Financial Emergence and the New Wave of Money Management

Welcome to Distilled Dollar — my version of the best type of distillery. Well, 2nd best type of distillery, where I spend countless hours extracting out the core elements of personal finance. In this particular article, I’ll be diving deep into this concept of Financial Emergence and the New Wave of Money Management.

(A quick 2nd thank you to new subscribers. I’m not 100% sure where everyone is coming from but I love seeing the site grow and the community build. Welcome and enjoy!)

At first glance, this money management approach might appear new to you.

It was new for me.

But, the idea goes back nearly 2,000 years ago, to a famous lawyer of antiquity, Marcus Tullius Cicero.

Read on and I’ll explain how this approach has led me to save more, invest more, tackle my debt faster, and overall, enjoy a richer life responsibly. 🙂

I tend to difer and even disagree on some of the more common money approaches I see touted these days. So, see what works below for you and utilize what you can.

Financial Emergence and the New Wave of Money Management

So, what did Marcus Tullius Cicero have to say about managing money that was so smart?

He shared what many today call a multidisciplinary approach. A way of viewing the world through different paradigms, or what is described as different mental models.

If this sounds difficult, then you are an astute observer.

Viewing the world via one lense and one paradigm is easy. Or at least, it is much easier than doing the work of trying to view things from different perspectives.

How does this relate to money?

I’ll share two models below and then in the 3rd section of this post, I’ll share what Cicero was getting at in terms of stringing approaches together, and the concept of financial emergence.

1st Mental Model – Inversion

Let’s begin with one approach. One mental model: inversion.

In mathematics, there is a powerful principle that inversion will often reveal the correct approach long before you try and solve the problem from the beginning components.

If you’ve ever started a maze from the “end” instead of the ‘start’, then you’re skilled in the arts of inversion.

In money, inversion might look something like, “How would you want your budget to look?”

Or, “When you’re 90 years-old, laying in your bed, what will you want to say about your financial legacy?”

When you begin with the end in mind, you are practicing inversion, one of the mental models discussed in the multidisciplinary approach.

Before I get to the new wave of money management, I need to share with you at least one more model and then I can explain how emergence is the most critical element of it all.

2nd Mental Model: Thought Experiments


On a recent podcast episode, I shared an approach practiced frequently by Albert Einstein, one of the smartest people (if not the smartest) who ever lived.

Einstein understood the cutting edge of physics in his time. He dove in deep on textbooks about mathematics and he discussed theoretical concepts with his peers.

What made him stand out was his ability to use thought experiments, another type of mental model.

On the podcast episode, I share how Einstein would imagine himself riding along in a light beam and imagine seeing another light beam next to him. He would further practice these thought experiments by imagining himself holding a mirror in front of his face and imagining what he would see.

As someone who is not a physicist, I first thought I would just see myself in the mirror. After reading a great bio on Einstein, I learned that to see myself in the mirror requires light to travel, and if you’re travelling at the speed of light, well…you can see why this begins to get tricky.

As a result of these thought provoking experiments, Einstein would deduce an answer and THEN work on the math and physics and formulas to understand how what he saw would work in the world of mathematics.

In other words, you can’t be Einstein by merely studying mathematics or physics. In a thousand years of study, you would never reach the same conclusions, because you never completed the mental model of thought experiments.

Building up from the math would be near impossible, and even Einstein himself preferred his thought experiments.

“Imagination is more important than knowledge. For knowledge is limited, whereas imagination embraces the entire world, stimulating progress, giving birth to evolution.” – Einstein

Financial Emergence and How Models Are Individually Worthless

The subheadline here reads ‘models are individually worthless,’ which is only half true.

On their own, mental models are extremely powerful and can often provide an answer, or at least clarity, in a time of need. The problem with holding just one mental model is that we will begin to warp and shape reality to fit our model.

As we have seen time and time again, power can lead to turmoil and corruption.

The true power and the financial emergence occurs when we begin to string multiple models together. This is what Charlie Munger describes as a, “Lollapalooza effect,” and what Cicero described as a multidisciplinary approach.

To string these two approaches together, you can imagine a future article written about you one hundred years from now. What specifically will the article say about the way you lived your life financially? Will it share how you spent money on your family, your friends, your charities, your community, etc.?

By practicing this effort of stringing together two mental models, you begin to touch on financial emergence.

The true power of financial emergence comes from each individual mental model adding up to be more valuable than the sum of their parts.

This is emergence, this is the power of mental models, and this is how a multidisciplinary approach is extremely effective with money and living a richer life.

A big THANK YOU to the folks over at Farnham Street (a blog), where they’ve put together the most concise list of 113 mental models that I’ve ever seen. The link in this paragraph is to those 113 models where they touch on everything from biology to design to mathematics to wartime strategy.

You’ll notice Emergence is listed as its own mental model — so chime in below if you view emergence and lollapalooza as similar, yet distinct concepts. For me, I’ve started to merge the two together and this might be a uniquely Distilled Dollar point of view as far as I know.

As Charlie Munger puts it, the great disciplines in the world often carry much of the freight. In other words, you don’t need to learn all the models, but often, learning 10 or 12 is enough to give you the competitive  edge over 90% of people.

I tend to agree — but actively pursuing financial emergence and trying to link together ideas is MUCH easier said than done.

Conclusion and What’s Next

Stringing together these mental models has resulted in enormous financial benefits in my life. Of course, financial emergence is just one of the benefit you can expect to learn from this new wave of money management. Not only have I experienced a richer lifestyle, but I’ve saved notable amounts of time and avoided countless headaches.

If you want to know more about the various models I’ve used over the years towards my money management, leave a comment below or let me know as I prepare to write my next post. I’ve been including polls lately and thank you to everyone who chimes in as I feel great writing to the topics you want to hear more about.

Which Post Would You Like to See Next on Distilled Dollar?

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THANK YOU for your responses on last week’s post. We broke another record for the third week in a row with the most responses at 67!! Please keep them coming as it is helpful to align what I write with what you want to see.

One Final Thing – update on charity ebook project

Thanks to everyone who participates in last week’s feedback request regarding my upcoming charity ebook. I’m donating 100% of the proceeds towards my goal of giving $100,000 in 2018 to local animal shelters. My fiancee and I love animals and we see this as part of fulfilling on our larger vision — so thanks again for helping us get one step closer.

The largest votes were focused on savings and frugality, so I’ve created a 1-question survey asking you, “What is the largest hurdle you face when it comes to saving more money?”

https://www.surveymonkey.com/r/charityebooksurvey

The link above takes you to my 1-question survey for my upcoming charity eBook. Thank you ahead of time for your time in taking the survey!

The ebook and upcoming posts will dive in deep on the largest hurdles as I plan to share how I removed financial burdens and obligations on the path to saving over 60% of the Distilled Dollar household income. It wasn’t easy and we made plenty of mistakes along the way, so I’ll be sure to share all of that in the upcoming posts along with inside the ebook.

Thanks for reading and let me know — is Financial Emergence and the New Wave of Money Management something you plan on implementing for your 2018 financial goals? Do you view mental models and this multidisciplinary approach as helpful or harmful to living a richer life?

-Matt

P.S. Thanks for all the feedback last week and I truly appreciate the awesome comments and responses. Setting a goal of giving money away — as we did in the post last week — is opening all sorts of doors we never anticipated, along with receiving some truly sage advice. Thank you and we look forward to keeping readers up to date as we progress on our giving track.

4 comments… add one
  • Tyler Dec 12, 2017, 7:38 am

    Great post! This helped me understand what Charlie Munger talks about in his book at a much deeper level so thank you! What are the 10-12 mental models you lean on most heavily?

    • Distilled Dollar Dec 13, 2017, 7:51 am

      Thanks Tyler!

      I’ll need to drum up some posts on more specific models and link them together. I’ve written in the past on probably a few dozen – but this concept of emergence is still what I’m aiming to expand on. I’ve seen a few emails as well on which models work best – so I’ll try and touch on this soon. I could probably write a few books on that topic so I’ll need to work on condensing down the material.

  • OMGF Dec 12, 2017, 4:10 pm

    Could you explain more about how mental models and emergence have specifically transformed your finances. I’m still figuring out exactly what you mean so some explicit illustrations would be super helpful.

    And I’m hoping the cash savings outpacing credit card rewards option wins. Do tell!

    • Distilled Dollar Dec 13, 2017, 7:54 am

      Here’s one quick example I can provide from physics – where they utilize first principles over reasoning by analogy. The post goes on to explain more: Elon Musk and First Principles Approach to Frugality

      I’ll drum up the post on our all-cash budget as we’ll be doing another 90 day frugality challenge with this as part of it. We’re aiming to do it Jan 15th through April 15th so you’ll a lot more about that ahead of Jan 15th.

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