Budgets For Beginners

flyingA reader asked for simple tips for starting out with financial management.


#1 – track everything you spend in a month

You may be surprised at the comfort that “knowing” gives you. The anxiety of “not knowing” is usually huge.

#2 – make a list of everything you owe, the minimum payments, and the rate of interest on each account

#3 – after you pay your monthly essentials, surplus cash goes to eliminate your credit card accounts (highest rate to lowest rate). Pay them off and close the accounts. Make a minimum extra repayment of $100 per week on the account with the highest rate.

#4 – saving (or debt repayment) is best done weekly, and automatically – for Americans, an IRA is a good option to consider. If you’re unsure what to do then have each adult in your house stick $100 per week into a target date retirement fund with a low-cost provider, like Vanguard.


The habit of weekly savings is powerful.

I helped a friend repay $10,000 in two years by using 100 weekly checks – her net worth when we started was negative $10,000. All she had was her clothes, her computer and a debt she owed. If she’d continued the savings habit then she’d have a portfolio of $75,000 now.

$100 per week from 18 to 62 years old will grow to $720,304 (5% compounding).


Financially secure parents/grandparents – consider matching earned retirement savings, this will help you to avoid supplementing consumption.

$100 per week from 12 to 30 years old will grow to $150,000 (5% compounding).


How much should you save?

If you want more info on saving for retirement then Bernstein’s ebook is a good one – it’s $0.99 on Amazon right now and a quick read.

Wrong For 25 Years

I try to protect myself, and my family, from the fact that we’re collectively clueless on the future. I also know that my memory rarely extends back more than three years. So, from time to time, I force myself to consider history, and what happens if we revert to the mean.

What does a chart of short term rates tell me about my unconscious influences?

Federal Funds Rate

The chart tells me that, at some level, I’m acting as if interests rates are going to stay at zero forever. In my case, this means that I’m prone to taking more portfolio risk than I would back in, say, 1981 (when cash was king).

How would a return to normal, as well as, a continued period of abnormal impact my family?

What would I do differently if I knew that rates were likely to move upwards over time?

What’s appropriate for a younger investor?

At 45 years old, a higher rate environment would see me take less financial risk. For most of my financial life, I was happy to have money sitting in a savings account. In this extended period of zero interest rates, it’s been painful to have a savings account and I’ve moved out of cash.

Despite telling myself that I’m conservative, my cash holdings are the lowest percentage of my portfolio in my adult life.

What’s normal?

The short-term rate chart (above) covers most of my life, let’s borrow a chart from Ritholtz’s blog and see what normal looks like across many generations. The chart below looks at long-term rates, which are less volatile than short-term rates.

Long Term Rates

It’s worth pulling that chart up on a big screen so you can ponder. The chart is over 200 years of interest rates. Thinking in generational terms:

  • Grandparents’ generation – 30 years down, 30 years up, 30 years down
  • Parents’ generation – 35 years up, 30 years down
  • My generation – 15 years up, 30 years down
  • My kids’ generation – ?

Looking at the chart, I note that there are periods (say, 1935-1955) where rates can stay low for a long time.

  • Long-term fixed rate debt seems like a good idea
  • Cash won’t always have a zero yield
  • Equity and real estate returns could be low for an extended period of time if long rates start trending upwards

How can I reduce portfolio risk in a way that protects my family if rates stay low for longer than we expect?

  • Pay off variable-rate debt and leave banking facilities in place
  • Lock in fixed rates and longer maturities
  • Open low-cost lines of credit
  • When considering a move to cash (or a lower family net debt position), rank portfolio holdings in terms of yield and exposure to future capital gains.

The lowest return assets in many personal portfolios are condos, large main residences, vacant vacation homes, surplus land and luxury items. Right now, the “cost” of holding these low-return assets appears to be far lower than historical norms.

Would I hold these items if cash could earn a low risk 2.5% per annum? 5.0% per annum? 7.5% per annum?

If you’re highly leveraged with short-term or floating rate debt then it’s worth considering if your life would change if rates moved up.

Over the last two years I’ve downsized my main residence, sold non-core low return assets and max’ed my long-term fixed rate borrowings.

In 25 years of investing, it’s been a paradox that the best time to sell is when I’m most tempted to hold on.

The Billion Dollar Dinner

2014-09-20 17.17.34Early in my finance career, I was invited to a very nice dinner. The occasion was to celebrate the firm passing the $1,000,000,000 mark for assets under management. In the early 90s, a billion dollars was a lot of money…

Roll forward 25 years and a billion dollars has become a salary for the best hedge fund managers. What an amazing industry.

In my article on fees, I introduced the concept of a “two and twenty” fund. The partnership received 2% of the assets under management (annually) and 20% of the gains. I didn’t run the numbers at the time, but the partners were celebrating ~$400,000,000 of fees and potential profit sharing. Huge sums of money created by the smartest room of people with whom I’ve ever shared dinner.

I can’t remember much about the dinner but I probably drank too much. I had some bad habits in my early 20s and the partners warned me to dial down the boozing! I wouldn’t discover the medicating effect of exercise until five years later.

Fortunately, I had good habits that balanced the bad.

Always make the needs of your boss your #1 priority. The only exception to this rule is if your boss’s boss makes a request!

When I started in London, they carved off a piece of hallway to create a cubicle for me. My chair was the only desk that could be seen from the Managing Partner’s office. When my boss had a task for me, he’d lean forward and yell,

Byrn, Heel!

Yes, I was treated like a dog.

And I loved it.

I’d stop whatever I was doing and scamper into his office for instructions.

The other habit that served me well was saving 50% of everything I earned between 12 and 30 years old.

My parent’s divorce left me with a deep fear of running out of money. As a result of my fanatical savings, I had capital to invest later in my career. In fact, I invested so much in the partnership that the regional heads changed the rules to restrict the investment of junior partners! Envy is part of the finance game and it worked out well for everyone.

With the size of the numbers bouncing around, you’d be forgiven for thinking that I’d retired a wealthy man. I made good money but decided to leave most of it on the table to try my luck at triathlon. It was a decision which, rightly, seemed totally bizarre to my family. I left the firm with a net worth of 20 years living expenses.

Always compare financial wealth to spending and remember life’s about time, not money. I didn’t become a wealthy man until I cut my spending, moved to a low cost location and began to pay attention to what gave me satisfaction.

Far more valuable than money, perhaps the moral of today’s story:

  • Save as much as you can, and work your tail off, early – the freedom later is worth it
  • Everyone needs to learn basic financial accounting and the time value of money – in a world dominated by greed and envy, financial literacy is invaluable. I use these skills every day.
  • Getting paid a lot didn’t satisfy me. I had no idea what motivated me until my life was reset via divorce, unemployment and massive financial loss. I could have made a ton of money sticking with the status quo and that would have been a mistake. Finance could have cost me my health and turned me into a dick.

The best advice I received on my career was from a man, now gone, that was at the dinner that night (link is to my blog about my mentor).

Learn, make money, remember to leave.

When most everyone was telling me that I’d make partner if I stayed in London. An honest man took me out to breakfast and shared advice about living a good life. A good person in an amazing industry. He wasn’t the only one and I miss the team from my early career.

To my friends in Private Equity, thanks so much for the good times and memories we shared.

What If I Had A Fund of Fun

I think best when walking in nature so I climbed South Boulder Peak and asked myself “what if.” I came up with the following list:

  • Race the Tour of the Dragon in Bhutan
  • Nepal – Hike the Annapurna Circuit
  • Tibet – Pilgrimage to Mount Kailash
  • Hole in the Rock – Lake Powell
  • Sail the Atlantic (Canaries to Caribbean)
  • Cruise to Alaska
  • Cruise Micronesia

Knowing that my desiring mind isn’t the most reliable adviser for personal happiness, I stepped outside of the specifics to consider the deeper urges. I noticed…

  • Remote mountain biking and hiking
  • Mountains, forest and water
  • Exploring

Maybe I should tap out everything that’s an easy drive from home, before spending a fortune in airfare and crossing dozens of time zones? Maybe I ended up in Boulder for a reason… 🙂

It’s a lesson that I’ve shared with many aspiring athletes. Until you can win every race within a 90 minute drive from home, you should only travel to access great training.

Here in the Rockies, there’s a lot of good stuff that’s within 90 minutes and getting there doesn’t stress my family, or my budget.

What drives your list?

Hare-Brained Schemes

I’ve found that if you create something trivial to be anxious about, it cancels out serious things that you might be anxious about.

Malcolm Gladwell, WSJ

The patriarch of a family that I advise gave me a call to ask my advice on an investment with a very low probability of success…

“Am I crazy to do this?

Should I simply toss it in the trash?”

We think alike and his questions were a reflection of my own thinking… no way you’re going to make this work, it’s likely a waste of money, yada yada yada…

My advice?

Go for it. Absolutely.


Here’s why…

The deal was in an area that’s far outside his core competency. Having the opportunity to learn, to make mistakes, to create is a lot of fun. When I’m having fun, I do all aspects of my life better (husband, father, consultant).

The deal has a limited financial and time downside. The risk of time is often overlooked – time spent worrying, time spent seeking to fix a low performer, time not spent working on a strength. My pal is very good at his strengths and has a young family. Spending additional time learning new skills is “worth” the small downsides.

As Gladwell notes, when we’re working on a modest hare-brained scheme, we are far less likely to dream up something that risks a material chunk of our net worth, have an affair, quit our job, or pursue any of the other areas of Human Misjudgment.


Related to the above, if you have trouble being financially sensible, or get a thrill from risk, then a smart way to manage yourself is to allocate a small portion of your net cash flow towards casino-type investing, or actual trips to the casino!

You’ll find that your brain doesn’t require a large stake to excite itself with anticipation and you can stay open to the creative side of your personality.

Call it your “Fund of Fun” and use if for Vacations, Luxuries and Hare-Brained Schemes.

Allocate a portion of your cash flow (and time) towards these schemes.

Keep the rest of your life sensible and run it on autopilot.


Personal note – I always know that I’m holding onto my “rules” too tightly when my wife starts telling me to “be more fun.”

Truth be told, I’m terrified of breaking the rules because there’s nothing I like better (in the moment) than a massive binge!

I need a “fun budget” more than anyone.

Binging is a clear sign of holding on too tightly.


Finally, pay attention to how “the things that you think will make you happy” make you feel. I’ve noticed a HUGE difference between what I think I need and what makes me content.

  • I’m fond of adversity in hindsight
  • More food, more alcohol, more sleep, more money, more fatigue – MORE is not my answer
  • It doesn’t take much of a hangover to negate the small marginal gain from extreme living.
  • We are naturally loss averse – the trick is to frame choices to take advantage of this tendency
  • I’m prone to forget the joy of serenity, stillness and simplicity

Anyhow, that’s my list. I sincerely hope that you take the time to write your own.

Don’t wait to start living.

Micro Courage

axel_lionHow do I cultivate deep strength and resiliency?

We might describe resiliency as…

  • The capacity to continue despite life’s setbacks
  • The ability to become stronger due to stress (anti-fragility)
  • The strength to handle anything

They sound great, grand and completely unattainable!

I’m going to guide you through how I break it down into something that I can action in my daily living.

Start by flipping it on it’s head, what are the characteristics of the not-resilient? Think of the biggest head case you know…

  • Angry
  • Anxious
  • Depressed

When I think about anger and anxiety, they strike me as cultural expressions of fear. At some level, we see angry men and anxious women as normal. I feel both emotions all the time and they make me less effective.

What to do?

Over the last two years, I’ve been experimenting with micro-courage.

I started by printing up 50 life lessons and highlighting the ones that I wanted to focus on (11, 12, 18, 26, 27, 28, 37, 42, 49). If you come by my office, you’ll see they are taped near my printer…

lifelessonsReflecting on the lessons, I paid particular attention to three:

  • Let your children see you cry
  • Forgive everyone everything
  • Yield

I’d encourage you to find your own (triggers).

The game is to focus your actions on situations at the edge of what you can handle.

Here’s an example:

  • There are lots of homeless folks on the Boulder Creek Bike Path. Some of these folks are violent, others are mentally ill, still others are addicts. As a group, they scare the crap out of me.
  • While I have pals that work with the homeless, I don’t have any clue how to “fix” this problem and often wish the problem would go away (so I don’t have to deal with my inability to deal with it!).
  • Anyhow, there’s one guy that sits by the creek in the 28th St underpass and says good morning to everyone that runs, rides and walks past him. He’s a drinker and can get a little sloppy towards the end of the day.
  • I can’t fix the city’s homeless challenges but I can offer the guy a bit of human connection as I ride by. I look at him, smile and take a breath in. On the face of it, I’m smiling at him but, in reality, I’m staying open to the fear within myself. That’s micro-courage.

The story repeats itself in every part of my life that I want to close off.

I try to “stay open” as many times a day as I can.

The problem can be homelessness, litter, aggression, poor driving, manners, food quality… keep it small, remember to breathe in through your nose with a tiny smile.

Staying open to a small fear, a slight inconvenience, a little bit of sadness… I call it micro-courage.

The habit has been transformative in situations that I used to find overwhelming.

This is what I meant when I wrote that strength comes from staying open to little fears.

Courage is a powerful antidote to fear, anxiety and anger.

Be brave.

True Strength


One of my coaches, Mark Allen, made the observation that to get our race in order, we need to get our lives in order. Racing, like any other form of stress, can strip away our filters.

Mark’s advice is an example of an athletic lesson with a wide application into everyday living.

We share a desire to be strong. This desire is expressed by building up and adding to one’s self.

  • Adding size through muscles, bulk, heels, boots
  • Adding tension from taking on obligations
  • Adding palmares from victories
  • Adding possessions and external signs of power

I’ve done it all: cowboy boots; academic honors; powerlifting; fancy cars; big houses; jewelry for my wife…

Adding, adding, adding.

The list above is about our external life. Building up is a projection of strength, but it isn’t true strength. I think Mark is pointing us towards something that might become resiliency. An integrated life where we are in harmony with our external projection and OK with all aspects of our experience (strong/weak, happy/sad). This harmony lets us cope with the tests of our races (and lives).

Perhaps you’ve had a situation where you tell yourself to be “strong” but a more accurate description is a fear that our inner storm might show through. Having completely fallen apart a few times, isn’t that big of a deal. I don’t want to make a habit of it but I also don’t want to spend my life holding tight and letting the pressure build within me.

When tired, when grieving, when sick, when stressed… life has a way of stripping our filters away.

But how can we process our inner life?

  • Exercise works well for me – moderate effort, repeated movements
  • Others prefer meditation – cultivating stillness and observing one’s mind
  • Many find the combination of breathing and movement in yoga to be effective
  • Thrill seekers tend towards extreme risk and peak experience – works for them but doesn’t work for the larger goals of my family

If we keep peeling away our layers then we might find that the joke is on us.


Ultimately, every individual unravels.

It can be terrifying when we bump into this reality. You may have experienced this fear through the death of friends, parents and grandparents.

Ultimately, we might find comfort in defining resiliency in terms of something larger than ourselves – family, legacy, lineage, tradition.

Cultivate courage by staying open towards little fears.

Free My Mind

monsyWhat’s the difference between knowledge and wisdom?

Time, perhaps.

My friend, and his father, are both surgeons. The older doctor shared that ‘half of everything I learned, turned out to be wrong.

When I think back to my formal education, a good chunk appears to have been wrong. Of course, studying economics in the 1980s gives one an edge in the search for academic humility.

Why does this matter?

Knowing that most my knowledge will prove meaningless helps me decide where to focus thought. Some questions that I ask myself when I’m wound up…

Could I be having this discussion 10, 100 or 1,000 years ago?

– Nutrition, exercise protocol, the body fat percentage of myself and friends… All are recent phenomena. Not worth devoting much share of mind towards.

– Living well, meaning, time allocation… These questions track back to the ancients.

How long has this problem persisted?

– I love this question with regard to young children. They have been a challenge for parents across thousands of years. My odds of transcendence are long!

Under what conditions is the opposite opinion correct?

– This one is a loaded question because, once you realize that there’s always a situation where the opposite applies, it’s easier to develop tolerance for those who oppose us.

Am I sure?

The benefit of experience is that I’m not sure about much. However, there is a small list of traits where I am quite sure.

Quarterly Review

boat2Completed my quarterly review last week and wanted to pass along a few observations that could save your family money.

My default stance with personal expenses is “stay variable.” Renting, rather than owning is a good way to live. In-and-out of a property costs you a minimum of 15% of the gross capital value and being tied down geographically reduces your human capital.

That said, the best deal that I’ve done in the last few years was the purchase of my current house. It’s a half block away from a great public school and my mortgage/taxes/insurance cost me 65% of my owner’s equivalent rent. While I have a large amount of equity tied up, it’s increased 30% in the last two years (see – how I value real estate for a calculation method).

Three factors dominate my cost-to-own being less than my cost-to-rent:

Mortgage interest rate – these remain historically low. My rate is fixed for another 28-years – a valuable asset for my young family.

Cost to insure – Ten months ago, I realized that my home was grossly over-insured. As part of a 2nd mortgage restructuring, my place was appraised. I used the appraisal value to get a more realistic level of insurance in place.

Local Taxes – In 2013, the county reassessed my property at a 30% increase in value. I reviewed the county assessor’s website, pulled together more appropriate comps and requested a do-over. The assessor agreed with my comps and cut my taxes significantly.

The above, combined with an incorrect escrow calculation, means that my monthly payment has been resetting downwards all year. Starting October, I’ll be paying 20% less than two years ago.

The lesson is to be pro-active with checking the components of your mortgage payment. It takes times to get things right but there’s likely money to be saved. Everywhere I poked, I could save money.

Be patient with property purchases – great conditions happen once a decade and it’s nearly always better to wait.


In my portfolio, three main adjustments:

  • Sold US Equity Index to rebalance and raise funds for a property deal. This came out of a taxable account and I’ll pay CGT on the sale. Normally, I’d avoid the CGT but the account is a minor custody account that we’ve decided to spend on the kids before they’re 18.
  • Exchanged International Bond Index for US Bond Index to simplify my portfolio, lower my total cost and because the fund manager wasn’t able to convince me of any benefits of the product. Non-taxable exchange.
  • Staying the course with asset allocation ratios but will tweak if I sell an investment property.


Our long-term care insurance provider increased Monica’s premiums by 45% so we dropped the policy. Due to my cycling, it will be a tougher decision if they seek the same with me.


Our largest discretionary expense is preschool and childcare. We started tracking this weekly and comparing against my spouse’s gross income from working part time.

  • This calmed my mind because it showed that we were more in balance than I thought.
  • It gave us a weekly snapshot of how we were doing with cost control.
  • It showed us the trade-off between more work and more childcare.



Overall, we keep chipping away at making our family a little more efficient each month.

It Wasn’t Good For Me

gnomeA number of my pals triathlon’ed from Vancouver to Calgary over the last two weeks. They did the journey as part of something called Epic Camp and I highly recommend Scott Molina’s blog about the trip. I’ve been chuckling along as the crew drill themselves daily across the Canadian Rockies.

In reading Molina’s diary of their adventure, I’ve been feeling three emotions…

Joy that Scott is able to keep on trucking. The guy’s 54 years old and he’s still able to love training at the edge of human endurance. Epic Camp is about the mental component of performance and Scott personifies joy from suffering.

Continuing amazement at what people can accomplish. It’s tempting to put ultra-athletes into a separate category as genetic freaks. The reality is most ultra-athletes are fairly normal physically. The differences arise in their capacity to embrace obsession and the way they experience fatigue & suffering.

Finally, I experience a deep sense of gratitude for my life in Boulder. When I was living my life of extreme athletic performance, I couldn’t see the cost of my status quo.

By the way, lots of people talk about the health risks of extreme exercise. I think that you are right but you’re missing the point. See the camp for what it is… a binge. I’ve always enjoyed a good binge. It’s something I need to watch. Also, so long as you don’t go banana’s with the running, the main short-term risk (to your kidneys) is limited.

Scott knows, and shares, the requirements for athletic success. He’s far more open than any other triathlon writer, myself included.

What’s yet to be published is the total reality of seeking our ultimate triathlon potential. Outside of triathlon, Sam Fussell gave it a shot with bodybuilding. His book, Muscle, is an entertaining account of the life of a full-time amateur (AKA a life similar to most tri-pros). Leaving the extreme drug use to one side, the parallels with my life are many.

I’ve often wanted to write the “whole truth” about my life. I’m most open with the non-racing spouses of my training pals. They know enough about my world to be entertained but aren’t so invested that I challenge their identities with my observations.

I looked deeper into my motivation and saw a desire to protect my children from my near misses. However, my children’s obsession is certainly going to be different than my own and they will resent being told what to do by their, ultimately, sixty-something father.

Here’s where Sam’s book comes into it’s own. The hero in Sam’s book is his mom. She keeps the lines of communication open, accepts Sam for who he his and frees him to change his mind on his own timetable.

As we ascend to the top, we can lose the goodness of our youth. It’s no accident that the highest-achievers had very difficult childhoods. It’s a rare person that becomes more kind under extreme stress – at Epic Camp, Bevan James Eyles is the best example that comes to mind. He was always part of the solution. The rest of us acted like wolves, or hyenas.

What helps everyone is encouragement to hold onto a piece of goodness and stay open when the little voice says, “this isn’t good for you.”

…and while I have no idea who is doing the talking… I know that following that voice has led me to a wonderful life.