I’m going to write this in the context it arises in my life. I have a hunch it applies more broadly. A variation pops up at least once-a-week in casual conversation.
Ten years ago, a wise preschool teacher shared a quote with me. I liked the quote so much, it’s been on my fridge ever since.
I have used the quote to guide my life for the last ten years.
Give time, not money.
Share experiences, not spending.
There’s another aspect of the quote… If you run into an adult who’s childhood emotional needs were unmet… assets, and spending, will not fill their void.
The void cannot be filled from the outside. This is an area where we need to heal ourselves.
Go further… to the heart of addictions…
Quite often, the attempt to “be a good provider” for these folks, makes their emotional problems worse. Further, they are going to feel crazy because they will be miserable while surrounding by conventional “success.”
Let’s step back from the underlying emotional issues and discuss how parents, and spouses, can guide family spending and investing.
First, we need to sort ourselves.
My spending sets a floor above which everyone will operate. This might sound backwards but it’s my observed reality. My choices anchor “down” everyone around me.
INVERT: constraining myself is less likely to trigger resentment.
I’m the most powerful (spending) role model in my children’s life. I do them a lifelong favor by setting a consumption standard they can easily attain.
Second, be brutally honest with yourself… Am I meeting the emotional needs of those around me?
When you are already a good emotional provider, it is very difficult for someone to trigger your need to be a good “financial” provider.
Rather than a high-stakes bargaining session… discussions about money end up closer to a 7th-grade math problem. An example… the ski-place…
20-25 days spread across five resorts
Total cost of hotels/airfares ~$15,000
Shows the folly of seeking to “save” money in a single location by locking up capital
Clothes => let’s start by wearing everything in our existing wardrobes first
Cars, Furniture, Art => is there a more effective way to scratch this itch?
Recreational assets, out-of-town commitments, 2nd homes => …are you sure you want to give me an incentive to be away from you and the kids?
On and on and on… think past the purchase to overall incentives, habit creation and the impact of repeating the action for the next 5-10 years.
Third, the “what are you going to do with the money” argument.
Related to, “but we can afford it…”
Ability to pay is probably the toughest one to control. It’s hard not to spend money in your checking account.
SIDE NOTE: this is a good argument to move cash out of places where it’s easy to spend. This was a (somewhat bizarre) benefit from a choice to STOP earning so much money when I was a young man. Financial success was making it harder to be who I wanted to be.
Here again, pause and consider,
What game do my actions show I am playing?
What is the game I want to be playing?
What game would move us towards “better” five years from now?
If you have kids then these questions usually point towards up-skilling independence via parental investment of TIME, and modeling behavior.
Fourth, after you’ve done 1-2-3. Sit down and talk it over with the key people in your life.
If you are unable to convince them then have the humility to consider the possibility (albeit remote) you may be wrong!
In family systems, I’ve found it’s better to wait for a consensus to arrive than pulling rank.
Bonus: slower decisions are usually better decisions.
Finally, related to the what will you do with the money discussion…
If you are focused on sharing time with the one’s you love then, hopefully, you will favor “experiences with them” over “making more money for them.”
I watch where people send their kids to school. It’s a revealed preference for their values. Amongst my pals, Boulder is one of the few locations were public schools are the default choice.
One of the challenges our district faces is declining kindergarten enrollment – we don’t have a good idea “why.” Some things I’ve noticed with the families that have gone private:
Private school is contagious, by neighborhood, by family and by peer group. It would be great to get those families back into the district. I’m not sure we’ve asked them what it might take.
As elementary school enrollments shrink, the impact of a single weak teacher increases. How we support weak teachers is not clear to me.
Having switched one of our kids to a full-enrollment, school… there is a quality of experience issue with the schools that aren’t full. The overall experience at a “full” school is better.
Thinking about the phases of our kids’ education…
New Parents: The #1 thing we got right, eventually… Listen to professional educators. My default position is seeking to understand why staff’s view makes sense. Take time in forming opinions.
Age 2 to 6 => choose your daycare/preschool/early education based on where the child will get the best socialization skills. This is particularly important if you have a high-energy kid. Early socialization trumps preschool “academics.” All three of my kids started Grade One at the bottom of the class, all three caught up in 18 months.
Parents: model the socialization techniques the kids are learning at preschool. Learn from the teachers so the child is in a consistent environment at school, and at home.
Remember during this phase… the most important money you spend is childcare that benefits your marriage. You are under more stress than you realize – make time for each other.
Age 6 to 8 => a daily focus on learn-to-read and learn-to-learn. Learn-to-learn is building on the early socialization work that happened before they arrived in Grade One.
Parents: 20-minutes a day (read-to, read-aloud) in this phase has the highest return in your kids’ education career.
10 minutes before school (read-together). 10 minutes before bed (read-to). HUGE.
The confidence boost from being able to read provides a positive association with learning. INVERT: smart kids (who can’t read) will wonder if they are stupid.
=>100 hours per year time investment. The highest return parenting time you will ever have.
PS => the read-together before school, should morph into read-to-self each morning. I used a summer reading prize (100 mornings = $100) to establish this habit.
Age 9 to 12 => Our theme here: don’t mess with the streak!
Siblings, routine and habit form a virtuous circle of positive reinforcement.
“Read to self” every morning, summer reading prizes, consistent bedtimes, 2-3 different after school activities, consistent weekly schedules. This phase is about locking in a routine and keeping it rolling.
Be the brand.
If you’re not then they’re going to call you on it. 🙂
My expectation on the kids is “perform at grade level.” This lets them take all the credit for above-average performances.
Earned Enrichment: there’s a joke that every parent thinks their two-year old is gifted. This is funny because it’s true.
In order to keep as many families in the public channel as possible… make it clear that all kids who want to accelerate their learning will be supported. Fairness of opportunity for all kids.
Related: make it clear that teachers will be supported. I’ve watched two weak teachers cause a (very polite) gradual exodus from a wonderful neighborhood school.
My son wants to take combined Grade 7/8 math next year. We have a simple policy, if you want to accelerate then you need an “A” in current year math. You need… A’s to Accelerate.
Seeing her older siblings ahead… our youngest wants to get ahead in math. At the start of each academic year, she gets a chance to test out. Once that test is done, we won’t intervene on the kid’s behalf. You gotta earn it, yourself. She’s been trying for two years and has a good shot next September!
Overall, I’m in no rush for the kids to accelerate their learning. Just like their sport, they have 10-20 years (!!!) of formal education ahead of them. The heavy lifting will come when I’m out of the picture and must be internally motivated. Our job is to set the schedule and not screw it up!
Same deal with sport. If school work falls apart then we will be dialing down the training load. You need to earn the right for extra training.
Fair doesn’t mean equal. My kids are always comparing who-gets-what. My focus is on supporting them, fairly, to get whatever outcome they can achieve on their own merits.
I was very unequal when they were young. In any given year, I over-allocated toward the kid who needed an early intervention of my time. I think school districts should do the same – prioritize early interventions across all demographics.
Finally, schedule time to focus on your stars. It is very easy to get wrapped up in problems.
1// One-on-one trips/special events in your best environment.
2// Acknowledge that successful parenting means getting out of their way — building their ability to live in the world — letting them go.
3// ABC => Always build confidence, or competence… depends on the situation!
INVERT: don’t crush their confidence when they are small.
The confidence point is a big one. Bad habitsdon’t take your family where you want to go.
That last point is a good one => take time to ask around…
Where do we want to go?
All too easy for strivers to keep striving, across generations.
Like all my stuff => this is not advice to your family. Speak with local experts before making tax, legal and portfolio changes in your life.
Iñaki asked, “what to do when the world seems crazy?”
I build my life so I don’t need to be right.
Related, I want to be able to unplug for 72 hours, without worry, whenever I feel like it.
This strategy is based on knowing that I’m prone to error and don’t want to spend my life connected to the matrix.
Further, even if you have 100% confidence in yourself, your kids/spouse are going to need something robust for when you’re gone.
Across 2019, I wanted to lean into equities but there wasn’t an event that gave me an opportunity. So I rolled along, rebalancing and living my life.
In March 2020, the pandemic created an opportunity. Personally, I leaned in (fairly hard) by increasing %age exposure to equities, at a time when rebalancing alone would have triggered buying.
In a fiduciary capacity, we only leaned a little. Two members of my investment committee, with wider views of the world, advised caution. Using the principle, most conservative view rules, we were conservative with allocation.
Both decisions made sense at the time and worked out.
Time matters. “Good enough” becomes more powerful the longer your time horizon.
Returns across generations are driven by a famous Munger-ism => “just try not to be stupid.”
The family’s position, 10 years past every generational transition, is impacted more by what you burned than what you earned.
At the end of 2021, given the whacky stuff I’m seeing around me, I don’t plan in leaning in at the next correction. Rebalancing will be good enough.
Recreational Capital and Associated Spending
A dominant focus on return/allocation in your financial portfolio, misses an important source of value creation => efficient use of “recreational” capital, and associated spending.
Recreational capital is any asset that’s held for non-financial reasons. This is a material slice of many balance sheets:
Boats, RVs, Cars
Second homes, vacation properties
Sizing up personal residences
Renovation projects, furniture, collectibles and art
Charters, vacation spending, travel spending
Any asset with a negative yield
You’ll see I included a line for the expenses associated with those assets. Some assets, when bought, lead to more spending.
By way of example, INVERT and consider…
When you sell all your assets in a remote location then… the spending associated with the location will plummet. Now that we spend our summers “at home” vs commuting to/from Canada, we cut spending by a big number.
Even if you don’t buy… for skiing, we stopped renting a condo in Vail. Our 2021 ski season cost will be less than what my last rental cost me. Skiing is a choice with a stack of associated spending, and negative-return investment opportunities.
It would be nice to think that these decisions were driven by being smart. That would be a mistake! The Canadian exit was driving by local tax policy and COVID forced a change in approach for skiing.
We did not realize the true cost of our “recreational” choices. We had to remove them, and watch for a couple years.
The choices above:
Create a larger working portfolio
Reduce annual spending
Increase the flexibility to change one’s mind
Don’t involve admin, maintenance or exit costs
In our financial portfolio, conservative nature means we “missed out” on much of the run up. However, because we adjusted our recreational capital, and associated spending, we greatly increased wealth over the last five years.
The wealth gain, from shrinking the recreational portfolio, is locked in. These gains are hidden from conventional metrics, that your advisor might show you.
Now we move along to KC’s questions
GB: total debt will remain modest relative to assets and cash flow
KC: How do you define “assets” and “cash flow” here? Completely paid off asset or total value of asset? All assets – or just the assets on the investment side (excluding primary home?) Cash flow from all sources after expenses? What do you define as a modest target?
I have a spreadsheet that shows me… gross asset value, deferred taxes, tax basis (as at last tax filing year) and deferred agent’s fees (for real estate). So I can quickly look at real estate from gross to net after-tax realizable value. I compare those figures to gross rental income, and net cash flow (from my tax return).
I’m conservative with gross asset value on real estate, a discount from Zillow and my real estate agent’s estimate on value.
I assume 6.3% cost to exit, from real estate gross value, then tax the realized value at 25% of the gain over basis.
I look at… total debt service, core cost of living, total cost of living => each of those numbers gets a little bigger, and I have less control over delaying payment/spending.
Then I look at the inflows by source…
real estate (net and gross — consider vacancy risk)
employment (by role and client — consider concentration)
passive (royalties, dividends, distributed gains)
I want to understand my concentration in expenses (what I can cut/control) as well as income (where the risks lie). I never want to be placed in a position of being a forced seller.
My total family debt stays under 10% of net assets. Assets calculated net of all taxes and agent’s fees.
The Role of Time
My thinking in my work, and family, is multigenerational… I look at assets, leverage, cash flow and spending at many levels…
What I actually own, owe, control, earn => me
Family & Corporate level => me, my family, my business
Multi-generational level => consolidated, over time
I think about expenses, earning power, saving power, asset utility (what benefits members) over time. I have a spreadsheet that projects the age of all living family members over time (2021, 2035, 2050). This helps me consider family asset strategy and consider when generational transitions are going to occur.
KEY for assets and cash flow => When generations stop working/saving, when kids start working/saving?
It’s not just “what you own.” It’s also when you own it, and when you sell it.
I see many people buying assets they will HAVE to sell in ten years time, mainly real estate. Now, if it’s your main home, then I get it. See below for the option value in the mortgage.
In this market, Boulder up 30% this year, it’s easy to convince yourself that you are silly not to supersize your balance sheet.
But if it’s a secondary market…
10% in/out cost for the real estate
Less than 1% cost to go variable (AirBnB, Hotels.Com)
Total flexibility with capital (you don’t deploy into a low-occupancy, negative yielding asset)
No admin hassle (I really dislike organizing maintenance and cleaning)
Why are you doing it?
If you want to dazzle peers, suppliers and key relationships… …then you might be better off with a high-end club membership.
Your mind may try to convince you the joining fee is a waste of money. Note that the club joining fee is usually < 5% of a condo cost, and club dues run <10% of the condo’s cost to own.
With leasing we compare to “do nothing” => most people with ready finance will “do something.” If you’re going to do something, regardless, then something smaller can be a better option.
Your mind doesn’t see the rest of your portfolio performing better, with less hassle, by not owning an asset that’s a drag on return.
And… my mind at least, doesn’t remember how much I hate cleaning and dealing with remote maintenance issues!
KC: Tax bill as a %age of net assets-Where do you think a healthy range should be?
Every year, I look at the tax bill relative to net assets on a consolidated basis. This lets you consider the impact of tax policy on your portfolio – smart savers free themselves from exposure to changes in tax policy. Taxes paid, as a percentage of net assets, should trend downwards over your working life.
I don’t think the taxes vs net assets number, itself, is important. What matters is trending down and asking yourself if you are worrying about the right things in your life. Lots of (wealthy) people fail to recognize how little impact the Feds have in their financial life. Others could use a nudge to save more, spend wisely.
GB: At that point, you’ll have built yourself an inflation-proof, tax-effective retirement annuity
KC: Can you help me understand the inflation-poof aspect of this strategy? Is it the income producing asset that is locked in at an low interest rate? How is RE more inflation-proof than other assets?
Real estate isn’t “more” but it can be “different”.
Local rents are influenced by local real economic growth. I like the prospects of Boulder, the Front Range and Colorado.
Local real estate values are influenced by macro (national interest rates, credit cycle) and local (replacement cost, demand) factors.
So a slice of local real estate can create an element of hedging between national, regional and local conditions. There are some other benefits…
Here in Boulder, Colorado, I believe our real estate values have a hidden option. There is a chance the best neighborhoods explode upwards towards the highest valued parts of: the Rockies (Vail/Aspen), California (Bay Area) or NYC.
Now, I don’t have the $$$s to own trophy properties, but I don’t need to. As I wrote in The Next Doubling, it’s good enough to be nearby. For the option to pay out, we don’t need to get to the highest prices per sf => we merely need to close the gap, a bit, over time. That sort of option doesn’t exist in an index fund.
Another hidden option => we own a two-unit rental. We always have the option to move into one of the units and “live for free” by renting out the other unit.
Option Value of Fixed Rate Debt
30-year fixed rate debt, with an option for the borrower to repay, is a valuable (oneway) option in an uncertain world. Unlike margin debt, the lender can’t call the loan on a whim.
Long rates have been declining for 40 years, so the value of this option is overlooked by many. In an inflationary environment, having a multiple of my core cost of living in low-cost fixed rate debt is a useful position.
A mortgage on a personal residence seems like a good deal to me……and if it turns out to be a bad deal then I exit via repayment or refinance.
Saving 2% p.a. and giving Goldman an option to close you out…
Quick note on margin debt, even at <1% p.a. cost, seems like a very bad idea.
Smart people borrowing money they don’t need, to make money they are unlikely to spend in their lifetimes. Everyone figuring they will be able to unwind their financial structure before anything bad happens to them.
This strategy never ends well and only makes sense when you are playing with other people’s money.
A general principle, some things only make sense when you ignore the rebound. Fasting, margin debt, intensity-bias for endurance sport… I have found one gets a better long-term result from building smarter habits.
Optimize over time. When I started paying attention to myself, I realized I needed a whole lot less spending, which implied less capital, which gave me much more time.
INVERT that last sentence => spending you don’t need, increases the capital you think you need, to spend more time doing what you want. I broke that cycle in 2000, got wrapped back up in it in 2005, got tossed back out during the 2008/2009 recession and, these days, cycle in/out depending on my moods!
Nearing 53, I laugh because “less” is being forced on my physical life, by time.
In my early 40s, “less” happened due to kids and a nasty recession.
In my early 30s, “less” felt liberating, and made time for a lot more self-directed time.
I view my negative emotions as feedback and, when they persist, I change my approach.
My summer had some unpleasant moments. Moments which spurred the resolve to reach for better.
The first thing I noticed…
If I am going to do something mean then it’s going to happen at home, after spending the day alone.
I can’t remember a single unforced error happening after a day outside. The errors I do remember start with a slow boil starting at my desk!
I have stickers facing me while I type away on my screens…
Whatever I truly need… it’s not to be found in a chair, looking at screens.
Another lesson I’ve learned, this time about marriage.
Schedule time to enjoy each other.
I don’t know if we’d gotten “too busy”, or complacent.
Either way, when I’m getting jealous of swim meets then it’s a sign we need to increase our us-time.
Tuesday – train together (outside), then lunch
Thursday – starting after Christmas break, ski together
Saturday – date night (and our oldest can handle the sitting)
Three opportunities for “together” each week.
Have fun together and avoid forming a habit of preparing a list of grievances for each encounter, yes I have done this.
The Thursday means we need to help. When I first raised the idea, it was…
I want you to get childcare so I can take an entire day off. Every. Single. Week.
My wife had no idea what, or why, this was important.
Nothing happened, for months.
When I explained the downstream idea (ski together each week), help was found within 12 hours.
Good ideas do better with effective communication.
These ideas were put together with an understanding of enduring drivers of satisfaction in my life…
Being outside, together
The three “weeklies” put me in my best environment, so my wife isn’t interacting with me in my worst environment (the house after a day alone).
We had a bit of an issue with restaurant selection so we rotate choice, by week, with a no-veto policy.
John Hellemans notes there are three plans in any athlete-coach relationship. I goes something like this…
The plan the coach believes the athlete is given
The plan the athlete actually does
The plan the coach believes the athlete did
It’s a reminder to be cautious with assumptions, and pay attention to clues that point to reality being different than expected.
A version of this extends to all things in life…
What you think you need
What you actually do
What you think you did
What I think I need to spend to make myself happy [A]
What the family is actually spending [B]
What I think my family wants me to spend [C]
The punchline here is TIME.
When you are enjoying each other, your family will enjoy inexpensive hobbies.
INVERT => no amount of spending can overcome a lack of meaningful connection
What’s been bothering me, quite a bit as it turns out, was the ratio of B to A. The $5 of family spending that follows each $1 I find useful in my own life.
I dug deeper.
What I’ve arrived at is equity. Equity of contributions and benefits. We’re working on it. A simple change, that is difficult to implement…
I will not burden myself with the task of removing the consequences of another’s choices.
Basically, if someone calls an audible, repeats a bad habit, makes a poor choice… then I’ll limit myself to polite emotional support, while calmly showing the connection between their choice and the consequence.
Then I’ll move on.
Getting What I Want
With the money I think my family wants me to spend… I just smile at myself.
First, because my wants are driven by my peers, my values and the advertising industry => my family is the solution, not the issue.
A bit of effort with my media filter dials down my greed, and dials up useful traits. A simple change… unsubscribe reduces useless spending.
Second, my “wants” are transitory. They come and go, just like moods. I don’t need to take them seriously, they change all the time.
A better question:
What’s it going to take to raise my kids, the way I want, and set myself up for the next stage of my life?
My wife has one angel birthday in her life, October 30th, the date of Andy’s accident. We had a memorial last week and it went well.
It’s difficult to front up to a funeral, VERY difficult to speak at one… thank you to those of you who came, and those who spoke.
Some thoughts on conversations from the memorial.
The concept of closure: for me, this doesn’t exist. Everything I have experienced, is carried forward and changes over time. Andy, in me, continues to evolve.
A key part of growing up is learning how to deal with loss.
I’ll share my list of Angel Birthdays to illustrate the point: Stuart, Kristy, Kevin, Dan, Andy, Henry and Gary. As we get older, many people are going to pass. The advice to “grieve the small stuff” is well made.
The picture below, is Andy with “Little Ax.” My son lives on, he’s 10, but Little Ax ain’t coming back. I miss him.
Life gives us many opportunities to acknowledge loss, both small and large.
Better to grieve the small things (than seek to close them off).
Michael shared an idea to re-frame our triggers.
Andy died falling from the Second Flatiron. In Boulder, we can see the Flatirons from EVERYWHERE in town.
It goes further that that, if you know where to look you can see them from Eldora, from the tops of the local canyons, flying into Denver…
One endless trigger.
Becoming aware of our memory triggers, we can take the opportunity to reframe them.
So when I look at the Flatirons, I want to remember to say “yes” more often.
Andy and I were on opposite ends of the yes/no spectrum.
There are many days where I wake up keen to say “no” – to myself, to my family, to anyone… no, no, no!
My “no” is rooted in a fear of “yes” getting out of control.
A little more “yes” will improve my life. It’s a good way to remember AC and, perhaps, I’ll give him credit when I’m less of a hardass.
Reframe the trigger to serve the life I wish to lead, the person I wish to be.
Andy would have wanted…
If you’d asked him, when he woke up on his final morning, if he was OK with dying in a few hours. then I am certain he would have said “not yet.” We had a look through his planner and he had lots of fun things planned for later in the week.
However, when I met him in 2004 (and many times subsequently), Andy told me he was OK with death. He went further saying he believed in a collective “duty to die”. Not to kill ourselves, by the way. Rather, Andy believed we had a duty to live life fully.
So if you’d told him he’d die in middle age, quickly, pain-free, exercising outdoors… he would have been OK with that.
Andy and I had different values when it came to risk and ruin. Two key reasons: (a) the future is invisible to our present selves; and (b) we are not autonomous beings.
He always gave me a fair hearing.
By way of Bob, Chris shared a letter from Hawaii. Extending my favorite part to the general…
Vibe with nature, don’t seek to challenge her.
Rock, snow, ocean, mountain, exercise, work, training load, run mileage… vibe it, don’t challenge.
The vibe is what we seek.
Another way of saying, “look deeply into the need you are seeking to fill.”
A final shout out to Monica’s Buddy Andrea (MBA).
MBA flew out, stayed with us and helped with continuous acts of kindness.
A lot of little things, from all of you, turned into a big assist for our family.
The trip to the Canyon marked the end of my summer season. On the bus ride back to our car, my wife asked “what’s next?” I’ll share the answers to that question and add some ideas that might be helpful.
One of my challenges with parenthood is being haunted by the thought… “I’m going to be old by the time I escape this grind.” In my 20s, that thought (and a divorce) helped me jettison myself from desk work.
Our youngest isn’t going to graduate high school until 2032, so there’s some truth in these feelings. However:
(1) my age isn’t necessary a problem, or a barrier, for a life with meaning;
(2) I had similar thoughts ~20 years ago and things turned out fine; and
(3) fearis a distraction from doing what solves the problem.
Anyhow, I wanted to acknowledge those thoughts as I’m certain many of us feel similarly, at times.
The Mental Benefit of Getting Better At Something
One of my coaching mentors, John Hellemans, has a wonderful presentation about triathlon. One of his lessons is “try something new, each year.” He backs this advice with a series of slides showing all the whacky equipment he tried out over the years. He must get a kick out of novelty.
Coming out of COVID (it seems we’ve been leaving the pandemic for all of 2021!), I was gym-strong. As a result, I’ve been able to get back, rather quickly, to a level of indoor climbing I’d last achieved in 1996.
Gains & novelty are fun.
What will you try this winter?
My areas for improvement: metabolic fitness via endurance cycling, skills & novelty via indoor climbing, eccentric leg strength via dryland ski training and agility via downhill skiing.
Knowing What I Don’t Want
Do you know the conditions likely to to bring out your worst?
I sure do: tired, in traffic, the whole family in close proximity, after a day spent answering questions and listening to low-grade bickering between my kids.
Not going to spend time, and money, to put myself in that situation!
My personal planner, through to the end of March 2022, doesn’t have a single peak-period family drive (and the kids had to demonstrate a material improvement in behavior to get me to agree to fly with them).
The current situation tends to continue as long as we tolerate it.
Write out your “not to do” list.
The Value of Being Able to Change Course
The last year was another reminder how life surprises me.
In August 2020, our daughter started year round swim team. Team implies ~12 meets a year, 6 of those requiring travel. That’s a lot of time out of my “with my wife” allocation. It was a major adjustment for me, which we are still figuring out.
That wasn’t the surprising part, fatherhood can feel like a gradual drift down the priority list until the kids move out. Just the way it is, and why I make a priority of having fun with my wife.
I was surprised by the cost. Swimming is expensive for a “cheap” sport. Our cost is greatly increased by my desire for childcare => so I don’t lose my mind, being left home alone with the other kids.
Over the years we have considered properties in various vacation markets. I feel fortunate that I didn’t pull the trigger on anything. Because we didn’t lock ourselves into a secondary market, it was painless to cut the winter activity budget in half and cover the cost of swimming.
So no winter ski place rental, which eliminates Sunday drives home (in snow storms, tired, with all three kids).
Of Interest Here: I am being compensated by less of what I don’t like. Very tough to price the benefit of via negativa.
What would I pay to cut my worst days in half? No idea, but I do pause to notice the benefits of less.
The lesson isn’t my specific situation. The lesson is life changes every five years or so. Choices, and investments, that make sense today can be costly to unwind tomorrow => even when you get out at a profit.
We’ve owned a BoCo rental property since 2010 and I’m often tempted to swap it for a vacation place. By not buying in a secondary market:
I continued to hold a rental property in my home market.
I didn’t pay capital gains taxes.
The rental income more than covered my vacation rentals.
I benefited from 75% capital appreciation.
My net cost on the site is zero, a few years back I subdivided and sold part of the land.
In 2016, I didn’t know how I would be surprised, but I could see the ability to cover vacation expenses with rental income. Also, it was also easy to calculate the taxes and agents fees deferred by not selling => make the cost of change visible.
I have a persistent feeling that owning is better. In secondary markets, the facts tell me otherwise.
Looking forward to 2032, I know we will be empty nesters. What that means for our life is unknowable today.
Take Advantage of Childhood Opportunities
There is a limited window of time where my kids will think I am brilliant. I care about the value of my family’s human capital so I remember…
It is much easier to indoctrinate a child in “risk management by example” than to achieve anything by heckling a teen.
As a coach, my job was to teach my team what I would advise, without needing to say it.
Being the brand was excellent preparation for parenthood. Kids have a keen nose for inconsistency!
It is easy, however, easier to see repetition with our food choices.
With my kids’ nutrition, I have three behaviors I model.
#1. Remove friction for good decisions.
Much of our learning happens by repeating what’s presented.
The path of least resistance is a useful tool when used with purpose.
#2. Do not make binges fun.
I know ALL about this!
As an ultra endurance athlete, I had a lot of fun with binge training. For my brief period of being really, really fast… removing the binges was a key part of my coach’s strategy for me. Fatigue is a geometric process!
Most societies, and families, have a tradition of feasting. In an environment of abundance, training myself to overeat does not work. Most especially, when coupled with positive emotional feedback.
In the language of finance… my meal choices are not independent from each other => habit energy runs strong in my wise/unwise selections.
With the kids… never give positive emotional feedback, and in-the-moment attention, to overeating.
Later… I get a chance to listen to them… then add… “try to learn from what you just told me”.
To help our family members with “appetite”, we always start with nutrient dense foods.
I am binary in many areas of my life – not having to decide gives me energy to apply elsewhere.
With food, binary isn’t an option => we gotta eat every day and the better our choices, the better our outcome.
The final area where we offer guidance, and make an effort ourselves, is with portion control of energy dense choices (bread, noodles, sugars, starches, desserts).
We’re OK with the kids eating anything – we’re gluten friendly, could care less if they eat meat, take good care of our vegan pals, have a choice of dairy/non-dairy milks… in Boulder, we can handle any kid.
Last week, Mark Spitznagel’s book came out (Safe Haven). Don’t expect any specific strategies for constructing Safe Haven insurance. Do expect to (re)learn useful concepts:
a reminder of the central role of time in our lives – the capacity to sustain action, cognizant of time, is extremely rare
a reminder that we think in terms of arithmetic averages but experience geometric averages (COVID, portfolio compounding, fitness, nutrition, body composition)
a reminder that downward moves (in %age terms) have the same impact, regardless of their position in the time series – the counter to this => absolute dollar losses are best taken later in the time series (down $100,000 wipes me out at 25 y.o. – not so at 60) // by the way, creating negative net worth early (via education loans) is a very nasty geometric headwind.
a reminder to consider the cost of your insurance strategy, including the decision not to insure. Health, accidents, portfolios, relationships, nutrition => “insurance” comes in many forms.
Also some great parables/examples to help explain mathematical concepts that I’d previously failed to grasp, most importantly, the negative waterfall of financial ruin in a geometric environment.
Related to geometric returns, some useful illustrations of how/when diversification fails, despite its enduring appeal.
Finally, using Eternal Return when assessing risk. With any important choices assume you’ll be stuck repeating that choice over-and-over. I’m not sure I would have been capable of applying this advice as a young man. At 52, my life continues to benefit from this mindset (health, accidents, portfolios, relationships, nutrition…).
Today, I want you to think about the past, present and future.
Specifically, I want you to look backwards 10-15 years, as well as forwards 10-15 years. This will give you a 20-30 year time span in which to consider family strategy.
We call 20-30 years a generation. For family leaders, it’s the shortest period we should be considering. Let me illustrate:
2004 – met my wife
2008 – birth of first child
2032 – youngest child graduates high school
2037 – youngest child self-sufficient financially
For our family finances, a generation will be closer to 40 years than 20.
Act with 25+ year time horizons => the Eternal Return is a useful mindset for multigenerational family systems.
Family Earning Capacity Over Time
The biggest change of the last 15 years, for us, has been the quasi-retirement of the two largest earners in our family system. Looking forward 15 years, the biggest change will be the addition of new earners into our family system.
The shift in earning capacity every 30 years, or so.
If you are the prime earner, today, then here is a question for you. Does your family system have the assets, earning power and desire to continue to run the overheads you have built over the last five years?
Current choices can create a “geometric” headwind for the next generation.
Family Risk Management Over Time
The demographic that seems to worry the most about financial risk is the Top 2%. Makes sense, they own most of the assets and, therefore, have the most to lose.
The easiest way to manage family financial risk is to create a cash flow statement with many different inflows, while having the capacity to painlessly chop outflows. I’ve been working on this for 20+ years, covering fixed overhead categories with a mix of inflows.
The option to shrink cash spending is valuable. Specifically, looking at your cash flow statement and seeing how much of it you could chop, at will.
For example, there are excellent reasons to borrow right now (inflation hedge, low nominal rates, negative real rates). However, the costs and negative-optionality of debt are hidden and difficult to price – particularly in a near-zero rate environment.
What is the correct way to price the ability for a lender, or my fixed overheads, to force me out at the bottom?
How do I price the capacity to invest during the next credit crisis?
What’s it worth to not have a boss?
How much is a lack of financial stress worth?
In my memory, all the remains from the 2008/2009 crisis is a note I wrote to myself to NEVER DO THAT AGAIN. Ten years along, there is no “pain scar” from the stress I endured.
With our next generation a decade out from starting to earn, we’re debt free, and happy to be there. It’s worth more than I can prove mathematically. I do not have the capacity to think in terms of negative optionality. I can’t price ruin.
I’ll finish with another note I wrote to myself:
Moderation is easier when the prime directive is simply staying in the game.
This applies to my appetite for risk, further wealth, spending choices and personal fitness => interestingly, my greed focuses on various forms of external winning, while my quality of experience is internal.
My wife asked me to share ideas about our marriage.
I’m better in writing, so I figured I’d leave this for my kids, and you.
16 years – it went by in a flash.
My inability to feel duration, can make me a little sad. I have a hunch that soon I’ll be an old guy wondering what just happened!
Acknowledging the reality of the fleeting nature of time… it is useful at helping me stay focused.
No time to waste.
VP Pence took heat for his rules of marriage. To me, they were OBVIOUS and reflect how I act.
I met my wife at the pool. As a result, I don’t train with attractive, athletic females (other than her – she’s very attractive).
I don’t consume alcohol with females, or anybody else.
I don’t find myself 1-on-1 with females, especially other people’s spouses.
The above is a simple risk mitigation strategy. Applied across domains, over 50+ years, it works.
I keep myself away from situations where a poor decision results in ruin.
I pointed this out with regard to Andy’s accident and it applies everywhere. The decision is best made before you have to make a decision.
How do you stack up?
So many have conflicts over money.
Since the late-1990s, I’ve paid the living expenses of everyone (male/female) who’s lived with me. By the time, our youngest graduates high school the bill will be over $6 million.
My favorite wife-quote about family finances is when she said to me, “What do you know about money?”
I just smiled.
I know how to make it, when to stop reaching for it, and what’s more important than money.
My financial knowledge has enabled our family to live a good life AND I have been able to educate my kids.
Most parents want to see their kids grow up. I made a choice to go one step further. I’m educating our children in how I see the world. These lessons will endure into the next century.
Invert => how much of your family’s financial wealth from 1950 do you have right now?
My ancestors legacy is good ideas, memories of what didn’t work, a debt-free education and a life-changing introduction to my first boss in finance.
To finance our life, I need one good idea per decade. The rest of the time I avoid mistakes, and manage spending.
It takes a lot of effort to avoid mistakes. I write this blog to help my kids identify their inevitable mistakes.
Mistakes are effective teachers, I “manage” by:
letting things go wrong
letting other people be wrong
surfacing, considering and fixing my own mistakes
Across 50-100 year time horizons, wealth habits add up. A simple annuity calculation (laid out many times in previous blogs) will show that my choice to avoid financial conflict will end up “costing” my heirs millions.
The human capital I am building will more than cover this amount.
Ruin Not Experienced (divorce, substance abuse, spending, investment)
There is deep, multigenerational wisdom when we act with long time horizons. In my current life, I try to be the parent I’d like my grandkids to experience.
What are the choices that caused your family tree to lose capital, lose members and lose productivity?
Be as open as possible about errors, they tend to repeat.
Two years ago, my son decided to hold up his finger and yell, “BOOGER!”
Yes, there was a nasty one hanging there!
As I sorted his booger, I decided to fire every staff member in my life.
An unimpeachable moral authority stemming from out-working everyone around me
Relentless attention to detail (in myself) – no days off, no exceptions
A schedule that enables me to follow up on the above, especially when it’s inconvenient
Before talking to others… How do I measure up?
Confidence comes from knowing you can outwork your competition over long time horizons. My kids are very confident, with good reason.
Tough to beat.
Let’s talk about staff.
We got through the highest stress period of our marriage (babies and preschoolers) because I had the courage to make a poor financial decision. I spent money so we could maintain some sort of life between the two of us.
Our recent trip to Death Valley let me price opting out (of living in the real world).
160 student contact days ($50)
Leaves 205 non-student contact days ($200)
365 overnights ($50)
Multiply that out, gross it up for payroll taxes => $80,000 per annum and I can watch someone else deal with my kids boogers… 😉
I’m sure many professional people cut that number in half when calculating the exit cost from an unhappy marriage, or when feeling overwhelmed (as we all do) with a young family.
But is that winning? Before blowing up a marriage, look two generations out, consider your unborn grandkids.
I don’t serve anyone by having my family see me opt out.
Queen Elizabeth comes to mind. Still grinding!
The goal of life is not to opt out of the obligations of citizenship, or be worshipped for position. To build a successful organization, requires a long term commitment to service.
Even then, there’s going to be scandals, setbacks, challenges and very good reasons to quit.
Keep moving forward and be comfortable with what you control (your actions).
Goodness, in action, inoculates one from the options of others.
Finding => Be the person you want to marry => you’ll have a positive influence on everyone around you and, when things don’t work out, you’ll be well placed to keep moving towards better.
Retaining => Be clear about your minimums => cleaning, sex, financial contributions, social engagements => table everything you hear your friends complaining about.
Optimizing => Take care of yourself => knowing it is better being married to an athletic spouse… I need to be an athletic spouse.
Being Effective => Do not manage from the couch => If you don’t care enough to stand up then let it go.
Willful Blindness Is The Seed of Bitterness => Be clear about what you don’t want => very few people want to be left alone and, even the kindest partner, is likely to grow bitter when the “division of inconvenience” is out of whack.
Knowing actions matter, I watch => in myself, and everyone around me…
What is done first?
Ruthlessly honest inventory of time allocation. Do not fool myself by saying something is important, when I allocate little time to it.
What am I doing when I am willing to inconvenience myself? My core values live here.
Is there something small I can do, daily, to support the people who are essential to me? Have I asked?
I try to stay humble by remembering how each chapter of my family’s story will end.
Iterate towards better. Document, then share what works.
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