The Principles of Lifehacking

LHUWhen you are tackling a challenge like getting to financial independence, there are lots of choices to be made along the way.

To make good choices, we need an operating system that allows us to get stuff done more effectively.

Once you have your operating system up and running, life and the journey to financial independence become much easier. The Principles of Lifehacking provide the basis of that system. So here’s a quick overview:

Principle 1 : Experiment

We have to experiment because we can’t know what is going to work  until we’ve tried it.  We should start by taking some baby steps, even when success is not guaranteed…actually, especially when success is not guaranteeed.

We should experiment the right way – where failure is survivable and where success is potentially great.  For example, I don’t recommend experimenting with Russian roulette.  The upside is limited and the downside is catastrophic.

I look for real life experiments where the payoffs are asymmetric in my favour. For example, this blog is an experiment.  Before I started, I had no idea whether it would “work” or not. I could see that the downside was limited and that other blogs had created fun & new opportunities for their authors. So this looked like a perfect experiment – low downside if it didn’t work, high upside if it did.

If you are struggling to visualise this, here’s what a low-risk experiment with an asymmetric payoff skewed to the upside looks like:

Principle 2: Optimise speed of response

There are two speeds at which I make decisions: fast and slow. The trick is knowing which bucket to put each individual decision into.

Things that can hurt you if ignored – even for a short time – go into Bucket 1. Don’t be an ostrich – don’t ignore the warning signs and shaft your future self.

Decisions that have long lasting consequences (on the upside and the downside) but can wait, go into the second bucket.   These buckets map to Kahneman’s 2 systems of decision making (see Thinking Fast and Slow).

Bucket 1 examples

  • Arterial wound spurting blood  – apply tourniquet / call 999 /  go to hospital NOW
  • Credit card debt – pay off asap
  • Paying % fees on pension to IFA / active funds – move portfolio asap
  • Surplus cash being eaten away by tax and inflation – put to work quickly

If something is a bucket 1 decision, do not delay, do not pass GO, do not collect £200….do not do anything until you have sorted this shit out.  Taking action may require you to overcome your freeze response. Get help if you are stuck.

The second bucket requires taking our time, using our unique human capacity for rational analysis to over-ride our emotional kneejerk reactions. We evolved this way of thinking more recently and it takes more conscious effort to use. But the greater the consequences and the more interactions with other parts of our life, the more time we should spend on the decision.

Bucket 2 examples

  • Decide whether to buy double glazing – take 2+ weeks
  • Decide whether to buy house  – take 3+ months
  • Decide whether to marry current partner – take 1+ year
  • Decide whether to have (another) child – take 2+ years

The world is full of pressures to make decisions quickly.  If it is a Bucket 2 decision, resist this pressure. Don’t be bullied, stand your ground, take your time.

Principle 3 : Don’t worry about failure

People worry too much about failure.  But there is no failure, there is only learning and growing.

We learn from our mistakes. Mistakes feel bad but often prove to be a blessing in disguise.  This is called post-traumatic growth by psychologists. I am not making this shit up, its an actual thing. The Obstacle is the Way and what doesn’t kill you makes you stronger.

One of my defining moments on the road to FI was a career crisis that I had about 12 years ago.  I took a new job because it looked prestigious on paper.  But I hated every moment of it.  I felt trapped because my wife was pregnant with our second child, we had only one income and still had a mortgage back then.

But that screw-up provided me with great motivation. I slashed my spending, found a new job which I threw myself into and pushed on hard towards financial independence.

Principle 4 : Think 80:20

The Pareto Principle implies that in any organisation, 20% of the employees create 80% of the value. There are plenty of jobsworths and Wallies coasting within large organisations.

Another application of the 80:20 principle is that you don’t need to capture 100% of the benefits from any action. You just need to ensure you capture the low hanging fruit which provide 80% of the value. You should never let the search for perfection become an excuse for inaction.   Good enough is good enough.

I don’t wait until for 100% perfection before publishing a blog post; I publish when I think it’s good enough.  If I later spot a typo or some woolly language, no problem, I will just correct that after its “out there”.

The same applies to getting started with investing.   If you wait until you fully understand investing, then you will never start.  If you never start investing, you will never understand it fully because experience is part of the learning process.

The whole concept of a safe withdrawal rate is an 80% solution (actually more like a 99% solution).  If you demand 100% certainty, that’s your choice…but then you will never retire until you drop dead.

Principle 5: Be resourceful

The greatest value is always derived from using any resource as efficiently as possible.

One of the biggest earning drugs ever was Pfizer’s Viagra.  The little blue pill earned billions of dollars and did more for the over 60’s than free bus passes ever did. Yet the irony is that Viagra was an accident.  The drug was being trialled for use as a treatment for hypertension. The trial participants reported the side effect that it induced erections.  A lesser company would have canned it.  But, to their credit, Pfizer recognised a hidden gold mine when they saw one and re-purposed the drug.

This is how I define resourcefulness – its about making the best of what you have available to you. This is also the essence of frugality.  Frugality does not work just because it is morally superior. Frugality works because you are using scarce resources more efficiently. But frugality on its own is not enough. Resourcefulness is frugality paired with creativity.

Principle 6: Keep it simple

I love the simplicity of a bicycle. This is the opposite of a Formula 1 car.  I used to watch Formula 1 and see the fragility of the high tech engineering. Most cars didn’t last the race distance. I used to wonder why no team just entered a Ford Mondeo. Using the principle of the Tortoise and the Hare, if you entered a car that you knew would at least finish, surely you stood a good chance of winning?

Things that are complex are fragile in ways that are often hidden.  Simplicity is always more robust. It is less likely to go wrong and its easier to fix if it does. Consultants love complexity in organisations.  They know that when it breaks, the client will not be able to fix their own problems.

Time and headspace are scarce resources. So focus on simple solutions that are robust and capable of rapid implementation.  Anyone who has seen the fucked up dynamics of decision making by committee will recognise the hugely under-rated value of simplicity.

As I’ve said before, the essence of simplicity in investing is to buy and hold Vanguard equity index funds.

Principle 7: Use crowd sourcing…and copy what works

Have you ever watched Who Wants to Be A Millionaire?  If you have 3 lifelines left and its a really tricky question then Ask The Audience is always your best chance.  I never saw an episode where The Audience got the answer wrong.

This illustrates the wisdom of crowds.  The individuals in the audience are not geniuses, but the Ask The Audience aggregates their knowledge and delivers the right answer.

The free market economy works via the same principle. Prices embody the knowledge of the crowd. So supply and demand get balanced as if by an invisible hand. No one is in charge of the food supply for London nor setting food prices.  Yet everyone gets fed.

The failures of the Soviet economy should have discredited central planning for ever. We should be sceptical (not cynical) of hierarchical central authorities including: Governments, Large Companies, Quangos, Universities etc.

Wisdom and knowledge often reside in non-obvious places. The beauty of the internet is that it allows us to access the wisdom of crowds and the best knowledge from around the world, like in these books. When I find such a source, I do not ignore them. I bow the fuck down, listen carefully to what they say and then shamelessly imitate them.

Principle 8: Look for alignment of interests

Never ask a barber if you need a haircut.

Find experts you can trust and learn from.  Just be careful which experts you listen to. Many experts are incompetent or have no edge. Others use their knowledge to screw you.

Wealth managers and financial advisers have an incentive to make things complicated so they keep the power and you don’t learn.  They put their interests before yours – this is not even a criticism, its just recognising reality.

Follow the money. If you don’t know exactly how much (as a number of £s / $s / €s) you are paying, you’re probably being screwed.

You can’t figure everything out for yourself quickly enough. So get help from people with good ethics and no conflict of interests with you.

What do The Principles of Life Hacking look like? The film clip above from When Harry Met Sally provides a fun illustration.

Note how the older lady is prepared to try new things (“I’ll have what she’s having”) especially when there are high rewards for success (orgasm) and low costs of “failure” (the cost of a slice of cheesecake). That’s Principle #1. Experiment.

The older lady acts quickly and does not procrastinate (#2. Optimise Speed of Response). She doesn’t try to replicate every aspect of Meg Ryan’s life…just her food choice (#3. Think 80:20).

She doesn’t worry about failure or what other people in the restaurant might think (#4. Don’t worry about failure). She uses the resources available to her in the restaurant (#5. Be resourceful).  She knows that complexity is the enemy of execution and avoids over-elaboration (#6. Keep it simple).

The older lady observes and then copies what what works (or at least what appears to work) in real life (#7. Use crowd sourcing).  Finally, she knows that Meg Ryan isn’t making any money off her, so there’s no conflict of interest…(#8. Look for alignment of interests).

20 comments

  1. Enjoyed this – and other articles – very much. Huge sympathy with the ethos of the website. Mentioned this article in a posting I wrote. http://financialorbit.blogspot.com/2014/11/stories-we-should-be-thinking-about_16.html Keep up the interesting writing and good luck!

    1. Thanks…I felt like I was giving away all my best secrets with this article!

      1. You know what they say: ‘Part of the healing process is sharing with other people who care’. (Jerry Cantrell). Looking forward to more posts!

  2. TheTurnaround · · Reply

    Thanks again for another brilliant article, T.E.A. I felt I learned even more to help me on the road here. I should also note I’ve purchased some of the books you recommend on this Blog (7 Habits of Highly Effective People, Manhood, and The Magic of Thinking Big). Can’t wait to digest their no doubt invaluable wisdom!

    1. Welcome back TT. Please let us know how you get on with those books…maybe by way of a comment on the Life Changing Books section when you’ve read them?

  3. Thanks for sharing. You are truly an inspiration to me!

    1. Wow…great to hear that…please pay it forward and show the site to any friends you think would like it.

  4. Great article as always TEA!

    #7 – I use this sort of thing in personal life as well as business. I work for a small team running a large website (top 500 in UK), and when I look for solutions it is much easier to copy what the big boys (Google etc…) have implemented rather than code your own from scratch. You would have thought this was obvious but you don’t even want to know how many arguments I’ve had with our technical lead, yes, he thinks he knows better than Google…!

    I also think many people’s problem is that they emulate the wrong people. They don’t go seeking out productive and successful people to copy and so just end up copying what is around them, “celebs”, and friends who are more than likely also just copying celebs, and so end up just copying the outward signals of “success”, I.e. consume as much crap they do not need as possible. Finding better examples to follow is absolutely key in life, we can’t all be original thinkers who break the mould entirely (and let’s face it most of these ideas have been around since ancient times anyway, as you and Taleb both point out).

    I definitely need to work on #3 and #4. I am a perfectionist at heart but am slowly coming round to the idea of Pareto. It totally makes sense to not waste those extra hours perfecting something that will not make much difference to your results! The marginal value of each extra hour diminishes on a lot of projects, so working out where you can use this principle and say “that’s good enough” is very powerful in creating more hours in your day.

    Cheers again!

    1. Thanks FS….how did you like Fooled by Randomness?

      1. Loved it of course!

        I am half way through reading The Black Swan as well, which I think is even better, I’d say in general it seems to making the same points but is a bit more coherent and organised than FBR*.

        I just realised I didn’t reply to your other comment about NNT’s points in FBR (apols. for the excessive abrevs and acronyms BTW 🙂 ) so I will reply here instead:

        Having finished the book and now onto TBS, I totally get what he is about now, so yes I agree. It took me a while to understand what skeptical empiricism actually meant, but I am pretty sure I get it now: Basically question everything as much as possible, especially common “wisdom” and dogma, but don’t necessarily go against the grain just for the sake of it. Which is exactly what you were getting at in your comment.

        Also, having thought a bit more on the index tracking, I recall reading a few times (Monevator I think) that although Index Trackers are clearly the best bet for most average folk in terms of keeping costs down and increasing your investments in the long run, the majority of funds are still under active management, so we are going against the crowd taken as a whole anyway by choosing them as an investment vehicle.

        I guess what it is, it that I have only really read about Index Trackers and not been exposed to much other advice on how to invest, so to my narrow view, it looked like “the crowd” is suggesting that Index Tracking is the only way to go, and therefore I should be skeptical and look for other means of investment (I am not overly skeptical of it as it makes logical sense to me, and I am too lazy to really learn about other forms of investment, but will keep one eye open nonetheless).

        *I realise that the random nature of subjects and chapters in Fooled By Randomness was surely deliberate, but it made it hard to follow. Or maybe having read that it just makes it easier to follow TBS… chicken or egg, not really sure which.

      2. Glad you liked Fooled by Randomness.

        You are right about index tracking….its not the only way to go, but its the simplest and most time efficient route for most people…and it sure beats paying pinstriped chancers for actively managed funds that underperform after the impact of fees…sadly, most people have still not realised this.

  5. Great post, thank you!

    I keep forgetting about the 80:20 principle, but it applies in so many areas of life. Applied to work, I find I can dial back some effort and still get great results, I’m one of those “star employees” that ends up doing everything, so it’s good for me to relax a bit at work.

    I’ve even applied it to housework – 20% effort is all that’s needed to get the house looking fairly acceptable, the rest is just busywork 😉

    1. Agreed Linda, despite what some people seem to think, there are no prizes in life for the best dusted ornaments….once basic hygiene and order is achieved its all dead time.

  6. […] post from The Escape Artist is about ensuring you achieve the goals you set, like achieving financial independence. Once again […]

  7. Hi TEA,

    Nice Post, thanks for sharing the wisdom. When do we get our diplomas? 😉

    #3 took me a while to understand. I hated getting anything wrong. In reality there are no failures, as they represent an opportunity to learn and develop. If I’m being honest I still find it challenging at times, but I do my best to find the learning point/s.
    #7 is a tricky one for me. At what point do you listen to people and at what point do you go it alone? I don’t always take what someone tells me to heart, even a friend. Just because a mate says he saw a ghost, does not mean that ghosts exist. I’ll believe in them when I see them. I tend to link this to #1, especially when I’m hearing strong counter arguments. Rather than continually reading and talking to people about taking route a or b, I’ll try both for myself and see what works for me. I love experimenting and I think a life experience is hard to beat as a learning tool.
    Success does leaves tracks. So, If I want to improve in a certain area I look for people that have succeeded. If I understand the route they took, I’ll take it as well. The challenge with this is modern society is the amount of self proclaimed ‘gurus’ out there. You have to have your wellies to wade through the sh#t and find the ‘right’ answer.
    I’m a big fan of #6 – Nice and simple. Some things in life are complicated, but in most cases they can be simplified. Why not start there?!

    Thanks again for sharing the points above. All the best!
    Huw

  8. mmhisnibbs · · Reply

    If I calculate that I have a 51% + chance of a successful outcome I’ll usually make the decision to go ahead. If the doing proves that I got that decision wrong then using what you learned to either stop or improve the original plan/ execution improves your chances of success. Too few people understand engineering principles of test/measure learn/improve and think ideas have to be born, fully fledged and perfect. Whereas minimum viable product or proof of concept will get you up and running quicker. When Apple launched the iPhone it didn’t have cut/paste functionality and the engineers argued with Jobs telling he should delay whilst they fixed it in the code. He ignored them, launched and then rolled out the feature a little while later with a “good news…” Message to validate the purchase in the minds of the early adopters. Lemons to lemonade folks… Always…

  9. Patty · · Reply

    No. 5 – Resourceful = Reminds me of a Coors motto I once ?heard/read?, being “Waste is a RESOURCE out of place.”

    No. 6 – K.I.S.S. = After replacing upteen gazillion china dishes over the years that my lovely but evidently clumsy sons kept breaking? I finally went with Stainless steel. Cups, bowls, plates, yes, even wine glasses and coffee mugs. Once n’ DONE! A few dings maybe, but no more breakage. I may be slow, but eventually I catch on. Quality could possibly be defined as fine china, BUT Simple and Unbreakable was the key.

    Thanks for the great read. ~Patty

  10. “You should never let the search for perfection become an excuse for inaction. Good enough is good enough.”

    Great post, this quote really stood out to me. I think this happens a lot in my own life, especially with writing. I want the finished product to be perfect so i agonize over each sentence, rather than getting the content out there. Definitely going to keep this principle in mind going forward.

  11. Simplelife · · Reply

    Nice post. Loved it

  12. zeejaythorne · · Reply

    Doing good enough and learning to be satisfied with that for many choices has really freed me from inertia. Getting started and not maximizing everything allows your brain to solve the really interesting problems it was designed for.

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