Educating A Beautiful Girl

Lexi in MoabAn enduring benefit from working across cultures, races, sexual orientation, body mass indices and beauty is an increased capacity to see myself in other people.

If you look closely then you’ll see that power-seekers have a tendency to focus on the wickedness of “them.” It’s an effective argument employed by the media, politicians and our leaders.

Pointing out “their wickedness” is so common that I search for teachers that are careful to avoid an appeal to wickedness.

A story…

My daughter and I were heading into the supermarket in Moab. People in the desert look different than people in Boulder.

Dad, dad… that homeless guy is stealing all the food.

Sweetie, look carefully, he’s taking his groceries to his car.

With her filters off, my daughter reminded me that I have some work to do.

Another example…

The wealth effect of excessive living is obvious. However, if you look deeply then you’ll discover another, far more subtle, effect. You’ll be able to feel a separation between yourself and other people.

As you separate yourself, you will be prone to seeing “their wickedness.”

The physical separation is in plain sight – education policy, gated communities, exclusive clubs, athletic ability…

In Boulder, we don’t need gates, the price of real estate makes an effective barrier to entry, especially when combined with private school fees (so our children are protected from their children).

If you sit quietly then you will feel a deeper separation. It makes us miserable and allows us to be manipulated.

An antidote…

  • Humility in my own needs
  • Spending time outside my “tribe”
  • Looking inwards at my tendency to hold myself separate

Later in the trip I asked my daughter…

Who gets hurt when you’re scared or angry?


Dealing with an Irrational Spouse

girlsA decade ago, I was working in Bermuda and went shopping with my girlfriend. She picked out a small container of strawberries for us and I nearly pooped my pants…

Eight bucks for strawberries?!?

My girlfriend is now my wife but I’ve held onto my tendency to sweat the small stuff.

In the middle of winter I was looking at all the exotic fruit in the fridge and asking myself how much all this cost. I came across a quart of chopped watermelon and nearly pooped my pants…

Ten bucks for watermelon?!?

While I haven’t learned, my wife has…

I’m grateful to be married to a man that can afford to buy ten-dollar watermelon and I assure you that your children and I are going to savor every single piece of it.

I share the script because the people in our lives that feel pain from spending probably feel pleasure from providing.

Her reply was brilliant.

While I have been doing more fruit shopping at CostCo, the pain from opening the fridge door has been replaced with pride from being able to provide the family with healthy choices.

This example has given me the courage to search for other “fruity” situations in my life.

A Lesson From Richard Feynman

snow_bunnyThe mistake I made was not reconsidering my involvement once the original reason for agreeing to help had been removed.

The quote is Richard Feynman’s. It refers to his role in building the nuclear weapons that killed more than 100,000 people. You’ll find the story of his involvement in The Pleasure of Finding Things Out.

One of the most dangerous biases that we’re prone to is consistency and commitment tendency.

Once we start down a path, it takes uncommon effort to get us to deviate, or change our mind. In fact, the harder outsiders try to change our minds, the more we dig in. Think politics, patriotism, corporate policy and religious dogma.

However, it is not all bad news. We can acknowledge this tendency and harness it to make positive changes in our lives.

Write down key decisions and own our errors. I force myself to do this annually.

Force ourselves to look inwards and discover the irrationality and intellectual arrogance that we see in others. My wife is an expert at gently pointing out inconsistencies!

Make a habit of micro-change. Fake it until you make it and give yourself permission to change your mind “just a little bit.”

Making significant changes in our lives is such a hassle that we nearly always wait until a crisis forces our hand.

  • Divorce
  • Health emergency
  • Large scale financial fraud
  • Ethical lapses
  • Criminal behavior
  • Addiction and abuse

These are opportunities to reassess but, in a crisis, I’m too overwhelmed to think clearly!

My solution is to schedule time to consider time.

  • Family
  • Career
  • Relationships
  • Athletics
  • Volunteering

Remembering why I started.

Did my choices today make sense?

Allowance 3 2 1

amigosMy six-year old has been hounding me to buy her stuff:

  • Pink iPhone
  • Pink Mermaid Tail
  • Pink Guitar

Rather than entering into a philosophical debate on consumerism with my kindergartener…

I decided to put her on the payroll.

We’re starting at $6 per week and I told her that she’d get a raise of $1 per week on her birthday.

$6 also makes the math easy for what I want to teach her.

I gave her three envelopes. I wrote on each…

  1. Save
  2. Spend
  3. Donate

My weekly recommendation was to save three dollars, spend two dollars and give one dollar away.

She asked if she had to do it my way.

Knowing that the purpose is to create ownership, embed good habits and learn from errors… I said it was up to her.

So far she’s saving 100%.

She asked if she had to do any extra work.

Hoping that a reasonable allowance might reduce lying and petty theft, I said that it didn’t rely on anything.

My wife felt that $6 per week was a lot. Looking at a CPI calculator, it’s the equivalent of $2.50 when my wife was six and $1.25 (!) when I was six.

Seems reasonable and the round numbers made it easy to introduce the concept of allocating income (Save, Spend, Give).

Saving half of everything I earned before 30 was the best financial decision of my life.

It will be interesting to see the unintended consequences.

Effective Wealth and Diversification

2015-03-18 07.31.56I was asked to update thoughts on family legal structuring. Before jumping into that topic, I want to define effective wealth.

If you remember one thing from this post…

Your effective wealth is most closely linked to your spending, not your balance sheet.

Consider US$1,000,000. Depending on where you live, this money could support:

  • a CEO for a year
  • a family for a decade
  • a village forever

The first thing to understand is your core cost of living. It’s going to contain:

  • Housing / Property Taxes / Insurance / Maintenance
  • Groceries
  • Income Tax
  • Health Care & Dental
  • Utilities / Mobile / IT
  • Transport

My family’s total approaches $100,000, which is a big number. However, on a per person basis we’re under $20,000, which is less than I’ve been able to live on my own.

Next comes discretionary spending (mine in descending order):

  • School Fees & Childcare
  • Gifting
  • Club Fees, Subscriptions & Kids Activities
  • Date Nights
  • Cleaning

Before parenthood, I missed the step change in expenditure, and associated wealth effect, of kids. Note that kids increase human capital, are sources of love and have tremendous option value!

Finally comes luxury spending – travel and vacations. With five in my household, luxury spending has been on a rapid downward trend since my second child was born.

Pulling all of that together, you’ll be able to consider your financial wealth relative to your spending.

  • Individual wealth => 5 to 10 years cost of living
  • Generational wealth => 10 to 25 years cost of living
  • Multi-generational wealth => 25 to 40 years cost of living
  • Surplus (excess?) wealth => beyond 40 years cost of living

The appropriate legal structure changes as your family wealth changes.

To understand effective diversification, express your asset allocation relative to your spending. Consider these categories in years spending:

  • Family home
  • Business investments
  • Real estate investments
  • Retirement accounts
  • Education accounts
  • Taxable investment accounts
  • Cash equivalents
  • Non-yielding luxury assets (art, jewelry, vacation homes)
  • Depreciable assets (boats, RVs, vehicles)

Also write out your sources of income and make your cash flow concentration visible.

Looking at asset, income and cash flow concentration should make your key financial risks more obvious.

Be aware of the human tendency to look away from things that make us uncomfortable.

Micromanaging the “little” will make you miserable – remember to focus on the big things.

Change slowly.

An Unexpected Teacher – The End of The Little

ax_fro_yoThe early years of parenting are a blur but two memories persist from the first time I was living with a three-year old.

One memory is hiring a full-time nanny and explaining her job description as “get our oldest out of the house.”

The second memory is trying to generate compassion for our daughter by thinking about how sad I would be if something happened to her.

Now that our middle kid is three, we’re in familiar territory. However, this time it feels different.

I wasn’t able to see what follows until I was taught to look for it.


We have a mixing bowl that has each of the kids’ names in it.

We draw a name from the bowl and the kid that wins is Kid-of-the-Day.

Kid-of-the-day gets to choose where s/he sits in the car and what shows we watch.

When we drew Bella’s name out of the bowl, my three-year old (Axel) was jumping for joy because it was his sister’s “day”.

The capacity to experience joy for another person’s good fortune.

I’m grateful to be able to see that in my house.


I don’t meditate about my kids dying anymore but I often think about my own death.

Through my contemplation, I can see the transient nature of my little boy. He’s arrived at the end of being little. The “little” phase is nearly done.

It was awesome.

I miss him before he’s gone.

I’ve been working with that feeling to get a better appreciation of life.

As the bumper sticker says, these are the good-old days.


When things were very difficult with my eldest, I would assign motive and intent to her behavior.

…she knows what she is doing to me…

In speaking with child development experts, they assured me that it was impossible for a little kid to have intent. Possibly, the kids are picking up on my internal struggles and reflecting them right back at me.

Most likely, my experience is dictated by the turmoil in my own mind.


One of the most amazing things about three-year olds is their capacity to switch between emotional states (tears – to joy – to tears – to laughter – to tears),

I remember one time my son had me on the edge. It was the second hour of putting him to sleep, I was exhausted and he was making request after request after request…

I was spending considerable energy not acting on my frustration, and feeling like crying, he says… Daddy, I love you.

…and reminded me that we will never regret not acting on our anger.

Handling Criticism with Grace

2015-03-14 11.37.55

I was dropping my kids at school and overheard a conversation between a parent and teacher.

The parent was running through a shopping list of needs for her little one and explaining how the teachers had been falling short.

As I listened to the parent, I could feel myself digging in on behalf of the school and the teachers.

…don’t you know how long we’ve been doing this

…do you really thing you know better

…does any of this truly matter

Instead, the teacher listened carefully and let the parent talk herself out completely.

She replied,

Those are good ideas and I want to thank you for your patience with us.

Absolute brilliance!

The reply took the energy out of the situation and the parent was grateful that she was heard.

I took the “thank you for your patience” and have been working with it.

I use it with myself – stay calm be patient.

I use it with my family – I am working to improve, thank you for your patience

And, I use it when people offer correction – those are good ideas and I want to thank you for your patience.


Intro To Margin Finance

snow_mtnBDC asked for an example for my post How Leverage Kills.

If you don’t understand debt then assume that the only time it might make sense to borrow is when your 30-year fixed-rate mortgage payment (including taxes & insurance) is less than your cost to rent. Assume that all other forms of debt will hold you back, prolong being a wage slave and reduce your retirement income.

The people that take issue with the generalizations above are probably trying to sell you something, and working on commission.

My family’s only borrowing is a 30-year fixed rate mortgage. Our mortgage payment is 60% of what it would cost us to rent. I made a calculated bet that our mortgage debt would provide a hedge against rental inflation.

Homeownership isn’t necessary for financial freedom. I bought the house because:

  • I have a young family
  • Don’t mind being geographically restricted
  • Live in a great public school district
  • My youngest won’t graduate high school until 2030
  • Our city is likely to experience above average real economic growth
  • I’m in a better part of town


Let’s assume our investor has $100,000 and owns an asset that yields 2% after expenses ($2,000 net income).

  • Along comes her investment adviser and offers a portfolio loan – rates are low right now so the loan will cost her 3% per annum.
  • Our investor decides to borrow $50,000 and purchase more of the same type of asset.
  • Now she has $150,000 of assets, still yielding 2%, so $3,000 of income each year.
  • The loan is interest only and costs her $1,500 per annum (3% of $50,000).

Where things get wonky is if the asset’s yield disappears — for example if a rental property is vacant — OR — if the capital value drops significantly — for example if a portfolio of stocks falls 50% in a bear market.

Let’s look at the 50% asset value decline.

  • The value of the asset falls from $150,000 to $75,000.
  • The value of the debt stays the same $50,000.
  • Therefore the net equity value falls to $25,000.
  • The net cash flows stay the same $3,000 from the asset, $1,500 interest to pay, $1,500 net after interest.

If you generate enough cash to pay your interest then you can ride out the bear market and wait for asset values to return to pre-crash highs.

However… a common feature of margin lending is the bank can ask for their money back… ….and they have a habit of asking at the worst time.

Sometimes, they don’t ask, under the terms of your loan they have rights to sell you out of your position.

Let’s have a look at what happens if the bank asks for their money back at the bottom of the market.

In that case, you crystallize a 75% equity loss ($100,000 to $25,000). You are left with $25,000, which will be worth $50,000 (earning $1,000 per annum) when the market recovers to pre-crash levels.

If you didn’t borrow, you earn your 2% per annum through the bear market and end up with $100,000 (earning $2,000 per annum) when the market recovers.

Market Moves

The chart shows major bull and bear markets.

Using your own money, a habit of margin finance could wipe your investment out every 10-25 years.

Some risks aren’t worth taking, especially with money that you can’t afford to lose.

So Why Borrow?

In a bull market, it’s tempting to borrow a much higher percentage of the total investment. Hedge funds, and investment banks, can get over 90% leveraged, against shareholders funds (also known as other people’s money).

When you guess right with other people’s money, the “house” will get rich quick. I worked in a business that received 20% of the profits generated.

When you guess wrong, the clients take the losses.

More on leverage in Part Four of my free eBook Live Long & Prosper – specifically pages 46 to 51.

Structuring A Family Pension

Ax_iglooThree questions for your next family meeting, or your financial adviser:

  1. How long of a retirement should we plan to fund?
  2. As a couple, what is our joint life expectancy?
  3. As a family, how do we invest considering our collective life expectancy?

Today, I’m going to take you into the future of your retirement, your children’s retirement and your grandchildren’s retirement.



If I make it to 63 then my wife will be 55. At that point, there is a 50% chance that at least once of us will last another 31 years. Here’s a calculator that you can use.

It’s worth repeating – as a couple we have a joint life expectancy of 31 years when I reach 63 years old (17 years from now). Today, my wife and I have a joint life expectancy of 47 years.

That’s a heck of a long time for inflation to act on our cost of living.

Inflation of 2.5% for 47 years brings each $10,000 of current expenditure up to $31,917.

In other words, despite being middle aged, our core cost of living is likely to triple across our lifetime.



The joint life expectancy of my daughters (6 and 2) is 90 years. Their cost of living is going up 8-10x over their lives.

Can I insure against the risk that my surviving children run out of money late in life?

Let’s look at a case study.

At the end of last year, I was considering an expensive vacation. I couldn’t justify spending the money on myself and the calculation that follows is part of the reason.

As a family, we can make the decision to invest $10,000 per annum. There would be no impact on my quality of life.

What could it do for my children?

  • $10,000 per annum, invested for 47 years, 5% rate of return is $1,781,194
  • $1,781,194 invested for an additional 13 years at 5% is $3,358,707
  • Over $3 million in 60 years from redirecting my vacation budget

Let’s talk in 2015 dollars. I have no idea about future inflation, let’s assume 2.5%.

  • The $3.4 million will be worth a lot less in 2075 than today
  • $3,358,707 discounted back to 2015 at 2.5% is $763,379

In case I’ve lost you.

  • The cost is foregoing $10,000 of annual expenditure for the rest of my marriage.
  • The benefit is my survivors share a 30-year retirement income with a current purchasing power of $49,658 per annum.

The payment is calculated with 5% rate of return, over 30 years, with $763,379 starting value.

It’s never “too late” for compounding to work for your family. I’m closing in on 50 and can leave a valuable form of insurance to my children by changing my current habits.



Run the exact same scenario except I have 85 years to grow the capital.

  • Invest $10,000 per annum for 47 years
  • Roll up for another 38 years (85 years total)
  • Discount back 85 years at 2.5%
  • How much income for the surviving grandkids (in retirement)?

30 years of $90,705 per annum in 2015 dollars ($1.4 million of present value, 5% rate of return).

It’s worth the effort to learn finance and tweak your wealth behaviors.


This post inspired by Nick Murray’s book, Behavioral Investment Counseling

Link to a google doc that let’s you tinker with my assumptions. Make a copy before editing.

What I Wish I Knew Four Years Ago About Fatherhood

Lexi_2011I’m told that 2010-2013 were often awful. I wouldn’t know for sure because I have ZERO memory. It’s amazing. Aside from the photos, the early years of my kids are gone.

My wife carries emotional trauma from these years and will flashback when something triggers her. She tells me it’s a really unpleasant sensation.

The memory I have is wondering why I couldn’t transcend my daughter. I used to carry around the difficulties of parenthood. Even when I was away from her, I would hold the difficulties in my mind.

My wife’s the same way – both with her 2010-2013 experience of our daughter as well as with her own childhood memories.

I suspect we’re all prone to carrying around the past.

This might help.

The first step in letting go of an image isn’t letting go, snapping out of it, or moving on…

…my mind doesn’t work that way.

Lexi_CuteWhether you’re coping with an unpleasant emotion, an addiction or a compulsion…

…far better to give your mind something to grab on to.

Lexi_surfDecide on a series of images that you can feel in your body. The feeling you’re looking for is one that mimics joy and love – in my case the sensation in an opening of my heart.

Lexi_FlowerI walk in the forest and contemplate my favorite images.

When I started, I struggled to generate the feelings with the images of my daughter. I kept coming back to the pain image at the top of the page.

Ax_HippoSo I would start with images of my son and transfer the feelings over to my daughter.

It didn’t work well at first but I stuck with it.

I also spent a lot of time with the source of my discomfort.


…and my daughter grew up

…and I got better at it


…and I realized that what I was doing was training my mind to be able to conjure up a sensation, a feeling, an emotion

…that was different to my prior habits of anger and frustration


The difficult moments remained challenging but I was no longer carrying them around with me.

It was a form of freedom.

I found myself laughing more often and I had a bit more patience, which can be VERY useful when dealing with a cranky three-year old!

Anyhow, if you find seeking dominance to be an ineffective strategy then I hope you remember this post.

Replace your suffering by thinking about things that make you smile.

Bonus points for making the effort while walking in nature!