Over the last six years, our discretionary budget has been simplified to vehicles, skiing and vacations.
Let’s start with vacations.
Most families with kids, place their vacations before considering Childcare and the size of their mortgage/rent payment. I recommend you reconsider your priorities. Earlier I explained why, I sold assets so the grown ups could maintain their health and relationship.
When I was living with a 4, 2 and 1 year old – my favorite kind of discretionary spending wasn’t a vacation, it was “more childcare”.
Always, more childcare.
To be a good investor, you need to know your opportunity cost.
Same deal for being a good spouse!
The Bora Bora vacation (above, still on my fridge) is the equivalent of 150 date nights.
When I was working through a decade of bedtime dramas… I priced my life in date nights (time with my wife, time without a kid melting down).
Date nights where someone else can put the little ones to sleep, and you can alternate the following morning with your spouse.
Alternate the routine so each spouse gets a slot where they are “off” from 5pm to 10am.
“Sweetie, I just need two nights a week where nobody is yelling at me.“
I was willing to do whatever it took to achieve a nervous system reset 2x per week.
Still want to head out of town? These were my rules for luxury spending:
make it “fridge-worthy” (re-live the vibe over-and-over)
book it way in advance (create anticipation)
take a lot of pictures
The trips were a good bang for the buck, we spread them out, got stuff done and had something to look forward to.
We found shorter trips were better – if we left for more than a few days, our Alpha Pup would try to take over the household!
We left the kids at home, in their normal routine – never risk the sleep schedule!
Take a look at your budget, are you making time to enjoy each other?
An observation that I am trying to pass along to my kids.
My never ending desires are rooted in a false idea of what will make me happy. I have a clear idea about the structure of the days that are “better.” Achieving better is easier, and more rewarding, than chasing pleasure from purchases.
To help me achieve “better”, I have a series of principles.
1/ Visible spending for wife, first // This works on a number of levels.
Don’t buy something for yourself that you wouldn’t buy for your entire family.
It easier to be value conscious when I remove myself from the purchase equation.
It’s just good policy.
2/ The minimum outlay to meet the underlying need
Strangely, I got this via Joe Friel on coaching masters athletes => the minimum, and the most specific, training to get the desired physiological adaption.
Capital takes time to acquire and is easily squandered (spendthrift heirs and lottery winners are common examples).
A default to the minimum reduces the scale of my (inevitable) errors and increases the ability to change my mind later.
How do you deal with the risk that your body lasts longer than your mind?
Serve the young.
A pregnant wife is the start of an outstanding opportunity to de-risk the back end of your life. The skills required to take advantage of this offering are likely to be very different from what you’ve been using so far.
You don’t need to be a father to take advantage of these posts – young spouse, young students, other people’s kids, grandkids, neighbors… the key element is consistent service to others.
Now, in my own case, it wasn’t a desire to “get” future help.
Rather I had a strong desire to “avoid”.
Avoid another divorce.
Avoid the pain of future regret.
Still not sure? Listen quietly while grandparents talk about their life decisions.
One other quick note: one of my wife’s friends sent us three picture frames. The idea is each kid gets to put a favorite Andy memory into their frame. Wonderful gift idea that I wanted to pass along. Our oldest added a note at the bottom of her frame, “Thank you Andy for being a great uncle.” Gratitude in the face of grief.
OK, now an idea about relationships for you.
When death, divorce or another life changing event takes place, we might have a feeling that we need to rebuild. Rebuilding, after everything fell apart.
Alternatively, we might get caught in a victim mentality. The shock of the event leaving us feeling angry, hurt or disoriented – feeling like the world, or a specific person, did us wrong.
We’ve been done wrong!
Two things I shared with my oldest daughter.
Yes, your uncle dying is the worst thing that has happened to you. However, it’s unlikely that this moment is going to be the worst thing that happens in your life. [I avoided the temptation for us to brainstorm future tragedies.]
No, we are not being singled out. Death is a natural and universal human experience. Everyone you meet will have their own story about death.
In terms of tough moments, I have a buddy who started 2020 with his spouse dying after a long journey with cancer. I followed them for many years. They packed a lot of living into those final years.
Roll forward into COVID, into grief and he shared an observation about a person he’d met.
We have an opportunity to build a life together.
Opportunity, Build, Together
I wanted to pass those words to you because they are very different from the way I saw relationships as a young man.
My ideas of the past, at best, were to find someone to share MY experience with ME.
Or perhaps, someone to follow MY instructions and serve ME.
Far more useful to be thankful for the opportunity to have loved, to have had the opportunity to raise kids and then focus on what’s next. Life after children, life after his spouse has died.
When I place myself in my friend’s mindset, certain things become clear.
Don’t seek to nudge others towards my view – share experiences and change together.
Know that shared experiences, particularly struggles, are what it’s all about. Embrace the opportunity to face life together, as those will be the moments that bring us together.
If my time allocation reflected my values, then what would it tell me?
Be grateful for an opportunity to build better together.
Half a century is more than enough time for choice to impact outcome.
Here’s how I stack the deck.
Understanding three things greatly simplifies decision making:
Who bears the worst-case scenario
In most cases, knowing the above eliminates the need to make any prediction (of an unknowable future).
In investing, you can bet big when someone else bears your downside (non-recourse leverage, other people’s money). At home, you will want to be more careful.
You are going to be tempted to spend most of your time predicting an unknowable future.
Instead, figure out the payoff function, what’s the worst that can happen and who bears that downside.
Previous writing touched on the payoff functions for fame, financial wealth, strength training and personal freedom.
Tim’s blog did a great job of laying out on his worst-case scenario – shot in his own home as well as a brain dump of everything that can go wrong, and right, with fame. It was an enjoyable read but life is too complex to perform cost-benefit analysis for every choice.
Sounds good, doesn’t scale.
One of my favorite shortcuts is to teach myself the areas of my life where I have a lousy track record, and defer to my expert advisor(s). I look for advisors with domain-specific experience and a temperament different from my own then… …I do what they recommend.
There’s deep wisdom in stepping outside ourselves => What Would Jesus Do, or Buffett, or your coach, or whomever you think knows better than you.
Each time I choose, I open the opportunity to make a mistake. To reduce unforced errors, there are filters I use to eliminate the need to make a choice and to make the correct choice obvious.
First level filter => repeat my choice for a decade, where’s this likely to take me?
The first three are obvious, but that doesn’t stop many, many people from surfing close to the edge, or getting an emotional rush from having charismatic risk-seeking friends.
Sometimes I need to phase out a relationship, sometimes I need to adjust my own behaviors.
With marriage, specifically, it’s impossible to “see” just how challenging your life will become if you have kids. You’re going to be really, really stressed out for a decade. Every single one of my prior bad habits tried to make a re-appearance in my life!
There’s no easy way around it but you can significantly reduce your chance of disaster if you pay attention to how your potential mate approaches risk.
Personally, I like to drive with people. You can learn a lot about someone by chatting, and watching, while they drive in traffic.
It is difficult to let charismatic sociopaths out of our lives. These people are a lot of fun to hang around with, especially when we aren’t the target of their ire. It gets easier with a few bad experiences.
When you need to make a change, resist the urge to justify your choices.
Learn to ghost with grace.
What if we are the person that needs to change?
Owning my choices and considering where they might take me.
Mountaineering, peer choice, alcohol use, cigars, bike racing… as my life changed from “just myself” to “my young family” the following became clear to me…
The people who were bearing the downside had no choice in whether to take the risk.
To make myself feel better, I took out a long-term care policy. The insurance reduced the financial burden if I was disabled but didn’t address the mismatch between who was taking the risk and who was bearing the downside.
In my 40s, severe permanent disability could have been worse than death. In 2013, with three young kids and an impaired balance sheet, I was in a very different place than I hope to be when our youngest graduates high school (in 2030, or so).
Perhaps I’ll add back risky stuff in my 60s… right now, I doubt I’ll have the energy.
Divorce, violence and self-harm => the bottom half of the list.
Nobody gets married hoping for a divorce.
Nobody starts a drive hoping to get their car shot up in a road rage incident.
Nobody repeats a pattern of justified rage hoping to create a crisis.
But these things happen, and their seeds are small choices, repeated.
I try to be alert to habits that can lead me astray.
Anger remains a challenge for me.
I pay attention to situations and habits that reduce my faults.
I focus on better.
Making a habit of the first-level filter, tosses all kinds of stuff into the forget-about-it pile.
Reminder about the 1st Filter => repeat for a decade, where am I likely to be?
The first filter very quickly gets rid of (most of my) bad ideas.
Here’s how I set priorities and shape my “to do” pile.
When I was an elite athlete, every decision I made was passed through a filter of, “Will this help me win in August?” At that time, the filter worked very, very well.
In 2005, I married and quickly realized my filter (of winning) would, if applied over many years, make a second divorce more likely. Deeply seared from my divorce, I really, really, really didn’t want another divorce.
I wanted a different result so I needed a different approach.
I needed to change my filter to…
“How will this impact my marriage?”
Your situation is likely different, but your need to know, and direct, your filter is the same.
Baby, or COVID, arrives… “How will this impact my family?”
Allocating time week-after-week… “What’s my real priority?”
Trivial irritations, the opinions of strangers… “Who gets my emotional energy?”
Every single person we meet has a filter => victory, vanity, external wealth, fame, likes, validation, please the person in front of me, attention, minimize conflict, how do I feel right now, what is the last piece of advice I heard… lots of people, lots of different filters.
It’s tempting to think that more money will result in less financial conflicts. However, I haven’t found that to be the case.
The habits that lead to conflict follow us up, and down, the socioeconomic ladder.
Similarly, if I can make a habit of de-escalation in one area of my life then my approach will follow me into other areas.
Earlier this year, my wife had her eye on a very nice jacket. For some reason, I became obsessed with the cost of this jacket.
Where did my feelings come from? I have no idea but I knew my feelings were unproductive. I knew because of the filter I apply to my marriage, “Where are these choices likely to take me, and my marriage?”
I knew it would be helpful to move on but I wasn’t able to shake my opinions.
So I funded the jacket.
Actually, I funded 7x the cost of the jacket.
That jacket was a massive write-off…
I placed the money into an account that is invisible to my internet banking.
I asked my wife to pay cash so I would have no ability to track her spending.
I felt better immediately.
It was one of the best deals I did pre-COVID.
I’ve been running my financials since I was 16 and managed to save 50 cents of every dollar I earned from 16 to 40 years old.
My first job out of college was in finance. My mentors made two observations about spending that stuck with me:
From the Managing Partner, “We could keep a better eye on the small stuff but that would make this place a lot less fun to work at and it wouldn’t make any difference to my financial life.”
From a Young Up-and-comer, “If you ever want to get someone then start by auditing their expenses.”
Apply these to myself
=> make sure my choices can survive an audit (by anyone, but especially my spouse)
=> being a stickler for fine detail will make the people around you miserable (especially if you have a life that can’t survive an audit)
As a leader, what does that actually mean?
In 2009, unexpected unemployment left us facing a financial crisis. I started by cutting my personal budget by 80%. I laid that out to my wife and said we needed to cut our family budget by 50%.
We made a budget, we implemented the changes and we went on with our lives.
Good enough was good enough.
Endless optimization makes everyone miserable.
Often there is a fear-based motivator that is driving our attention to fine-detail.
It can be near impossible to transcend fear-based habits!
Two things that might help:
1/ Set a “give a hoot” threshold.
Each year, I set a dollar-amount that is my “give a hoot” threshold. If something is below that threshold then I promise myself that I_will_not_give_a_hoot.
My total spend in the “give a hoot” category is ~2% of my total budget. The 2% spend cuts 90% of my external annoyances and gives me a lot of internal credibility when I say “we don’t have the money for that.”
Not getting wrapped up in the little stuff makes my internal life better and gives me the authority to direct the big stuff.
This policy is a bargain (but letting go is oh-so-tough).
2/ What about when the threshold is triggered?
When something big pops up, I like to pause and distance myself from the decision.
I’ve set my financial life up to create friction in my ability to spend money. The friction gives me time to ask…
What’s the goal? => How does this choice benefit my family, my marriage, myself…
If it won’t make a difference then wait.
Another filter => Am I willing to spend this money on someone other than myself? If not then wait, again.
Investing and spending => I do a lot of waiting and that’s OK because anticipation is often better than reality.
I spent yesterday afternoon at a car dealership and traded my car for a newer model. The new car will be “my wife’s” and I’m going to roll in the oldest car we own.
Knowing that my family is seeing me roll in the “old car” will make me at least as happy as a new car, which I can always get later.
Your spouse, your kids, your unborn descendants… all will be impacted by the choices you make with regard to spending and investment.