Posts from — January 2008

Today marked the beginning of an exciting new adventure for the Schaefer family, buying our first house. We will be moving to Washington this summer where I will be flying C-17’s for the Air Force. We should be stationed there for at least 4 years, just long enough where buying actually makes sense.

For the past several months I have been studying home buying (trying to be one of Ramit’s other friends), reading books, blogs and asking questions to people who have some experience in the area. I’ve learned quite a bit, but realize there’s still much I don’t know. In an effort to share with my readers the info and advice that I pick up along the way, I present a new series of posts called Buying a House in 2008. The goal of this series is to share the lessons I learn as I go through the long and sometimes turbulent process of buying a house.

Figuring Out How Much You Can Afford

Trying to buy a house without knowing how much you can afford reminds me of the episode of Seinfeld where Kramer decides to see how far he can test drive a car on an empty gas tank…neither him nor the car salesman knew how far was too far. So, earlier today I decided to call up my bank and talk to someone about getting pre-approved for a loan. By doing this I would be better equipped to search for prospective properties. This call was absolutely free and did not place me under any obligations to the lender. What I learned was, aside from the basic information (estimated price range, where we’d be buying the house, etc.) the first thing the lender must determine is your debt to income ratio. This ratio shows what percentage of your income is available for a mortgage payment after all other obligations are met.

A commonly used guide is that the total amount you pay toward your mortgage should not exceed 28% of your gross income. This number is simply a rule of thumb and the percentage is often times much higher depending on circumstances. To calculate your debt to income ratio you must know your total income. This includes your salary and any other monthly payments you receive like dividends, interest, alimony or child support payments, etc. If you are married pool your spouse’s income with your own.

After adding up your annual income, divide this amount by 12 to determine your monthly income. Next multiply your monthly income by .28 which will give you the maximum monthly payment allowed for housing expenses (mortgage payment, insurance, taxes…known as PITI). The next number used by many lenders is 36%, the maximum percent of your monthly gross income the lender allows for your housing expenses plus additional recurring debt. To find this divide your monthly income by .36. As you navigate the loan process these amounts should help you understand how much you can afford and what to expect when you talk with your lender. **A note to my fellow USAFA grads that took “the loan” - this debt alone significantly effected this ratio, so be prepared.

Example:

Annual Gross Income = $50,000 / 12 = $4,167 monthly income

$4,167 Monthly Income x .28 = $1,167 allowed for housing expenses

$4,167 Monthly Income x .36 = $1,500 allowed for housing expenses plus recurring debt.

On the phone with my lender I was told that this ratio, along with a few other factors like additional liquid assets, job security and credit score help the lender determine the amount of money they are willing to loan you. This aspect of our conversation took up the first 30 minutes and was extremely informative and beneficial. The second 30 minutes included the various types of loans available to me such as VA, conventional, 5/1 ARM, etc., as well as the actual pre-approval of the loan. More on what I learned on this topic in the next post.

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After publishing my last post dealing with marriage, Say What You Need, I received some feedback indicating that more content in this area would be appreciated. Since I want this blog to be incredibly useful to my readers I started to look at my marriage and discern what has made it so successful thus far. As I indicated in my last marriage post, a lot of credit must go to Aaron Stern, pastor of theMill in Colorado Springs, CO, who led us through our pre-marital counseling and put tools in our hands to build a marriage that will last.

If you are married there is one thing that is certain: there will be conflict. It is impossible to live with someone day after day, for years on end without having some type of conflict. One of the keys to marital success is adopting a view that conflict is good! What?! Yes, conflict is good! Conflict always presents an opportunity for couples to work through issues and come out stronger on the other end. Don’t get me wrong, I’m not advocating you start picking fights with your spouse for fun, but taking the fear out of conflict goes a long way in helping couples confront their issues.

Some of you may be reading this getting ready to bounce because you are not married and don’t feel this will apply to you…wait…if you are ever even thinking about getting married some day, this information will be useful for you as you begin surveying the land for potential mates.

The following is a list of the top five reasons for marital conflict:

1) a failure of communication

2) financial difficulties

3) sexual difficulties

4) problems with in-laws

5) disagreements over child rearing

“All conflicts are the result of unrealistic, uncommunicated or unmet expectations,” explains Aaron Stern. If you are already married, these should highlight areas to openly discuss often with your spouse. What are your expectations in each of these areas? If you disagree, how do you intend to work things out?

If you are unmarried, look at these as things to discuss with your boyfriend/girlfriend or fiancee before starting marriage in order to work out some ground rules before jumping in without clear expectations. Don’t wait until you get married and then realize that while you had always wanted 10 children your spouse doesn’t want any. Discussing your expectations clearly, early and often in each of these areas will go a long way to strengthen your marriage.

I was perusing the archives of one of my favorite bloggers, Ramit Sethi, and came across this great post highlighting the differences between one being cheap versus frugal. There is a definite difference between the two, but they are often thrown in the same pot. Here are some of the highlights from Ramit’s post contrasting the two:

Cheap people care about the cost of something.

Frugal people care about the value of something.

Cheap people try to get the lowest price on everything.

Frugal people try to get the lowest price on most things, but spend a lot on items they really care about.

Cheap people are inconsiderate. For example, when getting a meal with other people, if their food costs $7.95, they’ll put in $8.00, knowing very well that tax and tip mean it’s closer to $11.

Frugal people won’t order a Coke if they’re on a budget, so that when the bill comes, they don’t look cheap.

Yes, being cheap and/or frugal can be a cultural quality. I won’t spend much more time on this one.

Cheap people keep a running tally with their friends, family, and co-workers. Some frugal people do this, too, but certainly not all.

I think the difference between being cheap or frugal comes from one’s attitude and philosophy towards money and possessions. Someone who is cheap generally has a view that 1) they deserve the money they have 2) their money is for them only. Frugal people on the other hand often have the attitude that money is not an end in itself, but simply a means to achieve other goals. They believe they are stewards of money rather than owners. Frugal people are often generous while cheap people are not. Cheap people place accumulating money above relationships while frugal people use money wisely to enhance relationships.

One of the most interesting aspects of this issue (pointed out by many commenting on Ramit’s post) is that people who are cheap constantly live in fear. Fear of not getting their money’s worth, fear of getting ripped off, fear of not getting what they feel they deserve. In the end, a cheap person ends up becoming a slave to their money rather than its master.

Most predictions are flat out wrong, just listen to any “expert” on CNBC give a prediction of where the market is headed on a given day. Yet, we love predictions because they help us feel like we understand what’s going on around us much better than we actually do…the idea of randomness is uncomfortable. The reason our prophecies fall so short is our lack of understanding of the Black Swan and its impact on both history and the future. The Black Swan as Taleb describes it is:
1) an outlier 2) carries extreme impact 3) produces explanations only after the fact.

The bulk of Taleb’s book explains in great detail, clarity, and wit the error most humans make in failing to account for the Black Swan in their thinking. He explores various theories ranging from our eagerness to interpret the “causes” in history (confirmation bias, narrative fallacy, etc.) to our inabilities to predict the future (the expert problem, herding and the character of prediction errors).

Finally, Taleb doesn’t stop with mere theory; he gives the reader help in how to think in a Black Swan world. His advice, make black swans gray by being aggressive in gaining exposure to positive Black Swans and extremely conservative when under the threat of a negative Black Swan. You’re probably reading this right now going, I think I know what he is talking about, but you don’t, just read the book and be prepared to have your comfort zone shattered and your mind exercised.

Everyone wants the ability to change the world around them, but some carry much more influence than others. These people possess authority. Authority is an interesting thing because unlike power, which can be gained independently, authority must be given by others. From Wikipedia, “…’power’ refers to the ability to achieve certain ends, ‘authority’ refers to the legitimacy, justification and right to exercise that power. For example, whilst a mob has the power to punish a criminal, such as through lynching, only the courts have the authority to order capital punishment.”

In academia, authority is often associated with someone or some work that is definitive, respected, and found to be the most knowledgeable or accurate in a certain field. Authority is often correlated to the number of times the person or work is cited in other academic publications. Technorati, a popular blog ranking site assigns each blog an “Authority” rank based on the number of other web sites linking to that specific blog. Again, authority is given by others.

Webster’s defines authority as, “power to influence or command thought, opinion, or behavior,” and also as “convincing force.”

How, then, does one gain authority? The following are three paths to gaining authority that apply regardless of career, position or geography:

Service - People will rarely allow you to have access into their life if you have not served them in some capacity. The most trusted professions in America happen to be the professions most associated with service–doctors, police officers, teachers, and military officers are among the highest ranking. It should come as no surprise that the most trusted professions are also rewarded with the most authority. The act of putting other people before yourself is widely preached and rarely practice, but the individuals, businesses and organizations that do this best reap the benefits.

Just think of the last time a business went the extra mile in serving you, what was your reaction? The most common reaction to service is greater trust. Howard Schultz has built Starbucks around the concept of serving his employees using measures such as stock options and benefits for employees working as little as 20 hours a week. As a result, he and the rest of the management team has gained authority in the lives of each Starbucks partner resulting in higher quality people working at Starbucks, low turnover rates, and widespread adoption of the companies values and culture. Starbucks is an excellent example of how service is a direct path to authority. The question is how much do you really have to offer others? All of us have something to give, but the more we can offer others the more authority we create.

Excellence - “Do you see those who are skilled in their work? They will serve before kings; they will not serve before officials of low rank,” - Proverbs 22:9 TNIV. One of the truly universal currencies at work today is excellence. Someone who is excellent at his profession will always be in high demand. Excellence is proof that authority is due, the evidence that one has knowledge, has mastered his skill or craft and can be trusted to execute. Excellence shuts the mouth of critics and gives a platform for one to exercise her authority.

It is possible to gain authority without excellence, but it will be nearly impossible to keep it. Who you know may many times get you in the door, but what you know will keep you there. Incompetence leads to distrust and a shrinking of one’s circle of influence. Excellence opens doors that would otherwise be shut. What makes our new globalized, flat world interesting is that through the rise of the internet, global communications and the cheapening of travel, geography has become less of a factor in regards to success and influence, while excellence has quickly become THE factor. No longer can one rely on the protection of trade unions, favorable geography or birth right to secure authority, if someone in India can program better than the kid in San Francisco the Indian will most likely get the job and the authority with which it comes. Excellence is a sure path to gaining authority and a must-have in maintaining authority.

Integrity - Authority is directly related to trust. Due to this it is incredibly important for one to possess integrity if he or she wishes to have influence. People will not allow liars or cheats access to their lives. Without integrity the prior two authority builders, service and excellence, are irrelevant. The ripple effects of a break in integrity are tremendous harming everyone connected to the person or situation where the the failure occurred. Integrity means more than just honesty, it means doing the right thing when no one is looking, understanding there’s no such thing as a secret. Integrity is the ability to consistently make the right decisions when faced with life’s moral crossroads.

All of us have met people that are continually looking to cut corners. Most of the time it is not simply one large lie or breach or integrity that is the cause for a breakdown, but rather a series of small, seemingly inconsequential choices made poorly over a long period of time. One of my favorite definitions of integrity is “wholeness” or “completeness.” Even the smallest break in integrity can destroy a life. People of great integrity command respect and will always have authority because their standard of living raises the bar for everyone around them. Integrity must be the foundation of any person or organization endeavoring to build authority.

Malone Lenie Schaefer is finally here! She was born on Thursday at 1:45pm, 7lbs 3oz and 20.5in. An incredible daughter! Just got home from the hospital and still getting settled so here are some pictures for everyone.

For more pictures and videos of Malone please visit my wife’s blog: Marelize’s Blog

I really believe that at the heart of skilled living is having an accurate and well-developed worldview, how one views and interacts with the world around them. Ideas have consequences. How we view the world around us will determine how we think, how we act, where we invest our time and money, and what causes we pursue. Bono, in this talk in Feb of 2005 describes the growing crisis in Africa explaining that it not a matter of charity, but rather of justice. Filmed at the TED conference, an annual conference that brings together the worlds most innovative minds to share ideas, Bono reminds us that worldview matters because lives are at stake.

Last week my friend Justin discussed the differences between a leader and a manager on his blog. It is a debate that I had not heard much of since my time at the Academy where leadership was the subject of constant discussion. Just Google “leader vs. manager” and you will quickly see that the debate is not limited to military academies or corporate seminars, but is surprisingly widespread. Here’s a snippet from one of the thousands of sites discussing leadership vs. management that captures the common view of leaders as more noble and grand then squinty-eyed, cheap-suit-wearing managers.

To survive in the twenty-first century, we are going to need a new generation of leaders — leaders, not managers. The distinction is an important one. Leaders conquer the context — the turbulent, ambiguous surroundings that sometimes seem to conspire against us and will surely suffocate us if we let them — while managers surrender to it.

Leaders investigate reality, taking in the pertinent factors and analyzing them carefully. On this basis they produce visions, concepts, plans, and programs. Managers adopt the truth from others and implement it without probing for the facts that reveal reality. - www.futurevisions.org

Notice the utter disdain for a manager and the god-like characterizations of a leader. To the question of leader vs manager I respond, “MU.” I think the entire debate is mind-numbing and a huge waste of time, here’s why. The debate is founded on a false premise that one must be either a leader or a manager…one or the other. To all of this I respond, “MU.” Before I go on, let’s look at the very same site which gives characteristics of both leaders and managers. Keep in mind, these lists are supposed to be showing the difference between the two:

Management is: Coping with complexity, planning and budgeting, organizing and staffing, controlling and problem solving, effective action.

Leadership is: Coping with and promoting change, setting a direction, aligning people, motivating and inspiring people, meaningful action

Are you kidding?! Is organizing and staffing any different than aligning? Does setting a direction not require careful planning and budgeting? The reality is leadership and management cannot be separated, there is so much overlap between the two that it is silly to say a person must be one or the other. The list in trying to show the uniqueness of each role seems to instead be providing a lesson in synonyms. How many great leaders do you know that don’t cope with complexity, control and problem solve or take “effective action.” By the way which is better, “effective action” or “meaningful action”? Try telling a board of directors that while your last decision was not very “effective” it was very “meaningful” and see what kind of reaction you get.

I have a one word response to this entire debate, “MU.” I reject the premise of the debate. Leaders must have management skills or no one would follow them. Managers have to be able to lead people in order to manage an organization. “What the heck is MU?” you are probably asking by now. I give you a segment from a book, Godel, Escher, Bach: An Eternal Golden Braid by Douglas R. Hofstadter where the characters are discussing a similar debate on whether the world should be viewed through a holistic or reductionist lens:

You see, ‘MU’ is an ancient Zen answer answer, which, when given to a question, UNMASKS the question. Here the question seems to be, ‘Should the world be understood via holism, or via reductionism?’ And the answer, ‘MU’ here rejects the premises of the question, which are that one or the other must be chosen. By unmasking the question, it reveals a wider truth: that there is a larger context into which both holistic and reductionist explanations fit. -pg 312

There must also be a larger context into which both leadership and management explanations fit. Leaders cannot survive without managerial skills and managers will never reach their objectives without being able to lead people. When we ask the question of the difference between leadership and management we’re simply asking the wrong question. For those I have still not convinced I leave you with Joe Torre. Is he a manager or a leader? The great baseball manager’s Yankees won championships the first four of his five years at the helm. On the one hand he had to handle the personnel decisions, on the other he had to inspire his players. The fans loved him, the players respected him, but ask yourself, manager or leader? “MU” “MU” “MU”!!!

Since finishing UPT about a month ago I’ve had lots of free time on my hands. Here’s what I’ve been reading lately:

Books:
- A New Brand World: Eight Principles for Achieving Brand Leadership in the Twenty-First Century by Scott Bedbury

- The Brothers Karamazov by Fyodor Dostoevsky

- Bringing Down the House: The Inside Story of Six M.I.T. Students Who Took Vegas for Millions by Ben Mezrich

- Living the Resurrection: The Risen Christ in an Everyday Life by Eugene Peterson

- Sex God: Exploring the Endless Connections Between Sexuality And Spirituality by Rob Bell

- Pour Your Heart into It : How Starbucks Built a Company One Cup at a Time by Howard Schultz

Blogs:
- Ben Casnocha: The Blog - entrepreneurship, writing, books and tons of other good stuff

- Ramit Sethi: I Will Teach You to Be Rich - personal finance

- Seth Godin: Seth’s Blog - marketing

- Brian Reese: Brian Reese Blogs - investing, books, business, faith

- Lawrence Cheok: A Long Long Road - personal development

- Akshay Kapur - great blog on health care, economics and business intelligence

- Andrew Pratt: Andrew’s Thoughts - books, business, grad school

- Justin Steinhart: Steiny’s Corner - faith, books, life

My wife and I have been married now for a year and a half…not very long, especially to be giving marriage advice, I know, but it has been a wonderful time and I can’t help believing that there are some fundamental pieces to our relationship that have made it so fulfilling and successful thus far. In my effort to share with my readers lessons in skilled living, I give you this piece of advice that has truly transformed the way both my wife and I think about our relationship: say what you need.

I must give credit to Aaron Stern, our pastor at the time and pre-marital counselor, for this wonderful concept. It was during our intense sessions of confessions and hypotheticals that he blessed us with this gem of wisdom.

Tell your partner what you need. It seems obvious, but what often happens is that one person wants something, but feels that their partner should know to fulfill that need without having to be told or asked. When the need goes unmet, bitterness and frustration ensues with one person being mad that their need wasn’t met and the other being angry because he or she was expected to read the other’s mind. This battle is a very common one faced by couples, but is such a easy fix. Just tell your partner what you need.

For example, sometimes when we’re walking down the street my wife will simply say, “Babe, I want you to hold my hand,” or every once and a while, “I would like it if you bought me flowers sometime this month.” From my side, “Wifey, would you get up early and make me a big breakfast tomorrow?” This is probably shocking to some people reading this, who like me when I first heard it, are probably thinking, “where’s the romance in that?” The fact is, you have to trust your spouse enough to know that they have your best interests at heart and truly want to serve you, its just that all of us from time to time need some hints…no matter how long people are together it is hard to consistently read your partner’s mind. Again, it may seem a bit mechanical at first, but I guarantee it will prevent thousands of fights and hurt feelings and enable you to maintain a healthy relationship.

This doesn’t mean that you are off the hook when it comes to anticipating the needs of your spouse, it is just a way to help the process. In reality, most of the time it is not really about the flowers or the breakfast, it’s about a greater need. For my wife, holding her hand is a public affirmation of my love for her; flowers are a symbol that I’m thinking about her throughout my day. For me, my wife waking up to cook me breakfast tells me that she wants to serve me. We all understand these things in theory, but many times we need help in knowing how to fulfill these desires. Say what you need.