Eat That Frog

Frog Lying Down

I’ve gotten this tip from a book by Brian Tracy, and it has served me really well. The tip is really simple:

Start your day by knocking out the most unpleasant thing on your to-do list first.

If you’re like me, your daily to-do list almost always has that “frog” that you want to do least. For me today, it’s writing this blog post. I’d rather get carried away by the comfortable daily routine. But deep down, I know what my frog is and I’m eating it now.

Your frog may be different. Inevitably though, it’s that thing that you would rather postpone or not do altogether. You find an excuse to start with easier, more comfortable things – replying to emails, checking Facebook, reading the news – and the frog gets swept under the carpet.

Don’t do it. Make a deliberate decision to “eat the frog” and do that unpleasant thing first. For one thing, you will good about yourself. Deep down inside you know that the day’s frog is really important (see below), so you will have a sense of satisfaction even if you don’t accomplish anything else today.

The second reason is more profound. Our frogs are typically the high-priority, long-term things that may come with a little pain now but promise great rewards in the future – or help avert much more unpleasant things. Setting up a dentist appointment is an easy example.

Third, frogs often require that we step out of our comfort zone. Trust me, I would rather be replying to emails or testing our company’s Android app instead of writing this post. But I know that stepping out of your comfort zone is how you grow, and I’m willing to suffer a little pain to achieve that.

Eating your daily frog requires you to be honest with yourself. Once you know what your frog is today, there really are no excuses – it has to be dealt first thing. The more you practice this, the more automatic this daily decision will become.

Be honest with yourself, identify your frog and eat it today! I’ve just eaten mine.

Expert Opinion is Overrated, or The Power of Simple Formulas

If you haven’t yet read Thinking, Fast and Slow by Daniel Kahneman, I cannot encourage you strongly enough to do so. In this book, Prof. Kahneman – a winner of the Nobel Prize in Economic Sciences – summarizes his lifetime of research into the workings of the human mind, our decision-making process and the fallacies we are susceptible to.

There are a lot of eye-openers in the book but a few stand out. One is found in the chapter called “Intuitions vs. Formulas”. The lesson in this chapter is extremely provocative:

Simple formulas often outperform expert judgment.

What this means is that a simple formula to predict future performance may be more reliable than expert opinion.

The key example provided in the chapter is Kahneman’s own story of creating an interview system for the Israeli army. Prior to Kahneman, the evaluation of a recruit’s combat fitness was chiefly made by an expert – the interviewer who tried to forecast how well the recruit would do.

It turned out that the expert judgment was practically useless in predicting the future success of recruits. At age 21, Kahneman was tasked to create a better approach. Shortly before, Kahneman read a book by the psychologist Paul Meehl about statistical prediction, and he decided to put Meehl’s theories into practice.

Objective Inputs + Standard Formulas

The new interview system included separate scoring of several personality traits in each recruit that would appear relevant to his performance in a combat unit – traits like responsibility, sociability and “masculine pride”. For scoring each personality trait, Kahneman came up with a series of standardized questions. The candidate’s final score was computed as a simple sum of individual scores.

The evaluations held a few months after the new system was installed showed that it was a substantial improvement over the old one. A simple sum of the six scores predicted the soldier’s performance much more accurately that the previous, expert-based method.

Now, you may be inclined to think that the improvement was due to Kahneman systematizing the interview process by making the interviewers score specific personality traits in each recruit. While there is undoubtedly value in this, the crucial – crucial! – factor was what questions were used for scoring these traits.

Kahneman writes: “I… composed, for each trait, a series of factual questions about the individual’s life before their enlistment.” For example, questions for scoring responsibility included how many different jobs the recruit had held or how punctual he had been in his work and studies.

Contrast this with a typical job interview where the interviewer would ask questions like “Do you consider yourself responsible?”, “Give me an example where you showed yourself as a responsible person”, or “Imagine you found yourself in such and such situation. What would you do?”

Kahneman’s system included none of this. Instead, the scoring in his system was based on questions about objective facts of the person’s life that are indicative of the personality trait in question.

In particular, here is what Kahneman has to say:

I concluded that the then current interview had failed at least in part because it allowed the interviewers to do that they found most interesting, which was learn about the dynamics of the interviewee’s mental life.

Not Just for the Army

The superiority of simple formulas over expert judgment has been confirmed in a multitude of areas besides army recruitment. Here are a few other examples – some are given in the book and some are my observations:

Predicting the future value of wines. Bottles of fine Bordeaux wine filled only 12 months apart can differ in value by a factor of 10 or more. A statistical formula developed by the Princeton economist Orley Ashenfelter predicts the future price of wine by just three features of the weather of the bottling year. The Ashenfelter’s formula provides accurate price forecasts years and even decades into the future and is much more accurate than expert opinion.

Marital stability. Robyn Dawes showed that marital stability is well predicted by a simple formula:

Stability = frequency of lovemaking – frequency of quarrels

Basically, you don’t want your stability number to be in the negative.

Stock market investing. It is a well-established fact that index investing, or formula-based investing into a basket of stocks representative of the market is a whole, outperforms a vast majority of fund managers over the long run. “A low-cost index fund is the most sensible equity investment for the great majority of investors,” agrees Warren Buffett, arguably the best investor history has known.

Evaluating physical distress of newborns. A rating scale developed by anesthesiologist Virginia Apgar ranks newborns across five variables (heart rate, respiration, reflex, muscle tone, and color) on a scale of 0 to 2 one minute after they are born. The scale has proved to be much more accurate than clinical judgement in determining whether the baby is in distress and needs medical help. Apgar score has saved lives of hundreds of thousands of infants since its introduction in 1953.

Making the Formulas Work for You

In the end of the “Intuitions vs. Formulas” chapter, Kahneman urges the reader to put the formulas to work in their life and provides a detailed description of his formula-based method for assessing job candidates.

While this method requires “relatively little effort,” Kahneman warns that it also requires “substantial discipline.” This has been exactly my experience in implementing the interview procedures in Kahneman’s spirit in my company, and here is why.

As I mentioned before, the key to the success of Kahneman’s formula-based approach is the objective, factual inputs – i.e. questions used to evaluate each of the job candidate’s 5 or 6 personality traits. When devising the questions, I had to constantly remind myself to avoid questions dealing with the dynamics of the candidate’s “mental life” and use fact-based questions instead.

For example, if you were to evaluate the candidate’s ability to operate in unknown, you may be tempted to ask, “How did you deal with changes at work?”, and that would be a wrong question. Instead, one better – factual – question used to assess this trait would be, “Have you traveled a lot?”

My hiring has been very successful so far, and I attribute much of the success to the usage of a formula instead of subjective judgement. Try putting simple formulas to work for you, and you will be surprised with the results.

The Biggest Mistake You Can Make

Sand ClockThe biggest mistake you can make is to live your life as if you had infinite time on your hands. Here is an example.

I moved out of my hometown when I was 27. This is an old European city with lots of history and landmarks to it that lots of tourists come to see every year.

I haven’t seen all of the landmarks or visited all the museums. In fact, the first time I saw a lot of the attractions myself was when I was giving others a tour of the city.

This seems to be typical of many other city dwellers. After all, all of those museums and attractions are there. They are not going anywhere. You can see them every time.

Until you can’t.

Your Time Is Not Infinite

A lot of us seem to be taking this “it can wait” approach towards many other things in life. We are not pursuing our dreams or spending enough time with our loved ones because they are always there and we can do it anytime.

The routine gets us and we let the multitude of the day’s little problems completely obscure the big picture.

I’ll start that yoga class after the youngest one goes to preschool. I’ll be spending more time with my wife after I finish this one project at work. I’ll do this when…

Days turn into weeks, weeks turn into months and then years, and we find that a huge chunk of our life is forever gone attending to stuff we can’t even remember.

Your time is not infinite. Every day, you have one day less to live, and one day less to do the things you have been postponing for months or years. The time to do those things is now.

Budget the Time for the Important Things

One strategy that I have found to be effective is to proactively budget the time for the important things in your life.

For example, I love DJing but I have been finding myself moving nowhere for quite some time because I just “didn’t have the time” to find new tracks. Now I proactively budget at least a few minutes daily to look for new music, and that helps immensely.

(Incidentally, this is very closely related to my favorite “baby steps” method of reaching goals, which I will be talking about later.)

It’s really easy – if you don’t put money aside first, you will have nothing left at the end of the month. If you don’t proactively budget time for the  important people and projects in your life, the routine will eat it all.

What this all really is about is remembering the big picture. And you better remind yourself of it when you deal with your most precious asset – time.

Because those important things may no longer be there when you finally decide to attend to them.


The Importance of Keeping Your Word

In my previous life, I was a software development freelancer. I began taking projects at RentACoder.com in my 4th year of college, and was freelancing on an off for quite a while since then.

My beginnings were more than humble – I remember taking $10 gigs and willing to work a couple of weeks for $70. However, I was quickly accumulating positive ratings from my clients. Towards the end of my freelancing career, I was routinely charging 3-4x the hourly rate of my competition, making freelancing my primary source of income.

How was it possible? On the one hand, I always remembered Dan Kennedy’s advice that you should not be afraid of raising your prices. But on the other, what I think contributed most to my freelancing success was following these two basic rules:

  1. If you say you’ll do something by a certain date, do it.
  2. If you see that you are not making it on time, let the client know ASAP.

These rules look really simple but I have found out that being religious about keeping your word sets you apart from 95% of your competition almost immediately.

One of the reasons is undoubtedly the nature of remote work itself. When you and your client are located in different parts of the world, it’s only natural that the communication is scarcer than if you were working in the same office. When means of tracking your progress are limited, every promise you make gets double scrutiny from the client. Keeping your word thus helps alleviate client anxiety and builds trust.

And you know what? Clients are willing to pay extra for that.

But keeping your word is important not only in freelancing. In fact, when I moved to the business world, I quickly found out that keeping your promises is the very first test you are subjected to in a new business relationship. Break your word – even in a small thing, like calling back by a certain date – and the business partner’s trust diminishes dramatically. This is especially true in early stages of a business relationship.

Of course, this is life and we cannot keep our word 100% of the time. The key here is to let the other person know as early as possible. If you see that a certain chunk of work is taking you longer than expected and you are not going deliver by the agreed upon date, let the client know right away! The longer you delay, the worse off you will be.

One important note here is what exactly to consider a promise. My wife half-jokingly says that it’s not a promise unless you explicitly say: “I promise that…” Well, I don’t agree! Everything you say or even imply about your future actions or expected outcomes is a promise to the other person. So what we are really talking about here is managing the other person’s expectations and making sure they don’t deviate too much from reality.

Keeping my word has served me well and I hope it will for you, too.

How to Save Money

Scrooge McDuck

Saving money is crucial for a few reasons. First, it enables you to buy investments and eventually reach financial independence – that is, the ability to live off your investment income. Second, only by saving can you create a financial cushion to protect yourself from life’s blows such as an unexpected medical bill or an unforeseen repair.

The Wrong Way to Save

Most people get saving wrong. They try to “budget” and then put aside whatever money is left in the end of the month. More often than not, that doesn’t work well.

Why is that happening? You see, there is a powerful law in place, which I call The Law of Matching Expenses:

No matter what your income is, your expenses will always find a way to catch up.

The Law of Matching Expenses means that no matter how hard you try, there will be very little money left to put aside in the end of the month – if any.

The only way to fool the law is to save in the beginning, not the end.

Pay Yourself First

Paying yourself first means that you set aside a percentage of all your income first thing after receiving it. Got a paycheck? Deposit 10% immediately in your savings account. Got a gift from an uncle? There goes 10% to your savings.

Paying yourself first is the opposite to paying other people first, e.g. your landlord, the phone company, the grocery store etc.

Basically, what you want to do is set money aside, and then forget about it as if it never existed.

To start saving, the exact percentage you set aside is not important. I save 10% but you can start with 1% and increase the percentage over time. What’s important is that you do it, and stick to the routine religiously.

Save Half of Your Income Increases

This tip will help you save even more:

Whenever your monthly income increases, direct 50% of the difference to your savings.

Here is how it works. Imagine that you are an employee and your salary is $5,000 per month. You set aside 10%, or $500, from each paycheck, which leaves you with $4,500 for your monthly expenses.

Now, you get a promotion and your salary becomes $6,000. Instead of assigning just 10% of the $1,000 difference to savings, you assign 50%, or $500. You have now doubled the amount you save every month (from $500 to $1,000) and your disposable income still went up from $4,500 to $5,000 monthly.

If you stick to this routine, you will eventually find yourself saving almost half of your income. Imagine how many great investments you will now be able to afford!

Protect the Money from Yourself

This is a bonus tip. As you set the money aside in the beginning of every month, make sure that it’s not easily accessible. As much as we want to believe in our willpower, it is human nature to tap the cash that’s just lying around.

Remember that your savings are untouchable and can only be spent on investments or in case of an emergency. (Actually, a good idea would be to keep emergency and investment money in two different accounts.)

What you want to do is put your savings money in a bank account that has no online banking or debit card attached. That way, you would have to physically go to the bank if you decide to withdraw, which will give you plenty of time to reconsider.

Here’s to your financial freedom, and remember to pay yourself first!