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If You Hear Hoof Beats

I was discussing with someone about misinterpreting data on the weekend and remembered one of my favourite phrases for this type of activity:

If you hear hoof beats, don’t automatically think Zebras

Badly paraphrasing Occam’s Razor

I believe I first heard this one on CSI, but I do like the sentiment. I view it as a result of Occam’s Razor, but I like the idea of simplicity. Complex ideas and theories always worry me, given I am a superficial thinker.

The simple answers in many areas are the correct answers (especially in personal finance). 

Whose hoof beats are these?

Some of the areas where I have had people hear Zebras when they should have thought horses:

Thundering Hoofs
Thundering Hoofs
  • I am in debt because of the credit crunch. No, you are in debt because you spent more than you made, and you had to borrow to deal with this spending. For some it is borrowing money to buy a house, others borrowed money for a car but the majority, is borrowing money to pay for debts they didn’t need to incur. That ain’t no Zebra!
  • It’s too complicated to stop using Credit Cards. This is a rationalization from folks who really are saying, “I like using credit cards and don’t want to give up my current lifestyle“. You can stop using your credit card tomorrow, put them in the freezer in 2 lbs. of hamburger, and they are gone. That wasn’t a buffalo, just a horse.
  • A budget is too complicated to figure out. No, that is the statement, “I don’t want to use a budget because I will have to give up my current lifestyle” (again), a budget can be very simple and living to it can be simple, don’t make it a complicated thing, or you will fail. That wasn’t a gazelle, just a horse.
  • I can’t save money given my current salary. How many times have all of us said this every time we get a raise? I have made that rationalization myself, you can save it just might be hard to do, that’s all. Wasn’t a wildebeest either, just a horse again.

Don’t make financial planning, personal finance or budgeting more complicated. Please keep it simple and listen for horses, not Zebras.

Written back in 2007 and 2009 on the same hoofy topic.


Quick Financial Thoughts

Just because you may have a pension, doesn’t mean you shouldn’t have an RRSP. You also should have a TFSA and your only financial goal should be to be out of debt by the time you retire.

If you have an emergency fund, do you have a plan on when you might use it? Simply having money sitting somewhere with no plan on when it should be used is really just a savings account.

An RRSP is simply a tax deferral savings program. It works best if you use it for your retirement, but that is the primary goal of it. You can’t use it like a TFSA, but it is not solely for your retirement.

The TFSA is a badly named program. It is Tax-Free, and you can save in it, but it is not only a savings account. Many banks are fooling you into thinking the program is a one savings account. It is not. Open a TFSA with a trading firm like Questrade, Directline or others.

Debt is simply borrowing money from your future self. I know it is not in vogue to say debt is a bad thing, but it is. Your first goal should be to deaden your debt load, the rest of the financial plan is gravy.


What to do with Found Money (update)

What do you do when you get money that you did not expect to receive? I have written a great deal about this (note bibliography), but here is a specific perspective.

Let’s assume, you do not have debts to pay off. If you do, stop here, put the money on the debt. It is as simple as that. It is not exciting, fun and can be frustrating, but paying off debt is your first job.

If you don’t have a debt-load to deal with, but you don’t know what to do with it, then what? Waiting and thinking about any problem will make for a better resolution. Decisions made rashly or quickly, rarely work out as you hoped they will.

Don’t put this money in a Savings account. It will pay a very small amount (currently about 2.5% if you find a nice bank). That interest will also be taxed.

Do you have room in your Tax Free Savings Account? You find that out by going on-line with your MyCRA account and checking. If you don’t have a TFSA, why not? Stop reading, and go open a TFSA that allows you to trade ETFs, Index Funds or simply buy bonds (i.e. not a Bank TFSA which is just a savings account).

Found Money Roadmap
A Simple Found Money Map

Now that you have a TFSA, and you know your deposit limit, it becomes a simple roadmap for your Found Money

  • If your TFSA limit is larger than your Found Money amount?
    • Put money in TFSA, and buy a Bond Fund, Money Market Fund or whatever you full safe in buying.
  • If your TFSA limit is not large enough to deal with this amount of money?
    • Good For you!
      Put whatever moneys you can into the TFSA and invest or put it in whatever investment vehicle you wish.
    • Put the rest of the money in something else:
      • A HISA (High Interest Savings Account) if you want to be conservative
      • A trading account and again buy whatever securities, Index Fund or ETF that you like
      • An emergency account, if you think you don’t have more than pay cheques put away.
      • Your sock drawer (given interest rates might go negative, that might not be that bad an idea).

There you have it, pretty simple. Leave the money there and think about how best to use this Found Money. Some folks say wait 6 months before acting, but that would depend on the amount of the found money.



Financial Echo Chamber

Many of us seem to be living in a financial Echo Chamber. We have friends and family with who we agree, and we read financial articles that reinforce our financial plans.

What do I mean by Echo Chamber?

“an environment in which the same opinions are repeatedly voiced and promoted, so that people are not exposed to opposing views…”

Dictionary.com definition (2nd)
Amazon Link to Book

Michael James pointed me at an excellent book by Annie Duke, “Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts“, which is quite an eye-opener. Ms. Dukes is known as a world-class Poker Player, but she was a Doctoral Candidate in Psychology before that, and she writes in a very entertaining way.

If all you do is listen to people who agree with your perspective, how can you be sure you are on the right path? How can you be sure you are correct without exposure to differing views and ideas?

As I get older, I seem to be slowly turning to Ms. Duke’s perspective on seeing different points of view. I have never enjoyed hearing arguments that disagree with my inner beliefs, but I have learned it is essential to hear them. There is a need to empathize in some fashion with opposing viewpoints to at least understand where they came from.

Empathy does not imply agreement. It is simply understanding it.

For a long time, I had a perspective on folks who got into financial troubles, which was usually of their own making, but I now think that is flawed. After living through my lay off, I started questioning my theories, but after talking with Doug Hoyes and reading his book, “Straight Talk on Your Money: The Biggest Financial Myths and Mistakes . . . and How to Avoid Them” (Amazon Link), I realized how incorrect my perspective was.

Understanding our own biases is an essential part of growth.


If you’d like a few examples where you could benefit from listening to opposing money viewpoints?

  • If you are an Index Fund investor, read some of the active trading newsletters out there, to at least understand their perspectives on the markets.
  • If you believe your house is your biggest investment, maybe read some of the interesting studies on the perspectives of lifetime renters. Their perspectives on the freedom of not owning a home are quite thought provoking.
  • If you live in one of the large cities of Canada and are of the perspective that Real Estate can only go up in price, there are contrary writers to that perspective as well.

Everyones Opinion Matters?

I am not saying you should immerse yourself in contrarian perspectives, but it is essential to read some different perspectives on things. Understanding their perspectives will help you better view the entire story.


Doomsday Finances

I found this one in my archives, and I started writing it a while ago, having no idea what 2020 would bring. Please read it with that in mind. It is about Personal Financial Doomsday.

One of my favourite Star Trek episodes is The Doomsday Machine, where a robot is let loose to destroy both sides in a long-past war. There was much overacting and emoting by both William Shatner and William Windom, but I liked it.

We are not in a Doomsday scenario right now (COVID19 Pandemic), but we might be in a big mess in the financial world (on the Macro Economic side of things).

2008 showed that things could go off the rails badly, but now we live in entirely uncharted waters. I worry, this is going to be a very long mess, so we shall see.

I think the financial apocalypse I was thinking of is at a personal level. As we have learned from a few financial books, the personal finance apocalypse can happen much more quickly than we think.

  • Your health failing suddenly is more likely than you hope, as I learned in my Movember story. There are other more catastrophic health issues that can arise, and that can easily trigger a personal finance failure.
  • Simply losing control of your debt load, or maybe a sudden increase in interest rates, is the most likely financial doomsday. The interest rate sudden jump is not out of the question, but I suspect governments are fighting against this, knowing the impact it might cause, financially.
  • The ultimate doomsday of course is our own demise, but then again, your financial concerns are over then as well.
  • Losing your job can be another financial apocalypse, that many folks have a hard time recovering from.

The best way to avoid a Financial Doomsday is to be ready with a financial plan that considers the Risks possible. Is there a financial apocalypse likely globally? We shall see is all I can say.

I do know that a personal financial doomsday is more likely than most of us wish to admit.

The Big Financial Snit ?

“… and I thought YOU wanted to play, SCRABBLE!”

One of my favourite apocalyptic shorts from the NFB, the Big Snit.


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