Lately I’ve been thinking about time horizons: When we take an action, how long are we willing to wait for the results to show up?
Our time horizon determines a lot of our results in life.
Someone with a short time horizon might always focus on actions with quick rewards like gambling, overeating, or drug use. These can lead to ruin.
I know short term thinking well — I overate, drank, and smoked cigarettes for years.
Increasing my time horizon for health not only helped me quit drinking and smoking, it also made me realize that many short term low-payoff activities like stretching, eating quality food, and proper sleep can add decades of increased enjoyment to my life.
In contrast to a short horizon, someone with too long of a long time horizon might always act so far into the future that they never get to enjoy the results of their work.
I also know the perils of long time horizons. At one point I had saved a quarter of a million dollars for retirement but didn’t have money on hand to cover unexpected and large credit card bills.
My long-term money mindset meant that I obsessively monitored every expense and persisted largely on cottage cheese and seven dollar taco plates from a nearby taqueria.
Decreasing my time horizon for money has let me dramatically increase my quality of life in the last few years.
One example is that today I have an unlimited budget for high quality food. Eating quality food makes me feel better every day and has become a non-negotiable spend for me. I have a rule now that at any restaurant I go to I can buy the salad or a whole-foods based entree, no matter how much it costs. I would have never done this when I was hyper-focused on saving for retirement.
Decreasing my money time horizon has also allowed me to smooth out my financial life and make larger bets. Today I keep several years of expected spending in a "war fund" that's outside of my retirement accounts.
The "war fund" model lets me bet months of my life and tens of thousands of dollars on things will not generate a tangible dollar return for years but have a high likelihood of a 5-10x overall return.
This mindset has helped me 10x my net worth in the last three years. It's also behind me generating more passive income today than I did in my previous salaried job as a Data Scientist in Silicon Valley.
I am convinced that time horizon is a critical variable to get right. I am convinced that it's the difference between a normal life and a fantastic life.
What’s the right time horizon?
We want a time horizon where our actions are likely to pay off and where a tiny bit of effort can generate a massive return. We also want to make sure we can enjoy the results of our actions while we are still young and healthy.
I don’t know the right number, but I think five years is a good place to start.
Five years is predictable. We may have no idea what our life will be like in twenty years, but five years is something we can imagine and build towards.
Five years gives our results plenty of time to compound. Tiny habits like sleeping well, eating well, reading books, and saving money can have dramatic payoffs over five years.
Five years is also not too long to wait. Actions that will pay off over five years often show some positive return in one to two years, and once you're through that initial one to two year waiting period your quality of life picks up dramatically.
One of my favorite five year time horizon activities is learning. I can think of dozens of books, courses, and programs that will each add thousands or tens of thousands of dollars of value to my life over five years. If you try I would bet you can find some as well.
Another nice thing about five year horizons is that we have many of them available. If you’re thirty years old today you can make at least ten giant five year bets over the rest of your life. If each of those five year bets doubled the quality or impact of your life then ten doublings opens up a one thousandfold potential change.
I can’t know if five years is the right time horizon for everyone, but I have found that focusing on how actions today will affect my life over the next five years and where they will leave me in five years has let me plant seeds for large exponential changes in my quality of life and my impact on the world.
For several years now I've been taking as many actions as I can that will lead to a high payoff over five years. So far the results are amazing and I have no plans to stop.
What’s your time horizon?
How might you benefit from increasing or decreasing your time horizon?
What are some actions you could take today that would dramatically increase your quality of life in five years?
As always, take care and let me know if this generates something interesting for you.
P.S. If you are looking for a great book to read over the holidays I can fully recommend Wealth Warrior by Steve Chandler. I've read dozens of books on money, still this one challenged and grew my thinking on how to create wealth and positive impact on the world.
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