Category Archives: penguin philosophy




There is something that I view as obvious that is not discussed much in the mass-media popular financial advice business.  So I was happy to see it mentioned on Yahoo recently – although it appeared in an article entitled “5 counterintuitive finacial tips”.

Now, I have absolutely no idea why this would be counterintuitive.  I suppose it’s because no corporation will make money from having people follow it – so it’s never promoted in the mass media.  Things like buying annuities, investing in big houses, and having huge 401k balances all make corporations money.  Those are the types of advice that populate the mass media financial columns.

The tip is this:

“people should focus on the expenses that can’t be changed quickly, including a mortgage or debt payments. “It shows how quickly you can adapt to a traumatic event [like a job loss],” he says. He uses the term “lifestyle cash flow” to describe the cash flow required each year to pay the bills. “

The inelastic payments that are due each month really matter in the case of an emergency.

One common reference to this amount is your “nut” (hence the picture at the top of the post).  Things that have to be included in the nut are taxes, rent, utilities, barebones food, etc.   It’s what you need to live.  It’s also the highest utility you will ever get from money – getting food and shelter.  Everything on top of that is just gravy.

By keeping your nut low, you free up any income above and beyond it for a higher purpose.  You can save it, invest it, buy experiences, provide gifts, etc.  Most importantly it gives the greatest freedom.

How big is your nut?  Can it be shrunk?  I will try to lower mine today.

The Independent Penguin already has a right-sized nut.  It’s enough to provide everything he needs and is a small fraction of that iceberg which is submerged.  He has a stable foundation to live on.

A Close Decision

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Some people have a terrible habit when they are making a decision.  They place all their attention on decisions that don’t matter, and ignore the ones that do matter.

Imagine the spectrum of problems that you are faced with today as a gradient from white to black (see the picture on the post as an example).  The problems with a clear and correct answer are at the extreme left and right (pure white and pure black).  Problems that have less clear answers (or perhaps several correct answers) are the shades of gray.  Near the center are the problems that have answers that could really go either way.

Some examples:
Buy car insurance before driving: clear yes!
Get your favorite food when going out with friends:  probably yes, but you could also experiment and try a new dish.  Also you could share dishes with your friends.  And where should you go?
Paint your living room aqua marine blue or subtropical cool cyan:  Oh, this is a tough one!  The aqua marine goes so well with the drapes.  But you might change them in the future. The subtropical cool is more popular in the circle of people that you are likely to invite over.  But that is likely to change if another color becomes hot.  Oh what to do …. what to do!
Wear this shirt to the gathering?  Well, it is a little loud.  But it will make a statement.  Hmmm… well probably not for this gathering.
Skip employer match in 401k:  Clear no.

The rational way to approach decisions is to identify those questions at the extreme ends and spend the time to make sure you get the answers right.  That’s because the answers matter.  In the examples, there are serious consequences if someone gets the answers at the extremes wrong.  You need insurance, and there is free money in the match.  And yet there are people who drive without insurance and skip contributing to their 401k to get the match.  And they don’t give it much thought.

But the questions that have “close” answers like choosing wall color can completely absorb some peoples thoughts for days on end.  But in reality, there is no penalty for choosing the wrong answer.  In a truly close decision, a coin flip is a quick and expedient way to arrive at the answer.

The Independent Penguin doesn’t mind a good gamble on a coin flip.   But he makes sure the results don’t matter much one way or the other.



Schrodinger’s Retirement




Subtitle: A paradox resulting from traditional retirement calculations.

Schrodinger was an outwardly successful middle manager in a small corporation.  He had taken a traditional career path … school followed by an entry level job and a few small promotions.  Schrodinger had saved throughout his life and now had an enviable nestegg.  It was enough to generate about 40% of Schrodinger’s current salary forever (adjusted for inflation).  At his current age, 50, he visited retirement calculators quite frequently.  They all predicted that in just a few years he would have enough to retire with their suggested rates of 70-100% of income replacement.  Perhaps a decade or so, depending on the calculator and the rates  and assumptions that they used.

Schrodinger wanted to retire, but would only do it when the retirement calculator would tell him it was safe.  But the instant it was OK, he would walk out the door.  He yearned to be free and become an artist.

One day Schrodinger’s company was purchased by a much larger corporation.  He was directed into a conference room to meet with a Human Resources professional.

“Your department has been eliminated”  she informed Schrodinger.  “Inside this envelope is your new assignment.  It was decided by our central computer program that optimizes each person’s utility to the corporate needs.  I don’t know what the computer has decided for your future, but I will help ease your transition to your new role and compensation.”

“What are the possibilities?” asked Schrodinger.

“There are three possibilities” she replied.  “You can be assigned to the mailroom, get a lateral move to a middle management position, or become a VP in a new division.  The mailroom is a low pressure job, but only pays about 40% of your current salary.  The middle management position is challenging and pays exactly the same that you are making now.  The division VP  is very prestigious and has a salary that is four times as much as you make now.  The information that I have is that each of these outcomes is equally likely.”

Schrodinger quickly reviewed the possibilities:
1)  His portfolio was generating the equivalent of the mailroom salary right now.  If he got the mailroom job, he could replace 100% of that salary and be able to retire immediately.
2)  The middle management job paid exactly the same, so he would be able to retire in a decade or so, the same as now.
3)  His portfolio was only generating about 10% of the VP position salary.  Given such a small salary replacement rate and his advanced age, it occurred to Schrodinger that he would never be able to retire with standard retirement contributions.

As Schrodinger reached for the envelope to find out his fate, he realized he was existing in three states simultaneously: about to retire today, ready to retire in a decade, or never able to retire.  It all depended what was sealed in the envelope.  Somehow it all seemed wrong to him – why is his entire future riding on a computer printout?  And why is it out of his control?  And does free will exist, or is everything predetermined?

And then Schrodinger opened the envelope.