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Financial Jiu Jitsu will teach you how to gain leverage in the real world, step by step, until you are confident you no longer need more.

Go Racing - Drive Your Financial Portfolio

Go Racing - Drive Your Financial Portfolio

We are all on the scene at 6am with barely any light to see by. Pleasantries are not exchanged. All around people are grabbing their staging spots and setting up for a long day. Coolers, chairs, tools, fluids, wheels, jackstands, crates, air compressors, hydraulic floor jacks, everything they may need. Maybe even some food. A few of the more hardcore amongst us are unloading trailers of things and stuff to support their apparently really nasty habit. Everybody goes on the ground to get their tow hook bolted on. Where did all these Styrofoam cups of coffee come from anyway? We are in the middle of literally nowhere. Everybody checks every level of everything possible on their vehicles. Drivers are anxious and tuned up for something. 

3 weeks ago is when it began- Most of us were reading up on the track rules and club rules associated with our selected day. The fallout of this review may have even triggered action on the part of the reviewer. Schedules were created and exceptions made to our weekly routines to allow us to be in the middle of nowhere at 530am on a Monday. A nominal sum of money traded hands between us and the club of our choice. Weeks and weeks of car preparation has already been completed even by this time to ensure that nothing mechanical will (cross your fingers) go wrong on the very important future date. 

It's 8:15am sharp, engine is all warmed up. Fluids all topped off. Driver meeting in the back of your mind. Flags even further behind. Red? Yellow? Black? Blue with a circle? Checker. Yeah, sure I know what they all mean. But I likely can't tell you at the moment since you wouldn't be able to hear it from the inside of my helmet. Viper. Ferrari takes off. Porsche next. All at the signal of the man. Huge headset and radio, even larger authority. Next he points at me and his eyes are saying in a quite clear fashion "get that 80's second-hand garbage out of my sight." I start. My co-driver yells at me "GO GO GO." I peg it harder. This elicits quite the cacophony of sounds from wheels burning to the massive tire hop in a factory car. Not an entirely unpleasant experience if I am to be honest. Cold tires and hot heads are not a good combo, but damn it, if this is wrong I don't want to be right.

Turns out that maybe I do want to be right. My session ends early as it probably should have. Go figure. Rest of the day goes without a hitch and by the end I am pumping out some serious confidence and prowess on a nice 72 degree day on Thunder Hill. I hear some noise from my rear end region during turns. I take a cold lap and excuse myself. One session left. I decide to call it a day, no need to risk a catastrophic mess with nothing on the line but 15 minutes. Why bother? After all, I had a killer run. 

This one is from Laguna Seca but I had to use it

This one is from Laguna Seca but I had to use it

Now I am going to change gears on you here. Notice anything about the above narration? Probably lots of stuff. Was I able to convey the general fast paced feel of setting up and being ready to do your thing even when I had months of preparation time? Was I able to transfer the driving experience at the end with a little static on the line? Good. 

What this article has been planned to illuminate is an analogy between the prep work that was put into a track day and your prep work that you put into a financial portfolio. You do a ton of financial preparation for something, what is it exactly? What is the purpose?

Say for example the following work was done to a car in order to prepare for a track day:

  1. New Wheels/tires
  2. New Brakes
  3. Stainless brake lines to prevent squishy feel from last day
  4. Buying time
  5. Scheduling time
  6. Driving
  7. Helmet
  8. Oil change
  9. Install tow hook
  10. Planning

All of this work leads to a higher level of enjoyment. The enjoyment comes later. I can provide you with the utmost assurance that I was not even slightly thinking about the brake line upgrade while the car was on the track, even though it had superb pedal feel. I was not even slightly concerned about the engine rotating properly and friction free even though I had changed the oil for just that purpose. I was enjoying the vehicle itself and the experience. I turned off the little voice in my head that bugs me about details and I was paying attention to a higher level of function. The details were necessary, but the function is equally as necessary if you want to harvest your enjoyment. 

How many of us get hung up on the details of our finances? All of us. Here are some examples of what we worry about on a regular basis:

  • Monthly budget
  • Vacation expenses
  • Event expenses
  • 401K contributions
  • Taxes 
  • Deductions/exemptions
  • Home mortgages and rates
  • Real estate
  • Car Insurance
  • Health insurance
  • Cars
  • Bills
  • Property insurance
  • Stocks
  • Bonds
  • Risk exposure
  • Market timing
  • It can go on and on and on....

Yes we all worry about that stuff and ..... Why would we do such a thing? Worrying oft begets worry in this regard and it is hard to pull away once you are engaged.

But why are you of building this finely tuned financial portfolio? 

To race the bad boy, that's why

Go and see what this machine can do on occasion. Subject it to stress tests that you will enjoy. Turn off your micro-managing for a few weeks or months and see what happens. Go on vacations. Instead of planning your budget to a "t" just ignore that nonsense for a minute and plan how you feel like planning. Do you have a few extra insurance bills this month? Don't even run them through your calculator, just pay them. Want some cool car part this week? Just buy the damn thing. Beautiful watch you want? Buy it. Check up on the portfolio you built in a month or two and see how it is doing. Check your net worth, liquid assets, debt, etc. this will tell you a lot about how you need to adjust your portfolio in the future. 

Let's say after a few vacations in just as few months and paying some extra bills that you are just eroding your liquid assets at an incredible rate. Maybe a remodel of a property could also accomplish this. Ok - that could be construed as bad, but remember we are re-evaluating your entire portfolio here, not micromanaging a certain asset class. Did your net worth increase during this time? I sure hope so, especially if the year is 2017. With even a piddly 401k contribution and a single family residence under your belt with principal accumulation and resale increase, you could blow quite a bit of cash this year and still be flat-lining on your net worth. This type of stress test is not something I recommend doing 24/7/365 for obvious reasons, but on occasion it will serve it's purpose.

If your financial portfolio is increasing in value in every measurable instance for the period in question, you have built quite a machine and you should be proud. What this is essentially saying is that you can live your life the way you want, maybe even with some extra time off, and you really don't need to worry about the nuts and bolts all the time. The planning and building of the machine was the hard part and was in the past; you did a good job on it. You ate Ramen, lifted weights in the yard, drove Chevys, and more or less neglected maintaining your mental satisfaction for years in order to create this. Likely you watched your peers enjoy life immensely without a care in the world in their 20's, while somehow it seemed like you were always on the grind with no end in sight. Now it seems that no matter what you spend or how much time you take off, your assets across the board are on the up and up at a rate that satisfies you. Likely most people will not have the opportunity to feel this way until well after 10 years in the workforce if they started with nothing (or god forbid, student loans!) But eventually any smart and hard-working person will reach a level where they will not have to count peanuts every month. This state of mind will alleviate your stress and make you in better mental and physical shape. Just in time too, because you are in fact not young and invincible anymore!

Finish!

Finish!

My advice this month is for you to go ahead and plan a stress test on the old financial portfolio. Take it for a spin. Go do something and pay for it without even wondering what happens on the back end. In one or two months go back and see how your 'vehicle' handled it.

  • Squishy brake feel under heat/stress? Maybe you need to get some stainless brake lines.
  • Liquid assets dip too far? Maybe you are not quite ready to live life the way you want and you need to evaluate what is going to give first. Or even move some asset classes around for more income if you think you are ready. 
  • Tire hop? Probably need to do the bushings on those trailing arms and maybe the rear end carrier to the chassis. Ich my knees already hurt with anticipation of that work.
  • Net worth drops when you go on your stress test vacation? You need to either diversify the portfolio or just knuckle down and build more net worth plain and simple. 
  • Spin out on the first lap? Cool it Mr. Hot Head and get your head in the game! Wake up out there before somebody gets hurt. 
  • Net worth goes up when you are on vacation? Liquid assets went up too? Retirement accounts went through the roof? Well then perhaps you have built quite the capable machine. Kudos to you friend and stop worrying so much about life in general. You earned this feeling. 
That is our reward after all

That is our reward after all

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