Is a possession you do not use of any value?
I think Henry Ford and Craig McCaw may live in different financial realms than I. Nonetheless I can understand their point. If you are wealthy enough, you only need some of the money you have to live as you wish.
What is the rest of the money for? Beware! A great deal of money is wasted because it does nothing. It is like potential energy, waiting for a purpose. No more useful than a battery in a drawer.
Maybe it is waiting for an opportunity, perhaps it is accumulating for a future acquisition, either business or personal, or maybe for a future expense like education or merely for security. For some, it is just there.
Financial security is nice but at what level? The more you have to look after, the more time and brain space is consumed in doing so. Perhaps the hermits and mystics have it right. Need less, have less, and use your resources to achieve only what you value. I am not sure I can do that, but I think there are a great many people who have, and have lived complete lives in the doing.
An analogy. If gardening becomes burdensome or takes time away from important things, reduce the size of the garden. Pretty obvious.
But what about security? How could you have too much? Better how much do you need and what could be done with the excess?
No one really knows how much. It is a little like tidying up your office. What should you throw away? The things you don’t need, right? But which are they?
With security, the first step is to define what the word means for you. For most people the intuitive idea of security is that the future is predictable and controlled within some margin of error.
There are several security issues to address:
Knowledge is a part of the defense to margin for error. If you know enough about the dimensions of the possibilities, and have insured some of them, (shrinking the garden) then you can get a clearer idea of needs. You may need to do some research.
Facts trump assumptions.
You can model the capital that underlies the cash flow required to fund your life style for decades into the future and you should do it. You should probably do it under several contingencies.
What you will find is the capital needed to make your cash flow work. First the minimum; everything turns out as expected or better. After many trials, the worst, with the others between.
At the beginning you will need to see the capital that supports the worst case safely in your possession. If you revisit it every 5 years or so, the amount will shrink even with the same adverse assumptions, because your time of using it grows shorter.
Whatever you have in excess of this “minimum margin of error” fund is dead money. You will almost certainly never use it. If you spend any time or effort looking after it, it is practically, for you at least, a liability.
Like the Twain quote above, slightly amended.
A man who does not use his money has no appreciable advantage over the man who has none.
You might find this interesting. Stewardship
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. firstname.lastname@example.org
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