How To Manage Money Like A Sovereign Individual

Over the past 10 years, society crossed the chasm and an “early majority” of people are now exposed to a growing variety of digital assets. The creation of these assets has created the Sovereign Individual Age. A time defined by individuals that leverage a growing set of digital technologies to cultivate a resilient lifestyle of their own choosing. But the introduction of all these new assets has changed how people now approach money management. Raising the question, how do you manage money like a Sovereign Individual?

The short answer is that you need to create an evolving lifestyle investment strategy. And as you invest and create new types of digital assets to meet your lifestyle needs, you will need to also learn and adopt treasury management practices. ie: Your money management practices should mimic what corporations do. Learning to plan and manage cash flows, volatility, and risk across a wide variety of new assets.

Why?

Because digital assets can be very different from traditional assets. And there are no unified services offered by brokerages, banks, financial advisers, or other 3rd party services to manage your entire digital asset portfolio in an optimized way. For example: your cryptocurrencies are in separate accounts from your websites and newsletter, which are separated from your business income, and your social media accounts. All of which are separated from your traditional assets.

Adopting treasury management practices promotes a unified and collective picture of your financial circumstances. All of which helps you maximize the value of your assets to ensure you maintain the lifestyle you want to live no matter what situation you encounter.

The downside of this reality is that you need to take more responsibility when managing your assets. The upside, is that these assets increasingly tap into the exponential growth of the digital age. They can create significant wealth, which is also wealth that is increasingly uncorrelated to the broader financial markets. ie: adding digital assets to your portfolio means you’re not putting all your financial eggs in one basket.

I get that you may not be interested in the thought of taking on more responsibility for managing your assets. It’s intimidating and requires a lot of attention and administrative work.

But whether you realize it or not, in the depths of the digital age, all people will function like individual businesses. We have balance sheets with assets & liabilities. We have cash flows & income statements. And Sovereign Individual’s re-frame their lives this way to become capital allocators – optimizing their own business models to fit their lifestyle and multi generational needs.

And so, as a business entity and capital allocator, it’s important for a Sovereign Individual to have a plan for personal treasury management. Here’s how I think about a Sovereign Individual’s approach to managing money.

Diverse Assets, Multiple Incomes, & Lifestyle Design

A Sovereign Individual’s money management goal is to cultivate financial independence, resilience, and lifestyle design freedom. This is a highly personalized life supported by a unique mix of assets. In the digital age, that means cultivating a wide variety of assets and incomes all over the world. Why?

Diversification of assets, incomes, and geographic exposure creates resilience against single points of failure and black swan events. These types of events could include a stock market crash, crypto volatility, a housing bubble, a government policy change, and a wide variety of events that can impact your ability to maintain the lifestyle you want to live. Diversification on a global and digital scale helps you to weather a variety of negative events. Which means that you don’t have to sacrifice your freedom at any point because of a global event out of your control.

Practically speaking, what might this type of portfolio look like?

Here’s a list of the assets in my current portfolio, I’ll walk you through what assets I hold, what I’m building, and what I hope to add to create the lifestyle I want to live in the immediate future:

• Crypto angel fund – a broad index of crypto assets – higher risk, shorter time horizons, to be used to fund building and buying businesses – shorter term assets
• Crypto long term holdings fund – mostly Bitcoin & Ethereum – the tokens I believe have long term societal value – medium term assets
• Traditional stocks fund with dividend income – stocks I hold for 3,5, and 10 year time horizons – dividend income is currently either reinvested or used to purchase other stocks – medium term assets
• Retirement Account fund with dividend income – this fund is out of reach until I’m ~65 – I invest in stocks and crypto that I believe sit at societal inflection points and pay out over long time horizons – long term assets
• The Sovereign Individual Newsletter – realistically needs to 10x audience size to generate meaningful revenue but none the less I view as an information capital asset with future value – long term assets
• Freelance cash flowing activities ie: consulting income – short term assets
• Draft of an e-book – this is another information capital asset that I’ll sell for income and to capture email addresses to support the newsletter and sales of other info products – medium term assets

Treasury Management Portfolio Thought Process

The overarching theme is that these funds are not considered on their own. They are all assets on my personal balance sheet that work together to create my total financial positioning. I have short, medium, and longer term investments across a variety of assets. ie: short, medium, and long term payoff periods. The goal is to have a good balance of short, medium, and longer term assets that provide income to live comfortably on a stable basis.

Many of my current investments take advantage of money as a form of capital I “put to work”. Meaning I put income I generate into assets I expect to appreciate and generate income over time.

But time and effort are also capital assets on my personal balance sheet. That’s why I’ve begun incorporating the newsletter and other digital products into my portfolio. These are assets where I invest time and energy in order to create future income. And a reason I like working on info products as a method of income generation is because they can eventually produce income even while I sleep.

But here is the kicker with time and energy capital. Most people use this capital to generate income from a salary with no equity. By creating my own digital asset, I don’t sacrifice equity in the upside of the asset. What I lose out in shorter term income I can potentially make up in longer term equity appreciation if the asset becomes valuable. Building these assets takes a lot of time and energy and therefore puts them into the long term holdings category.

Cash flowing projects are what help me balance immediate needs with my longer term asset objectives. They pay bills (my liabilities) by tapping into my time and energy capital which is finite. And these projects rarely provide equity upside. So where possible, I try to put excess income generated after paying off liabilities into income generating assets where I own the upside.

I view all these assets side by side with my collective balance sheet to understand my income generating assets versus my liabilities. Until my medium and long term holdings produce dividend income to support my lifestyle, I’ll need to include freelance activities. These come with the opportunity cost of time and effort capital not kept on one of my balance sheet assets.

Putting Assets to Work to Grow Equity Positions

Where possible, I look to put my longer term assets to work in order to grow my ownership in more income generating assets.

Like with my longer term crypto holdings – where I can either stake or lend them out for additional income. I can also do this with longer term stocks by selling option contracts to collect premium as income. All this income is reinvested into similar assets when possible.

You can also leverage longer term assets, taking a loan against their current value to acquire other assets. I do this on a small scale because it’s higher risk. I like to use it to make rare opportunistic buys when an asset I’m watching falls in price but not in value. While I do have leverage as an option across a variety of assets, I typically avoid the urge to use leverage across different asset classes. (for example, leveraging my stock account to buy crypto) Why? Because it takes away the benefits of uncorrelated assets. In an emergency black swan situation, I want them to be as uncorrelated as possible.

A final example of putting assets to work – with my newsletter and future e-book, I’ll capture email addresses that can be leveraged to sell future products and services to a unique and engaged audience. Or I can indirectly monetize via sponsorship and targeted advertising.

Seeking Globally Resilient Assets

But how am I working to diversify and create global resilience? I analyze my holdings together to understand how much global exposure I have.

The newsletter and e-book are digital products that have global audiences. As much as possible, I look to create content for the ~1 billion English language speakers around the world. Ultimately, these assets will cultivate global relationships and a multitude of future income opportunities around the world.

My crypto assets are also global by their underlying decentralized nature. But I also look to invest in an index of projects that have global scope and utility. I like to look for global network adoption of users and project developers because these are typically more resilient to localized events.

With stock investments, I like large multinational companies or those with large and global total addressable market potential. Although I mostly invest in US listed companies, I also look to diversify across developing world opportunities where they make sense.

Building Long Term Assets In Your Portfolio

It’s usually a long and slow process to build a portfolio of digital assets. Compound growth is the long term goal. But it can take a significant amount of time to develop exponential returns from a variety of new digital assets. As with my newsletter, unless you already have an active community network to leverage, you’re likely going to need to build yours from scratch to grow the value of your digital assets. This takes an unpredictable amount of time. And the unpredictable nature makes these assets an unreliable source of cash flow. At least int he beginning.

Further, unless and until crypto realizes it’s multi sided network effects (a large number of businesses begin accepting it as payments and digital infrastructure) its not wise to treat it as anything other than a speculative investment. That means you must prepare for wide volatility and if you plan to use crypto holdings to fund a lifestyle or business opportunity, you must be conservative how you plan to raise cash from these investments.

Therefore its important to understand how much of your total balance sheet is tied to spending time and energy capital towards long term investments. Is this cost impacting your short and medium term needs? Or do you have other income producing assets to meet your liability needs?

Understanding the Liquidity And Volatility of All Your Assets

All your assets have different liquidity and volatility pros and cons that you must understand to identify gaps in your balance sheet resilience.

What situations call for de-risking? If I want to raise money to purchase a business should it come from the high risk asset pool or low risk asset pool? How should I be storing opportunistic capital? As an example, I would have bought the dip on the latest crypto crash but felt it irresponsible due to insufficient cash on my balance sheet. It highlighted the importance of having opportunistic capital as an asset class on my balance sheet.

Opportunistic and liquid capital should be thought of as a different asset bucket from operating capital (paying bills) which should be further segmented from disaster capital. And further, due to the compartmentalization of DeFi and TradFi, you need to have opportunistic capital positioned in both systems. I’ve missed multiple buying opportunities because I was stuck with availability delays from ACH transfers. Transferring from my bank Account to Coinbase to DeFi can take 5 days. In crypto, that’s a lifetime.

An interesting lesson I’ve learned in this “treasury management” approach is that traditional finance and crypto finance are very compartmentalized. When I collateralize a traditional finance asset, the value of the crypto assets I own have no impact on the loan. And vice versa. This can be both good and bad. Ie: if I have a lot of capital tied up in crypto it can be hard to balance that value with traditional assets and may require selling for fiat to de-risk the traditional asset side of my balance sheet.

This requires thinking through and assigning risk to the various assets I hold. Gaming out situational decision making. Like when I wanted to sell my crypto angel fund to launch my business, the value of the fund dropped significantly when I wanted to sell for cash. I did not effectively plan the decision to sell with the rest of my portfolio to optimize my lifestyle choices. It meant I needed to use a little leverage from my traditional assets to raise some short term cash. It worked out fine because of my understanding of how to use all my assets to support my lifestyle choices. But emphasized the gap in my shorter term cash position.

A Sovereign Individuals Lifestyle Investment Philosophy

A Sovereign Individual is an aspiring member of an emergent digital social class. They anticipate the world is fundamentally changing and look to invest along industries that stand to benefit from that change. They build and acquire income generating assets and use business practices of treasury management to optimize their financial situation.

It’s important to consider all your assets together to support the lifestyle you want to live. For me, that means using my unique mix of capital to focus primarily on building digital assets like the newsletter and e-book full time. As these assets become monetized, I’ll deploy my time, energy, and income sources towards other digital income generating assets like micro-acquisitions. Small digital businesses that produce cash flow.

As Sovereign Individual’s hunt for exposure to emerging digital assets, the need for sound treasury management practices and frameworks will become imperative on an individual basis. When you think about where you want to be in life, and how you want to spend your time, are you thinking about how your growing list of assets can work together to support that vision?

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Photo by Markus Spiske on Unsplash