least get some benefit from it, instead of just a lot of loss.
Regular stocks/bonds vs. a pension, what’s the difference? The commitment again. Stocks you can sell in a second if you ever want to change your financial planning. You can “cash out” at all times – you have optionality.
A pension on the other hand, is a very long term commitment, and it is very inflexible. You probably won’t have any control over your own money for the next many years to come. This is why I never transfer more funds to my pension plan than I have to.
Kind of the same principle, explained in a fourth way, but I just want to emphasize my general idea about debt: it always affects optionality negatively. Debt can stop you from doing many things. If you are in big debt, you are very unlikely to quit your job, go on a long trip or just do something completely new with your life. Nothing hinders freedom like debt. It is the most powerful enslavement mechanism we have nowadays.
How you spend your money in general is the broader essence of the point that I have already made. If you spend too much, you get into debt – it is that simple.
On the other hand, if you become very good at saving, collecting and holding on to your resources, you gain a lot of options – and we like that!
Your daily work
We move on from financial habits, and take a look at lifestyle. The nature of our daily work also has a determining effect on our level of freedom. Different professions falls on a spectrum of the degrees of freedom they allow for. A janitor at a school for instance, has a very low level of optionality, since his job is bound to a specific location and with regular working hours.
Entrepreneurs, authors, investors and bloggers has high levels of freedom.
Criteria for your happy life (Amour Fati)
Amour Fati was a concept I learned about in the lovely book The Obstacle Is The Way. It means love fate. And it further means, that you should try and love everything that happens. It’s a stoic concept.
If you have a very narrow picture of what your perfect world might look like, you cannot live a truly free life, because you can’t ever make a new move before all the stars are perfectly aligned for you.
Addictions locks you into a position where you aren’t able to move.
Take me as an example. I am pretty addicted to coffee. This means I panic, If I don’t think I can get a fresh cup within a few minutes after waking every morning. So I NEED to have coffee in my kitchen. I NEED to have a functioning coffee maker, and I even bring one with me for vacations.
If I don’t get it, I get miserable and unproductive.
So I lose the option to ever try something new for breakfast, and I lose the option to simply drink nothing. I can’t just see where the morning takes me. I have to do the same thing every morning, which is the opposite of optionality.
Now this, I know, is a minor addiction. Think about how other addictions might be able to steal a lot more freedom, than just coffee.
Your need for others approval
It is the oldest advice in the book; to stop living up to the expectations of others. But the underlying reason why is clear. If you aren’t able to live completely on your own terms, you lose the option to live the life that you really want for yourself, which is what optionality is all about.
Thanks for reading everyone. What strategies do you utilize to optimize for optionality in your life?