The Infinite Income Fallacy

Understanding what Infinity means was one of the fun things in my Mathematics education.

The first time I started to really understand it was after  a Professor gave our class an example in a first year algebra course:

Suppose you have a hotel with infinite rooms, and every room is occupied, what do you do if someone shows up and wants a room?

Tell everyone to move 1 room down, and give the first room to the new guest.

Infinity

Infinity

Trust me that is a good answer to that question, but it also allows me to talk about the Fallacy of Infinite income.

When you are 20, 30 and sometimes even when you are forty, you feel that you will be earning income long enough to make all of your goals (financially), however, your potential to earn income is not infinite, and in fact it is quite finite (and countable, to use another mathematical term).

Countable? Think of it this way, if you assume you are being paid twice a month and you start working at age 24 and you retire at age 65 the number of pay cheques you have is:

 Total # Pay cheques = 24 * (65-24)  = 24 * 41 = 984 pay cheques

Certainly not infinite, and a quite optimistic number, because this assumes you work all the way to 65 (or that you can work all the way to 65). What might cause less pay cheques?

All of these will reduce the number of potential pay cheques in your career, but even worse is not having a pay cheque number in mind by when you reach your financial goals.

  • By pay cheque 864 being out of debt
  • Pay off the house by pay cheque 900
  • etc., etc.,

I Won’t Have Infinite Income ?

The concept of infinite and income do not belong in the same phrase.

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Two Sentence Financial Horror Stories Part Deux

As we saw in yesterday’s terrifying Two Sentence Financial Horror Stories my readers have quite twisted imaginations, and all of this from a Quicken Giveaway Contest, and because I am on vacation, I am taking full advantage of the new content.

He had a regular middle-class life, with a mortgage, credit card debts, car loan, and almost no savings. Then he suddenly lost his job, so he took his severance package and payed himself a nice trip to Europe.

I Know What You Did With your Money!

I Know What You Did With your Money!

An interesting and terrifying concept from Tiago which sounds a little to realistic to me (and thus, that much more terrifying).

“My total debt service ratio is only forty percent, and the interest rate is only 2.99%? Where do I sign”?

Sandi has gone a little too realistic, and it almost caused me to throw up (OK I threw up a little bit into my mouth, it was that bad).

I should have learned from my Nortel experience and not bought Research in Motion a few years ago. iPhones are a passing fad, right?

Seriously Glen what were you thinking writing such horrific financial prose?  Blackberry stock is either doing the cha-cha or is proving that anything that falls 200 feet will bounce.

She said to herself, “Whew, I finally have some hard-earned savings after I lost everything I had in that dot-com crash a few years ago. Well, it’s the mid-2000′s, so I think I’ll put it all into the red-hot market of Las Vegas real estate!”

OK S (or whatever your name is) that is science fiction horror, I hope, who would do that? Stop, please don’t tell me!

“As your financial advisor, my recommendation is to finance your investment of ABC Mining Solutions with your credit card, and invest in as many shares as your credit limit will allow,” he said, his deep, resonant voice lulling me into a trance. “Since you’re borrowing to invest, the interest is tax-deductible, and at a low price of only $3.10 per share, the price has nowhere to go but up.”

Daniel’s creation deserves an honorable mention, because holy crap it is far too realistic!

 

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Best of: Best Financial Advice Ever

It’s been more than two years since my Dad passed away, and reading this story makes me smile every time I read it, so here it is again.

You can find this story and other Favorites of mine on the Favorites tab at the top of this page.

Best Financial Advice Ever

My parents have been very helpful in my life, both financially, but also with very wise advice, and with that in mind, I’d like to share you a story my father told me (kind of a parable):

 

Jesters Are Wild

There once was a court jester who enjoyed a good joke, usually at the expense of the King, which got the Jester into deep trouble. One day the Jester was having a particularly “devilish” day and insulted the Queen in a large public forum. The King was OUTRAGED by this and ordered the Jester executed for his insolence and the guards dragged the Jester off to the dungeons.

Hours passed and the Jester (who was a quick thinking man) thought how can I get myself out of this mess? Finally the door to his dungeon opened and the guards dragged him back to the King. The King said, “I have enjoyed your buffooneries over the years, so I will give you one wish before I put you to death for your crimes.”.

The Jester thought what could he wish? Then he came up with a plan, he knew that the King adored his horses so he came up with the following, “Sire, all I ask is that you give me a year’s reprieve, and during that time, I will teach your horses to Sing! This will make you the envy of all other monarchs. If at the end of this year I am unable to get your horses to Sing you can execute me in any gruesome fashion you wish.”. The King looked perplexed and then confused, but finally he thought that he had nothing to lose, he would either be the envy of Europe or the Jester would be executed, either way was fine by him.

The guards then took the Jester towards the Royal stable, when one of the Guards asked the Jester, “Why would you make such an obviously impossible deal, surely you know no one can get a horse to sing?”

The Jester smiled and whispered to the guard, “Many things can happen in a year my friend, I could die and thus I have cheated the executioner… the King could die and I might get a reprieve… or the horses could sing!”

My Dad told me this story after we discussed payments schemes for money he was loaning me to buy my first house. What was he telling me? I’ll leave that to you gentle reader, as usual with a story from my Dad, you get from it, what you think, not necessarily what he thinks you should.

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Best of: The Singing Horse Parable

As I am on the road, I give you one of my favorite postings about financial advice Advice: Best Financial Advice Ever Given. I like this story for many reasons but specifically:

  • It is my father’s advice at it’s best, not preaching and always causes me to think.
  • It shows the importance of parents to talk to their children about money and their views on money.

Advice: Best Financial Advice Ever Given

My parents have been very helpful in my life, both financially, but also with very wise advice, and with that in mind, I’d like to share you a story my father told me (kind of a parable):

There once was a court jester who enjoyed a good joke, usually at the expense of the King, which got the Jester into deep trouble. One day the Jester was having a particularly “devilish” day and insulted the Queen in a large public forum. The King was OUTRAGED by this and ordered the Jester executed for his insolence and the guards dragged the Jester off to the dungeons.

Hours passed and the Jester (who was a quick thinking man) thought how can I get myself out of this mess? Finally the door to his dungeon opened and the guards dragged him back to the King. The King said, “I have enjoyed your buffooneries over the years, so I will give you one wish before I put you to death for your crimes.”.

The Jester thought what could he wish? Then he came up with a plan, he knew that the King adored his horses so he came up with the following, “Sire, all I ask is that you give me a year’s reprieve, and during that time, I will teach your horses to Sing! This will make you the envy of all other monarchs. If at the end of this year I am unable to get your horses to Sing you can execute me in any gruesome fashion you wish.”. The King looked perplexed and then confused, but finally he thought that he had nothing to lose, he would either be the envy of Europe or the Jester would be executed, either way was fine by him.

The guards then took the Jester towards the Royal stable, when one of the Guards asked the Jester, “Why would you make such an obviously impossible deal, surely you know no one can get a horse to sing?”

The Jester smiled and whispered to the guard, “Many things can transpire in a year my friend, I could die and thus I have cheated the executioner… the King could die and I might get a reprieve… or the horses could sing!”

My Dad told me this story after we discussed payments schemes for money he was loaning me to buy my first house. What was he telling me? I’ll leave that to you gentle reader, as usual with a story from my Dad, you get from it, what you think, not necessarily what he thinks you should.

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Why are there So Many Things to Worry about at 2 AM?

This phrase actually sprang out of a conversation I was having with my Mother. A family trait is to worry about every and all things in life (to the chagrin of our spouses), my claim is it is a genetic thing, but my guess is it is a learned trait (i.e. watching my Mother fret taught me that character trait).

The worst part of this compulsion is that if you wake up in the middle of the night (and worry can cause this all by itself), suddenly your mind will start the worry mantra all over. The amount of sleep I have lost by worrying in the middle of the night I am sure is shortening my life (it is shortening my sleep, that is for sure).

I am envious of those of you out there who are poo-poo’ing this and saying, “… why worry, it isn’t worth it…” or “… I have nothing to worry about…”, and I hope you are right, because in my life the list of things to worry about is very close to the definition of 1 divided by zero (i.e. infinite).

Mr. Worry, a very apropos story

What do I worry about? Well you might ask:

  • Will I have enough money to retire?
    This is not really something that keeps me awake, but it is an excellent catalyst to start the worry cycle, because then my mind is thinking about money, and thus many other money related topics can appear.
  • How am I going to get out of debt?
    You think I rant about debt because I am somehow speaking from a point of leadership? Hell no! Sometimes my rants are as much aimed at myself as at you good reader.
  •  Health Issues
    I am over 50 and once that happens your health becomes worrisome. If you’ve had a health scare (which I have) and have enough of your joints that are wearing away (again like me), your health can create angst.
  •  The Job
    This one, not so much any more, but for anyone who has been laid off, and had a hard time finding another job, career and job issues can cause no end of topics to keep you awake at night.

For anyone about to prescribe antidepressants or suggest counselling  buzz off (I mean that with the greatest of respect). I’ll live with my inner demons, they are controllable, and at times can be useful motivation to get off my ass and do something, however, I do wish I had not learned How to Worry .

Luckily there is a very helpful bit of advice from the late Zero Mostel (on the Muppet Show):

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