The Right Mental Model to Understand *Money*

Money is a difficult topic to think right about. Everyone gets pretty emotional about money.

A few quick mental models that have helped me think about money.

Cliche: Money doesn’t buy happiness.

Not quite right. Money buys freedom. Freedom leads to happiness.

Almost no one disagrees with the fact that freedom leads to happiness.

So if money isn’t buying you happiness, you’re using it wrong.

This brings us to the second issue.

“Money is a great servant but a terrible master.”

You’ve pretty much lost the game if you’ve failed to leverage money as a tool (money as servant) and instead used it to create constraints around yourself (money as master).

Example #1:

Money as master: Buy a ton of stuff to address insecurities. Result: You never get over your insecurities, sign up for a never-ending keeping-up-with-the-joneses game, and possibly take on stupid debt along the way.

Instead, money as servant: Spend money to buy freedom. Buying stuff constrains decision-making and creates artificial boundaries on what you can and cannot do. Instead, use money to create optionality.

Again, the critical conversion point in the money-happiness conversion is freedom.

Use money to get to freedom, and freedom will get you to happiness.

Another Cliche: Money is the root of all evil.

The problem is this quote misquotes the source.

Source: “Love of money is the root of all evil.”

“Love of money” as used here is what we commonly call “greed”.

“Greed” is “money-as-master” mode, not “money-as-servant”.

Greed is pre-programmed towards poor money choices. And, hence, unlikely to lead to happiness.

Next, seeing money as a mechanism to transfer wealth rather than the end goal in itself is important. It fundamentally changes how you think about money.

Seek money to seek wealth.

But having said that, keep the above principle subservient to the money-buys-freedom.

The principle goal should be freedom.

If wealth creation limits your freedom instead of increasing it (e.g. overheads of portfolio management), you need to get back to prioritizing freedom.

Those who prioiritize freedom eventually make good decisions from a wealth perspective as well.

Those who prioritize wealth may not always find a way to get to freedom.

Getting to freedom is more difficult than getting to wealth.

To really figure what you value most, figure out what game you are playing.

We are all playing games. We just need to be clear about how we keep score.

E.g. if you are playing the wealth game, you should (1) figure a way to play it with assets, not with selling time and energy and (2) figure a way to eventually use other people’s agency (money, time, energy). That is the only way to win the wealth game.

If you are playing the freedom game, be clear about your trade-offs. To the extent that money leads to freedom, spend time making money. But beyond a point, you will have to get back to reclaiming freedom at the cost of money.

Playing the freedom game and keeping score with those playing the wealth game is a guaranteed path to failure and poor mental health.

Eventually, wealth games are easier to keep score of. Freedom games require a lot of discipline. All freedom games involve trade-offs. You need to own your trade-off and not keep score on the wrong parameters.

Owning your game and keeping the right score is key. If you get that right, money-as-servant will follow.