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Monday, March 27, 2017

The Broken Mind

Posted by Tim Stobbs on December 14, 2015

Every once in a while I have a conversation with someone where I find myself looking at them like they are an alien. I just don’t understand their point of view or thought process to arrive at their conclusion.  This likely has something to do with the fact I really don’t consider myself much of a consumer anymore.  After all from a typically consumer point of view their spending tends to focus on: buying tickets, shopping or eating at restaurants.  Of course from the other side of the conversation…I know they see me as the one with the broken mind.

In fact, they would be a fairly accurate statement: I am broken.  I took a hammer to my assumptions in life and smashed them to bits and then rebuilt my view of the world over a number of years.  I won’t lie…it hurt like hell.  After all it is sort of mind blowing to realize just how much money you spent over the years on stuff that you can’t even remember now (for example, think back to to last time you ate out then go back two more times prior to that…what did you order?  I have no idea either).  Or the fact, despite our desire for control we really have almost none in our lives.  I can control what goes on in my head, but after that my level of influence drops exponentially with ever inch away from my body.  Or realize you did certain things because you thought you needed to but no one if fact cares about the size of your TV.

The advantage of smashing up your mind is you get to determine what actually matters to you and then plan your existence around that.  The start of this may seem easy after all you can focus on what matters most to you.  Yet over time you run into a particular paradox feedback loop.  Your first decision wasn’t aligned typically with your last decision as such to fully optimize the your life you need to go back and align all your previously choices.  Yet by changing your choices you also change the context of those choices, which then requires further adjustments to other choices.  In summary, you realize you can NEVER have a perfect life since when you change any given thing you can have unintended changes to another part of your life.  Change is an endless circle that can never be finished.

This is an important lesson to learn in life.  Since once you have let go of perfection, you can embrace life as it is rather than endlessly wanting more to get closer to being perfect.  In Matrix talk you learn…there is no spoon. Perfection is an ideal illusion with no grounding in actual reality.  Reality is about seeing the world as it is rather than what you want.  So I can stop buying crap since I know it will never make me perfect in any way.  I will never have the perfect: hair, outfit, shoes, or room…instead I have what I have and I can either love it or get rid of it.  Any other choice is really just a waste of time and/or money (which by the way is really the same thing since your money is just the accumulation of previous time devoted to making money or for investors utilizing other people’s time to increase your accumulation of money).

In the end I have let go of perfect and are trying to live more in the world as it is.  It isn’t always easy but it does help a lot with the holiday stress…I don’t worry about the perfect gift but rather just one I think they will like.  How do you let go of perfection?

The Time Paradox

Posted by Tim Stobbs on December 7, 2015

Everyone is equal in time.  Just we happened to actually manage to forget that a lot which causes all sorts of interesting side effects in our lives.  We all have the same 24 hours in a day. Despite all the time management tips in the world you can’t add time to your day, week, month or year.  Time is one of the great things in this life as it is completely fair playing field for everyone.  Time doesn’t give a crap if you are worth billions or don’t have a dollar to your name: you still get the same amount each day.

Yet oddly enough people will often perceive their time as being more valuable than yours.  This often done on a basis on how much income you make thus your boss who makes more than you will consider his hour long meeting more important than your meeting so you are asked to reschedule your meeting. Or a person will cut you off in traffic as they are under the illusion their time is more important than yours thus they need to be that car length in front of you to get to work an entire three seconds earlier than you.  Yet that perceive monetary value of time is purely an illusion (most of the time). Since people can’t often sell there additional time at will (unless perhaps your a consultant and can choose to pickup more work), instead for people on a salary they can’t sell an extra hour to earn even more (unless you have  a second job or side business).

So this particular idea thinking your time is more valuable than others  leads people consider themselves time starved when in fact they really do have the same amount of time as everyone else.   This belief around their time makes results in them doing entirely stupid things in order to ‘gain more time’.  For example a common one is hiring someone to do something you can do yourself: like cleaning the house.  They justify the action by saying their time is more valuable than then cleaning staff thus when they ‘buy’ that extra hour a week.  Yet what people often fail to realize that how long you need to work on an after tax basis to earn the money to pay for the cleaning staff (or the fact as I previously mentioned lots of people can’t sell additional time easily).  So it is entirely possible that paying someone to ‘gain’ an hour a week may in fact cost you 1.25 hours of work time.  Net when you do the math you actually be behind.

Another problem of considering the dollar value of time of your time is the fact you ignore the fact that your time can not be replaced or exchanged.  Exchanging time for money is common as dirt now a days, but time itself is actually fairly priceless as you can’t get it back.  Once you sell an hour of your life you can never get it back, so in fact on a monetary basis time’s value to can be infinite.  It just depends on what part of your life  you are selling that time from.  For example, if you are referring to as waiting for an appointment is perceived to by a low worth period of time while the last hour of your life to say goodbye to your love ones is literally priceless.  Yet in the end, you can’t get a refund on your time spent and you can’t go back and swap out part of time for other parts.  Each moment is literally a priceless piece of your existence that you will never get back.

So how do you mange your time to extract the most value from it?  I personally like to think back to your happy  memories and consider what you were doing at that moment.  Likely it was spending time with friends, doing something enjoyable to you, or accomplishing something meaningful to yourself.  The odds are your happy memories likely have nothing to do with taking out the trash, brushing your teeth or attending a staff meeting.  Then if you consider the fact if you are sleeping eight hours a day you are blowing through a third of your day being unconscious.  So if you add up the happy times versus everything else you would likely find a 80%/20% split over even 10%/90% where the majority of your time isn’t doing things that make you happy.

Once you see that you can notice to make better use of your time you should focus on making the happy times a priority in your daily life.  Forget about your times perceived monetary value but in fact consider how rare it is to actually feel joy in your life.  Then if you can increase your happy time by just 5% of your year you will likely be significantly more satisfied with your life.  So make time for that which you enjoy, stop worrying about work and actually take your lunch hour to do something you like: reading a book, go for a walk, or visit with a friend over a coffee.  Make the opportunities for being happy in your life more frequent and you will get better value from your time than worrying about how busy you are.

So how do you make being happy a priority in your day?  What do you like to do?

Retirement Basics: Spending

Posted by Tim Stobbs on December 5, 2015

When planning your retirement you need certain basic things that just really can’t be avoided if you want to have a good plan.  This isn’t to say your plan needs to be a 332 pages bound document with appendices, but rather you need to have an idea of what you want to do, how you will get there and what everything will cost.

Ironically when starting planning most people start the the wrong spot.  We want to think about all the wonderful things we would like to do with our new found free time or we want a savings target to work towards. Wrong. Stop. Halt! Wrong idea folks.

What you really need to start doing is so basic it isn’t even funny. You need to answer the following question:

Where does your money go right now?

Yep, that’s it.  Not hard right? Well expect it seems that most people don’t have a bloody clue where all the money goes each month. So let’s start with how many dollars did you save last month?  Do you even know or have a clue on how to find out? I suggest starting to look at your transactions in your chequing account.  What investments do you normally make and what do you save for? Kids RESP, did you put money aside for a house down payment? Also did you remember to include your pension deduction or group RRSP that came off your cheque prior to going into your bank account?  After a bit of effort you should be able to find out that number, just don’t include any delayed spending such as saving up for a vacation or your annual house insurance bill.

Now the second part, what on earth are you spending your money on?  If you look at your credit card do you even remember all that times you used it?  After a month it can get a bit fuzzy, which is why I signed up for Mint Canada which pulls all that information together for me.  Then I sit down with my wife and we classify the spending about once a month.  It doesn’t have to be perfect, but it should help give you an idea on where the money is going.

The last part of your spending is going to be hard if you use it: cash.  Cash is so easy to spend and not keep track of, so I installed a basic spending tracking app on my phone and then enter in a note when I spend cash.  Other people like paper and keep a notebook.  So people just keep receipts for everything and enter them in a spreadsheet once a month.  Try out several different means to track your little spending.  Just don’t worry if it isn’t perfect.  I still miss the odd transaction myself, but typically it is under $5 in a month.

Now armed with this information you can do some fun calculations like: your after tax savings percentage.  To calculate add up all your savings and divide it by your take home pay plus any pension savings.  A month of data for this is okay, but a year is even more accurate.

So it would look like this: (savings including pension)/(take home pay + any pension savings taken off on your pay stub).

This one number is basically all you need to start your retirement planning as it will tell you how long you have to continue to work at your current lifestyle assuming you have nothing saved already or very little.  The results go something like this (see here for more data points):

  • 5% or less – I hope you like slavery because your job is going to feel like that for the next 66 years.
  • 15% – You have a 43 year career ahead, so if your twenty this may be okay otherwise that could suck.
  • 25% – It’s now down to 32 years which is actually potentially okay even if your 30 years old.
  • 50% – Now we are talking, you are down to a mere 17 years of work.
  • 75% – Holy cow, you are good at savings you could be out in a mere 7 years.

So now you can see the consequence of having a low amount of savings %, you will be working for a VERY LONG TIME! Of course if you already have some savings you can divide that by your yearly savings rate and deduct that off your years to work total.  So if you save $15,000/year and you already have $30,000 saved you can deduct two years off your result ($30,000/$15,000 = 2).  So if you got 32 years as your result, you would actually have only 30 years of work left.

The point here is to realize that by choosing not to save you are also choosing a long working career.  Most people never realize this is the case and so you need to start here when you plan your retirement.  That way you can actually see the results of your choices regarding spending.  Now you can really look at your spending data from above and ask the question: is this worth it to me?  The one thing made a huge difference to myself on what I spent my money on.  Hopefully it can help you too.