people sometimes use the phrase ‘good with money’. in this post i, i suggest that making, saving, and investing money requires three different skillsets. i’ll explain how these three skills are different, how the skills required set up incentives, and how being good at earning money can make someone terrible at saving it. the short version is this: to earn money, you must be persuasive. to save money, you must have restraint. to invest money, you need understanding. let’s go into each one in more detail:
to earn money, you need only be persuasive. this is clearly the case if you sell things for a living. a politician must persuade voters that she is a good, upstanding citizen with solid credentials and the shared values we all have. she must also persuade donors that she is of questionable moral fiber and connected with enough shady people to get you a good return on your investment of a $10,000 dinner.
you might that a professional like a doctor, engineer, or balloon artist depends on his skill for a living, and not his ability to be persuasive. it’s true that these people make a living using their skills, but further inspection reveals that the skills are simply a means of persuasion. who do you think makes more money – a balloon artist who is amazing, but can’t show you any of his work, or a terrible balloon artist who shows you someone else’s work and convinces you it’s his own?
it’s unfortunate that things work this way; as someone with a moderate level of a skill, such as balloon-artistry, has far more monetary incentive to level up their huckersterism skills than they do to master that final challenge of the balloon artist, the persistence of memory.
i doubt this will ever change; if we live in a society of voluntary exchange, you’ll always need to convince people to give you money. however, we can change the kinds of methods of persuasion that are effective. it’s still possible for me to persuade you with the old “direct threat of physical violence” technique, but this method is largely frowned upon in modern society and tends to land you in jail.
so physical aggression, although effective as a means of persuasion, has such a strong cultural taboo against it that people tend to avoid it. imagine if self-promotion had the same level of cultural taboo. a person would have to rely on rating by professional organizations and peer networks to prove their worth. a balloon artist could demonstrate his skills by showing his rating from the Balloon Artists Guild. people would still be able to use their natural charm and charisma, but a strong cultural preference for social proof would push incentives more towards leveling up useful skills, and providing services for a wide range of people in order to boost your reputation network.
earning money is entirely a matter of persuasion.
to save money, you need to have restraint. having restraint means being able to deal with your negative emotions as they come, and being able to see the real value of things. saving money requires you to habitually refrain from things you might like. it’s limiting yourself to two drinks when you go out, which is great for your health in addition to your wallet. it means investigating the root cause of your unhappiness, instead of consuming something to make yourself feel better. this is a wonderful way for the world to work, as rational people who want money put effort into consuming only what they need, and learning to manage their emotions.
to invest successfully, you need understand how the world works, and understand the direction it’s headed in. this requires patient observation, and a willingness to understand your mistakes, instead of excusing them as not your fault. you won’t be able to invest successfully without curiosity, rigorous attention to detail, and insistence on taking full responsibility for your mistakes. there are some downsides to this; if the world is going to shit, investors are rewarded for helping it get there faster. still, though, it’s good for us to see dangers on the horizon. the feedback effects in public markets may amplify the possibility of some destructive events happening, but these same feedback effects can make unlikely but wonderful possibilities into reality. one woman’s dream is unlikely to manifest itself in reality; if enough dreamers share the same ridiculous vision, flesh out all the details with their understanding of the world, support this dream with their stored wealth, and persuade enough people to join in, it becomes real.
and that’s wonderful.