The Number

I'm continuing to read The Number, and it continues to hold my interest, much in the way that a scary novel does -- just enough scariness to make not want to turn the page, leavened with enough calm assurance to make me think that I do want to find out what happens in the next chapter.

At the moment, one of the other programs running on this laptop is Excel, and the spreadsheet that it has up is our financial projection spreadsheet -- the one that goes out for forty years, projecting what we expect to spent, where we expect money to come from. In the upper left corner of the spreadsheet are the average return that we expect to make from savings and investments, and just below that we have what we think the average inflation rate will be. I'd been using 2.5% for the inflation rate, and thats based on what I see in increases over time for things that we tend to spend money on. A car, for example, might have cost $22,000 ten years ago, but now its closer to $28,000 - thats about 2.5% increase per year. We don't buy cars every year, of course; this was based on groceries, magazine subscriptions, and the like. The first time I tried this calculation, I used the inflation number from the Federal Reserve, and it about blew my socks off. So I did my own calculation, looking at the major categories of things that we buy all the time. That seems to work.

Still, when The Number mentioned what the cumulative effect of a 3 percent inflation rate would be, I thought 'Maybe that spreadsheet number isn't quite high enough'. So, I opened up the spreadsheet, changed it, and then looked at the chart where I show our total worth over time -- and was dismayed to see that it goes negative three years before what I show as my maximum age (I assume for planning purposes that I'll live to 92; my wife, to 85. My guess is that I'll actually live about seven years less, and that she'll live five years more, so it kind of washes out). I played around with it a bit -- what about 2.75 percent? 2.90? -- and it looked a little better.

The value of The Number is not that it tells you 'worry' or 'don't worry' (if it errs on one side or the other, it errs on the first; even the truly wealthy (whom he seems to roughly define as people with over a million dollars invested) are occasionally worried about the twin bugaboos of outliving their money or being sick); the value is that it walks through these emotional minefields in a carefully casual manner. It doesn't splash gory details, and it doesn't dismiss your concerns with a handwave. It talks about how you should be thinking, and what you should be thinking about. It goes into details, but the details are, with a little bit of effort, graspable, and then it tells you what those details translate to in real world effects.

It's not a fun process, but I am glad that I am doing it.