Posted in Finance, Life lessons, Real estate

Reality check. Accepting. Embracing flaws (yours and others)

I reach many conclusions in life and one recent conclusion is that we all have flaws. We all have differences. We all have demons. Being able to embrace those flaws and demons is a hard task for many of us to master. We all think our way is the right way but as we learn more we realize that there is no one way to win. No one way to do things. There are ways we are taught and things we learn in our childhood for example that do not translate to who we are today and how we approach things in life right now. One of the main things I want to stress here is to question everything. Sometimes you will have to question things over and over in order to find the truth. The thing about truth is that it’s only truth until you find more facts that make it a non truth. Shifting and changing over time is a natural state of life. Things evolve and things change. As they change you have to be willing to change with them.  

Posted in Uncategorized

Following your path. Living the dream. Expectation management.

This will be my second time writing this post which actually dovetails nicely into the topic. This should actually be called reality management because the true value of your reality lies in your pre conceived notions of what reality is supposed to look like.

Choose your own adventure: I have been quietly watching my brother transition from a shitty job in the oil field to doing exactly what he wants to do. At least from the outside that’s what it looks like. Maybe it doesn’t. We all have our own version of what the perfect life will be. We want to put in our 40 hour weeks over the course of 20-40 years, saving all the while in order to produce a nest egg that will eventually carry us through our elder years beyond retirement. This is what the “normal” American life looks like and how it is taught to us by those following a similar path. Sometimes the majority is not always the best group to follow. I have adopted a saying in my life that goes like this… if you follow the lemmings long enough, you will eventually end up over the cliff. This may sound a bit morbid and a bit unrealistic but our minds don’t really operate all the time on pure reason or logic. Actually our minds are more like 90% monkeys and 10% bees. What does this mean? We are hive creatures by nature but also have higher cognitive function which allow us to be individual enough to not all wear the same clothes or take on the same career paths but we are very much influenced by those closest to us. This can go either way but the main thing to remember is that we can be influenced by a group we are surrounded by.

I’m not going to tell you to dump all of your friends and only hang around type X personalities all I am going to say is be aware of your natural inclinations and your surroundings. Don’t underestimate them for one minute.

Back to my brother. I know he will read this and I don’t want him to take any of this the wrong way. This is purely my observation mixed in with some higher altitude reasoning. Here we go…

He decided he was done with the oil field grind. A job that pays very well but keeps you out on a rig site for as little as a week up to a few months at a time.  The lag between jobs can be a few days or weeks at most depending on oil demand.  He decided he wanted to do more with his time and his life than work for someone else forever only to be able to possibly start enjoying his life after retirement. He wanted to follow his passion of writing and being creative while also building a homestead somewhere in the middle of the woods. He asked my opinion and I bluntly told him from my envious position of running out my last few years in the Army that he should stop complaining about his job and just do what he thinks will make him happy. 

Perception being what it is will show us what we think things should look like. He did not jump into this completely blind. He had months of bills pre paid. He also had months of living expenses saved up. I would venture to say more than most Americans have saved in pure cash assets. He may have expected things to go one way and they may have not necessarily done that for one reason or another. I will inject this little nugget of truth and it is something that myself and many others struggle with over lifetimes, planning purely on perception without accounting for the absolute worst case will usually lead to disappointment. This coupled with a perception that things will go completely smooth or that “I have done all the things that everyone says are the right things to do such as working for 30 years, saving to a 401k, buying a big house, following the “neighbors” or the “norm” do not always lead to success. We save a chunk of money over a long time and expect that savings to do magical things. It actually does not always produce the results we expect. Saving is one thing, and it is usually tied to an expectation that the money will go toward this or that, a specific purchase, but money changes. Time changes the value of money and the things we want to buy. Not only that but our health changes. We may not want to look at things like health and well being because they are nebulous, but they all play a huge part in how things work out. 

A safety net is one thing. A safety net that regenerates itself is something completely different. I’ve seen it with my dad, my mom, and now with my brother. Yes, the experiment was his alone to try but I am sitting on the sideline observing very closely and I see similar outcomes. Money is tied to work, which is usually tied to a job or some labor, which is tied to time (money=job+labor+time). The single (invisible) point of failure in this equation is the individual who is putting all of this in motion. If everything you do in your life revolves around you. If the money coming in revolves around you. If the time being spent is your time… what happens if you can’t physically do the work anymore? What happens if you have to take months off for illness or injury? My point is that work is not a bad thing. Wanting to work for yourself is not a bad thing. Saving money is not a bad thing. But they are however single points of failure.

The solution: putting systems in place or taking a systems approach. I’m not the oracle and I don’t have it all figured out. None of us do. Is your checking account on autopilot or is it something you have to manually go in and mess with all the time? Is your spending on autopilot or is it something  that happens haphazardly? Is your time spent with family and friends on auto pilot or do you have to constantly tell people you are too busy? The only commodity we can not replace is time. We spend much of it in wasted states. I do the same. I’m not saying be a robot. I am saying be aware. Be aware of the quality of your time. Be aware that the time you spend fixing everything all the time or being the one point of failure that brings everything to a halt if you get injured or sick can be catastrophic.  Understand that a systems approach on the simplest level means that anything you do repeatedly (more than 2 times) should be analyzed to find out if there may be a more streamlined method or if the task can be outsources completely.

A lot of people will counter and say “it is something I enjoy”, “I would much rather do it myself because I am the only one who can do it right”,  the list can go on.  Lets look at it purely in terms of output vs. input.  There are a couple key things to consider when figuring out output vs. input.  Let me put some bullet points up and explain them a little:

  • Net worth
  • Actual per hour value
  • Overall fulfillment

One of the most important pieces of paper I have ever filled out is a Net Worth Sheet (here is one from my personal stash – a simple one with a few formulas built in).  This document will spell out for you exactly what a bank or anyone else regards as your personal financial net worth.  This can be beneficial on many levels. It is not the end-all document but it does give you a nice snapshot into what your overall financial health looks like from 30,000 feet.  When you apply for any type of business loans, this is the document the financier will look at in order to determine if they will give you money.  Yes, your credit score plays a part in all of this but this one metric of net worth is the overarching determinate.  I would revisit this form at least quarterly if not monthly just to keep your eye on the ball and have some metrics to set large goals against.

Value-Per-Hour: This is something not many of us really take into consideration.  When all is said and done, at the end of the day we are all worth some specific amount per hour.  Whether you work for McDonald’s or Merrill Lynch, your value per hour is a measurable and specific number.  Say for example, McDonald’s pays you $15.00 per hour.  Is this your overall value per hour?  If this is the only way you make money then more than likely it is.  Your value on any given day is equal to $15.00 per hour.  What if you make a salary of say $50,000 per year.  What is your value per hour then?  Do the math and see that, assuming your after tax pay (net pay) is $50,000, monthly income will be $4166.66.  Based on a normal 40 hour workweek you will  get 26.04 per hour (4166.66/160hrs(4*40hrs)=$$per hour).  Well what does this really mean to me?  So I am worth 26.04 per hour?  Yes, if you were to get hurt you will be worth 26.04 per hour (not accounting things like workman’s comp or insurance fees/medical bills).

Lets look at it using this simple analogy: How long does it take you to mow your lawn?  1 hour?  How many times do you mow your lawn in a month… a year?  How much does your lawnmower cost (new)?  How much gas/oil do you have to buy to keep the lawnmower running?  Lets just say for the sake of argument you spend 4 hours a month mowing the lawn (did we also acount for clean up/maintenance/interruptions/?).  That would be $104.16 per month just on labor alone you spend on your lawn.  Let us just say the mower cost $200.00.  Over 12 month (only using it really in the summer months) your mower cost 16.66 per month based on a 1 year lifespan.  Oil and gas would be 1 qt oil and about 5 gallons of gas.  We will say gas (@ $2 a gallon) is $10 and a quart of oil is $2.  So $12 dollars on fuel/oil.  That comes out to 132.83 ($1593.96 a year) a month just to mow the lawn for 4 hours a month.  If you split that up into individual hours your per hour cost is $33.21 for lawn care.  This is purely mowing…no leaves… no raking and assuming that we mow the lawn 12 months out of the year 4 times a month.  We could split this cost out over 2 consecutive “seasons” instead of 12 consecutive months..  the cost is the same essentially.  Is this worth your time to do?  There is one more factor we must take into account, enjoyment.  Enjoyment (or fulfillment) is something that can’t be measured on paper.  It is purely an individual valuation.  You have to calculate this and figure out what your per hour enjoyment is worth to you.  If you enjoy yard work and the enjoyment outweighs the monetary cost then continue by all means to mow the lawn.  If however you despise lawn work and feel that you could be utilizing your time more wisely then pay someone $20 an hour to do the work that you would be doing for $33/hr and don’t worry about it anymore.  You are paying below your cost-per-hour (about $12 lower) for someone else to do the work.  No hassle, no stress, no worries and it can be accomplished without you even being around.

You can potentially free up bottlenecks in your life by applying this concept.  If the numbers work for you and you feel like it adds value to your life overall why not try it?  It is not a 2 year contract you are locked into, it is a matter of re-evaluating on a regular basis to find out if it is actually adding value or not.  It is an experiment, and like many experiments it will have failures and successes.  If you never run the experiment you will never know.  Of course, most of us consider something that doesn’t show results within a very short time frame to be a failure.  Sometimes you have to test and sometimes you have to let the test run.  You have to measure the results accurately.  Then you can make decisions and inferences on the back end to see if the desired outcome really happened.

Lastly let me talk about expectation management.  Our expectations of outcomes directly drive the outcomes we experience.   Let just face the facts, how we perceive something to be is what molds our physical reality to what it is.  It actually steers our emotions and feelings in the direction we think things will end up.  Our biases, judgement, expectations, and our reality is already decided before we start down a path.  It is decided by what we think is right or wrong.  The way we feel about touchy topics.  How we think people should drive versus how they actually drive.  What we think our kids should be doing versus what they actually do.  Loosely translated, Tony Robbins once said something along the lines of “change your mindset and you will change your life”. This just means that your happiness and overall level of fulfillment is contained in how much you let everything else around you effect you.  We literally have about 90% control on things around us.  Things outside of our influence.  We have about 10% control on ourselves and our environment.  You can’t change other people.  You can’t think that everyone will fall in line with what you want.  You can’t help the person sitting next to you on the plane with their oxygen mask unless you first dawn your own mask and save yourself.  You are literally no help to those around you including your spouse, kids, mother, father, sister, brother if you are unable to help yourself first and be completely under your own control.

I know this is a lot to take in but it is the difference between someone who is in control of their life and someone who is not. You will forget things. You will miss payments from time to time. You will (if you are anything like me) spend hours trying to figure out a simpler way to do things rather than just doing them. It is all relative to what your overall goals in life are. You have to decide. I’m not here to tell you what to do, I am however her to tell you about “tools” you can use to make your life more enjoyable. 

Staying with the cost per hour model, what if your cost per hour is $26.04 (what you make per hour of work). How can you change that and make it less of a single point of failure? What if you offset it with an investment vehicle like rental property? What if you rent your house to someone else and live in an apartment? THIS IS WHERE A LOT OF PEOPLE WILL TELL ME IM CRAZY. But listen, you make ~$26/hr, let’s say you can rent a place where you can live for $600 a month. Let’s also say that you could potentially rent your house for $1200 a month. Assuming you do the math right and assuming your mortgage is well below $1200 you could potentially be living for free and at the same time increasing your per hour worth. Who cares right?  What if you could rent your house on autopilot and say you have a serious injury and can’t work anymore. That $26 will not arrive in your bank account but the money from the rental property will. You don’t have to lift a finger. On top of all of that your house is getting paid off by someone else and there is marginal increase in value over time. If you are making a 3.5% mortgage payment but getting a 6-7% payment in from a renter… you do the math. Duplicate this process and you are one step closer to replacing your current income. Do this a few more times and you are actually saving and earning without actually going to a job. You become paralyzed and the income still makes it to your bank. I’m not saying we will all become paralyzed but eventually we all atrophy. We all get older and eventually we all die. Securing more than one stream of income can change your life. It doesn’t have to be real estate or stocks, but it does have to cross your mind as an idea that makes sense.

If you do nothing else today, I ask that after you read this go and download the sheet linked above and start filling in the numbers. You don’t have to do it all today. Just start. Look at your money and at the same time look at the quality of your life. Make a decision on whether it is what you want or not. Make a pact with yourself to keep an eye on it and constantly re-evaluate it. Understand that life is not ever going to go as planned, but contingencies can always lessen the burdens life throws at you. Lastly remember that things change all the time. You have to be willing to change with them. There will be a point in time that, assuming you work in some service industry that measures metrics by way of human interaction, your job may disappear. Be like water. Fit into the vessel that life affords you. Be willing and able to adapt to change. Charles Darwin ones said something like this: it is not the strongest or the smartest necessarily who survive, it is the one who can most easily adapt to change. 

Please feel free to comment or add suggestions below. I always love to hear your side of the story. Thank you!