Tuesday, March 29, 2011

The Beauty of Spreadsheets

I have been a stockbroker, investment banker, and money manager.  I have no training in "Financial Planning".

That said, anybody with a few minutes and some minor math skills can work out their financial future nearly down to the last $. I say this because I got a couple of phone calls from female friends that took exception to my last post. To anybody that was offended, or took issue, I say:

"Its nothing personal. Its just business."

Open a spread sheet. Enter your age at A1, and then add a year down the vertical boxes B1, C1.... in the next set of vertical boxes list your anticipated income per year.... in the next set of boxes list the amount of savings you anticipate being able to achieve out of that year's income.

Now... Do yourself a HUGE favor and spare yourself the "magic of compounding" sh#! you get from brokers and financial planners, and add 30% per decade (for after tax interest or returns, and to keep this worst case) and break it up by decade adding the previous decades 30% to your savings at the beginning of the new decade (this saves calculating (1 + 1/n) to the n and so you can see it by year).

OK, Done? That number at the bottom, after 40 years of work (assuming you started seriously working and saving at 25 and stopped at 65) is what you have to live on in your old age - no more, no less.

Whatever societal influences that keep you from accumulating a sufficient number to keep you from eating dog food or being homeless really are to be considered as bad for you, in the long run, as heroine.

(And look, I am talking "Joe Six-pack" here. I have friends I have met over the years in Boca Raton that have been rich and bust and rich and bust more times Carter has liver pills. They are like cockroaches, and I mean this in a nice way, in that you just can't kill them.  One minute they are scraping the bottom of dumpsters, and the next they pull up in a new Bentley, complete with a new wife, kids, and a McMansion down the street from their last wife. These guys are amazing; but they have skills and chutzpuh most folks just were not blessed (or cursed, depending how you look at it) with.)

Now, see that number on the bottom? Through in a couple of divorces and moves and it is ALL GONE.  You're broke, the kids are in debt for education, the family is best described as a "domestic disaster"... and it was all self-inflicted.

Just don't buy the Bullsh#!. That's all you gotta do. Stay away from the Politically Correct and get out the Spreadsheet. Life boils down to some very simple math.


Anonymous said...


Some days I think it isn't worth saving, because it won't be worth anything 10 years from now. Some days I think things will work out. Either way, I'm still packing it away.


Coal Guy

russell1200 said...

The problem with the compounding, is that the financial industry tells you to compound at 7 to 10% which are the average returns, not the compounded ones.

The compounded real returns since 1900 are generally around 3%. I have a reference for the 3% at home. I can dig it up later if you want.

By the way this 3% mirrors (not too surprisingly) the growth of the U.S. ecomony over that time period. U.S. growth going forward with an aging population seems questionable to me even if you ignore various other (energy, energy, etc).

russell1200 said...

Sorry to be back so soon: I remembered the author and even found a discussion of his work.


Anonymous said...


The investment industry always quotes 7% or more. It has always seemed impossible to me that the aggregate growth in investments can be 2x or more the growth rate of the economy. The pool of retirement funds is so large that it not possible for it to do much better than to track the aggregate. Just more snake oil.


Coal Guy

Greg T. Jeffers said...

Coal Guy:

Saving does not have to be in cash. Savings can be converted from cash into fully paid for houses and small businesses, precious metals, livestock, farm land, timber...

And I hear you loud and clear. The next 10 years will likely be stunningly surreal.

eppco said...

What in the hell is heroine? I think it is a female hero. I think you meant to say heroin. Sorry to discover this blog with its poor word usage is supposedly published by an educated person. By the way do you know the difference between hordes and hoards? Another of my pet peeves. Thank G-d I had a strict English teacher in the 7th grade or I would be writing at your level. Apparently you were not assigned too many written essays and if you were, you did not learn from the red pen corrections.