Spending That Creates Spending
Environment, Peers and Demographic
I’ve scheduled a family review for the second half of April. Rather than brief everyone individually, I’m going to publish my thoughts so all y’all can benefit.
This series will cover two of my favorite topics:
The link between capital allocation and base-rate spending.
The influence of peers & our demographic.
As a parent, there are a few things I control, absolutely:
My Actions
My Spending
The Home Environment
“Home” is more than where we receive our mail.
Where we vacation & visit.
The homes of friends and relatives.
Secondary homes.
What we aspire to own, rent or visit.
The Ski Years
Seven years ago we joined a ski club.
At the time, our kids were 4, 5 and 8. We were coming out of the Preschool Years and grateful to have something (anything!) we could do as a family, tire the kids out and fill our weekends.
One of my mantras is Don’t Capitalize Luxury Expenditure.
Joining the ski club was a violation of this mantra and provides a useful case study.
The economics were simple:
$30,000 refundable joining fee
$2,500 annual dues
Optional $2,500 locker rental, 50 meters from the gondola entrance
For this I got:
Don’t have the haul the family’s gear to/from Boulder.
On-mountain dining reservations in a nice restaurant.
Optional group lessons on club ski days.
The year before we joined the club, my bill for everyone’s ski lessons was more than the annual dues & locker fee, combined. There was an immediate, reduction in on-mountain spending.
The main cost was tying up the joining fee capital. In 2017, interest rates were zero, so the opportunity cost was small.
For three years, the “deal” went great.
On a net basis, my cost-to-ski was down.
Everyone becoming a great skier.
Then…
Covid hit
The kids grew up
Our lives changed
While we couldn’t have predicted covid, the kids growing up was predictable and that’s one of the lessons I want to share with you.
If you are athletic, or
If your kids are athletic...
…then you will want them to track into High School sports.
When they track into High School sports, you’ll lose the flexibility you had to go skiing (every single weekend & holiday) when they were 5-12 years old.
See The Four Stages of Family Life from February.
The Deal Changes
Quite often, families tie up substantial capital, and take out large borrowings, to support a lifestyle that’s going to end as soon as they have an athletic teen in the house.
Fortunately, I only tied up a refundable deposit.
While it’s tempting to focus on the cost of “the club” => there is time, energy and money associated with being part of “the club.”
In the example above, “the club” is a real club. The larger lesson is the overall environment of our routine choices.
I ran the numbers and my $5,000 annual payment to the club was making it highly likely I’d spend $50,000 a year on everything associated with the club (passes, accommodation, travel).
Role that forward until our youngest graduated High School and the true decision value was over $250,000.
Many choices in life are far larger when time & compounding are taken into account. Over the last two weeks, I explained this with regard to health and getting our morning win.
Back to our club… take the family’s true cost and divide by the hours I spent skiing… it didn’t make sense.
The Demographic We Choose
..and that was the other consideration.
Do I want to surround my kids with people who live in a way that doesn’t make financial sense for most people?
Put another way… If my kids are going to do things that don’t make financial sense then it’s better they earn the money themselves.
We already have a policy in place with The Allowance Game.
Money you earn is yours to spend as you see fit.
Many families make the choice to let the main Breadwinners spend “as they see fit.” Others go further and let members spend other people’s capital “as they see fit.”
However…
Unearned Income
Unearned Capital
Unearned Expectations
...create issues between siblings and generations. It also creates dependence.
In our family, we have a Family Values Statement. It begins…
All members should be providers for themselves and their dependents as best they can in the lives they choose to lead.
Circle back to the top and consider the choices:
Actions
Spending
Environment
The questions we will be asking our family are:
Where are our current choices likely to take us?
Can we do better?
If yes, then how?