I'm living my life like I'm running a business
Using power of mental models to live a more straightforward life
Something that has completely changed the way I look at my life, and the world, has been coming across the concept of mental models.
In a nutshell — a mental model is a way, or a methodology, to approach a problem or a situation.
Let’s understand this with an example.
Here’s a common problem: you need to cook dinner.
You need to know what you feel like eating. Then you know that you first need a recipe. The recipe needs ingredients. You either have the ingredients, or you go buy them. Then you cook your meal with those ingredients. Finally, you eat your meal.
But what if it’s cold outside and you don’t feel like going out to buy ingredients?
If you don’t feel like going out and buying ingredients, you need a recipe that uses ingredients you already have.
So then you work backwards. You understand what you have at home, you gather your ingredients, you then decide what you feel like eating based on the ingredients, you find a recipe, you cook your meal, and you eat it.
You see how the entire process can be broken down into a map or a flowchart? This flowchart is called a mental model. It’s a model for solving a particular issue — in this case, filling your tummy.
What if you had a flowchart like this for solving most of life’s problems, or for navigating through complex situations? Wouldn’t that make life much simpler?
That’s basically what mental models are.
Two business mental models that I use regularly in my life
Sunk Cost Effect
Sunk costs are costs that have already been incurred, that you cannot get back. If no matter what you do, that money/time/energy has already been spent and there are no refunds, then that is a sunk cost.
There is no point in making decisions about the future by looking at costs you cannot get back. They are gone. Whether you move forward with a project or not (or relationship, or career choice, or… you get the point), those costs are not going to change.
To make a decision about the future, pretend as if past costs were never incurred in the first place. Only look at the future costs, what you will have to spend to move forward with a project. And then evaluate whether it’s worth it.
For example, you’ve already booked your flights and hotel for a trip. They are non-refundable. Finally, you fall sick and you’re debating skipping the trip. “But I’ve already paid for everything!” — whether you go or not, it doesn’t matter. You won’t get the money back. But if you do go, you risk getting even more sick. Solution? You don’t go.
Same thing can be applied when you’re deciding to sell something. In April 2021, I spent €2200 on an M1 MacBook Pro. I used it for about 10 months, made some money using it, and I realised that I didn’t need such an expensive computer, especially when I had one from the company I worked for, and I’d rather use the money for something else. I was getting an offer to sell it for €1750.
Sure, it could be looked at as a €450 loss after 10 months, but for me — the money I spent was a sunk cost. Today, the decision is — keep the laptop and get nothing, or give the laptop and get €1750. If I flipped the decision, would I spend €1750 for this laptop? No I wouldn’t. So what would be my decision? Sell it.
Return on Investment
When you spend time, energy or money on anything, it can be looked at as an investment. Whether making that investment is worth it or not depends on the return on that investment, and the costs of that investment.
Sure you can argue that “not everything is an investment, Mayank. Some things are just meant to be enjoyed, and done for the sake of doing them” — but I would argue that the ROI of those investments is pure fun, joy, satisfaction and the experience of doing the thing. Which is not a bad ROI. But it is still an ROI.
Whenever you’re making a decision, think of what your expected outcome of that decision is (the ROI), the likelihood of that expected outcome, and the costs incurred for that decision.
A few months ago, I was having a really tough time understanding whether I should spend a ton of money on a new camera. The one I had my eye on was considerably expensive, it was basically more than half the year’s YouTube earnings. And then one thought solved it all for me.
I realised that if I buy the camera, two things can happen.
In the first case, it gives me a positive ROI, through —
Greatly increased production quality, leading to…
Increased perceived value of my content, leading to…
More opportunities and views, leading to…
Increased YouTube/side business earnings and growth
Besides that, it would also give me:
Increased pleasure of shooting and creating — something that’s non-quantifiable
The joy and pride of having purchased something I’ve dreamed of for a long time
Basically, tons of potential positive things, and a few guaranteed positive things. I assigned my own weightage and value to each of these.
ROI = expected value – cost of the camera – opportunity cost of the money spent
In the second case, it would give me a negative ROI.
If I didn’t see any positive ROI in 6 to 12 months, I could sell the camera for a 15-20% loss on the cost of the camera.
I realised that the true worst-case cost of this decision was 15-20% of the camera’s cost. Something that I could easily do, and it wouldn’t affect me much.
I didn’t need to think anymore. I placed the order then and there.
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