Monthly Archives: September 2015

Survival Tips For A Sad Parent

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2015-09-18 19.23.04A father with two young children asks, “Is there anything you could recommend to make my family life less awful?”

I can’t wave a wand and make it enjoyable. However, I take comfort in the knowledge that there are many people that enjoy young children.

Let’s start with some tips for maintaining your personal sanity and your marriage.

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2015-09-09 18.36.01Perspective

Listening to parents talk about their kids, and the scars of their own childhoods, it’s universally reported that little kids are challenging people to live alongside.

My current experience is one day out of ten is very tough. If I want to get dramatic, then I can extrapolate to 40 days a year that are awful… more than a month a year in suffering!

However, if I look deeply then it is closer to 100 hours a year, and I’m with my kids a lot.

Looking even deeper… I break it down to a couple “moments” each day where I need to resist my urge to retaliate and settle a sensation of internal panic.

Five years ago, it was closer to ten “moments” a day, and I spent far less time with the kids.

It’s important to recognize the positive trend line in our lives.

So what seems like constant bedlam (to my remembering self) is, more accurately, twenty moments a week when I need to be skillful, or simply not make the situation worse!

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2015-09-10 11.40.34A Hard Truth

From the time your oldest turns two until your youngest enters first grade — it’s not about you.

If you were the prettiest girl in high school, the captain of your varsity sports team, or the highest achiever in your firm then this reality will come as a shock.

I understand that you are shocked by your situation.

I was also shocked.

We should both set a date to get over it.

Your kids are going to present you with an opportunity to become better than you are.

Take the opportunity because a self-serving attitude will become one of the key regrets of your life.

Ask around.

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2015-09-12 18.48.03All We Have Is Time

Most of the pain I felt in the early years had to do with a conflict of choice => further external validation versus doing what’s best for my family.

So I jettisoned the easy stuff – anything that cost significant time and money – went.

What has worked is redirecting the additional spending towards childcare that enables me to spend time with my spouse and alone (in nature, in silence).

You might find it tempting to let your spouse get overwhelmed – losing health, embracing addiction, breaking down mentally.

Make a pact that you won’t let each other go that far. The kids will grow up and neither of you will want to be married to that sort of person.

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What You Control

What changes can I make to offer my family a better version of myself?

  1. Say no to non-core
  2. Practice not-response

I work on a small scale and life consistently gets better.

Real Estate – Should I buy or sell?

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2015-09-14 13.55.37

In May 2014, I shared a template for reviewing your real estate. Let’s revisit that property – (prior values in parenthesis).

  • Today’s Zillow value $1.2 million ($850,000, +26%)
  • Recent Assessment value $1.05 million ($830,000, +27%)

Zillow and the county assessor have revised values up by more than 25%. You’re wondering if there is a bubble. You receive an offer of $1.1 million, should you sell?

In the article from May 2014, the “owner’s value” was $925,000. This offer is ~20% higher. Seems straightforward to sell, but pause to consider…

  1. How has the investment changed over time?
  2. What are you going to do with the money?
  3. What are the tax consequences of selling?

2015-09-11 15.25.11Investment Review

The big story in Denver/Boulder real estate has been increasing rents. The current rental income for the property is ~$60,000 per annum. Taxes, insurance and repairs cost $10,000, so the net cash flow is $50,000 per annum.

Previously, cash flow before interest and depreciation was closer to $25,000 per annum. So there has been a near doubling in the annual cash flow from this investment, but pause to consider…

Is the cash flow sustainable?

In this case, the cash flow is not sustainable. Houses wear out, roofs need replacing, plumbing needs repair and appliances break down. So let’s adjust the $50,000 per annum to $40,000 to reflect sustainable cash flow.

The offer is $1.1 million to buy $40,000 of sustainable cash flow. That is an implied yield of 3.6%.

How does that stack up?

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Alternative Uses of Funds

US Treasury Yields

  • 5 year, 1.6%
  • 10 year, 2.3%
  • 30 year, 3.1%

Vanguard Select Fund Yields

  • VTSAX (US Equity) – 2.0%
  • VBTLX (US Bond) – 2.2%

If you are the seller then you should ask yourself “What am I going to do with the sales proceeds?”

If you sell real estate that yields 3.6% to buy bonds that yield 2-3% then the value of your investment is likely to be eroded over time. Most obviously, because rental income tends to increase over time, while interest payments are set for the duration of the bond.

High-quality assets with growing income streams are attractive.

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Taxes

If you sell at $1,100,000 (to a buyer without an agent) then what’s your net realizable value?

Using numbers consistent with the May 2014 article, you would net about $1,025,000 (before any mortgage pay off).

You’d also want to adjust the sustainable cash flow from the property to reflect taxes you pay on the income. To make things simple, let’s assume a sustainable cash flow after taxes of $32,500 (yielding ~3.2% after tax).

The above numbers would change, possibly significantly, based on the size of mortgage payoff and your personal tax position.

It’s worth having a professional walk you through the detail.

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Overall

When I look at the above, I see a market that has increased 25% in value. Seems like a lot.

  1. Rental growth is in line with the increase in value.
  2. Alternative investments are yielding less than this asset.
  3. The asset is located in a zip code with real-economic growth that is higher than the US average.

So the market seems fairly priced – at least to me, today.

What should the buyer and seller do? In these market conditions, they are likely fine either way.

What’s going to happen to future rents and prices? I would be suspicious of anyone that claims to know.

Family Financial Review

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2015-09-10 11.53.28August/September is the time of year when I do my life review. I’ll be writing about the various components over the next few months.

2015-09-04 19.00.49Fear Impairs Judgement – you’ve certainly felt financial fear in the last three weeks. However, the lesson runs deeper than short-term volatility.

The financial media tempts me to:

  • frequently tweak strategy
  • aim for the perfect asset allocation
  • act impulsively to avoid future losses
  • seek superior returns

Strategically, I want to avoid all of the above.

Tactically, I want to manage family expenditure and execute a reasonable long-term financial strategy to the best of my ability.

Being good enough is good enough.

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Sell Illiquid Assets Into Late Bull Markets – in 2014, I decided to sell land, art and jewelry.

Our illiquid assets cost money to hold and I realized that the cash would be better spent on childcare and pre-K education.

Despite selling for less than expected, the net result has cut the family’s core cost of living by 4% and enabled my wife (and me) to work less.

The question to ask yourself is not “is this my best price?”

The question to ask yourself is “are we in a late bull market?” If the answer is “yes” then it’s a good time to sell illiquid assets.

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2015-09-06 17.06.43-1Asset Allocation is often a distraction from what matters – with good wealth habits, you can ignore the small stuff.

Here’s a post from December 2010 on asset allocation. Five years along, I’m making progress at following my own advice.

This post from April 2012 (about my future asset allocation) reminds me of the folly of forecasting.

For the benefit of my future self, here’s a snapshot from 2015.

  • 30% – investment real estate
  • 25% – low-cost, diversified equity funds
  • 25% – fixed income in home currency
  • 15% – family home
  • 5% – cash and other

There are historical and family-specific reasons for the above. Not a recommendation to your family.

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2015-09-06 20.04.16Time and Health – Am I acting in harmony with my mortality? with my values?

If you find that a self-serving bias isn’t generating satisfaction then consider shifting your focus towards taking better care of your health.

The shift towards health will surface conflicts between your values and how you allocate your time.

No step is too small with regard to positive self change.

 

Give A Minute

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minuteA simple way to reduce the noise in your head.

  • When you can feel yourself closing off,
  • or anger rising,
  • or have been asked to do something that you’re rather not…

…give a minute

2015-08-30 18.20.58

  • When my kids aren’t listening to me…
  • or I think they aren’t complying…
  • or they are arguing with each other…

…give a minute

2015-08-20 17.02.24By giving bits of time, I immediately removed half the conflict out my life and was able to leave the past, in the past.

It’s wonderful.

2015-08-30 19.43.37

You are going to tell yourself that you don’t have the time to give a minute.

I can feel rushed as well.

Perhaps you can start small.

I started by giving seconds away when driving.

Yield.

If you start then pay attention.

Pay attention to what happens after.

By giving time I feel less pain.

Yes, I am a little slower when we are together but this is more than compensated by peace of mind when we are apart.

You’ll be surprised at how little time it takes to transform yourself.

Stay open.