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🎯 The Book in 3 Sentences
💡 Key Takeaways
- Different economic degrees of freedom exist, from specialized wage earners to those with control over their income-generating assets.
- The Renaissance ideal involves developing various aspects of life, such as physical and mental health, intellectual capabilities, financial understanding, emotional intelligence, social connections, and technical skills.
- Strategies for financial independence include diversifying income, reducing reliance on store services, and pursuing “free” activities that offer learning and networking opportunities.
- A Renaissance lifestyle emphasizes minimal possessions, durability, waste reduction, budgeting, health maintenance, focus on productive assets, skill development, and cost-saving measures.
- Understanding economics and finance involves prioritizing skills, recognizing value versus price, distinguishing assets from liabilities, and grasping concepts like supply and demand and savings versus investments.
✏ Top Quotes
Spending half an hour in a traffic jam getting from A to B in an expensive car is somehow considered more successful than spending half an hour in a traffic jam getting from A to B in a cheap car.
Independence is not something one has; it is something that one is.
Living in something significantly more economically efficient, smaller, and more conveniently located than what your peers are living in is key to financial independence.
📝 Summary + Notes
The lock-in
- Modern-day wage slaves are consumers. Society has made it very easy to spend money.
- Being financially independent gives you flexibility. Time to raise your kids, spend time with things you love, and take risks to start a business.
- We live our routine lives, weekends are like evenings, laundry, cleaning, and sleeping. Vacations feel rushed and we head back exhausted. The more we work, the more the government takes our money.
- Other modern-day characteristics are the corporate ladder, specialization, and job competition.
- Most people take debt and work their whole lives to pay for that house.
- The problem is not how much money we earn, but how much we spend.
- The three pillars of the book:
- Reduce waste and increase efficiency.
- Having significantly reduced expenses, invest the difference in businesses.
- Find something meaningful to do instead of work.
Economic degrees of freedom
- The Salaryman.
- Specialized wage earners who earn money from one source only.
- Have little control beyond their well-defined job descriptions.
- Puts time and energy into his work and pays for stuff that he subsequently consumes.
- Are free to change their job, but they’re not free to quit their job.
- Is rarely without a job, but when he is, it’s a high-stress event.
- The Workingman.
- Doesn’t collect a salary or other associated benefits and his income is uncertain.
- Often establishes an emergency fund.
- Have a much easier time finding jobs than professional specialists.
- The Businessman.
- Sets up a business by using a combination of his own and other people's money.
- Generates cash flow by converting assets into income.
- By being in control of more than just his own time and energy, he controls more cash flow and thus earns more.
- The Renaissance man.
- Is competent in a wide range of fields, covering intellectual areas as well as the arts, physical fitness, and social accomplishments.
- Is fairly independent of the marketplace since he no longer has to buy nearly as much to satisfy his needs.
The Renaissance ideal
Goals for someone aspiring to be a Renaissance man:
- Physiological.
- Maintain optimal levels of physical and mental health.
- Maintain good eating habits and discipline to avoid destructive foods.
- Intellectual.
- Be able to prioritize the relevance of information and be able to quickly research and find relevant information in many different areas.
- Have enough generalized knowledge to be able to understand the information and put it into the context of a mental framework, a model, or a procedure.
- Be able to critically analyze the model, refine it, and combine different models to achieve an objective.
- Synthesize interdisciplinary information and laterally connect similarities that are not immediately apparent, discovering new models and procedures.
- Economic.
- Understand the difference between price and value. Value is psychological; price is determined by the market.
- Understand the difference between assets and liabilities (as inRich Dad, Poor Dad). Understand leverage and cash flows. In particular, learn what is an investment (an income-generating asset) and what is not an investment (items for personal use).
- Know the law of supply and demand, the difference between savings and investments, and the difference between present and future value.
- Understand how the stock, bond, and/or real estate markets work, both in theory and practice.
- Be able to do your own tax return, make a budget, and balance a checkbook.
- Emotional.
- Do not waste time, money, effort, or resources.
- Be able to appraise value in all matters to make sound decisions.
- Develop a passion, and appreciate the arts and what it means to be human.
- Be empathetic and understand that people and situations are complex.
- Make social connections and increase the value of interpersonal relationships.
- Be able to patiently await a better solution and be willing to compromise and accept something that is close, but not exactly your ideal.
- Social.
- Get to know people outside your profession, hobby/club, religion, political party, socioeconomic stratum, or country.
- Learn how to network and build your social capital.
- Learn how to sell, barter, swap, and give things away.
- Technical.
- Have knowledge of the skills of different professions to be able to critically judge the services of professionals.
- Have a working understanding of all the technology you use to understand its limits and benefits.
- Learn how to select the optimal tools for your use, how to maintain them, and how to repair them when they break down.
Strategy, tactics, and guiding principles
- The development of a strategy follows the progression given:
- (Objective) copying → comparing
- (Plan) compiling → computing
- (Strategic thinking) coordinating → creating
- Become less dependent on a single source of income.
- Become less dependent on a multitude of store services.
- Divide projects into three groups:
- Projects that cost money.
- Projects that are "free”.
- Projects that earn money.
- Find activities that are "free" but provide the opportunity to learn, meet new people, and possibly earn money eventually.
- You can never do 1 thing at a time. When focusing on a single goal, side effects are ignored.
- When buying something take note of new and used prices. Also, check the price history.
- Know the prices of common things you buy like ingredients.
- Before buying something, see if you can do/fix it yourself.
A Renaissance lifestyle
- Things we own take up space, cost money, require maintenance, can be taken away from us, are a gateway to buying more, and are hard to get rid of.
- Things should be durable, have quality, be easy to dispose of, small, easy to create, and easy to maintain and repair.
- Depreciation schedule:
Annual cost = (Your cost - Used price)/(Years in service) - Avoid getting new things and also get rid of things.
- Avoid generating waste and find ways to use the waste of others.
- Keep running costs down but pay for value.
- Sell, give away, buy used items, barter, swap, rent, share ownership.
- Budget $80/person/month for food and only shop once a week, keeping track of food costs.
- Maintain health to avoid the personal and monetary cost of sickness.
- Focus on productive assets rather than stuff.
- Focus on developing skills rather than on passive entertainment.
- Extreme suggestions like don’t heat/cool the house, don’t have a refrigerator, use your car on a bumpy road for clothes laundry, make your own detergent, etc.
Foundations of Economics and Finance
- Pursue something you're good at rather than something you’re passionate about.