MVL, take risks, and enjoy the ride
For the past few months, I have considered dropping out. A less risky option is to take a gap year. Unfortunately, I have only got one more year of university left. So I succumbed to the sunk cost fallacy and decided to finish off my degree instead.
Fortunately, I learned something from thinking through taking a gap year: a reflection on my expense management.
I was calculating how much I would need to live on my own for a year if I took a gap year. I assumed a very 'bear case' where I did no substantial work apart from writing this blog full-time. Maybe make a few series of podcasts too.
If I want to survive in London, I would need (on a median cost estimation):
- £1000/month for rent
- £500/month for groceries and other household misc. purchases
- £200/month for dining out/entertainment/social activities
- £150/month for necessary travel i.e. tube/Santander bike (although I can save this if I get my own bike)
- ~£0/month for unnecessary entertainment i.e. soulless drinking and clubbing
Adding these up, I would need ~£2,000 every month to maintain a subsistence-level living. On an annual salary basis, it is £24,000 after-tax.
Is £24k a lot? I tried to compare it against the median salary of Oxford students immediately after graduation. However, I could not find any data online. Instead, what I found instead is the median annual salary of university graduates 5 years after graduation. The subject that earns the most is Economics and Management (E&M) at Oxford, making £70,000+.
What is the point of me knowing I can survive on a £24,000 annual income basis? Well, that is my Minimum Viable Lifestyle (MVL) number.
- Minimum: no unnecessary expenses
- Viable: practical and sustainable
- Lifestyle: an optional and voluntary quality of life
Your MVL is a valuable piece of number that informs you of your optimal strategy.
When you choose a career, your MVL is the lower bound of your utility curve. Oxbridge and London universities especially LSE graduates are privileged to receive multiple offers. Many graduates are attracted by well-paid investment banking jobs that pay a standard entry-level salary of £80,000 (pre-tax including bonus). An alternative career that is a step down the salary ladder is consulting, which pays around £60,000.
You might disagree with me here: but I argue that focusing on short-term salary gains is short-sighted. You are giving up on the possibility of placing asymmetric bets that have unlimited upside with limited downside.
High-paying jobs are very very important for financial security indeed - but also consider the sacrifices in long-term gains you are making because you are going on a slower path.
When you switch a career, especially getting out of a safe job in order to be a founder, your MVL number informs you how much savings you need as a cushion.
When you bootstrap a business, your MVL number determines how easy you can become ramen profitable. The profit generated from your business should cover your MVL.
In short, calculating MVL reminds you to keep your life as simple as it can get. Cut out all the unnecessary spending. Focus on your goals. Do you want to be a millionaire by 30? Go calculate your MVL and make a plan.
There are caveats
Let's get meta on this. Why am I writing about MVL? Why should anyone care about MVL? Is MVL a useful concept at all?
If you are financially secure, MVL is useful because it is a benchmark of how secure you are.
If you lack financial security, MVL is useful because it determines your risk appetite and informs you what means you should pursue in order to gain financial security i.e. stable job or go big or home.
I am not discouraging RICH talents against taking high-paying stable jobs. I have not mentioned obligations such as taking care of family, the possibility of starting a family at a certain age in a certain culture, and paying down debts etc.
What I do find problematic, however, is that financially insecure but RICH talents totally discount risky careers. This is how rich people get richer and poor people get poorer. Risk aversion at a young age comes with a huge cost.
Be a Tiger or you will be hunted
I will leave you with one anecdotal observation. I grew up in Hong Kong, one of the Asian Tigers that saw tremendous economic growth for the past few decades from the 60s.
The Golden Decades from the 60s is also full of stories of rags to riches. A few billionaires were very poorly educated back then. But they were well-educated in risk, utility, and payoff curves.
In the 60s ~ 70s, while most employees in Hong Kong were content with steady wage growth thanks to the booming economy, a few young men saw an underpriced opportunity: real estate. They took massive risks for buying pieces of land that were deemed completely shitholes back then.
The rest is history. If you enjoy reading about the power of agency in wealth creation during booms and busts, check out Studwell's book below:
The optimal strategy for early career decisions seems to be picking the fastest growing sector that is fairly non-trivial to all. And so in 2021, what is the fastest-growing sector to be in?
I think it is tech. Software still has not fully eaten the world.
Wait.. but isn't everyone going into tech? How is tech non-trivial?
Well, aren't your friends still working at investment banks and consulting?
More on this (in the future)
Lastly, my next blog update will be on 'How can you be RICH if you are not rich?'.
Taking a risky career i.e. working a startup with median performance actually pays off more, in aggregate, than taking a stable career i.e. working at an investment bank with median performance.
If you like/hate/disagree with this, send me a message!