On my radar

An savvy investor colleague recommended “On My Radar” – a newsletter by a fund manager called Steve Blumenthal. It’s been a positive Friday read over the past 6 months for two reasons.

First, Steve shares a nice summary on his take on where we are at in the boom-bust cycle and what he’s taking away from analysis in his firm or elsewhere. That summary alone is educational.

Second, he shares a synthesis of 3-4 key pieces of analysis he’d like us to pay attention to. I only read this section from time to time. But, whenever I do, I’m not disappointed.

I don’t spend much time thinking or worrying about the markets. There was a brief period last year when I did as I was experimenting with some active stock investing. I realized quickly that I don’t enjoy it one bit and have automated the process. That said, I do like to have a pulse on what is going on. And, “On My Radar” does a great job helping me do that.

Here are the archives in case you are interested. If you do sign up, I hope you find it useful.

A finance thesis sheet

Managing finances is a lot like managing our teams, work or lives. The principles we need to do a good job as managers of our finances are easily accessible – a penny saved is more valuable than a penny earned, compounding, time value of money, and diversification among others. There are many ways to apply these principles and it is on us to pick our own philosophy and style.

Like a management philosophy, picking a financial philosophy involves making peace with the fact that it won’t work at all times and in all situations. Every process has a range of expected outcomes. So, if we choose to be a low risk investor who expects to spend very little bandwidth thinking about money, we can’t expect to make an investment that gives us 1000% return. It may happen. But, the more likely scenario is that it won’t.

The challenge, however, is that we don’t start off knowing what kind of manager or investor we are. Luckily, thanks to the scientific method, that is a solved problem. We pick a hypothesis and begin working toward it. As we experiment and inevitably fail, we begin to learn and develop an approach that begins to work for us.

And, I’ve found that a reliable way to ensure that we’re extracting all possible lessons from our stumbles is to maintain a finance thesis sheet. The only requirement to maintain this is write out these principles, your philosophy, and your hypothesis. Then, keep a log of every key financial decision you make and what you learn from it.

Over time, this thesis sheet will become richer and better and will enable us to iterate our way into a style that suits us.

Just as in management and life.

Hacking money, travel and points with Chris Hutchins

I enjoyed a podcast on “Hacking money, travel and points” with Chris Hutchins, the founder of a personal finance app, and Kevin Rose (VC at True Ventures and founder of Digg). Every few months, I seek out a refresher on how to think about personal finance. My objective is rarely about learning something new as the principles rarely change. But, I’m beginning to appreciate the value of revisiting important topics to further help me synthesize.

Nuggets / top reminders

  • Retirement: Multiply what you will need per year after retirement x 25 – that’s the size of your retirement fund. Most folks don’t know what their retirement fund should be (I didn’t think about this previously as well).
  • Learn to have conversations about your salary: After a certain point in your career, this ends up making a huge difference.
  • House: If you’re ever considering buying a house, consider it carefully. It’ll likely be the largest purchase in your lifetime.

Confirmation / Things I do (mostly)

  • Credit Karma: Monitor your credit card status – important if you live in the US.
  • Save.
  • Spend on happiness versus things.
  • Cook and eat healthy.
  • Use low cost ETFs via vanguard. Consider a target date retirement fund. That does what robo advisors like Wealthfront do.

Things I’m not sure I want to do

  • Credit card points: Their conversation about credit cards was fascinating even if I know I’d never go down that path. The principle was sound though – get a credit card that rewards your biggest expenses. Decide how much you want to optimize. Chase (for those in the US) has great cards.
  • Travel: If you travel a ton, optimize for points. Starwood points are the best points.

PS: If you’re interested in learning more about the topic, here’s an old learnographic on personal finance.

Penny saved is worth more than a penny earned

We’ve all heard the adage – a penny saved is a penny earned. While it is normally attributed to Ben Franklin, it turns out that the real author is likely 17th century Welsh poet George Herbert.

The important thing, however, is that the adage is flawed. As Andrew Tobias explains in his excellent personal finance book “The Only Investment Guide You’ll Ever Need,” these were written at a time before taxes were institutionalized. Now, a penny saved is worth a lot more than a penny earned because you’ll need to earn much more than one penny to ensure you save as much after taxes.

After some financial mismanagement in my undergrad period (that had knock on effects until 2 years after I graduated), I worked hard to be very diligent about spending a lot less than what I earned. It has only been 6 years since but it has enabled me to pay my way through business school without any debt. And, my learning from that is that saving is just part of a conscious lifestyle where you are mindful about every expense. A couple of ways I improve consciousness is by taking note of all expenses manually into an app called “Envelopes” – I still don’t use Mint as it is all too automatic for my taste. Every weekend, I transfer these expenses to a Google Doc that tracks my expenses – again, manually. I wrote about this process back in 2011 and it is one that has worked well for me. Given how much convenience credit cards and frictionless payments have brought to my life, I do go out of my way to ensure there is some friction at least when I’m accounting it.

All this doesn’t mean all saving and no fun. There are three areas I’ve found to be wonderful uses of money – spending it on experiences versus things, spending it on people you love and spending it on people you don’t know. I’ve come to realize that how you define experiences is a personal thing. For some people, driving every day is an experience. It matters a lot which car they drive. For us, we realize that living in a nice home is an experience because we spend a lot of time on weekends at home. Others would rather allocate that money to activities over the weekend. It matters that we allocate some of our money for “guilt free spending.” But, that can only come after we make sure we’ve saved.

Many of these lessons on personal finance are in an infographic/”learnographic” a friend and I created a couple of years back on personal finance.

penny saved, personal finance, money

Personal finance thoughts aside, simple insights like this one repeatedly demonstrate the power of books to change our lives. In the four weeks since I’ve read the book, I find myself repeatedly remembering the fact that dollars saved are worth more than dollars earned as I make spending decisions.

It is an incredibly valuable reminder… literally.

HT: Seth for the book recommendation

A few thoughts on making money work for you

Working for money is not a nice place to be. You only work for money when you can’t do without it. When you live well below your means, you firmly ensure that it works for you. The good news is that you can work towards turning the relationship around with a few changes to your lifestyle. A few ideas –

1. Drink more water. The cost of carbonated beverages and alcohol add up over time. Water is largely free, incredibly tasty and, as an added bonus, great for your health too. Easy way to save $35-$40 per week / $1600 per year.

2. Eat food at/from home. If you need a lot of food to be energetic, consider taking a few simple sandwiches and fruits with you. The biggest benefits come when you begin packing lunch. And, definitely eat dinner at home. That can save about $140 a week  / $7280 per year.

3. Develop a taste for low cost fun. Every weekend needn’t be expensive. Try board games, pot luck dinners, and simpler gatherings. Yes, I recognize that this list appeals more to introverts. Mix it up a bit perhaps.

4. Allow space in your budget for some guilt free spending. This way, you keep your willpower reserves intact and also enjoy your money.

5. Spend money where you spend your time. If you spend 12 hours on a computer desk – invest in a nice screen, a comfortable keyboard, and a nice mouse. Don’t skimp on stuff that you will use a lot and definitely don’t skimp on tools that help you get more done – e.g. if you can clear more emails or listen to more books on your commute on a tablet, invest in one. Similarly, don’t compromise on a comfortable duvet. If you don’t sleep well, the rest of your day is useless.

6. Invest in your long term happiness by spending on great experiences rather than things. Go for that iconic trip to the Canadian Rockies or that road trip to the Gold Coast. They’re memories that will stay with you forever. You get used to regular luxuries (e.g. an expensive car) real quick.

7. Invest in your learning. Don’t skimp on a good education or books on a regular basis. These things generally pay themselves forward with better jobs and higher earning potential.

8. Give. Giving helps us gain some perspective about how much we have. Happiness is key to spending wisely.

9. Invest for the long term in indexes. I gave estimates on the first two items just to illustrate the power of long term decisions. Assume you have around $10,000 this year by saving on food and water and invest in an S&P 500 index that Warren Buffet recommends, that will be worth $102,000 in 40 years assuming a standard 6% real return. Imagine if we did this every year and if the amount were bigger with the aide of low cost fun and other savings.

Money is just a tool. We just need to learn how to use it well so it doesn’t get in the way of our happiness. Live frugal by investing in things you really need. Spend consciously.

It may sound a bit boring.. but, not having to worry about whether you have enough money for this or that sure is a lot of fun.

The Personal Finance Learnographic

First up, the news – We, the Learnographics team, are back with a new learnographic. A learnographic, as you might have guessed, is a synthesis of learnings from a book (or a couple of books ona  topic). In the spirit of starting with “why,” I’d like to share our thesis on learnographics –

We believe that our progress as a species occurs when we find, build and share great ideas. We also believe in the power of learning, reflecting, and sharing ideas in living happy lives. Books are a big source of learning and ideas and we’ve embarked on a mission to spread ideas from our favourite books.

After our first learnographic on willpower last year, we took a bit of a break as we thought about how we wanted to make this process sustainable. Our promise for this year is release 4 learnographics by the end of the year – 2 in the first half and 2 in the second. Producing these is a real labor of love – it involves us reading a bunch of books, synthesizing them, picking a book or two that we think would make for an interesting topic, illustrating them so they are easy to follow, and then sharing them with you.

We picked personal finance as it is a topic that we believe ought to get all the attention it can get. In this case, the learnographic is a synthesis of 6 books, 3 interviews, and 1 blog post.

We really hope you find it useful. Please click on the image below to see the full learnographic.


And, if you like it, please do share and spread the love. :)