The Balance Sheet of Life

There are only two types of success, and either may be experienced in any facet of our lives. They are contentment and progress. While there is much to be said about both, the intent of this writing in particular, is to offer a tool by which you may measure one or the other as they pertain to your personal finances.

Here's the exercise:

On the top of a piece of paper (or spreadsheet), begin listing all of your personal, non-depreciating assets and next to them, their values. This could be a number of things, but examples include housing or real-estate that you own, businesses that you own, brokerage accounts, retirement accounts, bank accounts, fine art, collectibles, etc.

Note that clothes, shoes, cars, TVs, furniture... and really any other typical consumer goods are not included. Why? Because by their definition, they are consumed! As they are used, they decrease in value. Makes sense, right? Exclude anything that naturally decreases in value. (For those of you advanced enough to understand the effects of inflation on a non-interest bearing bank account... We're only looking for a snapshot, and bank accounts count.)

Now, add the value of all of those non-depreciating assets, so that you have one lump-sum figure.

Next, at the bottom of the page, begin listing your liabilities and their values. These are credit cards, student loans, auto loans, personal loans, mortgages, or any other expected and agreed upon future outflows of cash. That's pretty all-encompassing, but take the definition seriously. If you owe money, you know it's coming out at some point, and you must be honest with yourself about adding it to the list. Here's an example... You just signed a lease on an apartment for a year, if your rent is $1000 per month, you should add $12,000 to your liabilities (though it will decrease each month). Don't worry about your other monthly bills, they don't belong on a balance sheet. Even a lease on an apartment is questionable, but it's important to know the effect of renting on your financial health. Only 7% of the wealthy rent their living space.

When you're done, add up all your liabilities so you have a lump-sum figure here as well.

Okay... Pretty simple exercise, right? Now, what does it mean??

In the world of corporate finance, the term current ratio is used to describe a firm's ability to pay it's short-term debt in an instance where that debt became immediately due. In personal finance, you can do the same thing by taking your liquid assets and dividing them by your short-term liabilities. In this case, however, we're not as interested in your short-term liquidity as we are in determining where you are, overall, in your financial life.

So we're going to take all of your assets (the lump-sum figure from the top of the page) and divide it by the total of your liabilities (the lump-sum figure from the bottom of the page). We're going to call this your Financial Health Ratio.

Don't worry about what the figure is, for now, but let's learn about why it's important.

Did you know that most Americans will consider you "rich" if you make more than $120,000 per year? We use income (or personal revenue) as the basis for determining whether or not somebody achieves a certain status, and we do so because, for the most part, it's all we can see. In business (where money is assessed and treated the way it should be treated in personal finance), without taking other things into context, your revenue says almost nothing about the financial health of your organization. It's possible to make millions of dollars... and go bankrupt. The same is true of personal finance. Did you know that 78% of NFL players and 60% of NBA players go bankrupt within 5 years of leaving the league? Also, a 2010 study suggested that the larger your lottery winnings, the more likely you were to go bankrupt in the next 5 years?

The lesson is pretty straightforward; what you make matters less than what you do with what you make.

Now let's go back to our Financial Health Ratio. There is no standard that determines whether or not you are financially healthy, only that the larger this ratio is, the better. Let's take a look at why.

Suppose you take out $10,000 in credit card debt, and you use that debt to purchase clothes, shoes, TVs, expensive bending phones (sorry Apple) and the like... If you have no other cash or assets, your ratio is zero. What's more? You've actually created an environment where your ratio will remain at zero for a prolonged period. Why? Because let's say you get a paycheck and use it to pay down $1000 of the debt, but use the rest to pay your other bills. You still have zero assets (no cash in the bank), and your debt is now $9,000... Your ratio is $0.00/$9,000... You can see how easily this cycle can get out of control and you can end up in a place where improving your financial health becomes very difficult. This also serves as a great example of why you must learn to pay yourself first!! Putting cash away immediately improves your ratio, even if you're only going from zero to 0.01.

On the other hand, let's say you buy a house for $300,000. You have to save for the down payment; anywhere from $10,500 to $15,000, and it's important to stop here. While you're saving this money, your bank account balances are increasing, and your ratio is likely already improving. Then you buy the house, so you have an asset worth $300,000, and you have a loan (liability) of approximately $290,000. You don't have the cash anymore, but you do have an appreciating asset with a value greater than the loan or liability you created to acquire that asset. What's more? (I like that phrase) Real estate has a long-term tendency to appreciate in value, and you're going to be paying the loan down month-by-month, so in the long run, your ratio will continue to improve. This sets in motion a cycle of financial health improvement that is necessary for true financial freedom (the cycle, not the house).

With that said, here's a synopsis... Increasing the ratio creates a cycle by which the ratio continues to increase. Likewise, decreasing the ratio creates a negative cycle that can become very difficult to escape.

So what about me? I have a ratio of almost exactly .75. My wife and I own a home, but I went to grad school, and created significant liabilities for myself without creating any true assets that increase the ratio. Ooooh... Did we just broach another subject??? The value of formal education in this assessment? In the next post, I'll discuss the value of different assets, and which ones accelerate positive cycles more than others.

For the time being, if you're going to take anything away from this post, take this... There are two types of success; contentment and progress. Once you've determined your Financial Health Ratio, you have a choice. Be content with it (which is a success), or make a decision to do one thing that will improve your ratio. Going from .75 to .77 is success. And then the decision must be made about how to go from .77 to .78, or whether you're just plain content with .77...

Thanks for reading! I appreciate your time (it's the greatest asset you have, by the way)!!

Time To Fix US...

Okay... This is happening... And you have to do it with me.

Wealth...

Success...

Comfort...

Intelligence...

Friendship...

Love...

Health...

Freedom...

Happiness...

I want you to read each of these words, and I want you to define them to yourself with imaginary pictures or videos. You are the subject in each picture, and in order to define these words, you must imagine what you would look like if you possessed or exhibited these things. They are in this order because for most people, the latter ones are actually harder to define in a picture... So don't cheat... just start at the top and work your way down. And don't be surprised when you see a picture of one, and it turns into the picture for another...

Since our brains are so fantastical... You can even try to associate feelings with these pictures, and I STRONGLY recommend it.

So why did I title this post "Time To Fix Us?"

It's simple... I want you to go back, if you can, to when you were a child... I want you to think about the times when you used to imagine all that you could be. It's okay if the child version of you wanted sports cars and big houses... to be professional athletes, doctors, marine biologists... and it's okay if the child in you just wanted a family... it's even okay if the child in you didn't think any farther into the future than when you'd be able to go play again. The important thing is that you remember when YOU; the reasonable adult now reading this, were once THAT person...

Look at how naturally it happened!! It was so easy because more than likely, we did it all the time...

Now I want you to ask yourself if you've changed. Nowadays, do you ever LITERALLY spend time imagining what it looks like when you are, possess, and exhibit every thing or trait you've ever wanted? Most of us have broken this; the most wise of all naivetes... and it's time to fix it.

Take it from old-man river over here... turning 29 tomorrow... every day we do not use that ability... the ability to imagine ourselves vividly in a better life or a better state... We are cheating ourselves.

Do the research... you use it... or you lose it. And unless you know EXACTLY... and I really mean EXACTLY... what it looks like when you are what and where you really want to be in life... You can't honestly tell me that you're doing anything more than wandering the halls until your bell rings...

And here's the kicker... Our brains are so much smarter than us, that when we picture these things with such detail, our brain sees where we are currently (assuming they aren't the same ;) and it recognizes the differences between the picture and reality as a pain, then it subconsciously creates the motivation we need to change our lives. OUR BRAINS ARE CAPABLE OF TRICKING US INTO BEING BETTER PEOPLE, DESPITE OURSELVES... How awesome is that!?!?!

So help us all out here... Spend just a little time every day, and devote it to making yourself a better person. How will you know when you've done it? When you look at the pictures you've created, and the person you are today more closely resembles the person you see in your dreams.

PS... Don't be afraid if the picture changes over time... If your vision of these things doesn't evolve, I'd be more worried than if they did... But chase what you see anyway... It's worth it.

Who I Am... Not What I Do...

If there's one thing I know, it's that everything in life seeks a return to equilibrium. No matter how good or bad your life gets, we inevitably reach a point where we either move back to what we know is normal, or we lose sight of normal, and it comes to us.

I played golf today. And I played with verve. It has been some time since I've been able to play this way, but after practicing a few days and finding that my back only whispers in discomfort (as opposed to the screams I grew accustomed to at the beginning of the year), I felt the same desire that I always had when I played competitively; to be on the course. As we all know from my last post, I work a day job, so I was only able to play 9 holes, but having only played one round in the last 3 months, and only 4 times all year, I was eager to get back out there.

I made nine consecutive pars. And I'll tell you, there was a time when I would have been downright mad at the prospect of making par 9 times in a row, because 9 pars in a row means that you didn't make a single birdie. But that's where I went wrong. That is where the downward spiral began.

You see, I actually tried to force myself into a "new normal." One in which I was a far better player than my game had game to show for it. And I'll tell you now, it took a LONG series of failures in a longer series of poor choices for me to figure it out.

Here's the deal. No matter how bad it gets, I would be wasting my life not to realize how blessed I am to have the life I have and the gifts I've been given. I'm not rich... In fact, I'm downright poor, but I have everything I need and then some. In relationships, I can be selfish, I've never had much patience, and I hate who I become when I argue... but I'm with a beautiful girl (inside and out) who loves me (still) as much as I love her; someone that allows me to have faith, and what a blessing that is. And last but not least, I am not a great golfer... I've seen what great looks like, and I'd be foolish to try and put myself in the same category with those individuals. But let me tell you, it takes a rock to par every hole we play; a foundation that cannot be moved by either the desire for more, or the fear of failure. And with that, I am blessed.

I have been led, as if by the hand of God himself, to the place of gratitude. I pray that normal finds me here.

Musings on Mourning

I believe that life is a gift. It is the ceaseless soul's opportunity to experience joy and awe and the miraculous impermanence of all that we see and comprehend. But it is also the soul's opportunity to experience hatred, sorrow, defeat, and heartbreak. I believe that life is something to be revered and respected, with humility and appreciation, as it is unarguably nothing more than a fleeting moment in the story of this place.  How arrogant we'd have to be, to think that our name would ever be whispered by the stars; where even a whisper would consume all that we know and hold so dear.

We are an egotistical bunch--us humans--and fortunately so, as the ego sustains us. It is by ego alone that we possess such an innate desire to live. But make no mistake, the very thing that sustains us is also the culprit that clings with all it's might to the presence of those around us. We seek permanence, security, and safety in the things we know, yet we live in a place where these things cannot be guaranteed, or better yet (though perhaps not for some), are not even possible. I believe that it is within this disconnect that mourning exists.

Now... We all possess an ego, and I am obviously without exception, but the only way to love humans as we are is to accept the fact that this ego will inevitably seek comfort in the things it knows to provide security and happiness. But let me ask you... whether it's love lost, or life lost... Have you ever missed someone for their sake? Is it even possible? I can understand saying "I wish he could have been here, because he would have wanted to experience this," but to me, that's not missing or mourning... To me, that is doing the very thing that I believe we are all capable of doing; namely, acknowledging the qualities of a person we were blessed to have known.

Mourning is something entirely different. To me--and a dictionary or two--mourning is the mental and physical manifestation of a person's sorrow or loss. But what is possibly lost in this place where possession and permanence are impossible?? What happened at a loved one's passing is nothing more than exactly what you KNEW would happen! We experienced the light of life in another, and this is never something to be sad about. So why are we sad?? In my humble opinion, it is the disconnect between the reality of our existence, and the expectation that we create by way of the ego. How arrogant to think that we are entitled to experience any life a day longer than we have? Or ever will? We are in no way entitled to anything more than we are given, and as quickly as we came, we are swept away. There were 15,327 people that died in the tsunami of March 2011, and I ask you to consider how strongly you felt for those lives lost, relative to the way you felt when you experienced the loss of a single life more dear to your heart. There is only a difference in those feelings because of the sense of entitlement that the ego creates. "This was mine, it was taken from me." "That was theirs, and as sad as it is, it was taken from them." You never said those things, but the ego does, and neither statement bears any truth.

I am more confident that these things are equal when seen through a lens that is not skewed by the ego. To have seen the light of life in a one year old child, or my saintly grandmother who knew it was her time; to have shared a life with a best friend or lover, or to have made nothing more than the memorable acquaintance. The passing of these people is not a loss. We only say that because we are blinded by the ego from seeing solely or consistently the amazing gift that we were given! What's more, those lives were nothing more, and nothing less than exactly as they were meant to be. And to be aware of that; to know how fleeting this time is... it should do nothing for you but to inspire gratitude and humility for the opportunity we have. It should do nothing for you but to free you from the bounds of the ego, and to open your heart to what true, selfless love really is... the complete acceptance of all things in another, good or bad.


To me, at least if not only, it makes sense that I feel this way, because I believe to my core that the soul rightfully belongs in another place--otherwise this place would be our respite; our "better place." I would mourn them if I felt that they were going to a place where they would suffer more than we obviously do here, but what grounds do we have for believing such a thing? --So why waste the time? 


Rather, look back fondly on the lives that have touched you, and let that touch bring forward in you only the best parts of you, that their memory will not be tainted by the difficult time that your ego put you through, but illuminated by the person that their hands helped mould.


Your forgiveness is requested. For I am human too, and the part of me that writes this is wholly separate from the part of me that loves. And though I hope to celebrate their lives, the tears will stream down my face at the loss of my loved ones, and I respectfully request that you give me the option to read your words, just as I have given you the option not to read mine.


There is big love in this heart for all of you, and I thank you again for taking the time.


-BKS

I Work At an Accounting Firm for $14.00 an Hour...

It's bittersweet, but I'm excited to say that an article I co-wrote with my professor in grad school has now been published as a chapter in the book International Economic Review: Post Recession Challenges and Analyses. The article was originally written for the Indian Economy Review, published May of 2011, and again in the Best of IER 2010 special issue. Now, why it was published in May of 2011 and then featured in the Best of 2010, I have no idea, but I'm pretty stoked about it either way.

I've attached a link for the article below, and my section is titled "Experience from Other Countries." Also, do me a favor, don't hold my professor's questionable English grammar against him; if you met him, you would heartily agree that he is one of the coolest guys on the planet. Kishore... Like seashore... As he would put it.

http://www.theindiaeconomyreview.org/Article.aspx?aid=77&mid=4

But bittersweet... And why? Because as I read my own article on the role of govt. planning in the macro economy, I realize that whoever wrote that has a ton of potential... Sky's the limit for that kid, right? And yet, I look at my situation and I cannot help but think that I continually sabotage my future.

I am not AFRAID of professional growth or development, and I am not AFRAID of success. But I won't let myself experience either, and only as I write this do I realize that the walls confining my professional and financial comfort zone are incredibly strong, and only reinforced by my consistent submission to them.

I wrote of my desire to help others that are stuck within those confines... As you can probably imagine, It's hard for me to say that I'm still stuck there myself; still in need of the same help I truly wish I could offer to others.

Any thoughts?

And thank you again for taking the time. It is, as always, greatly appreciated.

Hedging My Bets

     To revisit briefly, I last spoke about how my (our) actions are a pretty strong indicator of the conscious or habitual patterns that reflect what our strongest desires really are. I have come this far and I believe that I was correct about golf. I was using it as a placeholder; something comfortable to fall into after my life "plan" fell elsewhere. I appreciate the value of a placeholder, and I think everybody should have something or somebody that just feels like home, for times like that. I think it's probably preferable to KNOW you're going to this comfortable place to escape something, that way you don't fill your mind with misplaced delusions of grandeur... Of course... I see delusions of grandeur everywhere I turn (keep reading, you'll see), so maybe that doesn't apply to you. But I know I've seen it before; the girl (or man) that repeatedly goes back to the same lover, despite knowing how poorly it has turned out in the past, and finds him/herself thinking that maybe it will be different this time. And why? Because it's easier to be in the failed relationship you know, than to be alone and uncertain about the future. If Voltaire has taught me anything, it's that doubt is not a pleasant condition, but certainty is absurd.

     And coming full circle, I finally find myself free from the bounds of certainty, and healthy enough psychologically and emotionally to deal with the blows of uncertainty. And this is my pursuit...

     I'm going to start my own hedge fund.

     I have no idea what will come of this, and that's okay, but I know that I have a certain knack for finding value in the marketplace, and in the zero-sum world of investing, I am cocky enough to believe that I can do so with enough proficiency to make myself, and the people I love, a lot of money. I don't come from a particularly wealthy background, and I see the bounds of the middle-class psychology running rampant in those closest to me. I know what it means to believe that you deserve more, and I believe in my soul that this is something to be nurtured, both in myself and those around me. I cannot tell you how bad I want to show the people I love that there is faith placed in any investment, but well placed, an investment can open the doors of possibility. I'm not talking about finance anymore. I want people to cry with joy at the sight of a life they didn't think was possible.

     I'm going to change the way money is run. And I'm going to break down the doors of the psychological prison that so many of us live in.

The Discovery Process

"Becoming an overnight success takes 10-15 years." -Robert Herjavec (though perhaps not originally)

While golf and I have been at odds the last few weeks due to both physical and psychological reasons, I feel that I have been making ground on "me." A lot has changed since I first posted to this blog, and I think it's important to get it all down, more for me than for you, but in the hopes that we both might take something from it.

Passion was the dominant word in my previous post, and I am still of the opinion that if you are to live at all, you should probably do so with at least a modicum of passion and gratitude. But I have learned the danger of using a passion to avoid facing a much deeper issue. For me, I fear that I have used golf as a place-holder; something to fill the void that exists when a so-called "plan" goes awry. It is not uncommon for people to avoid discomfort by delving into an all-encompassing task. Unfortunately, this discomfort has more to do with what I want to do with my life, than with who I am. There is a relationship between the two, however, that expresses itself in the way that I feel about what I do.

Though I've been taking lessons, I have not been practicing golf. (Here's where we learn something about who I am...) It is harder to write that than it is to actually live it. Why?? In my opinion, it is because of precedent. I have led others to believe that I am passionate about this game, and I have, in the past, been the person who is last on the driving range or putting green. Do I love the game? Absolutely. But can I honestly say that I have the desire to put in the hours that I used to? No. And I don't need to psychoanalyze myself and dig deep into my soul to figure that out. But I feel guilty saying all of it to you, and I shouldn't.

Your actions always express the most prominent of your desires. Many people misunderstand this statement, because they only consider their conscious desires, and neglect the innate or instinctive desires that drive our actions far more often than we would like to acknowledge. For example, many people would like to feel better about their physical appearance, and are physically capable of putting in the work, so they say "If what you're saying is true, and I REALLY want this, how come I still look and feel this way?" Obviously, those individuals consciously want to see something different in the mirror, or on the scale, but my bet is that when they aren't consciously looking, they sabotage their goals. I am confident that if you take an inventory of their actions on a daily basis, you'll see a habitual pattern that either perpetuates or reinforces where they are now, and they may not even know it! It's a day off from the gym, a dessert that I (admittedly) would not have passed on either, a step on the scale that only confirms, deep down, what they already knew...

Conversely, I have begun using this approach to stop asserting who I should be, or who I want to be, and to start learning about who I actually am. Why? Because I don't actually know!  And here's the kicker... That's OKAY! Did you know that I spend a ridiculous amount of my time researching investments? And I mean... ridiculous. I used to spend that time playing and practicing golf; it was all I cared about. And so, I have spent an inordinate amount of time feeling guilty about my actions. I have known all along what I should be doing (based on the completely arbitrary goal of winning major championships), but the separation between my actions and the single-minded pursuit that my mind knows is the only way to achieve the lofty goals that I consistently set for myself, is impossible to ignore. Rather, I've begun looking at my actions, and the way I speak about these actions, and I've begun to tell myself, "You know what? I don't know what the end-game looks like, but I know that I LOVE what I'm doing right now, and whatever the end-game may be? It's going to be the result of all this time and effort and hard work, which really isn't hard work at all!"

I've never known a man whose success story was written against his will.

If the desire comes back? You'll know it, because you'll find me on the range. But for the time being, I'm going to invest my time in the things that I desire more than anything else. And you'll know what those are by where you'll find me.

Thank you for your time! Best to all of you!