When Does 22 Equal 62?

So when is a 22 year old man simultaneously a 62 year old man?

Answer: When he is a rookie in the NFL. Three years to retirement.

In a recent article in USA Today entitled “Future NFL Rookies Should Heed Hard Lessons About Dollars and Sense,” Jarrett Bell explores the dangers and pitfalls facing the young men about to be selected in the NFL draft. Phillip Buchanon, formerly a first round draft pick, who enjoyed a ten year career as a cornerback in the NFL has written a book titled New Money: Staying Rich about his experiences with money as a professional athlete.

His first lesson: “Don’t spend money that you don’t have.” Buchanon, like many other young athletes found himself a million dollars in debt before he signed his first contract. Unscrupulous rascals offer a form of the payday loan to college students on the cusp of a NFL career—at 20% interest rates.

Then there are the relatives, the friends from the “hood,” and the hangers-on that want to become part of a posse. Buchanon’s mother demanded $1,000,000 from her son as payback for his upbringing!

Patrick Kerney, a former NFL defensive end who has taught players the basics of handling money for many years recommends, “Boring, dull, and ugly,” low cost index funds.

There are simply too many horror stories of NFL players being victimized by sophisticated “investment advisors.” I remember that Tony Dorsett ended up in serious financial trouble as a result of thinking he could outsmart the men who inspired the J.R. Ewing character on television when playing games with oil futures. That was legal! Too many times these young men are the victims of outright criminal fraud. The article notes that the financial habits of NFL players are improving. However Kerney laments, “Now the big thing is they are buying annuities, where the insurance companies take and do with their money what they should be doing. That’s not as bad as throwing money at a venture capital situation, but there is a huge opportunity that is lost.” Annuities are some of the most overpriced financial vehicles out there. I haven’t yet seen any currently offered retail annuity I could recommend.

Mike Tyson managed to loose over $300 Million to unscrupulous promoters, investment advisors, friends, attorneys, and ex-wives. A man who once picked up a $173,706 gold chain lined with 80 carats in diamonds is now bankrupt. Tyson has reportedly bought 110 cars during his lifetime. I have read that he has lost, just lost, twenty Rolls Royce automobiles. He simply doesn’t know what happened to them.

While most of us will never have the opportunity to squander $300 Million, let’s hope we can learn that managing our money is a simple yet difficult discipline. As long as our income exceeds our expenses it’s OK.

I don’t know who said it but it is true, “If your outgo exceeds your income, you upkeep will be your downfall.”

Protecting Your Parents’ Money

In those days Hezekiah became sick and was at the point of death. And Isaiah the prophet the son of Amoz came to him and said to him, “Thus says the LORD, ‘Set your house in order, for you shall die; you shall not recover.”
2nd Kings 20:1

This morning I needed to get a letter of instruction notarized at my bank. The notary public was a little rattled. She had just spent an hour with a child dealing with the sudden death of a parent. Although he had the now worthless Power of Attorney and the key to the safety deposit box, his name was not on the safety deposit box access list. Unraveling this conundrum involved the bank’s attorneys and teleconferences with “back office” experts.

This shouldn’t have happened.

I have recently finished Protecting Your Parents’ Money by Jeff D. Opdyke. Because my parents did not read this book or have what the author terms, “the talk” with their son ten years ago when it could have helped, I found dealing with this material emotionally difficult.

If you or one of your parents are pushing 70, if you have suffered a stroke, if you have early signs of Alzheimer’s, Parkinson’s, or any indication of the possible onset of a neurodegenerative disease that might lead to dementia; if you have a heart condition or any hint that you might die soon or in a sudden untimely manner, you need to have “the talk.” Parents you need to sit down with your children and prepare for the day you will no longer be able to care for yourself or for the day of your death.

Your children need to have access to all your documents. These documents need to be up to date and to accurately reflect your current wishes. These include but are not limited to wills, trusts, living wills, durable power of attorney, power of attorney for health care, advance directives, insurance policies, and HIPAA authorizations.

Your children need to understand how much money you possess, where it is located, and how and why you are managing it in a particular manner. This would include bank accounts, credit cards, stock and bond portfolios, businesses, and property.

This book covers situations involving well healed families as well as dealing with situations where mom and dad are no longer able to make ends meet. This can be a little distracting as Opdyke jumps from the dangers of purchasing a $250,000 annuity to provide a lifetime income stream to budgeting for your parents in instances where it is unlikely that their money will outlive them.

The author discusses housing. This topic includes selling the old home place to free up cash, especially if mom can no longer cut the grass of fix the leaky old roof. The reverse mortgage is discussed at length, along with senior communities, and the possibility of mom moving in with her sister, Aunt Margaret. All these options have their own particular pitfalls and advantages.

Finally, the book introduces the reader to the wacky world of healthcare. Medicare, Medicaid, health insurance, medigap polices, as well as private pay options are all covered in a basic introductory manner, giving the reader just enough information to (hopefully) ask the right questions. One thing the author didn’t mention in this chapter just drives me crazy. The elderly receive both statements and medical bills that both look like they need to paid. Sometimes they end up double paying for a procedure that was covered by insurance or Medicare. It is difficult and time consuming to recover that money. Often the bill has not been submitted to insurance or submitted improperly. If insurance denies payment that is not the end of the story. My mother in law’s last ambulance ride was denied. The coding did not indicate that it was an emergency. At the time three separate conditions could have ended her life at any moment. Less than a week later she was dead. My wife spent hours on the phone straightening out that mess.

Throughout the book the author explores the dangers that face seniors in our society including children who rob them blind, “friends” or home health aides who help themselves to your parents’ possessions and credit cards, or financial planners who sell inappropriate investment products, making themselves rich at the expense of confused frightened old ladies. In the face of these real dangers, combined with the paranoia that is often associated with dementia, and a parent’s understandable desire to remain an independent adult the author suggests various conversation starters that will allow children to explore these very sensitive issues without frightening or angering mom or dad.

This book is worth reading if you or your parent might be on the edge of approaching that final chapter of their life. Check it out or better yet buy a copy. It will help you ask the right questions and hopefully find the right answers.

Terroir

A month ago I listened to a video by Rabbi Manis Friedman. Since then I have been mulling over a point the Rabbi made while answering a question. The host of this meeting was a real estate agent. He questioned making cold calls, an activity that pushed him outside his comfort zone. The Rabbi observed if your job didn’t push you out of your comfort zone, you probably wouldn’t amount to much of anything. However, he noted that you shouldn’t push against your capacity. That was a recipe for failure. The Rabbi remarked that telling the difference between comfort and capacity was a difficult task that required wise counsel from those who know you best.

Yesterday, I listened to a Joel Osteen sermon on freedom from unhealthy competition. He taught that you, as an individual, are only required by God to be the best you possible.

You are not running a race against anyone but yourself.

Galatians 6:4
Pay careful attention to your own work, for then you will get satisfaction of a job well done, and you won’t need to compare yourself to anyone else.

This morning I read a short blog article by Seth Godin titled Terrior. I was unfamiliar with the word so I looked it up in Wikipedia. Terrior is a French word used to describe the particular circumstances that result in the unique excellence of a particular product.

“Terroir is the set of special characteristics that the geography, geology and climate of a certain place, interacting with plant genetics, express in agricultural products such as wine, coffee, tobacco, chocolate, chili peppers, hops, agave (for making Tequila and Mezcal), tomatoes, heritage wheat, maple syrup, tea and sometimes Marijuana. The concept has also crossed to other Protected Appellations of Origin (PDOs a form of geographical indication), products such as cheeses.”

Seth encouraged his readers to so integrate the concept of Terrior into their life and work that anyone could immediately identify even the smallest and most insignificant product they create as something that belongs uniquely to that reader.

So there you have it. Comfort Vs Capacity. If your farm has the soil and climate to grow the grapes that make a fine dry white wine, grow the kind of grapes that will produce the best possible wine your farm can produce. If those conditions are not good for red wines, don’t try to produce grapes that are inappropriate for your farm’s capacity.

The farmer is responsible for “running the race” to be the best possible producer of the particular kind of wine his land can produce. He has a hard job tending the vines, deciding when to harvest his crop, on the type of yeast he will use in the fermentation process, and how to age his product to make certain it is the best it can possibly be. The kind of oak the farmer uses to age the wine will have an effect on the outcome of the process. Just like you, the barrels of your life will have an effect on how you age into the unique product that is you. Your friends, your church, your employer will all contribute to the outcome of your life.

I think the Rabbi is correct. Determining the difference between comfort and capacity is a difficult job. We all come front loaded with cultural and family baggage that makes it very difficult to discover who we actually are and why God put us on this planet. Living a life while simultaneously discovering how to live a life is a complex iterative design process that ideally should spiral upwards into a direction of self actualization. All too often we become envious of another person’s talent, beauty, or opportunities rather than focusing on the effort and wisdom required to produce a good outcome in our own life.

It all matters.
The soil; the climate; we have been given.
The decisions we make. The seeds we choose to plant. When to plant; how we choose to tend our garden; when to gather in the Harvest.
The level of effort we add daily to the gifts we have received from God.
The containers that age and enhance the product that will hopefully, someday, become everything God created us to be.

Breakfast at the Karma Cafe

This morning I was waiting in the drive through line at McDonald’s to get my breakfast sandwich, cost $3.78. When I went to pay, the girl at the window told me the woman in the van in front of me paid for my sandwich. I tried to pay for the order from the car behind me. It cost $9.78. I only had $7.00 in my billfold. So the guy behind me got a $7.00 discount on his order.

I wonder where that little chain of blessings will end.

At the time I was listening to the last half of an old Joel Osteen sermon on my car radio, #469 Freedom from Competition, if you are interested. What Joel was teaching is called Mudita or Sympathetic Joy by the Buddhists. They consider it one of the four sublime or heavenly abodes. When you are experiencing pleasure as you witness the success and happiness of another, you are in heaven. The opposite of Mudita is envy or schadenfreude, taking pleasure in the misfortunes of others. When we experience envy, one of the seven deadly sins, or take pleasure in the sufferings of others it must be a foretaste of Hell.

The sages consider Mudita the most difficult of the four immeasurables to practice. Maybe the sages are wrong. Through a simple random act of generosity, the woman in front of me in line was experiencing sympathetic joy and giving others to opportunity to join her in a heavenly place.

Jesus paid the price so that I, a man condemned to death, might live and experience joy in heavenly places.

What are the implications of this model for His followers?

It's All About the Numbers

I have a problem with my weight. This is a result of decisions I have made and the way I have lived my life. I have spent way too many hours parked in front of a computer screen and too little time engaged in cardiovascular activities. I am doing better. I walk almost every day. Individual decisions made daily are changing the way I live my life. I have lost somewhere between 35 and 40 pounds, but I have plateaued. I am nowhere near my goal. I am not doing so well on the left hand side of the weight equation.

Food In = Fat Stored + Calories Spent (Exercise)

My diet still contains too many carbohydrates, too much animal fat, not to mention the beer that I drink before I go to sleep. I haven’t made very many changes in this part of the equation. If I want to reach my goal, I am going to need to make better Food In decisions over an extended period of time.

The scale doesn’t care about how hard I try, my genetic predispositions, or any personal problems I might encounter along the way. I get on the scale. It tells me how much I weigh. If I want that number to drop, I have to do one of two things. Eat less or exercise more.

Financial problems are no different. Whether they are your personal problems or the problems of a multinational corporation earning billions in profits every year, the money equation doesn’t care about your personal interests, good intentions, bad luck, lack of opportunity, or any unfairness you may encounter in your life. It just reports the cumulative results of your decisions over time.

Money In = Money Stored + Money Spent

People who have not worked in laboratories, believe that Science give precise repeatable results. That isn’t quite true. How an experiment is constructed as well as the limits of the instrumentation affect the accuracy of the results. When dealing with complex systems in the real world, it is difficult to account for every conceivable variable. The results of a particular experiment can fluctuate. However, as you run and refine the experiment over time, a pretty clear picture of reality will begin to appear. In a paper the result of a certain experiment might be reported as, 100 pounds drag force, plus or minus 5 pounds with 95% confidence. In other words, you can expect drag forces between 95 pounds and 105 pounds 95% of the time.

Your life is a unique experiment. The decisions you make; the exact conditions of your environment; the improbable events we term good luck or bad luck all have their effects on your results. However, just as a knowledgeable personal trainer looking at my diet, age, and exercise program can make some reasonable guesses as to the outcome of my battle with the bulge, it is possible to make some general predictions about a group of people who live their lives making similar decisions.

Consider: A fifty five year old midlevel (average) engineer can expect to earn somewhere around $125,000 a year; maybe a little more in private industry; maybe a little less in the Government. Stanley and Danko would predict this particular average engineer would have a total net worth of $687,000. Those are just average numbers. There is a range of results. I expect someone somewhere could provide us with an in depth statistical analysis of engineering salaries.

Consider: A fifty year old general manager of a McDonald’s restaurant. Glassdoor reports that she would be earning somewhere between $30,630 and $63,000 per year. Average earnings for a McDonald’s manager are $45,945. Let’s assume, given her age she is somewhere near the top of the range, $60,000. Danko and Stanley would predict her net worth as being close to $300,000.

If your life is not producing the results that you desire, it is up to you change your decision making process. Make better decisions. Then over time, I can state with a high degree of confidence that you will change your life.

Find a field of interest where there will be a demand for your services. You don’t need to be a nuclear qualified welder or a engineer with a MS and a PE license to find a job. I know several plumbers. Two of them lived in houses that cost considerably more than the house this mechanical engineer inhabited during those years. If you consistently work uncompensated overtime in a salaried position, it is likely that your supervisor will notice. There is no guarantee, but if he is just (from personal experience I can tell you not all of them are) you will be rewarded for your faithfulness. For most entry level positions, just showing up on time on a regular basis will put you somewhere near the front of the pack. Add a good attitude, a solid work ethic, and personal honesty to the equation. It is unlikely that you will remain at an entry level for very long.

Once you have a goal, seek expert advice, a role model, or better yet a mentor to take those first steps. I started learning about investments from more experienced coworkers, and a conservative value investment newsletter. I have never stopped trying to find writers and experts who know more than I know. Somewhere, somebody is doing what you want to do and succeeding. Seek them out. Read their book. Ask them questions.

It is not my job to tell you how to live your life or how to attack the money equation. You can choose to work harder or smarter. You can choose to learn about how to manage Money Stored. There are men and women who have no job other than managing their money. You can even learn how to live a better life on less money.

It is the purpose of this blog to help you explore pathways to financial freedom, whatever that might mean to you. Spend some time seeking peace through prayer or meditation. Then analyze your problem in a calm dispassionate manner, understanding that you are not your problem. Decide on a goal that is meaningful and believable--to you. Then without excuse, explanation, or retelling your personal story propose something that you can do to move closer to that goal.

Then take action.

James 1:5
If any of you lacks wisdom, you should ask God, who gives generously to all without finding fault, and it will be given to you.

We Get Paid What We Are Worth (At least most of the time)

The man who says I can and the man who says I can’t are both usually right.
(attributed to Henry Ford)

This year Kobe Bryant will earn a base salary of $23.5 Million. Last year his base salary plus various incentives and bonuses topped out at $30.5 Million. In addition he picked up $31 Million from endorsement contracts. That’s a total of $62 Million in one year for playing basketball. I could be wrong but I doubt that Kobe averages 30 hours a week practicing and playing basketball. How much is that an hour?

Why does Kobe Bryant earn $62 Million a year? Because the marketplace believes he is worth it. When he signed that contract he was the best basketball player in the world. The owner of the Los Angles Lakers, his general manager, his head coach, and all those companies intent on cashing in on his name believed that Kobe’s presence on the court would generate that kind of income for the Lakers organization or increased sales of somebody's basketball shoes. Age and injuries are slowing Kobe down. It is unlikely he will get that kind of money from his next contract—if there is a next contract.

By comparison Howard Schultz the CEO of Starbucks earns a paltry $21.8 Million a year. He was the son of a poor truck driver, who went to work for Starbucks when it was a small unknown company. When the management of Starbucks wouldn’t listen to Schultz’s vision for the future of their tiny company, he left to start his own coffee bar. He didn’t have anywhere near the $400,000 he needed to open his business, but a rich doctor impressed with his work ethic and ability to take a calculated risk bankrolled his first shop. Two years later Howard Schultz bought out Starbucks for a measly $3.8 Million. His drive and energy has built Starbucks into a world respected brand with over 21,000 stores in more than 65 different countries. Men like Howard Schultz don’t work 40 hour weeks. I expect 60 hours or more a week would be typical.

If I was a shareholder I would vote to give him a raise. I think Howard Schultz is underpaid.

Currently baristas earn between $7.63 and $10.63 per hour. Although a particular barista might be a fine person, he is basically a human robot performing a number of simple repetitive tasks. The marketplace, the law of supply and demand, determines his economic value to the marketplace. Walmart and Starbucks have both recently announced blanket increases in salaries for entry level employee. Walmart was honest. They said they could no longer retain the kind of employees they want given their current wage scale. I couldn’t find a reason for the Starbucks announcement, but I bet their thinking is similar.

In addition Howard Schultz is now offering his employees free college tuition in any major they choose, not just those that might benefit the Starbucks organization. Think about it. He has a sweetheart deal with the online branch of Arizona State University, a well respected school. Given the cost of the Georgia Tech online Master’s in computer science that might cost Starbucks something like $3,500 per employee per year. Businesses using low skill labor typically have high employee turnover. Schultz will get to keep intelligent, highly motivated employees for a minimum of four years at an additional cost of maybe, a $1.75 an hour.

Oh, by the way, Starbucks employees give their employer a four star rating on the Glassdoor website. That is a pretty decent endorsement of a low wage employer.

Freedom guarantees inequality.

Meta-narratives are important. Once I was talking with a first generation Asian co-op at our lab about his high school experience. He casually, thoughtlessly, dropped a bombshell. In passing, he observed, “Of course I do well in math. I’m Asian. We all do well in math.” Besides working as a co-op at a Government laboratory to juice his college applications, he also ran a car detailing business on the side. He was very proud of his business.

If your meta-narrative includes statements like I can’t, or it doesn’t matter if I try because…, or the little guy doesn’t have a chance, or I deserve special treatment because I have special needs, I can predict the outcome of your financial life with a reasonable level of accuracy.

I don’t want to ever be found guilty of telling people what they can’t do. I don’t want to tell them they need special treatment because they can’t make it on their own. I want you to find a way to turn your skill set and opportunities into financial freedom, whatever that means to you. No matter your current condition you can do better; you can do more with life.

There are no guarantees. Life isn’t always fair. I know people who have seriously screwed up financial lives because of misfortunes beyond their control. However, I can make the statement that certain types of behaviors will produce certain kinds of results within a given range with a reasonable degree of confidence.

Take some time. Look at your own personal meta-narrative. As Doctor Phil says, “How’s that working out for you?” If you believe that life is basically unfair; that there is no hope for the little guy; that there is no use in trying; it pretty likely you will never fulfill your destiny. Instead, look for opportunities; commit to out working the completion; and never, ever give up.

The Chinese call America the golden mountain. When they come to this country they say they have come here to climb the golden mountain. You have that same opportunity. Make the decision. Make it today. Go out there and climb that golden mountain.

When I was 35, It Was a Very Good Year

When young (less than thirty something) the main concern is controlling debt. First student debt, then “household formation” debt generated by filling that starter home with stuff and the carport with minivans and SUVs. Start saving for retirement at 22 (just like the books all teach). Don’t really worry all that much about your first investments. Keep it simple. Buy low cost stock index funds. Keep 10% or 15% in bonds. You’ll be OK. Even at this young age, estate planning is a consideration. If there are minor children in the picture you will need a lot of term life insurance. Numbers like $250,000 per child or 10 times annual salary have been suggested.

Don’t forget you need a will, if only to determine custody of your children in the case of death.

During your middle years (say 35 to 55) the stakes get higher and your time to retirement begins to loom closer. Hopefully, at least 15% or more of your income is going into tax favored investments (401-K or Roth IRA). Hopefully, something over that 15% is going into your taxable investment account. It is time to begin to schedule numerical milestones for your long term goals. Sometime during your forties, you might want to consider disability insurance. If you work in a dangerous occupation, like logging, you might want to consider disability insurance at an earlier age. Studies indicate that we reach our decision making peak around age 55, a time when the product of mental acuity and experience maxes out. If you are going to take a few calculated risks, this is the time. You have the money. You still have your earning power to recover from mistakes. If you have been doing the right things you will have the judgment and experience.

As you pass into your sixties, it is time to decide when to pull the plug and retire. When people ask me, “Should I retire?”

I answer, “Are you still having fun?” If the answer is yes, keep working. If no, then ask, “Are you able to retire?”

Usually, the answer is, “No.” Excessive debt and kids still in college are the usual reasons. Then we develop the start of a simple outline that will get my friend or coworker from point A to point B.

As you pass from 55 to 65 the stakes get really big. These are your peak earning years. It is time to start considering tax planning as an integral part of every significant financial decision. How you choose to structure your income sources, when you begin taking Social Security will have significant tax implications. During these years, assume that you will grow old. Both your body and mind are likely to decline to a point that you can no longer make decisions or care for yourself. Therefore, it is time to investigate trusts to manage and protect your money if you are no longer up to the task. It is time to bring your adult children into your decision making process. It isn’t yet time to let them make your decisions for you, but it is time that they understand what you have, where it is located, and why you are doing what you are doing. The day might come when they will need that information at their fingertips.

At 60 look into long term care insurance. A current rule of thumb suggests that if your net worth is under $500,000 you can’t afford it. If your net worth is over $1,000,000 you don’t need it. Self insure. If your net worth is somewhere between those two numbers, long term care insurance might be a good idea.

Let’s assume you retire at 65, the year Medicare kicks in. The first few years of retirement are the most dangerous years from an investment point of view. Be careful. Be more careful than most of the literature recommends. A stock market crash in those early years of retirement could have disastrous consequence that could haunt you for the rest of your life as well as destroy your plans for your children and grandchildren. You no longer have a job. Even if you can get your old job back, an unlikely scenario, you don’t have the years necessary to recover. If you have planned well, you can begin to take greater (not great) risks as it becomes apparent that it is not likely that you will need some of that money during what remains of your lifetime.

A very good option is gifting children and grandchildren while you are still alive. You can give up to $14,000 per person per year to anybody without any tax consequences for you or for them. Think of the good you could do while you were still alive? Every year, you could fully fund a Roth IRA for a child and her spouse. Where could you put your money that would be better protected from the taxman than in a child’s Roth IRA? You could fund 529 college savings plans for your grandchildren.

A good man leaves an inheritance to his children’s children.

Have a very good year. Enjoy every season of life in its turn. My prayer is that you use your money wisely and well; that you are blessed with good health, long life, and beautiful happy children who will make you proud.

Then with old blue eyes, you can sing:

But now the days are short,
I'm in the autumn of my years
And I think of my life as vintage wine
From fine old kegs
From the brim to the dregs
It poured sweet and clear
It was a very good year