I’ve been conducting interviews with my friends to get their best advice on what they’ve learned so far.

The discussion has been centered on advice for people taking a sabbatical but, I’ve discovered, most people rarely pause to consider how to direct their lives. So we talk about the key transitions that have shaped them. Having an inner circle that runs from elite athletes to CEOs, I have been able to chat with folks that share values while living in different socio-economic segments.

Most of what I learned in my first 40 years is summed up in PMarcA’s series on career planning (Intro, Part 1, Part 2, Part 3). The best tip from PMarcA, be open to “drop everything” opportunities (see Part 1 for specifics). Somewhere, I learned to spot these and I find them irresistible. I’m in the process of transforming my life to take advantage of one that’s popped up.

If you follow PMarcA’s career advice (and apply the financial tips that I share here) then you will have a choice for significant personal freedom in your 30s or 40s. The exact timing of this freedom will depends on when, and if, you choose to have kids (more on that soon).

Life, and opportunity, have a shelf life. There are windows to follow our dreams; become elite athletes; start a new business; spend time with grandparents; and watch our kids grow. If we don’t grasp those opportunities then the window closes. New windows will open later, but they will be different.

One of the key things that I failed to appreciate in my early-30s was the shelf life of my physical power. I’m extremely grateful that I gave myself a chance to go for it as the lessons of my 30s are no longer available for me. At 43, I look at my young family and will be making changes to apply the same lesson in a different phase of my life.

Looking to my 50s, factoring in a further waning of physical power and remembering how, as a a teenager, I felt about adults 40+ years my senior – I suspect that the tug I feel towards my first career will get stronger. While living in the present, I keep an eye on the future.

My successful friends advise me to put yourself in the middle of people that are what you want to become. Is it any wonder that my dream of winning Ironman Canada brought me to Boulder, Colorado?

This is also good relationship advice, and the true gift from Boulder (my wife is far superior to any race victory) I turned myself into the person I wanted to meet and went to where a lot of those people were living. We have a much better shot at meeting a high-quality athletic spouse at 2pm at the pool, than 2am at a bar. Surprised that it took me so long to figure that one out, but grateful that I lucked into it.

When I look at my friends that have an enviable lifestyle, regardless of wealth, they follow their own advice to simplify as much as possible – I wrote about downsizing last week but this runs deeper. Specific quotes are:

• get rid of anything that sends you a bill
• you don’t realize the energy that something takes until you get rid of it
• new experiences, not more stuff
• give yourself the space to focus on doing one thing really, really well
• say no, a lot

It’s important to remember that a simple life isn’t financial management. While it will save you money, the largest payoff is not financial.

With kids in my life, creating simplicity runs completely counter to what society tells me I ought to do – juggle marriage, fatherhood, career and athletics, while seeking to provide the best home life I can afford.

However, I’ve been spending the last three weeks sharing a bedroom with my daughter, my infant son is sleeping in a walk-in closet and a family friend is staying in our loft.  We’ve gone from 1,550 sq. feet per person (Boulder) to 340 sq. feet per person (Hawaii). I’m surrounded by natural beauty, living out of half a suitcase and couldn’t be happier.

Keep it simple, do it now, be true to yourself.

g

Last week’s post started the transition from looking at the financial cost of decisions (housing, education, supplements) to considering a deeper question of how to “manufacture” satisfaction and happiness.

We often hear that money can’t buy happiness but that ignores the reality that money CAN be used to increase personal freedom as well as purchase unique experiences – both of which link strongly to personal satisfaction.

If you’ve read Kahneman’s book then you’ll find his explanation why the following seem to work well for creating personal satisfaction. I’m going to share practical techniques that I’ve used to change my life – usually for the better but also to mitigate when life shifts against me.

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Take pain in large doses and quickly because the direction of movement, not the size of the movement, is what dominates how we feel. 

My best example of this tip is to downsize every few years.

Voluntary downsizing — In 2001, I moved to New Zealand and managed to live on 5% (five percent) of my 2000 cost of living in Hong Kong. My life satisfaction went way up due to an increase in fresh air, exercise, personal freedom and fitness.

Surprise downsizing — In 2009, my family was facing a 95% reduction in our income. I cut 90% from my personal expenditure and 50% of my family’s expenditure. That time my satisfaction went down (the cuts were painful). However, we quickly adapted to our lower expenditure and our satisfaction fell much less than our expenditure.

Setbacks, both planned and unplanned, can give us a new appreciation for things we take for granted: nature, spare time, personal health, friends and family.

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Be aware that the attraction of remote possibilities and an aversion of certain losses will skew your decisions. Take pain decisively and eliminate your underperformers.

I touched on this last week with regard to relationships. However, it applies in all areas of our lives. A good test for whether you should cut losses is “how does this situation/person/job/choice make me feel about myself?”

We have a tendency to hold onto under performing situations because we will favor a remote chance of success over the certainty of crystallizing an existing loss. We also anchor on past investments of time, money and emotion that are already gone within a situation.

In my life, the most dangerous under performers come with high fixed costs and emotional attachment. Examples include prestige assets (boats, cars, homes) and investments that can cost you money if they underperform.

Within investments I’ve been caught by: high fixed costs; unexpected cash calls; and leverage. You’ll find these risks in: early stage companies, capital intensive businesses, cyclical industries, vacancy rates, and businesses with inventory that loses value quickly over time.

It goes against human nature to take pain quickly but it is a useful habit to reinforce, especially when investments, or relationships, are off target early.

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Because happiness is relative, make incremental positive gains visible.

Athletes: get out of shape each year but not out of health! Build fitness slowly and make your gradual progress visible to yourself.

Finances: each month increase your core capital (low risk, low volatility, visible). I built a habit in my teens of saving 10% of everything I earned. The habit served me well and I grew accustomed to watching a small, incremental increase each month. Even with a stable net worth, you can reallocate capital (say, towards a college fund for your kids) and achieve satisfaction.

Benchmarks: choose targets that you can hit every single day. Create a habit of keeping small promises to yourself. Every day that I get up before 7am scores me a “win”. Every day that I do some form of exercise scores me another “win”. Daily wins reinforce my self-esteem and strengthen my will, when required.

Motivation: frequent smaller gifts are far more valuable than infrequent larger gifts. Small gifts are particularly effective when not expected. I’m most generous on the 364 days a year that aren’t Christmas.

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Priming and Framing – each of these gets a chapter in Kahneman’s book, so I won’t repeat his findings but I will tell you how I use my automatic mind to shape my life:

I use cues:

• As an elite athlete, I had a sign that said “The Best” on my car’s speedometer.
• The door to my bedroom had the splits to a 8:29 Ironman visible for more than a year before I got it done, perhaps I should have written down 8:24!
• When my daughter is difficult I ask myself what the Dalai Lama would do. The reference to Buddhism confuses me a little bit, makes me less aggressive and I pause before following my automatic response to follow aggression with aggression. Break the chain, break the chain!

I seek, and spend time with, people that are relentlessly positive and unreasonably loyal. The flipside is avoiding liars, gossips and those with confused minds.

I buy photos and paintings that remind me of my favorite places and hang them where I see them often. You can tell a lot about someone by what’s stuck on their fridge, or printed on their t-shirts. It doesn’t need to be a Monet to have a positive impact.

All of these tips can work against us when inverted. Stress priming and framing for failure are extremely common – most prevalently through the news media and advertising, which feed on fear and lowering our self-esteem.

Look around where you spend your time, what do you see?

Choose wisely.

This article is twice a long as normal but it might save you some big money.

Get a pen and paper – I’ve made it easy for you to follow along.

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When it comes to housing, I’m tempted to follow the crowd because it’s easier. However, there is a cost to going-with-the-flow and this article will make that visible.

Using the decision framework from my last post we start by considering the default decision. Watch any housing-based TV program and you’ll see the default decision in action.  There are three components:

• We want to live in X neighborhood
• We think buying is better than renting
• We optimize for size relative to maximum budget

I’ve never heard a person brag that they decided to rent a small, convenient place because it was a better financial deal and they were going to live free of financial concern. We certainly don’t bother watching television shows about these people but we might read a blog, or two!

Let’s calculate the financial cost of the default option to “buy the largest place in the best neighborhood we can afford.” We’re going to use my hometown of Boulder, Colorado – one of America’s most livable cities!

I’m 43 and moved out on my own when I was 17. Over 25 years, what might the default option cost me? I’m going to explain in a way that you can calculate your own position. Start with asking yourself three questions:

• What’s the absolute cheapest that you could live?
• What’s the cheapest that you would like to live?
• What’s the implication of the default decision?

At the start of 2012, the three monthly costs are $1,000, $2,650 and $7,400, respectively, and include:

• Rent or mortgage-equivalent rent (MER) [1]
• Insurance
• Maintenance
• Utilities
• Taxes and homeowners association (HOA) fees

If you rent then you avoid many of costs of ownership (building insurance, maintenance, taxes, HOA). You also have much greater freedom in your life – freedom allows us to pursue opportunity. We never see the true cost of the status quo within our lives.

To make it real, let’s work through two choices that would apply to a family moving to Boulder.

Option A – $400,000 house in secondary neighborhood. The total cost is $31,750 per annum ($2,650 per month) which includes:

• MER = $20,000 per annum (5% of $400,000)
• Insurance = $750 per annum
• Maintenance = $1,000 per annum
• Utilities = $6,000 per annum
• Taxes/HOA = $4,000 per annum

Option B – $1,400,000 house in a prime neighborhood. The total cost is $89,000 per annum ($7,400 per month) and include:

• MER = $70,000 per annum
• Insurance = $1,500 per annum
• Maintenance = $1,500 per annum
• Utilities = $6,000 per annum
• Taxes = $10,000 per annum

Keep in mind that the opportunity cost of being “all in” on a house is understated because it doesn’t reflect:

• The time to manage the house
• The investments that you miss because you’re locked into a property asset
• The option value implicit in the ability to change cities rapidly when you’re a renter

Our minds are extremely poor at putting a value on time, lost opportunity and geographic freedom. How can we value the path not taken?

I am able to see these benefits when I consider my key investment decisions and career moves. The ability to move, or invest, quickly has been useful to me in 1990, 1993, 1998, 2000, 2002, 2005 and 2010. [2]

Each “jump” was worth more than $100,000. Sitting here, I struggle to place a value on being able to take future jumps, and assess their likelihood. However, being trained in finance, I can calculate the future value of incremental cash flows.

What happens if I invest the incremental cost of Option B, rather than buy the default option?

• Upgrading from $1,000 to $2,650 monthly => forsake $966,462 of future value
• Upgrading from $2,650 to $7,400 monthly => forsake $2,782,239 of future value

The part that catches my eye is the default option (biggest place, best location) costs nearly $3 million for a place that’s exactly the same size in a secondary location. 

To make it easier for your calculations – each $100 per month is worth $58,575 over 25 years at 5%. However, you only get the future value if you save in the present and earn the target investment return. [3]

Our minds are constructed to find faults with stories that go against the default option.  Perhaps you’re thinking:

• But what about the house – it will increase in value
• I don’t have to pay the money myself – a bank will lend to me and that “costs” less than my own money
• The bigger house will make me happier
• The assumptions aren’t accurate [4]

Perhaps, but these are default options in their own right, which I’ll address over time.

If you frame the happiness/satisfaction decision as broadly as possible then you might find that you can purchase one heck of a lifestyle by purchasing frequent, novel experiences rather than being locked into an enviable, but excessive, housing situation.

Personally, I feel happy when I can exercise, read, write, share experiences with my wife and hug my kids. I have also noticed that my family responds best to time with me when I’m relaxed. [5]

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NOTES

[1] What do I mean by mortgage-equivalent rent? 30-year mortgage rates are ~5% right now in the US so derive your mortgage-equivalent rent by charging yourself 5% of the net capital value of your target house. Depending on your geography, this could be more, or less, than what it would cost to rent your target house. This is an interest only calculation.

[2] I am likely to underestimate the role of luck and I’ll address that later in this series.

[3] Many corporate pensions are using long-term return figures of up to 10% per annum. At 10% annual forecast return, each $100 per month is worth $123,332 at the end of 25 years. Depending on your investment return, $100 per month is worth $50,000 to $125,000 when done consistantly and invested conservatively over the long run. 

[4] 5% is the key assumption and likely understated because, in my lifetime, mortgage rates have varied between 4% and 18%. The exact assumptions aren’t essential to make the larger point that long-term costs lie hidden from consideration.

[5] When seeking to reduce expenditure, I bribe myself by spending a portion of the savings during my adjustment period. In 2011, I funded a trip to Bora Bora by downgrading my travel choices for the year. Balance the pain from adverse shifts by using strategic purchases. 

Have you ever considered your personal signal-to-noise ratio?

In-Bound

• Email messages
• Media
• Internet sites
• Twitter, Facebook and other social network feeds
• Conversation topics of peers
• Business partners and teammates

Just like with areas for self-improvement, it’s a lot easier to spot the in-bound sources of noise than the ones that I’m creating. What about out-bound noise?

• What I write
• What I think
• What I say
• What I post
• What I tweet

In terms of my own noise generation, my two year experiment with inbox zero has trained me to ask:

• do I need to read this;
• what does this person need from me; and
• to trim what hits my inbox.

I sure wish that same discipline came naturally on the larger internet. About the only way I can figure to free myself is rationing.

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Three random bits that might help:

The Big Picture does a daily email round up on business reading. Barry embeds the Mauldin letter that I like. If I’m honest with myself then Barry’s email is all I need to stay abreast of the “signal” aspect of the financial media, I don’t even need to read past the headlines.

My last piece prompted Steve to share this video on The Seven Year Itch. I’m going to take a sabbatical in 2013 and will be spending 2012 figuring out how to structure it. If you have resources for me to consider then please send them along.

I was running with my buddy, Scott Jones, and we ended with a question, “what aspects of my life do I take as a given when, in reality, they are self-imposed constructs“.

Working on that last one.

Happy Holidays and I’ll be back in 2012.

Lately, I’ve been seeking a strategy for where I’d like to be in my 60s. The long-term strategy focus is being driven by a lack of goals beyond the end of this month. When I have open space in the present, I like to think about creating things that will have a major impact in the future.

In an effort to generate options and opportunity, I have been asking smart, older friends for input about how to live in my 50s. 

It’s a simple question that I pose: What advice do you have for me in my 50s?

They aren’t telling me what to do, today – so speak openly.  Also, because I am asking about their recent past, their advice gives insight into what they value in their 60s.

So far the best answer has been: friends, family and roots. The answer came from a pal that spent his 50s focused on wealth creation. As a result, in his 60s, he can do whatever he wants – which has little to do with how he spent the previous few decades. The skills and lessons from his 50s are different from what’s required to create success in his 60s.

At 42, I’ve never lived more than five years at the same address and the concept of ‘roots’ is foreign to me. As well, I have to acknowledge that that I might be getting the urge to turn my life upside down simply out of habit. So I dug a little deeper with my buddy, who said that roots are:

• Long-term relationships
• Feeling connected to a community
• Stability in relationships, finances and personal security
• Efficiency in daily living, technology, location and work environment

Because that definition didn’t impact my perception of freedom – it was easier to accept.

Another surprising observation has been how often people mention the negative impact on health of high stress. I’ve heard this across a wide range of people: working athletes to sedentary businessmen. It’s also something that’s repeated in Steve Job’s biography – the health cost of being CEO of Apple and Pixar simultaneously.

Some stress is OK, perhaps even essential for motivation, but too much has a health cost to where successful people see themseleves in their 50s and 60s. 

It’s conventional wisdom that we should work many years and retire in the future, ideally when we’ve achieved enough wealth for lifelong financial stability. Speaking from experience, that is a horrible trade-off and my friends that retire end up bored. Personally, I don’t see retirement as a goal, or particularly attractive.

I’ve worked in fields (finance, consulting, teaching, coaching) that span the full range of financial reward; very high to very low. In each field, I’ve worked with excellent people that were doing exactly what they wanted every-single-day. The goal isn’t to stop working; the goal is to find work that will be rewarding through each phase of our lives.

I’ll leave you with a final tip that I came across. Don’t network. Focus on building strong friendships and helping others achieve their goals. 

No answers yet but the brainstorming has been fun.

The last time I broke down in public I was trying to articulate what it was like to totally commit to winning Ironman Canada and not achieve my goal. Looking back, it was a highly effective explanation, but difficult to explain in words!

Collectively, we share an aversion to pain and protect ourselves by limiting commitment and managing expectations. This provides an opportunity to succeed through uncommon commitment – the flipside of which is temporary pain if we fall short.

I’ve been working on a writing project that shares what I’ve learned so far about wealth, longevity, real estate, personal finance, marriage and kids. As part of that process, I’ve been reviewing a dozen years of blogging and came across an article from December 2004.

The article references my Top Ten List from March 2000.  

1. Touch someone with my writing
2. Clean out my computer room (had to have one easy one!)
3. Relax more
4. Sub-10 at an IM
5. Buy a house to have a base
6. Be published in a major magazine or in a forum where a wide audience can read me
7. Get rid of a lot of stuff in my life
8. More love in my life
9. Write entertaining pieces that make people laugh
10. A new career that would give me time to do what I want as well as travel

Over a decade ago, I wrote an outline of a life that I wanted to create for myself.  I was 31 years old, working at a desk job and wishing I was somewhere other than Hong Kong. When I read that article, I smile because my pals in Boulder would recognize the guy that I describe but I had NO idea who was within me.

In fact, 11 years on, I managed to go further than my wildest dreams.  That knowledge cheered me up last week, when I was nursing a rib injury and wondering what the heck I was going to do with the rest of my 40s.

So I think it’s time to put myself out there again and write my Top Ten List as at November 2011.

1. Be able to walk to world class long course masters, ideally at Stanford University
2. See my wife vibrant within our marriage
3. Have my kids tell people their Dad loves them
4. Publish my second book
5. Complete a new high mountain cycing route each year
6. Stay fit enough so I continue to get a mini speedo given to me on my birthday
7. Start my fourth career
8. Maintain freedom of location and occupation
9. Quarterly retreats in nature
10. Touch 1 million people with my writing

It will be fun to look back when I’m in my 50s and see how I did.

This week a friend joked that when you spend your entire life acting like a dog chasing a car, it can be tough to figure out what to do when you finally bite the bumper…

…I guess you write another list and enjoy the ride.

In September, I decided that I was going to dial down technology.  I’ve made progress and the changes have created space within my week. 

I’ve used the additional space to read and write.  Purchasing a Kindle made books easily available and I’m reading one title per per week, up from one per annum. While I haven’t been active on this blog, I’m three chapters into my next book and have been writing weekly for the Endurance Corner site.  

My increased productivity was achieved by deleting apps, turning my phone off more often and simplifying my daily structure to:

• Wake up by 7am;
• Write two pages of my book;
• Do some exercise;
• Meet my work commitments;
• Spend time with Moncia, Lex and Ax.

Interestingly, this change didn’t happen until I was injured and decided to compensate by becoming more productive in my work life. Throughout my athletic career, my work has been an essential back-up plan to cope with unplanned setbacks.

One of the books that I read was Isaacson’s biography on Steve Jobs. My take from the book was the singular focus of Job’s life: Make Great Products.

Similarly, when I speak with champion athletes, I find that they filter their lives:

• Get to the Olympics;
• Win A Medal;
• Win World Champs;
• Be An Ironman Champion.  

Whatever their goal might be, life passes through a simple filter of what they are seeking to achieve. People that get to the top of their field create habits that let them say no to attractive opportunities.

To get stuff done, create your filter and get to work repeating a simple routine that moves you towards your goals.

After months of talking about it, I made a few small changes and will get my book drafted by the end of the year. It wasn’t the clutter in my life that was holding me back – it was habit as well as a focus on other attractive opportunites.

What do you want to achieve and what’s it going to take to get there?

Keep it simple, and persist.

Across the summer, Endurance Corner had a series of articles about creating the life structure of an elite amateur athlete. Sue laid out very specific ideas for creating the space necessary to get stuff done. Even if you’re not focused on maximizing your athletic performance, the articles have ideas that will help you create the space necessary to undertake a major life project.

When we read articles on time management, our minds will list reasons why we can’t.  That’s OK. When I consult on time management, I make the point that you don’t want to (try to) implement everything.  

Take one idea and implement it now.

Make that first idea a habit then take another and implement it now.

People that fail to get stuff done are trying to get too much done.

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A common error is to think that money is holding us back.  The thinking goes…

…if I only had enough money then I could sub-contract my shopping, meal prep, cleaning, driving, child care… and I wouldn’t have to work. I’d be on permanent vacation and I’d be happy.

Given my previous career in finance, I know many people that choose to live a life that’s “fully sub-contracted.” Most of them are bored.

The best lesson of the last recession (2008/2009) was re-learning to enjoy daily living. Faced with a massive reduction in personal income, I brought my life completely “in-house.” My life is more stable now and I’ve lost the illusion that a utopia of happiness lay ahead – if I could just rid myself of daily life.

Because there is tremedous social, and media, support to follow a path of luxury (ever reduced responsibility, ever increasing wealth) – I pay attention to individuals that choose to stay engaged, regardless of their capacity to subcontract.

What can we learn from these highly productive people?

My friend’s profile:

• Married with kids
• Sits on 10-12 boards
• Manages his own business, which he founded and continues to lead
• Oversees 50+ managers in his capacity as a fund trustee 

It’s tempting for me to write “despite all this, he is still a great athlete.” My buddy would tell you “because he’s so busy, he has the skills to be a decent athlete.”

What can we learn from a man that doesn’t want to subcontract his life, wants to be extremely productive and retains the freedom to achieve personal goals?

The best time to talk with an endurance athlete is during moderate exercise. I took advantage of an opportunity to conduct a running-interview (my version of a walking meditation). Key tips:

On an rolling annual basis: place the big things first – block out full days for important items and get away from your daily routine to apply total focus.

On a daily basis: focus on a limited # of things – know what you want to get done each day and check the alignment of how you spend your time.

Rotate your focus: triathlon focused years (self) alternate with family focused years (others).

Learn how to say no a lot – he passes on ~20 attractive opportunites per day (!)

Be willing to make unpopular decisions that are in the best interests of the people you represent – achieve this by having alignment with inner circle (spouse/family/work/self).

Be an exemplar – first up in the morning, first out the door, most productive.  Being an exemplar creates considerable personal freedom.  Freedom flows through being fit for leadership.

None of the above require money and I find these traits present in most my peers that are highly satisfied with their lives.

Be Great.