Tag Archives: decision making

Early Retirement – The ratio of spending to security

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thanksJustin put me onto Mr Money Mustache’s blog (“MMM”). MMM makes a point that if you have a balance sheet that equals 25x your annual spending then you should be set for life.

What prevents us from getting to the magic ratio?

At my best, I see debt and spending as where to focus.

When I’m feeling sorry for myself, I might blame taxes, lack of income or the cruelty of fate.

Like Mr. MM, I retired early. In fact, I’ve had three retirements – two voluntary and one via the insolvency of my de facto employer.

When I was living first class in my late 20s, I realized that I could slash my spending by 90% and take a year long vacation. This change didn’t get me to the magical 25x ratio but it got me close. I worked part-time (as a coach) and knew that I could tighten my spending and get myself to 40x covered.

Somewhere around 2002, I got caught up in the bull market that ran through to 2008. My spending rose, and rose, and rose, and rose. I didn’t mind as I was making good money. If you’re in a high-paying profession then you’re prone to this risk. I’m not unique. Docs, dentists, lawyers and finance professions often extend their careers by 10-25 years by cranking expenditure and borrowing.

My life came to a head in 2008 when the economy went off a cliff, my income dropped 95% and I had grown accustomed to my spending.

Boy did it hurt to stop spending money.

It hurt because I didn’t see the link between spending and the anxiety that filled my life.

Inside my head, the battle raged…

  • I DESERVE…
  • I HAVE NEEDS…
  • IT”S NOT FAIR…

What I was really saying is, “it hurts so much to change. I just want to be happy, please leave me alone.”

I see plenty of conflict in relationships over money. Historically, much of my irritation over clutter stems from an underlying financial anxiety that I’m not addressing via my own habits.

Quite often the main breadwinner delegates the financial planning function, putting their spouse on an allowance and creating a external target for internal angst.

A couple years ago, I realized that I’d done this to my wife. I had to own my fears, change my spending and redirect our family.

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I had the courage to take my first retirement at 31 because I remembered the freedom that came from living like a student.

I forgot that lesson, increased my net worth by 500%, and felt completely insecure at 40.

Every $10,000 of expenditure requires $250,000 of assets to buy me financial peace of mind.

What’s the true cost of your spending?

What could you achieve if you removed unnecessary anxiety from your life?

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I have buddies that are planning to work an extra decade – to build assets sufficient to support a spending rate that doesn’t bring happiness and strains their home life. They tell me stories of their children begging them to work less.

The pain is real.

So are the benefits from incremental change.

Behavior Not Protocol

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winterIn any given field, the bulk of our performance comes from choosing appropriate behaviors rather than optimizing protocol.

Take wealth, I’ve been reading a second book by Nick Murray and he makes the point that behavior is the single greatest source of wealth creation. He goes further to make the point that it has a greater impact than all other factors combined.

In reading the book, it struck me that he could easily have been describing athletic performance.

  • Balanced program
  • Frequent small contributions towards the goal
  • Most people beat themselves
  • Train yourself to overcome human bias and misjudgment

For every wealth behavior, I can find a similar fitness behavior. Works the same with common errors (selling in fear, chasing performance, not resting, fear of fatigue).

Looking forward to 2015, what behavior is required to achieve your goals? Don’t focus on more than three.

What are the most common mistakes that “everyone else” makes in seeking similar goals? Individual experience is a mirage. What are the most common errors made in my field? How best to create a system so I avoid repeating the mistakes?

Regardless of your field…

  • One small daily step – keep chipping away
  • Drive experience inwards – take all external irritations and change them in MYSELF
  • Let go of non-core – our best work requires a clear mind, a clear mind comes from letting go
  • Refuse to make predictions – pundits do worse than random – stay focused on behavior
  • Spend no more than 10% of your time on tweaking protocol – the greatest returns flow from consistent core behaviors

What are the behaviors required for a life with meaning?

Health, kindness, shared experience, close to nature.

The Freedom of Not Knowing

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Flatirons‘Do you believe in aliens?’, she asked.

‘Do I really have to have an opinion?’, I replied.

‘Come on, play the game’, she said.

‘Ugh, ok’, and I gave it a shot.

When my first kid arrived, I quickly learned that insanity would be the result if I didn’t learn to let go.

I also saw that constant correction would ruin my relationship with my kids, and make me miserable.

This was a big change from my 20s, when my game was to compete on all fronts, all-the-time.

So my daughter taught me a powerful lesson for becoming more effective.

Be aware that…

  • The more opinions I need to have
  • The more memories I need to hold
  • The more things I think about fixing

…the more energy I spend thinking.

…and this thinking-energy takes away from my doing-energy.

Creating a habit of not-knowing takes practice. From our earliest memories, we’ve been rewarded for knowing, for remembering.

Like a quiet kid at the back of the class – we can be scared to admit that we don’t have the answer.

So here’s what I told her.

I’ll tell you what I know.

I know that we overstate our importance in the world.

I know that I’m prone to fooling myself about the importance of my opinions.

As for the aliens, E. O. Wilson has a section on them in his most recent book and I saved some energy by defaulting to his opinion.

The Second Stage of Aging

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Barbie Movie NightMy post on The Middle-Aged Athlete was inspired by James Hillman’s book on The Force of Character – author discussing his book below.

The book has nuggets throughout that offer a insight into the experience of “getting old.” The central premise is aging will make us more of what we are. “What we are” being Hillman’s definition of character.

So I asked myself, “What are my central traits?” and, more usefully, “What traits work against the life I’d like to live?”

If you’re like me then, at least initially, you’ll come up with a shopping list of admirable traits – things you like about yourself. So far, I haven’t had the courage to verify this list with my wife!

More useful is to reflect on the traits that might lead one’s self into trouble. Quickly, I came up with two…

  • A preference for isolation
  • A tendency for internal over-reaction

Combine those two, magnify them, accept them for another 20, 30 or 40 years and you’ve got one heck of a cranky Old G.

I suffer disproportionately from my negative traits – particularly the internal reactions, hidden from most people. Fortunately, there’s a well-known fix for training one’s mind.

To the traits above, my wife advised that I “should watch my tendency to let myself go.” So true, my love, so true.

As things inevitably unwind, our personal truth comes to the foreground.

Retiring To Paradise

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ParadiseA friend sent me an article about “stress-free living on a tropical island paradise.” The article was a teaser for a subscription-based newsletter about retiring well, on modest means.

The article got me thinking…

  • Why do I find foreign utopias so appealing?
  • What are the components of living well, particularly as I age?
  • What limits my ability to shift towards rewarding, part-time work as soon as possible?

The first thing that I remind myself is satisfaction is never achieved “out-there” in the future. My job is to make a note about the structure of my satisfying days, right here, right now.

Noticing the satisfying parts of my current life lets me define paradise on my own terms.

I guarantee that you’ll find your truth is far different than the marketing brochure!

In my own case, I don’t like to tan, I like to ride my bike uphill and I sleep best in a cold, dry room. Worth reminding myself of these points!

The allure of the tropical paradise…

  • Simplicity
  • Stress-free
  • Natural beauty

What price will I pay for my ticket to paradise? I’ve found two habits that move me away from my definition of paradise – their antidote…

Radical simplification of my life and possessions – all the crap I have in my life provides an endless stream of admin, depreciation and cost of ownership.

Aside from a Sienna Van and high-quality bicycles, none of it is useful. I’ve been chipping away for years. I get a lot of resistance from my family, and I respect their views.

Beach cruiser, surf board, and board shorts…

…I get the allure – yet know that it is simplification, not the tropics, that appeals to me.

Constantly reduce my personal needs – if you are in a high-paying field then you’ll be tempted to delay freeing yourself from full-time work until you “have enough” (to live at a standard that fits your perceived station in society).

My heroes don’t have a lot of possessions but are rich with satisfaction. Choose wisely.

If you’re delaying following your heart so that you can maintain a high spending rate then be sure spending fits your definition of paradise.

Many of the wealthy don’t enjoy spending. It’s how they became wealthy.

If the points above aren’t clear then invert and be honest with yourself.

  • Having so much stuff that I need a team of people to manage my gear, or spend a significant percentage of my life on admin…
  • Constantly increasing my personal needs via the hedonistic treadmill…

This combination, anywhere on the socio-economic scale, is a recipe for misery.

Finally, humans are similar in how we define natural beauty… high view, overlooking park land, ideally with some water.

Think about the most valuable real estate in your local market. It’s likely to have those characteristics.

Most of us will never afford that real estate, which is just another asset to take care of, anyway.

A better solution is to live beside a mountain park and get to a high view as often as possible.

What’s your definition of paradise?

bear

When 99 is more than 100

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As a young man, I spent my 20s focused on taking myself to the limit. In my 30s, I discovered triathlon and shifted my life towards a devotion to personal excellence. In both periods, I was unable to understand why anyone would bother “being average” at anything.

Whether your focus is academics, finance, wealth or sport — if you spend your time in a group that consists of the top 1% then you’ll be at risk for certain errors.

The first error is a skewed definition of “average.”

Athletics is a great field to see this in action as we’re much less likely offend anyone by telling the truth! Here’s a quote from a former coach…

He’s constantly disappointed in himself because he thinks that he should be able to roll out of bed and drop an 8:35 Ironman.

In other words, our friend has a baseline that requires him to outperform 99.99999715% of the planet.

That’s an extreme case but, if you listen to the dialogue surrounding your favorite sports team then, you can see this pattern repeating itself throughout our elite classes.

As an amateur triathlete, I could beat 98.5% of the field at any Ironman race in the world, yet my performance wouldn’t even register for the top 1% of performers, who benchmark themselves on their peers.

My point, isn’t to correct the attitudes of the elites – an extreme way of thinking is useful to drive extreme action.

My point, is to encourage you to stop and ask, “Is It True?”

When your peers lack diversity, your views are at risk from becoming detached from reality. You will see it most easily in your definition of average and decent.

  • What’s a decent athlete?
  • What’s a wealthy family?
  • What’s a successful child?

Outliers living in the 1% are unable to see the extreme nature of their lives and that can lead to ruin.

It’s not just about aging athletes ruining their joints.

I had a very close friend that ended up financially ruined because he was unable to be satisfied with being more wealthy than 98% of his peers.

Others ruin relationships with children, who are unable to measure up to an unreasonable standard.

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Another risk – the best are lazy.

Lazy?

  • …but I train 25 hours a week
  • …but I work 65 hours a week
  • …but I read 100 books a year
  • …but I add more value than anyone at this firm

My capacity for extreme workload requires me to drop everything in my life.

In fact, dropping everything is a “secret” of success.

However, it makes me very lazy outside my domain.

As the youngest partner in my private equity firm, I had staff to shop, to sort my CDs, to open my mail, to cook my meals, to take out my trash… the list went on and on. My approach was to throw other people’s time at any issue that prevented me from spending time on my goals.

Ultimately, behaving like a plutocrat wasn’t the main drawback.

By not placing “love” as a primary goal, I created a pattern of behavior that would have driven every relationship from my life.

It wasn’t until 15 years after my divorce that my family received the dividend of a man becoming a little less successful and far less lazy.

The Price of Admission

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elsaI was reading The Meaning of Human Existence by Wilson and came across an excellent question:

What’s the price of admission to your tribe?

The question got me thinking about the ways that groups enforce conformity and create cohesion.

Here are two areas where my groups have led me astray…

Groups that push me to perform external actions that are different than my internal values — examples here would be the executive that complains that she has to lie as part of her job; or selling a product that hurts people; or working alongside people we don’t respect.

These situations lack integrity because we are choosing to ignore our internal reality in an effort to fit in externally. It’s a stressful situation and most of us adjust by changing our internal reality.

A gradual loss of integrity is how my criminal pals became crooks.

The second thing to watch is the temptation to trade health for money.

Despite having a long-term habit of good choices, I feel this temptation daily! It takes effort for me to protect my healthy living routine (sleep, exercise, stress, nutrition, positive connection to others). The sensation of hanging-on-by-a-thread is something that’s been with me for many years.

Parents, mentors, coaches, bosses, organizations, religions… when our leaders offer us money, fame or recognition for going against what feels right… start working on an exit strategy!

Two of my favorite questions for my kids…

  • What do you feel?
  • What do you think?

A life of integrity is built on harmony between our external actions and internal lives.

It takes effort to look inwards, rather than default to the external dogma of our tribe.

What are the values of the people closest to you?

Panic Early – stress testing my family finances in October 2014

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2014-10-25 11.24.20-1I was on a business trip in Asia when the call came through from my wife…

Are we OK?

The markets had come off 5% and the news media had cranked their fear machines to full throttle. You can see the dip below. I got the call at the bottom of the “U.”

Screenshot 2014-10-27 08.36.45

The next chart shows why everyone freaked… memories are short. Here’s the one-year view of my US Equity Fund…

Screenshot 2014-10-27 08.37.02Looking at the chart above, I got the call at the bottom of the right-hand “V.”

So I opened up my tracking app to see how we were doing.

Despite the 24/7 coverage of the impending financial apocalypse, our family net worth hadn’t moved.

Strange.

I opened up my Vanguard app to see how our financial investments were performing. Down about 1% in total – not bad considering the financial pundits were acting like we’d plunged off a cliff.

Why so little movement in my life?

1 – I focus on the total portfolio position, not the elements inside the portfolio, which are constantly changing. I check in on the portfolio monthly and rebalance the asset mix quarterly.

2 – Aside from a modest 30-year fixed rate mortgage, there is ZERO debt in my financial life. Leverage magnifies the impact of changes in asset prices.

NOTE – If you have a financial advisor in a Big Bank then I bet they’ve been trying to sell you margin loans on your portfolio. The cost of your margin loan is greater that my expected rate of return for my portfolio – therefore, I view your margin loan as a direct wealth transfer from your family to your adviser’s firm and bonus. I have pals that make a living selling these products – my choice is to send my kids to public school and make less money.

Know that you can get better advice from Vanguard for far less money – plus Vanguard products cost you less than a tenth of what the Big Banks charge.

3 – I’m exposed to more than US Equities. The key components of my family’s balance sheet are:

  • US Equities (VTSAX)
  • Int’t Equities (VTIAX)
  • US Intermediate Bond (VBTLX)
  • US Short-Term Government Bond (VSBSX)
  • Boulder Real Estate

When the equity markets freak out, sometimes my bonds appreciate due to people swapping into US government securities. This is nice but I don’t really care because…

I hold the bonds to reduce the volatility of my total portfolio and to provide capacity to buy more equities when the market tanks.

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After checking things out I told my wife that we were OK and she said…

So, I guess the lesson is not to panic?

My reply, “Actually, I panicked when the market was down 2%.”

The difference is my capacity to act on my plan, rather than my emotions.

The lessons are:

If you can’t do the plan then it’s the wrong plan!

I’ll end with the five-year chart for an index of 500 large stocks that are traded in the US.

Screenshot 2014-10-27 08.38.34

If you thought October was a rough ride, you ain’t see nothing yet, it wasn’t even a blip.

Renewing My Vows

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ax_leavesHopefully, I’ll be around so my actions teach my children this post before their first kiss.

If not, then I leave it to point them in the right direction. Read it to them annually, at graduations and at their weddings.

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Have you ever heard couples discussing their wedding vows? Perhaps wondering if they should include “honor and obey” in the words they exchange? That seems silly to me because it overlooks the essential components of EVERY long-term relationship.

What follows is how I try to live my marriage, and through my marriage interact with everybody. It wasn’t always this way – as a young man, my greatest weakness was a lack of compassion and an inability to see the second order consequences of my habit of hurting other people.

What are the most important ways that we honor each other?

First, and most importantly, is a commitment not to hurt other people.

Relationships fail when we get caught in a cycle of keeping score, tit-for-tat and not breaking the chain.

We don’t even need to be in the same room with each other to perpetuate this cycle. When I hear about marriages through third parties, I can feel the pain that the couple is creating for each other.

So I offer: I’ll do my best not to hurt you and ask that you forgive me for the many times that I’ll fall short.

Small children understand forgiveness instinctively. Each morning, I get a fresh start and, hopefully, I see each morning as a chance to get a little better than yesterday.

Now, my children will be like me in many ways. This means that they will arrive at adulthood with habits that will torpedo their relationships if not addressed. The most toxic of these habits is enjoying subtle retribution and justified anger.

So I offer: When I feel pain, I know it will be because I you have touched one of my many limitations. I vow to turn that knowledge inwards and try to make incremental progress.

I’ve been married for close to a decade. By chipping away a little bit each day, I make progress and, together, we strengthen our marriage.

It is my improvement, not my position, that makes me fit for leadership, and shows that I’m worthy of being honored.

Being honored for experience is great but being forgiven is much more valuable than being honored.

In a successful relationship, my errors are forgiven, rather than acting as triggers on top of 5, 10 or 15 years of repressed, mutually reinforced pain.

My dearest, I promise that I can handle the truth.

In life, we are tempted to protect others from the truth. This is a mistake and you will find that your strongest relationships are built on being open. In sharing our individual truths, we can work towards understanding what rings true as a couple.

The wisdom of these lessons becomes clear when you invert them.

Relationship failure is characterized by retribution, blame outside of myself and suppression of truth.

I failed many times before I learned a better way.

In order to shape my reality, I started by accepting it.

Chose wisely.

What To Do, when you don’t know what to do

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familyA couple weeks ago, I was flying Southwest and the passenger beside me was a bit unhinged. He didn’t seem dangerous, but kept inserting delusional rants into a well-informed discussion of current events.

The rest of the plane was avoiding eye-contact but, with him on the aisle and me in the middle, I didn’t have anywhere to go!

I figured that I’d put my hospice training to work and see what happened…

Six words that can profoundly change your interactions with the world, and through that, the reality that you experience with your day-to-day living.

When I think about my first response to stress, it’s the opposite of the tenets: I know you’re wrong, I want to flee you and I resist you.

My kids make my instincts obvious to me. If your kids are angels then you might have to look into other areas of your life:

  • A dying parent, or patient
  • A chatty stranger on the bus
  • A fellow citizen on the opposite side of an emotional issue
  • A kid yelling FART at my daughter’s birthday party
  • An angry family member

I get a physical signal, a tightening in my chest, before my mind kicks into high gear. The physical sensation is my chance to save myself from falling into past patterns.

These situations leave me feeling scared and unsure what to do. On the Southwest flight, I had to remind myself that the passenger had to get through security so probably didn’t have a gun, or knife, on him. Yes, I was worried that he was going to kill me!

In turn, my fear leads me to close off, or engage by digging into my existing beliefs. Classic flight or fight.

However, if I’m aware of my fears then, I can pause and try to help the other person. When I do this, I’m helping myself because I escape my cycle of fear/closing and/or fear/engaging.

Bearing witness – one of our deepest needs is to be seen, to be acknowledged. Watching how the rest of the world treats the aged, a difficult child or the crazy guy on the Southwest flight… I see that I can do the entire world (or at least my fellow passengers) a favor by acknowledging my seat mate for a little while.

Not knowing – listening to other people speak, particularly odd-ball cranks, there is another voice in my head. The inner voice is constantly disagreeing, challenging, explaining why the other person is wrong.

When I’m quiet enough to hear the other voice, I see it’s not rational. It takes the opposite side to whatever it’s hearing. Much like the initial reaction of my three-year old son!

In a situation that doesn’t matter (like talking to a stranger), play a game where you “don’t know.” You’ll find that it is relaxing to give yourself permission to not-know. In turn, a habit of not-knowing prevents needless conflict with kids, at work and in your marriage.

The “not knowing” exercise is a neat one because, when you see the power of change in areas that don’t matter, you’ll unlock an insight into how the only thing that matters is the little things!

Compassionate action – in the case of my eccentric seat mate, it was easy to see the best thing for everyone was for me to listen, with a mind that didn’t know. In fact, I’ve been doing more and more listening.

If you think about it then I’ll bet you can come up with situations where you had NO IDEA about the right course of action:

  • Friend with cancer
  • Friend who had parent die
  • Friend who had child die
  • Divorcing couple
  • Friend with child with developmental difficulties
  • Depressed friend
  • Friend with substance abuse issues
  • Bankrupt friend

When you don’t know what to do, I hope you remember Joan’s advice.

As for my pal on Southwest, he thanked me for my kindness and scurried off the plane.

He left me with a warm feeling of a job well done.

Be brave.