Oscar Wilde said that work is the curse of the drinking classes. I graduated from law school in 1994. Given I was neither blessed with the brilliant wit nor flamboyant style of Oscar Wilde, I faced the prospect of either getting a job or starting a business. The lure of a steady income with medical and dental, a retirement plan and paid vacations was too strong to ignore. Unable to convince any South African law firm to employ me at minimum wage to perform back-breaking work as an articled clerk, I threw myself into the world of banking and finance. I embarked on a 25-year career of employment.
Twenty years into this soul-numbing stint, I realized I had become institutionalized.
Everything I did was for the pleasure of my superiors. I also realized I had more than one boss. For three days of the week, I was working for the man with the gold Rolex, the small penis and the red Porsche. For the other two days, I was working for the taxman who did not even trust me to pay him directly. He would go to my corner office boss and get him to pay those two days directly before the money reached my bank account. The taxman would then pass that money to the government who would construct creative schemes to piss it away.
Reason 1: You are Making Your Employer Rich
This comes fresh out of Karl Marx’s playbook. Marx held that workers in a capitalist society are exploited insofar as they are forced to sell their labor power to capitalists for less than the full value of the commodities they produce with their labor. The longer you work for someone, the more comfortable you become with the monthly paycheck. You think you are acquiring skills and experience, but more often than not the skills you acquire are particular to that job.
I spoke with the Chief Financial Officer of one of the world’s largest cement company. He had been in the job for 10 years. He said to me that he was fed up with the company politics and mind games, and was looking for a change, but was finding it difficult to pivot into another job. Ten years with this company had not honed his finance skills. It had simply made him an expert in the systems and processes of that company. The risk of long term employment is that you do not become an expert in your field, but an expert in the internal workings of your employer.
If that doesn’t depress you, the outlook is not great. The futurist Yuval Noah Harari speaks about the future of irrelevance. In the past, people were concerned about employer exploitation. Harari says the future challenge is not exploitation but relevance. We must now face the threat of irrelevance as automation, artificial intelligence and big data displace traditional employment. In the same way that the opposite of love is not hate, it is indifference; exploitation has to be better than irrelevance.
Instead of entrepreneurship being an option for future generations, it may become mandatory. Technology is forcing redundant workers and job market entrants into a corner where the only option is to start a business. Also, as technology revolutionizes the economy and cycles of change shorten, people need to continuously reinvent their skillsets. The days of studying a career and dedicating your professional life to this one career are over. You will need to acquire new skills and embark on a journey of continuous learning. In this world of constant flux, softer skills such as emotional intelligence, communication and negotiation skills, and the ability to sell will stand out. So too will skills of financial literacy and the ability to create opportunities outside the world of big business increase in importance.
Do not see your job as being your long term future. Instead you need to see it as your short term university where you can acquire skills, contacts and expertise, and then use this job as a springboard into starting your own business.
Reason 2: A Job Puts You on the Wrong Side of the Tax Code
I have lived in emerging markets most my adult life - my only stint in the developed world was a couple of years in London. The tax you pay in emerging markets is difficult to accept in the face of endemic corruption and the state of infrastructure and public services. Paying taxes is an obligation and corruption is no reason to abdicate your fiscal responsibilities. If you live in a functioning democracy, you try to bring about change, even if it means voting for the least corrupt candidate. Another option is to understand the tax code. Boning up on tax may sound as exciting as root canal and a fully invasive colonoscopy. However, if you are earning 100 in income, you are probably paying close to 40 in taxes. That alone should pique your interest.
Taxes are more slippery than a snake in a barrel of motor oil. Many cannot differentiate between tax avoidance and tax evasion. Tax avoidance is the use of legal allowances and deductions to reduce your taxable income. Tax evasion is the unlawful understatement of your income and or overstatement of your expenses to reduce your taxable income. In understanding the tax code of any country, you must understand the behavior it is promoting. When something exists, I like to know why. Sometimes there is no reason or at least no logical reason. When it comes to tax, the intentions are clear. The backbone of every economy are the entities that employ people.
As of 2019, 99 percent of the 30 million firms in the United States were small businesses. These small businesses employed the majority of the workforce. A key indication of the strength of an economy is the level of unemployment. Unemployment in the United States has hit 10 percent on two occasions since World War II, in the 1980s and after the financial crisis of 2008. Not all countries employ the same methodology in counting unemployment. In Mexico in 2020, unemployment was around 3.5 percent which was in line with the United States. That sounds a little odd. In Mexico, any person that has worked at least 1 hour per week (slightly more than the French) are counted as employed. Regardless of how you count it, job creation is a priority of any government.
There are two ways for the government to stimulate the job market. One is to hire more people in the government and the other is to promote entrepreneurs to hire more people. Governments want to promote private sector growth and job creation. Taxes are the most powerful arrows in the government’s quiver to achieve this. In 2017, Amazon announced plans to build new headquarters for 50,000 people. They would spend $5 billion on the new construction. More than 200 cities in Canada, Mexico, and the United States offered tax breaks, expedited construction approvals, and other incentives. The most creative incentive came from Tucson, Arizona. They sent a 21-foot saguaro cactus to Amazon. Notwithstanding the oversized gesture of a giant prickly desert plant, Amazon opted for Crystal City, Arlington, Virginia. They offered performance-based incentives worth $573 million, and a bonsai tree.
Tax codes offer a plethora of tax deductions to corporations. This motivates entrepreneurs to channel money back into their businesses instead of handing it over to the government. These incentives range from research and development expenses to stock compensation schemes, salaries, depreciation, and loan interest. Employed individuals, on the other hand, are faced with a shorter list of deductions. They are on the wrong side of the tax code. If the government is providing all of these incentives to companies, they need to fill the gap somewhere. Who better than Joe Schmuck who is punching in at 9am and out at 5pm? Financial freedom is obtained by being on the correct side of the tax code and exploiting these legal tax deductions. Being on the wrong side of the tax code also means being on the wrong side of the money beast.
Reason 3: Getting a Job is a Low Risk, Low Return Investment
Risk is an interesting animal. You can take her out, buy her flowers and even marry her. They only thing you cannot do is eliminate her. Risk, like Keith Richards' liver, cannot be eliminated. It can only be transferred and managed. Insurance policies to do not eliminate risk. They transfer it to professionals who embrace it, manage it and monetize it.
Warren Buffett built his fortune on risk. Take a look at the Berkshire Hathaway website (www.berkshirehathaway.com). The company spared no expense in the design of this eighth wonder of the modern world. Click on "Links to Berkshire Subsidiary Companies". Numerous Berkshire subsidiaries are insurance or reinsurance companies. They retail and wholesale risk. Risk is their most important commodity. Without risk, there can be no return. The eternal pursuit of risk avoidance will lead to "a life of quiet desperation and death with your song inside you" (Thoreau).
In 2016, David Rubenstein interviewed the Chief Executive Officer of Goldman Sachs, Lloyd Blankfein. Rubenstein asked Blankfein a question that, at first, seemed dumb. It turned out to be brilliant. He asked: “Lloyd, what is your job?” One would expect the following answer: “Well, Dave, my job is to make strategic decisions about the bank's products, customers, employees, stockholders, and goals”. Instead, he said his job was risk management. That reply blew me away. The job of the CEO of the world's most powerful and influential investment bank was risk management – not risk transfer or elimination, but management.
Risk and return go hand in hand. If you want more return, you need more risk. Jeff Bezos of Amazon became the world's wealthiest person in 2018 by taking risk. He put all his eggs in one basket. He went all-in on a little company that sold books over the internet. He grew it to a $1 trillion valuation. On Sept 4th, 2018, Amazon became the second company after Apple to reach a $1 trillion market capitalization. Risk is good as long as it is managed. Bezos made a calculated bet. He knew he could convert Amazon into the world's leading e-commerce site and the world's leader in cloud computing. Now he is working on making Amazon the world's leading online grocery store (through the purchase of Whole Foods) and the world's leading streaming service (competing with Netflix). Client satisfaction is his obsession. Amazon’s mission is to optimize the customer experience. Bezos suggests you "should start with the customer and work backward". Most companies do the opposite – they start with the product or service and then work towards the customer. In every Amazon internal meeting, there is the rule of one empty chair. If there are five Amazonians in the meeting, there need to be six chairs. Whom/who does this chair represent? It represents the customer. Bezos does not want decisions to be made without taking the customer into account. If you start a business, and you believe in the business with all your heart, mind and soul, go all in. Commit to it and believe you will succeed. This belief, commitment, and drive will act as a risk management tool.
So how do we unpack this?
If getting a job is the worst long-term financial strategy, why doesn't everyone just stomp into their boss's offices, plonk down their resignation letters and follow their passions? That would be foolish and irresponsible, especially if you have financial dependents. The journey to financial freedom is exactly that – a journey. It is a process that requires an immense amount of work, effort, and courage. It requires self-belief, determination, discipline, commitment, and a long-term road map. It does not require you to be a genius but it does require you to be curious and open-minded. Albert Einstein said "I have no special talent. I am only passionately curious". The fact that young Albert boasted an IQ of 160 did not hurt, but winning the cerebral lottery is not a requirement for financial freedom. Life is not a game of poker where you either fold or go all-in. There are fifty shades of grey. You may love your job but hate your employer. You may be a financial adviser in a large brokerage house. Test the waters to see if some of your largest clients would move with you if you decided to jump ship. Set up a side gig as a prelude to making the jump. In 2017, CNN reported that 44 million Americans have a side gig they run in parallel with their full-time job. Perhaps you have a good nose for real estate. Instead of ploughing your savings into a money market account, acquire a couple of high-quality apartments and rent them out. Start to develop a stream of income that is independent of your formal employment and see how it pans out.
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