Eighty Years of Family History

Bea-bopAbove you can see my great-grandmother (Beatrice). Bea was born in the late-1800s. In knowing five-generations of my family, I am the link from the 1800s through to the 2100s.

My family was involved in the early days of the province of British Columbia (forestry and shipping). Shipping sounds glamorous but the reality was barges, booms and tugs. I love being near water and trees.

ElphinstoneI never worked in the resource-focused businesses but I did work on the water at YMCA Camp Elphinstone – the photo is plaque that’s still in the Longhouse. I loved my time working in Howe Sound and summer camp. Below is where I spent many happy summers.

WaterfrontThere were successful businesses up both sides of the family tree and some very, very good business people. None of the financial capital from my elder’s success will make it through to my kids generation but the human capital of the family has remained strong.

If my great-grandparents could survey the scene today, they would likely observe that, once sold, a family business is very difficult to replace. I think they would also realize that their financial success had many unintended consequences.

Over the years we’ve been caught out by bank guaranties and leverage. It’s important to remember that one mistake, particularly when combined with bank borrowings, can blow a generation’s worth of hard work.

Indeed, in my own case, I was saved from personal bankruptcy by getting spooked by the boom of 2003-2005. I spook easily (!) but it served me well as I got through the Great Recession of 2008/2009 intact.

Always consider a bank guaranty to be the equivalent of an immediate equity investment, without operational control. Also, remember to ask, “Can I hold this investment, for up to ten years, assuming I lose my job?” Every generation has been hit by unexpected unemployment.

RAFMy elders would tell you that appearances matter, especially when you’re the little guy (in business or stature). The picture above is my great-grandfather, lone survivor of a mid-air plane collision. His son, my grandfather, made a habit of being kind and fair to everyone around him. This habit stuck with him, even as his mind unwound. Lacking kindness was my greatest weakness as a young man.

One of my earliest financial memories was being taught to never have more than 10% of my net worth in something I don’t directly control. Ignoring this advice proved costly, financially, but didn’t damage my quality of life. So pay attention to that tip, it saved the hard work of my generation of the family and you hear it repeated over-and-over by elders that have lived through severe recessions.

I’ve been an outlier with how I’ve chosen to live my life and can waste a lot of energy trying to make the world more like me. The best advice that I’ve received about living with other people is to optimize your life for the way things are, not the way you wish them to be.

There’s plenty of compulsive people in the family tree and we have a bias towards action. This trait helps you get things done. However, remember that if it won’t make a difference then you’re best to wait.

Daily, I remind myself that kindness makes a difference.

Seeing choices flow through 80 years, I hope my children develop a sense of personal success, then shift their emphasis towards loving their families, connecting with friends and improving their communities.

Getting Kids To Draw

Here’s a tip that buys me an hour when I switch the electronics off.

We visit Google Images and I let the kids pick out their own picture to color – make sure you include “coloring pages” at the end of whatever you want to draw. The picture below is “hippo coloring pages”


I’ll let my son stand on my desk and touch the photo that he wants. He can’t believe that he gets to stand on my desk and touch the screen. Happy and excited is good.

Then he grabs the picture from the printer and I set him up at his coloring station.

Kids that are really clingy will do best with a coloring station in your office, or kitchen (depending on what you need to get done).

The coloring stations are set up apart but the kids can color together if they choose. Some days they want to be alone, other days they are OK together.

With older kids, they seem to like a mix of their own drawing and coloring. My daughter loves to make other people cards with words that we spell together.

All kids love pictures that I draw for them. I take full advantage of being able to impress my two-year old…

Gordo Hippo

A little bit of effort on my part keeps me from melting our minds by having Disney’s Frozen on endless loop.

Do you want to build a snowman?

Setting Family Financial Priorities – College and Retirement


What’s next? It’s tempting to think about my kids. College accounts are on my list but they aren’t the next priority.


Because kids that will be successful don’t need much help and the family (particularly a financially responsible child) gains by not having to pay for Mom and Dad’s Golden Years.

Education has an mixed return on investment. Here’s my article on how families blow more than $1 million per kid. It’s a rare family that looks at education in terms of return on investment.


If you want to give your family a leg up then take care of yourself. Do this by max’ing out your retirement accounts – especially anything with an employer match.

I have a single member 401K under my consulting business. If you’re self-employed then you can find out your options by getting in touch with Vanguard.

I spent Friday afternoon shifting my retirement assets and Vanguard has an online tool that the self-employed might find useful.


What about college?

In current dollars, my pals that have put their kids through college have spent $200,000 per kid.

That’s $600,000 for my family of three – ignoring grad school.

Considering my entire family tree, there is no way the family would earn a reasonable return on that level of investment. Of course, my mind likes to tell me that MY kids will be different!

Thinking about the opportunity cost of $600,000:

  • A lifetime annuity of ~$2,400 per month – starting now
  • We could move into one of the best public school districts in the country
  • We could buy three rental properties and teach our kids about money by having them involved in deciding to borrow against the properties (or not) to fund their educations. The kids could receive a direct financial benefit from minimizing the cost (if any) of their educations
  • We could help send a dozen kids to grad school
  • We could back a family member to buy into an established professional practice
  • We could work less (for the rest of our lives) and make the world a better place
  • We could live abroad long enough for the kids to become bilingual (or to gain residency in a country with free education, national health care and retirement support)
  • We could improve the lives of thousands of people in the developing world (schools, safe drinking water, medical care)

The ideas above ignore the cost of the misery that we give ourselves worrying about funding college!

Given that I’m unsure that the family wants to support three college educations, we are working towards funding one college education spread between three 529 accounts.

Total annual contributions to college funds can be $14,000 per kid, per parent => a potential investment of $84,000 per annum for a two-parent family with three kids.

For all but the top 2% of US earners, paying for everything will be out of reach.

Don’t beat yourself up.

The best thing I can do for my family is love them and work on continually improving myself. I’ve come to see the benefits of my constraints.

Setting Family Financial Priorities – Healthcare

Over the last ten years, my family has incurred well over $300,000 of medical bills – births, broken wrists, malpractice, sick kids, MRIs – it all adds up.

In my family budget, I include my premiums ($7,872) and my entire deductible ($7,500). We fund our deductible via our HSA ($6,550 family contribution limit in 2014) and top up when required. The HSA is funded automatically each month so I’m forced to save that money. Most US Bank’s have a subsidiary that can help you set up an HSA.

$15,000 per annum is a lot of money but most years, we “save” a dollar for each dollar we pay out.

BellaFor example, my daughter spent 4 nights in the hospital:

  • $18,500 retail price became $8,500 after discounts given to my insurer
  • $8,500 bill blew through our deductible so we received a $7,500 invoice
  • We had previously saved $5,000 in our HSA so…

End result… I write an unexpected check for $2,500 instead of $18,500.

Health insurance offers up some benefits:

  • Cap our potential liability
  • Access the discounted rates offered to our insurance company
  • Pay automatically (direct debit insurance payments and HSA contributions)

Sidebar: work with health benefits would be a valuable addition to our family. A decent health plan could save us $15,000 per annum.


My next investment is a long-term care policy – about $5,000 per annum for the two of us. Even though the likelihood of payout on the policy is remote – for now – the policy gives me a lot of comfort in case tragedy strikes my wife, or me.

More on this in a post from 2010.

If I couldn’t afford my retirement investments then I’d skip the long-term care insurance, it has a low expected return on investment.

Passing The Starbucks Test

A buddy shared that he’s close to passing the “Starbucks Test” for financial security.

He’s spent many years living below his means and is close to reaching the point where he could maintain his lifestyle, while earning minimum wage. The nearing of goal achievement is making him nervous.

Career inertia, spending and debt can conspire to make us believe that we have no choice but to continue.

I’m happy for my pal and remember how the realization that I could live on far less, was a sad period. I was free and couldn’t blame my circumstances.

My choice was to leave a conventional life behind. I spent close to ten years “having fun” and doing what “I” wanted. There’s a lot of conditioning that tells us that self-indulgence is the secret to happiness.

It might be! Those were good years. However, things change and eventually, I was left with a question (along with my three children)…

What’s the best use of the time that I have left?

Are you doing your life’s work?

If not then change slowly.

Child’s Play

Pirate ShipAt my kids’ preschool there are only a few rules for safety – mainly around the zip line.

One of the rules they have for kids (and parents) is to NEVER help another kid up a tree or piece of equipment. Their view is the kids have a better idea of their limits than their friends, or parents.

Since they taught this to me, I’ve been a lot more hands off with my children and careful not to encourage them get in over their heads. It’s stressful when they are little but they figure out how things work quite quickly.

Wanted to pass that along as it’s been a useful technique to help my kids self-regulate.

One of my “fondest” toddler memories was my oldest daughter hanging upside down on a cargo net, screaming, at Pirate Ship Park in Vail. By the time I put my phone down and got over there, a mom had bailed me out.

Yes, I was the Dad looking at his phone while his three-year-old hung upside down.

Still working on getting the balance right.

Getting Crushed Financially

Market Moves

I love this chart.

Blow it up, print it out and study!

Jerry created the chart to show nearly a century of bull markets but what caught my eye was the nature of the eight bear markets.

  • Duration of 3 to 34 months
  • Scale of loss (peak to trough) of 22 to 84%

If you’re an investor then it’s important to realize that it is perfectly normal that you’ll get crushed once a decade. Knowing that it’s normal won’t make it hurt less, but it might make you realize that your pain is temporary.

Personally, my worst bear market was 2008. It was a doozy.

In the space of six months:

  • my family’s net worth fell 65%
  • I lost my job
  • My dependents doubled
  • I discovered that my (joint & several) partner was involved with fraudulent activity
  • I was exposed to the risk of civil prosecution

Absolutely awful.

I share this story to help you remember that THE world isn’t ending when YOUR world collapses.

Setbacks are part of life and my making it 20 years without a major financial setback was abnormal. In fact, I had several setbacks along the way (15% hits) that I’d forgotten.

Save the chart for a rainy day and I’ll retweet at the next recession.

The Luckiest People In The History of People

Last month, after three years, we had the final community night for my daughter’s preschool. I looked around the room and smiled at what a varied bunch we were. Big, small, young, old, crunchy and corporate… each of us with a kid attending preschool.

At these gatherings, we do a check in (link is to my 2013 article). We get a chance to share one joy and one challenge of being with our kids. The group is a powerful experience and, because it was the last gathering of this group of parents, many of us were emotional.

I’ve come to realize that these circles are valuable because I’m given the opportunity to not-solve the problems of everyone there. As you’ll see in the 2013 article, I don’t always take that opportunity.

I did better with listening at my 8th gathering. Some parents were saddened by the thought that their time in the community was coming to an end. They shared that their kids were also feeling sad about leaving the community and moving on to kindergarden. Here’s what I took away with me from the meeting.

Sadness about the end is an opportunity to teach our kids, and ourselves, about the realities of life. The reality being that everything ends and that it is ok to feel whatever we want about endings, including sadness.

It’s OK to show emotion.

My children think I’m the strongest man in the world. They’ve also seen me cry. They know I’m real.

When you feel the sadness of the ending, remember the craziness of living with your children. Hold the sadness of the ending against every parent’s fear that “this will never end!”

Hold the two qualities in your heart and look for a chance to teach it to your kids.

This lesson is everywhere – traffic, winter, rainy days, Monday, smog…

It’s seems strange but, when I’m calm, the sadness leads me to joy when I’m back with the kids. There will come a time when my children are not going to be cradled in my arms yelling at me.

The trick is to focus on the cradling, rather than the yelling.


I was also struck by what a fluke it was that we ended up together – sitting on little chairs, at preschool, in Colorado, on a pleasant spring night.

I know enough about the private lives of the other parents to realize that we’ve all experienced a variation of death, illness, divorce or hardship over the last three years.

In addition to shared hardship, it struck me that we happen to be lucky to have healthy kids and the ability to send them to a place where they are loved.

Lexi's Pillow

Tens of billions of people have lived on our planet and I ended up on my little chair, sewing a pillow for my daughter, smiling to myself.

I’ve been chuckling about that for a month.

Very few people, in the history of people, have the opportunity to live the life that’s available to us.

What are you grateful for?

Checking In With Your Real Estate Investments

Today’s article is longer than usual (1,150 words) but it’s worth big money to most families. I’m going to run through how you review a property investment. I use a version of this template for every property deal that I consider.

I make the cost of property ownership visible to my family. This habit keeps me from buying too large a property, or leaving valuable assets empty most of the year.

If you can’t calculate the sums before you buy then wait.

If you remember one thing from this article… act as if you will “lose” 10% of your purchase price the day you buy.

Let’s get started!

First: Calculate Net Realizable Value – What Happens If You Sell?

Start by coming to a view on current market value. To estimate market value, lay out the different options available. Be conservative, I’ve been known to fool myself with a dream value that has no chance of being realized.

In the case of the sample property, I have a wide range of options to value:

  • Dream value – $1,000,000
  • Estimate from Zillow.Com – $949,795
  • Have the owners ask local agents what they think – $925,000
  • Old appraisal – $850,000 (Nov 2012)
  • Assessment value from the city – $830,000 (end 2013)
  • Written down tax basis – $792,772

The tax basis of the property is your allowable cost, plus additions that are capitalized, less depreciation that you’ve taken against your taxes. When you buy a property, you have to allocate the cost between buildings (depreciable) and land (not depreciable). I usually use the appraisal that was done at the time of purchase, or figures from the county assessor’s office.

With this property, I know that the owners checked with local real estate agents and applied a discount to what the agents told them. So, for the purposes of this exercise, I’m going to use the Owner’s Valuation of $925,000.

When you sell, you don’t get the gross value. I account for sales expenses by taking 94% of the gross value. In our example, that leaves $869,500 (94% of $925,000).

The next step is to strip out any capital gains tax that would be payable. In this case, I know the family has an effective capital gains tax rate of 25% (including State). So we take the net price ($869,500) and deduct the taxable basis ($792,772) to get the taxable gain of $76,728. Taking 25% of the gain gives a capital gains tax liability of $19,182.

So the net realizable value for the property is $869,500 less $19,182 => $850,318.

Note that the net realizable value is FAR LESS than the gross value.

Rule of thumb: the market usually needs to rise 10% for you to get your money back.

I assume that I lose 10% of the purchase price on the day I buy. This assumption makes me reluctant to buy, which has saved me from many poor investments!

As an asset class, real estate is costly to own, illiquid and expensive to sell. Do your sums before purchasing.

Next: Figure Out The Cash Flow Before, and After Financing

For the next bit, you probably want to print the article out, grab a pencil and make notes for your own property.

If you can’t handle the pencil/paper method then this is a link to a spreadsheet that will do the calculations for you – make your own copy and fill in the Blue Cells. A picture of the spreadsheet is below.

Property Data SetStart with your net income after all expenses and depreciation. If you live in the US then pull up your Schedule E and look on Line 21 – in this case the net income was $4,476.

I recommend separate bank accounts for your main house expenses and any property investments. This makes it easier to track expenses by property.

To calculate cash flow before interest, we need to add back interest – Line 12 in the US – $9,375.

At this stage, I like to make a note about the total debt outstanding and the interest rate you pay – in our example the debt is $250,000 at a rate of 3.75%. Remember that you only want to count interest paid, not principal repayments.

Revenue Less Expenses ($4,476), Add Back Interest ($9,375) gives you $13,851 of profit before interest expense.

Because depreciation is a non-cash expense, you add depreciation back to calculate cash flow before interest and depreciation. In the US see Line 18 – $14,160 for this case study.

So the total net cash flow (before interest and depreciation) is $13,851 + $14,160 = $28,011.

To check the gross cash yield on the property you divide cash flow before interest and depreciation by the gross net realizable value. $28,011  / $850,318 = 3.3%.

3.3% is the gross yield and ignores the mortgage that is in place. The gross yield tells you the cash that the asset is generating. To figure out how your equity is performing, you need to adjust for the debt that was used to purchase the property.

Let’s adjust for interest and debt.

  • $28,011 less interest of $9,375 gives $18,636 of cash flow after interest
  • Net Realizable Value of $850,318 less debt of $250,000 gives $600,318 net realizable equity value. The equity is the value of “your money” in the deal.

$18,636 / $600,318 = 3.1% return on equity

Consider Taxes

Note that the 3.1% return on equity (above) does not take into account Income Taxes (federal and state) that would be payable on the net income. I know that the owners have an average income tax rate of 25%.

With real estate, your taxable profit is reduced by depreciation charges. So you take the net profit after interest and depreciation ($4,476) and multiply by your tax rate (25%) to get taxes payable of $1,119.

Income taxes reduce the return on equity to 2.9% – calculated as  ($18,636 – $1,117) / $600,318.

If you are able to hold for a long time then property can be a tax effective way for you to invest your money. Note that, in this example, the effective tax rate is 6% ($1,117 / $18,636).

Remember to estimate your taxes on the income after interest and depreciation.

Finally: Step Back and Consider The Big Picture

Now you have the financial information required to consider the deal (buy, hold, sell, refinance).

Questions I consider:

  1. What are the family’s overall financial goals and how does this property fit into these goals?
  2. How large is this asset class as a percentage of the family’s total balance sheet?
  3. What are the alternative uses of the equity in this property?
  4. Are there debts that cost more than this property is yielding?
  5. Are there large capital sums that will be paid in future years (roof, structural, local energy regulations)? If yes, then consider if you need to adjust value or increase future expense budgets.
  6. Consider the sustainable yield. Know that by adding back the depreciation, you have made an assumption that you won’t have to replenish the building any faster than your current year repairs budget. If the current year was a light expense year then are fooling yourself on the true yield that you’ll be receiving.

Ideally, you will have done ALL these calculations BEFORE you bought the property. If you did the calculations then pull them out and compare your budget to actual experience.

Update your numbers each May and track your investment over time.

You can find more about property investing in my free book available for download here.

If you’re curious about my thoughts… I like this deal because it sits beside a downtown core with strong economic growth. It’s yielding nearly 3% after tax and has excellent prospects for continued capital growth. Down the road, owners can retire to this property, rent out one of the units and live in the other at a low net cost.

The Trap Of Fixing

Camping With My SweetieSome say hate is a sign that you’re having an impact.

I’m not sure.

I think it’s more accurate to say that hate is a reaction to what I’m sending out. It’s an opportunity to pause, consider and learn.

When I’m focused on helping people, my ratio of positive to negative interactions is 500:1.

I find being told to change extremely painful. It’s like I let the World down, which is a major trigger for me.

The best antidote that I’ve found for dealing with my own negative feelings is to pause, not react, and ask myself, I’ll be happy when…

  • all dopers are caught
  • all frauds are punished
  • you change, rather than me
  • you. stop. that. right. now.
  • you close your sport, business, site, magazine because it bothers me
  • everyone, like me, has equal justice, from bigots like you
  • you break those friendships off

Are you sure that you’ll be happy if they change?

I won’t be happy when you change. I’ll pat myself on the back and move on to the next target. It is a path that’s guaranteed to make ME miserable and strengthen whomever is happens to be “wrong.”

My reality is that I will either be happy now, or not at all.

I share this because the 500:1 ratio is a compelling case that we can have a much greater impact by helping, rather than correcting, each other.

The positive interactions are what make us happy.

Break the chain.