The #1 Mistake Financial Professionals Make

…is not leaving


Living!

Let’s start with the best money advice I’ve seen in 2022:

Don’t build a plan that requires your death to succeed.

Yes.


Rather, create a life that supports how you want to live.

How are we going to do that?

Get some money off the table.

How much?

5x “last year’s cost of living”

This is Core Capital – it is a function of your spending as well as your savings.

Once you have Core Capital, protect it.

The return on Core Capital doesn’t matter. Keeping it does!

It’s the most valuable money you will ever have, there are rapidly diminishing returns beyond this point.

Core capital doesn’t free you from the ability to stop working.

That’s OK.

You don’t want to stop, ever.

That’s another mistake the financial services industry makes => selling you a dream that you won’t enjoy.

You want the freedom to choose, to take chances with your time, to stay in the game.

You want this freedom to choose as soon as possible. Not late in life.

INVERT: You want the freedom to choose “not to.”

Not to deal with:

  • other people’s BS
  • fast money schemes
  • worry
  • golden handcuffs
  • creeps & crooks

Two weeks ago, in asking five questions, I gave you a nudge to start thinking about life.

  • Learning & Peers
  • Travel & Exploration
  • Values

That article introduced the concept of Lifestyle Sustainable => a low-cost base of operations where, ideally, you can live for free. The idea is to remove cost-of-housing from your financial concerns.

That’s the core financial asset for your portfolio. It cost me US$110,000 in 2000.

This is a great place to park your Core Capital.

Removing housing from your list of concerns gives you more than a financial return.


Alongside your key financial asset, I hope you have a loving, lifelong partner. This person is the most important decision, financial or otherwise, you’ll be making.

The highest return investments I made in my 30s & 40s, were not financial in nature. With a low-cost base of operations, & marketable skills, I was in a good place.

Many high-earners fail to see the value of what I just pointed out.

  • Low-cost base of operations
  • Marketable skills

Beyond that, most everything is lifestyle enhancement and ego.

Thankfully, I had a major setback in my early-30s (divorce) which gave me pause.

In 2000, I saw my future in front of me… lifestyle enhancement and ego… and I made a change.

A big one.

I became a world-class athlete. With (athletic) success came the realization that something was lacking.

So much success, still lacking!

  • If you’re good at making money…
  • If you’re good at playing the game of “career”…
  • If you are nearing the top of your field…

…then you’ll be tempted to keep doing what you are good at.

I’d encourage you to establish that low-cost base of operations, then try something really challenging…

The highest return investments I made were improving my suitability for marriage and learning how to parent. Most of my learning happened after I was married and my kids were born.

It is never too late to invest in the human capital of your family.

If you get these investments right then you might not notice the benefits. Honestly, a big driver in my life has been a fear of getting divorced again (not-divorced, winning)

Fear that drives positive action is useful.

I’ve been paid by less drama, and less problems (we don’t see all our wins).

I’ve also de-risked some of the challenges my future self will face (companionship, engagement, dementia). Study (the problems of) who you are likely to become.

You’ll notice my portfolio advice (still) doesn’t talk about asset allocation.

This is deliberate!

Asset selection is not the differentiating factor for a life well lived.

  • Marketable skills
  • Low-cost base of operations
  • Fixed-rate mortgage, if you like
  • Target date fund for your future self

Then focus on living your life and creating the friends/family with whom you’d like to share it.

Sunday Summary 20 March 2022

Mood Management

Athletic Performance

The Body You Want

True Wealth

World War Three Portfolios

One of my favorite things is skiing with my wife.
I’ve made a decision to keep living.
Reality is going to catch up with me at some point, I know.

When stressed, you are going to be tempted to shuffle your asset allocation.

Churning your portfolio isn’t the answer.


Geography, Citizenship & Right of Abode

I’m parked in the middle of the American Empire => by choice.

I naturalized to the US and don’t need anyone’s permission to stay here.

Being born Canadian, I have the option to live in Canada. It’s a valuable option to a wonderful country (with a different political system).

I also have the right of abode in New Zealand (a third political system). I like to think of it as a smaller Canada, on the other side of the world.

My Kiwi visa doesn’t expire. Unfortunately, I can’t pass the visa to my kids. However, each of my kids has a Canadian Citizenship certificate.

Three political systems, two hemispheres, all English speaking.

Hemispheres, continents, countries and political systems.

The location to start from scratch.


Monetary Environments

Who regulates the custodian for your financial assets?

Unsure what I mean?

Who has the ability to lock your money inside a political regime?

Where can you send money, with a single instruction, that’s outside of your home regulatory environment?

The capital to start from scratch.


Income Streams

  • Do you have an alternative source of income?
  • How long might it take to develop one?
  • Are your skills marketable internationally?
  • Might you be able to develop a set of marketable skills?

The skill set to start from scratch.


Look at the above on an individual, generational and family-wide basis.

The unimaginable happens once a decade.

Five Questions Every Coach Needs To Ask Themselves

Let’s cast our minds back to my 30-something self.

He’s bought a house in Christchurch, covered his taxes/utilities by giving a room to his property manager and has the ability to live free by renting out additional rooms.

Create a base of operations where you can live for free

Tick


Next up, he needs to figure out what sort of work to do and how to cover his cost of living.

A dozen triathlon coaching relationships (US$250) per month was what it took to cover basics. Those relationships were worth more than money. The relationships made his lifestyle sustainable.

Tick


Basic client filtering over time.

Which relationships to strengthen and retain? Green light client rating – immediate response, has all personal contact details. Travel to them.

Invert, which relationships are a source of distraction and drain energy? Red light client rating – still high service level, hand-off to a better fit at a natural breakpoint (end of season, end of project).


Move on to…

Next level client selection because => there is a limited number of close relationships we can sustain

What do I want to learn about?

  • Pro cycling
  • Lifestyles of the rich and famous
  • Olympic level triathlon
  • Sports medicine, orthopedics, biomechanics, kidney function, cardiology
  • Exercise physiology, metabolic health, blood markers
  • Financial planning
  • Military aviation
  • Theology and ministry
  • Addiction, Al-Anon, AA, recovery
  • Trust, estate and family law

These are areas I was able to study, from world-class experts, while covering my core cost of living.

Put another way, there are millions of interesting people out there. A consultant needs 5-12 relationships for a viable business. Craft those relationships with intent because your time is worth more than someone’s ability to pay.

Wise client selection is a game of getting paid to learn.

…but you gotta be lifestyle sustainable. So get that first!


Where do I want to visit?

Back in 2000, Christchurch NZ was cheap for a reason. It was far off the beaten path!

A material slice of my cost of living was international travel (airfares & hotels). I really enjoyed this aspect of my life.

I’m not alone. A key form of marketing is the ability to offer clients/investors the ability to travel to nice places. Most large companies have advisory boards, with a membership consisting of their key relationships. The advisory board has the perks of being a director, with none of the fiduciary risk.

I’ve had gigs in: Aspen, Hong Kong, Bermuda, Scotland, LA, Italy, London, Dubai, Paris, Cannes, Hawaii…

So, where do YOU want to go? Find that client, help them achieve their goals and undercharge them.

Rich folks love random acts of financial kindness. They’re always expected to pick up the tab, so paying for coffee/breakfast is a high-return investment.

A long term value added relationship with someone in a place you enjoy visiting – it’s worth more than whatever your financial deal is.

Invert (again) => don’t take work from a location you don’t want to visit. At any price.

One of my gigs came with an around-the-world ticket every six months. With a bit of planning, that covered an entire year’s worth of air travel. Another slice of my budget, covered.


What demographic am I curious about?

Tim’s blog on fame shares the Bill Murray quote, “trying being rich first.”

Actually, being rich is tough. It takes a lot of time and striving. Living rich is even worse, not for me.

Before you try to “be something” => get to know it. See what it’s like when nobody’s watching.

Coaching the rich, the fast, the famous, the savage, the beautiful… and paying attention, helped me look under-the-hood with regard to my values.

Be careful, desire is contagious.

Why You Should Consider the Window of Time

I was taught that all my (financial) problems would be solved if I made enough money.

Money, absent saving, doesn’t work.

Spending, absent reflection, creates golden handcuffs.


Living a big-city lifestyle had my younger self trapped. His large spending created a hurdle that would have taken him years to overcome.

Valuable years!

Put another way, the weight of my spending was preventing me from launching towards my true self => meeting a wonderful wife and creating my current life in Colorado.

My solution was simple

  • Save half my take home pay
  • Get myself to a low-cost environment
  • Create independent income streams to cover my cost of living
  • Surround myself with people who lived my values

All well and good, and my 30-something self got some things right.

What he wasn’t able to see was the Window of Time. It didn’t matter to him because he was rich in time, and knew it. Having his basics covered, he risked time on changing direction.

For the prudent, the march of time will eventually require a change in approach.

Each of us is free to change our approach at any time.

At some point, all of us are going to realize that our wealth in time is approaching the point where we have more wealth than time.

This is most likely to occur in what we call the “peak earning years.”

It’s really hard to change direction when you’re coining it.

I know, I did.

Cutting spending, leaning into saving, buying an extra couple years before I’m old…

…all trades you should consider.

Even if you don’t change your path, knowing that you could will strengthen your ability to act with integrity.


So the two landmines I hope you avoid are:

  1. Peer-driven spending that leads you away from what fills your heart
  2. Creating capital for future family members, when they’d rather spend time with you now

Buy time gradually.

Spend time with intent.

None of us get a refund.

WIT is Wealth In Time

I am going to show you how to connect spending, time and wealth.

Let’s bring back my 20-something self. He was living in London, working in finance and renting a room to keep his overheads down. 

Coming out of college, having more cash flow than he needed, he felt rich.

But was he?

He earned $75,000 and was spending $32,000. How wealthy was he?

Remember from last week, his net worth was $20,000.

Net Worth “divided by” Spending = WEALTH IN TIME

His WIT was 7 ½ months.


Roll forward to my early 30s. I’m a young Private Equity partner and hit $1 million net worth.

I was spending $250k a year, felt flush, but was I wealthy? Let’s find out.

$1,000,000 / $250,000 = 4 Years

Not wealthy, especially when you consider my life expectancy (>50 years).

++

At 31, I realized my spending was buying me NOTHING. What I liked to do was swim, bike and run. I had fantasies of leaving the corporate world. I took action.

I applied to emigrate to New Zealand. Arriving in Christchurch, I was able to buy a five-bedroom house for US$110,000. My cost of living plunged to $25,000 (NZ$60,000).

My WIT jumped to 40 years.

I didn’t return from my leave of absence. Most of my family thought I was nuts.

Best trade I ever made.

Sunday Summary 20 Feb 2022

You can follow me on Twitter. Likes, RTs and questions help guide my writing.

Getting A Better Body

Generating Family Wealth

Using High-Performance Insights

Elite Athletic Performance

Three Truths About Tax

Hong Kong

When I moved to the US, I went from a 5 to 30% tax rate.

Why move?

Because it saved me money.


Taxes are one slice of your family budget

I used to live in Hong Kong, a low-tax part of the world. Thing is, it’s a high cost location – especially for school fees and residential housing.

Landing in in the US, I chose a part of the country with an excellent public school system. With three kids, that choice saved me a lot of money.

But there are trade-offs.

I grew up in Canada and my family’s basic healthcare needs were covered by the provincial government.

Not so in the USA.

My insurance, HSA contribution and dental cleanings mean I pay $25,000 before anyone’s gotten sick.

I run the $7,000 HSA contribution down against my family’s $14,000 deductible.

Anybody breaks a leg, I’m quickly over $30,000 for the year.

Still cheaper!

In my last year in Hong Kong (2000) I was living in a place that cost $100,000 per annum to rent. The senior partners paid 3-5x that amount.

School fees: friends pay up to $50,000 per kid, per annum. Mine go to public school, a $75,000 saving.

Taxes are the price we pay for living a wonderful life.

Clean air, pleasant climate, easy access to nature, an ability to avoid traffic.

As a friend pointed out, all those Californians moving to Austin are going to find out something… they’re still complaining about taxes, it’s hot as stink, they’re sitting in a traffic jam AND they lost the benefits of living in Cali.

The ability to escape tax policy is 100% in our hands.

Here’s the game.

Take your tax bill and divide it by your net worth.

In my mid-20s, I worked in London. I earned $75,000 and paid $18,000 in taxes. My net worth was $20,000. My tax bill represented 90% of my net worth.

A change in tax policy, or a move to Hong Kong, would have a material effect on my family finances.

Most of us, can’t change hemisphere’s for work.

Many of us, can work remotely from a lower cost location.

Go deeper.

Consider time.

My former self, he saved 50% of his take-home pay from 1990-2008.

Year after year, his family net worth grew.

The government’s 90% take is now under 5%.

We freed ourselves from tax policy.

It’s in your hands.


Teach this to your kids.

  • Taxes are one piece of the family budget
  • The goal is a wonderful life
  • Taxes are a cost of living well
  • Over time, we control the government’s tax take

PDF Link on Dropbox

gDoc Link with view rights open, make yourself a copy.

I think these ideas were inspired by The Millionaire Next Door.

Teach your kids to become experts at applying wisdom across time.

The Allowance Game

For the next 15 Thursdays, I’ll publish a tool, or a lesson, to help you with family finances.

Tweet your Qs at me.


Introducing The Game to the Class of 2032

Start the game this weekend.

Here’s a template you can use.

If you have Qs then tweet them at me and I’ll help.

++

We are going to play a ten-year game, the purpose is to build an EMOTIONAL attachment to the power of compounding.

You’re going to need the emotional attachment to counter the impulse to spend what you have.

++

The best way to play is to check your portfolio no more than once a quarter. My kids have gone close to a year without asking me to update.

Give the game YEARS to play out, eventually your students will be amazed.


Like a retirement account, not much happens at first.
By Middle School the weekly split is $13/$8 between Allowance/Earnings.
By HS Graduation the split is $18/27.
Game costs you $14K to fund over 13 years.

Investment: each Monday, each player gets $1 for each year they have been alive. I started my kids in Kindergarten so we kicked off with $5 or $6 per week.

Return on Investment: the “bank” pays 10% per annum on invested capital. My template has a little math embedded which converts the annual rate to a daily rate. This allows the player to see, and get excited about, weekly earnings.

Earned Money is Your Money: Most kids have a piggy bank, some kids have side-gigs where they earn spending money. If a player wants to invest that money then they can grow earnings faster.

++

There are two types of spending from the family account.

Investment spending – if the money came from “the bank” then spending approval needs to include Mom & Dad, or another savvy adult.

Earned income spending – Mom & Dad have no veto rights over money the players earn on their own. This allows real world learning to happen. Lending to friends, pain of crappy impulse purchases…


Steps are birthdays, assumed to be Jan 1st in the template.
It takes a decade for weekly earnings to exceed weekly allowance.
Just like a retirement account, once your earnings start to accelerate, they keep going.
Stay invested. Don’t interrupt compounding.

Teaching this to your kids, or grandkids, will change your relationship with money.


The inspiration for this game came from a 2015 post by MMM. What I’m Teaching My Son About Money. We started the day I read his advice. I’m grateful for his sharing.

Keep it simple, be patient, and remember the goal is an emotional attachment to compounding.

Here’s a Dropbox PDF and a link in Google Docs.

How Wealth Endures

2020-02-11 12.19.27

Over time, human nature does far more to address income inequality than the policies of your favorite politician.

Families that succeed across generations have certain traits we can learn from. While you can’t control your birth situation, there is a lot you can do to influence family wealth.

+++

My great-grandfather was one of the wealthiest men in Canada and I have an early memory of seeing him on the cover of Fortune magazine. Down my branch of the family, the magazine cover endured longer than his finances, which found their way back to society within two generations.

On the other side of my family tree, my great-great-grandfather was wealthy, but not cover-of-Fortune wealthy. A small amount of his money will eventually pass through to my children. I get a kick out of this as he was born in the mid-1880s.

Living rich is different than living well and it takes generations for this difference to become apparent.

2020-02-09 14.12.13

A favorite quote, “there has never been a more expensive time to be rich.”

Dropping this gem will likely get you a smirk and an eye roll from most young people. However, it touches on a truth of our time and provides a warning to wealthy families.

Over the last 40 years, a billion people have been lifted out of extreme poverty. Lifting the bottom of the wealth curve has impacted the top of the curve.

While we were lifting hundreds of millions out of poverty, “the rich” started to live differently. Morgan Housel’s article touches on these changes and reminded me of a valuable legacy from my great-grandfather (the one on the Fortune cover). A non-financial legacy that made it four-generations down my family tree.

Camping.

The fondest memories of my childhood happened at a YMCA summer camp. A camp largely unchanged from when my uncles attended 20 years before me.

40 years on, I ask myself:

Am I willing to constrain myself to get a better outcome for my children’s future selves?

Somewhere between childhood and adulthood, you may develop “requirements” that increase your baseline cost of living. Your “requirements” are your business. However, know that your luxuries will become your children’s baseline.

These cultural baselines have unintended consequences in family systems. The kids who can keep up with their spending aspirations have a greater risk of neglecting their families in favor of money. The kids who can’t keep up are more likely to reject you, to protect their self-identities.

I’ve known five generations of my family and have witnessed this pattern across each generational transition => the increasing spending of the ascendant, and the pain as the descendant fall out of their childhood demographic.

I believe there is a better way.

I’m going to offer three areas for you to consider.

I’ve made mistakes in each area. Having kids later in life (highly recommended), the main people who have had their values skewed by my errors are my wife, and myself.

+++

The three areas are vacations, housing and education.

Your first filter is to ask: Are we living well, or are we living rich?

To keep yourself honest, search for your reaction when other people live a certain way.

2020-02-09 10.39.37

VACATIONS

Cultivate interests that hedge your need for cash flow.

Camping, driving distance from home, has a very different long term cash flow impact than Surfing in Kauai, via private jet.

I’ve spent a small fortune trying to make family trips work (catamaran charters, seaplanes, traveling staff, ship’s captain with deckhand).

Everyone had a blast but what did I achieve?

I increased the hedonistic baseline for my wife, my kids and myself. Not a big deal to make a mistake. However, if I create a habit then what happens when three kids, and five grandkids, scale my choices across their lifetimes?

Simple, one-on-one trips in nature is where I focus these days.

We will come back to the scaling effect.

2020-02-09 07.54.22

HOUSING

Housing is the most consequential capital purchase most of us will make and it’s a tricky one because of the changes happening in many of the places where we grew up.

My wife and I went to high school in cities (Boulder/Vancouver) where many of the graduates are unlikely to be able to afford to live in their childhood homes. The winners of global wealth creation have bid up local real estate values.

My notional share of my great-great-grandfather’s estate is about $100,000. Money that would have proven very useful if I had chosen teaching, rather than finance, for my first career.

If you ask my seven-year old what type of house she’d like to live in then she’ll describe something that looks a lot like my grandparent’s homes: 1,500 sq ft per person, swimming pool, grounds… you name it. She’d put us into a 7,500 sq ft mansion with seven bathrooms.

She’s not alone. As soon I as I had the cash, I bought myself a monstrous house. Buying at the top of the market, I was lucky to avoid financial disaster.

Am I willing to constrain myself to get a better outcome for my children’s future selves?

Yes I am.

Coming out of the last recession, we downsized and bought two rental properties in our school district. I’m positioning the family to do a similar thing coming out of the next recession.

The kids were disappointed to learn that the next house was going to be smaller but I’ve been watching what they do, rather than their aspirations. When my kids can pick, they want all of us jammed into a bunk room => they love a seething, noisy mess!

Beware of the preferences of others and pay attention to where you are happiest, rather than what you think you should like.

What you don’t see when you “get the house” is the life you don’t lead as a result of living there. The time you don’t spend together, the energy spent managing a large asset you don’t need.

Once again, these lost opportunities for connection scale across time for your grown children and grandchildren.

2020-02-07 12.30.10

EDUCATION

Graduate debt-free with skills enabling you to get paid

This implies a few things:

  • working in high school, and for a long time thereafter
  • public education, as long as possible
  • parents who are willing to let you fail, experience poverty and learn from your own mistakes

Unless your family is exceptionally wealthy, or you are an outstanding student, you are going to be much better taking the bulk of your family’s education dollars and investing them over a 20-25 year time horizon. The goal being to enable your family to (continue to) live in a great public school zip code.

For example, the Boulder Valley School District isn’t (yet) priced out of reach. BVSD just built a school in the eastern part of the county and we have strong political support for local investment in education.

+++

Are you seeing how all of this fits together?

  • Moderation of spending, regardless of being able to afford it
  • A modest allocation in personal real estate assets
  • Over time, yields long-term capital within the family system
  • A focus on helping the family stay local and avoid shackling themselves with education loans
  • When graduating debt-free, young adults repeat the cycle

This works so long as everyone pays their own way, for the way they wish to live.

Collectively, the family system avoids subsidies towards personal consumption.

Each branch, and generation, of the family defines their values, and lives with the consequences of their choices.

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Further Reading