The digital transformation creates new ways to live life. It provides access to unprecedented amounts of information, income generating opportunities, and lifestyle choices. And through this access, an individual can now take more meaningful control of their financial freedom. They no longer need to follow conventional wisdom when constructing their lifestyle. Instead, they can focus on creating whatever lifestyle they want using customized financial strategies.
My point is that in the digital age, there are a number of financial tactics you can use create the life you want to live. You don’t always need to work a 9 to 5 job with a 401K investment as your sole retirement strategy. You can now chart a unique and individual path through life that is more meaningful to you.
This article explores how the digital transformation empowers lifestyle design and the financial thought process you need to pursue it.
It boils down to the following:
- The Digital Transformation disrupts mass standardization and creates new income opportunities
- It eliminates information arbitrages, removing many disadvantages that individual’s had vs institutions
- It creates a level information playing field, altering the game to require the use of time as your competitive edge
- Using time as a competitive edge will force you to define short-, medium-, and long-term goals
- And clear time-based goals help you develop a lifestyle investment strategy that supports the life you want to live
What is Lifestyle Design?
Lifestyle design is the idea that you have the tools and means to create a life according to your beliefs and desires.
It’s the ability to choose where to live, where to work, and the ideas and belief systems you choose to follow. It’s the idea that you no longer have to follow standardized life paths that became common in the industrial revolution and early information age. Because with the internet’s abundant information and means to create digital incomes, access to the means of lifestyle design have become more abundant than ever.
But lifestyle design is also based on the premise that the unique life you want to live requires unique financial strategies. These strategies go beyond conventional wisdom. Beyond the conventional financial advice that advises you manage retirement funds by placing your money in a target-date fund waiting until you retire.
Instead, a lifestyle design strategy must include a mixture of short, medium, and long-term goals. ie: what are the things that you want to accomplish with your life? Kids, buying a home, living in another country, starting a business, pursuing a hobby or curiosity, and so on. Your goals should include when you might accomplish these activities and how much money you might need to accomplish them.
These time-based goals can then be used to craft a custom financial strategy. And this strategy provides you the financial flexibility to live the life you want to live and adapt to the situations you find yourself in.
But before we get into the details on setting time-based financial strategies, we need to explore how the digital age changes the nature of information. And specifically, how financial education and opportunities are evolving in the digital age.
Standardization Created Conventional Financial Wisdom
The Industrial Age economy organized and aggregated resources for mass production. Governments and corporations organized labor, capital, and information at large scale and through a few but powerful entities. This created a standardized society.
At the time, the standardization of society was a massive development that created an abundant society. Goods and services were produced at large scale. This made them affordable to the average person. But one byproduct of aggregation was that everything became standardized. Including lifestyles.
In most cases, you went to secondary school and then entered a trade industry or college and corporate life. You’d work at one company and work towards a pension and retirement. One of the main reasons this worked was because people had limited options. You were mostly only able to work for opportunities within your community.
In this late industrial / early information age, you had limited and standardized means of gaining access to information.
Through schools, libraries, newspapers, books, and the big news agencies.
You received financial advice from your stock broker, your banker, or you simply followed conventional wisdom. You relied on your pension and 401k for retirement. Sometimes a few mutual funds. This practice made sense because with limited and standard financial information, investing along conventional wisdom was a safe bet.
But standardization created information arbitrage. Gaps in knowledge that get exploited by people in the know. You did what “people in the know” told you to do. And they often took advantage of the knowledge gap.
The Digital Age Eliminates Information Arbitrage
But now the internet is mainstream. And limitless information is available by smartphone. What this means is that there is now a ton of financial knowledge available online for anyone to consume. This isn’t’ unique to finance. Just about all topics are now fully “online”. And anyone can learn about any topic. Most importantly, all new information is for the most part, instantly available to everyone online at once.
This means that the internet eliminates most information arbitrage quickly. It’s harder to take advantage of information because everyone has access all at once.
The expansion of information online does two things. 1. It allows individuals to become better educated on financial topics empowering them to take more calculated risks. And 2. it created new lifestyles beyond standardization by providing pathways to infinite digital communities. This includes opening new career opportunities around the world.
Information is no longer an edge. And the financial playing field is now leveled. But if the field is leveled, where can you get your edge?
Shifting Time Preferences Creates your Edge
In the digital age, you gain an advantage from an ability to exploit the breakdown in standardization of time preferences. An ability to reject “conventional financial wisdom” and position yourself to capitalize on trends and paradigm shifts. It’s a new version of playing the long game.
In short, a time preference is how a person or group of people evaluates a good or service over time. ie: a person may value something more today than they would tomorrow. Many people have a bias that places higher value on goods and services today than they do in the future. But because we live in rapidly changing times with a breakdown of standardized society, our time preferences are collectively changing. They are fragmenting along new trends and ways of life.
And so, your financial edge comes from an ability to observe where society is heading, position yourself accordingly, and then wait for society to sync time preferences with the trend.
As you build an understanding for society’s shifting time preferences, you must create investment strategies designed to achieve a variety of ends you have planned for yourself. Short-, medium- and long-term objectives that will fall along a timeline leading into the future.
Perhaps it’s a home purchase, a trip, quitting a job, accumulating a fund to start a business, and living expenses for later in life. The capital you position towards time-based goals can be slit up as permanent capital, intermediate capital, and temporary capital.
These goals will have different overall strategies and outcomes. They’ll likely also have different approaches to risk and reward. But in order to achieve a risk-adjusted lifestyle design, your investment strategies must be coordinated to work in harmony and exploit societies changing time preferences.
Important to Retain the Depth of Field from The Dao of Capital
Because you have shifting priorities and motivations for the various phases of your life, you need to have independent strategies. But these strategies shouldn’t work against one another. You need to have what Mark Spitznagel referred to in The Dao Of Capital as “a depth of field”, ie: the ability to zoom out on your priorities and goals to understand how they can best work in harmony to exploit time preference arbitrage.
But it can be hard to know what you’ll want in the future.
So, for younger people, you can optimize your strategies for flexibility. Create investment strategies that provide an ability to jump on opportunities as they present themselves. Ie: you don’t want to feel trapped in a dead-end job, unable to take risks because your finances won’t permit the action. So, you can build intermediate strategies that support an ability to quit your job and take risks. Like I did with my angel investment fund. An intermediate investment strategy that aligned with both my short-term and long-term financial objectives.
Or perhaps you live in a time with rapid inflation. And you want to take advantage of rising asset prices but your mix of investment strategies prevents you from participating in short-term opportunities. In this situation, you could collateralize your long-term assets, taking on debt to exploit short-term investment opportunities. An attempt to exploit short-term time preference distortions.
The general point is that you want to design a specific strategy that leverages your depth of field to compete in a world with distorted time preferences. ie: you understand your financial goals for life and you build strategies to take advantage of opportunities that present themselves in a changing world.
You Must Compete on Time Preferences
The world is changing and you cannot afford to sit on the sidelines. The most valuable and asymmetric opportunities will present themselves as distortions in society’s time preferences.
Most people intuitively understand where the world is heading, but they don’t know how to align their goals with a shifting time value of money. Your ability to establish clear lifestyle goals and build a financial strategy around these goals will provide you with a competitive advantage in the digital age. With clearly defined goals and a system of time-based financial strategies, you will be well positioned to jump on opportunities.
But most importantly, this lifestyle design investment strategy will empower you to live the life you want to live.
Your peers will stick to conventional wisdom, you must use shifting time preferences as your edge.
I’m tracking a new narrative that makes sense of society’s shift to the Digital Age. The goal: documenting how to become a Sovereign Individual. Giving you the facts and tools to successfully navigate digital life. I cover topics you can’t fully appreciate because you’re in the thick of it. Everything you need to know is delivered in a weekly newsletter.
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