2013.08.08 Personal Finance Overview

YouTube videos

Scribd presentation

Additional information

  • 20130808_WealthyBarberNotes.
    • Paying rent is no more throwing your money away than buying food or clothing is.You need shelter. It’s one of the three basic necessities of life. Renting is one way to acquire that shelter and, in some cases, it’s a very intelligent way.”
    • the assumption that a potential mortgage payment will be roughly the same as their rental payment is a false one. Tom’s case epitomizes the situation in which many single people find themselves.”
    • I just want to inform our young friends here, especially the single ones,that renting is not throwing your money away. Look at Clyde … He’s rented all his life, and because his monthly costs to rent have been substantially less than his costs would have been to own, ​he’s been able to spend more on other things, and he’s been able to save more than ten percent of his income.”
    • What your house is worth, frankly, is of no financial significance whatsoever if you have no intention of ever selling it.”
  • Fidelity on 50/15/5 saving and spending rule of thumb: HTML.
  • Another fidelity rule of thumb – retirement savings targets by age: HTML.
  • Article on 60/40 asset allocation

Home Affordability Suite (New for 2022!)

  • The Dave Ramsey Home Affordability Criteria from  Ramsey’s website:
    1. 15 year fixed rate mortgages only: PDF.
    2. 20% down payment: PDF.
    3. All-in monthly home payment less than 25% of take-home pay: PDF.
  • Dr. Moore Derivation of a formula for the maximum home price you can truly afford based on the 3 Dave Ramsey Criteria: PDF.  This provides explanation and justification of the 3 criteria.
  • Excel implementation of the Dr. Moore formula: XLSX.

Dialectical reasoning

Thesis: Everyone who rents is throwing their money away.

Anti-Thesis: Renting is not throwing your money away, you must pay for shelter.

Synthesis: Renting an expensive fancy apartment may be throwing your money away.  However, in some places like Silicon Valley or SF, where rents are well over $2000/month, the home prices are also sky-high.  Prices are so high, actually nationwide,  that it is unlikely that one meets either the Wealthy Barber or Dave Ramsey criteria for purchasing a home.

“I don’t know what is best for someone else.  All I can do is choose or reject for myself.” -Quote from Siddhartha by Herman Hesse

5 thoughts on “2013.08.08 Personal Finance Overview

  1. When did you start producing information on wealth management? The question I would have for you and your strategy of buy and hold. Who have you meet in your life that has bought an index and held it for 10 years? Held it during times of turmoil and never sold old. I love the idea of the returns of a passive only strategy, but I have yet to meet one person who did not let their emotions dictate there investment decisions when things start to go bad.

    • A client of mine, GW from Vancouver, has followed my buy and hold advice ignoring market swings. I myself follow the strategy having a percentage of my paycheck (pre-tax dollars) automatically withdrawn and invested in a passive index fund. So, those are two examples. Whether or not others choose to follow is their decision. However, one can not choose the action and the consequence.

      Action: try to time the market, Consequence: more than likely will underperform the market by a wide margin.

      Action: buy and hold, Consequence: will see some ups and downs but will not outperform the market.

      Now, what action leads to consequence of consistently outperforming the market on a risk adjusted basis? If you know the action, don’t tell anyone. Strategies tend to lose their efficacy once published. 🙂

    • Dr. Moore was my Finance Professor and Executive Director of the Student Investment Fund I participated in while earning my M.B.A…. After learning the information he’s produced on Wealth Management; understanding it in theory and having since incorporated it into my real life investment strategy, I believe it is wise to consider his advice.

  2. I read John C Bogle’s book The Little Book of Common Sense Investing and it convinced me to invest in index funds. However, a compelling point I’ve heard people make is during bear markets a mutual fund manger can shift the money into areas that are less volatile and decrease losses where index funds you’ll take the full loss of the market. So, I’m not sure if I should invest in index funds, mutual funds, or both. What do you think? Is having investments in mutual funds to decrease losses during a bear market simply just another fancier version of timing the markets?
    Oh, and where is video two for personal finance overview? I only see links for videos one and three. I couldn’t find it on YouTube either.

    • Either you move money out of index funds into something else or you pay an active fund manger to do the same thing. You pay the active fund manager via higher expense ratios with the hope that their timing is better than your timing. Either way it is market timing.

      There are countless studies that show missing out on a few of the highest gain days in the market will cause you to seriously underperform the market. For example:


      I don’t know what is best for you, but I can tell you what I do for myself. When I think the market is “high” I don’t completely go to cash. I remain invested in the market but not as much. I still invest monthly but my stock/blond split adjusts to market conditions.

      Regarding video two, I need to redo it. Given the busy semester I don’t anticipate the update until this summer.

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