Tag: personal finance

Proximity to Money

MIKE1 Comment

Reading The Art of Spending Money by Morgan Housel inspired this thought. And it felt like this was the heart of, not the book, but my interpretation. It was like, this is the idea to organize your actions around.

The closer something is to money, the less value it contains.

Like a Venn diagram, the more a thing overlaps with money, the less ultimate value it has.

Money as the first example. Money is money. Complete overlap. Money is good but because of the things it allows, not itself. You can’t eat money. You can’t stick your toes in money, well you can but it doesn’t feel like sand at the beach.

Nouns can be a second example. Money buys food, which leads to sharing meals. Money buys pickleball paddles, which leads to time exercising, laughing, and seeing friends. Money buys cars, which travel to beaches where there is sand.

Verbs. Money pays people to landscape, which leads to time with family. Money pays for tax services, especially this time of year. Money pays for haircuts, which help us feel better.

This frame of money is so heavily tilted by JTBD theory and Early Retirement Extreme I can’t get away from it.

Both JTBD and ERE point past the initial assumption and ask what’s really the goal?

And both rely on creativity to find a solution which leads to that goal.

Now, thanks to Morgan Housel, there’s a question to ask when making choices: What is this proximity to money? If it’s close, it’s probably not what I want.

Two Problems with Net Worth

MIKELeave a comment

In the early days of blogging, the Rational Walk was an easy entry to investing. Focusing on Buffett and Berkshire, they made an intimidating topic accessible.

One of their suggestions was to track net worth (this was early in my education in finance and investing). Rather than income or savings, net worth was how much a person was actually worth. It was the proper way. The intelligent way. And who doesn’t want that?

So I tracked it.

It’s been great! To see a number rise thanks to mortgage payments, investing gains, and raises feels wonderful. It doesn’t go up every time, but the number goes up over time.

However, like a lot of numbers, it provides a false sense of authority. It’s just a number, and it has two problems.

First, it’s not cash. Our net worth includes a house, 401k, and brokerage accounts. To convert all to spendable money is a task. Selling a house is an ordeal, a 401k included penalties up to a certain age, and brokerage accounts need liquidity. Someone has to buy what a person is selling. Plus, you know, crypto.

Second, it’s not the solution. Money may lead to a solution, but it’s not the goal. This is the heart of one of my favorite books, that there are many creative ways to live well and we stink at coming up with them! We can pay for services – or do them ourselves. The latter just takes some time and the right YouTube instructions.

It’s nice to be reminded of these things. Life is dynamic and asks for balance. Have things boiled down to a number? It might not help, but it’s probably not the answer.

Monte Carlo Mistakes

MIKELeave a comment

“I’m going to work until my next birthday,” a near retiree friend told me. We were having dinner and she’d already punted on retiring her previous birthday. But this next one would be it – unless she wanted to travel more. 

Alaska was last year, Galapagos is this year, Africa the year after.  “I met with a financial advisor who ran a Monte Carlo simulation,” she said, “if I save a little more and take vacations from my income rather than savings, it’s more likely I’ll be better off.” 

Monte Carlo simulations, I thought, that sounds like a task for an LLM. After entering some approximate figures and going back and forth, Gemini ended with this: The Median Outcome: Even with this safer spending, the median outcome is ending up with $10M+ at age 83. This highlights the “Saver’s Dilemma”—to guarantee you don’t run out of money in the worst 10% of scenarios, you usually end up with a massive surplus in the other 90%.

Humans are feeling creatures, and it was a good feeling to know the spending “floor”.  (See also: Maxims for Thinking Analytically, extremes). In almost all situations $X is your spending floor. 

Decisions are a constant tradeoff of: what kind of mistake are you willing to live with? 

When I returned to teaching the cheating whack-a-mole was a whole new level. Twenty years ago laptops were a minority, now Chromebooks are ubiquitous. 

Imagine you’re running a marathon against one other runner. You’re neck and neck through the first five miles. You pull ahead. But then you notice something. There’s another runner ahead. You misunderstood. You’re running a marathon against a relay team. 

That’s the whack-a-mole challenge. Pop one area, a fresh one arises. 

Teachers have the same choice as retirees running Monte Carlo simulations (and all of us!). What side do I error toward? There’s no bullseye because there’s no right answer, just blunders one way or another. 

In the classroom, I give grace. Punishing a kid who worked hard and had questionable (LLM?) answers is worse than catching the number of cheaters +1. Retirees aim for grace too, only from the market. 

It’s like an alarm system. Do you want it to go off at false alarms or miss real events? 

This is the same spirit at the heart of 4000 Weeks – mistakes are inherent, are we choosing which ones to make?

The Freedom to Buy Anything includes Shackles

MIKELeave a comment

From Jakob Lund Fisher, author of my favorite personal finance / philosophy book:

The freedom to buy anything you want is actually really limited because it’s proscribed by things that are for sale.

It’s a well kept secret that there is actually a lot more to life than what one can buy. 

For example, $10M gives you the freedom to buy seasonal tickets to any seat (including boxes) in the stadium. It might even buy a handshake from the players or a backstage pass. However, it does not buy the freedom to actually play a useful role in a game or as part of the coaching, even at amateur level. It does not buy the feeling of playing—deking an opposing player or dunking a basketball after jumping 2ft in the air—or the game knowledge to appreciate all the nuances of the game. Or even having an interesting conversation with a professional player. These are not bought with money but with (sometimes lots of) time and practice.

The Art of Frugal Hedonism (Book Review)

MIKE1 Comment

This is a fun book. Besides the charming Australian narrator, this book about personal finance was full of whimsy and fun. The chapters are short. The tips are good. The point is the same.

When I taught personal finance in school this year it was heavy on Morgan Housel’s ideas: there’s internal finance and external. The internal stuff is about how you view money. The external stuff is about what to do with money.

There are simple and straightforward answers to both these areas. The Art of Frugal Hedonism provides many ideas for both.

The book reminded me a lot of the joys of college. A thirty dollar paycheck was enough for a full weekend of fun: bars, pizza, games, being outside. It was all there. And the book wants us to get back to that point.

We can always shift our framing of the world and the authors of this book want us to think of that time. You don’t need money to have fun – we already know that – we lived that!

The Art of Frugal Hedonism is reminder of that. Find fun. Be around people. Embrace weirdness. Eat basic and delicious food.

Though a totally different financial scale, the suggestions in Frugal Hedonism align with the answer to: Should you buy a ski chalet?

Mental Accounting: Joy

MIKE2 Comments

When message board posters wondered about how much money Apple cofounder Steve Wozniak might have if he hadn’t sold his stock he told them.

But in his accounting:

“I gave all my Apple wealth away because wealth and power are not what I live for. I have a lot of fun and happiness. I funded a lot of important museums and arts groups in San Jose, the city of my birth, and they named a street after me for being good. I now speak publicly and have risen to the top. I have no idea how much I have but after speaking for 20 years it might be $10M plus a couple of homes. I never look for any type of tax dodge. I earn money from my labor and pay something like 55% combined tax on it. I am the happiest person ever. Life to me was never about accomplishment, but about Happiness, which is Smiles minus Frowns. I developed these philosophies when I was 18-20 years old and I never sold out.”

https://m.slashdot.org/story/445414

Framing “Life Energy”

MIKE2 Comments

From Your Money or Your Life

“Money is something you trade your life energy for. You sell your time for money. It doesn’t matter that Ned over there sells his time for a hundred dollars and you sell yours for twenty dollars an hour. Ned’s money is irrelevant to you. The only real asset you have is your time.”

Money is important and how someone thinks about money should be how you communicate about money.

  1. Money is something you trade your life energy for.
  2. Money makes progress in JTBD. How to talk with your rich friends about money.
  3. I live in the tribe, the tribe keeps me safe. Our tribe has a leader.
  4. Money is part of the system. ERE and Wheaton Scales.
  5. Money is about doing good things with good people and not too much friction. Should you buy a ski chalet?
  6. Money has external roles (saving, investing, spending, etc.) and internal roles (goals, FOMO, Jones’s, Always Buy Two New Cars). The Psychology of Money.

It’s wild the resources spent on money.

Did the internet need another post about money? Yet here we are.

But maybe what we’re really talking about is spirit. It’s philosophy. It’s spiritual. What am I supposed to do? What is a life well lived? Posing the easier question shifts the topic to money.

How to Talk About Money with Your Rich Friends

MIKE2 Comments

We all have rich friends. The richest person you know, knows someone richer.

I meant to go running one Sunday but as soon as leaving the driveway I saw Brian and Rachel – two neighbors I hadn’t seen recently. Instead, I walked with them.

Brian and Rachel are rich friends. Their house is bigger and in a nicer section of the neighborhood. They drive a Mercedes, I have a Toyota Sienna. They eat at restaurants I’ve never heard of. They take day trips – via plane – to see their son in Philadelphia. They donate enough to the Orlando arts their name is in the program and they get valet parking. They’re richer than me.

I’ve got another friend not as rich as me. Before I talk about him, let’s define rich.

One of my high school students lives in our neighborhood – the regular big and decent part like me. He said I was rich. “You’re right” I replied, “And here’s how you can tell”.

Anyone who owns any piece of exercise equipment is rich. They have enough money and space to buy extra things and enough energy (or aspirations of) to work out for whatever reason. Non-concern about basic things like food and shelter comes when you’re rich. I have a bike. My student has a rower. We’re rich.

My not-as-rich friend Bobby (a different one) likes to talk about how expensive things are. Travel is expensive. Our HOA is expensive. Vehicles and food and kids are expensive. Listening to him costs me energy.

But our conversations aren’t about money. Life isn’t about money. It’s not even really about the things money leads to.

It’s not the dinner, it’s the company.

It’s not the hoa, it’s the safety of family and proximity of friends.

It’s not the place tickets, it’s seeing your Ohio cousins once a summer.

That’s what Bobby misses and what Rachel and Brian get.

When I talk to my rich friends I listen for that: How do they love their peoples? When I talk to my rich friends that’s what I say: Here’s how I love my peoples.

The Algebra of Wealth (isn’t really about money)

MIKE3 Comments

“The whole shooting match,” Scott Galloway ends his book, The Algebra of Wealth, “Everything meaningful in life is about others.”

It’s not a great personal finance book. It felt like Galloway looked at his bookshelf, categorized the books he’s read into sections, found some news and research, and put it together.

But it’s an interesting personal finance book.

It’s interesting because Galloway is a brand. It’s a flavor I don’t care for, without nudging from J.F., I never would have read this book. Even then, I didn’t love it. Until that last line when it all came together.

We get personal finance wrong. We think of it as a thing people do, a distinct part of their life. We have the marriage part. We have the work part. We have the parenting/childhood parts. We have all these buckets, but they aren’t buckets. These are not different parts. It’s one life.

Any message (like your choice of personal finance) is like an organ transplant. The organ might be good (advice), but if the receiver rejects it, it doesn’t matter how healthy it is. There has to be a match.

This is why personal finance is full of gurus. Scott, Dave, Suze, Ramit, don’t persuade. They select. It’s a sampling effect. Ramit’s book: I Will Teach You To Be Rich brings in people willing to hear the message. Scott’s book brings in people familiar with his schtick.

And this is what Galloway gets so right. It’s not about money, it’s about the meaning and, “everything meaningful in life is about others.” That’s the seed to a successful transplant.

We miss this in our message. Maybe the medium isn’t the message. Maybe the meaning is the message. What does this mean to us? To our tribe? To my history?

People want meaning. They find it thru gurus.

Wheaton Scales

MIKE1 Comment

In 2010, Paul Wheaton created the Wheaton Eco Scale. He begins by noting our perceptions of other people. Those one or two steps ahead in a similar FESPE (financial, ecologic, spiritual, personal, etc.) journey look “pretty cool”. Those four or five steps “downright crazy”. While, “one level back are ignorant and two levels back are assholes”.

We’re all on our own journeys, coming across shamans, oracles, and gurus at different times. Part of this is why there are no bad books.

The importance of Wheaton Scales hit home during two successive days. First, reading the philosophy/finance forum of Early Retirement Extreme. Commenters noted how communicating about FIRE is such a challenge. Part (maybe most!) of the burden comes down to talking to someone in their language. It’s not about all the things I know so much as it’s about all the things they’ll understand.

Second, sitting in church and listening to the pastor talk about debates, agreements, and conversations among theologians. I know who he’s not talking to – me! He’s talking to the two guys who fact check, give feedback, and have studied the Bible for years.

Wheaton Scales snuggle up nicely in our mental models, like a pet on a cold afternoon, because they match JTBD. The aim of Jobs is moving from supplier language (how I see the world) to demand language (how other people see it). Wheaton gives a model for thinking through that.

And scales like this are nice. And helpful. It’s better to be mostly right than precisely wrong.