Effai.me

What should I do about the upcoming market crash?

Mon, 19 Aug 2019 00:39:35 GMT

If you’ve been following financial news lately or religiously tracking your net worth on Mint like I do, you probably noticed last week’s hiccup in the market’s relentless march upwards. The Dow dropped 800 points in a single day — the worst performance of 2019 (so far).

Financial news media was all over this story. I woke up to dozens of articles about the 2/10 inverted yield curve and pictures of grown men sobbing in front of their computer screens gracing Yahoo Finance. I felt like we traveled back in time and Lehman Brothers just collapsed.

Naturally, the first thing I did was to Google “what is an inverted yield curve?”.

Despite it’s sophisticated name, it is a relatively intuitive concept to understand. Let’s break it down.

Our government occasionally spends our tax money irresponsibly and has a shortfall between its obligations and the cash it has on hand*. To make up the difference, the government sells treasury notes (T-notes for short) to investors that are looking for a safe place to keep their money.

All notes have a maturity date — the date the investor can expect to have their money back, and an interest rate — an incentive for the investor to lend money in the first place.

That incentive is also the “yield” in “inverted yield curve”.

The maturity date can vary between two and ten years. In general, lending money for shorter duration is less risky. There is less opportunity for your borrower to become a deadbeat and there is less risk for the interest rates to shift dramatically. Therefore; investors in general expect higher return from longer term investments.

That’s the “curve” in “inverted yield curve”.

Finally, what happens if investors become pessimistic about the future? First, they will start demanding higher interest rates to lend money in the short term driving 2 year T-notes’ interest rates up. Second, they will flee with their money for safety buying up long term T-notes and in turn driving those interest rates down. If this continues for long enough, the 2 year T-note can exceed the 10 year — creating an a-typical inversion. Thus; we have the “inverted yield curve”.

We’ve witnessed inverted yield curves before in 1980, 1989, 2000, and 2006 — all years that preceded a recession by a year or two.

Thanks FRED!

The discerning reader may have also noticed the gray bars in the chart above. Those signify economic recessions in the United States. As of this writing, we haven’t had a recession since 2009 — a full decade and longest bull market in history. Things aren’t looking good.

Before you speed dial your broker and put in that sell all order, let me offer some advice.

First, though 800 points drop for the Dow sounds like a lot, it is roughly 3%. It happens over a two or three day span all the time and no one really notices. Don’t let that part scare you.

Second, the inversions, even if truly predictive, occur one to two years prior to the recession. Therefore; you should wait until August 2020 before selling anything at the very earliest — at least if you believe in these indicators.

Third, and this may surprise you, most recessions end after about one year. In fact, the great recession lasted only 18 months officially ending in June of 2009. In other words, the margin of error of this indicator is larger than the recession itself.

Fourth, it tells us nothing about when to re-enter the market. Once fear takes over, the human tendency is to wait out the financial storm until things calm down. Unfortunately by then it’s too late and the financial rewards are gone.

So what should you do? I don’t know. But I’m sticking to spending less than I make, dollar cost averaging, and ignoring Yahoo Finance.

*Not to worry! Our children will pay it all back.

Do we have a right to education, healthcare or housing?

Mon, 08 Jul 2019 05:52:27 GMT

Photo by Kamesh Vedula on Unsplash

One advantage of hiking with friends is the inevitability of bringing up interesting topics of conversation. You can certainly come up with interesting topics on your own. But the conversation tends to be dull if you are the only one talking.

This America day, I ventured out on a hike with my good friend Nick from the The Tohidian. He was passionately telling me how sixty percent of Americans support a particular position on a controversial policy. And yet, there are states in the union that are actively trying to implement a contradictory policy. “It should be a human right”, he told me.

Long time readers should be familiar with my skepticism on majority rule arguments (if not you can read about it here). But this was not what spurred this blog. Instead, it was the part about the “human right” that was the true inspiration. My question to him was this: what makes something a “human right”?

Now, you’re probably wondering what is this controversial policy I so elegantly obfuscated. It turns out that it doesn’t really matter because the policy is irrelevant to this discussion. What I am interested in is what makes something a “right” in the first place.

As it turns out, rights come in two flavours:

Legal rights — human invention based on a variety of institutions.
Natural rights — fundamental human rights based on natural law.

Legal rights can be complicated and full of lawyer talk. You’ve probably all seen the two thousand page credit card agreement you get in the mail every time JPMorgan decides to update a sentence. Other legal rights are very familiar to us:

You have the right to an attorney in the event of an arrest.
You have the right of way when you are first at a stop sign.

Legal rights are created and enforced by the government to regulate criminal activity and civil matters. They also tend to be “positive rights” — rights that say what you can do or what someone ought to do for you.

Natural rights, on the other hand, are not created by anyone. They are universal and granted to all people at birth.

The astute reader may question the previous statement and wonder how rights can be granted if no one is granting them; or what makes them universal. That argument is conveniently outside the scope of this post.

What are some examples of natural rights?

You don’t have the right to take my house unless I agree to it.
You don’t have the right to beat me up.

Natural rights tend to be “negative rights” — right that impose on others to not do something. Intuitively, most people agree with these rights even without justifying their source.

One way to paraphrase natural rights is by using the following “loose axiom”:

Live life the way you want to live as long as you don’t infringe on other people’s right to live life the way they want to live.

This is also loosely known as the non-aggression principal.

Some criticize this principal as selfish. “It’s all about ME”; “I want to live the way I want to live”. This is not true. The only way for this principle to hold; the only way to protect your rights, is by respecting everyone else’s rights.

What does any of this have to do with Nick and his controversial policy stance? Let’s work it out.

Here’s phrases I hear uttered from time to time:

Health care is a human right.

Education is a human right.

Housing is a human right

Are these really human rights?

Human rights sure sound like natural rights. Are these natural rights? Let’s take “education is a human right” and use our “loose axiom”.

If I am a teacher and you are in need of schooling, I am obligated to provide you with education. This is your right after all.

What if I refuse? Can you fine me? And what if I keep refusing? Can you jail me? Jail may not be an appropriate life style choice for me. You would be infringing on my right to live life the way I want to live.

In other words, positive rights can only be achieved at the expense of someone else.

Back to “education is a human (natural) right”. Education cannot be a natural right because it violates the axiom of natural rights. If education is a right, it must be a legal right — a right afforded to you by the government.

Your next question is probably, “Is that so bad?”

I was careful to use the term “loose axiom” when referring to the non-aggression principal. It is not because I have doubts in its value. On the contrary. I think it’s an invaluable tool to start thinking about rights, policy, and morality. But there can be times when you need to bend the rules a bit for a greater purpose.

Take the court system for example. If you are accused of committing a crime, you probably want a fair and impartial court to hear your case. A private court system that offers a deluxe package to its wealthiest customers may guarantee a lawyer and 2 non guilty verdicts per year. But that’s not impartial. Instead We end up outsourcing the process of justice to the government. Of course, the government needs to collect tax revenue to pay all the police and judges it hires. Taxes must come from you and I. And indeed, if you refuse to pay the tax you’ll end up in jail.

However, there are very few cases where the government’s participation is absolutely necessary. A voluntary transaction between two individuals is almost always the better solution; and with the right incentives would lead to a healthier, wealthier and happier society.

What I ask of you is this: whenever a question of policy comes up, start with the non-aggression principal first. Can you figure out a way to solve the problem through voluntarily transactions? You’ll be amazed by what can be done. And yes, it does include education, healthcare and housing.

Saving Capitalism: a review

Tue, 28 May 2019 23:25:32 GMT

I picked up Robert Reich’s “Saving Capitalism — For the many, not the few” at a semi-annual book sale run by the Seattle Public Library. I didn’t think capitalism needed saving but I couldn’t resist the bright orange cover and the provocative title. And who knows? Maybe the former secretary of labour has something interesting to say.

I read the book on my patio, cover to cover, in about a week — a personal best for a full length book. I couldn’t put it down for one simple reason. I thought he was wrong and it made me angry. At the end of every chapter I would barge in to the house and pronounce to my wife that “this guy is an idiot”.

Take for instance the chapter titled “The Meritocratic Myth” where Mr. Reich talks about the nation’s blue-collar laborers and how they could potentially earn thirty dollars an hour in today’s dollars working a factory job — and that’s without a high school degree. We commonly refer to those days as the golden age of America - when a high school teacher could provide their families with a solid middle class life.

Or how about the chapter “The declining bargaining power of the middle”? Mr. Reich provides us with a handy graph demonstrating how starting in 1970, the real hourly compensation completely stagnated.

This is a common and often regurgitated discourse we hear when it comes to income inequality and the constantly disappearing middle class. But is it actually that simple? Allow me to contribute my two cents.

I will address the wage difference first. It’s true that the factory jobs are long gone but we have plenty of other entry level jobs available to compare. McDonald’s and Walmart are common targets for workers demanding higher wages so I will use these companies.

Take a look at McDonald’s income statement. This evil corporation made four billion dollars last year in profit. Why won’t they raise wages?

Because there is no way McDonald’s or Walmart could ever afford to pay their workers thirty dollars an hour. If McDonald’s went up to twenty dollars an hour, their two hundred thousand U.S. workers would cost the company an additional four billion dollars — that’s every penny they made this year. Walmart wouldn’t even survive at fifteen dollars an hour with their two million workers. And this is during an economic boom. Imagine what would happen during a recession.

What about the indisputable maxim that the rich get richer while the poor get poorer ?— something Mr. Reich himself mentioned towards the end of the book.

First, who are the rich? Is it the one percent? Is it the five percent?

Second, what does the data actually say?

I pulled some numbers from census.gov because I don’t trust pre-compiled charts online and plotted it. This is what I got:

Turns out the bottom three quantiles haven’t been doing all that great since 1967 — their household income has been mostly flat. But notice that no one got poorer. The incomes of the bottom three quantiles have been solidly within the same range (with a very slight uptrend).

What about the top two quantiles. They are certainly getting richer. Way richer. This is good news for about 40 percent of all households in America — that’s a lot of households. This is not to excuse the state of the bottom 60 percent — things are still rough if you’re in the bottom half. However, they aren’t necessarily worse off than during the “Golden Age”.

My original plan was to go through the book, page by page and point out all the half truths Mr. Reich used to make his case. Half way through writing this, I decided to take a different approach. I’ve decided to focus my wrath on a single recurring idea.

But first, let me digress for a moment.

This may surprise you but Mr. Reich is one hundred percent right on the central theme of the book — crony capitalism is the root cause of all our problems in the economy.

Rules must be broad, simple and just. Unfortunately, Mr. Reich has many examples when the rules are exactly the opposite — narrow, complex and unjust. Things like CEO pay and lobbyists tilt the system in favour of the rich and well connected.

This problem with power asymmetry can be addressed in two ways. First, the government can set up (more) rules that would limit the influence of corporations and other groups with vested interests in the political process. This is something that we see day to day. Calls for regulating A or banning B is the standard approach. I can understand why. It is easy to set up rules and let someone else deal with the unintended consequences.

Second, you can limit the power of the government to enact narrow, complex and unjust rules. Lobbying would immediately lose its power as the payoff to these activities would disappear.

Mr. Reich focused the book on the first solution but completely neglected the second. His suggestions would encourage the government to limit the power of select groups through rules and regulations. This in turn makes lobbying for exception and campaigning for exclusions by corporations and well connected individuals that much more lucrative —exactly what he was trying to avoid.

Despite my criticism of the book, I would highly recommend reading it. It is well written and thought provoking. There is also a convenient accompanying documentary on Netflix for the visual learners. Exposing yourself to ideas that don’t line up with your own biases is extremely important. It’s the only way to avoid echo chambering yourself into conviction of your own ideas.

For instance, while writing this article, I discovered that the bottom three fifths of American households aren’t doing significantly better than 50 years ago — at least when it comes to household income. That was a surprise to me. I honestly thought everyone were strictly better off. Armed with this new knowledge, I must admit that Mr. Reich turned out to be “not a complete idiot”.

Regarding the reasons for this lack of growth, I have some theories about that but I’ll save that for another article.

Saving Capitalism — For the many, not the few

Democracy doesn’t belong here

Mon, 29 Apr 2019 03:44:26 GMT

Photo by Arnaud Jaegers on Unsplash

In the 80’s my neighbourhood was poor and crime ridden. Since then, things have drastically changed. The recent economic boom has brought massive development in the area. New, million dollar houses are popping up in every street. One intersection in particular has a new condo building on every corner. There’s even a Whole Foods scheduled as a tenant for one of the buildings.

With this kind of quick and massive change, some people are occasionally left behind. Their houses go up in value but so do their property taxes. Once their fixed incomes cannot cover those semi-annual payments to the city, they are foreclosed and forced out. We call this process gentrification.

To fight gentrification, some of my community is protesting the arrival of Whole Foods. The community argues that people cannot afford to shop at Whole Foods (also known as Whole Paycheque). Second, they are demanding good, unionized jobs for the community.

To achieve their goals, they are exercising their democratic rights and protesting.

Allow me to go off on a tangent for a moment about democracy.

Democracy is the best tool we have to elect a government. It is a strictly better system than a monarchy that passes the crown down to their inbred children. It is also better than a mad dictator seizing power and waging war on his own constituents.

Democracy isn’t perfect. In the past, you had to be a literate male, of European descent, with significant property to have a vote. Over the years we’ve abolished the property, literacy, gender and race restriction to end up in the system most of us are familiar and enjoy today.

The natural human tendency is to assume that if something is good, more must be better. If democracy is good for election of governments, democracy must be also good for election of building tenants. Here, as a happiness pursuing, liberty loving individual, I have to disagree.

In fact, I disagree with the entire premise of community involvement in this decision. There is no room for democracy here.

How could this be? How could the fairest, most just system humanity has ever invented be wrong?

The most fundamental problem is the issue of property rights. Since it’s easy to vilify corporations, let’s pretend for a moment it wasn’t Whole Foods that was coming but a small, family owned co-op looking to open up shop in their detached accessory dwelling unit (or DADU).

Let’s also pretend there’s no negative externalities on the neighbours (no additional traffic, parking or noise issues). Why should the neighbours have any say in what this entrepreneur does? What business do they have in the entrepreneurs business?

The idea behind private property is that you own it. No one else does. What is ownership if not the right to make decisions about utilization of your own property. The entrepreneur bought the land and rights to run a business. She now has every right to run this business as she sees fit — even if it goes against all her neighbours wishes (although this might not be a good business model).

Second, it isn’t clear at all who this community is and where it ends. For example, how far away should one live from the contentious site before we prevent them from having a voice on the issue. I don’t think anyone would propose that I should have any say about a dispute in a neighbouring city (or Mexico for that matter).

There must be a line where the house to the left is included but the house to the right is not. This is unfair and arbitrary.

One could argue that the community can decide that too. The community could come together and vote on each house’s membership into that community. That feels pretty good right?

What if you’re openly dissenting from the majority view? The community can equally decide to vote you out; or better yet, not vote you in in the first place. It is also suspiciously reminiscent of past policies designed to suppress minorities’ voices.

Another solution is to introduce a “marginal vote” The further you are away from the site, the lesser your vote counts — very similar to our current tax system. It is an improvement over the above but we have effectively introduced classes for people. That might be acceptable for some but it isn’t democracy any more. The people that live just a few blocks away from the major development would have little to no say.

Third, there’s the majority rule problem. If we have a vote on an issue and the majority votes in a certain direction, we consider the direction as the winning direction. Majority is defined as more than 50% of the votes.

Let’s take a hypothetical town of 99 people. There’s a controversial Whole Foods coming to town so the town decided to vote. The outcome of the vote is a 49/50 split in favour of banning Whole Foods. In other words, 50 people decided over the 49 where they can and cannot shop. That doesn’t strike me as fair.

Also, prior to the elections, the vote may have been split right down the middle — 49 on each side plus 1 person undecided. In that case, this one person gets to decide for 98 other people the fate of Whole Foods. That’s a lot of power to give to a single individual. It is also very tempting to influence that individual’s vote (with money).

This may seem like a contrived example but it is simplified on purpose. Multiply all those numbers by 100 and it becomes very realistic. 100 people dictate the fate for 9800. Buying off 51 of those 100 people with backdoor deals and promises can be very profitable.

Then there’s the dissenter problem. It’s a mirror image of the majority rule problem. Let’s reuse our hypothetical town. The state government noticed an uptick in overdose deaths and decided to introduce a safe injection site in your town. And best of all, the town gets to vote on the placement. Presumably, few people want a safe injection site next to their house. We may want them in general because we believe they improve society as a whole but we’d prefer if they were a couple of tens of blocks down from our houses.

In this town, you are a particularly unpopular individual. You have blue hair and you like to shop at organic stores like some kind of a hippie. 50 people dislike you because of that. If it came down to a vote, they would elect your property as the site for the safe injection site. If you object, force will be used against you.

Finally, there’s the voter disinterest problem. Most people cannot be bothered to follow every trivial detail about their neighbourhood. For instance, most people are unlikely to follow every proposed development project in their vicinity. And they are definitely not going to take the time to call their elected representatives to voice their support or opposition. Unless, of course, there’s a direct impact on them or their property values.

It’s tempting to blame this lack of engagement on people. “If only they showed up to the hearing”, community supports say, “they would get what they wanted”. Yes, that’s true. In fact, that’s exactly how the vocal, unemployed and bored minority gets what they wanted.

The people my “community” is allegedly trying to protect are too busy working during the week and relaxing during the weekend to be bothered protesting and bickering about the paint job of the condominium coming up — that was last week’s agenda.

Regarding Whole Foods, the disinterest to the issue is completely rational. Most people are neutral-positive towards Whole Foods’ arrival. It’s just not that big of a deal for them. It is nice to have another place to shop and they look forward to occasionally indulging in an organic avocado toast.

On the other hand, take the Safeway owner from down the street. His bottom line rests on his ability to persuade the rest of us Whole Foods is a bad idea. Of course he’s going to show up to every hearing. Of course he’s going to bring up the underprivileged who need union jobs.

What is the end result? We get a handful of loud mouths with vested interests deciding what is best for the rest of us. It isn’t uncommon to have a few tens of people decide on a project that would impact 25,000 people.

If you think I sound like a massive complainypants then let me offer some solutions as well.

First of all, the argument over the affordability of Whole Foods is just plain silly. If my neighbours cannot afford Whole Foods, they will not shop there. Whole Foods will be out of business faster than the “community” can organize their next protest. If, on the other hand, Whole Foods is deemed affordable and valuable, my fellow neighbours would have another option to purchase organic food.

Sure, the owner of the Safeway down the street will have to live with thinner profit margins. But his misfortune is an acceptable downside to my community’s upside. When he opened his Safeway 20 years earlier, his fortune was someone else’s misfortune.

There’s also a risk that his Safeway could go completely out of business. In that case, the poor residents of my neighbourhood will have to travel a bit further to get groceries. This is a risk most people should be fine with. A Safeway that goes out of business due to competition from Whole Foods signals that there aren’t nearly that many poor people in the first place.

Some people may even suggest we should still care about the few poor people that are left over. They have the right to shop too. It follows then that we should shut down all Whole Foods all across the country. After all, every neighbourhood contains at least one or two families that can’t afford to shop there. What about them?

Bottom line is that we can all vote all the time and directly influence the direction of our neighbourhoods. We don’t have to worry about the mob forcing us to do things against our will; we don’t have to stay on top of every issue; we don’t have to worry if we think differently; and most importantly we don’t have to have our property rights abused. We just need to embrace a different system. We need to vote with our dollars.

The deception of the fun money portfolio

Mon, 08 Apr 2019 17:35:47 GMT

By now, everyone has heard that stock picking is a fruitless pursuit. These days you have index funds and ETFs tracking whatever your heart desires. It is generally accepted that passive investing is the way to go — at least in my social circles.

And then you have Lyft going IPO and everyone loses their collective minds.

I saw friends buying at IPO; speculating openly on future short term price fluctuations; using leverage and all sorts of other shenanigans.

What happened? Did we forget the basic economics we all preach? Or has the glittering radiance of speculation blinded us?

Allow me to offer this story as a demonstration of my general observations.

About a week ago, I was in-line to an Indian burger restaurant (yum) with my friend Igor waiting for our order when he revealed to me that he bought some stock in Lyft.

“Why would you do this?”, I asked, looking confused. “I thought you were doing the whole passive investing thing”

“They are going to be huge”, he replied.

“Okay… but isn’t it risky? putting all your eggs in one basket and all that.”

“Nah, I only invested $2000.”

Let’s pause here for a minute.

I wish I had a $5 Lyft credit each time I heard some form of this argument. Here’s what Igor is saying:

This company might perform well. I should buy more.
This company might perform poorly. I should buy less.

So which is it? Clearly, Igor has no clue which way it’s going to go (just like the rest of us). That’s why he’s hedging his bets and risking a mere $2000. This is of course the exact argument used to justify index investing; you don’t know what’s going to happen so you hedge your bets and count on the upward tendency of the overall market.

I pointed this out to Igor but he doubled down.

“True, but the index will return you what? 7–8% a year. Lyft can grow way faster than that”

“Okay”, I said. “Do you think Lyft could ever be bigger than say…Tesla?”

“No way!”

I have no opinions about the relationship between Lyft and Tesla. As of our conversation, Tesla was roughly twice as big as Lyft. That means Igor was saying that Lyft can at best double in size.

His cut of all that growth? another $2000. He doubled his money. And this is assuming the most generous outcome.

What about the downside?

The gain and loss on the stock is a wash since we don’t know the direction it’s going to go. The time wasted following the IPO, doing your research and picking the right moment to buy is likely negligible. So what’s my problem?

First, let’s stop pretending Igor is investing. He isn’t. This is a gamble. No better than putting your money on red at the roulette table.

Second, and more importantly, this usually manifests in a slightly different portfolio. I’ve seen too many people to count who believe in indexing but set aside a fraction of their portfolio for these activities — usually about 10%. If someone’s portfolio is $100k, $10k is set aside for personal stock picks — shots in the dark if you will. They even have a cute name for it. They call it “fun money”.

Putting more money into a single company doesn’t make the problems go away — it makes them worse. Wild swings in a single company could wipe out earnings in the rest of your portfolio for the entire year. To mitigate, people who adhere to the “fun money” portfolio allocation, spread their risk over multiple companies — usually about 10.

Say you allocated 10% of your portfolio to the “fun money” sector. If you spread the money evenly, and if my math is correct, you set aside 1% of your portfolio to each company.

What kind of performance do you expect from these “fun companies”? Say one of them grew 10 times. Your “fun money” sector is now 20% of your entire portfolio. This is phenomenal growth.

Your gain is an additional 10%. 10% is great, don’t get me wrong. But, if you are picking stocks and the stock grew 10 times, I would expect better performance.

Additionally, for a stock to grow 10 times, it must be a smaller company. There is nothing wrong with investing in smaller companies. However, for each small company that grows 10 times, there’s 9 that go bankrupt. Now you’re back to square one.

To mitigate the risk on the other 9 companies, you can buy more companies and spread your risk further. Maybe you could do 20, or 100 companies. That’s also problematic since you’re diluting your share in the well performing companies but wasting a lot more time managing your portfolio. Also, the more companies you pick, the closer you are to emulating the index anyway.

What’s the only logical conclusion? put all your money in the index and stop gambling. If you want fun, go play soccer.

Hey there survivor, join my stock portfolio

Mon, 18 Mar 2019 16:12:06 GMT

Image by Arek Socha from Pixabay

Despite my best attempts, majority of people around me still dabble in stock picking. I’m not here to convince you that passive index investing is superior. It is probably self evident to anyone reading a blog called Effai.me. You must have heard all the evidence and you know stock pickers, on average, under-perform — including the pros.

I do want to share a fun story though. It comes with a lesson that happened to cost very little to learn but had the potential to cost hundreds of thousands of dollars.

It all started around 2009. This was the year I made my first investment. It was right around the bottom of the recession. Before you start calling me an investing genius, let me stop and explain. I have picked 2009 as the year to start investing because it was the first time I ever had any money to invest — Nothing more, nothing less. I did not call the bottom. I did not have any insights. I just had cash.

My strategy was very clever though. In fact, my entire retirement plan was brilliant. I was going to invest solely in “Dividend Aristocrats”. Dividend Aristocrats is an exclusive list of companies that have been increasing their dividends for 25 years in a row. You heard that right. Increasing — not just paying out.

The nice thing about companies belonging to the dividend aristocrats was the semi-regular dividends that would come in. At the time, it was paying roughly 4.5%. My plan was to accumulate enough wealth that I could live exclusively on the dividends. I would never have to touch the principal.

I picked only the companies that had a price to earnings ratio that was below 17, a consistently decreasing number of outstanding shares and a couple of other indicators I chose.

Considering the stability of these companies for the last 25 years, the regularity of the dividend, never having to touch my principal and the favorable indicators, I thought I was bulletproof. What could be better?

Easy! What if… I took the historical price data of the 20 or so stocks that ended up in my portfolio, and back tested my strategy. In other words, what would happen if instead of buying these companies in 2009, I bought them in 1995. I certainly haven’t figured out how to turn back time. But it would be very reassuring if my new portfolio performed well in a back test.

And boy it did! In my back test between 1995 and 2009, my 20 dividend aristocrats with all the dividends reinvested would triple the performance of the U.S. market.

To say that I was ecstatic would be an understatement. I was overcome by euphoria and joy. I imagined retiring in my 30’s with millions in the bank, jet setting all around the world. I would have a wonderful life. The only thing I couldn’t figure out was how come no one else figured it out.

I remember the day I realized my mistake. I call it black Wednesday. I was walking to work, still elated by my discovery. I was passing by the Scotia bank building in Toronto on my way to the office. The building had a convenient stock ticker display. I remember looking at it when it hit me.

What I did there with my portfolio was a classic cognitive error. I back tested stocks I selected in the present based on data from the past. Then I pretended to buy them in the past to see how they would do until the present.

In other words, I got to pick stocks with the best histories while ignoring all the dividend aristocrats from 1995 that never made it to 2009. I just experienced what is referred to as survivorship bias.

If we were to compile a list of dividend aristocrats in 1995, the stocks I would have picked would have looked very different from the 20 stocks I picked on that day in 2009. In fact, many of those companies didn’t even belong in the dividend aristocrats list in 1995. At the same time, many of the companies in the list in 1995 were out of the list by 2009. Some may even have been bankrupt. If I was to apply the same strategy in 1995, my portfolio had to look different. There was no other way.

Maybe I won’t triple the market over the next 2 decades, I thought to myself. I could settle for a 50% out performance instead. Most pros would die for that.

It took me another couple of months of stock picking before I realized that diversifying over 20 stocks is not the same as diversifying over 2000. Having 10 out of my 20 stocks perform badly isn’t out of realm of possibilities. Yet it would represent half my portfolio. I needed a little bit more security.

I decided to buy the entire Dividend Aristocrats index. The ticker for it is SDY. It included over 100 different companies (and still does). That seemed a little safer.

The straw that broke my portfolio’s back was the moment I added up all my expectations. If I wanted to outperform the market by 50% over a period of 15 years, my portfolio needed to return an additional 2% a year on top of the average. That may not sound like a big number but it turns out to be exceptionally unlikely. If I was to achieve this feat, I could probably join the upper echelon of portfolio managers on wall street.

Tack on the fact that Dividend Aristocrats index charges an additional 0.3% in management fees and I quickly realized my dreams of being an investment guru were crumbling.

Eventually I settled on a simple index fund tracking the entire world. No stock picking necessary (I own everything). No rebalancing necessary (I own everyone). I finally accepted my fate. I was at peace.

This was a personal anecdote. On the surface, everything looked correct. The math was right. The companies were great. The history was solid. The reality was different though. It’s important not to be fooled by these numbers. Unfortunately, you’re the easiest person to fool.

I started investing that year. Once I realized my mistake, I had to readjust my entire portfolio. But it wasn’t a big deal. My portfolio wasn’t a big deal. The problem is that many people spend years (or decades) fooling themselves. That could be costing them tens or hundreds of thousands in fees and missed opportunities (not to mention the disappointment).

Now days, I advocate keeping your portfolio as simple and stupid as possible. It’s so much harder to go wrong with that advice.

Money doesn’t buy you happiness. Let’s fix that.

Tue, 12 Feb 2019 18:51:42 GMT

Money doesn’t buy you happiness. Unless, of course, you believe this study where $75,000 could. Or maybe, if you are enlightened and in the pursuit of financial independence, you don’t even think that’s necessary. It is certainly a convenient belief.

It is also reassuring monetarily. It is not easy to keep making more and more money. If our happiness depended on ever higher incomes, we’d be stuck in the rat race forever. Financial independence would be out of the question.

It also seems to be true from observation. There’s no shortage of miserable rich folks — at least in the media.

What if we looked at our own happiness? There is probably little correlation between that and our income level.

Does that mean we should all stop striving for more money? Probably not. One good reason to earn more money is that financial independence will come sooner. Buying time does seem to promote happiness.

But there’s another reason why money can increase your happiness — and there’s a million ways we fail to take advantage of it.

Money can make your problems go away. Not everything. But a significant portion.

Okay… but you are already doing this.

Cooking is a chore so you pay someone to do it.

Cleaning is a chore so you pay someone to do it.

Taking care of your elderly parents is a chore so you pay someone to do it.

The problem is that as people start earning more money, they spend more. Instead of using that money to solve their problems, they inflate their life style. As the old adage goes, “Mo’ money mo’ problems”.

When you bought your starter home, cleaning wasn’t really a chore. You were just excited to have a house. Now that you have 2 kids, a husband and 3000 square feet, things are different. All of a sudden you need to hire a maid and gardener. You are too busy with your career after all. And there’s this whole argument for specialization too.

This is commonly referred to as “Lifestyle inflation” and it is the most destructive force in the universe.

The unfortunate reality is that all these problems come bundled with a healthy dose of lifestyle inflation. It’s unavoidable. Anything you add to your life comes at a cost. There’s the monetary upfront cost. But there’s also the recurring maintenance cost (take a look at my second law of minimalism for further discussion).

Solving this class of problems by throwing money at them simply brings you back to baseline.

Can we do better?

Turns out, there’s a second class of problems; equally common and just as lethal. They tend to have the following properties:

They appear unexpectedly.
They tend not to repeat.
Their cost to resolution varies significantly.

We usually refer to these as “accidents” or “fuck ups”. And this is where having money really shines. When you throw money at fuck ups, the problems frequently go away but your lifestyle doesn’t change. It is still the same you.

This is also where $75,000 comes in. It happens to be enough money to cover your basic needs such as food and shelter. You can afford to go out a couple of times a month to a dinner and a movie. You can even take your 3 weeks of vacation in a tropical paradise. And it leaves you with enough breathing room to cover some accidents.

I’ve experienced the fruits of this last year when my cat got sick. We had to take her to the vet and operate on her. The bills were in the thousands. I remember swiping my credit card and telling the vet to do whatever was necessary. It wasn’t the place nor time to think about the money. This was clearly a problem of the second nature.

Looking back, I can acknowledge that being able to afford the operation made me a happier person. It is not because she survived — she didn’t. It is because I couldn’t live with myself if she died and I didn’t do everything I could to save her.

The examples don’t have to be this extreme. Maybe you just got a parking ticket. Do you really want to take the time to go to court? Or call someone? Or maybe you can pay the fine and move on with your day.

This is probably a somewhat inconvenient truth to many who are seeking financial independence on a miniature budget. The reality is that accidents happen. Yes, they often have a non-financial solution. But there’s always a trade-off.

Use that money but use it wisely. Because using money, your life can become drastically simpler — reducing the downside while keeping all the upside. But it comes at a price.

Meowmix

Challenge accepted: resolutions for 2019

Mon, 07 Jan 2019 02:49:20 GMT

You may remember my article from last year titled “My favourite part of new year”. I don’t want to spoil it but (you know I’m going to spoil it) here’s the punch line: I absolutely love setting new year resolutions and grading them. Last week I graded my 2018 goals.

If you remember how I set my goals for 2018 (and if not, you can get a complete refresher here), it’s a three step process.

Write down your goals — the more public the better. Effai.me is a great place for that (let me know if you want to contribute).
Write down specific steps you’ll take to reach each goal. Make sure they are measurable.
Grade yourself on how you’re doing every two months. It’s the only way you’ll remember what you’ve wanted to do and keep yourself accountable.

I’m going to cover #1 and #2 for 2019 today.

Before we start, I would like to address something. there will certainly be some online gurus who claim setting resolutions doesn’t work. To this I say, good for them.

This year I’ve decided to group the resolutions somewhat differently. I have four high level habits I would like to cultivate. Each habit will have specific actions I would like to take. The habits are purposefully broad and ambiguous while the actions are narrow and measurable.

Health & Fitness

Health and fitness is my #1 priority this year as they should be. If you don’t have your health, … your insurance premiums will go up and it will hurt your financial independence. Also, there’s something nice about living a healthy and vital life to an old age, free of chronic diseases.

Here’s what I have:

Limit to one glass of wine per night at home.

Last year I attempted to completely cut myself off from boozing at home. It was challenging but achievable. Unfortunately, it was also a miserable experience as I watched my wife occasionally enjoy a glass of red wine with dinner while I was drowning in my own saliva.

There does seem to be a lot of evidence that drinking red wine in limited quantities is safe and even helpful. Therefore; I’ve decided to moderate this goal. I am still generally not going to drink as I find it affects my sleep. But if I do, one glass of wine with dark chocolate is acceptable.

Three drink limit during social gatherings.

Since we are on the topic of alcohol, I am upping my limit of drinks during social events. Last year I was at a two drink limit. Admittedly, I have rarely gone far beyond that (although it did happen). However, I have never gone below.

I am not the kind of guy to set unachievable goals as a method to “push myself”. I refer to that as “setting myself up for failure”. Therefore; I decided to come to terms with it and up my limit to three drinks. We can revisit this in 2020.

24 hour fast once a month.

I am oddly excited about this. I am always looking to tweak my diet for the better. Unfortunately, with each improvement, the marginal return is lower and lower. The low hanging fruit have mostly been picked.

I am convinced that fasting is one of those untapped potentials for me. I have been doing the 8 hours eating window for the last year to the point that it is automatic. However, I have only fasted for 24 hours once.

Eat my essentials foods.

Some of you may know that I maintain a list of “essential foods”. It’s a collection of what I consider healthy foods I would like to regularly incorporate into my diet. If you’re curious, you can view it here.

Although, I’ve maintained the list for over a year, I didn’t consume them on any regular schedule. I would just buy things randomly because they fit into a certain meal.

This year, I plan on buying them once every two weeks. Also, I would like to expand that list. Otherwise I risk getting sick of cod liver.

Attend the gym 104 times.

Thanks Anshul Pandey for coming up with this one (even though you failed 😜)

The human mind is fantastic at associating positive events to the “norm” and negative events to the “exception”. That’s why I plan on going to the gym 3 times a week but can’t name the last week I’ve been there that many times.

To avoid fooling myself, I am going to count the number of times I actually attend the gym in the entire year. If I hit my goal of 104 times, it will average out to twice a week. This ongoing count will keep me accountable for the entire year.

For those truly “exceptional” days, when I cannot attend the gym due to unforeseen circumstances, I provide myself an escape hatch: perform 150 pushups.

Stretch goal: 1 muscle up.

This is an exercise I would like to do. Unfortunately, I cannot find a chin up bar with enough head room.

Mindfulness

No mindless browsing in the evening.

I mentioned this before but here it goes: I am very proud of how little time I spend on my phone — at least as measured by my iPhone’s screen time app. Unfortunately, the time isn’t always translated into productive behaviour. Most of it is spent on my laptop browsing news, the twittersphere and other similar distractions.

This year my plan is to significantly reduce the time I spend mindlessly browsing and replace it with more productive activities. The default is reading. However, my wife has a laundry list of projects she’d like to finish (yesterday) around the house. I expect that to take a good chunk of my time.

Other (stretch goal) activities I would like to fill in my time with are playing tennis and hiking.

Stay item neutral.

This is a modified remnant resolution from last year. The absolute amount of things in the house is not fully under my control (I share the house). However, my things, are fully within my sphere of influence. Therefore; instead of trying to minimize the amount of things we have, I will focus on reducing (or maintaining) what is mine.

Watch out, stuff. If you don’t spark joy you’re out.

Keep my phone away.

Whenever we are out, a habit a lot of my friends and I share is to place our phones upside down on the table next to us. The phone is within reach in case of an important call. At the same time, we avoid experiencing separation anxiety from our precious.

I remember seeing somewhere a study that showed just being in the same room as your phone would increase your cortisol (stress hormone). I don’t know if it’s true or significant but having my phone hidden away makes me feel better. Also, it allows me to concentrate on what the other person is saying. Therefore; whenever I am with people, my phone will be out of sight.

Personal

Read 18 books.

If you’ve read my last article, you’d know that I crushed last years reading goal. That’s why I decided to increase it up to 18 books. That’s a book and a half per month or one every three weeks. (Not so) secretly I want to crush that goal as well.

Be on time.

I plan to measure the success of this goal differently this year. Instead of looking at outcomes (arriving on time), I will look at intention (leaving on time). I don’t want to penalize myself if the situation is out of my control (traffic jam, road closure, got lost). If I did leave on time, and still ended up being late, I expect myself to make adjustments for next time.

Volunteer at the library at least once a month.

I have been doing a little bit of volunteering last year helping kids with their homework (awww, I know). This year, I’d like to keep doing this at a more regular schedule.

Complete a Coursera course.

Last but not least, I would like to finally finish one more course on Coursera. I’ve lost count of how many courses I’ve enrolled in just to watch a few videos, promise I’ll come back, and switch gears to do something entirely different (I hear it’s a common problem).

This year, I’d like to finish at least one. I have a few courses in mind. I haven’t decided if I want to go through with the entire certification processes or just view the class videos. However, last year, I haven’t done either.

What would really help is to set aside a dedicated time for learning. It will also allow me to measure my success. Admittedly, I am still fuzzy about the exact details.

That’s it for me. That’s a lot of resolutions. I’ve already started on some of them. Others are still in the planning stages. Most importantly, I’ll keep track of how I’m doing throughout the year. Not only does it make great blog content, it also keeps me accountable to myself.

Grading my resolutions for 2018

Sat, 29 Dec 2018 23:50:43 GMT

Another year is coming to a close.

Long term readers may know this time of the year as my favourite. It’s the time I get to reflect on the past 365 days; grade myself on how it went; and plan the next 365 days.

Also note that some goals have changed since the commitments were made last year. Some goals turned out to be irrelevant or things I wasn’t seeking anymore.

Let’s get started.

Health

+----------------------------------+----+----+----+----+
| Eat a big bowl of salad at lunch | 10 | 10 | 10 | 10 |
+----------------------------------+----+----+----+----+

Wow, what a way to start, right?

I won’t be keeping that as a resolution for 2019 simply because it’s a given at this point. I use my salad bowl daily, and I enjoy eating it.

+----------------------+---+---+---+---+
| Zero alcohol at home | 9 | 8 | 6 | 6|
+----------------------+---+---+---+---+

The year started off strong but withered away.

I enjoy having a glass of wine with Trader Joe’s 100% dark chocolate. Some alcoholics even claim red wine is healthy for you. I may need to modify this goal.

+------------------------------------------+---+---+---+---+
| Two drink limit during social gatherings | 7 | 8 | 6 | 7 |
+------------------------------------------+---+---+---+---+

For those that have read my article titled “If actions reflect values, what do they say about you?”, may know where this one came from. Turns out it’s … challenging — certainly a great one to work on in 2019.

And this has been my most successful year yet. It’s just not where I want to be.

+----------------------------------+----+---+----+----+
| Intermittent fast 3 times a week | 10 | 9 | 10 | 10 |
+----------------------------------+----+---+----+----+

Intermittent fasting, like salad eating, is so ingrained in my daily routine that it isn’t worth putting down as a goal. I think I’ll skip it next year.

+----------------------------+---+----+----+---+
| Limit to two coffees a day | 8 | 10 | 10 | - |
+----------------------------+---+----+----+---+

I don’t think I want to pursue this any more. Here’s a study that reported 22% lower risk of mortality for each 2 additional cups of coffee per day. Maybe — I should drink more! The truth is that just like red wine, I love my coffee and I will read studies that exclusively confirm my biases.

Minimalism

+-------------------+----+----+----+---+
| Stay item neutral | 10 | 10 | 10 | 8 |
+-------------------+----+----+----+---+

I’ve done a decent job de-cluttering our place and donating things we don’t use. I feel like I’ve slipped up a bit in the second half of the year. More importantly, without paying close attention, I can always end up with item creep. Maybe, Marie Kondo’s new show will keep me motivated. **spark joy** ✊.

Reading

+-------------------------------------------+---+---+---+----+
| Stay on course to read 16 books in a year | 7 | 8 | 9 | 10 |
+-------------------------------------------+---+---+---+----+

I’m at 19 books for the year according to goodreads. 5 of those books came in November — December time frame. That explains the lower rating in the first half of the year. On another note, during the November — December months, I discovered I can read much faster. I think I’ll be increasing this goal to 18 for 2019.

+-------------------------------------------+---+---+---+---+
| Replace pointless activities with reading | 6 | 7 | 7 | 7 |
+-------------------------------------------+---+---+---+---+

I define pointless activities as mindlessly browsing news, tech blogs, YouTube, etc. Reducing this will free up a ton of time. This will be a major focus for me in 2019.

One challenge that I have is differentiating between pointless browsing and browsing with a purpose. I’ve installed an extension on my browser that tracks the time I spend on each website. Unfortunately, I cannot differentiate between the “Cat reaction to a cucumber” video and “Hanging a door” video on YouTube (although one of these is hilarious).

Fitness

+----------------------------+---+---+---+---+
| Go to the gym twice a week | 6 | 7 | 7 | 8 |
+----------------------------+---+---+---+---+

Sigh….

This resolution isn’t asking for much — just two visits to the gym a week. Yet I barely manage to meet that. This will likely become my other big focus for 2019. I have some ideas on how to to tweak this resolution. You’ll have to read my next article to find out the juicy details.

Mindfulness

+--------------------------------------------+---+---+---+---+
| Don’t pull out your phone without a reason | 8 | 8 | 9 | 9 |
+--------------------------------------------+---+---+---+---+

I’m always entertained by people in elevators. Without fail, someone will pull out their phone, switch between a few screens, click on nothing and lock it back up. A sure sign you’re a busy and important person.

I made the conscious decision to limit my phone usage as much as possible. My “Screen time” on the iPhone is a proof of that — most weeks its less than 30 minutes a day. At the same time, it is still 25 minutes too long.

+---------------------------+---+---+---+---+
| Stay present during walks | 5 | 4 | - | - |
+---------------------------+---+---+---+---+

The purpose was to practice meditation on my commute to work.

Meditation is certainly trendy these days. Unfortunately it wasn’t quite for me (sorry Nina). Instead, I discovered the wonderful world of podcasts. I pride myself at being ahead of the curve on many things. However, with podcasts, I’m 15 years behind — but late is better than never.

Back when I would commute by bus, I used the time to read books. Once I moved closer to work, I felt that somehow I read less — even though I had more time. With podcasts, everything changed. I get about one hour a day, round trip, of solid listening.

And I get to learn so much. I listen to all sorts of health podcasts. I now know so much about human physiology I feel good about dishing out unsolicited advice.

+-------------------------------+---+---+---+----+
| Stop doing two things at once | 7 | 8 | 8 | 10 |
+-------------------------------+---+---+---+----+

Another one of my attempts at mindfulness. Mainly, I hated browsing while eating. I don’t remember the last time I did that.

Personal

+-----------------+---+---+---+---+
| Stop being late | 9 | - | 8 | 7 |
+-----------------+---+---+---+---+

Most of my friends can now attest to this. I generally show up on time.

One downside to this. Being late is very culturally accepted. Whenever someone is hosting me, they too are usually late. That’s why, I message my hosts and make sure they are okay with me showing up as planned.

Overall, I think I’m ending the year as a decent human being. There were some ups and downs. Unlike the stock market this year, I think I ended things on the up. 2019 is going to be great.

How to stop corporate bailouts forever

Wed, 12 Dec 2018 17:55:47 GMT

I joined the workforce around July 2008. I was looking forward to earning money. My pay was going to be in the thousands. I was excited to wear dress shirts and pants and walk around downtown looking important. It was a big change from my university days. Then the recession happened.

I wasn’t knowledgeable enough to understand it at the time. I know some people struggled to find work. My dad lost his job. It would take him another 8 months to find another. I, on the other hand, being a phenomenal performer, was spared (thankfully).

I do remember the protests on wall street and all the TV coverage they got. They called themselves the 99%. I must have been one of them.

We were angry about the bailouts. The bankers were saved from bankruptcy despite being responsible for the crash — and our money was used to save them!

It certainly seemed unfair to me.

But what could we do? Letting these companies fail would mean the loss of thousands of additional jobs. “It would cripple the economy”.

We also set a certain expectation. The corporations now understood: once you got large enough, the tax payer will bail you out. We even coined the term “too big to fail”.

Last week, my friend Ivan and I were discussing this exact topic. What could we do about it? And how could we have avoided this? This time however, being more mature and sophisticated, I’ve had the clarity to voice an alternative opinion. I thought it would be good to share it here with you, dear audience.

Ask yourself, what does GEICO do to insure your claim? They charge a premium of course. You pay a monthly fee for the insurance that someone will cover you in case of a loss. Naturally, you cover for large losses that would hurt you financially.

You might see where I’m going with this.

We can determine which companies are “too big to fail”; we can use an income or employee count threshold or another metric (or a combination). Once a company crosses that income level (or employee count), each additional dollar earned would be subject to double the tax rate.

Before all my libertarian friends lose their shit, let me explain.

You can view the additional tax as a premium paid into a bailout fund. In case of gross mismanagement and undue risk, the responsibility of bailing out these large corporation doesn’t fall on the tax payer but on the companies themselves.

In reality, no prudent corporation would be willing to pay more tax than necessary. Instead, as the corporation approaches this limit, they will likely split into sub-units.

Amazon would become Amazon AWS and Amazon Retail; Microsoft would become Microsoft Office and Microsoft Windows, Walmart would become Walmart East and Walmart West. You get the idea.

I’d be lying if I told you I came up with this idea myself. This is taken from Nassim Nicholas Taleb and his excellent book “The Black Swan” (no relation to the movie).

The Black Swan
The Black Swan has 66,997 ratings and 3,953 reviews. Nick said: This is a great book. And, to take a page from Taleb…www.goodreads.com

For every great idea, there’s going to be some detractors.

I find this tweet ridiculous. You really can’t think of a way to break up Amazon? Amazon does everything.

And Google? It happens to be a great example of this principal — although in a much milder form. It has a holding company, Alphabet, and it spins out experimental companies, Waymo, Sidewalk Labs, etc.

Also, no company is forced to spin out every single line of business they have. If a business isn’t mature yet to stand on its own — if it’s a money loser for example — keep it. Every decision is completely up to the board and shareholders.

Finally, some people are worried that large companies will lose their competitive advantage; efficiencies of scale or something along those lines. Maybe. But that’s debatable. It could equally play out in the opposite direction.

Imagine for instance if Amazon decided to spin out its warehousing operations. Wouldn’t other companies benefit from all the efficiencies gained by Amazon?

You might be asking if a company would even bother investing in innovation if they’ll spin it off. My answer to you is of course! The investment in innovation doesn’t just disappear. It is sold. A shareholder with one share of Amazon, after the split, would end up with one share of Amazon — priced X dollars lower— and one share of the new company — priced at X. That’s just how spin offs work.

The end result of such policy is no corporate bailouts, no Dodd, no Frank, no endless bickering, no bureaucrats and no government agencies. This is a way to create the right incentives for the companies to behave while making our economy Antifragile (or at least robust).

Antifragile
From the bestselling author of The Black Swan and one of the foremost philosophers of our time, Nassim Nicholas Taleb…www.goodreads.com

Correction. Holding ESPP’s is worse than I thought

Mon, 19 Nov 2018 04:36:53 GMT

This doesn’t happen very often.

I was corrected — on Twitter of all places. Turns out, my advice to you about selling ESPPs was spot on but my reasoning was wrong. I am here humbled in front of you and I stand corrected. Thank you Tom Larson for setting me straight.

Tax treatment for ESPPs is more complicated than I initially thought. My whole argument was centered around the idea that keeping the ESPP shares to pay long term capital gains tax was misguided because the savings are minuscule. The math is certainly impeccable. The tax treatment on the other hand is wrong.

Turns out, any discount given to you by your employer, is always taxed as regular income — regardless of how long you kept it for. That’s a bummer for Aaron.

It gets even nastier. My buddy Bob pointed another provision in the tax code. But first, a few definitions:

Offering period: the period of time the participant is locked in to a particular stock purchase plan; typically this is 12 months.
Purchase period: the frequency in which you purchase stock within your offering period; typically this is 6 months (meaning there’s two purchase periods in a typical offering period).

Great, now that we’re up to speed, let’s pretend your company stock doubled between the beginning of the offering period and the purchase date 6 months later. Here’s the kicker: to get a long term capital gains rate on the gain beyond the company discount, you must meet two criteria.

Hold the shares for 12 months from the purchase date AND
Hold the shares for 24 months from the beginning of the offering period.

That means, half the time you must hold your company stock for a full 18 months before you get to enjoy the lower tax rate.

To summarize for the skimmers: any discount given to you by the employer is always taxed as regular income. Any gain beyond that may be taxed as long term capital gains but the shares must be held for 24 months after offering period starts.

If the stock price went down between the offering date and the purchase date, the decisions becomes a complete no-brainer. Sell immediately. There is no advantages to be gained.

If the stock is up and you’re thinking of holding on to save a couple of bucks, consider these:

Would you buy the stock today at the current price?
Are you willing to hold on for up to 18 months to save around 10% of your gains?

If it’s a resounding yes to both questions, go ahead and wait. If any of them is a no, sell immediately; then go ahead and open up a betterment account.

A non boring advice about your employee stock purchase plan

Thu, 25 Oct 2018 16:14:42 GMT

My employer offers many generous perks. One of them is called an ESPP or employee stock purchase plan. It is a scheme by which the employer incentivizes you to purchase its stock using a portion of your salary. The incentive is usually some sort of a discount or top up.

One question that frequently comes up is what to do once the shares are vested into your account.

You can go down one of two roads. First, you can sell all the shares immediately and purchase something else. Spoiler alert, I’m in this camp.

Second, you can keep the shares.

The reasoning for keeping the shares is actually quite solid. If you’ve made money on the stock market and you’ve held the shares for less than a year, you are subject to good old fashion income tax. If, on the other hand, you held it for more than a year, you are subject to shiny new capital gains tax; and you guessed it, the shiny new capital gains taxes are usually lower.

This is exactly the argument I was having with my friend Aaron at work yesterday. Our shares from ESPP are set to vest in November and he was inquiring about my plans for the money. I told him I was going to sell everything and purchase a boring and dull index fund. He told me I was crazy for throwing my money away.

This discussion went on for longer then I am ready to admit but I thought I can summarize the lessons here. Also, since this is my blog, my opinion is right.

Let’s start with an example: Since Aaron is a well paid executive of a small company, his household income is $300,000. That puts Aaron at the 24% tax bracket. Aaron’s company offers a 15% discount on the share price. Finally, Aaron commits $20,000 to the ESPP plan.

First, it’s important to note that only your gains are taxed — not your entire investment. In this case, if you were to sell the shares immediately after vesting, your discount would be your only gain. In other words, 15% of $20,000 or $3000.

Second, uncle Sam would come calling for his portion of those $3000 at the end of the year. His share would be 24% of $3000 or $720 — that’s what you owe the government.

Third, if you were to keep the shares for a year, you are still not scot-free. The capital gains tax is still 15% of $3000 or $450.

By holding on to the shares for an entire year, you’ve saved yourself less than $270 ($720 minus $450) or roughly 1% of the entire sum. To put that into perspective, my company’s stock went down 4% yesterday (and up 17% today).

I don’t know about you but that does not seem like a good deal to me. Putting money in a single company is notoriously volatile. Doing it with the company you work for is a potential disaster.

Of course, this is a somewhat contrived example. There are many other things to take into account

If you’re filing individually and earning above $200,000, the gap between the income tax and capital gains tax is 20% instead of 9%. If you’re earning $38,000, the gap is actually negative (the income tax is lower). You can find the latest rates here.
If you contribute significantly more than $20,000 into the ESPP program your tax loss might be greater. Of course, that also means you must keep more money in a single stock.
If the incentive from your employer is larger, your tax could be greater. For example, when purchasing ESPP shares, my employer uses either the price today or the one from 6 months ago — whichever one is lower. As of this writing, the stock is up 10% from 6 months ago. My taxable gain is now higher.

It is worth evaluating your exact situation to determine how much money you are actually saving.

Also, I don’t want to imply that saving a couple of hundred bucks isn’t worth the time — it certainly is. I will gladly give my insurance company a call if it saves me money. That lizard has been good to me.

However, these savings don’t come for free. You are leaving a significant amount of money in a stock that you may or may not want to own.

Therefore; my advice to you is this. Sell the damn shares. Put them in betterment. You can thank me later.

How flushing the toilet made me appreciate the little things in life

Sat, 01 Sep 2018 17:20:55 GMT

Photo by bruce mars from Pexels

The Universe has proven once again — there is no shortage of life lessons in the most unexpected places. For me, it all started a three weeks back. Up until that point, I thought very little about my toilet (as I should). My most memorable recollection was installing a soft close cover on it so it wouldn’t bang when I put the seat down. Otherwise, it was just like every other toilet — white, round and a great place to browse your phone.

So what lessons could I possibly learn from this familiar household item? Allow me to offer the following allegory.

As many of you know, I dabble in a some house hacking. I rent out my basement on Airbnb to random people on the internet. On Sunday I got the following lovely message from my guests: “the toilet isn’t flushing”. Thankfully, there was nothing in there I couldn’t handle. I headed downstairs, pulled out the plunger and started plunging vigorously. I plunged for about an hour. I tried all sorts of techniques. I put hot water in there. I put soap in there. I ended up with a bowl full of hot soapy bubbles. Eventually, I had to admit that I needed professional help.

I called the first plumber I could find on Google. He showed up within a few hours looking ready to unclog some pipes. He started with the auger (long wire you stuff in the toilet). He stuck it in there, rotated it a bunch of times but no luck. He removed the toilet off the floor and tried again. Still no luck. All I could think was “What the hell did those hippies flush down my toilet?”.

He mentioned we’re going to need some more heavy duty equipment. Keep in mind that I have Airbnb guests in my house with a dysfunctional toilet. They are not going to be very happy. On top of it, I live in an old house. Our pipes are… questionable. How much is this going to cost me? I am now quite nervous.

We brought down a 400 pound roll of metallic tubing. He stuck it in the pipe and started unwinding it in. He kept going all the way to the end. When he pulled it out, we found an extension cord wrapped around the metallic tubing.

As we both stood there scratching our heads wondering how this is even possible, my wife was still thinking straight. She Googled it quickly and identified it as a part of our sewage pump. Turns out if your toilet is below the sewage line, you need a pump to get the waste out (makes sense once you think about it). The plumber must have ripped off the cord while digging for clogs.

He put the toilet back in place; Charged me $350; told me I need to get a qualified professional and bounced.

I started to frantically call anyone who could possibly help. I needed this done ASAP. We have paying customers in the house who need to … use the facilities. The best I could do is get a guy to show up in two days. The estimate for a replacement was $1600.

I don’t know if you’ve ever dealt with plumbers, electricians or any general maintenance workers but they aren’t exactly known for being reliable.

That night, I couldn’t sleep. I was worried the plumber wouldn’t show; replacing the pump wouldn’t fix the issue; or that it would escalate to more problems. I woke up the next day with a big headache — exhausted and stressed.

On a whim, I decided to call the initial company and complain about the plumber; maybe they’ll offer me a discount. I dialed their number, and politely explained what happened. Instead of a discount, they offered to fix the pump for free. Another plumber showed up later in the day, replaced the pump within an hour and charged me nothing for labour and material.

Once he finished, I rushed downstairs and started flushing that toilet over and over. Flushing never felt so good. The next night, I slept like a baby. I don’t remember the last time I slept that well. I woke up refreshed, feeling great, ready to take on the world.

What really inspired this story is how vividly I remember the difference in those two days. When the toilet was broken and everything seemed like an endless series of disasters, life was hard — I was stressed and miserable. Dealing with this shit (pun intended) was not fun. Once the toilet service was restored, my life was turned upside down. I felt free. I felt good. I felt like anything was possible. In short life was glorious again. What a difference 24 hours can do for your well being.

More importantly, I recognized how much we take for granted. As long as this toilet was working, I never paid attention to it. I pulled the lever down. The water flushed away all my troubles. Life went on. However, once this process failed, my outlook changed. All of a sudden my house wasn’t this impenetrable castle but a money pit. And running that Airbnb wasn’t a license to print money but just a bunch of hassles.

Granted, I did not feel like that for long. Once everything was fixed and settled, I was more than happy to take my guests’ money for the right to stay in my basement (I did offer a free night for the trouble). Also, I ended up getting a brand new sewage pump installed for a bargain price.

Upon reflection, I had to ask myself the following question:

What can I do to experience life like I did on Monday, everyday?

In other words, how can I wake up feeling refreshed and energized, all worries alleviated and the anxiety extinguished. Turns out my experience that week is a common phenomena encountered regularly. In fact, we even have an aphorism to explain what happened:

“You don’t know what you have until it’s gone”

Duh. Everyone knows that. But what can we do about it?

One thing I could do is sabotage my plumbing on regular basis and deal with the plumber while my Airbnb guests are watching. I don’t think it’s a scalable solution though so I wouldn’t recommend it.

Another option is to practice what is usually referred to as “gratitude journaling”. Sonja Lyubomirsky talks extensively about this technique in her book, “The how of happiness”.

The How of Happiness: A New Approach to Getting the Life You Want
Learn how to achieve the happiness you deserve”A guide to sustaining your newfound contentment.” —Psychology TodayYou…www.amazon.com

It entails taking two minutes out of your day (or week) to write down 3 things you’re thankful for. It can be anything. It can be as mundane as catching the bus on time or as significant as getting promoted at work or as pivotal as getting engaged. The key to this exercise is to regularly consider all the things you’re thankful for and consciously become a more grateful person.

I’ve known about this method for years. Yet somehow, this spiritual, new age approach never resonated with me. I would imagine people sitting in a circle, humming, holding their energy crystals with one hand and writing in their journals made of recycled fabrics with the other.

If the above doesn’t appeal to you, feel free to drop all the spiritual moonshine and concentrate on the psychological benefits. The root act is simple. Think about what you’re thankful for; be grateful, write it down. Repeat tomorrow.

Will purchasing a home help or hurt financial independence?

Mon, 23 Jul 2018 22:10:18 GMT

When I first discovered financial independence (FI or Effai), life was simple. I could plug in a few numbers into an online calculator and get a rough idea of when I could “retire”. After all, the principal is very simple. Mark your expenses on a graph. It should be a horizontal line with a slight upward slope to account for inflation. Plot your expected passive income each year. It should be a line with a steeper upward slope. Once those two lines intersect, congratulations, you are financially independent.

Figuring out your expenses is simple. Take your income. Subtract your savings. Whatever is left is your expenses.

How about your passive income? That’s easy as well. Take your net worth — all money you have invested. Apply the 4% rule (I have yet to write about it. You can Google it for now. In short, you can consider 4% of your net worth as passive income for the year). Done.

That’s all fine and dandy while you are living in your mom’s basement like I did. At some point though, you are likely to get your own place that comes with a mortgage and its own set of responsibilities. That’s when things get tricky. The fundamental idea doesn’t change. You still need to wait for the expenses curve to intersect with the passive income curve. The complexity is identifying those expenses.

While building Effai.me I had to think long and hard about it because I just bought my own house. I was trying to see what kind of an effect it would have on my Effai date. After combing through the interwebs and researching through the available literature, the answer was… it depends. It depends on what you want to do. Turns out, you have three choices.

Sell your house. Assuming the price of the house increases over time, you may find yourself at a point where selling your house could net you a big pile of money. That could significantly shorten your time to Effai. Once you sell it, the passive income you could generate would skyrocket.

How would you know if this is a good option for you? It’s a little more involved. You have to know several things.

Your mortgage payments
Your home maintenance cost
Your property tax

The sum of the three above is your housing cost. In addition, you’d need to know your new rental costs. That’s just one more number.

The cost to rent something equivalent.

When you sell, you bring your housing cost down to zero but introduce a new expense — rental costs. The two expenses are likely in the same ballpark and mostly cancel each other out. Selling your house and renting is usually your fastest way to Effai.

Of course, most people wouldn’t dream of ever going back to renting. After all, they’ve “left college years ago”. In that case, you are left with two other options.

Pay off your mortgage. In a way, this is a mirror image of selling your house. Instead of putting money to work for you, you decide to reduce your expenses. This strategy will eliminate your monthly mortgage payment (Yay!!). However, you are still left with the maintenance bill and the always increasing property tax (Boo).

This could be a great strategy if you don’t have much debt left on your mortgage. A simple rule of thumb is this:

If the mortgage payoff amount cannot generate more passive income than your monthly mortgage payments, go ahead and pay off your mortgage.

Don’t (or never) pay off your mortgage. You probably saw this one coming. If the rule above does not hold, this is for you. You are likely to find yourself in this situation if you bought the house recently and you still have a large amount of debt left. In that case, it may be cheaper for you to just keep your expenses as they are — mortgage payments included — and have your money passively pay for those expenses. This is a temporary solution since at some point you’ll have so little debt left you may want to pay it off. However, in the interest of retiring as early as possible this is definitely a possibility.

You’ll be glad to know that Effai.me runs all three of these scenarios for you. It is very biased towards retiring early. I hope the above made sense. Don’t hesitate to reach out if you need some clarifications.

Why do we leave retirement to the end?

Mon, 09 Jul 2018 03:17:58 GMT

I love spreading early retirement propaganda. It is honestly one of my favorite past time activities. On the surface, it is a very simple concept. Save a bunch of money. Keep going until you supplement your living expenses. Conversation over, right? Wrong. Turns out, there’s a lot more to it.

I ended up having an interesting discussion recently with my colleagues Troy and Nina over beer (all good conversations involve beer). The question we deliberated was this:

Why do we leave retirement to the end?

If you’re in the traditional mindset of retiring at 65, this might seem like an odd question. How else would you have it? On the other hand, If you’ve discovered the wonderful world of financial independence, it’s a perfectly fair question. Why do we leave it to the end?

The end can certainly be very long. You can stay retired for 60 years. But it still comes after continuous chunk of work.

So what’s the alternative? One option is to take 6 months off right now. Do your thing. Then come back and work some more.

This actually has a great benefit. You get to discover what it’s like to be financially independent without having to wait for years for your savings to accumulate. It’s like shopping at Costco without membership. Fantastic!

The first time I heard about this concept was back around 2011 when I read Tim Ferriss’s 4 hour work week. In the book he talks about having mini retirements throughout your working life. I thought the idea was profound. It definitely changed the way I viewed retirement.

The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich
The New York Times bestselling author of The 4-Hour Body shows readers how to live more and work less, now with more…www.amazon.com

Except there’s a problem. Lunches aren’t free. In this case, it’s your TTF (Time To Financial independence). If you are taking time off work to travel and “find yourself”, you’re not earning any money. If you’re doing it for 6 months, you just set yourself back by 6 months.

It gets worse. Since you are unable to perform photosynthesis, you also end up spending money. Your TTF moves back by an additional number of months it would take you to save what you’ve just spent. It can be summarized as follows:

Your TTF moves forward by the amount you save and moves back by the amount you earn.

You save less than 100% of what you earn. Hence, it will take you longer to make up the hole in your savings than the time you took off.

There’s a second downside to the concept of mini-retirements. People seeking financial independence (effai seekers) tend to fall in one of two (or both) camps.

You are looking for **freedom **— expressed as autonomy from the work schedules.
You are looking for **security **— expressed as autonomy from the business cycle.

Mini-retirements address the freedom part at the expense of security part.

Imagine you’re a technology worker in 1999. You decide you’re burned out. You’d like to take 6 months off and travel to Thailand. Great! except when you come back, there’s no job waiting for you. It’s likely you won’t have another one for a while. Once you do get one, it’s going to be half the salary.

None of this means you can’t be financially independent but recessions and economic downturns are things most people want to avoid. One such way is financial independence.

Does this mean my professional opinion is that mini-retirements are a bad idea? Absolutely not.

You could mitigate the downsides by taking less time off. 3 months might suffice to find who you really are. The damage to your TTF is eased and your employer might even agree to keep your position open for you. Just be aware of the risks. I have been always too scared to take the time off.

Who the hell needs 140 billion dollars?

Tue, 19 Jun 2018 05:21:36 GMT

Photo by Marco Xu on Unsplash

First, a quick primer: Jeff Bezos, the CEO of Amazon, is currently the richest man in the world — and by a wide margin. As of the latest Google search, his net worth exceeds $140 billion dollars. That’s billion with a ‘B’.

I was chatting with my neighbour Esther the other day about her upcoming move to Portland. Turns out the hot housing market in Seattle created irresistible conditions for a post-retirement, single woman to move to a cheaper cost of living area. As a side benefit, she will also be much closer to her kids. While I’m sad to see her go, I can’t help but feel excited about what that means for the value of my own house across the street. That feeling really makes up for her loss.

If you live in Seattle, and you’re not talking about the housing market, the next natural topic to bring up is the homeless situation which we turned to next. We both noticed a significant uptick in homelessness around the neighbourhood. We both agreed that it is being mishandled and something must be done. She even suggested Jeff Bezos, the CEO of Amazon, should do something about it. After all, “He’s got $100 billion dollars. Who needs that kind of money?”.

Wait a second …

“Who needs that kind of money?”

Now I have a problem with that. Don’t get me wrong. I don’t disagree that $100 (now $140) billion dollars is an absurd amount of money to have. I don’t disagree that he is probably financially independent; that he could retire early; that he doesn’t need to worry about skyrocketing health care costs and a single day fluctuation in his net worth is more money than I’ll see in a life time.

What I do disagree with is the following: Since when are we in the business of deciding who’s had enough?

There is a multitude of reasons why the statement above is wrong — both politically, economically and morally. Many of which are out of scope for this article. I do want to focus on one in particular though.

Jeff Bezos started a company. He created a great product. Millions of people are using it everyday. He revolutionized many industries. He created thousands of jobs. The money is his reward. Is the reward large? yes. But so is his impact. We are talking about an $800 billion dollar company.

Was there any coercion? Did anyone force us to hand over our hard earned money to him? Did he do anything illegal? Did you truly love Barnes & Noble?

No. In fact, we did it all out of our own free will.

Would it be great if Jeff decided to shower the city of Seattle with hundred dollar bills until the entire homeless population and all our city representatives are living in luxury?

Yes, that would be great. If so he chooses.

One of the great things about living in a free society is the freedom to choose. Jeff can decide to spend his money any way he wants to. You may have even seen the following tweet:

A path towards a free society must be a path that let’s the individual direct their own destiny. The opposite leads down a very dark road.

Proposal: dropping in on people is not the worst thing ever

Mon, 04 Jun 2018 15:56:26 GMT

Photo by +Simple on Unsplash

Whenever one of our friends is hosting a gathering or a party in their house, I am always amazed by how organized and clean their house is. Everything is attentively dusted and meticulously arranged. The sink is empty of all dishes. The oven is pre-heating that delicious pot roast. And of course, there’s figs and pistachios neatly laid out in beautiful bowls on the dining table to tie us over until dinner is served.

In turn, when we invite those friends over, there’s a certain level of underlying obligation to live up to those expectations. If our friends had figs and pistachios, we must have cranberries and walnuts ready for them. If they had a perfectly arranged kitchen cabinet, we must do the same. We certainly cannot afford to wear our comfortable home clothes — we must dress up.

Of course, this friendly race to outdo each other does not come for free. It actually takes a heavy toll on us. We cannot simply allow to have people over. We must clear up our entire day to do all the cleaning and cooking and shopping and planning. It’s exhausting. Hosting people turned from being a pleasurable bonding activity to a major inconvenience. We end up thinking twice before inviting anyone.

Here’s what I propose (technically it’s my wife’s idea. Giving credit where it’s due): I propose that we stop putting up these facades to hide behind. We all know that everyone’s houses are a mess when no one is looking. We all know that your fridge isn’t always stocked full of goodies just ready to eat. And you know what? That’s okay.

This idea makes most millennial aged individuals very nervous for two reasons.

It will expose things that no one knows about them expect their spouse. However, we don’t have to make it extreme. Take for example the 30 minute warning approach: If you’ll be in the neighborhood, call your potential host 30 minutes ahead of your arrival. That gives them just enough time to pick up their socks off the floor and close the bedroom door.
As a guest, you also tend to feel awkward about dropping in suddenly. What if they are busy? What if they don’t want to see me? What if ….? I think this reluctance stems from years of being accustomed to all these obligations when you are hosting. In turn, when other people are hosting, you don’t want to impose. These feelings are perfectly reasonable but we must break out of the cycle of doubt.

Implementing this approach in our day to day lives is easy. All we have to do is tell each other that it’s okay. It’s okay to just drop by.

Naturally, when adopting this, there are three caveats I must mention:

Make sure your host is home (duh).
Make sure your host is free. If they are busy, don’t assume it’s an attack on your character. They just have things to do.
Know your limits. The idea is not to spend your entire Saturday at someone’s house.

The idea is inspired by observing my own parents and their huge circle of friends. They constantly seem to have people over but they are never particularly stressed out about it. It’s not uncommon to have 3 different sets of people show up throughout the day. They are usually served a cup of tea and whatever they can find available in the fridge.

This is sort of how I imagine people living in those small European towns in Greece where everyone is old and happy and all they do is socialize. I want to be old and happy too!

Surprising unintended consequences of Airbnb hosting

Sun, 20 May 2018 20:26:12 GMT

Photo by Ben White on Unsplash

We’ve been hosting on Airbnb for a full week now. However, my perfectionist wife has been setting up the room for a month prior to that. The possibility of someone giving us a three star rating is just too much to bear. Thankfully, we’ve been getting only five star ratings so far.

To ensure the five star rating keeps coming, we’ve had to go through each corner of the basement and clear it out, rearrange the furniture and fix any outstanding nagging maintenance issues. As a result, we’ve taken several trunk-loads of stuff straight to Goodwill — mostly random junk that was packed away in the basement, forgotten about and collecting dust.

The basement was also the place where our TV lived. We do not have another one upstairs. It is also the place where I kept my clothes. My wife graciously allowed me to keep my stuff in the basement while she took over the bedroom closet. It incorporated my own private bathroom as well. We’ve never had to worry where to keep my shaving paraphernalia versus her hair products.

Since we’ve started renting the basement, things had to change. We’ve shifted from having 1600 square feet to 900. My clothes moved upstairs. We’ve had to isolate a small corner in the closet for me. The bathrooms were unified (it is going through a clean up process as I am writing this). There’s also no more television.

Essentially, we’ve forced ourselves into adopting a certain level of minimalism.

Minimalism was never the intention when considering Airbnb. Instead, I was always thinking about our TTF (time to financial independence). That’s because Airbnb is the classic example of passivish income (I made that up). Your existing asset (the house) is doing most of the heavy lifting. You just need to remember to pay the bills. The more you automate, the more passive it becomes.

One glance around here and you’ll know right away that I am a huge fan of minimalism and intentional living. That’s why it came to me as a very unexpected yet pleasant surprise when I realized I am forced to downsize substantially.

Before you jump to conclusions, this is not some personality disorder or twisted reasoning. I am not actively trying to induce self-harm. This is a very conscious decision. Ponder this idea of happiness through subtraction for example to see where I’m coming from. If you’re still not convinced, that’s fine. I’ll have a lot more to say about minimalism in the future.

In the mean time, for anyone thinking about their TTF, you should know there are some unintended consequences to Airbnb that go well beyond the money; intentional minimalism happens to be one of them.

A penny saved is a penny earned. Not really.

Fri, 04 May 2018 17:02:00 GMT

Photo by Jonathan Brinkhorst on Unsplash

Is there really a difference between spending less and earning more? Of course there is. In one scenario you get to drive a brand new SUV to work with shiny new rims and an obnoxiously loud exhaust pipe, and the other you’re po’. I don’t think I need to explain which one is which. No one would dispute this.

However 😃, there is one important assumption we made. The assumption is that being po’ (that’s short for “poor” if someone is unclear) is bad and driving an SUV is good. In other words, we are talking about a basic, familiar consumer lifestyle. That is probably a fine assumption. Nonetheless, what if you’re an effai seeker? Apparently it’s all the rage with millennials. You’d have to reconsider those assumptions.

The reason for this is very simple. If you are seeking effai, your goal isn’t to burn through as many resources as possible during your lifetime. Your goal is to get a minimum amount of resources you need — and as early as possible. That’s quite a different form of consumption.

So what gets you there sooner? By being “poor” you end up spending less money.

Spending less money means you require less money to live on.

Requiring less money to live on means you can save it up faster. That’s pretty simple math.

With this in mind, we can now return to the original question: Is a penny saved, as good as a penny earned? The answer to that is absolutely not. It’s far better.

Let’s take Hank and Lenny as an example (I have debated this with my friend Hank many times although I am somewhat misrepresenting his stance). For convenience, let’s also assume they have roughly the same standard of living costing $60k annually (or $5k monthly). They also save the same $3k per month. At that rate, and with some reasonable assumptions, it would take them about 16 years to reach effai (you can check for yourself here). If they started at 20 and keeping life circumstances constant, they’d reach effai at 36.

Turns out though, that Hank is also a very hard worker and got promoted recently. He also got a nice pay bump to go along with a fancier title and is now able to save an extra $1k a month. In other words, he is socking away $4k monthly instead of $3k. That brings his Time To eFfai (TTF 😃) down to 13.7 years from 16 — a savings of 2.3 years. Not bad!

Lenny on the other hand is a cheapskate. Instead of making more money, Lenny decided to cut his expenses by $1k (Let’s ignore the how for the sake of this article). What does that mean for Lenny? Since Lenny cut his expenses, he now lives on $4k a month instead of $5k. That puts effai 13 years away. That’s an additional 0.7 years sooner than Hank.

Additionally, since Lenny cut his expenses, by $1k without changing anything else, he just freed up $1k to put towards savings. Lenny is now able to also save $4k per month just like Hank. This makes effai only 11 years away — a full 5 years earlier then originally anticipated.

In short, each penny you save, from an effai view, actually has two roles. First, it’s a penny you don’t have to produce with your passive income anymore. Second, it’s a penny you can redirect towards savings — Increasing significantly your savings rate.

So, no, a penny saved is not a penny earned, it’s two!

There is actually one other way to look at all of this. I find this to be far more impressive to think about than 11 years versus 13.7 years. Consider instead how much less money you actually need. For example, let’s go back to Lenny. He went from spending $5k to $4k and increased his savings from $3k to $4k.

Now take the 4% rule. Oh? You’re not familiar with it? I realize that I haven’t written about it yet. I’ll summarize it super quickly for the sake of this article:

You can passively earn a dollar a month forever by intelligently investing $300.

Now take the 4% rule. By cutting $1k a month from what Lenny spends, Lenny does not need to intelligently invest $300k. In other words, Lenny just saved himself from saving $300k.

This gets a tiny bit better actually. You should never think of your retirement number in today’s dollars. You always have to take inflation into account. The $300k we just saved for Lenny is in today’s dollars. Since Lenny is retiring in 11 years — and with an inflation rate of 2%, Lenny shaved off a whopping $373k off his retirement number. Cha-ching.

My state of the art system to goal setting

Sun, 15 Apr 2018 02:06:20 GMT

Photo by Ian Schneider on Unsplash

I have yet to meet a person who was perfectly content with exactly who they were. Everyone is always trying to change something about themselves. The typical things includes the food they eat, the amount of exercise they get, how they spend their time and how they prioritize their lives. Turns out, change is harder than reading a blog online.

People are also creatures of habit. We all have our morning routines, our night routines, our commute to work routine and the web sites we visit on our lunch break routine. In fact, when we are put in new environments where executing our routines is hard, we generally tend to skip workouts and eat fried chicken for dinner.

I am going to share with you an approach that I use to form better habits. It is not fool proof. It does require some upfront investment. However, I believe it could work for almost any habit you are trying to form as long as you apply enough creativity. The system is very simple to apply. All you have to do is create a system. Yes, you read that right, the system is to create systems. Let me explain.

When I say “system”, I’m talking about a set of rules, or guidelines you use to guide your choices. The side effect of those rules should be that you execute your desired habit. Think of these rules as formalizing a contract with yourself. The contract has at least one rule: I can have as much [A] as I want. However, before I get [A], I must do [B]. This is what I call a personal contract.

The inspiration came from Dr. BJ Fogg, a researcher in behaviour design who had a great TED talk a few years back about this exact topic.

If you use an existing behaviour in your life, and you put the new, tiny behaviour after it, you can use the existing behaviour to be the trigger.

Nonetheless, over time, I noticed that simply defining the contract wasn’t always enough. Frequently, I couldn’t uphold the contract for long or I would completely forget about it. In fact, it was really a hit or miss — occasionally it would work really well but periodically it would completely fall apart.

More recently, I took a look at some personal contracts I was able to maintain for a long stretch and tried to boil it down to what made them different. I have identified four hallmarks of a good personal contract.

Automatic. If you can set this up for your desired habit, your job is practically done. For example, before I spend any money, I max out my 401k. I can automate this through my paycheque contributions. Done!

Unfortunately, it’s not easy to automate certain areas of your life. Exercising effectively requires you to be doing exercise. Calling your mom once a week requires you to talk (at least for now).

However, there’s a clear subset of bad habits that can be automated away. Anything digital will naturally fall here. Do you have bad browsing behaviour? Are you spending too much time on your Twitter/Facebook/YouTube ? There’s an app for that. Are you having trouble saving or budgeting? There’s a bank for that.

The advantage of automating bad habits away is you only have that upfront cost once but you reap the dividends indefinitely.

Breaks down barriers. One habit that I recently found to be absolutely effortless is the habit of eating a healthy lunch. In the past, I’ve tried cooking at home or buying out healthy lunches but inevitably you skip cooking for a few nights and end up ordering a large barbacoa burrito at Chipotle. You do it enough times and getting back to cooking regularly becomes more and more unlikely.

How many barriers can you identify with my past system? First, cooking at home is a pain in the ass. Second, when buying food outside, there are far too many temptations. Third, even if I manage to convince myself to buy a salad, in the back of my mind I’m always thinking it’s a bad a deal because I’ll stay hungry after that salad.

Here is my new approach: my current employer provides catered lunches every day. I made a personal contract with myself to eat a giant bowl of salad from the salad bar first. Once I’m finished with the bowl, I can have absolutely anything I want. There are no limits. This contract addresses all barriers I’ve had for eating a healthy lunch. I don’t have to cook anything; I am not tempted by anything else since choices are limited; and I am not getting a bad deal because I can have anything I want afterwards. I just need to get through that bowl of salad first. As an added bonus, there’s very little I can eat once I’m done with the salad. I tend to be much more ambitious when hungry.

In general, try and identify all the little excuses you are giving yourself to stop doing what you really want to be doing. Once identified, try to design your life in a way that will break down those excuses in the most effortless way possible.

Other barriers usually include, distance, accessibility and ease of use. Watch out for these.

Sets the correct incentive. You know how we said before you get [A] you must do [B]? Make sure that whatever [A] is, it is motivating enough to act as a trigger. If you remember reading my commitments for 2018, you’ll recall that one of my commitments was to drink two cups of coffee a day. Unfortunately, I’ve noticed that as time goes on, I am creeping back to three cups. Each time I have it, I feel a little guilty but I reason that starting tomorrow I’ll be better. Instead of feeling guilt, I can turn this around and use it to my advantage.

I am a member of a gym located in the same building where I work. I am making the following personal contract: each time I feel like having a third cup of coffee, I must first hit the gym. The barriers to work out are exceedingly low and now I also have a great incentive to do the right thing (the fact that I made it public is a bonus).

You can generalize this approach as well. Essentially, you sacrifice one minor bad habit to enforce and carry out a major good habit by setting up the right incentives for yourself.

Consistent with the individual. Sometimes, despite all the automation, best intentions, lowest barriers, and most enticing incentives, you still fail at your habit building; and that’s okay.

Coming up with these systems is an iterative process. You will always be tinkering with them. Always trying something new. Always looking for a better way of doing things. You’ll never get it just right the very first time.

The key is to keep trying new ways of doing things and experimenting with what works for you. For example, a cup of coffee might be enough to motivate me to go to the gym. You might want a new pair of sneakers instead. If that’s your barrier, don’t bother with my system. It won’t work for you.

When I come up with great systems that work for me, I am always very proud and happy to share — just wait until I write my post about budgeting.

Let me know if you have a system you are particularly proud of. I am always looking to tweak mine and share with others.

This is where I see myself in five years

Thu, 05 Apr 2018 06:21:10 GMT

Photo by Benjamin Davies on Unsplash

A couple of weeks ago I was having lunch with my friends Zack and Nina. I can’t remember exactly what we were discussing but it must have been something interesting. It usually is. Suddenly, Zack asks me the following question:

Where do you see yourself in five years?

I haven’t been to an interview in a long time so I was caught off guard. I didn’t have a good enough, well rehearsed and politically correct answer to give. Then again, I wasn’t being actually interviewed for a job so I told him the honest truth. The truth is, I think that planning five years ahead is pointless if not counterproductive. I am sure that every lifestyle/productivity guru on the internet is having a meltdown right now. However, let me explain.

Presumably, setting a long term goal means the outcome is important to you. It is probably something that will make you happy and make you feel like a more accomplished person. Or will it? We’ve talked about this before. What you think will make you happy doesn’t always make you happy. You just may end up on the hamster wheel chasing the next goal.

More importantly, the goals that you set for yourself today might not even be applicable five years from now. Let me give you a concrete example. I’ll steal this one from Nina because it works out perfectly. She mentioned that one of her friends has five year goal to open up her own brewery. That sounds really fun right? However, how sure is this friend that brewing beer is what she really wants to do? Five years from now, her priorities could change completely. Has she spent enough time brewing beer for herself? Is she sure that running her own business is something that she wants?

Another mistake a lot of people make when setting their long term goals is making goals that are outside of their control. For example, you can set a goal for yourself to get married. Is that a good goal? I don’t think so. Yes, one way to hand over more control to yourself is to lower your expectations but I don’t think that’s what you had in mind when committing to this five years earlier.

So far I’ve just been warming up. Sure, all of the above is true, but the real reason five year goals are pointless is much simpler. The unpredictability of life makes it so. For example, five years ago I was happily living in Canada when all of a sudden I got an opportunity to work at a much fancier company for much fancier pay. All my five year plans had to be abandoned (if I had any). Two days ago my wife came back from Portugal and is convinced life is better over there. What’s my five year plan now?

I can hear all the detractors from my couch grumbling under their breath about how I just don’t understand the goal setting process. It doesn’t have to be this specific or set in stone. That’s true! However, how generic are you thinking? The reality is that once you make it somewhat generic, everyone wants roughly the same. Everyone wants to be healthier, stronger, better looking with a devoted spouse and a killer job. So what? How are you getting there? The devil is in the details.

I am not here just to be a complainypants. I also like to propose solutions. So here it goes: Do whatever you do to set your five year goal but set it for only one year ahead. Do this every year. At the end of the year, reevaluate and readjust. A year is generally enough to set substantial but achievable goals. At the same time, when things change — either your surrounding or your opinions — you have plenty of opportunity to reevaluate what you value and where you’re heading.

You can experiment with shorter periods of time as well, however, I suspect that if you do this too frequently, you won’t be giving yourself enough time to complete the goal. At the same time, you’ll be giving yourself a lot of opportunities to quit. One year seems like a good balance between some level of accountability and flexibility.

The key to make this recurring one year goal work is the reevaluation part of the process. Each year, you must check back on the goals you set for yourself in the beginning of year and evaluate your performance. Furthermore, reevaluate if you want to continue with this goal. Finally, and most importantly, step up the difficulty level of the goal.

I think of this as “managed personal growth”. Open source portfolio of 2018 should be better in every way than Open source portfolio of 2017. If not, Open source portfolio wasted 2017. The only way I would know this is if I was accountable to my goals.

Here’s my self grading for 2017

Here’s my goals for 2018

A nice and unexpected benefit from this system is that in 2022 I’ll get to see my 2017 goals and have a good laugh at how little I expected of myself.

HSA: a friend on the road to financial freedom

Wed, 28 Mar 2018 04:25:33 GMT

Don’t forget to exercise — Photo by Bruno Nascimento on Unsplash

For this week’s post, I decided to step back from our discussions on happiness and talk about something actually important — saving money.

A few weeks back I wrote the wildly popular article “Most money you can earn without paying a dime in tax”. We talked about all the different programs Uncle Sam offers to reduce our tax bill at the end of the year. There’s the traditional ones we hear about all the time like 401k’s and IRA. There’s a mention of a few less common ones as well. I encourage you to read it if you haven’t yet.

However, one of the most controversial options I mentioned was the Health Savings Account — also known as the HSA. Turns out, some people are not aware of all the super powers of the HSA and in turn ended up paying unnecessary taxes to the government. Thus; I’ve decided to break it down for you in a digestible way.

First, let’s talk about what HSA is used for. HSA is a savings account (I bet you didn’t see that coming) that allows you to save money for medical purposes. Each dollar that you set aside in an HSA is tax free. The money in the account can be invested in the stock market and grow tax free. Once you have a medical expense, the money can be withdrawn from the account, once again, tax free. You get the idea. One caveat is that HSA is only available for high deductible health plans.

Of course, the government cannot allow you to put every single penny you earn towards medical expenses. There is a limit of $3,450 per person or $6,900 for a couple per year. That’s 2018 numbers.

Here’s a quick example of how it would work. Assume your household income for 2018 is $100,000. If you were to max out your HSA for you and your spouse, the government would tax you on $93,100 instead of the entire $100,000. That’s a free, ~$1500 you don’t have to pay in taxes!

Aside from federal income tax, there’s a few other taxes snuck into your pay stub. Two of them are social security and medicare — affectionately known as FICA. Together they add up to 7.65% of your income. Turns out, unlike all other retirement accounts available to you, HSA is the only one that is exempt from paying FICA taxes too. That’s another ~$500 in your deep pockets.

That’s just the beginning though. Once you’ve set aside the money in your HSA, the most powerful force in the universe takes over — compound interest. That’s because each dollar you’ve set aside can be invested and grow tax free. Naturally, as a FI (financial independence) pursuer, you’d invest it in a diversified index fund of stocks*. Over time, the growth alone could dominate any further contributions.

Let’s also address the elephant in the room. What do you do if you don’t need to spend all this money on health care? What if you’re healthy? Once again, you’re in luck. Aside from being healthy, once you hit 65, all the money saved up in your HSA can be used for anything penalty free. You heard that right; anything. Taxation is also simple. It is treated like regular income. In essence, your HSA becomes a traditional IRA. One exception is if HSA is used for medical purposes. In that case, withdrawals are still tax free.

This beast of Roth and Traditional IRA blended and fused together sounds like a great deal, doesn’t it? Should you then go ahead and switch your health plan at work to a high deductible plan as soon as possible? Probably.

However, there is one notable exception. If you tend to have high medical bills throughout the year, it doesn’t make much sense to switch to a higher deductible health plan. You could be better off forgoing the tax savings and letting the employer subsidize your health costs instead.

Also, keep in mind that some generous employers contribute to your HSA as well. It does count against your overall limit but free money is free money.

Finally, there’s always going to be a subset of people who are terrified of exposing themselves to a little bit more risk through the high deductible health plan. I suggest that you read my article addressing insurance in general appropriately named “what to insure”. To summarize it in one sentence, I’d say, don’t worry about it if you can afford it.

*I need to write something an article, or more likely a series about stock investing for the FI pursuer.

None of the reasons you said justify a whiteboard interview.

Thu, 22 Mar 2018 04:46:31 GMT

None of the reasons you said justify a whiteboard interview. In fact, all the positive reasons can be accomplished on a laptop in a “real world scenario”. Putting someone on the spot is the most counter productive way to judge a candidate.

Happiness: our want system vs like system

Tue, 06 Mar 2018 06:01:46 GMT

Photo by Austin Schmid on Unsplash

There is a whole section on Amazon — or if you’re like me, your local book store — for “self-help”. That’s the section I like to visit. There, you’ll find books like “You are a bad ass” and “The subtle art of not giving a fuck” trending at the top, telling you how to live a better life. An appealing proposition in my opinion. Moreover, as we’ve discussed before, reading daily is a must.

One of the subjects I like most under “self-help” is the subject of happiness. It always intrigued me. If someone figured out how to eliminate heartache and sadness and live in a constant euphoria, I want to know! Turns out, it’s an active topic of research with lot’s of published data.

Now, I’ve always felt like I had a good natural intuition for happiness. Somehow, the idea of spending on fancy vacations or luxurious experiences never resonated with me quite the same way. I knew that inherently, spending my way to bliss wasn’t going to work; or at the very least, it was going to be very expensive. You can imagine how happy I was when science seemed to agree with me.

Happiness
Happiness has 525 ratings and 40 reviews. Das said: One of the most reliable findings in studies of well being is that…www.goodreads.com

I just finished reading “Happiness, the science behind your smile”. It is another book reciting more or less what I already knew from other books on the subject. However, It also had a surprising number of insightful observations I never heard before. One of the insights was regarding our “want system” vs our “like system”.

What is a “want system” you ask? Great question. Let’s break it down.

Turns out, things that we want in life, like fancy cars, big houses and so forth, do not always make us happier. If we could somehow measure our present life satisfaction, then go out and buy a new car, several months later, our life satisfaction would be more or less the same. The sciency term for that is hedonic adaptation. In fact, the single best predictor of your life satisfaction a decade from now is not your job, education, house or marital status. It is your life satisfaction today.

In a similar fashion, we have a “like system”. That refers to those things in life that make us happy (things we like). Health, freedom, and respect are all qualities that seem to raise our life satisfaction. Yet, there are plenty of cases when we are working actively against reaching these qualities. For example, everyone knows they should exercise and eat healthy to maintain their health. However, the only time people are motivated enough to eat healthy is a month before a beach vacation.

It follows that these two systems are

Distinct
Could potentially send opposing signals

A perfect example of this would be volunteering. People that volunteer their time for causes they care about deeply report being happier. Yet there are millions of people everyday who come home and play Xbox (Not sure if Xbox players report being happier).

From an evolutionary perspective, this makes perfect sense. Evolution doesn’t give two hoots about your happiness. Evolution needs you to propagate your genes. Therefore; adapting to your current situation and constantly striving for the next great thing is completely natural. That explains why it’s so hard to be happy with what you have. You’re simply not designed to.

That’s not to say that the two systems will always mislead you and diverge. There are many cases when the two systems align. For example, socializing. Our “want system” generally agrees with our “like system”. We tend to want to go out and meet our friends and we seem to enjoy our time when we do.

Another example is marriage. Married people report higher life satisfaction than their single counterparts. That makes sense. Who wants to be alone forever? Of course, it’s also possible that happier people tend to get married more frequently simply because they are more pleasant; an attribution bias 😕.

So what can you do with this information? I think this can be seen as another framework for making decisions. You evaluate the decision based on what system it appeals to. If it appeals to both, great! Easy win. Continue with what you were doing. If it appeals to one but not the other, maybe it’s a time to step back and re-evaluate. Do you really need to purchase that new iPhone? Should you call your mother or finish reading that article on CNN?

Or you can always donate all your worldly possessions and go live in a forest 🌲.

The real reason economic progress hasn’t lowered work hours more

Tue, 27 Feb 2018 17:58:44 GMT

Assume for a moment that you’re running a small business manufacturing pins and exporting it to the rest of the world. If you are working the standard North American schedule, it would translate to 40 hours a week or 8 hours a day. Now imagine that through some innovation on your part, you are now able to produce the same number of pins at half the time. To satisfy the same demand you can now work only 4 hours a day and enjoy an additional 4 hours of leisure. Straightforward math so far.

Let’s take this a step further. This time, you’ve automated the process further and you can now produce the same number of pins at a quarter of the previous time. By the same math, now you can work an hour a day and enjoy 7 hours of additional leisure. This is essentially the reality for our productivity curve between 1950’s and today. We are far more productive today by every measure. However, the number of hours we work hasn’t budged.

The above was a prediction by a famous economist, John Maynard Keynes, in 1930. The video is a lecture by a professor in Economics trying to answer why this prediction did not materialize. The lecture is very insightful and brings up many interesting statistics about work, prosperity and well being broken down by gender, age and race. However, his main reason as to why the number of hours we work hasn’t decreased despite much progress in productivity is our love for work and money.

Although he presents good evidence to support his case, I believe there are a couple of other reasons we are working the same 40 hour weeks as we did in the 50’s that he overlooked. I would also argue that these reasons are equally important if not more so.

The system isn’t conductive to less hours. Let’s go back to our pin maker from before. If the pin maker decided to lay back and enjoy the additional 7 hours of leisure, what do you think would happen? All of her competitors would eventually figure out the same new, faster method of production and flood the market with pins since they can now produce more — each trying to wrestle away market share. In turn, that would push prices down and our (lazy) pin maker would quickly go out of business. This is the basis of capitalism.

We can thank our high standard of living to this phenomena. It brought us many innovations by aligning incentives and pushed billions of people out of poverty all around the world. It does this by rewarding work and innovation but penalizing complacency.

However, there are certainly few employers out there that have toyed with the idea of lowering work hours. For example, back in 2016, Amazon considered introducing a 30 hour work week for some of their employees.

If we have employers that are open to this idea, why don’t the employees rise up and demand lower work hours? Do we love money this much? I think there’s another more subtle reason that is driving it beyond greed.

Most people haven’t discovered their purpose. If you ever needed to describe your purpose in life, could you? Not the purpose of life, that’s also beyond the scope of this article. Your purpose in life is what you’d like to achieve or do. If you can’t, that’s okay. Few people can.

Once you free up those 7 hours of leisure time, you must have a way to fill them up with some leisure activities. If you don’t have a purpose, it’s hard to come up with things to do unless traveling the world for 40 years sounds like a good idea to you; and there’s certainly people who think so.

I’ve encountered this a lot when I talk to people about financial independence (FI or effai 😃). The question of what I would do with all that free time immediately comes up. This question sometimes stems from curiosity and other times to ridicule the idea (read this article for my thoughts on this behaviour). I’ve spoken to countless people about FI but only a handful ever considered what they would do if they had more time.

That’s why a job is usually the de facto source of purpose and the main occupier of time for most people. Once it’s taken away, people may feel lost. That’s also why early retirees seem to die earlier.

Of course, I wouldn’t even be considering FI if I believed dying early was an inevitable fact and no amount of salad eating could save me. Nor would I ever recommend it to anyone else. I believe that anyone who is working towards FI the traditional way — that is, by saving hard — must at some point consider their purpose. Otherwise they could not maintain the motivation to save so much for 15 plus years. That’s a tiny minority of people though.

Hence the result. Still working 100% of the time while creating 800% the product instead of working 1/8th of the time while producing 100% of the product.

Most money you can earn without paying a dime in tax

Tue, 20 Feb 2018 03:57:02 GMT

Every year, around February or March, I start dreading checking the mail. I dread it because it’s that special time of the year. It’s the time you have to gather all those illegible slips you received from your employer and enter them in to some half baked software online. As you go through the process, the dollar amount you owe/receive will swing wildly making you break into a sweaty mess. All of this is coupled with a stack of indecipherable rules handed down to you from some government entity responsible for the tax collection.

The entire mess with all the pre-tax and post-tax deductions, itemization, credits, and exemptions makes it incomprehensible if all you want to do is “pay your fair share”. Additionally, once a tax break is given, it’s very hard to take it back. Thus; we end up with 80,000 pages of IRS lawyer talk.

Wouldn’t it be great if at least you could take advantage of all these rules?

That’s why, I’m going to explore here the following question: What is the maximum amount you can earn without paying any federal tax?

To keep this manageable, I will make a few assumptions. First, you’re filing as a married couple. This is purely out of convenience for me since that’s how I file. If you are filing as a single person, most of the time you can just divide the number in half. Additionally, there is a pile of rules I’ll ignore for convenience. They either don’t apply to the vast majority of people or are insignificant for the bottom line. Also, I will ignore Medicaid and Social security taxes. Finally, I will ignore any possible employer contributions or matches into your retirement accounts.

Let’s start by defining a few terms.

Pre-tax (or traditional) — A type of deduction for which you don’t have to pay tax upfront.

Post-tax (or roth) — A type of deduction for which you do pay tax upfront.

**401(k) — **A retirement plan sponsored by your employer

**IRA — **A retirement plan that you pay for yourself.

**Standard deduction — **An amount every tax filer gets to deduct from their income to find their taxable income.

**Capital gains — **The tax applied on an investment

Everything beyond will assume a pre-tax or traditional deduction. Roth deductions are for suckers. We will explore that next.

Now that we got the jargon out of the way, let’s see how we can apply it. We can start with the easiest. The standard deduction. It is $24,000 for a couple for the year 2018. If your family unit is bringing $24,000 per year, the standard deduction would bring your taxable income down to $0. In turn, your taxes would be $0. Fantastic.

Next, you can contribute to a traditional IRA. The limits for traditional IRAs is $5500 per person or $11,000 per couple. Remember that a traditional IRA is a pre-tax deduction. Thus; you can earn an additional $11,000 per couple and pay $0 tax. We are now up to $35,000.

Similarly to IRA, you can also contribute to a traditional 401(k) program with your employer (if the employer is offering it). Each person has an IRS mandated limit of $18,500. Since you’re filing as a couple that gives you a total of $37,000 to deduct. Adding it to the above gives us a total of $72,000 tax free dollars.

There’s one more easy pre-tax deduction left. The health savings account (HSA). This is a great choice for individuals with low medical expenses. Some highly respectable online individuals even describe it as the ultimate savings account. For 2018, the limit for a couple is $6,900. Adding that in to our total gives us $78,900 tax free dollars.

In many cases, 401(k)’s and HSA’s come with a few more advantages. First, many employers are willing to match at least a part of your contributions. That usually amounts to a few thousand tax free dollars. Additionally, if you are 50 or older, 401(k)’s allow you to sock away another $6000 per individual. That’s another potential $12,000 to put away depending on your age.

Alright, we got all the obvious things out of the way. If you are not maximizing these, what are you waiting for?

Now let’s talk about the more esoteric options. First, there’s the 457(b). That’s a special program for government workers. If you are a teacher or a nurse or some other government worker you can usually participate in this plan. 457(b) plan has an interesting feature. Unlike other employer sponsored retirement plans, this option has a separate limit. That means you can contribute to both 401(k) and 457(b). Both also have the same limits. Therefore; if a couple works for the government, that’s an additional $37,000 that can be deducted. That would give you $115,900 tax free dollars if my math is correct.

Of course this is not the Soviet Union. We don’t all work for the government. However, there is one other interesting way to reduce your taxes. If you went through my list of terms above, you may remember “capital gains”; the tax applied on investments. The great thing about this tax is that under certain conditions, when your investment “qualifies”, this tax can be 0 percent. You heard that right. You’ll pay nothing. The requirements are also relatively moderate. The main requirement is that your investment must be held for at least a year.

Once your investment is “qualified”, as long as you manage to keep your total taxable income to under $77,200, you’ll actually owe nothing to the government. Taxable is bolded on purpose. Remember that through the power of IRA’s, 401(k)’s and HSA’s we were able to earn $78,900 tax free. That’s because, for the purpose of taxation, you’ve earned $0. Now, if you were to earn an additional $77,200 from capital gains, that would still be taxed at 0 percent due to capital gains taxes. Amazing!

So what’s the bottom line?

As a couple with a decent job, you can earn $78,900 and not pay a dime in taxes.

As a couple working for the state or federal government, you can earn $115,900 and not pay a dime in taxes.

As a couple working for the government and amassing an impressive portfolio, you can earn an astonishing $193,100 and not pay a dime in taxes.

As a couple above 50, working for the government and amassing an impressive portfolio, you can earn $205,100 and not pay a dime in taxes.

There’s a huge array of further deductions and credits you can look into to reduce your taxes further. If you prefer, you can think of it as increasing your taxable income while keeping your tax obligation at zero. For example, the child tax credit can give you up to $2000.

However, most of us are not working for the government and do not have a portfolio that can generate $80,000 in capital gains year after year. Yet we can still reduce are taxable income by almost $79,000. To put that in perspective, the median income of a married household in 2016 was roughly $87,000; a little more then you can deduct.

I’m a strong proponent of saving hard and saving fast. That’s why, I encourage everyone to participate in any government money give away that is available to them within the legal boundaries. Retirement savings programs are “use it or lose” it programs. Make sure you use it.

Why would anyone reject a good idea

Tue, 13 Feb 2018 18:09:48 GMT

Like any good Effai.me article, I’m going to call out of my friend publicly and then explain why he’s wrong. In this case, this honour falls on my good friend Nick. Nick is a great guy. He is super smart. He is always looking to grow as an individual. Most importantly, he is open minded. We also happen to share a lot of interest in the world of personal finance, minimalism and happiness.

Nick and I decided to grab a bite at a wonderful Mexican establishment in the city. We sat down, ordered our drinks and chatted about what we’ve been up to recently. Turns out, he’s been reading Mr. Money Mustache’s blog for the last couple of weeks and really likes it. He’s just got one concern. Apparently, “Mr. Money Mustache (Pete) is too extreme”.

Specifically, he was bothered by the idea that Pete hasn’t spent any money on clothing in an entire year (at least according to his budget). Pete’s choices of clothing revolved around free event t-shirts and some fashion advice from Costco. This did not resonate well with Nick. His look is much more sophisticated. Therefore; that idea of spending less on clothing was outright rejected.

I tried to reason with him. I told him that spending more on clothing won’t necessarily make him any happier (the happiness argument); that we tend to have piles of clothes we don’t know what to do with (the minimalism argument); that it’s a depreciating good we waste our money on but adds very little value (the money argument) and so on. Nothing worked. I just wasn’t getting through to him.

That left me wondering. How could a perfectly rational person not realize that not spending thousands of dollars a year on clothing is a perfectly legitimate way of living?

Of course, this article is not about a particular incident but an illustration of a much more common phenomena. It’s the phenomena of being presented with a perfectly valid argument for a great idea but failing to accept the (implied) conclusion. In other words, a great idea is rejected due to errors in judgment. So, after some deeper contemplation and inner examination I realized there are three distinct reasons someone could reject an idea.

The idea is too novice. You have probably experienced this before. Someone is giving you advice on a topic you are far more familiar with. The idea is rudimentary, which you’ve considered many times before and dismissed for good reasons. For example, if you’ve just learned the difference between a traditional and Roth 401k, don’t bother telling me about all the benefits of Roth. I’ve already considered them and chose to go with the traditional route.

It is not because your idea is bad or assumptions are wrong. In fact, it’s great that you took the time to learn the difference (most people don’t). It’s because I’ve done plenty of research on the topic and I’m comfortable with the concept. Roth is not a bad option. However, in many cases, the traditional route can be more advantageous. It’s a conscious decision.

The best part is that you know perfectly well when this is your reason for rejecting someone’s idea. You know it because you see the conclusion coming from a mile away. This is the best place to be since there is practically no risk that you are making a mistake. It is not a judgment error.

“Limiting beliefs” are stopping me from adopting this idea. I’ll be honest. I borrowed this phrase from Ramit Sethi but the idea stands! This is actually a very deep concept that requires it’s own article. However, for the sake of clarity I will summarize it as follows:

It is the silent beliefs carried with you that dictate your actions. These beliefs tell you what you can’t do.

It’s a very powerful concept and I encourage everyone to explore it further (or wait for a follow up article). To further illustrate this, imagine being overweight your entire life. Obtaining a muscular physique is likely out of the realm of possibilities; mostly because you don’t believe you can achieve it. The number of excuses can be endless. You can blame it on your genes; or your parents; or your hungry BFF. The common theme here is that you believe it’s out of your control. Therefore; a limiting belief and an a likely error in judgment.

The idea conflicts with my life choices. When this happens, you must toy with the possibility that there was an error in your perception of the world; possibly your entire adult life; and at the risk of facing some serious cognitive dissonance. A second option is to find any and every possible reason to explain why that particular idea cannot work for you in your particular circumstances. The second option is the road most often taken.

For instance, imagine we are talking about transportation and I am trying to convince you that you don’t need a car. I’ll tell you about all the wonderful environmental benefits of not owning a car; the cash you’ll save; the exercise you’ll get; the longer life you’ll enjoy. I’ll even present you with alternative modes of transportation you can use such as a bike or bus. I’ll even throw in the time you’ll free up to read just like you always wanted so you could be the person you always thought you should be.

What will your reaction be? If you’re considering this idea, You have two choices. Either you must admit to yourself that maybe you’re not that savvy, discerning, environmentally friendly consumer you’ve always thought you were. You must also admit that since you’ve started working, your commute was irrational. Alternatively, you can come up with every reason why that can’t possibly work for you. The bus is irregular and unreliable. The bike can get a flat and you don’t know how to fix it. You can’t be late to work and your Uber driver can get lost in your neighbourhood. Thus; you justify the status quo instead of facing the hard truth.

Keep in mind that it is distinctly different from a limiting belief. You are not rejecting the idea because of some “invisible script” running your life. You are rejecting the idea because its conclusion is too hard to bear.

What’s interesting about this error in judgement is how easy it is to identify it. All you have to do is look at your immediate reaction. Are you looking for a list of excuses as to why this won’t work for you? Is someone challenging your assumption and it’s making you uncomfortable? Welcome my friend. You’re experiencing cognitive dissonance and you might want to reconsider your stance.

I have definitely used all three reasons when rejecting great ideas. Now that I’ve identified them, I hope it will be easier for me (and you) to notice them and make better decisions.

If you’re wondering, I think my friend Nick was experiencing a conflict with his life choices. I’m sure he knows that spending thousands on clothing is not necessarily in his best interest. He also knows that money would be better spent buying an index fund. However, to admit that, he would also need to admit that he wasted thousands of dollars in the last 10 years. That would contradict his view of himself as a savvy consumer. Hence, it’s easier to argue that refraining from spending thousands on clothes is extreme. Of course, this is assuming that what Mr. Money Mustache does is a good idea.

addendum

Read the Tohidian for Nick’s rebuttal.

Why you should read daily

Fri, 02 Feb 2018 05:30:32 GMT

A book is the words, the ideas, mindset, advice and experience of another person wrapped into a convenient, portable, always available collection of papers.

This is one of my favourite videos on YouTube and I don’t think I could have expressed the idea any better myself. I highly recommend that you take those three and a half minutes of your hectic and extremely busy life to watch it. Of course, the quote above gives you a reasonable summary as well.

As an employee in most corporations, you’ve likely run into the idea of having a mentor at work. Someone who is senior to you, frequently older or more experienced. They are expected to share their knowledge with you to help you progress in your career. This is a wonderful system (at least in theory) since we can learn from past mistakes and seek advice from more accomplished colleagues.

It sounds great for those 40 hours a week you spend at work. What about the other 72 awake hours you have? How come we don’t seek out mentors for that larger portion of our lives? Of course, if you do, more power to you. I personally don’t know anyone who has successfully maintained such a relationship.

This brings me back to the video above. Since about the age of 20, I’ve been reading all sorts of non-fiction. I never had a good reason to. I just knew that I enjoyed it. Since watching the video, The idea of mentorship opened my eyes to much deeper reasoning. Here is why.

Each time you read a book, you get to pick a topic, any topic and learn from a world class expert in the field about all the lessons and mistakes they’ve encountered, in a concise and rigorous way. The book can usually be consumed in about 7–30 days. Rinse and repeat.

Books are the ideal kind of mentorship. Through the filter of time and amazon reviews, all the garbage will die out and you’ll be left with the gems. The topic is up to you. The depth of the topic is up to you. The quantity is also up to you. Finally, the schedule is up to you. No single human mentor can live up to that.

Feel free to follow me on GoodReads

The case against moderation

Sun, 28 Jan 2018 04:04:07 GMT

How many times has this happened to you? You’re sitting at a table with a group of friends discussing your weight loss goals. Your friend Nina wants to lose 10 pounds before her trip to Jamaica while your buddy Joseph is looking to fit into the jeans he wore last year. The topic of diet inevitably comes up. You are on that hipster low carb diet. Nina is on a strict low fat yogurt diet. Joseph is counting his calories and tracking them on MyFitnessPal.

Naturally, everyone starts sharing their theories about how to lose weight. “It’s calories in versus calories out” Joseph declares to the group. “No! pasta makes you fat” you counter. Then Nina drops the following bomb: “You just need to eat in moderation”. Boom. Case closed. We can all go home now.

What she meant by moderation

The idea of moderation can be applied to many issues in life but to keep things simple lets continue using diet as an example. What does one mean when they say moderation is key? In the case of diet, it means focusing on a single aspect of the diet is the wrong approach. If only you did not consume anything in excess, everything else would work itself out. Naturally.

Presumably, if you were eating a balanced diet of proteins, carbohydrates and fats, you wouldn’t need to worry about how much calories you’re burning or if carbohydrates make you gain weight. Your body would just handle it automatically. This is a very common advice and seems very sensible at first.

Problems with moderation

If the advice is sensible at first, what could be the problem? I can see at least three possible issues with it.

Moderation does not tell me what is moderate.

Let’s say someone is asking you what is an acceptable amount of alcohol to consume in a week. If you were to tell them to consume a moderate amount, it’s not clear at all when they’ve exceeded that moderation. Is it 2 beers a night or 2 beers a week? The difference is a factor of 7!

Another question is, moderate for what purpose? Are you trying to optimize for health, pregnancy or a 10 year old? In that case you may want to drink nilch beers. That’s vastly different from the advice you’d get from AHA for a 30 year old male in perfect physical form.

Generally, advising moderation is somewhere between useless and dead obvious.

Moderation as an escape hatch.

Occasionally, you’ll be speaking about topics that are relatively complicated. If there is a lot of nuances or a lot of uncertainty surrounding these nuances, the moderation card tends to come up frequently. It is used as a way to summarize any of the uncertainties as just go with your gut.

There’s more unanswered questions than what I’m comfortable discussing

For example, consider the topic of budgeting. Everyone has an opinion about how to budget, what to include in the budget and to what granularity. The longer you’ve been doing it, the more opinions you have. However, you’ll always find someone to tell you to spend in moderation. If you spend in moderation, you don’t need a budget.

Ask them if they’ve ever tried to budget to test if that statement is true. The answer is probably no.

Moderation implies normality. Normality may have shifted.

Another common implication of moderation is to not be too far away from society’s average. In other words,

Don’t do anything society would consider extreme

However, what society tends to think is extreme is just outside of what is normal; and normal isn’t always right. For example, you could ask me what is a reasonable amount to save. If I told you to save moderately or normally, it just means saving 0 — 10% of your salary depending on where we are in the business cycle in North America.

What if instead I told you to save 50% of your salary? That would be extreme right? Wrong! First, it wouldn’t be very far away from the historical savings rates and how much people in other societies save. Second, it would be great for your household in the long term. Sticking to the average is a losing proposition in this case. However, you can’t see that through the eyes of moderation.

I am not claiming that moderation has no place in good advice. It does. Sometimes. I am saying though that you shouldn’t allow vagueness, laziness and people’s fear of judgement affect the quality of advice you dish out and receive.

Hyper-specialization vs. Knowing stuff

Thu, 18 Jan 2018 22:14:32 GMT

Photo by Riki Ramdani on Unsplash

I am half way through Joel Salatin’s “Folks, this ain’t normal” and if it continues the way it’s been so far, I might have to add it to my most influential book list. The overall theme discusses how far we’ve disconnected from our food supply and how the current food system has become the new normal.

Folks, This Ain’t Normal: A Farmer’s Advice for Happier Hens, Healthier People, and a Better World
From farmer Joel Salatin’s point of view, life in the 21st century just ain’t normal. In FOLKS, THIS AIN’T NORMAL, he…www.amazon.com

Speaking of new norms, Joel mentions something called a “larder” which was quite common before refrigeration but fell out of favour in more modern times. To be honest, I’ve never heard of that term and had to turn to Google to help me decipher it. Clearly, the question of how people kept food before modern refrigerators didn’t come up in my mind very frequently.

If you are comfortable not knowing what a larder is because it’s an obsolete concept since the invention of the refrigerator, try to answer one of the following questions instead:

What is a carburetor in relation to a car?
What is the difference between a seed and a nut?
What would hurt more, 220 watts or 220 volts of electricity?
What is lactose in reference to lactose intolerance? Is it a protein or a carb or something else?
What part of the animal is a tenderloin. Follow up question, what animal is it?

I’ll be very surprised to find anyone born any time after 1980 who didn’t have to Google at least some of these [every day] concepts.

If you made it this far, you’re probably thinking one of two things.

The education system is dropping the ball on us. The world is going to shit.

Whatever. Who cares what a carburetor is anyway? I drive a Tesla.

I’d like to address each of these separately. First, if you agree that this knowledge is good to have, it’s very tempting to find a reason why we are missing it. Blaming it on some sort of institution is the easy way out. Unfortunately, I am not convinced it’s always an education problem.

For example, I didn’t know what a carburetor was because I never owned a car myself. I heard others talk about it because their car broke down and it was identified as a possible cause. However, unless you’re into cars or bikes, or you have some fascination with fixing motors, you probably didn’t know what a carburetor was either. It’s very possible you never even heard of this part.

There’s a good reason for that. It’s because of how we address problems. If smoke is coming out of the front hood of my car on the highway, instead of stopping by the side of the road, popping the hood and trying to identify the problem, I am going to pick up my phone and call a tow truck to take it to nearest mechanic. Once the work is complete, I’ll swipe my plastic and drive home. Transaction complete. Where was my opportunity to learn about the internals of an engine?

From an economic point of view, this is a great story. Imagine if this wasn’t the case. What if you didn’t have access to qualified people in different fields. Instead you had to learn how to do everything yourself. It becomes impossible to be a good mechanic, electrician, plumber, programmer and dietician at the same time. There just isn’t enough time (and skill). Through specialization, you are able to gain access to experts in many fields for an affordable price. The mechanic has mastery in her field so you don’t have to. You are now free to concentrate on enterprises that you are more productive in.

Of course it comes at a price. As our society becomes increasingly specialized, our breadth of knowledge becomes more narrow. This is natural since we are outsourcing so much of the “other” work to experts in their own fields. That’s why I don’t know much (anything) about electricity or plumbing but I know a thing or two about web development. You can take this to a not so unimaginable extreme where your average nuclear astrophysicist is unable to make herself breakfast because she doesn’t know how to boil an egg.

A second position one could take is that this information is useless anyway. A larder is useless because you have a fridge. A carburetor is useless because you have an electric car. Seeds and nuts are useless because you can always get your fruits from Costco and so on. This is also a flawed argument for a very similar reason.

It is unlikely that knowing the answer to any of the 5 questions posed earlier would directly impact your life in any way. It could, but it’s very unlikely. However, there’s a certain knowledge base that is significantly common within regular life. Things that come up frequently. This is a sign that you should be familiar with them. For example, it is likely that you were familiar with most, if not all the terms in the questions even if you were unable to answer them without Googling. That’s because volts and lactose are quite common in everyday life.

Once you spend enough time learning about the basics, life becomes easier. Changing a light switch in the house isn’t a big deal anymore. If the toilet isn’t flushing the way you’d like, no need to call a plumber. If you’re told you are eating a tenderloin, you don’t need to wonder if it’s white meat or dark meat. All sorts of options open up for you.

Another advantage to knowing your basics well is that others can’t feed you lies, or if they are trying, you have a good radar calibrated to detect just that. In a world where flexible truth prances around masquerading as facts on every corner, this is an incredibly helpful skill to have. For example, it would be much harder for a mechanic to over charge you if you had at least a basic understanding of what could be wrong.

By hyper-specializing in a certain space you are potentially robbing yourself of these opportunities. Why shouldn’t a web a developer know how to garden? For that matter, why shouldn’t a gardener know how a website works. This isn’t proprietary information and the lessons could be invaluable for all. I would personally love to pick my own tomatoes while I’m sure my gardener would love to update the pricing on his website without my involvement.

Elaborating more on Bitcoin value

Fri, 05 Jan 2018 06:21:55 GMT

Friends have been asking me for weeks about what I thought of this promising new investment opportunity. I promised them a blog post was coming and delivered it. Since then, I’ve done some more reading about the concept and would like to clarify a few stances.

Before I do any clarification, I just want to say that I think the idea is actually very interesting. It is modeled after gold and assumes certain positions on the economy and prosperity. The libertarian in me definitely likes where this is going.

One error that I made when reading about Bitcoin was the assumption that all transactions are completely anonymous. I was under the impression that you can transfer money between two consenting adults and the government cannot politely place their noses in your business and ask for a cut. However, that’s not the case.

Either way, the idea of modeling it like gold is very intriguing. Every so often, when a conversation turns to money, someone looking to sound smart will state some sort of an opinion about how today’s money is “fiat currency” backed by nothing but thin air and promises. In the good old days, we had the gold standard so each dollar was worth something.

As the video above points out around the 50 second mark, the gold standard does not mean that money is backed by anything either. Gold is just a convenient way of figuring out who owns what and who owes who. It is like a ledger where we write down all the transactions.

Gold isn’t valuable because we make jewellery out of it. It’s the other way around.

As it turns out, good forms of money (such as gold) have 5 properties.

**Scarcity — **Gold is pretty hard to find
Fungiability — Any gram of gold is equally valuable
Divisibility — You can subdivide gold into smaller pieces to pay for cheaper things.
**Durability — **Gold is a noble metal. Does not react under most extreme weather conditions.
**Transferability — **Exchanging gold coins is reasonably easy and been done for thousands of years.

Bitcoin meets all of the criteria above and some would argue exceeds these criteria relatively to gold. Does it mean it’s time to remortgage your house and go all in on Bitcoin mining like your Uber driver told you? Not quite. There’s 4 big problems that I see with the current state of crypto-currencies.

It’s not an investment. The view that Bitcoin is an investment seems to be the most dangerous to me although it’s a widely held belief. To be fair, it’s hard to argue with results. If you held Bitcoin from 2010 to today you’d be a Zillionaire. Naturally, the typical precautions apply. “Past performance do not guarantee future results”.

However, I’m mostly referring to the word “investment”. I don’t think it should be used in this case. The reason is that an investment implies some sort of return due to added value. For example, you invest in stocks because you get to own a company that presumably adds value over time. Added value leads to bigger profits. Bigger profits lead to dividends and as a share holder you have a claim on those dividends. Similarly, we invest in real estate because we count on the rental income. We provide the valuable service of shelter and to thank us, the renter hands us dollars.

Where is the value being added when you store your dollars in the form of Bitcoin? There’s none actually. It’s just a commodity like gold. You may argue that it’s a store of value. You can make an argument that it’s a hedge against inflation (assuming it ever stabilizes in price). But there’s definitely no added value there so it’s not an investment.

And it isn’t just semantics. Something that is not an investment but you still risk money on to make more money sounds a lot like a gamble. I think that if everyone treated it like a gamble, the results wouldn’t be nearly as exciting. The pundits on TV would have to quiet down and the small talk at dinner will have to shift back to real estate (because that’s what we did before Bitcoin).

Investors have no clue how it works. We were having a social gathering the other day. Once we were done talking about Trump for the night, the conversation obviously shifted to Bitcoin. Two of my friends wanted to know what I thought of the idea and if they should invest in it. We started talking about some fundamentals of money and investing when it dawned on me; I was standing next to two world class software engineers neither of whom understood how crypto-currencies worked. Neither did I. However, they were ready to put down thousands of dollars into this “investment”.

A week later I am chatting with another friend over coffee when he pulls out his phone to show me his portfolio. He has huge gains. Over 80% in just a month. Turns out he invested in 20 different crypto-currencies. However, when I asked him what percentage of the tech he understood, he admitted that it was roughly 0.5%. I appreciate the honesty but worried of the implications.

To be fair, this is anecdotal but I have a feeling it’s much more wide spread than many realize. Personally, I would never dream of investing in a company without ever knowing at least what they do and looking at some financial ratios. However, in this case, at least in some limited examples, it seems like the default approach is to buy now and figure it out later.

It’s actually not that useful. This reason is most up for debate but I think it’s also going to be the most influential. For a currency to be of any use, it must be widely accepted. Bitcoin isn’t quite there yet. Some would argue that it’s just a matter of time until it’s adopted. However, I’m wondering why? Why would anyone actually use it?

I see one use case for me. I would like to be able to transfer money internationally without paying a middle man. Some people may like to buy guns and blow on the black market. Outside of that, I’m not really sure why it would be adopted. It makes moving money marginally better but adds a lot of barriers that need to be overcome.

What I’m really saying, is that beyond the hyper paranoid consumer and the mafia Don, there’s very little added value to Bitcoin as a currency. Therefore; I must wonder why it would gain any traction as a currency versus more established ones like the USD. I’m thinking about your average consumer. The ones that make up 95% of the population.

It can easily be competed out of business. So there’s Bitcoin. There’s also Litecoin, Ethereum and Ripple. Three weeks ago, I introduced SuckerCoin. In fact, as of this writing, there’s thousands of different crypto-currencies you can trade. Crypto-currencies are built on public ideas and open source technologies. There’s very little competitive advantage any one currency has that another cannot just adopt.

Bitcoin does have the advantage that is the first and best known. However, that could easily be erased over time as others gain (or Bitcoin loses). One option companies use to maintain their competitive advantage is to lobby the government for regulations and licensing to keep competitors out. I have a hard time imagining the Bitcoin lobby passing that through congress though.

The result is that anyone can start their own crypto-currency. Some of them have even real advantages. For example, Bitcoin has a limitation on how many transactions it can process in a 10 minute block. That is addressed in other currencies. Some currencies don’t even bother with that. They just jump on the hype train. After all, a rising tied lifts all boats.

If Bitcoin, or any other crypto-currency has any chance of staying around for the long term, it must be the currency that is accepted everywhere. But with thousands of currencies, how would anyone make the right choice? Of course, you could imagine a world where everyone accepts all crypto-currencies. However, in that case, the whole scarcity idea (property #1) becomes … questionable.

Conclusion

I think that Bitcoin is a really cool idea. Getting central planning out of our money supply is a goal worth pursuing. Bitcoin should be thought of as version 1.0 of that idea. But just like all good software, we need to keep iterating over it.

Block-chain (the general idea behind all crypto-currencies) is great. I’m sure it will be widely adopted. Maybe even for our own financial system. Maybe by our governments. Who knows? However, I’m going to stick to the tried and true. I’m keeping my money in a well diversified passively managed index fund and I recommend you do the same. More on that later.

Commitments for 2018

Mon, 01 Jan 2018 19:49:42 GMT

As promised last year Tuesday, I am publishing my resolutions for 2018. It will follow a slightly modified style of my 2017 resolutions but will stick to the same principles as described in my favourite part of new year. One tweak that I’m attempting is to create a generic topic that I want to concentrate on (but not grade) and grade myself only on the action items.

Health

Let’s start with the big one. After all, it’s the most important thing you’ve got. This year, it’s also the most loaded category of resolutions.

Eat a big bowl of salad for lunch

I don’t expect to have any trouble with the above. I bought myself a nice big bowl of salad and I make sure to fill it up every day. I highly encourage everyone to eat their leafy greens.

Zero alcohol at home
Two drink limit during social gatherings
Intermittent fast 3 times a week

I think the details of how I do intermittent fasting is out of the scope of this article but the basic idea is restricted eating for 8 hours a day.

Limit coffee consumption to two cups a day

This makes me a little sad 😔. I love my coffee but I noticed that when I don’t have it, I start feeling very tired. I don’t like the idea of being dependent on a substance. Another option is try decaf or tea.

Minimalism

I couldn’t come up with more then one resolution for this category (appropriately). I think that since last year’s clean up, we’re pretty reasonable with how much things we accumulate. There’s certainly rooms that could use some re-evaluation but overall I can’t complain.

Stay item neutral

This one is short and easy. I’ll expand on item neutrality separately but the basic idea is simple. One item in, one item out.

Reading

Each book is someone’s lifetime accumulation of knowledge and experience condensed into a few hours of the most valuable lessons. It’s a great way to learn from gurus about any topic without ever having to meet them. Unfortunately I’m a slow a reader. Therefore; my goal isn’t anything super ambitious but definitely respectable.

Read 16 books in a year

I track my reading on Goodreads. That way I know exactly how many books I’ve read. Also, I don’t have to finish the book to count it. Some books are not very good but as long as I got through a significant portion of it I’ll add it to the count.

Replace unproductive activities with reading

Unproductive activities is quite broad but they tend to boil down to some sort of passive consumption of entertainment; things like TV, netflix, news, and tech websites.

Fitness

Unlike prior years, I didn’t wait until January to start going to the gym. Turns out, there’s a gym right in the building where I work so it’s extremely convenient. Also, I didn’t create any insurmountable goal. I found that consistency seems to be far more useful here than impressive ambitions.

Go to the gym twice a week

I have a simple exercise plan but it will probably fluctuate throughout the year. Mainly I’m focused on showing up at the gym. Once I’m there, lifting weights is the easy part.

Mindfulness

This is a completely new category for me. I tried a half-ass attempt at mindfulness earlier in 2017 but not ruminating about the past, planning for the future or recreating hypothetical events in your head, is harder to do then it first seems. I was introduced to the concept a while back but what really brought it to my attention is an honest account by Dan Harris on the path he took to start meditating.

Amazon.com: Buying Choices: 10% Happier: How I Tamed the Voice in My Head, Reduced Stress Without…
Winner of the 2014 Living Now Book Award for Inspirational MemoirAfter having a nationally televised panic attack, Dan…www.amazon.com

Since this is a new area for me, and I recognize how tough it is, I’m starting small for this year.

Don’t pull out your phone without a reason

You stand in line at Trader Joe’s and you pull out your iPhone, slide the screens to the right, then to the left, check your email, and then put it back in your pocket. In the meantime achieving nothing. I see this all the time. Checking your phone for the sake of keeping your mind busy. I want to be okay with boredom.

Stay present during walks

I tend to walk a lot. I walk to work and to get groceries. I walk a minimum of 10,000 steps in a day. I don’t need 10,000 different conversations going through my head though. The idea is to try and stay present while outdoors. It’s somewhat arbitrary but I think it will be useful for two reasons. First, walking is a regular activity. Therefore; I’ll get a regular reminder to try and stay present. Second, the duration of the walks tends to be a reasonable amount of time for me to practice this new skill.

Stop doing two things at once

Mainly, I’m thinking about eating and browsing at the same time. Although I’m sure there’s plenty of other activities that I multi-task on. It seems like a great idea on the surface. You can finish twice as many things in the same time. However, I think it’s just another symptom of restlessness and the fear of boredom that infects us.

Personal

I generally like myself, but there’s one thing that really drives me crazy. I hate how I’m constantly late to meet people. It is so bad that our friends now expect us to show up late. It’s an inside joke to see if we show up on time or not. So my resolution for the year is simple.

Stop being late

I’m going to need some flexibility here. First, it’s culturally appropriate to be late. It’s even termed “fashionably late”. If that’s the expectation, I wouldn’t want to show up on time and surprise the hosts. Second, I cannot always control when we leave the house. If my wife isn’t ready, I don’t think she would appreciate me leaving the house without her. Therefore; as long as I am dressed and ready to go on time, I’ll consider that a win. It’s just a good habit to have.

That’s all for me for 2018. What do you think of these resolutions? Are they achievable and specific enough? Is there anything that I missed?

Grading my resolutions for 2017

Fri, 29 Dec 2017 22:53:53 GMT

As promised on Tuesday, here is my self graded report for 2017. All resolutions and steps are listed together with a semi-monthly grade. Overall, I must admit that I am happy with my performance this year. This was the first year that I tried this and it worked out really well. I highly recommend everyone to try it for 2018.

The way I’ve presented it here is the overall goal is bolded and the steps that I’ve taken and graded myself on are underneath. Each column represents two months. I’ve started the year by giving myself a grade between A-F but in April switched to a numbered system. It seemed more intuitive.

Also, you’ll see a dash in some places. Those could mean one of two things. Either it’s a goal that I’ve decided is not worth pursuing anymore or it’s a goal that I came up with mid year and did not have data points from earlier.

Minimize the number of items that I own

╔═════════════════════════╦════╦═══╦════╦════╦════╦═══╗
║ Each item has a purpose ║ A ║ B ║ 7 ║ 8 ║ 8 ║ - ║
║ Stay item neutral ║ A+ ║ A ║ 10 ║ 10 ║ 10 ║ 9 ║
╚═════════════════════════╩════╩═══╩════╩════╩════╩═══╝

Bottom line: Last quantile started off rough as we were accumulating a lot of stuff but we ended the last week of the year by donating a lot to Goodwill. I’m pretty sure we were mostly item neutral.

Use your time wisely

╔═══════════════════════════════════╦═══╦═══╦════╦════╦════╦════╗
║ No television watching ║ C ║ A ║ 10 ║ 10 ║ 10 ║ 10 ║
║ Substitute with better activities ║ D ║ C ║ 6 ║ 7 ║ 8 ║ 8 ║
╚═══════════════════════════════════╩═══╩═══╩════╩════╩════╩════╝

Bottom line: No television watching was a piece of cake. I haven’t watched it in a few years now. I’m probably going to remove that as a goal since it’s a given. Substituting for better activities was a lot more challenging though. Twitter is a hard habit to quit.

Don’t booze like an idiot

╔═════════════════════════════╦════╦═══╦═══╦═══╦═══╦═══╗
║ Have only one drink an hour ║ B- ║ D ║ 5 ║ 8 ║ 6 ║ 8 ║
║ Use a timer at parties ║ B- ║ D ║ 2 ║ - ║ 6 ║ - ║
╚═════════════════════════════╩════╩═══╩═══╩═══╩═══╩═══╝

Bottom line: This was surprisingly hard. I am still struggling with how to address my alcohol consumption choices. Especially considering how health conscious I’m suppose to be. Alcohol and parties seem to go well together. Using a timer between drinks didn’t seem to work for me.

Book vacations six months in advance

╔═════════════════════════════════════╦═══╦═══╦════╦════╦════╦════╗
║ Schedule vacations in your calendar ║ A ║ B ║ 10 ║ 10 ║ 10 ║ 10 ║
║ Schedule booking in your calendar ║ A ║ B ║ 8 ║ 8 ║ - ║ - ║
╚═════════════════════════════════════╩═══╩═══╩════╩════╩════╩════╝

Bottom line: This resolution probably seems odd to a lot of people but the idea is straight from Happy Money.

Happy Money: The Science of Happier Spending
Two professors combine their fascinating and cutting-edge research in behavioral science to explain how money can buy…amzn.to

I will probably elaborate on this idea sometime in the future but the gist of it is this:

You gain much more pleasure by spending money now for a happy event in the future then experiencing a happy event now and paying for it in the future. Although we tend to do the exact opposite.

Read at least 16 books this year

╔══════════════════════════════════╦════╦═══╦════╦════╦════╦════╗
║ Read every night ║ A- ║ B ║ 9 ║ 9 ║ 7 ║ - ║
║ Read books when bored ║ B- ║ C ║ 8 ║ 8 ║ 8 ║ 9 ║
║ Keep track of books on Goodreads ║ A ║ A ║ 10 ║ 10 ║ 10 ║ 10 ║
║ Skip boring books or chapters ║ A+ ║ A ║ 10 ║ 10 ║ 9 ║ 9 ║
╚══════════════════════════════════╩════╩═══╩════╩════╩════╩════╝

Bottom line: I ended up reading way more then 16 books this year but to be fair, a good portion of them were kind of boring 😴. Also, some were really short. But a win is a win and according to Goodreads, I read 25 books this year.

Use habit bull

╔════════════════════════════════════════╦════╦═══╦═══╦═══╦═══╦═══╗
║ Fill out habit bull every night ║ B- ║ - ║ - ║ - ║ - ║ - ║
║ Do not backfill more then a single day ║ A ║ - ║ - ║ - ║ - ║ - ║
╚════════════════════════════════════════╩════╩═══╩═══╩═══╩═══╩═══╝

Bottom line: For those unfamiliar, it is an app that helps you build habits. It’s a great concept but wasn’t quite adding enough value for me. However, I recommend that you check it out and see if it’s something that could help you.

Stay active

╔═══════════════════════╦════╦═══╦═══╦═══╦═══╦═══╗
║ Take the stairs ║ B- ║ B ║ 9 ║ 3 ║ - ║ - ║
║ Use far away bathroom ║ D- ║ D ║ 2 ║ 2 ║ - ║ - ║
║ Get rid of the chair ║ B ║ D ║ 4 ║ 3 ║ 5 ║ 4 ║
║ Use kettle bell ║ C ║ D ║ 8 ║ 3 ║ - ║ - ║
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Bottom line: I was reasonably active overall this year but it wasn’t captured well in the goals that I set for myself. I will have to reconsider them for 2018.

Ok so this is it for 2017. What do you think? I think I did reasonably well. I’m most proud that I stuck to most goals and actively tried to improve on them. Next is the goals for 2018. I’d love to hear about some goals and steps that you set up for yourself (and the results).

My favourite part of new year

Wed, 27 Dec 2017 01:31:13 GMT

2018 is just a few days away. That means my favourite time of year is coming. It’s that special time when you make new year resolutions which you will break in February. All the good intentions and wishful thinking that comes head to head with the cold hard reality. What a beautiful thing.

Since I’m painfully aware of how hard it is to stick to new year resolutions, over the years I’ve come up with a pretty intricate system of rules and reminders to allow me to meet my goals. This is going to be a short summary of how I make my new year resolutions and a plea for all of you dear readers to come up with your own.

Let’s start with what you shouldn’t do. You should not, by any means, make bullshit new year resolutions. I’m talking about resolutions such as “be happy with what I have” or “be kinder to myself” (You know who I’m talking about). This sort of resolutions are completely useless for two reasons.

First, resolutions should not be abstract. It has to be something reasonably concrete. Ideally something that you can point to and say, look I did that. For example, completing a certain long standing project would be a very concrete goal whose success you can measure.

Second, it needs to be something you can break up into smaller steps. That way you can implement it throughout the year. For example, if you want to read 12 books in 2018, each book would be a step that brings you closer to your goal. Being kind to yourself is a failure on both criteria.

But enough with negativity. Let’s talk about what you should do. Since I’m old, with a vast amount of experience through my years of failure, I’ve discovered one key attribute that will make meeting your new year resolutions 10 times easier. The key to meetings them is accountability.

Yes I know, it’s a pretty obvious statement but it doesn’t tell much does it? So here’s the three things that I did in 2017 and found extremely helpful.

Write your goals down. To be honest, I’ve read more books than I can count that advised me to write something down on a piece of paper. I never did. It’s a pain in the ass. Not to mention I’ll probably lose the paper. However, writing down your goals is important because you’re likely going to forget them. Unless of course you’re always wishing to lose weight.

Additionally, writing them down can be really easy in something like Google Sheets. You pop it open, write a few things and it’s saved for eternity. That’s what I’ve done. As a side benefit, if you keep up this habit, you get to see what you were trying to achieve over the years as long as you reuse the same spreadsheet.

Write down the steps for each goal. So remember what not to do #2? Make sure you do the opposite when picking your goals and then in that same spreadsheet, under each goal, write down the practical steps you can do to meet your goal. For example, if your goal is to take better care of your health, you can list things like work out frequency and diet changes that you will be implementing as part of the goal.

Grade yourself regularly. Here’s how it works. Open up whatever calendar you use and create a recurring event once every two months to remind you to check in on your goals. Each time you check in, give yourself a grade for each step and an overall grade for the goal itself. This works well because you get a regular reminder of what it is that you were trying to do for the year.

The conventional way of declaring a new year resolution on December 31st fizzles out quickly as life piles on with commitments and obligations. I would argue that most people can’t even remember their new year resolution from 2016 and definitely not from 2015. By reminding yourself what you wanted to achieve for the year, each time you veer off course, you get an opportunity to realign.

I have a check in coming up on December 28th for all my resolutions for 2017. I’ll post them on the blog together with my resolutions for next year. Stay tuned.

What to insure

Fri, 22 Dec 2017 21:08:32 GMT

This is highly inspired by an article from Mr. Money Mustache titled Insurance: A Tax on the stupid and I found it to be quite influential for my way of thinking about insurance. The premise of the article is simple. Insure only the things you cannot afford to lose. Pay up for the rest because in the long run you’ll save money.

This makes perfect sense as well. Take any insurance company as an example. It exists for the sole purpose of making money. It does this by paying out less then it brings in. That means, the risk that it’s covering must cost less in the long run then what it charges for it in premiums. I think no one would argue against this idea.

Humans have two major flaws when it comes to losses. The first is that we seem to feel twice the amount of pain for a loss then an equivalent gain. Putting this in dollars is the easiest way. You’d feel twice as much pain for losing $100 then the pleasure of gaining $100. This is completely irrational but that’s just the way the mind works. It is called loss aversion.

The second flaw is that we are really bad at estimating probabilities. Especially when these events are extremely unlikely. That’s why we have irrational fears about dying in a plane crash but aren’t worried what so ever about heart disease. Yet the former kills a tiny fraction of the latter.

So given these two flaws of human behaviour, we can now see why insurance becomes a bad deal. An insurance company knows roughly how likely houses are to burn down or your electronics getting damaged. With a large enough pool of people, they can calculate the risk reasonably well and then distribute it over many premium payers. In fact, since we over estimate the likelihood and the pain of loss, they can charge us significantly more for it.

The other issue I have with insurance is that people seem to insure absolutely everything of any moderate value. For example, people buy extended warranty on their TV’s and phones. They buy extended coverage on their cars. They insurance their pets. Etc. So what’s the problem?

The problem is that it’s generally a big waste of money.

Not only are you making money for the insurance companies but also it’s extremely silly to insure something you could afford to repurchase without thinking twice about it. If someone dents my car and I felt the need to fix it, I could pretty easily afford to do it and never think about it again. I wouldn’t bother going to the insurance company for it.

So the general rule of thumb is very simple. Buy insurance only if you cannot afford the replacement or the bills to fix it. For example, if my house burned down and I needed to rebuild it, I could not afford it. Thus; I insure my house. On the other hand, my deductible for my insurance is set to the maximum because I can afford to pay for it out of pocket.

And if you stop to think about the purpose of insurance, you’ll realize that is there to cover you in case of a catastrophic events. It is not there to save you $20. Dropping your flat screen TV on the floor is not a catastrophic event so buying extended insurance is plain dumb. Unless of course it is in which case buying a flat screen TV is plain dumb.

There’s one other situation that you can justify buying insurance for. It is very specific and you’re unlikely to run into but I feel I should mention it anyway. It is the time when you have some additional information that the insurance company doesn’t that significantly increases your risk. For example, let’s say you’re extremely shitty driver but you’re getting a great quote from GEICO. If you have a really good reason to believe that the insurance company is underestimating their risk significantly, go ahead and insure. But That’s unlikely to be true and the gain is probably not very significant.

I got a sure investment for you. It’s called SuckerCoin.

Tue, 19 Dec 2017 05:39:27 GMT

I was at a friends house the other day. We sat down for a chat about life and work when his grandmother decided to walk into the room. She joined us at the table and then looked at me with excitement. “Have you heard of BitCoin?” she asked. She then followed that with “I heard it’s an opportunity of a lifetime. You can be rich. Quick!”.

Now this story is totally made up but the lesson here is not to be missed. As a rule of thumb, if everyone is talking about some amazing investment opportunity, it’s probably already too late to make real money. This includes houses, gold, stocks or whatever fad comes next. This isn’t to say that you can never make money. You definitely could! But you have to be aware that at that point it is just a gamble.

The reasons for this argument are a bit complex but are discussed at length in the book “Irrational Exuberance” By Robert J. Shiller. He has a Noble prize so he’s got to be on to something. The gist of it though is that humans are very much like cattle. We learn from each other and we follow each other. We’re also very prone to create market bubbles and over evaluate assets due to that herd mentality.

One other reason that I think people end up with bubbles that’s not as frequently discussed is that it’s plain exciting. People love winning. I have a few colleagues who have made several thousand dollars off trading crypto-currencies. They love talking about them and which one is growing at what rate or what high it hit. However, since pretty much all the major crypto-currencies are up, it’s hard to not make money over the last few years. You don’t need any special skills. Although that’s probably missed by them.

Also, I can’t help myself but see the parallels between this and every single other asset bubble in history. I’m talking about gold a few years ago, housing before that, and tech before that (and probably now). Every single time it ends in tears and the witch hunt starts for who mislead the public.

This article is going out on the interwebs for my millions of readers to see. That means that a few years from now someone could be reading this as they are paying their rent with some tiny fraction of BitCoin and laughing at my conclusions. I am well aware of it. This could be an absolute revolution in our financial system. And that’s great. Until then, I’m keeping my money in a well diversified index fund.

The bulk sized Costco fallacy

Tue, 12 Dec 2017 06:30:40 GMT

I’ve never done any social experiments like Dan Ariely or measured it in any way. I also have a sample size of 2 when it comes to this fallacy, yet I am convinced that it is applicable to about 95% of you and I am going to attempt to convince you of this truth as well.

Let’s first start with what Costco is all about for those that are not familiar. Costco is a giant retail store where you can buy things in bulk. The idea is that by pre paying for items, you can save in the long run. For that privilege you get to pay an annual membership of $60 or so.

Now here’s what I’m claiming. You are just fooling yourself into thinking that this is a great deal. We are really great at fooling ourselves. We will justify almost anything that we do as the right rational thing. Their marketing is top notch and they create an illusion of savings when in reality you are wasting more money then ever before. Wow, those are serious claims!

So why am I saying this? Well, the truth is that it all comes down to one thing. Over-consumption. Simple as that. Now, before you dismiss this as it does not apply to you, let me elaborate on the four distinct ways over-consumption manifests itself and see how many of them ring true.

Subconscious over consumption. This is the hardest one to identify. It’s the one where you buy a huge box of razors but then switch out your razors just a few shaves sooner. It isn’t on purpose but it’s totally natural. After all, we value scarcity. Shopping in bulk is the exact opposite. If you swear that you get exactly the same number of shaves from the blades then how about paper towels? You probably grab just a few more because you got a ton more in the cupboard. I’m not going to count how you use them but you get the idea.
Product upgrades. A lot of people tend to over consume through product upgrades. Costco, in all honesty, does tend to be cheaper for some products. However, very frequently, they don’t have your exact brand or product. They could have similar or competing products. For example, take detergent. I use the powder. It’s cheap and works reasonably well. However, my brand of choice also has these little pillows that you just throw in to the wash. If the labour of measuring the powder is too much for your liking, the pillows are a great substitute. Naturally, they are the more premium product and for that convenience and premium feel, you have to pay up. Costco chooses to sell the premium product. The price per wash turns out to be roughly the same as if you went to your local grocery store and bought the powder. So by shopping at Costco you get to use the more premium product for the same price. When it comes time to account for all the savings though, the mind will play it out differently. Now we will compare the price of the same detergent in Costco to our grocery store. In that case, Costco definitely comes out on top. What we didn’t realize though is how we attributed savings to Costco that don’t really exist while inflating our lifestyle that didn’t really need inflating.
Next, there’s a more obvious way that we over consume. It is plain and simple waste. I’m thinking about all the times you bought that big tub of salsa that went bad or the big box of spinach that didn’t make it. I’m sure we’re all guilty of that. You were trying to do the right thing but depending on the number of units in your family, it could just be impractical.
There’s one other way that Costco gets you. In my opinion this is the biggest sink of money. It is also somewhat controversial because people will swear they don’t do it and it’s hard to prove otherwise. But, unless you have a will of steel like my internet hero Mr. Money Mustache, you’re probably buying shit you normally wouldn’t. I’m talking about the extra pair of jeans that was on a great sale or that set of cookies that they let you sample for “free”. If it didn’t work, they wouldn’t do it right?

So in the end, Costco membership doesn’t come down to just a simple question of does it justify the annual membership or not. It doesn’t. But it doesn’t for none of the reasons that most people are considering. The $60 a year annual membership is probably the least of your worries.

One caveat is that I don’t think that there is no place for Costco in the world. There are certain situation where it could be great. For example, for large families. For them, what we may think of as bulk is just regular. In that case, you could probably save a lot of money. Also, if you’re some hyper rational human who never shops emotionally, go ahead and shop there. For the rest of us, stick to clipping coupons.

Mortgage interest deduction lies

Tue, 05 Dec 2017 05:41:09 GMT

As some of you know, to stimulate home ownership in the United States, the government created a scheme where by you get to deduct the interest portion of your mortgage payments from your income to reduce it for tax purposes. Effectively, this means that the interest is paid using pretax dollars. Great! let’s all go buy houses.

Not so fast. Take anyone with any sort of economic sense and they will tell you there is no free lunch here. You’re not getting stuff cheaper. By subsidizing the payments, the government simply pushed the prices of housing up for everyone. If you don’t believe me, answer this question: What do you think would happen if this was taken away now? If you said people would freak out and the prices would fall because payments are higher then reverse this argument.

Alright, so we know governments generally can’t get shit right and a lot of policies are misguided. Does that mean this one is also just a big fat waste of money? That’s sort of what I thought. At least until yesterday. Yesterday, I watched this video:

There were a couple of interesting points of conversation there. One in particular that caught my attention though was regarding this exact topic and your level of taxation. You see, since every owner gets to take advantage of this particular piece of policy, they save at the same rate as their marginal tax rate. On the other hand, the amount that this house went up in price due to this particular policy is roughly equal to the overall average marginal tax rate in the United States.

So what does that mean? That means that if you are at a higher margin tax rate then the average population, you’d save money based on this policy. If you’re in a lower tax bracket, you lose. The only additional point I’d like to make is that it is probably the average margin tax rate of an average house buyer. The poorest citizens probably keep renting.

So this entire policy is not only making housing more expensive for everyone, but it is oddly also a subsidy for the rich by the poor.

I’m not talking about tax cuts here that are great for everyone but happen to benefit the rich more (due to their larger tax bill in the first place). This is literally a transfer from the poor to the rich.

Why it’s good to be rich

Fri, 01 Dec 2017 05:33:55 GMT

A little while back my wife discovered a small lump on my cat’s stomach. We weren’t sure what it was. So what do we do? We Google it of course. Now we’re really scared. It’s the last thing you want to read about. It could be the big C. Based on my cat’s age, and the description online it is also somewhat likely.

We go ahead and yelp the closest good vet in the neighborhood and schedule a prompt appointment for the next day. I took the kitty in and sat there anxiously as the vet inspected her carefully. Eventually she informed me she doesn’t really know what it is exactly and we’ll need to do a biopsy. Great… :-s

One thing she did recommend is to do an x-ray to make sure that if it is cancer, it didn’t spread to the lungs. If it did, there wasn’t much to treat there. Also, she was missing a couple of shots that the city enforced by law. I obliged and we went ahead with the procedure and the shots.

I sat through and waited patiently for the results to come back. Luckily, there was no sign of cancer in the lungs. A big relief to say the least. As I get ready to walk out I’m also reminded that I have to pay. They hand me a bill and ask me to go to the front desk and settle it. I open it to see the total damage. It’s well over $700. That’s just for today. The biopsy estimate is another $500.

Now don’t get me wrong. I’ll gladly pay that and much more as long as my kitty is healthy. But not everyone is able to pay $1200 and keep the lights on. For some people, that’s a very significant amount of money. Some people may need to choose between paying the vet bill and rent.

My first hint regarding the cost of treatment should have been all the posters advertising financing options. I remember looking at them and then chuckling in my mind about the absurd idea of financing bills in general. How irresponsible!

Before you start explaining to me the free market I just want to say this isn’t some cry baby, socialist plea to nationalize veterinarian treatment. I picked the best vet in the area and agreed to all the pricing ahead of time. But there was one huge thing that dawned on me that day. Something that I never truly understood until that day.

The reason why money is great is not because of all the consumables you can obtain but because of the security it offers you.

I swiped my credit card and walked out of that vet high as a kite thinking only about the fact that my cat didn’t have cancer that metastasized. That’s all I cared about. The $1200 I just paid will be paid off the next day and I’ll never worry about it again. That’s a very privileged but little appreciated place to be in.

I guess I understood this idea subconsciously. After all, the entire idea of being FI (financially independent) is financial security. You save enough money to be “employer independent”. It’s something I’ve been working towards for nearly a decade. But never in my life did I understand how important it is until that day.

A lot of people concentrate on the idea of not working. At least not the traditional way for some big corporation in a soul sucking cubicle job. I admit that this idea is very attractive but it’s the cherry at the top. The real benefit of FI is the security that comes with it. It’s the knowledge that no matter what, your bills will be taken care of.

You are recession proof for life. You are interest rates, stock market, bond market, and job market independent. On top of it all, life tends to throw curve balls. Those curves could in many cases improve your state. It could be a raise, a move to a different city or country or a new more lucrative job offer. Occasionally it could also be a broken transmission. Either way, you got it covered and you can sleep at night just fine. Great feeling in my mind.

Self fulfilling prophecies

Mon, 27 Nov 2017 03:52:39 GMT

Yesterday I hosted a bunch of my friends at my house and we ended up in a long discussion about having children, age and work. Nothing unusual so far and that’s more or less what you’d expect people our age to talk about. It was a great night and it was nice to catch up with everyone. While talking specifically about children and inquiring about why anyone wanted them, one thing that was brought up very casually and without much resistance from the rest of the room was the idea that they will be there to teach you things. Sort of the way I do with my mom and you do with your mom and dad.

Now, there’s absolutely nothing wrong with learning from your kids. If my kid ends up being a surgeon, I would love to get her opinion about all sorts of health related issues. After all, she has medical training and I don’t. But despite their denial, that was not what my friends were trying to say at all. Instead, it was this underlying assumption that once you got old, you’re just not expected to perform well. Both mentally and physically. And it’s normal. If I was to challenge that idea, obviously they’d deny it but you could tell this was the assumption going into the conversation based on the context and where it was going.

I’m not going to pretend that once you hit 30, you are not less likely to make it to the NBA if you haven’t yet. There’s definitely diminishing physical abilities after a certain age (with very notable exceptions). But what bothers me is the lack of any sort of attempt to compensate for that. If you’re worried about your physical performance as you hit 50, why not double your gym time instead of just throwing your hands up in the air and say “that’s just the way it is”. I guarantee you there are people double my age who can bench press twice my weight. They just have a different attitude.

Similarly, I think that people that expect less mentally from older people, will expect less from themselves when their older. In turn, their abilities to understand and learn will quickly diminish with age. On the other hand, there’s older people who are still brilliant and who are able to maintain their mental clarity until their last day. What makes them so different? I think to some extent it’s their attitude.

That’s exactly the kind of attitude I want to cultivate in myself. I don’t think that when I’m 50 I’ll bench press less. I think I’ll bench press more. When I’m 50, I won’t be taking 10 pills a day. I’ll take none. I’ll feel great and I’m sure of it. I just need to make sure that I take care of myself now. This is the kind of attitude I would expect everyone to have.

First intermittent fasting experience

Sun, 19 Nov 2017 05:06:28 GMT

That’s really a bit of a stretch and a click bait because this isn’t really my first intermittent fasting (IF) experience. This is however, a description of my first 24 hour IF experience. And it was quite glorious I must admit.

For those that don’t know, IF is pretty simple. You just don’t eat. You do this on purpose and you do it for a short period of time. Pretty much what it sounds like. IF’s can last from 12 hours to a week. There’s no official time limits really. Also, they obviously include things like water.

There’s plenty of evidence that IF is exceptionally healthy for you. For example, it seems to promote autophagy (which in itself sounds like a great thing). It also helps you lose weight. It can help you reverse type II diabetes. Finally, it can reduce inflammation in the body which is responsible for many chronic diseases such are heart disease and Alzheimer’s.

I’ve read a lot of opinions about IF and many people recommend it as a regular practice. One such notable case is my internet hero, Dr. Jason Fung. However, I’ve never done a longer fast then 16 hours. The way I would usually do it is have my dinner by 8 pm and then skip breakfast and have lunch the next day at around 12 pm. That makes it exactly 16 hours.That was pretty much my daily routine for the last year or so.

On Monday, I’ve decided to step it up a notch and see how I would feel if I went a full 24 hours. To do that, I had to skip one additional meal. Dinner had to go. I must admit that I was a little nervous at first. What if I get hungry? My brain would scream at me. I might even pass out from starvation (unlikely).

What really helped was that my wife was on board with this idea. In fact, like many of my great ideas, it was really her idea. And I wasn’t going to let her down. So like the good partner that I am, I had a huge lunch that day and went cold turkey. So far nothing special. There are a few more hours to dinner time.

Unfortunately, my wife changed her mind and decided that IF on that day was just not for her. So she decided to cook dinner. The sunken cost fallacy really kicked into high gear here and I just couldn’t give up. I went too far and wanted to try this so bad I figured I can manage without dinner. As a side note, I wasn’t even hungry come dinner time. But you know how it is when you see other people eat.

This was pretty much the hardest part of my experience. I’ve managed skip dinner while watching others eat. The rest was a total breeze. In the morning I had a black coffee and by lunch time I still wasn’t hungry. In fact it was amazing. I haven’t had a drop of food for 24 hours but my body wasn’t falling apart. It was a wonderful experience actually.

Now, an entire week has almost passed and I’m thinking back to Monday, I realize that this could definitely become a new habit of mine. And why not? It seems to be good for you. It makes perfect sense from an evolutionary points of view. My internet heroes are claiming it’s amazing. And it’s damn easy.

Escalator clowns

Sun, 19 Nov 2017 04:42:26 GMT

One of my internet heroes, Mr. Money Mustache, wrote a very popular article back in 2013 titled “Curing your clown-like car habit”. It’s a great read and I highly recommend that you open it in a new tab and read it later :-) Fun fact, it is also the post that got me hooked on his blog.

Yesterday I think I managed to identify another set of clowns. I call them escalator clowns. I’m not going to claim that this term is invented by me. I imagine some people on the interwebs have used it before. However, I think we all know who I’m talking about.

I’m not claiming that anyone who ever takes the escalator is an escalator clown. There’s plenty of good reasons to take the escalator. You can have bad knees for example. You may have a child with you who loves to ride the escalator. There might not even be an alternative such as stairs.

However, if you eliminate all of the options from above and you still decide to take the escalator, you’re not yet an escalator clown. To turn into an escalator clown, you have to take the escalator and then consciously just stand there. That my friend, makes you a clown.

I just don’t get it. Why would anyone just stand on an escalator? Escalators are slow. People looked bored. There’s nothing pleasant about it. The only reason I can fathom is you must be conserving energy (because you’re starving). Why else would you just stand there and wait? Also, you get two clown points if you’re heading down.

I ran into this phenomena on my way home from work. I was walking out of an office building and speeding my way towards the exit door when I walked past a lovely lady on the escalator. She turned her head and looked at me with a surprised look as I kept walking (and she was standing). To be honest, I don’t know what was the cause of the surprise. It might have been my mere presence.

However, I know one thing for near certainty. She was leaving home from her office job. Office jobs tend to be sitting jobs. Her one solid opportunity to stretch those legs just opened up and she decided to squander it anyway. By no means is she the only one. I see this daily. And you probably do too. You can’t tell me all these youngish people have bad knees. So here’s a life lesson for you:

Don’t be an escalator clown. Don’t stand to the right. Just walk.

Worse than a cheat meal

Sun, 12 Nov 2017 08:21:28 GMT

Something clicked today that I should have realized much earlier. Nothing groundbreaking and earth shattering like my usual rants but still an interesting realization. I was always under the impression that each time I cheated and had an “improper” meal, I was breaking my diet and forcing my body to restart the entire process of fat adaptation.

Subconsciously, each time I had a bowl of rice at a restaurant or some sort of dessert that a friend baked, I thought to myself that it will be another few days to get back on track. On top of it, I fully expected to see it reflected on the scale and by the very scientific pinch test.

Nothing was further from reality. In fact, most of the time, I saw absolutely no change what so ever. Now, in hindsight, it is ridiculous to think that one bad meal or even one bad day could really cause any noticeable weight gain but there is also a slightly deeper insight. Thanks to Amy Berger I realized the difference between being fat adapted and being in ketosis. More importantly, I realized that just because you cheated, does not mean you’re suddenly not fat adapted.

Let’s start with an example. if you’re a typical SAD (standard American diet) consumer, eating tons of refined wheat flour, you are probably well tuned to convert glucose to energy. All the right enzymes are in place. This is your default mode and it seems to work okay for you. If you were to eat a meal high in fat but low in carbs at this point, you’d probably feel pretty cranky. Of course there’s an exact parallel to being tuned to eating and using fat for energy.

So what happens if you all of a sudden decide to cut the carbs from your high carb diet? Your body cannot get it’s energy nearly as efficiently anymore and it freaks out. It needs time to develop and express the enzymes related to oxidizing fat for energy. That helps explain why some people experience the so called “carb flu” when first switching to a low carb diet.

But my point is that this process is never an overnight event. It takes time to switch an adapt to a new form of energy. You are very likely to still be a fat burning machine the next day. Therefore; there’s worse things that you can do to your diet then once in a while having a bowl of rice.

What should you eat

Sat, 11 Nov 2017 04:10:00 GMT

Since I’ve been harassing everyone regarding their food choices for the last couple of months, a few people started asking me for my overall dietary views. I don’t think they are necessarily looking for a comprehensive explanation of how insulin is related to heart disease but a simple list of dos and don’ts. This should hopefully clarify my current standing.

Let’s start with the don’ts.

If you’re consuming sugar then stop. It’s just bad for you. Throw it out or burn it. Up to you.
Cut out all the grain and legume products from your diet. That includes rye, quinoa barley and buckwheat. I’m sure you eat a ton of that don’t you? Oh yeah, and wheat. That includes pasta and bread, whole wheat, whole grain, ancient grain and white. Sorry.
Stop eating low fat garbage (Anything meant to be full fat but is low fat is defined as garbage).
Eliminate vegetable oils from your diet. That includes common ones like Canola, soy, and safflower.

And now the dos

Replace all the foods you’ve eliminated so far with vegetables. That includes a lot of leafy greens.
Replace eliminated oils with olive, coconut, or avocado oils.

That’s about it. Pretty easy right?

It’s all about the sugar

Mon, 06 Nov 2017 06:18:37 GMT

I guess I gave away the punch line for this blog post right from the title but the more I learn about this topic, the more I am convinced that all modern chronic disease is rooted in a single problem (generally). It’s our obsessive over consumption of sugar and refined carbohydrates.

Now, despite some resistance from the dark vegan armies, I’m pretty sure it’s obvious that diabetes and over consumption of sugar is closely related. In fact, I would go as far as to say that it’s a root cause of our exploding rate of type II diabetes. It makes perfect sense yet still remains controversial and unresolved.

Next we move on to heart disease. The number one killer in the world. That one I admit is a little more complicated but still I would implicate sugar as the cause. Studies in this space tend to be observational so there are no hard proofs but a lot of things seem to be aligning. For example, insulin resistance and heart disease are closely related.

Now for some stretch goals. First, there’s cancer. I’m going based of this video but seems damn convincing to me.

If a cancer cell requires abnormal amounts of glucose and we don’t provide it, it should starve. If we feed it, its growth should be promoted. Makes perfect sense.

And finally there’s this whole discussion on Alzheimer’s being type 3 diabetes. Which is again just an implication of sugar being the root cause. This is again pretty early on and light on true detailed studies but it makes sense considering you bought the above.

So having said this, what do we have as a treatment option? Easy, stop eating sugar and cut down your carbohydrate consumption.

Second law of minimalism

Fri, 03 Nov 2017 05:10:24 GMT

I’ll start off by admitting that it isn’t really a law. Nor is it second since I’ve never established the first one. It’s more of an observation that I had recently regarding minimalist living and why it works.

Now, you’re probably vaguely familiar or remember the idea of the second law of thermodynamics. To summarize it in a non-sciencey way, it’s essentially the idea that things tend towards disorder unless outside energy is applied. A good example of this is taking a bath. Initially, it is all nice and hot but after a while you realize the water has cooled down because the heat has escaped.

So what does that have to do with minimalism? I think you can draw a neat parallel between thermodynamics and ownership of things (or obligations). It’s also a great way to better understand two things

Why are you unhappy with everything you have
How can having less possibly make you happier

Let’s imagine yourself owning a very basic set of dishes. You have nothing beyond a single plate, knife, fork and spoon. Also, washing dishes isn’t exactly your favourite activity. Life is pretty tough. What can we do to improve it?

One thing we can do is add a cup. Now you’re able to enjoy water comfortably instead of trying to collect it in your hands. Sounds pretty great no? Your happiness should improve dramatically. I have no doubt that drinking water without a cup is adding a lot of unnecessary inefficiency to your life. This is also the overall thought process that people go through when determining if they need to purchase something or not.

But there’s one thing we’ve overlooked. We forgot to account for the cost of maintenance for this item. I use maintenance as a general form to refer to actions like storing the item, washing the item and finding the item. All trivial indeed but don’t forget, all we have is one set of everything. In this case, the trivial maintenance cost is just that. Trivial.

Maintenance becomes a problem as the number of items that you own increases. Each of them providing a diminishing return for your convenience but increases the maintenance somewhat linearly. For example, getting another cup would mean another person can have a drink with me but all the above maintenance costs just doubled.

This maintenance cost comes to us in two primary forms. The first is at the cost of our time. We have to spend time washing the cup and putting it away. But also, it comes in the form of mental clutter. This will arise when you don’t take care of the maintenance tasks immediately and they start pilling up.

You can extrapolate this further to all the items that you own. And you own A LOT. Like thousands a lot. Each may take 1–10 seconds in maintenance on average so together it takes a significant chunk of your day. And before you realize it, you spend a significant portion of your free time just putting things back together, finishing up unfinished projects and just basic cleaning. No wonder you don’t have any time.

The second law of minimalism is this:

Everything has it’s cost. Make sure you understand it well

Dumbphone alternative

Sun, 29 Oct 2017 00:54:37 GMT

As a follow up to the previous post, one more “extreme” thing I’ve been considering for a while was to switch completely from a smartphone back to an old school dumb phone. I find the idea very attractive. And it seems I’m not the only one either. It will ensure that my phone usage decreases dramatically while still giving me a way out in case I’m in trouble or if someone is looking to reach me.

The problem is that dumb phones are missing certain key apps that I rely on heavily. For example, I like having Google maps for orientation. I mentioned this idea to my wife and to my surprise she questioned my basic assumptions. She asked me when was the last time I was suddenly lost. Could I not look up my path prior to going there and print out the directions? You know, like we used to do.

That’s a valid point. I think I like the idea of having maps a lot more then I actually need them. I’m certain there’s very few instances that I suddenly needed them because of some unforeseen circumstances. So what’s really holding me back?

Another thing I could think of was various messengers I use to communicate with my friends around the country. That one is a little tougher since everyone have their messenger of choice and platform fragmentation isn’t helping the situation. At any one time I have 3 messengers running to talk to different groups of people. I’m not trying to claim it’s unsolvable problem but it’s definitely inconvenient.

In her eternal brilliance, my wife asked me, what was actually bothering on my smartphone? In other words, what was I spending most of my time on? I admitted that it was email. I like to check it far more often then I should. So she dropped this bomb on me:

Why don’t you uninstall it?

Dumb it down

Sun, 29 Oct 2017 00:44:21 GMT

One thing that I try to avoid when I’m around people is to stick my face in my smartphone. Another thing that I try to avoid when I’m not around people is to stick my face in my smartphone. In general I don’t like the idea of spending my precious life minutes looking at electronics.

Now, obviously it is unavoidable to some extent. It is mandatory in my line of work. It is also necessary to write this piece. But Ideally, if it’s not necessary, in a perfect world, I would have the phone somewhere far away.

To some extent I’ve been reasonably successful. I keep my phone charging in the bedroom when I get home. I also removed all social media apps so I don’t spend time pointlessly scrolling through feeds of food, cats and random vacation pictures.

One of the most powerful things I’ve managed to do though was to turn off notifications in most of my apps (that tend to notify). For example, email, Whatsapp and the like. I found that my anxiety level around my phone has decreased dramatically after that. The cost of doing that is of course you might not reply to a message immediately.

Now, I’m far from perfect and I still find myself looking at my phone more then I would like. I still check my email too often and still stick around on the toilet longer then I should just because I’m browsing the news. This isn’t a behaviour that I’m proud of but I’m working on it.

Being priced out

Wed, 25 Oct 2017 04:45:48 GMT

If you ever lived in an area with a hot housing market, you’ve probably had more dinners that you’d like to admit where the conversation started and ended with how “crazy” it is out there. Anecdotal evidence about multiple bids on some broken down shitty houses with no pictures on RedFin and how many hundreds of thousands over asking the house down the street sold for dominate.

This in turn tends to drive the renters between us to go on a buying frenzy, desperately looking for a house, any house to buy. Because you know… if you don’t buy today, you’ll be priced out forever. I know I’ve heard that many times; including here in Seattle.

The same people always bring up the same examples. Look at San Francisco they say. Seattle (or insert the city that you live in) is the next San Francisco. “If I bought ten years ago I could have retired today”.

So here’s my contrarian theory. Now this probably doesn’t apply in all cases 100% of the time. But, ask yourself this:

Were you ever priced in to the city in the first place?

For example, San Francisco has always been more expensive then Seattle by about a factor of two. If you happened to be the age that you are now, working in San Francisco a decade ago, could you afford it then? Keep in mind that it’s very unlikely your salary would be the same.

I’m not just talking about inflation. I’m thinking more broadly like what industry you’re in. Are you in tech or nursing? You’re probably making way more money then you could a decade ago. These jobs are simply in higher demands now.

So when your Grandpa reminds you how he bought this house for 60k, don’t forget to ask him how much he was earning per hour. It could make a lot of difference. Now, if you couldn’t buy it then and you can’t buy it now does not mean you shouldn’t strive for it. I am just suggesting that we should keep this in mind when complaining about the state of affordability and how Amazon “ruined” everything.

The true price of weddings

Sat, 21 Oct 2017 05:25:12 GMT

This isn’t really about weddings in particular but they are a good example of a phenomena I just picked up on. It’s the phenomena I would describe as irrational under-appreciation of money. I would love Dan Ariely’s opinion about this.

Here’s a scenerio: You’re planning your wedding. Your partner is going through all the little things that need to be done. You, as the financially savvy “finance guy” add up all the costs and realize this wedding is going to cost you roughly $15,000.

Now, we all know that money is time so a better question is, how much time is it going to cost you. You do the math and after the costs of working, commute, unwinding and the additional wardrobe you maintain, you take home roughly $10 an hour in savings so about 1500 hours of work. You bury your face in your hands and start crying.

This analysis is probably more then what 99% of people do when they make buying decisions. This is probably too much to really expect from most anyway. Plus I don’t think anyone would really want to do such an analysis each time they are about to buy coffee.

So how about a much simpler analysis. Take a purchase in your life that you think was a great decision. For example, I recently bought a roundtrip ticket to Ghana for roughly $1200 and figure out how many times you could do the same trip using the money you’re about to spend. This way, you’re not dealing with abstract figures but actual valuable human experiences (or things).

In this particular example, you could probably visit Ghana 14 times instead of having this extravagant wedding. So ask yourself this question, is this wedding worth 14 trips to Ghana. Of course, for that amount, you could probably visit all of Africa.

The idea is to equate it to something a little more concrete then just dollars so you grasp the value that you’re dealing with. I find that otherwise, the numbers are too abstract and throwing around $5000 is just as easy as $10,000 without realizing that you just doubled your cost.

Slow it down

Fri, 20 Oct 2017 02:49:56 GMT

About a year and a half ago I discovered the x1.5 speed feature on YouTube and my world has been changed forever. No more would I have to suffer through slow talking TED talks or horribly paced tutorials on trivial matters. It’s really been a godsend for my learning. In fact, check out my YouTube viewing as a percentage of my overall surfing:

That’s almost a quarter of all my surfing!! Second in it’s place is Twitter which I’m not as proud of.

Now for the longest time I felt reasonably good about this. I always justified this behaviour by saying that this is for learning. I was technically wasting my time because I was constantly learning something new. This is actually true. There was no way I could consume as much content otherwise.

Recently though, my wife brought up the objection that if I keep watching my videos on x1.5 speed, I’ll rewire my brain to expect everything to be done that way. I’ll start talking faster; I’ll expect other to talk faster; and most importantly I’ll have a lot less patience.

Initially, I tried to tell her that it is fine because I only watch informational videos at x1.5 speed and entertainment is still at regular speed. I was just trying to pick up facts. Therefore; there was no need to slow it down. Additionally, I didn’t feel like I really had a problem and could easily slow it down and just watch less videos.

So I tried it. Today. I switched back to normal speed and played through some of my regular subscriptions. The first thing I noticed is how slow everyone seemed to talk. In fact, there were some people I’ve never even heard talking at a normal rate before.

The second thing I noticed was how hard it was sometimes to just keep listening. I had this urge to do something while they were explaining. It felt like they just couldn’t quite get to the point fast enough for my liking. I’d find myself skipping ahead a few times just to realize I missed some content and then having to backtrack.

Finally, when I got more accustomed to the speed, I realized how calming it is to listen to someone talk at a regular speed. No one was rushing anywhere and the world wasn’t on fire. They were just saying what they wanted to say and I was an observer.

I think I might still reserve the x1.5 speed option for certain things. Maybe I’ll do it for technical presentations or something that tends to be extra boring. But the general rule for me now is to listen to people talk they way they intended to be heard.

How you get to me

Tue, 17 Oct 2017 03:36:10 GMT

I’ve recently done a lunch and learn at work and presented everything I know about heart disease. It was a ton of fun and I felt great after it. One fear that I had though is the way meetings tend to run in corporate environments. Usually, you have a bunch of people around a table, staring at their laptops while one person talks for 30–60 minutes.

Now I love listening to my own voice just as much as the next guy. Possibly even more then the next guy. However, I didn’t want my presentation to turn to something boring and unproductive. Not only would I find it demoralizing, but I’ve also just wasted the time of every attendee.

To my surprise, not only were most people paying close attention to what I was saying, but they actually did what in my opinion is the biggest signal to let someone know you’re paying attention. They asked followup questions! That’s a big deal in my book. It shows that you’re aware of the context and you’re thinking. You realize something isn’t covered and you are curious to know more.

Thankfully, my presentation involved a lot of followup questions and I was more then happy to dive a little deeper and explain it all. Overall a fantastic experience and I’d love to do it again.

Minimalism and deprivation

Tue, 10 Oct 2017 05:36:01 GMT

Speaking of minimalism! It’s important to qualify what it means. I think that a lot of people hear about this concept and assume right away that you are depriving yourself of things. Deprivation also takes a lot of will power. So even if someone thinks they can live with the deprivation, they are sure they’ll fail due to lack of will power.

I want to tell you that it’s completely wrong. There is no need for any will power what so ever (In fact, that’s a recipe for disaster but I digress. I’ll leave that for a later post). What it does take is a change in the state of mind. You must understand that having more does not mean being happier. That’s something that you must also internalize.

Internalizing this concept is beyond the scope of this article but it’s an absolute must. Once you do, everything else becomes so easy. It’s just so intuitive and second nature to dump the stuff you don’t use. And as you dump it, you clear the house, you lower your mental maintenance cost and you lower your anxiety level. This becomes a reinforcing loop.

If, on the other hand, you approach this from the view of deprivation, you’ll fail quickly. All you’ll see is all the things you’re missing while glossing over all the freedom you gained and happiness by subtraction.

My articles are rarely some sort of cohesive set of ideas that you can follow along with but I love how all these ideas from the FI community, minimalism, and happiness really overlap and come together so well. It proves to me once again that these are all correct. It’s sort of like science when you have a hypothesis about something and based on this hypothesis you keep seeing evidence in real life. It just makes your hypothesis that much more likely to be true.

Minimalism

Tue, 10 Oct 2017 05:18:51 GMT

My wife and I spent this past weekend cleaning up the house. This is not glorious work but needs to be done. In the past, this would have been a pretty miserable experience for me. Going through the house room by room, looking through all my shit and putting it back in it’s place just didn’t seem to be all that interesting. I could probably come up with two dozen better things to do.

These days I feel a little different about it. I actually enjoy cleaning. I love going around the house and putting things back in their place. I love finding things that I don’t need and tossing them out. Have I lost my marbles? What’s with the change of heart?

What happened is, I discovered minimalism. Specifically, I discovered “The minimalists” and Marie Kondo. I can’t tell you enough about how great it is to sit in a house where all the dishes are clean, the books are on the book shelf and your clothes are in the closet. The room is spacious and calm and you don’t feel the anxiety that comes with disorganized room. Simply can’t recommend enough!

Intermittent fasting

Thu, 05 Oct 2017 23:12:08 GMT

Dr. Jason Fung is one of my internet heroes for sure. I also recently discovered High Intensity Health on YouTube and can’t recommend it enough. It’s super insightful and the interviews are detailed but not too detailed so you never feel like you’re back in University.

This video talks about intermittent fasting and treating type 2 diabetes. Personally, I like to do short daily intermittent fasts. I do this by skipping breakfast and eating much dinner before 7 pm. That way I fast from 7 pm until lunch time (12 pm) the next day. That works out to roughly 16 — 17 hour fast.

Getting shit done

Thu, 05 Oct 2017 05:01:03 GMT

Do you know how some times you read or hear things that just blow your mind? They resonate with you so much you just feel inspired. They make you want to print it out as an inspirational poster and plaster it on every room in your house as a reminder. They are one of those great #LifeLessons.

I’ve had many of those moments. One in particular that I still refer to often is

The sooner you do something, the longer you get to enjoy it

I found this statement as part of another blog that I can’t remember anymore but it really resonated with me. I read it and realized that everything I’ve been delaying could be done right now and I’ll get so much more time to enjoy it.

It even lasted for a few days. But just life everything else in life, things got quickly in the way and I fell back to my old procrastinating habits. How could this be? Don’t I want to enjoy the outcome? Of course I do. But who ever said procrastination was logical in the first place.

Recently though, I’ve been experimenting with a whole new technique. The idea is very simple. Just do the smallest, littlest step you can to move things forward. For example, I have a garden that I wanted to build in my front yard for about a month now but I haven’t really done anything about it. I have a lot of great reasons as to why I haven’t done it. I come after work and it’s already dark. I have more pressing things to do. Etc.

So what’s the minimal step for me to get this going? Take out the shovel from the back of the house. That’s it. Nothing else. Next step tomorrow is to dig out one small portion of the grass. Nothing complicated and no back breaking work. It shouldn’t take more then a minute to do.

My guess is I won’t stop at one hole and I’ll continue for a while. Tomorrow we’ll see.

Sad reality of aging or something else?

Tue, 03 Oct 2017 04:07:23 GMT

My mom has a friend named Kate. She is a wonderful woman in her 60’s. Unfortunately, she lost her husband to brain cancer a few years back. Since then she’s been living alone in a condo close by to my parents. They see each other quite often and have a great relationship.

I saw her the other day and wanted to use the opportunity to ask her some questions regarding diabetes. I wanted to ask her about the medication she takes and the difficulties she faces. To be honest, I also secretly wanted to let her know about Dr. Jason Fung and how he reverses diabetes (He’s one of my online heroes).

To my surprise, when I brought up his treatment program, she cut me off and refused to listen. I was surprised (to put it mildly). “Why would you not want to know” I asked her? He literally reverses diabetes in his patients. How could anyone refuse that?

Her explanation was quite thought provoking. She told me that in all honesty, she doesn’t know how long she has to live. She doesn’t want to spend her last remaining years fasting, and worrying about everything she eats. She wants to be able to go out and have a good time. If she was 20 years younger and her husband was still around, things would probably be different.

Now, to be clear, I fundamentally disagree with her. I think she has it completely backwards. By taking care of her health, she could live her remaining days well and truly enjoy them. Also, most likely, she’ll have more of them to enjoy.

But then I started wondering if she was right too. Was I only saying this because I am half her age. Would I be thinking this way when I’m 60 too? I sure hope not.

Nuggets of gold

Tue, 03 Oct 2017 03:24:56 GMT

I’ve recently discovered that people are generally annoyed at my constant nagging and lecturing about their investments, their shopping habits, their housing choice, their food choice, and whatever opinion-forming-bandwagon I’m on at the time. But most importantly, most people are simply not ready to hear it.

Now, when I say most I really mean most. Some people, given the right topic at the right time, will not only listen to everything I have to say, but ask follow up questions. This is a strong signal that they do care. But the reason has nothing to do with me nor my approach nor the information that I so elegantly presented. It just happened to be the right thing at the right time.

Recently, I’ve tried to be a little more flexible and understanding towards people. Instead of dumping facts on them and have it backfire and have them hate me, I try to bring things up slowly and gauge their interest. I may even drop by always controversial opinion in there to see if they bite. If they don’t I move on.

I call this dropping a nugget of gold

You’re welcome to any toilet humor regarding this technique.

How not to live your life

Sat, 30 Sep 2017 03:48:03 GMT

I am sitting at my parents house this weekend since it is my dad’s 60th birthday tomorrow. I flew over on Thursday and planning to stay until Monday morning. The plan is to have a surprise birthday party. My mom is making all the arrangements and it’s growing to be quite the headache with all the details but I’m sure he’s going to love it.

One thing did stand out to me though. My mom was going over some of the planning and casually mentioned that for my dad’s 50th birthday, I made him a really great montage. Everyone at his birthday loved it and since then it’s been a tradition to have one at all of their friends milestones. However, she said that for this one, it wasn’t really necessary.

Naturally, I inquired as to why she thought so and she explained that although it’s been a decade since the last video, she feels like this video would be essentially the same. “Not much has changed” was her exact quote. There was basically nothing worthy to show people.

This bothers me for several reasons. First and foremost, it bothers me because I feel sad for them. I feel like you let an entire decade slip by and haven’t even done enough with it to share the highlights with the people closest to you.

Second, the days the I do nothing tend to be the days that are least memorable (naturally). I would imagine that there is probably a similar effect to weeks, months, years and decades. You can live your entire life without doing much at all.

Finally, I was angry. I was angry because I can’t understand how she wasn’t bothered by it. Why is it okay in her mind to have your life pass you by. Of course based on my “Don’t be an asshole rule” I didn’t say any of this and I doubt she’ll ever read it.

How to learn

Fri, 29 Sep 2017 05:47:52 GMT

I had a short discussion with my mom’s friend’s son today. He just started university and had all these questions about expectations. I, as the “mature” adult tried to provide him with some pointers. Of course, I tried to keep it honest as well. I don’t think anyone wants to hear generic, meaningless, motivational quotes. I know I don’t.

I wanted to provide him with something useful and applicable. Most importantly, I wanted it to resonate with him. There was only one thing I could think of to say. I first admitted that I wasn’t a very good student. I didn’t study much and I crammed for exams. I learned just enough to do okay but would forget most of it the second I walked out of that exam room.

I also mentioned that he will probably feel the need to do the same. That’s just how people do it in university. It just doesn’t have to be the only way. Another way to look at it is you are spending your hard earned money to be there. We’ve also determined previously that money = time. If you’re going to spend your time on something, make sure it’s worth it. It’s a finite resource after all.

I didn’t dive too deep into the finite resource portion because that might not resonate as well with a 21 year old but the rest is true. No one likes to just waste their time. Therefore; if you’re going somewhere, make sure you get the most out of it. I feel like it stuck!

Chasing money

Thu, 28 Sep 2017 05:16:12 GMT

My wife keeps insisting that knowing other people’s salaries is a bad idea. You just set yourself up for misery. Her reasoning is that someone will always make more and you’ll always feel like you need to make more too to match up and you’ll never be happy with what you have.

She is absolutely right (generally speaking). This is exactly how someone is bound to feel when finding out colleagues are making more while doing the same job. This is also completely independent of how you felt prior about your salary; An unfortunate human quirk.

However, once you’re aware of this quirk, I feel like you can take advantage of it. Instead of sulking in your misery, you can do much better. You can make the following realization step by step.

Nothing has changed in your conditions.
If you were happy with your salary before you should be happy now.
There is potential to make even more money so you should be even happier.

Most are perfectly content with how much they earn but why not earn more for the same work if they can? After all,

Money is time

Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving…
The “the best book on money period” according to Grant of Millennial Money (as featured on CNBC Make It), who followed…www.amazon.com

About the new tax proposals

Thu, 28 Sep 2017 05:07:17 GMT

I am generally going to stay away from specific politics (although I do plan on diving deeply into my libertarian views). However, one thing got me really excited today. There were all these rumors that Trump was suppose to double our standard deduction.

I’ve been reading about this for a few months now but today’s reports made it all but certain. Now, I am not interested in discussing if this is good or bad. All I’m trying to say is it’s good for me. Or so I thought at least.

Turns out, just like everything else Trump does, it’s just a sleight of hands. While they are trying to sell it as a tax break for us in reality it’s probably a slight tax hike or almost meaningless tax break. The reason is that although the standard deduction is doubled, the personal exemption is eliminated. On top of it, the bottom tax bracket is actually going up from 10% to 12%.

So bottom line is, not much to get excited about.

Big houses

Thu, 28 Sep 2017 01:12:19 GMT

A friend just revealed that he bought himself a new house. Due to local social norms, I pretended to be ecstatic and requested to see the house. He pulled out his phone and showed me some pictures. To my horror, this is a 4 bedroom 4 bathroom house for him and his wife.

Now, I know better than to question this decision. Especially after he already bought it. But thankfully he brought it up himself. He told me that the reason he needed such a large house is because occasionally his parents and his wife’s parents like to visit. That’s definitely a noble reason.

On the other hand, there’s the other 49 weeks of the year when you live there just you and your wife. Even if you pop out twins in the next 9 months, you still have one extra bedroom. Of course most self respecting North American would then turn that into an “Office”. You know, like that room many households have that no one goes into.

Great! Another wise financial decision. Now what about the maintenance? What about the taxes on the property? What about the bills? What about not being able to find your wife because your house is too big? Why is it such a desirable status of success?

What kills

Wed, 27 Sep 2017 16:50:45 GMT

I thought it was interesting to see what would kill me if I lived an average North American life. Google is my friend in that case so I googled top 10 causes of death in the U.S. My guess is Canada is looking somewhat similar.

Also interesting to note that there are roughly 2.6 million deaths in the U.S. annually. Although an unfortunate number, it’s a great boon for the morgue industry.

Here is what it looks like:

Heart disease: 633,842 ~ 24%
Cancer: 595,930 ~ 22%
Chronic lower respiratory diseases: 155,041 ~ 6%
Accidents: 146,571 ~ 5%
Stroke: 140,323 ~ 5%
Alzheimer’s disease: 110,561 ~ 4%
Diabetes: 79,535 ~ 3%
Influenza and pneumonia: 57,062 ~ 2%
Kidney disease: 49,959 ~ 2%
Suicide: 44,193 ~ 1.7%

The first thing to point out is of course how much more prevalent heart disease and cancer are. In my mind, since stroke is accumulation of plaque but in a different area, I lump it together with heart disease.

Next, there’s diabetes and Alzheimer’s which I’m convinced are rooted in hyperglycemia and insulin resistance. On top of that, a lot of diabetics will die from heart disease complications so I imagine it is already reflected in (1).

I don’t know what to make of respiratory diseases and influenza. I never heard of anyone having it personally and was surprised to find these so high up. I also don’t know much about kidney disease.

Finally there’s accidents and suicide. Now accidents are unavoidable by definition but it’s not really something I’m afraid of. Suicide is a more sensitive topic but suffice to say that it is 100% avoidable if you manage to not go through with it.

And so it seems to me that if you can avoid modern age diseases (CVD, cancer, dementia, diabetes), avoid accidents and avoid committing suicide, you can live to be a nice, healthy old woman or man in 65% of the cases.

Improving life

Mon, 25 Sep 2017 23:47:02 GMT

Continuing on the previous idea of happiness by subtraction, what can you really do? I had this conversation with my wife the other day. She mentioned how much she doesn’t like to do laundry, cleaning and dishes.

Based on the idea if subtraction, we should do our best to eliminate these tasks. Notice that nothing is being added to our lives. I am not suggesting we get cleaner, more dishes or more dish washers (yet).

So what can you do? Here’s my rough framework. Keep in mind that I came up with it in about 15 minutes on a car ride so it may or may not be complete. I am likely to address the holes later. Long story short, you have 3 options:

Elimination
Automation
Outsourcing

They are in a rough order of desirability. Option (1), elimination, usually won’t cost much if at all. It alleviates a lot of problems and adult responsibilities.

Option (2) is great if possible. It may or may not cost you but aside from a little of annual maintenance usually frees up a bunch of time.

Option (3) tends to be the most expensive one. However, certain things are simply cannot be eliminated or automated (although that’s changing).

Regarding my wife’s biggest pain points, elimination didn’t seem to work but I could definitely think of some partial automation solutions that we will explore.

More on happiness through subtraction

Mon, 25 Sep 2017 23:20:41 GMT

Happiness Through Subtraction
Financial independence isn’t the answer to all your problems and it won’t be the source of all your happiness. In fact…www.madfientist.com

This article from mad fientist has been very inspirational for me. Go ahead, give it a read and listen to his podcast.

It really made me re-evaluate what I value. What was it that I wanted? Was it more money? More things? This is really just the standard approach to living. The idea of “addition” to you life to make things better is pretty much set in stone.

Just consider what the blind suckers say when you bring up financial independence to them.

Oh no! I can’t give up on ….

Give up is key here! it’s subtraction and no one likes losing. Of course, it’s also the wrong mindset all together. A bit more on that later though.