College grads circa 1892.

I clearly remember the excitement and difficulties of my first year or two out of college.  There was one day in particular — I remember feeling things couldn’t get any worse (which, I now believe, is never true, things can always get worse, and conversely, they can always get better).  That particular day in 1993 I had no job, no car, and nowhere to live (I was staying at my mom’s place in Berkeley in a spare room).  My recently completed undergraduate degree was in Rhetoric & Communications — not exactly a fast track to a lucrative career.  My prospects were poor, and what I remember about that particular day was that two different girls dumped me.  Should I even try to explain that?  I don’t think so.  At the time it felt like icing on the cake — my cake of personal misery.

My first car was a '78 Honda Accord. We called it the "Biosphere" because it leaked and had weird things growing inside. The passenger door was secured with a bungee cord.

Little did I know that my luck was about to change.  That same year, in addition to getting a car, a job, and an apartment, I would meet the girl I would eventually marry, and also the dude who would end up as my long-term business partner.  The booming tech industry (which would eventually culminate in the dot-com bubble and burst of 2000) allowed me to gradually parlay my meager tech skills into a lucrative consulting career.  On the music side, the timing wasn’t bad either.  Electronic dance music was in the early stages of a boom that is still going.  If you were willing to go to the trouble to produce a decent vinyl dance record in 1994, there was market for it (and zero piracy).

Lots of degrees, not so many jobs.

With hindsight, I now realize how good I had it.  Today’s young graduates have it much rougher.  Not as bad as in China, but still pretty bad.  With the help of my parents, some scholarships, student work programs, and low tuition, I was able to graduate from UC Davis free of debt.  Many of today’s students graduate with upwards of $50K in debt.  I had a scrappy couple of years, working a variety of temp jobs, but once I picked up some on-the-job tech skills there was plenty of demand.  Today’s economic climate is much more formidable — companies expect young hires to be able to hit the ground running (either that, or work for free).  With few exceptions, most companies who need skilled workers (college grads or not) aren’t willing to hire a young person on potential alone, to invest in their skills, to “snap them up” because they’re young, impressionable, and available.  The U.S. Armed Forces are one exception to this, but if you work for them you give up many of your rights as a citizen — a dangerous bargain.

For young people graduating from college — and for everyone really — it makes sense to have a personal economic plan — one that is free of magical thinking.  Most people either 1) have no plan, and navigate the economy via inertia or 2) have a plan that is based on excessive optimism, imaginary demand, the expectation of tremendous luck, and/or an inflated sense of self-worth.

What’s Your Endgame?

Do you want to be Aphex Twin when you grow up?

I have an explicit personal economic goal, which is to have a family net worth of at least $3M, and to make at least $6K/month in record label, music royalty, and writing royalty income (I enjoy my consulting work for the most part but I’d like to have the option not to do it).  Reaching this goal would facilitate:

  1. A nicer house in a nicer neighborhood (I like where I live now, but the house is a bit small and the nearby public schools aren’t so great).
  2. Being able to pay for my daughter’s college tuition in full (if she decides to go to college).
  3. A slightly more luxurious lifestyle (more travel, better clothes, eating out more often).
  4. More charitable giving (probably to the same organizations that I give to now).

What I would not expect from reaching this goal is:

  1. A greater sense of economic security (I think this is entirely psychological and not related to income or net worth).
  2. Greater happiness (see #1 above), unless I were to derive greater happiness from doing more writing and music and less consulting work, which I think would happen, but I’m not sure.

Is my $3M goal a f*cking pipe dream?  Quite possibly.  But at least I know what I want — it’s a start.  Your ultimate personal economic goal might be something quite different.  You might aspire to be stinking, filthy rich.  Or you might aspire to be doing 100% “passion” work, and you don’t care about how much money you have as long you there’s enough for rent and stew meat.  To each his own.  But for the vast majority of people, if they think carefully about it, the ultimate personal economic goal will look something like this:

  1. Have x dollars in the bank as a nut/buffer/emergency fund/F-you money.
  2. Receive enough income to support desired lifestyle from a combination of passive income and/or work that is deeply satisfying.

It’s worth thinking about.  How much money do you actually want?  I want more than I’ve got, but I have no interest in owning my own plane, boat, or even horse.  I don’t want a full-time staff, a driver, or even a full-time personal assistant.  All more trouble than they’re worth, IMO.

Mmm ... yum. Tastes like wine!

I’m not sure my palate is sophisticated enough to distinguish a good $12 bottle of wine from a good $100,000 bottle of wine.  Expensive clothing brands give me no thrill.  The things that I consider “luxuries” (expensive cheese, top-of-the-line gaming systems, trips to Hawaii) are all solidly within the realm of middle-class affordability.  Lavish wealth would be wasted on me (as it probably is on Warren Buffett).

So why do I want to be worth $3M?  I want total economic independence.  I want to be able to help out a family member or friend in need, should that need arise.  I want global mobility — to be able to visit family and friends in Europe without breaking the bank.  I want to be able to give more money to fund the search for extraterrestrial intelligence, and also to help provide fresh drinking water to those who don’t have it.

Magical Economic Thinking

The classic case of magical economic thinking:

Q: What’s your retirement plan?
A: Win the lottery.

There are numerous types of magical economic thinking.  The most common is simply waiting for things to get better, when the prior evidence suggests things will probably stay about the same.

Retirement plan.

For years Spesh and I have been releasing dance music within several sub-genres (mostly progressive house and tech house) on our label Loöq Records.  Once in awhile a release does well, or even very well.  Still, it would be magical thinking to expect anything we’ve put out so far to appear on the iTunes Top 10.  At the moment we work with artists who are mostly unknown outside of the dance music community.  Most of the tracks are instrumental (no hooky lyrics).  We don’t go out of our way to pursue big name artists, and at the moment those artists aren’t coming to us.  We love running our own label — it’s a blast — but if we want different (better) results, we’ll need to do something different.  What can we do that doesn’t mess with our sense of artistic integrity, exceed our threshold for financial risk, or make running the business un-fun?  Thinking about this question, and constant experimentation, is part of what keeps our jobs as label heads interesting.  We’re not waiting for massive success, we’re constantly trying to invent it.

Another type of magical thinking is confusing boom times with “normal.”  Many businesses fail because they discount the fact that every product has a life cycle.  Just because sales have been great for the past three years doesn’t mean a particular product or service will keep selling well forever.  The Model-T was a huge success, but Ford doesn’t sell that particular model anymore.

Qoöl madness (from

For over a decade Spesh and I ran one of the most popular weekly dance music parties in San Francisco (Qoöl).  For years we had lines around the block every Wednesday — a hot spot that drew young people from an assortment of cultural niches.  Qoöl happened every Wednesday at 111 Minna from 1994 to 2009, peaking in popularity in 2000.  The cover was only $5 and most of our regulars got in for free, but still, the piles of cash we ended up with at the end of the night kind of stunned us.  It could have led to excess.

Instead, we kept our overhead low, donated a large portion of our proceeds to charity, paid everyone we worked with on time and fairly, paid our taxes, reinvested substantially in a steady, low-key promotion of Qoöl, invested in other aspects of our business, and took very modest personal draws from the partnership.

The result?  We converted our lucky burst of popularity into an additional ten years of success.  When income from our flagship party declined, our business survived.  Right now we’re primarily focused on our record label, but we’re poised to relaunch the Qoöl brand early next year.  We didn’t assume the wild success of one our products would last forever.

One type of economic magical thinking I’ve personally been guilty of at times is “imaginary demand.”  Once again I’ll use an example from our record label.  More than once I’ve championed a track because I personally like something about it, even if it’s quirky, weird, and “neither here nor there.”  I’ll imagine there’s a group of music consumers out there who will share my weird taste and appreciate this odd, innovative track.

This kind of attitude helps nobody.  Spesh and I serve ourselves and the artists better if we think in a clear-headed way — who would buy this release?  DJ’s buy music because they think it will make their crowds dance.  Other people buy music because it makes them feel a certain way.  Very few people buy music because of an interesting high-hat pattern or innovative use of an LFO trigger.

The last and most pernicious type of economic magical thinking is the “I am special” trap.  Millenials, having been raised by Baby Boomers who constantly told them they were special, are perhaps the most vulnerable to this.  The truth is there are 7 billion of us running around, eating and farting, and none of us are special.  Being smart, good-looking, well-connected, sensitive, strong, creative, or having great taste does not guarantee economic success.  Even being enormously lucky isn’t a sure thing — millions who come into riches through no fault of their own convert that luck into rags.

There are only two factors that guarantee personal economic success.  The first is being able to identify and meet an economic demand.  The second is sound money management.  Many other factors help one’s economic prospects (like being physically attractive, or being born into family connections, or being of the same ethnicity and cultural background of the people you want to do business with), but only being able to identify and meet demand (and effectively manage your money) will guarantee wealth accumulation.

Evaluating Demand

A friend of mine recently implemented what I consider to be a good economic plan.  She enrolled in a graduate program that sees the large majority of its graduates gainfully employed in their field (speech therapy) soon after completing the program.  Her prior education and personality are a good match for the work.  I imagine she’ll succeed in the field.

There’s nothing wrong with pursuing your passion, and/or working to become extremely good at what you do.  But neither of those things necessarily lead to economic success.  Do what you love and money will come?  Only sometimes.  If there is no economic demand for what you do, or if the supply vastly exceeds then demand, then the money may come very slowly.

Nice chainmail!

Demand is cyclical.  A few decades ago, a skilled short-story writer could make a living at it.  Five years ago almost anybody could make boatloads of money buying and selling houses in peak of the U.S. housing boom.  Those times have passed.  These days, there is high demand for people who can create great user-interfaces, especially if they understand web development and database technologies.  There is a high demand for motion graphics artists (my wife’s career).  On the other hand, it’s not such a great time to be a lawyer, a poet, or an inexperienced real-estate broker.

Sometimes demand suddenly spikes for skills that were once considered outmoded or irrelevant.  Artisans who crafted chain-mail were suddenly in demand while Peter Jackson’s Lord of the Rings film trilogy was in production.  During the Y2K scare, Cobol programmers were suddenly in demand.

We can never know for sure if investing in a skill set, or creating a particular service or product, is going to pay off.  But to not even consider the market, and/or the state of popular tastes, is willful ignorance.

I’ve written a follow-up to this post called “Creating a Personal Economic Plan,” which I’ll post within the next few days.  Thanks for reading and feel free to share your thoughts.