The Frugality Pyramid

The 80/20 principle says that 80% of effects can come from 20% of causes. This principle, commonly referred to as the Pareto Principle, shows up in economics, science, finance, and a host of other areas. A good example is the fact that about 20% of drivers cause 80% of accidents. The big idea isn’t that the ratio is always 80% to 20%, but rather that results can be predictably unbalanced. For example, say you are trying to lose weight. You decide to eat healthy foods, but you still overeat. You will not lose weight because there is a bigger cause at play, your caloric intake.

Now, obviously this is a guiding principle and not a law. In my experience, and I am sure in the experience of countless others, when we look to save money and be frugal, the VAST majority of our results will come from reducing our spending in two major areas. Housing and transportation. These two expenses are 80% of frugality results. We would be wise to not major in minor things. Eating at home is nice and advisable, but address the elephants in the room first.

Don’t Buy More House than you Need

What is the single most expensive purchase you are likely to make in your life? A home. When we purchase a home, we are looking for safe neighborhoods and good schools, and perhaps even status. This is where many people go wrong. Instead of buying a home that fits our needs (safe neighborhoods and schools), we buy one that satisfies our wants (status etc.). For example, a pool would be nice, but a community pool is just as good (probably better). We may also want two guest bedrooms, but realistically, who has guests over more than a few times a year? Little desires like these can push us to buy a home at the upper limit of our means. I wrote an article about wise practices in home and car purchasing.

If that isn’t proof enough that we should be frugal in our purchase of a home, consider the major level of inflation in the size of homes over time.

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People and families haven’t gotten bigger (well…maybe we’ve gotten heavier haha), but the size of new homes is steadily climbing. What major elements do you remember lacking from your childhood home? Chances are our appetites have just gotten bigger. When choosing a home, if we are frugal, the savings are astronomical. Couple this with modest investment knowledge, and the path to financial independence is much closer than one might think. Not to mention that bigger houses have bigger utility bills and larger maintenance costs. And, this is just my opinion, but when the second housing bubble pops and future generations look toward efficiency rather than excess, many of these gargantuan homes will suffer losses.

Buy a Modest Car

The next big purchase is a car. If you are lucky and live in an area with good public transportation, you may be able to get by without even having a car. But chances are it is a necessary expense. One of the most ill-advised financial decisions we can make is to buy a new car. Mr. Money Mustache provides great wisdom on frugal approaches to buying a new car. Although extreme, the mental image of setting $20,000 on fire is effective. A new car is just one of the stupidest things to buy unless you are very wealthy and can afford it off of interest income.

The reason buying a new car is stupid is (at least) two-fold. One, the value of your car immediately decreases after you drive it off the lot. But two, you have just weakened your frugality muscle by giving in to consumer culture. This is likely to increase your desire for more luxuries along the way. This is a surefire way to derail you efforts at becoming financially independent.

Hopefully you gained some useful insights into why homes and cars are the two biggest areas in our lives in which we need to be frugal. Thanks for reading!

How to Keep your Life in Balance

One of the big lessons I have learned as I get older is that life is many shades of grey (maybe not 50 haha). There are very few hard and fast rules, but rather principles that should guide us a we flexibly navigate life. Not surprisingly, these principles hold true in most areas of life. It reminds me of the oft-quoted Bible verses about there being a time for everything. People who live one dimensionally and by very strict rules will inevitably have trouble in life. Someone who is always agreeable will miss opportunities to stand up for themselves. Likewise, people who are aggressive will miss out on benefits nature only rewards to the gentle. It’s not that being agreeable is “good” and being aggressive is “bad”, it is that there is a time to be each one, and more likely a good response is somewhere on a spectrum rather than an extreme.

These principles show up in most areas of our lives. A good teacher is a warm demander. A seeming paradox! They are emotionally warm, but have high expectations. Likewise a good parent loves their child unconditionally but also disciplines them. Any balanced approach to our lives requires that we navigate seeming opposites. Let’s take a look at a few areas this applies to in our lives.

Health and Fitness

A healthy person with a good relationship with food knows there is a time to be very disciplined in eating, and a time to enjoy eating. If we can keep our ratio balanced (say 80% healthy food, 20% fun food) our fitness and health will benefit. If we skew too much toward healthy food, we can become orthorexic, and if we skew too much toward fun food we become fat. So we see again, fun foods aren’t “bad”, they just need to be balanced by healthy eating. Many dieters also know that eating tasty high calorie food when dieting can help reset your metabolism and set the stage for more fat loss.

Similarly, any sensible exercise program has the majority (maybe 80%) of training as base training. For lifting, this would be multiple sets of 5-12 reps. For cardio, this would be talking pace, or long slow distance cardio. If we dabble too much in intense exercise (HIIT, very heavy lifting >85% 1RM, sprinting, etc.) we can quickly become overtrained. Interestingly, we can’t have one without the other. They are two sides of the same coin.

Money

A few years ago I stumbled upon Mr. Money Mustache. After reading about the FIRE movement, I became very interested in ways to become more frugal. When dealing with money, our default stance should be toward frugality. But we have to remember that the whole point of becoming financially independent is freedom. And sometimes that freedom comes with a literal price tag. We are frugal so we can enjoy our vacations with family and the occasional nice dinner. If we err on the side of spending frivolously, we go broke. If we skew too intensely toward frugality, we miss opportunities to have interesting experiences and enrich our lives. My wife and I cook most of our meals at home to save money, but we also enjoy (every couple weeks or so) delicious fancy dinners. Once again, if we keep this in balance (daily frugal habits with the occasional splurge) we get the best of both worlds.

Work and Play

Lastly, we see that work and play must also be balanced. Hopefully, we are on the path to financial independence. But in the meantime, we must balance our work as a necessity, with play as leisure. Most people don’t love their jobs. And that’s okay. We don’t go because we love it, we go because they send us a check every two weeks. If you do like your job, consider yourself lucky.

Because of advances in technology, most people are always on the clock. Emails flood our inbox at any and every hour of the day. Unless we make a conscious decision to set boundaries between work and play, we can easily get out of balance. My wife and I were recently taking a walk on a beautiful Saturday afternoon. When I looked at my phone, I had over 10 emails and messages (none of them urgent) that I had received during that one hour walk. Apparently no one else was outside enjoying the weather! I try to make a habit of “unplugging” as often as possible. Think about it, there were emergencies before cell phones, so if something is urgent, people will find you.

Hopefully you have gotten some useful insights into ways to keep your life in balance. Thanks for reading!

No Good Deed Goes Unnoticed

When I began my personal development journey seven or so years ago, one of the first difficulties I encountered was not seeing results. I have read dozens (likely hundreds) of books, taken online courses, and challenged myself in innumerable ways. On the surface, I am much the same person I was seven years ago. But I can now sense certain parts of my life taking off. I always hated that iceberg photo that success teachers would show, but I am learning through experience that this is indeed exactly how it goes. In any of my “accomplishments” there were countless hours of seemingly unrewarded work. It really clicked for me this past winter when I read “Atomic Habits” by James Clear. He talks about how any work we do toward a goal is not lost, it is stored. So while on the surface, changes are not yet visible, they are indeed taking place.

An Everyday Example

Imagine you are boiling a pot of water for some pasta. You turn on the burner and place the pot with water on it. You wait a couple of minutes, get frustrated, and then turn the burner off and throw out the water. Obviously, if you had any experience boiling water, you would know that you weren’t wasting your time, it’s just that the water doesn’t begin to boil until it reaches a certain temperature (212 degrees fahrenheit to be exact). You would know that the water was getting hot, whether or not you had “proof” of it. The same can be said of our efforts toward a goal. Maybe those $300 saved each month don’t instantly make you financially free, but over time, those actions are stored and compounded and will eventually get you there. Remember that just because you can’t see results, doesn’t mean the changes aren’t happening. They may just be below the surface.

In my article about choosing a mentor, I talk about the benefits of having a mentor who can relate to the process as much or more than the result. For example, if you ask a trust fund baby how to make money, they can give good advice but they don’t know the inevitable difficulties that come along the way. Similarly, many things in life have a certain amount of time or prerequisite work before you see results. When you start lifting weights, bodily changes don’t start happening for weeks or likely months, but then the changes compound and can create definite visible results.

The Law of Gestation

The Law of Gestation states that every outcome has a timescale for its completion. A tree has a certain amount of time that it must grow in the soil before it breaks ground. College is a good example. If you go to the local University and say you want a degree in Mechanical Engineering in two weeks, they’ll laugh. They know that, for the vast majority of people, it will take four years with the right qualifications. Now yes, there is the odd genius or huckster who can be an exception to the rule, but four years is just what it takes for the vast majority of people.

As a personal trainer, if a skinny guy tells me he wants to gain muscle, I know (because I was once a skinny guy), that if he does linear progressive overload for three months, he will look bigger. If he keeps it up for two years (with some changes in programming and nutrition), he will have an impressive physique. Once again, there are exceptions to the rule (some may gain muscle faster or slower than the median), but in general, three months to notice a difference, two years for a good physique.

So the next time you are trying to achieve a goal, I encourage you to keep in mind that results don’t show up immediately. But take heart because those actions aren’t lost, they are just being stored and compounded.

Universal Basic Income

I wrote in a previous post that Coronavirus will teach us many lessons and new ways of interacting and being in the world. I think a huge change that will come as a result (even after the virus dies down) will be Universal Basic Income. Perhaps not this (2020) election cycle, but I imagine a good chance in the next cycle.

I gave a project in one of my math classes that asked students to search for a home and calculate mortgage payments etc. I always try to give students some real world use for the math they are learning. Even though they all sigh when I say “math is beautiful”. Anyways, I linked for them to use Redfin to search up their homes. I (naively) assumed that Redfin was everywhere. It is decidedly not. My wife and I bought our house using Redfin and it was very easy, and from what we could tell, very “user-friendly”. But many parts of the country that are less economically well off haven’t even benefitted from this new technology. Long story short, I began looking for the reasons behind this technology gap. It couldn’t just be race, it was very clearly socio-economic.

I say that to say, I then stumbled upon “The War on Normal People” by Andrew Yang. A fantastic book! In the book he talks about how our changing economy (especially after the Great Recession) has pooled resources among smaller and smaller groups of people. Many Americans are simply being left behind. Yang says that automation will eventually put large groups of people out of work. His solution is Universal Basic Income. I immediately followed his every move starting in mid-2019 until he eventually dropped out of the Democratic Presidential race in February 2020. He did very well for a “nobody” competing among much better resourced and connected candidates.

In comes Coronavirus. Even conservative estimates predict up to 30% unemployment as a result. People who are hard-working simply can’t work. It’s not their fault. They aren’t lazy, they didn’t do anything wrong, they were just blind-sided. It necessitates a change in thinking. If people who are willing and able to work can’t, should we deny them human decency? Would we rather spend our money on at least a certain percentage of lazy people on welfare? Or would we choose to give money to people as an investment, knowing that most hard-working people will immediately invest that money back in their communities? Most people won’t buy drugs or alcohol with it. They’ll get tutoring for their kids, get their car fixed, go back to school, or stay at home and raise children. So we see the first glimpse of a universal income from the Trump presidency?!?! Interestingly enough, living in the cultural “progressive” bubble that is the DC area, I find that many “democrats” are surprisingly close-minded about UBI whereas many more conservatives can see the value. Talk about irony.

My prediction is that Universal Basic Income will become a reality for all Americans within the next 10-15 years, likely sooner rather than later. What do you think? Thanks for reading.

Habits are Investments

In a previous post, I discussed the idea that you should focus on building habits one at a time. When we commit to smaller habits that are easy to form and sustain, we grow our ability to achieve more and more. If we try to do too much too soon, we quickly encounter our body’s natural resistance mechanisms. A good way to think about a habit is as an investment. 

Results Take Time

Depending on how big the goal, the subsequent energy required to reach it is proportional. For example, if your goal is financial independence, you can expect to spend several years in that pursuit. If your goal is to become fit, you can expect to achieve your goal after several months (maybe even a year or two).  

But what if instead of setting a big lofty goal, we set a more reasonable one and think of it as an investment? A few dollars a day over the course of many years can lead to financial security very quickly. For example, if our goal is to become fit, perhaps we can choose the small goal of eating a piece of fruit every day. It seems inconsequential, but once that habit is solidified, the door opens to add another small habit (maybe eating adequate protein to support an active lifestyle). Then we add another habit…and another…and, before you know it, you reach your goal. 

Patience is required in this process. If we eat our piece of fruit and then expect to see results after a day, we are delusional (you might feel better, but you won’t look any different). But we can eat our fruit knowing that this habit is the step to begin a journey that will lead us to bigger and better (and more noticeable) results. Think of each small habit built as a deposit into the account that will soon pay dividends much larger than the original investments. 

Compound Interest

Achieving a goal is the end of an exponential process. Much like compound interest. You put in $1,000 and earn $20 interest. The next year, you now have your original $1,000 plus the next $1,000 you invest, PLUS the $20 interest. Habits work the same way. Month one you decide to eat fruit. Month two you are eating fruit and watching your protein intake. Month three you are eating fruit, watching your protein intake, and counting calories. With each habit you build, you have the value of that habit, plus all of the other little habits that are grown out of that one. Does that make sense? (I am a math teach haha) The results may not be immediate, but they will grow faster than you think. The beginning is the hardest. It is against our nature to put in effort without seeing reward. But it’s just the way it is. With a little faith, we can know that these small habits will eventually bear fruit. 

Thanks for reading!

Advice for the New Year

“Just begin and the mind grows heated; continue, and the task is completed” – Johann Wolfgang von Goethe

My advice for 2020 is to just begin. Beginning a worthwhile goal can be easy when you know what to expect along the way.

It Doesn’t Matter how Long it Takes, it will be Worth it!

Any worthwhile goal takes time. A good way to have solace along the way is remembering is that the time will pass anyway. Let’s say it takes about three years to achieve the physique you desire. That’s a long time! But in three years you can look back proudly at your accomplishments and progress, or you can look back in regret that you didn’t begin and persist.

Brian Tracy says that it takes about 22 years after you become serious about money to become a millionaire (some FIRE proponents say it is closer to 15 years if you save aggressively). By any measure, 22 (or 15, or 12) years is a long time. But, the time will pass anyway. Just begin! At the end of 22 years, you can look forward to financial freedom, or look back and regret your inaction.

Every Step Forward makes the Next Step Easier

Let’s say you start your personal development journey by committing to working out three days a week. Once you begin, you face various setbacks, you have to rearrange and better plan your free time, and organize your daily activities around this foundation habit. But you begin and persist, and eventually working out three to five times a week is part of your lifestyle. It is almost as if it is on “cruise control”.

As is expected, you begin to expand and set new goals. Here is the cool thing, once you have built the discipline to make one habit, the next one is easier. Discipline is a muscle, the more you work it (not to exhaustion!), the more efficient and stronger it becomes. This is a similar phenomenon to investing money. You invest $1,000 and in the months and years ahead, you earn interest with little to no effort on your part.

I hope this short post gave you some information and inspiration to set a goal and just begin. Until next time…

Listening to the Seasons

I started seriously working out in the spring of 2012. I remember the exact event that motivated me. I went to the gym with a colleague and we went to the bench press. I did my customary 5-8 reps of 135 lbs and when it was his turn, I watched with amazement as he easily repped 225 lbs. I was amazed. I made a decision that one day I would be able to do the same.

I started my fitness journey doing Stronglifts 5×5 (an excellent start). Within just a couple months, all my lifts had gone up significantly. Then something happened. Progress slowed. Alot. I tried to push past it, but workout after workout I grew more tired and burnt out.

Any fitness professional worth their salt would know the obvious answer is periodization. Basically meaning altering the volume and intensity of your workouts over time to allow for full recovery.

I say all that to discuss an important idea when it comes to fitness and to life. The seasons.

There is a Time for Everything

Ancient wisdom going back to King Solomon talks about the importance of seasons (“There is a time for everything…”). It took me a while to see the true wisdom in understanding and going with the seasons.

When I began to periodize my training, I started to make progress again. Albeit more slowly, but progress nonetheless.

I then began to notice the same patterns in other areas of my life. At times, things would thrive, and then at other times, despite my most valiant efforts, things would change or “get worse”.

In my mid-twenties, I happened upon a book by Jim Rohn entitled “The Seasons of Life”. Reading this book gave me a philosophy that I refer to often (especially in difficult times). I want to share a few of these experiences so that hopefully you can notice and go with the seasons of your life.

Seasons of Fitness

Our bodies cannot work at 100% all of the time. There is basic information we have to know about how our bodies work in order for us to get the most out of them. For beginners, you should follow a linear program. Meaning you should add more weight to the bar, or walk/run longer, until you stop making progress. When you become an intermediate athlete (which will take 3-6 months), then you begin to periodize.

Now with this bit of wisdom, I know that I can’t always lift heavy. I need light days and deload days. I also need to work on other aspects of my fitness to improve. I highly recommend working with a good fitness professional if you are having any trouble at all reaching your goals.

Financial Seasons

Money is an interesting thing. Sometimes you feel like you have more than enough, and then other times, scarcity overtakes you. I am reminded of a story in the bible where David is asked to interpret the Pharaoh’s dream where he sees seven skinny cows and then seven lean cows, and the lean cows eat up the fat cows. David interpreted this dream to mean that there would be seven years of plenty, and then seven years of famine. David’s solution was to save 1/5 or 20% of all the grain during the good years. As a result, Egypt had food all throughout the lean years.

I believe this will be true of pretty much everyone’s financial situation. Sometimes money will come in from unexpected sources, and other times unexpected bills will pile up. So what do we do? We learn to live frugally and save for those times when opportunity and money is hard to come by. Coincidentally, a 20% savings rate would be a great place to start (hopefully ramping up to 50% or more over time).

Just a few weeks ago I got an unwelcome bill. To the tune of $4,000! Of course I was bothered, but my wife and I have carefully planned and saved to the point where a bill of this size is actually no big deal. The comfort of knowing you can handle a financial setback is much better than the comfort of riding in a new car…to me at least…

Professional Seasons

Seasons become very apparent in our work. Sometimes things come to us and thrive. The promotion comes, we learn a new skill or a new way to earn money, and everything is great! And then there are other times where we are looked over for a promotion, a colleague says a harsh word to us, or our work begins to overwhelm us and throw us out of balance.

Here too, we are admonished to submit to the seasons. We should always be learning and growing, but we should be patient (and expect) that we will meet the inevitable plateau and/or backslide. During these times we have to remember that our next season of opportunity is coming. What are we doing to prepare for it? Are we reading? Are we speaking with wise older people? Are we trying new things?

In conclusion, just as the seasons of weather dictate when we will sow and when we will reap a crop, the seasons of our lives dictate when we will sow and reap in our relationships, finance, health/fitness, and work. Let’s be sensitive and listen to the wisdom of the seasons.

Until next time…

How Normal People Can Save 50% or More of their Income

So before we even get started, let’s discuss why we would want to save that much money anyway. Blogs like Mr. Money Mustache have popularized the idea of FIRE or financial independence through early retirement.

I love reading articles on that site and the like. As a relatively new FIRE devotee (about a year), I quickly learned that saving 50% of your income is not only possible, but easy. My wife and I were able (over the course of a year) to save about 55% of our income, boosting our savings and investments significantly.

Applying a little bit of the Pareto Principle (80/20 Principle) we can assume that some lifestyle changes and budgeting principles will create more of an impact than others. In my experience, the three most important factors have been: 1) choosing a home that is affordable, 2) choosing a car that is affordable, and 3) planning (specifically meals and trips) in advance.

I specifically wrote this article with normal people in mind. People who are not necessarily high income earners, but those who work and have a reasonable amount of discipline. I found that the median household income in America is about $60,000. So any theoretical calculations will be using this figure. Please adjust to meet your income. Now…let’s get into it…

Choose an Affordable Home

A good rule of thumb is to choose a home that is 2 to 2.5 times your income. So for our imaginary household, that would be a $120,000 to $150,000 home. Translated into rent, you would be looking for a place for about $1,200 a month. My wife and I (we are both public school teachers) live in an expensive metropolitan area, and we have a dual income. Strangely enough, our humble abode comes in at 2.28 times our yearly income.

Now for the why. Simple. Your house is the BIGGEST financial purchase you are likely to ever make. Think about that…chances are this is the most expensive thing you will ever buy. Sobering thought.

When you choose to buy a home well within your means, you can free up large amounts of money. Be realistic. If a neighborhood has good schools and is safe, how much more would you really enjoy living somewhere else that much more? Don’t become “house-poor”.

Choose an Affordable Car

I proudly purchased my first car for $8,000 CASH in 2011. To date (2019) it is still running strong and I have reason to believe it will last me at least another 3 years and likely more.

Recently I was getting routine maintenance done on my car and I saw a sign that said “Your car is the second most expensive item you are likely to purchase, make sure to take care of it”. To be honest, I was shocked when I read that. I mean…I know it’s true, but I just never let that reality sink in.

Here is the deal with cars. If it is reliable, runs well, is clean, and meets your transportation needs, any car more expensive is just a flex. Think about what you get from a nicer car. Probably just a few compliments and a much bigger car note. No one really cares what you drive, and if they do, they probably aren’t financially independent. Now, to be clear, flexing is cool. Just be acutely aware that it is just a flex and can cost you a lot both in the short and long run. Flex carefully.

Plan your Meals and Trips

Before I considered the idea of FIRE, I didn’t pay too much attention to my purchases. I knew we had enough money to cover our major expenses, so I just had fun eating out and buying little gadgets at my leisure.

It wasn’t until I started looking closer that I realized that these seemingly small luxuries were costing us several hundred dollars a month.

Once we realized this, we began planning our meals for the week. We found that when we did this, we could keep our grocery prices reasonably low and still enjoy the occasional fancy dinner with no financial strain and still hit our savings goals. You see, it is one thing to decide Friday night that you are going to go to an expensive restaurant and it is a whole other thing to plan it on Sunday and think all week about spending $100 that you could be saving. We still enjoy the nice dinners and frequent vacations, but we are much more money conscious in the process.  

We also give ourselves an allowance. $150 to buy whatever we want that month. I have gone a number of months spending only a fraction or none of my allowance. It seems that frugality is a muscle after all.

In closing, these are the strategies that helped our family go from saving ~20% of our income to over 50%. Please feel free to use them and let me know if they worked for you too! Until next time…

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