Eighty Years of Family History

Bea-bopAbove you can see my great-grandmother (Beatrice). Bea was born in the late-1800s. In knowing five-generations of my family, I am the link from the 1800s through to the 2100s.

My family was involved in the early days of the province of British Columbia (forestry and shipping). Shipping sounds glamorous but the reality was barges, booms and tugs. I love being near water and trees.

ElphinstoneI never worked in the resource-focused businesses but I did work on the water at YMCA Camp Elphinstone – the photo is plaque that’s still in the Longhouse. I loved my time working in Howe Sound and summer camp. Below is where I spent many happy summers.

WaterfrontThere were successful businesses up both sides of the family tree and some very, very good business people. None of the financial capital from my elder’s success will make it through to my kids generation but the human capital of the family has remained strong.

If my great-grandparents could survey the scene today, they would likely observe that, once sold, a family business is very difficult to replace. I think they would also realize that their financial success had many unintended consequences.

Over the years we’ve been caught out by bank guaranties and leverage. It’s important to remember that one mistake, particularly when combined with bank borrowings, can blow a generation’s worth of hard work.

Indeed, in my own case, I was saved from personal bankruptcy by getting spooked by the boom of 2003-2005. I spook easily (!) but it served me well as I got through the Great Recession of 2008/2009 intact.

Always consider a bank guaranty to be the equivalent of an immediate equity investment, without operational control. Also, remember to ask, “Can I hold this investment, for up to ten years, assuming I lose my job?” Every generation has been hit by unexpected unemployment.

RAFMy elders would tell you that appearances matter, especially when you’re the little guy (in business or stature). The picture above is my great-grandfather, lone survivor of a mid-air plane collision. His son, my grandfather, made a habit of being kind and fair to everyone around him. This habit stuck with him, even as his mind unwound. Lacking kindness was my greatest weakness as a young man.

One of my earliest financial memories was being taught to never have more than 10% of my net worth in something I don’t directly control. Ignoring this advice proved costly, financially, but didn’t damage my quality of life. So pay attention to that tip, it saved the hard work of my generation of the family and you hear it repeated over-and-over by elders that have lived through severe recessions.

I’ve been an outlier with how I’ve chosen to live my life and can waste a lot of energy trying to make the world more like me. The best advice that I’ve received about living with other people is to optimize your life for the way things are, not the way you wish them to be.

There’s plenty of compulsive people in the family tree and we have a bias towards action. This trait helps you get things done. However, remember that if it won’t make a difference then you’re best to wait.

Daily, I remind myself that kindness makes a difference.

Seeing choices flow through 80 years, I hope my children develop a sense of personal success, then shift their emphasis towards loving their families, connecting with friends and improving their communities.

Getting Kids To Draw

Here’s a tip that buys me an hour when I switch the electronics off.

We visit Google Images and I let the kids pick out their own picture to color – make sure you include “coloring pages” at the end of whatever you want to draw. The picture below is “hippo coloring pages”

Hippo

I’ll let my son stand on my desk and touch the photo that he wants. He can’t believe that he gets to stand on my desk and touch the screen. Happy and excited is good.

Then he grabs the picture from the printer and I set him up at his coloring station.

Kids that are really clingy will do best with a coloring station in your office, or kitchen (depending on what you need to get done).

The coloring stations are set up apart but the kids can color together if they choose. Some days they want to be alone, other days they are OK together.

With older kids, they seem to like a mix of their own drawing and coloring. My daughter loves to make other people cards with words that we spell together.

All kids love pictures that I draw for them. I take full advantage of being able to impress my two-year old…

Gordo Hippo

A little bit of effort on my part keeps me from melting our minds by having Disney’s Frozen on endless loop.

Do you want to build a snowman?

Setting Family Financial Priorities – College and Retirement

wedding_day

What’s next? It’s tempting to think about my kids. College accounts are on my list but they aren’t the next priority.

Why?

Because kids that will be successful don’t need much help and the family (particularly a financially responsible child) gains by not having to pay for Mom and Dad’s Golden Years.

Education has an mixed return on investment. Here’s my article on how families blow more than $1 million per kid. It’s a rare family that looks at education in terms of return on investment.

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If you want to give your family a leg up then take care of yourself. Do this by max’ing out your retirement accounts – especially anything with an employer match.

I have a single member 401K under my consulting business. If you’re self-employed then you can find out your options by getting in touch with Vanguard.

I spent Friday afternoon shifting my retirement assets and Vanguard has an online tool that the self-employed might find useful.

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What about college?

In current dollars, my pals that have put their kids through college have spent $200,000 per kid.

That’s $600,000 for my family of three – ignoring grad school.

Considering my entire family tree, there is no way the family would earn a reasonable return on that level of investment. Of course, my mind likes to tell me that MY kids will be different!

Thinking about the opportunity cost of $600,000:

  • A lifetime annuity of ~$2,400 per month – starting now
  • We could move into one of the best public school districts in the country
  • We could buy three rental properties and teach our kids about money by having them involved in deciding to borrow against the properties (or not) to fund their educations. The kids could receive a direct financial benefit from minimizing the cost (if any) of their educations
  • We could help send a dozen kids to grad school
  • We could back a family member to buy into an established professional practice
  • We could work less (for the rest of our lives) and make the world a better place
  • We could live abroad long enough for the kids to become bilingual (or to gain residency in a country with free education, national health care and retirement support)
  • We could improve the lives of thousands of people in the developing world (schools, safe drinking water, medical care)

The ideas above ignore the cost of the misery that we give ourselves worrying about funding college!

Given that I’m unsure that the family wants to support three college educations, we are working towards funding one college education spread between three 529 accounts.

Total annual contributions to college funds can be $14,000 per kid, per parent => a potential investment of $84,000 per annum for a two-parent family with three kids.

For all but the top 2% of US earners, paying for everything will be out of reach.

Don’t beat yourself up.

The best thing I can do for my family is love them and work on continually improving myself. I’ve come to see the benefits of my constraints.

Setting Family Financial Priorities – Healthcare

Over the last ten years, my family has incurred well over $300,000 of medical bills – births, broken wrists, malpractice, sick kids, MRIs – it all adds up.

In my family budget, I include my premiums ($7,872) and my entire deductible ($7,500). We fund our deductible via our HSA ($6,550 family contribution limit in 2014) and top up when required. The HSA is funded automatically each month so I’m forced to save that money. Most US Bank’s have a subsidiary that can help you set up an HSA.

$15,000 per annum is a lot of money but most years, we “save” a dollar for each dollar we pay out.

BellaFor example, my daughter spent 4 nights in the hospital:

  • $18,500 retail price became $8,500 after discounts given to my insurer
  • $8,500 bill blew through our deductible so we received a $7,500 invoice
  • We had previously saved $5,000 in our HSA so…

End result… I write an unexpected check for $2,500 instead of $18,500.

Health insurance offers up some benefits:

  • Cap our potential liability
  • Access the discounted rates offered to our insurance company
  • Pay automatically (direct debit insurance payments and HSA contributions)

Sidebar: work with health benefits would be a valuable addition to our family. A decent health plan could save us $15,000 per annum.

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My next investment is a long-term care policy – about $5,000 per annum for the two of us. Even though the likelihood of payout on the policy is remote – for now – the policy gives me a lot of comfort in case tragedy strikes my wife, or me.

More on this in a post from 2010.

If I couldn’t afford my retirement investments then I’d skip the long-term care insurance, it has a low expected return on investment.

Passing The Starbucks Test

A buddy shared that he’s close to passing the “Starbucks Test” for financial security.

He’s spent many years living below his means and is close to reaching the point where he could maintain his lifestyle, while earning minimum wage. The nearing of goal achievement is making him nervous.

Career inertia, spending and debt can conspire to make us believe that we have no choice but to continue.

I’m happy for my pal and remember how the realization that I could live on far less, was a sad period. I was free and couldn’t blame my circumstances.

My choice was to leave a conventional life behind. I spent close to ten years “having fun” and doing what “I” wanted. There’s a lot of conditioning that tells us that self-indulgence is the secret to happiness.

It might be! Those were good years. However, things change and eventually, I was left with a question (along with my three children)…

What’s the best use of the time that I have left?

Are you doing your life’s work?

If not then change slowly.

Child’s Play

Pirate ShipAt my kids’ preschool there are only a few rules for safety – mainly around the zip line.

One of the rules they have for kids (and parents) is to NEVER help another kid up a tree or piece of equipment. Their view is the kids have a better idea of their limits than their friends, or parents.

Since they taught this to me, I’ve been a lot more hands off with my children and careful not to encourage them get in over their heads. It’s stressful when they are little but they figure out how things work quite quickly.

Wanted to pass that along as it’s been a useful technique to help my kids self-regulate.

One of my “fondest” toddler memories was my oldest daughter hanging upside down on a cargo net, screaming, at Pirate Ship Park in Vail. By the time I put my phone down and got over there, a mom had bailed me out.

Yes, I was the Dad looking at his phone while his three-year-old hung upside down.

Still working on getting the balance right.

Getting Crushed Financially

Market Moves

I love this chart.

Blow it up, print it out and study!

Jerry created the chart to show nearly a century of bull markets but what caught my eye was the nature of the eight bear markets.

  • Duration of 3 to 34 months
  • Scale of loss (peak to trough) of 22 to 84%

If you’re an investor then it’s important to realize that it is perfectly normal that you’ll get crushed once a decade. Knowing that it’s normal won’t make it hurt less, but it might make you realize that your pain is temporary.

Personally, my worst bear market was 2008. It was a doozy.

In the space of six months:

  • my family’s net worth fell 65%
  • I lost my job
  • My dependents doubled
  • I discovered that my (joint & several) partner was involved with fraudulent activity
  • I was exposed to the risk of civil prosecution

Absolutely awful.

I share this story to help you remember that THE world isn’t ending when YOUR world collapses.

Setbacks are part of life and my making it 20 years without a major financial setback was abnormal. In fact, I had several setbacks along the way (15% hits) that I’d forgotten.

Save the chart for a rainy day and I’ll retweet at the next recession.