What Is “House Poor”?


People notice how much condo fees are, but they seem not to think of those expenses if they buy a house. Even if you pay cash to buy the place, you can’t live anywhere free.

There is a lengthy list of ongoing expenses:

  1. Municipal taxes
  2. Maintenance, repairs, and upgrades
  3. Heat
  4. Electricity
  5. Water
  6. Insurance

This will often total 4% of the value of the property. A rule of thumb for a conventional single-family dwelling outside major metropolitan areas in Ontario. Big center results tend to be lower because taxes tend to be lower.

In places where school expenses are paid from municipal taxes, they could be much higher. I have a friend in Texas whose taxes alone would be close to the 4% limit. Also possible in cottage country where the assessment base is thin.

When arranging a purchase be sure you notice the 4% of value number. You can qualify for a mortgage that seems affordable but when the other expenses appear, it becomes unattractive.

Knowing a little more about how the future will unfold will sometimes prevent you from missing out on the chance to enjoy your home.

You could think of it as 3% plus the taxes.

House poor is when your cost to live where you do leaves you with too little money to do other things you might want. Sometimes that sneaks up on you. Like when you retire and your income falls, or if you lose a job.

Your defences

Don’t buy more house than you can reasonably use. That will affect both the ongoing expenses and mortgage payment.

Be aware of energy efficiency. Heat is an issue here for ten months a year and airconditioning for the other two. This is one area where capital spending on efficiency will pay for itself. It is unlikely the price of energy will fall.

Shop for insurance. Be aware of the effect a deductible can have. Insure to value or you may have an unexpected surprise if you have a partial loss. Talk to a good casualty insurance agent.

Some houses are easier to keep up than others. Older homes may have more character but often some are nearing the end of their useful life. Particularly, notice electrical service and how close it is to your needs. Be careful with plumbing. Almost all if it is hard to get to. Cheap fixes can be expensive. Doors and windows have a useful life. So does flooring, the roof and the driveway.

Big lawns and lots of plants are attractive but they need maintenance. Plants can be expensive and lawn mowing takes time or money. Know how much the water bill is to irrigate.

Takeaway

Houses are expensive and for people buying their first or upgrading, the related expenses can be more than the mortgage payment. For example. A $400,000 house with a $300,000 mortgage. Given today’s interest rates the annual total of monthly payments would be about $15,300. The cost to operate the house in total would be very similar. Possibly higher.

You make better decisions when you anticipate the future completely.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

Is Every Day A Financial Planning Day?


Most days have little or no impact on your wellbeing. You earn a little and spend slightly less. One day you pay some bills and make some loan payments and transfer some money to an investment account. That’s the day you use the little you didn’t spend the other days in the month.

No big deal.

Why plan then?

Because, while most days don’t matter, a few do. These are some predictable ones that do.

  1. The day you get your first real job. Have a cash flow budget, enough insurance, a will and powers of attorney, and a fund to deal with the ups and downs of monthly spending. Have an inkling of your long term vision.
  2. The day you get married. Part of the vision crystalizes and liabilities to support others arise. Recheck insurance. redo budgets. Anticipate intermediate-term spending.
  3. The day a child is born. More long liabilities are added. Living and education are financial.
  4. The day you buy your first house. Understand borrowing. Match the duration of the loan against other predictable needs like education spending. Shop for rates and terms.
  5. The day a child goes to college. End of the college accumulation phase. A possible need for money from current income or from borrowing. You should have anticipated those.
  6. The day you retire. The end of earning by sharing your time and skill. From here on, money must work for you.
  7. The day your spouse retires if different. Like your retirement.
  8. The day you begin to think about estate distributions and the timing of those. Many times parents have more wealth than they need. An earlier transition can make a big difference to the heirs without imperilling the wellbeing of the parents or grandparents.
  9. The day the first of you dies.  Did you have a valid will? Does enough income continue? Are management skills available to manage the assets?
  10. The day the second of you dies. Is there a valid will? Will there be an orderly transition? Is there enough liquidity? Have monuments and heirlooms been dealt with? Have you considered disabled children and charities? Is it equitable?

All of these days have one of two conditions that matter.

  1. They define a new reality that must be understood and controlled, or
  2. They are the end of one plan piece. A transition.

Financial plans have inflection points within them. If you manage those well enough, financial planning need not be a burden. Keep track of cash flow so wealth is not consumed by needless spending, minimize the tax bill, and the rest should work if you have designed your savings well enough. You will need to check that once in a while.

The non-normal  day matters 

Life has a way of not unfolding as it should. People lose their job, get divorced, must take care of a parent, and run into strange events in the financial world. Remember 19% mortgages in the early 80s. Remember higher income tax rates. Remember when governments spent only what they brought in.

Your plan should provide some flexibility. A margin for error if you like that better. If you have some reserves to handle the unforeseen, it will still work. Don’t overdo the saving for the unforeseen. Estimate the biggest cost you could expect.

The Takeaway

Financial planning is not consuming. Once the right level of spending and saving is found, it runs smoothly. Just check to be sure you are really doing it. Save what you should and don’t spend it once saved.

Notice how your education funding plan, your retirement plan, and your estate distribution plan are all included in your financial life plan. It makes sense to have a global plan with local pieces. That helps you maintain perspective.

When you know why you will be more motivated to perform.

Planning is about anticipating and anticipating is how you accommodate the future.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

The Value of Small Bets


A risk-defeating tactic is to discover more information by making small commitments.

When you learn the value of small bets, you will begin to make decisions earlier in the process. By the time you have a serious commitment, you will know a great deal more than you did earlier. Thus, better decisions.

The recent book, “The Biggest Bluff” talks about making decisions under uncertainty. As you will learn eventually, that is the way all life decisions are made. You never have everything you need to know.

In Poker

Betting is not so much about winning a lot of money as it is about asking questions about your opponent’s hand. Do you want to invest this much more to continue? In life you can accomplish essentially the same thing.

Mike Dariano at The Waiters Pad blog made this point.

“No one knows what’s going to happen but you gotta be in the game to see”

Make Complex Decisions Easier By Testing

Think about how you can test the system with small bets. Could be investing, could be the value of the time spent planning, could be taking on a business partner, could be almost anything where you can’t understand the entire process.

Big complex decisions should not be undertaken if a small scale test is possible.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

You Cannot Prove You’re Right


You can prove something false, and that is a useful condition.

I watched a short video of Richard Feynman explaining the scientific method. It is similar to how financial planning works.

In science, it begins with a guess, moves to the observable implications of that guess and then experiments or looks for things that confirm or deny the guess. If the observations don’t agree with the implications of the guess, the guess must be modified or dismissed.

Financial plans

Financial planning works like that too, except it doesn’t begin with a guess. It begins with the vision, hopes, fears, and expectations of a person. To that is added the resources the person has, the resources they can reasonably acquire, and an examination of risks.

From those, the plan consists of a projection of outcomes over time. Kids go to college, the mortgage is paid off, retirement, and so on. These depend on what the planner is looking for. This is like the scientific method, but the idea of failure requires a different approach.

An Important Difference

Interim results may not matter in science, but they do in financial planning. If a science experiment proves the guess wrong, make a new or modified guess and begin again. In financial planning, if you wait to find out how it worked you have no room to start over. Time is a crucial resource and once used cannot be recreated.

Financial planning then requires constant vigilance. How is the environment changing? Have tax laws changed? Is my employer growing stronger or not. Am I promotable? What does the investment world look like? Has my family situation changed? A good financial plan changes to accommodate these variables and others.

Proven Right Is Not Possible

In science, you cannot prove anything right, you can only say it is consistent with observations. However, you have maybe not seen everything that is possible yet. On the other hand, a theory can be proven wrong by observation.

In financial planning, it is seldom true that a well-crafted plan can be proven wrong in the short run and that is where the risk lies. That is why you need monitoring.

How you monitor your financial plan

There are four parts.

First Record your plan and keep careful track of the assumptions you make to create it. Be sure the assumptions are measurable, at least within a range.

Second, Record the outcomes. How close to your cash flow budget, one of the parts of the plan, did you come? How did investment performance work? How about loan repayments?

Third, Review the outcomes in the context of the original plan. Understand the variances. Most of the time the variance is because the original guess was wrong, but sometimes circumstances have changed. As you do this more, initial errors will reduce in importance. When you have a clear idea of what is happening go to the last step. The idea is there is no right or wrong yet, just guidance and education.

Fourth, Revise the plan. This is not to be undertaken lightly. Be sure the knowledge you have now is better than what you had in the beginning. Assure yourself that the variances are not just normal fluctuations. Especially true for investment performance. You cannot do this too often without adding more risk. I think minor modifications to spending are allowed each year, but substantive change is no more than a once in three years thing.

Look for new tactics that have come along since the last review. Look for other environmental changes.

Then go back to creating and recording a new plan.

The takeaway.

In science you cannot prove you are right, you can only prove you are wrong. Philosopher Karl Popper points out that any scientific theory that is not falsifiable is not really a scientific theory. The same is true with a financial plan In a financial plan the time risk makes interim results important.

Pay attention to the 3Rs of Record, Review, and Revise.

The idea of recording your plan and its assumptions is to make it falsifiable. The idea of recording what happens to your money is the observational equivalent of the science experiments.

You will find your financial life works better if you are organized and persistent.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

How They Calculate Life Insurance Premiums


People often wonder what the “best deal” is for life insurance. It is not a foolish question, yet the answers confuse them. Sometimes there are meaningful differences between companies for similar coverages.

The premium is composed of many things.

For a simple product like term renewable for 10 years the essential elements are:

  1. Probability of dying. For anyone who can pass medical and other underwriting today, the probability of dying in the next 10 years is not zero, but close. So, if they promise to pay $1,000,000 on death and the expectation is one person in five hundred will die, the cost for the coverage to the insurer is $2,000. The one in five hundred is not so far off for younger people. For someone 55, it might be double that. The cost per year, unadjusted for interest earned is $200.
  2. Premium tax is 2% in Ontario so that is factored in.
  3. The insurer pays expenses for medicals, commissions, billing and collection. communication with the policyholder,  and absorbs some overhead like rent, executive salaries, actuarial salaries, and equipment costs. For a young person term case that is about $1,500, so $100 per year.
  4. Investment income is negligible for these policies.
  5. Profit to the company. A guess but call it $40 per year.

The premium then becomes $390 plus the premium tax or $397.96

There will not be much difference between companies on this kind of product because they all face the same risk of mortality and the same expenses. Except. Some companies will price it lower, even at a loss because it is a good way to get new clients and they hope to do more later. Others don’t want the business, or they want to make more per dollar of premium. Harder still, some companies do better underwriting. Instead of two deaths per thousand, they might get only 1.9.

All of it requires a huge number of cases. Everything is based on averages and the numbers you get out for cost per year, industry-wide, will assume hundreds of thousands of cases.

Permanent Insurance is harder

  1. Permanent, or whole life insurance, non-participating, has a different challenge for mortality. Instead of over a 10-year period, which for young ages is fairly flat, whole life is the entire curve and beyond about age 40 it is a little bigger each year. In these cases, the expectation of paying is 100%, just not now or in any particular year. Actuaries assess the cost for each year of the policy based on what they know about the mortality experience for a given age, gender, and factors they have learned during underwriting. Thinks like smoking, travel, driving record, hazardous sports, and family history.
  2. They can’t just average it like in short duration term products, so instead they discount the expectation by year back to the present using an interest rate that reflects investment performance.
  3. Then they add their underwriting costs and commissions. Most of these are paid in the first few years and then they interest adjust that.
  4. Future administrative costs are factored in and adjustments made for the changes they expect in the future. When computers came to be common, the clerical staff numbers fell dramatically and their costs with it.
  5. The premium tax and company profit appears again
  6. When they are done they have a lump of interest adjusted cost accumulated over a long period. They can then use “Average life expectancy” the time to which half the policyholders would live to derive a level premium. The amount, unlike term 10,  will be substantially more than their costs. That forms the policy reserve. They expect to invest that and earn a return that is calculated into the premium. They pay income taxes on it too and that is also calculated too.
  7. The policy reserve reduces the implicit insurance part of the contract. If I have a $1,000,000 policy with a $200,000, there is only $800,000 of pure insurance so while the premium remains level the pure insurance part shrinks.
  8. Most companies go beyond this perfectly rational place and factor in other things. The most common of these is a “lapse” factor. Not all policies are held until death. Should someone quit they will get back the “cash surrender value” which in the first several years is much less than the reserve. The company keeps that and uses the anticipation to reduce premiums.

For permanent products like term to 100, there is no cash value, so lapses are more positive for the company. Thus lower premiums.

Things to notice

The mortality rate matters but not as much as you would think for permanent policies. There will be a positive advantage if people begin to live longer, but that won’t show up for quite a while so the interest adjusted value of it is lower.

Expenses will trend down over time. Again not a lot of interest adjusted effect.

Income taxes could change, but not a lot.

Changes in the company’s profits are absorbed by the shareholders.

What affects the policy owners most are interest rates and lapse factors. If rates on long term bonds and mortgages go up, the premium will be too high for what it could have been. Some people will drop out and if insurable begin again. That leaves lapse and if you can find a product with a very high lapse factor you can expect a bargain. As rates rise and people quit, you will implicitly get a share of it. The risk is if the company prices in too much lapse and if they don’t get it, it imperils their financial wellbeing.

Then there is participating whole life.

In this form, the company makes very conservative assessment of costs and gets a high premium. They make a deal with you that says we have made very conservative assumptions and should we beat those we will share the profit from that with you. So if interest rates go up you will participate in the advantage. If mortality gets better, more for you. If costs are lower, you win.

The company is required to pay almost the entire profit to the policy owners.  When rates are low like they are now and lapse factors are calculated reasonably, this is a fine way to arrange your insurance. The premium is the most it can cost and it will likely be better. In some ways, it will be like a very high-quality bond portfolio with a minuscule management fee and a preferred tax rate.

The gain is offered in several ways. Cash, reduction of premium, accumulation at interest, or purchase of more insurance that is “paid-up” That is no premiums. There are tax issues that affect that choice.

The downside, of course, is the premium needed.

For those who understand and are indifferent to the amount of premium, the choice is participating life insurance.

The requirement for the advisor is to explain it to the client well enough that they can see the benefit. Not easy, but worth the trouble.

There are several other forms that fit in and among these choices. the common lines are universal life, term renewable t different intervals 20 or 30-year, group, and creditor insurance.

The task of fitting an insurance product to the resources and needs of clients is not trivial and the benefits to do it right can be significant.

Hire a helper.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

Seeking Personal Independence


Personal independence is a state of mind. Financial independence is part of it and while it will not satisfy the entire question, it will prevent a solution if overlooked.

What do we mean?

William Hazlitt, the English essayist, explains it like this, “The soul of a journey is liberty, perfect liberty, to think, feel, do just as one pleases.” So independence involves choice. Having money, the basic of financial independence, won’t guarantee the ability to think, feel and do as we please. Not having money can easily restrict it though. Recall the examination of the inverse discussions.

How do you get enough money? Hazlitt observes the method of getting there. “Prosperity is a great teacher; adversity a greater.” Few people have a straight-line success from the beginning to great prosperity. Adversity is part of the journey and should be accepted as a useful part. You cannot fail and learn nothing. The depth of knowledge is what moves us to greater heights.

Eventually, you arrive at financial independence. Suppose you get enough money to do as you please when and how you please. What then? Are there other issues detracting from your liberty?

One of them is the way society relates to wealthy people. In the past few years, instead of celebrating their success, we denigrate them. Movements like Anti-fa, BLM, and Occupy Wall Street, even former President Obama, would make it seem that the people with enough money have somehow gained it unscrupulously. They and many others like them abhor wealth, all the while seeking to obtain it.

Hazlitt again. “The only vice that cannot be forgiven is hypocrisy. “  The inability to forgive reduces our joy.

A final Hazlitt thought.“Love turns, with a little indulgence, to indifference or disgust; hatred alone is immortal.”

Our best moves

Hate is insidious. It is far harder on us than it is on the one we hate. Learn to forgive.

Notice how the once-hated group or person came to influence our lives and do what we can do to prevent them and other like them from gaining the position they used to harm us.

John F. Kennedy had the idea. “Forgive your enemies, but never forget their names.”

As for wealth, notice that beyond a point more wealth is not meaningful. In economics, they call it diminishing marginal utility. Having wealth for the sake of wealth itself is not productive, so your financial independence plan should be specific about how much is enough. That will involve what you want to do with it. Lifestyle, charity, growth, security for yourself and your family. Choices.

“I’ve been rich and I’ve been poor. Trust me rich is better.” Attributed to many. Do you see why it is better? Being rich gives you the choice of being poor. You can give it away. It is harder to give poverty away.

Think about the life you want and organize your finances accordingly.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

Dealing With Covid-19 Using the KISS Method


Today is September 12th.  It is the anniversary of the first day of what was the last big change. We should notice the similarity with our current big change.

After September 11th, people “nested” for several weeks. They were gathering their thoughts and processing new information. Once they understood the new reality they behaved to optimize their best interests.

Governments on the other hand may have been more inclined to use the crisis to expand their product line and range of services.

September 12th, 2020

We won’t see it as an anniversary of note, but we can relate the response to 2001 to what has been happening with respect to the Covid-19 outbreak. People nested. People processed the information and most have taken responsibility for their own actions to make things work. The government is expanding its range of services.

What we should notice

Much of what happened in 2001 was based on faulty knowledge. It is very hard to make good decisions when the facts are unclear. “fog of war” is the idea. Were the weapons of mass destruction in Iraq? No, but we didn’t know that. Would we have behaved differently if we had known?

Airline security was supped immensely. The Transportation Security Administration is a nuisance but most people accept it as important. Yet, we know when tested it routinely fails. D9o we care. At some level, I suppose we do but the illusion of security matters to us too. There will no doubt be a vast bureaucracy tasked with defending us from yet unseen viruses. Recall the faulty knowledge question from 2001. At this point, we know the disease has two stages and treatment options in stage 1 are quite different from stage 2.

Prevention seems to be the past approach so far because people are ignoring treatments that work in stage 1 and stage 2 is not a virus problem at all, but an auto-immune problem (bradykinin storm). Dissimilar to regular pneumonia and similar flu side-effects.

Will a vaccine save us. Maybe. But vaccines are notoriously difficult to make specific enough for the purpose. It will be several years before we know one or more work and produce no new risks.

Will the government and its agencies succeed? We will have to wait to know and even then the evidence may not be clear.

Best move now

Use your own forms of prevention. Avoid contact with large indoor groups. Be sure you are not deficient in vitamin D, lose some weight, get into shape, at least a little. Ideally, be less than 60 and have a blood type other than A. Those may be harder.

Limit the problem to things that matter to you. The first order of business should be to recognize the disease, how it reaches us, and its potential effects on us.

Don’t waste time and energy worrying about where it originated and what long term answers might be for similar problems in the future is well beyond our knowledge and skill anyway. Let the people who know how deal with that. 

Answers that appear before enough is known are seldom the right answers. Keep in mind reversibility. If a decision is made now and it can be reversed later at no cost there is no risk. Like the decision to shut down air travel from outside the country. There may be more like that. Hydroxychloroquine seems to be one.

There may be investment opportunities. Be alert.

Best approach. Be selfish and keep it simple.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

Why You Can’t Say No All The Time


In poker, it is believed that to fold is at worst a small mistake. If you fold, refuse to play, you will not go broke  quickly as you right if you called or raised more, but you will go broke.

Folding, while a small mistake, still has a cost. In poker and in life, it is unusual to find a situation with no cost. Sometimes there no cash cost or time cost, but there is always an opportunity cost.

Opportunity cost

Opportunity cost is the loss of some potential gain you might have enjoyed had you chosen differently.

If I choose to keep my money in a savings account at half of one percent because the stock market, while returning 7.5%, is too volatile, I have paid 7% for the peace of mind of low volatility.

Assessing opportunity cost

Most people don’t do this very rigorously. That’s because they lack the ideas of risk-reward and expected value. Once they go there, they can objectively assess the opportunity cost against the expected return. They can then look at the 7.5% stock market and even if they assess the probability of losing at 10% next year and a gain of just 4% per year over four years, they can still find the heart to go to the market.

Life is not made up of instant results that define the future. Understanding volatility over a time period helps mediate fear.

One-Stop thinking

If you let a single dimension of ta problem make the decision, like fear of volatility moves you to a savings account, you will have enormous opportunity costs. Problems are like diamonds. Many facets. Once you can see the problem in more ways, you can solve it better.

People believe there is such a thing as a paper profit but all losses are real, you can see the fear issue affects them. We all hate losses. Absolute avoidance is a losing tactic. People harm themselves if they cannot get past there and find ways to understand and deal with volatility in the market. Opportunity cost is insidious.

Opportunity cost is invisible but it still has an effect. I haven’t seen a study, but I would readily believe that fear of volatility costs far more over a lifetime than does volatility even with the odd crash thrown in. We must have the courage to earn bigger returns.

Courage is a valuable asset to an investor.

Courage is about balance. Understanding what is going on and acting on probabilities. It is an adult skill.

Mark Twain offers this thought:

“Courage is not the lack of fear. It is acting in spite of it.”

Responsible courage is understanding how the courageous act makes financial sense. Spend a little time and discover the underlying nature of the things you could invest in and then just do it.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

Some Thoughts On Risk


“Risk is what remains after you’ve thought of everything” Carl Richards

That seems to sum it up as well as it can be done. However, it doesn’t tell you what to do about it. You have already thought of “everything”, so what else is there?

Reality

Everything is risky because you cannot think of everything. Worse still, the context changes. And you change too.

Altogether, a risky world is the only one we have.

What to do

  1. Assess reversibility. If you can get away with small losses, there really isn’t much risk no matter the decision. Like buying a house. Assess how hard it would be to reset.
  2. Recognize how you relate to risk. If you have a high emotional need to be right, you will be forced to adapt approaches that minimize the environmental risk. Else, suffering. The other extreme is someone who seeks risk. And, yes there are such people. These people must come to distinguish lethal or life-altering risk from the others. They learn quickly, but perhaps not as quickly as they could. Experience is a fine but costly teacher. Learn to learn from the experience of others. That’s what education should be about.
  3. Learn the value of experiments when it is impossible or costly to reverse. Tests and proto-decisions give you guidance and allow you to see things you cannot discover any other way. As an example, you might find useful, consider buying a new car. You can learn quite a bit about it with brochures, research, and talking to others. A test drive is nice but too brief. Instead, do all those things and then rent the car you are interested in. Drive it for a couple of days. Maybe take a trip of a few hundred miles. The cost is a few hundred dollars which is irrelevant when looking at a $30,000 or more purchase.
  4. Learn the ideas of risk-reward and expected value. Be sure the probable benefit exceeds the cost. If the expected value is much greater than your cost, you likely have a reason to proceed. With one exception; can you afford the improbable loss? Suppose I offer you the chance to make $1,000,000. You pay $10,000 to play. The offer is I have a revolver with 25 chambers. One of them has a bullet. If you point the gun at your head and pull the trigger and live, I pay you the million. The expected value is 24/25 of $1,000,000 = $960,000 and the cost is $10,000. A terrific opportunity. Would you play? How about with 1000 chambers? Recall Buffett’s assessment of the Long Term Capital Management people. ‘They risked money they had and needed to get money they did not need.”
  5. Recognize time sequences. If the long term guarantees a win but you cannot afford the short term risk, it should be a no go.

After you think of everything

  • Can you cope emotionally with the variability and potential losses?
  • Is there a way to test before you commit?
  • Could you live with the potential loss?

Risk is everywhere and always. Learn to assess risk in ways that are not so sterile as the ones people traditionally use. The most valuable word in any entrepreneur or investor’s vocabulary is “No.”


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

How Hard Is Personal Financial Planning?


Not very in the beginning. It is pretty much a to-do list. Where it gets more challenging is in selecting tactics. The answers to the “how” questions.

Your role

In the beginning, it is about deciding what is important to you. You should never need to discover or implement tactics. Specialists do that for you.

In the long term, it could be secure future spending money, maybe early retirement, or an estate for the children, or possibly a charitable bequest. Those goals are quite far off and there is time both to adjust and to have adverse events occur. You should assess both, but not in detail.

In the intermediate-term, there are things like education funds, start-up money for young adult children, and debt elimination. These can be anticipated and a sinking fund created to solve them. Merely arithmetic.

In the short run, assess how variable your living costs are and how you can cushion the variability. The easiest extra money comes from finding better ways to pay for your lifestyle. Shopping is a wealth generator. Anticipating your future needs allows you to buy things when available at a good price instead of when you need them. Think about loans that way too. Look for recurring payments on a credit card and decide if they are necessary.

Eliminating some things entirely because they are not high enough priority is especially helpful.

You will want to know about the risk of change. How much would the mortgage payment change if rates went up 3%? How much does a new car cost? How much will savings have to change to accommodate the intermediate and long term goals? You will want some help with the arithmetic.

What you use to get what you want

Once you have an idea of where you are going, you can assess the resources that will take you there.

The most important of these is your ability to earn income. How much is it now? How much comes home? How is it likely to change? What will you do about the change?

Secondarily you may have financial assets that can be redeployed. At very young ages, this is not likely but as you accumulate assets be sure they are aimed at your targets.

Once you know where you are going and what resources will take you there is another checklist. This checklist asks questions and offers potential solutions. You may engage a specialist for the answers. It is not worth your time and trouble keeping up to the changes and offerings.

These are tactics. They address specifics.

The first question to address is what if? What if I lose my job or my spouse does? What if I cannot work because of illness or injury? Spouse? What if a child needs special attention? What if someone dies? What if the stock market falls dramatically and the education fund with it? What if my employer pension fund crashes?

There are lots of what-if questions.

Tactics

Tactics address what if and other opportunities in several ways. With investments, diversifying can reduce the probability of a huge market loss. Disability income insurance, critical illness insurance for you and the other family members can overcome some issues, life insurance can solve the death problem.

Professionals can tailor a product or technique to your particular goals, your resources, and your expectations for the future.

Better insurance and better investment approaches won’t cure everything. There are legal things you need to do. You must have a will and you must have powers of attorney for property and for healthcare. Spouse too. As children become adults, they should too.

After you have looked at tactics, if you have a good vision you can assess the value of each and make good decisions.

Quantifying goals and risks

  1. How much would your mortgage payment change if rates went up 3%?
  2. How much would a new car cost if I buy it or lease it?
  3. How much should I set aside for education?
  4. How much and when might I have an inheritance?
  5. What promotions are possible?
  6. When will daycare stop?

There are dozens and you can accommodate them if you can be organized.

There are clear benefits to planning.

  1. Planning helps you to anticipate the future and anticipation is the key to success
  2. Planning helps you find ways to narrow the possibilities in the future. Give up some risks to an insurer for example.
  3. Planning helps you to create priorities. Doing the first things first matters.
  4. Planning allows you to assess, even test, tactical options.
  5. Planning helps you identify areas within which your knowledge and access to information are to low.
  6. Planning helps you identify people who both understand you and can help you stay on track.
  7. Planning helps you to be rational about the possibilities and guides you to solutions that fit.

The takeaway

Planning can help you get where you are going. Planning absent relies on chance. A checklist of duties and possibilities will help you organize. Being organized helps you see and understand what all these things mean. Meaning is motivating.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

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