Button Skills


My daughter made this.

The button popped off my pants. Not due to quarantine snacking so much as use. These shorts are so old that the faded parts are a different hue from the non-faded portions.

I found the button separated from the shorts in the bottom of our washing machine. I put both aside for a day and when I came back with needle and thread the button was gone. Now the button lives on as art.

We have a button jar and I found a grey one, instead of blue, and sewed it on the shorts. I’m not great at sewing, and my stitching is uneven, but it’s functional. Attaching the button took the shorts from waste to my waist. The small act of attaching the button made them useful.

A lot of life is probably like this.

There is some range of easy-to-acquire skills that are like sewing a button. Being able to save the function, if not the form, is helpful.

No code. Being able to build small recipes for scripts using a service like IFTTT.

Productivity. Setting up folders, filters, and canned responses in emails.

Cooking. Knowing how to make a few healthy, inexpensive, sustainable meals.

Home repair. Access to a basic set of tools and the understanding of how to use them

Personal health. Maintaining a body type that matches a lifestyle.

Personal wealth. Spending, saving, investing.

Interviewing. Listen to people and hear what they say.

When my daughters were little kids, the most common advice was to read to them. This was binary advice. Or, Just Do It. We did a lot of that. Just reading is probably a button skill too.

Though I learned to sew face masks, I can’t imagine learning to sew clothes. But knowing a little bit can certainly go a long way.

Thanks for reading, and don’t tell my wife these shorts were saved—again.

The POV40IQ email list has been restarted. If you’d like a short email each weekday you can sign up and read them. The idea is that a change in point-of-view is worth more than forty-IQ when solving a problem.


Precise Emergency Funds or Accurate Emergency Funds

The rule of thumb for an emergency fund is three to six months of expenses. The specifics depend on a host of  factors like fixed costs, number of incomes, and type of job. In the Need for Speed post we suggested how Variance Response Time might affect someone’s budget. The theory was that an excellent salesperson would have a faster and higher quality response (i.e. new job like the old job) faster than a teacher.

What was implicit in that post was the idea of being precise or being accurate.

At the end of March 2020 during the coronavirus pandemic I compared our family’s emergency fund to our previous month of expenses. Aside from travel for work and weekend activities, our monthly spending was flat.

Dollars devoted to dining out were diverted to stocking up. Weekend activities become home activities.

How long would this ‘as-is’ lifestyle last using our emergency fund?  The good news was that it would last five months.

But that begat more questions. If this were a true emergency how long could we last? Cutting out the extra expenses like Netflix, home repairs and maintenance, and Target and our runway ran up to eight months.

Okay, but how long could we really go? What if we tapped our home equity, liquidated a 401k (and paid the 35% penalty), and sold one car? That would mean things were really bad but we could still survive for a long, long time. A room, a roof, and rack in oven goes a long way in those conditions.

These calculations were all in a spreadsheet and so the numbers were nice and precise. And probably wrong. Here’s how James Allworth put this idea on Exponent 184: 

“Something I learned early on in consulting was when clients came to you with problems you needed to model them in some way or another and I remember, early on in my career, being really proud about building very sophisticated models with different variables. It could handle all kinds of things.

“One of the partners came along and started to use it, and he laughed. He’s said, ‘James, one thing that you really need to understand if you want to be effective in situations, especially ambiguous situations, is understanding the difference in precision and accuracy.”

That wasn’t in my spreadsheet. Our ‘needed’ 401k was unlikely to be worth as much as it is today, reduced as it is. That car I might sell couldn’t be given away. If things were that bad there were would be so many more sellers than buyers.

At the 2009 annual meeting, Warren Buffett was asked how he calculates value if he doesn’t use a discounted cash flow.

Warren whimsically recalls Aesop’s fable about a bird in the hand being worth two in the bush. Investing, Buffett said, is all about the exchange of the bird in the hand, “But the real question is, how many birds are in the bush? You know you’re laying out a bird today, the dollar. And then how many birds are in the bush? How sure are you they’re in the bush? How many birds are in other bushes? What’s the discount rate?”

He goes on to say, “we do not sit down with spreadsheets and do all that sort of thing. We just see something that obviously is better than anything else around, that we understand. And then we act.”

Charlie anything to add? Yes, Munger says, “I’d say some of the worst business decisions I’ve ever seen are those that are done with a lot of formal projections and discounts back.”

For an emergency fund then, more is better but anything is good. With so much uncertainty there are good ways to gamble. Ian Cassel told Patrick O’Shaughnessy that he tries to keep his fixed costs low and his variable costs variable. If someone has saved and can scale their expenses, then they have an emergency fund. Too much spreadsheeting leads to numbing numbers.

We’ve gotten quite creative with making breakfast.


Median and Average Meanings

There’s a story about Bill Gates’s wealth and height you’ve probably heard. If not, let’s quickly share it here. If Gates were to walk into a room of you and twenty-five friends, the difference in average height and median height would be small.

However, the difference in average income and median income would be large. Gates’s wealth raises the mean because it’s relatively ginormous. Even in a room of millionaires, Gate’s presence changes the average from one-million to four-billion. That’s a lot.

This story is helpful to keep in mind because averages hide nuances.

In 2016, the average student loan debt was $37,000. However, the median figure was $17,000 and one-fourth of all borrowers owed less than $7,000. Part-of-the-reason the average is so far from the median is because of graduate school, one-in-four post-graduation debt-holders had more than one-hundred thousand dollars in debt. My wife attended medical school, and I can attest to the amount.

This median approach might paint a rosier picture.

Retirement accounts show the same point, only in the opposite direction. The average balances is $100K whereas the median is $24K.

“Often an average is such an oversimplification that it is worse than useless.”

How to Lie

Average can become an If/Then word. If the average is presented, then we can attempt to find the median as well. Bill Gates will be our patron saint here. Imagine him, staning with a Diet Coke in hand, reminding you to find the median too.

Another fun part of you and twenty-five friends is “the birthday bet”.


Made up Start up: FinLit Deposit

Photo by Pixabay on

No one is happy with financial literacy. Maybe it’s the questions researchers ask, maybe it’s a generational thing, maybe it’s soft skills. It’s probably a lot of things.

Part-of-the-reason we don’t have a great idea is because we don’t have a great way to test it. A lot of FinLit research follows these steps:

  1. A natural experiment occurs. Sometimes it’s in time. One cohort has no mandate, another has the mandate. Alternatively it could be a law in one state, but not a neighbor.
  2. Students get some combination of classes, videos, etc. To me the treatment seems weak, but you be the judge.
  3. Students answer questions about what they learned.

This structure suffers because it measures what’s easy rather than what’s meaningful. What if we reversed this? What if instead of prioritizing measurement, we prioritizied meaningfulness?

For our start up FinLit Deposit, we’d give every student $100 the first week. If they have at least $100 in the account each subsequent week, they get $25 more. If the account dips below that amount, no deposit. If it recovers, the deposits begin again.

This systems offers students real choices with real money. Save or spend. Invest or rest. Investors often note that paper trading is not the same emotional ballpark as real money. That should apply here too.

We could partially fund this with a grant that studies decision making. What if some kids got physical bills–good day Mr. Franklin- and others direct deposit. Dollars to doughnuts, I’d wager that the mentally accounting will differ.

If grants aren’t available to kickstart this start-up, let’s get some public money. Athletic scholarship total almost $3B. Academic and need scholarships are in the tens of billions. There’s already (!!) $630M spent on financial education. That’s already $200 for each senior. What’s wild is we already do these these kinds of things.

Young people tend to not be great decision makers. So what. No one is fully optimal. If our hypothetical students spend their semester of savings on a concert is that much different than their parents tax-refund choices?

The only problem I see in this is how FinLit Deposit actually makes money. Maybe some financial literacy program actually teaches that.

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Update 2/6/2020


Maximizing a 401K

There’s an interesting investing idea in personal finance to be like Rip van Winkle. If investors don’t earn the market returns because they churn, maybe they would be better off setting it and forgetting it, of sleeping-on their investments.

I was reminded of this story because I forgot a password. Does invest like you forgot your password have the same flair? Eventually I logged in and checked our contribution amounts for 2020.

While poking around I wondered what a retirement account would look like if someone were to maximize their 401k ($19,500 in 2020) each year. Sometimes the government changes the limit of what an employee and employer can contribute to a retirement account. As someone who likes simple and effective plans I thought this was great financial advice. I could see advisors telling their clients, just aim to hit the max number each year and you’ll have this much.

I calculated the rate changes each year and found out that contribution limits change at about the same rate of inflation. Of course. The IRS calls these ‘cost of living adjustments’. Sometimes you just need to stumble on things yourself.

The S&P average over the last thirty years was 9.69%. The picture looked like this.

This doesn’t account for an employer match, social security, or other savings but it’s comforting to know that the real 4% withdraw at retirement is $93,000 annually.

Digging into this made me realize how much variation can occur in planning. Cost-of-living, family situations, businesses, multi-income families, income levels, mortgages, taxes, and so on can all swing the equation one way or another. Ditto for flexibility in needs and wants.

However, just because there is a lot to consider doesn’t mean there’s not a simple plan. Specific predictions are futile but ballpark approximations are possible, helpful, and a good way to frame potential outcomes.