Renaissance Accounting

[7Wannabe5]

The purpose of this thread is to discuss problems related to the diagrams in "ERE" (the book) which exhibit skill collection= Depth of Competence over Areas of Knowledge of Normative vs. Renaissance Man. In particular, I would like to discuss how the accounting gets weird/difficult when you have many Areas of Knowledge just above or just below the dashed "free" line. IOW, the situation that results when you are investing/profiting or hoping/planning to profit from the equivalent of many little hobbies/businesses/micro-careers as well as opportunities more conventionally conceived as investments.

I will offer an example based on true story of my own functioning/dysfunctioning, but altered somewhat to provide balance and clarity to the problem. Let's imagine a Jill-of-all-Trades who decides to divide her accumulated annual savings above strict personal expenses totaling $12,000 into 6 different micro-investments.

1) $2000 into Index Fund
2) $2000 into Automobile to be primarily used for 1099 gig work as Grocery Delivery Person
3) $2000 into books and online course fees towards certificate in new potential realm of salaried employment
4) $2000 into specific esoteric "stock" lacking open market fluidity/pricing
5) $2000 into vacant land development
6) $2000 into inventory investment for ongoing small business

At the end of the year, one problem this Jill-of-all-Trades may have is that it becomes increasingly difficult to figure out what to write off as bad investment vs. expensive hobby vs.red-towards-black-carry-over and also determine multi-business vs. personal usage of tools such as Automobile or Office Space in Rental Housing or Storage Locker or Cell Phone, because it often comes down to perspective or intentions. It is easy to become stuck in a swamp between the downside of "wishful thinking" vs. the downside of "limitations inherent in only doing that which is easily measured/accounted for." In the past, I have mostly defaulted to "what tax code sez", but the tax code is falling behind the times.

Anyways, I was wondering if anybody else has experienced similar problems or might have some insight?

[classical_Liberal]

I'll be interested to read any thoughts on this. I've been considering it for months now, but have no solution. Measuring these things becomes so complex and time consuming, that it makes conscious competence nearly impossible (to me). I end in analysis paralysis.

For example, in the above scenario you purchase a car to deliver groceries and get a 1K profit. However, you realize since you already have the car, your options for location of vacant land increase substantially, so you choose to buy land 30 miles away. This increases the yield of of the vacant land investment 3X over the additional cost of driving the car there, because most of the costs are already covered by grocery delivery. Great synergistic results! But wait, what you really ended up accomplishing was driving more often and becoming more reliant on a vehicle... Was this the goal? How did the goal change due to measurements? What if you decide grocery delivery isn't your thing in 2022? Now you have to justify the vehicle costs with only the vacant land, economically it no longer makes sense. Etc...

The best advice I received was from @horsewoman. Basically she said stop over analyzing this s**t and play trial and error based on your real, overarching goals. Until I read some way of doing this that makes sense, from a perspective of not spending half my life analyzing everything, I'm basically gonna take her advice.

[Ego]

When you say "write off" do you mean for tax purposes or for personal accounting?

[7Wannabe5]

For example, in the above scenario you purchase a car to deliver groceries and get a 1K profit. However, you realize since you already have the car, your options for location of vacant land increase substantially, so you choose to buy land 30 miles away. This increases the yield of of the vacant land investment 3X over the additional cost of driving the car there, because most of the costs are already covered by grocery delivery. Great synergistic results! But wait, what you really ended up accomplishing was driving more often and becoming more reliant on a vehicle... Was this the goal?

True. However, for instance, if you instead choose to walk to a salaried job and invest $20,000 in a stock market index fund, you are still operating a $2000 motor vehicle to make the profit you need, because at least 10% of GDP can be assigned to transportation. The abstraction of your capital/tools doesn't change the reality of what is going on in that part of your system. So, what I am suggesting is that if you choose to invest in big chunks of multiple small businesses under your own direct control vs. very small chunks of multiple large businesses not under your direct control, you still have to draw a line in the sand defining where you are seeking to maximize profit, because a business of any size has to make a profit in order to survive.

IOW, if we imagine ERE as a sort of game, with multiple versions, then unless/until a player gets to the completely "moneyless" level, there has to be a ruthless pursuit of profit within well-defended boundaries aspect to the game. Actually, this probably remains true at the "moneyless" level, but it devolves into something more like hunting or highly competitive foraging.

IOW, if the version of the ERE game you are choosing to play is more like unto the Lifestyle Business(es) version then you still have to be very clear about where within the multiple benefits of your activities you are still ruthlessly seeking profit within well-defended boundaries.

When you say "write off" do you mean for tax purposes or for personal accounting?

I mean for personal accounting. For instance, in 2019 I decided to get new career certificate, so I spent some time/money towards Data Science, and then switched over to Alternative Teaching Certificate. The way my ENTP brain works makes it very easy for me to tell myself that I shouldn't write off the time/money I invested towards Data Science certificate, because it is still my intention to use it to make some money someday. So, it's just sitting there like a vacant lot I am waiting for right market/personal conditions to sell. This makes sense to me because I think of my brain as Zone 000 in my overall permaculture system.

It's easy enough to just keep adding all sorts of sheets to my accounting, so I could justify just about any hobby, training or educational expense as kernel of investment towards future profitable endeavor. For instance, I could start a new sheet entitled Freelance Lifeguard Module and drop the $159 fee to join the local pool into this sheet as initial expense. Whether or not the IRS would accept this as tax deductible in this year or any future year is somewhat irrelevant vs. my intention that purpose is eventual profit, because whether or not my lifeguard endeavor is a business is mostly a matter of whether I look for a lifeguard job or jobs in the Help Wanted listings vs. I post an ad offering myself as Lifeguard for Hire. IOW, at the micro-level, it just depends on how contract is offered/fulfilled. In the 21st century gig economy, this line is becoming more and more blurred. It is possible to do almost exactly the same work in three different settings with three different filing statuses, such as W2, 1099, and Schedule C-EZ. So, it becomes increasingly clear that, for instance, there is no real difference between using your capital in the form of your automobile or your cell phone or your Speedo bathing suit for work in any of these filing situations, except for the tax benefit.

[jacob]

The problem is that accounting buckets (itemizing) doesn't account for heterotelic costs and effects that likely dominate for the generalist. A specialist has one (or sometimes two) pursuits (career and maybe business) that are dominated by homeotelic actions and which therefore become easier to itemize. A generalist does not.

As an example, suppose you could not read and paid to learn this skill. Where (which line item) would you write off your reading lesson costs?---Since reading is used practically everywhere. As a more practical example, I actually like to departmentalize my tools and supplies. I have one box for bicycles, one box for plumbing, one for the car, one for electrical work, etc .... but I have tools I use everywhere such as a power drill. Now where would the power drill go?

The technical way to do it would be to assign vector-costs (the multidimensional version of line items). This is the same approach that people use when they calculate lifetime (full system) EROI ... or that google uses to calculate rankings in its search algorithm.

In practice, I wouldn't/don't do the exercise for a one-person operation that's effectively small (say < the standard deductible). However, this very thing is a problem that big businesses struggle with all the same. There was an example from a major investment bank where it was ultimately uncovered that one of their solid alpha strategies as developed in their trading department actually didn't do anything but (presumably unintentionally) siphon off a highly leveraged free interest loan from another internal department w/o properly accounting for the free loan. So accounting can be important. Of course this didn't affect outside (system-wide) profitability, but it did affect internal bonuses and promotions.

From an individual point of view, the two fallacies to avoid (self-check) is the fallacy of composition and the fallacy of decomposition. To wit, I can make coffee dollars fixing bikes, so I'm a great businessman/skilled mechanic; alternatively, I make enough money combined, so fixing bikes is a great mini-business.

[Jason]

but the tax code is falling behind the times.

DaVinci Code > Tax Code

One can only imagine the quality of the calligraphy on the hand written audit notice issued by the Internal Renaissance Service.

[Riggerjack]

@7w5

What seems to be missing in your accounting is depreciation.

If you spend time and or money achieving some certificate, swimming or teaching, at the end of the certification period, that asset should be zero, as you no longer have the certification. Or, if the certification is easier to renew than to earn, it should be depreciated to the value difference between renewal effort/fees vs earning effort/fees.

The same math applies to pure knowledge endeavors. How long until the data science is no longer applicable and/or your skills get rusty?

Failing to account for this depreciation will allow the justification of damned near anything for curiousity's sake. But in the end, what one can end up with, is the mental equivalent of a hoarder's collection. Lots of rusty skills, none of much use or value.

The more one has, the more effort goes into maintenance. This applies to the physical and the mental.

[7Wannabe5]

@jacob:

I agree that there is nothing sacred about itemizing expenses. It just occurred to me that the only way out may be through and I will have to make my entire lifestyle into a systems model on Vensim unless I wish to remain stuck in optimization/efficiency mode.

From an individual point of view, the two fallacies to avoid (self-check) is the fallacy of composition and the fallacy of decomposition. To wit, I can make coffee dollars fixing bikes, so I'm a great businessman/skilled mechanic; alternatively, I make enough money combined, so fixing bikes is a great mini-business.

Yeah, I get this, but it seems to me that "great" has to be defined in some way such as "more than $20/hr plus 20% on capital invested." Also, maybe I am willing to take it down to $15/hr given "flexible hours and don't have to commute/wear a suit" or even $5/hr given "coherent with my highest values." For instance, I estimate that I paid myself maybe $3/hour for the hours I spend making homemade recycled shipping boxes for books and I couldn't even legally hire somebody else to do that task for me without taking a loss.

Of course, it is also the case that there are many mini-businesses that might only provide a minimal number of hours of work or passive profits going forward, so can't make mistake of allowing for scaling up in model. For instance, if I wrote and published a pamphlet on the topic of recipes using wintergreen berries, my hourly wage and profit on capital investment might be "great", but strictly limited and forward dwindling.

One can only imagine the quality of the calligraphy on the hand written audit notice issued by the Internal Renaissance Service.

I have had to deal with so much bureaucratic hassle running my teeny-tiny micro-enterprises it almost makes me want to throw in the towel sometimes. One of the notes I always remember for "Rich Dad, Poor Dad" is Kiyosaki's note that you should hire a bookkeeper before you even start a business. It's almost so bad that hiring a lawyer before you start your own business might be advisable. Price of freedom is f*cking high these days.

What seems to be missing in your accounting is depreciation.

I agree that depreciation and also maintenance/storage expenses are VERY important, and I do include these in my accounting, although I did not make this explicit in examples above.

Failing to account for this depreciation will allow the justification of damned near anything for curiousity's sake. But in the end, what one can end up with, is the mental equivalent of a hoarder's collection. Lots of rusty skills, none of much use or value.

The more one has, the more effort goes into maintenance. This applies to the physical and the mental.

I agree, but you must admit it's a bit of a puzzle figuring out how to depreciate skills/knowledge/physiology AKA assets residing within Zone 000/Zone 00 = brain/nervous-system boundary->muscles/skin sack boundary. For instance, I am currently still getting some play out of an over 30 year old B.S. in mathematics and secondary sexual characteristics I developed over 40 years ago. I mean, who'da thunk?

[Jason]

I have had to deal with so much bureaucratic hassle running my teeny-tiny micro-enterprises it almost makes me want to throw in the towel sometimes. One of the notes I always remember for "Rich Dad, Poor Dad" is Kiyosaki's note that you should hire a bookkeeper before you even start a business. It's almost so bad that hiring a lawyer before you start your own business might be advisable. Price of freedom is f*cking high these days.

Owning a business is like throwing a wedding. Scale doesn't matter. And a good lawyer may help you get away with withholding $500 million of aid from a foreign country in exchange for political favors, but they will not help satisfy the IRS that your teeny-tiny-micro-enterprise is in fact, not just a glorified hobby and that your expenses deserve to be classified as business expenditures as opposed to just random shit you just like to spend your money on to fill up your free time or some existential nagging void that is plaguing you that particular tax year.

[7Wannabe5]

What is the concrete benefit other than a mental exercise?

A really cool model which might provide insight. Of course, to answer your question I would have to include the making of models in the model of my lifestyle. Luckily, I have already done that and determined that the making of models is beneficial to eNTP me (MMV greatly.) I am actually pretty good at making reality based models. For instance, when I make a garden plan, the real garden usually turns out very much like the plan.

[Jason]

It just seems such a waste of effort to try to measure everything using numbers in a person’s life. At some point the accounting is so complex and not even meaningful, because the model is so detached from reality and/or so hard to understand that it doesn’t even make sense. Aren’t you guys trying to use a hammer to drive screws here? What is the concrete benefit other than a mental exercise?

I bet the IRS would agree to pay you under the table if you did stand-up at their next Christmas party.

[7Wannabe5]

Owning a business is like throwing a wedding. Scale doesn't matter. And a good lawyer may help you get away with withholding $500 million of aid from a foreign country in exchange for political favors, but they will not help satisfy the IRS that your teeny-tiny-micro-enterprise is in fact, not just a glorified hobby and that your expenses deserve to be classified as business expenditures as opposed to random shit you just like to spend your money on.

Oh, I've never been hassled on my actual expenses. They've always been well within the expected for a business of my type. One problem I had was that I had employees for a few years and then I stopped having employees and the powers that be would not believe that I did not still have employees under the table. It actually made me wish that I had never legally declared my employees. Another problem that I had was due to the fact that it is very difficult to separate earned income from passive income in a general partnership when you have 3 partners and only 2 are active. The paperwork burden was ridiculous.

Anyways, the situation in which I wanted a lawyer was more my dealings with the city code enforcers on my vacant lot project. There was a conflict between what was demanded by the weed ordinance and what was demanded by the building code. In retrospect, I think I caved too easily. I should have manned up and made myself charming/obnoxious at a couple meetings.

[classical_Liberal]

IOW, if we imagine ERE as a sort of game, with multiple versions, then unless/until a player gets to the completely "moneyless" level, there has to be a ruthless pursuit of profit within well-defended boundaries aspect to the game. Actually, this probably remains true at the "moneyless" level, but it devolves into something more like hunting or highly competitive foraging.

I get what you're say'en and agree. The problem is, when we talk of measurements in personal economic terms, we are almost always talking in terms of money flow as the measurement. I mean, it makes sense, what other definite way is there to track such things. But I think once a certain level is reached, using money as a measurement of economic flows works against us. At this point, it is the "boundaries" of the game that matter more. IOW, I shouldn't try create synergistic flows between activities if it breaks the rules of my ERE game.

So maybe my primary measurement should be, am I following the rules of my game? If the answer to that is "no", walk away, no need to measure more, find a different solution. This has the benefit of saving mental energy on trying to measure about 95% of the solution space. It also means one needs to know the rules, whatever they may be.

[7Wannabe5]

At this point, it is the "boundaries" of the game that matter more. IOW, I shouldn't try create synergistic flows between activities if it breaks the rules of my ERE game.

I agree. What matters is the "boundaries" and the "values" of your own lifestyle design model.

That said, I think one of my personal quandaries in the moment highlights issue I have with auto-magic investing. When I am running my own micro-business, like when I am running my own household, I have to take personal responsibility for issues like how I dump my trash. If I am auto-magically investing in an index fund which includes hundreds or thousands of businesses, I am not just allowing somebody else to take on that responsibility, like in a situation where I was passive investor in a friend's business, I am effectively dividing that responsibility up into so many little pieces of information, it becomes impossible to track. Also, it seems to me that if minimizing environmental footprint beyond what I need to live the frugally defined good life is one of my top values then once I am earning enough from corporate investments to readily cover my expenses, I should spend the rest of my money buying up land and planting it in timber instead of buying bits and pieces of more gigantic sets of tools. However, my second thought is that maybe this is a too maternalistic point of view, because some kid in Bangladesh is effectively voting with his consumer dollars that he'd prefer for me to provide him with cheap cigarettes in the moment than dry land in the future and who am I to limit his liberty to make this choice?

IOW, I think it comes down to my eternal internal struggle between my adult feminine spirit and my juvenile masculine spirit.


To further emphasize the fact that I am not entirely goody-two-shoes in my mechanisms, my other problem with investing more capital in my own micro-endeavors is that I will eventually have to justify the expense by actually working the "tools" to something like full capacity. So, the more "tools" I buy, the more hours of my future I am filling up with tasks. This is a particular issue with specific investments in Zone 000/00 (brain boundary, skin sac boundary) because although these investments have the advantage that nobody can take them away from you (Unless they kill, maim or otherwise violently violate your skin sac/skull boundaries), they also hold the particular disadvantage that you can't sell off remaining value after depreciation to other enterprise, like you can with a truck or inventory you bought for your own business. IOW, there's no way you can make a systems model in which Medical Degree converts directly into Timber Acreage except through flow of Hours Worked. This kind of thing seems obvious, but when you actually attempt to make a model of stocks and flows inclusive of feedback, it can become surprisingly difficult to model the most obvious things.

[jacob]

... auto-magically investing in an index fund which includes hundreds or thousands of businesses [...] I am effectively dividing that responsibility up into so many little pieces of information, it becomes impossible to track.

The same problem faced the physicists trying to describe the individual particles in a gas to compute its properties. The mathematical solution was to change the framework into a statistical one. This presumes that all the particles are indistinguishable and independent. That is the underlying assumption of indexing. If taken, the fund can be expressed in alphas, betas, gammas, etc which is the financial equivalent of temperature, pressure, density, etc.

The information lost ignores what happens when particles are not independent or not indistinguishable. This results in "unexpected behavior" in gases as well as in portfolios.

[7Wannabe5]

@jacob:

Gotcha. Other obvious problem would be that the market only exists within the economy which only exists within the ecology which is actually subject to the laws of physics. What I am now imagining is a model where any returns over 3% are invested in acreage to be planted with trees. Then on down years, you would either have to live on fruit and nuts or sell some timber/fruits/nuts or sell some land or get a job. How many trees on average would you own after 30 years and how many hours would you likely have to work, if you started with $X invested, Y acres, and $Z/hr net employment and $E year core expenses before timber/nuts/fruit/property-taxes accounted for?

[classical_Liberal]

There is also risk modeling to take into consideration in any investment, and there is safety in numbers and power, even if out of your direct control. For instance, if the local municipality decides 7WB5's 50 acres of wooded land should be repurposed, how likely is it you are able to defend your rights to that property/capital? Vs, say, Apple being able to defend it's rights over Iphone designs, or the US government defending it's right to issue and control its sovereign currency and/or debt. Which party has the most resources to win within the boundaries of their game? Then there's liquidity too...

[7Wannabe5]

There is also risk modeling to take into consideration in any investment, and there is safety in numbers and power, even if out of your direct control. For instance, if the local municipality decides 7WB5's 50 acres of wooded land should be repurposed, how likely is it you are able to defend your rights to that property/capital? Vs, say, Apple being able to defend it's rights over Iphone designs, or the US government defending it's right to issue and control its sovereign currency and/or debt. Which party has the most resources to win within the boundaries of their game?

Well, if Liberty is one of your primary values than Safety in Numbers and Power has to be a lower value tactic. Otherwise, might as well resign myself to cubicle slavery or pull on the Depends and check myself into a nursing home pronto. I don't see how flocking like a sheep minion under the protection of the legal staff of Apple Inc. is any different than kissing butt as a courtier to the Emperor in other eras. Also, as Taleb pointed out, when sheep flock in large numbers, lone wolves commence to grin.

Anyways, I wouldn't necessarily recommend my lifestyle design to young people, because saving my own skin will not be of primary value.

[classical_Liberal]

you sure know how to get a Gen Xer's rebellious tendencies to flare! I would argue it's more like having the emperor's courtiers unknowingly work for me, but I definitely see your point.

[7Wannabe5]

@classical_Liberal:

I did flare out a bit I am actually in the process of re-reading "On Liberty." I cried the first time I read it when I was a teenager. So, you poked one of my hot spots. I truly believe that it is extremely important to constantly exercise whatever rights you have and avoid resigning yourself to any infringement upon them. That's why there are things I very much don't like about both sides of the political debate at the moment.

If individuals start believing that they aren't free to offer contract as well as accept it, start their own businesses, own and develop their own property without necessarily mutely kowtowing to current code, make a speech in a public forum, file a patent, publish a book or newspaper, etc. etc. etc. then as individuals and for us jointly as members of public bodies, these rights will wither as we become weak in expressing the needful underlying skills.

It's not that I am inherently or at all opposed to corporations or lawyers or government,( some of my best friends are corporate or government lawyers ), it's just that I believe that it is terrible practice to give voice to any notion along the lines that I couldn't possibly win if I choose to file claim or suit against the likes of J. Bezo or the municipality in which I reside or engage in business , or that I couldn't hold my own in an audit with the IRS, just because I am just a sole citizen lacking power or scale (deep shudder of revulsion). As if the not-even-mathematically-internally-consistent tenets of what passes for economic theory these days preordains my fate, or that of any individual not choosing to affiliate with some aspect of super-structure, to that of peon. I say "F*ck that noise! Fuck it hard as you can all day and night long with every bit of gonads the Goddess granted you! Die a free person or why bother at living at all!"