Year: 2020

One of the activities that is part of the new year reset is a preliminary closing of the books for our household. While the final closing happens after tax season, we have enough information now to tally our income, expense, tax contribution, and savings.

All of these help me look at two sets of ratios –
1. Expenses %, Taxes %, and Savings % of total income
2. Growth in Expenses, Taxes, and Savings since the previous year

(example in this sheet)

The next step is to take a look at the breakdown of expenses to understand the biggest changes during the year (illustrated in the sheet linked above).

Doing these two steps answers 3 important questions –

1. How well are we doing with saving our money?: I pay more attention to the rate of savings than I do raw savings amount. The latter can go up simply by means of income going up. However, the savings rate doesn’t lie – it tells us how quickly our lifestyle is getting upgraded.

It is important to acknowledge here that it is okay to upgrade our lifestyle. It is just important to do it in a thoughtful way. Doing so in “category 1” expenses often mean we are climbing the hedonic treadmill (better home, better car, etc.  – this has long term consequences). And, doing so in “category 2” expenses means it is easier to cut back since this is in the bucket of guilt free spending. In either case, this is a good time to take stock of these expenses and ask ourselves if they are indeed making a difference to our happiness.

The other benefit of savings rate is understanding how much attention we need to pay to our expenses in the coming year. If the savings rate is between 0%-20%, I’d recommend paying a lot of attention. Budgets may be helpful. If it is between 20%-40%, some amount of regular attention is good. And, if it is in excess of 40%, you are in a decent spot.

Regardless, you’ll want to spend a bit of time looking at which categories grew this year. In my experience, there isn’t much insight to be gleaned here – if you’ve been reasonably plugged in, there should be no surprises here.

Finally, there are two reasons to not worry about temporary dips in your savings rate. The first is a jump in your tax bracket – this is a side effect of a good thing and you’ll be able to readjust next year. And, the second is a temporary expense – e.g. sending two kids below 5 to childcare. The only important caveat here is to beware marking too many expenses as temporary. There are always going to be surprises and unexpected expenditures.

2) How are income, expenses, taxes, and savings growing every year?: This is a very important piece of the puzzle – every one of these numbers tells us something.

Income growth tells us how we are doing in our career/business. It may lead to important questions like – do I need to pivot careers? do I need to re-negotiate my salary? do I need to quit this job and go out on my own or vice versa?

Expense growth, tax growth, and savings growth all have an effect on each other and lead to different insights. For example, it is vital that expense growth stays lower than income growth. If this is not true, there better be good reasons.

And, second, if tax growth has been rapid and is increasingly a big part of your mix, it may be time to hire a tax consultant to make sure you’re not making any mistakes.

3) Are we being thoughtful about investing what we save?: This takes us to the next sheet and is about ensuring we’re getting the basics right. There isn’t a right answer here as it depends on your goals. But, it is an important to check to make sure you’re being thoughtful about what you are holding in cash vs. investing.

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The preliminary close of the books is an important part of the yearly financial reset. If all is mostly going well, then that’s great. But, if not, it is important to plan some concerted effort toward improving our processes.

Our finances are a foundation for long term happiness and are a reflection of both the privilege and the career and lifestyle choices we make. As a result, they can help point the way to making better choices to make our financial engine work better.  When this engine is working well, it acts as an enabler and gives us opportunities to increase our day-to-day and year-to-year happiness.

When it isn’t, it messes with our heads and our relationships.

It is worth paying attention to.

I shared a post – using Liverpool Football Club as an example – about how the benefits of good decisions compound over time a few months ago.

In it, I chronicled the yearly improvement Liverpool FC had made since they hired a long-term thinker with a great attitude to be their manager. The progress they made was as follows –

Season 1: 8th in the league
Season 2 (first full season): 4th
Season 3: 4th, Runner up in European Champion’s League
Season 4: 2nd (broke record for 2nd place points total), Winner of European Champion’s League

At the time of writing, they had just qualified for the final. They went on to win. They went on to narrowly miss being the League champions recording the highest 2nd place points total.

But, this season, they’ve left nothing to chance. In the 20 games played so far, they’ve won 19 and drawn 1. Exceptional.

Recently, after winning the Club world cup and becoming the top club team in the world, the manager of an opponent in England said this – “They won every first ball, every second ball, ran forward and back. They had the humility to do that as world champions.”

To this, a football journalist on Football365 had this to say.

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They may be built on an advanced premise and technically impressive players, but they provoke something other than cold admiration. When they click through their gears on the counter-attack and players flare off in every direction, the response isn’t just to purse the lips and note the literal mechanics of the transition. Instead, it’s to marvel at how eager those players are to be at the end of one of those moves. How much distance they’re willing to cover – at top speed – to sustain them.

The real appreciation actually comes from recognising how exhausting it all looks; that’s what allows those who watch Liverpool to feel their work on the pitch.

It also embodies the humility Wilder speaks of. In this instance he was using it to flog his own players, but what he recognises is that even now, with the European Cup won and the Premier League pretty much in the bag, Liverpool have a respect for the game’s absolute basics. Not passing and moving and defensive discipline, but all the primary.

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He finished his piece with this note.

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Liverpool will presumably win the Premier League towards the middle of April and that will be the proper time for their accolades. But Thursday’s win over Sheffield United allowed them to complete a calendar year unbeaten in the Premier League and that, of course, is worth tribute in itself. Particularly because of the way in which that sequence has been maintained. Think of them, perhaps, as a piano which never goes out of tune, or a tennis racket with perfect string tension. Jurgen Klopp has kept Liverpool’s pitch for a very long time and in spite of some significant obstacles. Not least their own success, which can be a debilitating elixir.

And he’s had to be vigilant because – actually – drained of its energy, his team can be quite mundane. Individually, they have impressive components upon whom they can lean – Virgil van Dijk, Sadio Mane, Trent Alexander-Arnold, Mohamed Salah and the rest – but their talent alone doesn’t provide an overwhelming advantage. Certainly not over a side like Manchester City and not in a way which would allow them just to scythe through the fixture list.

What creates that, instead, is this humility: the willingness to keep running and to keep playing with the same intensity. That is what causes opponents to crack and creates the weakness in their outer shell. It’s also Klopp’s most alluring achievement – because it’s so scarce. Having ideas about how the game should be played is easy. Every coach with a whistle and a set of training cones has a philosophy and an impressive-sounding list of influences. But bringing that vision to life and then holding it at its apex is a different sort of challenge.

But it’s been cleared. The substance of this success has been to stop the minds from dulling and, somehow, keep the legs from becoming heavy and reluctant. As a piece of man-management, it’s been remarkable.

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Remarkable indeed.

I took some time during this reflection season to better clarify and articulate my values and cultural tenets. For the longest of time, I thought of “people,” “learning,” and “contribution” as my values but seemed to change my cultural tenets from time to time and, unsurprisingly, never remember the list of the moment.

A big part of the reflection this year was attempting to boil what I valued to two things (more on this in an upcoming post). And, as soon as I did that, I found clarity in expressing what my cultural tenets were and why writing here has changed my life.

Constraints are powerful.

As part of this exercise, I updated my About page. Here’s the revamped section.

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I value living and working with doers and contributing to problems that matter. The simplified 2 word articulation would be – People and Contribution.

My personal cultural tenets – a.k.a how I show up – are:
Integrity: I do what I say I will do
Hunger: I approach my priorities with an obsessive attention to contribution
Learning: I focus on what and how I’m learning above how I’m doing

This blog is central to those cultural tenets. The discipline of writing everyday has given me the confidence in my ability to keep my own word. It has served as an outlet for my obsessive attention to contribution and taught me to contribute by first being the change I wish to see in the world. And, most importantly, it continues to inspire a learning focused mindset that values becoming over being.

In short, it has shaped me to be me.

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I realized over the last week that this blog now crossed 5000 posts in October. And, I wanted to take a moment to thank you for coming along for the ride. Writing here is extra special thanks to your notes and responses. :-)

With all of the noise that accompanies the dawn of a new year (or decade), we sometimes lose sight of why these landmarks matter.

The magic of the new year eve isn’t in the celebration or some forced personal milestone. It is in the opportunity we have to hit reset.

Your reset milestone doesn’t have to be new year’s day. It can be any day of the year. It can also be every day of the year. The important thing is to simply set some milestones so you can compartmentalize and reset.

My favorite compartments are weeks, half-years, and years. So, every week, half-year, and year, I give myself the opportunity to hit reset. The longer the compartment, the more deep the reset.

So, during the weekends, the reset is simply limited to re-focusing on what matters. During the mid-year mark, the reset examines what I’m learning, how I’m taking care of myself, and some time spent on my finances. And, during the year mark, it means pencilling time to re-examine all my baggage – physical, digital, and mental.

Resets are powerful. They help us get rid of the baggage, re-focus, and recommit.

All we need to do is periodically give ourselves the opportunity to do so.