Keys to Financial Success

What are the basic building blocks to personal finance?  At the very heart of it are the following steps:

A. Bringing in more income.

B. Spending less than you bring in.

C. Investing the excess in wealth building assets.

D. Start early and Rinse and repeat.

But let’s see how it plays out in the 4 financial building blocks of Income, Expenses, Assets and Liabilities.

Within the Income Statement, there is income and expenses.  Income is salary, wages, tips, royalties, rental revenue, dividends.  Expenses are utilities, mortgage, phone, groceries, gas, home repair, etc.  The amount left over is the operating income.  That operating income can be used to invest in assets or pay down debt.

The Balance Sheet is Assets and Liabilities (Debt).  Assets are the things we own that have value (if we sold them) such as house, car, rentals, stocks/bonds.  Liabilities are the things we owe such as mortgage, student loans, cars, etc.

So, let’s see how each of the A, B, Cs play out in the financial statements I’ve outlined above.

A. Bring in more income.

At the beginning this is mostly career/job income.  Later, once assets are large enough, those assets will produce income instead.  These can be things like rentals (my favorite).

The key to this step is hard work, some luck, geography, etc.

B. Spend less than you bring in.

This means lowering expenses such as debt payments and excess expenses.  This requires a careful reflection on wants vs needs.  And this is where my wife and I have spent the most time coming together as a team to figure out.  As we’ve joined forced on managing our finances, we’ve had to discuss our priorities, dreams, etc.  At first it was hard, but we slowly worked through our difference, set goals and work towards them together.

The key to this is budgeting, habit building, discipline.

C. Invest the extra in wealth building assets.

This is where we’ve historically not had much activity because we’ve been paying down debt.  We currently have one paid off rental and some dividend paying stocks.  But we plan on working on this more in the future.

The assets available after subtracting the debt is the net assets (or wealth) someone has.  There are a lot of people who have large incomes, but they spend it all and have little or no operating income.  Or they have a big operating income, but they spend it on non-appreciating and non-cash flow producing assets.  These are the bad assets.

The key to this step is understanding investing, discipline, wisdom, perspective and emotional control.

D. Start early.  Rinse and repeat.

Starting early has a huge impact on wealth building.  But once you start, you have to keep it up which I think is the hardest part.  Anybody can go to the gym once, but going consistently over a LOOONG period of time is really really hard.

The ways to succeed at this art to build buying habits, budget weekly or monthly, track progress regularly, automate as much as possible and keep an eye on the end goal.


Saying No to Job Opportunities

Our careers are one of the most important parts of personal finance to work on.  Especially at the beginning.

But what happens when you are offered a job that pays more BUT comes with several conditions that require trade-offs.  What are the trade-offs or conditions that would make you turn it down?

I was recently faced with this decision.

I was approached about a CFO position of a division of a company that is headquartered in the city I live.

Here are the upsides

  1. I would be an increase in salary.  I’m not sure how much because we didn’t get that far but it would have probably been a 20+% increase.
  2. It was a highly visible division that would have given me the potential (no guarantees) to quickly build a reputation that I could leverage to get a position at headquarters.
  3. IF I took the job and IF I could show an improvement in that division and IF there were opportunities at their corporate headquarters, it MIGHT result in a higher position at headquarters.  Which is what I really want.
  4. I would be working with someone that I like and know has a track record of being a good operator.
  5. The division of the company has several easy fixes that would improve performance in the next 3-5 years.  They are a partner of ours, so I see their performance on a regular basis and have been the one to give them advice on the basic processes they need to build to see drastically different results.

Here are the downsides

  1. It was a 70 mile commute each way.  And in the winter, with snow, it would have been rough.  They said I would have to be on-site each day for at least the first year and there would be potential for work-at-home or a transfer after that.  But the amount of time away from family and decreased energy from the drive were a big factor.  I’ve done that same drive in the past for a two year stretch and it’s exhausting.  [deal breaker]
  2. It is a turn-around project.  The division is losing a ton of money for the company.  There is a risk that it won’t turn around and it gets shut down.  Then I’m out of a job.
  3. I would be leaving a job and co-workers that I really really enjoy.
  4. It would be a step up in title, but step down
  5. I talked to the buy that my potential boss reports to.  He repeatedly told me the they require employees to be “emotionally confident” because “When you do good job, we’ll tell you all the things you did wrong.  If you save us $20M, we’ll tell you how you should have saved us $25M.”.  I wouldn’t mention it, but he repeated that message almost in those exact same terms twice.
  6. He said I would be working with the best, smartest people.  He said they hire young people who are very smart but then give them tasks that they have no experience doing and see how much they can accomplish.  I reiterated this emphatically a few times.
  7. I currently work with several people in their company and have more experience than 99% of them in my field of expertise.  Yet they tend to be young, smart and hard working.  But they are also brash, arrogant and
  8. Both of the two bullet points above are great, but they put more emphasis on intelligence and pride, rather than wisdom and humility.  [deal breaker]

I interviewed on the Friday and decided that weekend that I didn’t want to work with them.  Luckily the next week by Wednesday, they said that it wasn’t a fit, so I didn’t have to turn them down.

Financially it was appealing, but I’m happy with my choice.  Not all decisions are financial.

McMansion Hell

I listen to a podcast called 99% Invisible.  It covers a variety of design related eclectic topics that I wouldn’t normally know anything about.  I like that it exposes me to different subjects and since it does it in such a friendly engaging way that it certainly goes down smooth.

The topic I heard today was about McMansions.  It interviewed the blogger who runs a site called McMansion Hell.  It was fascinating to hear how these building structures are only a recent evolution in home building and their main purpose is to impress visitors.  Often at the expense of architectural congruence.

One only has to read The Millionaire Next Door to understand that the ostentatious trappings are often times a cover-up for high incomes but low net worth individuals.  These seem to fall into that category.

I think it’s something that we’ve all felt, but it was interesting to hear it put into words.  We often chafe at how small our little house is.  With 900 square feet and double that with the finished basement, it feels really small with three kids and no garage.  But we know that we’re doing the opposite of the McMansion’ers.  We’re living small and putting up with the inconvenience because it helps us achieve our financial goals.


Sometimes when I’m making a purchase and trying to find the balance between cost and quality, I think back to how the same decision was made 100 years ago. Maybe the highest quality choice was more shoddily made than the low quality choice today. Someone would shell out for the best but still get something that was low quality by today’s standards.

So what did they do?  My guess is that they worked really hard to take care of l what they had.

My guess is that sometimes our interpretation of quality is based on how little we’re going to have to take care of that thing.  I know in guilty of it. It’s based on laziness. We want that thing that lasts even when we leave it out, when we don’t clean it, we don’t do maintenance on it.

But 100 years ago they had to take care of their stuff. Firstly because things weren’t made well, but secondly because they had less disposable income.

So, if you’re on a budget you start to take better care of what you have to make that purchase last longer. It’s a more advanced way of thinking “green”. We take care of what we have so that we don’t have to throw things away.

Budget power. 

Weekly Proverb: October 23, 2016

The wise store up choice food and olive oil,
but fools gulp theirs down.

~Proverbs 21:20

For me this speaks to the wisdom of making sure some income is always going towards the assets side of the balance sheet.  Much of our society immediately spends what they make on “needs” that are simply wants.

One example was someone I talked to a few weeks ago who is chronically short of money.  But they live in one of the most expensive parts of our city, renting a house that is larger than they need.  There is always a great deal that they’re finding to spend money on.  The latest was a high end grill that was $500 but was a good deal because it wasn’t the retail price of $1,000.  And then all the accessories had to be purchased.

I’m not being judgmental.  Okay maybe a little.  I’m sorry.

I’m simply saying that someone who spends money on all the great deals that come along that they don’t need is always going to be short on cash.

I think it was Abraham Lincoln who had a saying that went something like “You can’t get where you’re going if you stop to pet every dog along the way.”  In the same way, you can’t grow wealth over time if you spend money on every “once in a life time bargain” that seems to come up every few months.

Running the Race

I’ll be the first to admit that building wealth is hard, boring and tedious.  It requires grit, discipline and focus.  Much like running a marathon

… or a half marathon.

I ran a half marathon at the end of September.  Here are the similarities between that and wealth building.

Monitoring Progress: I had my phone and watch with me during the race, so I knew which mile I was on.  This helped me pace myself and monitor how much energy I had left.  In the same way, I spend an hour or two every month measuring our assets, liabilities, income and expenses to see where we stand compared to prior year, prior month and annual goals.  We have debt pay-off goals, operating margin goals, etc.

This has become a lot easier with tools like Quicken and Mint, but I would try to avoid too much automation.  See my other blog post about the dangers of too much reliance on these financial tools.

Setting goals: My goal was to run it under 2 hours which required me to run a sub 9 minute mile.  I finished at 1h57m and a 8:45 minute pace.  After the race, I could see my splits showing that I ran some miles at an 8 minute pace and others towards the end at a 10 minute pace (I was cramping pretty bad at the end).

Similarly, setting goals is part of building wealth.  They can be super detailed or general in nature, but having them is the goal (pun slightly intended).  These can be set on any of the four financial statements, Income, Expenses, Assets or Liabilities.  And having longer term goals helps smooth out the highs and lows.

Similar to my race where I ran miles at different speeds, some periods might see a huge increase in your wealth, while others are more “lean”.  But as long as you have a goal and plan to get there, you can hopefully see progress over the long run.

Do the Homework: I could have researched my race more, but did enough to know the basics.  The length, elevation gains, the fact that I had to wade through a river 3 times, etc.

To build wealth, you have to know what you’re aiming for.  So figuring out your retirement number is a good place to start.  You might not hit it or you might blow past it, but having a goal has benefits in itself.  Also, becoming educated on investments and basic financial principles such as taxes, leverage etc will help.  My goal is to have at least 20 times our projected annual expense amount.

Mental discipline/Grit: At about mile 2 my feet started getting blisters.  I probably picked the wrong socks or should have trained on trails more, but it meant that I had to run 12 miles on what felt like spikes going into the arches of my feet.  There might be something really sick with me, but there was a part of me that relished the mental challenge of having to ignore the pain.

In the same way, we live with a lot of daily discomforts that we could avoid if we bought a new house, hired a house cleaner, hired a lawn maintenance company, etc.  But my wife and I have built up a culture of toughness.  And when one of us gets pissed off at the discomfort of it, we encourage each other.

Set some rules: My one rule in the race was that I couldn’t stop running.  There were folks who took breaks at the hydration stations or walked up the hills, but they always had to run faster to catch back up.

Similarly, a budget or purchase criteria are our “rules” for wealth building.  Setting those rules is easy, but at some point we struggle to stick with them.  But that is where the mental toughness and grit come in.