Your Money Milestones: A Guide to Making the 9 Most Important Financial Decisions of Your Life

The premise of this book is that understanding the larger context of a decision will help you make better decisions.

It considers each financial decision within the broader context of a person’s life journey … a journey that it characterizes as being all about converting potential human capital (your ability to earn) into actual financial capital (the fruits of your revenue generating efforts).

At the start of your journey, you are rich in potential, with all your finances tied up in your abilities (the analogy used is of an oil well). In a very shallow way, your progress through life can then be viewed as the process of converting your potential human capital into actual dollars and cents.

To make its case, it relies on two key principles – that of a ‘holistic’ balance sheet and that of ‘income smoothing’.

The idea of a holistic balance sheet is one that considers not just your measurable assets and liabilities, but also a measure of your earning potential (your “human capital”). The idea behind “smoothing” assumes that you could use a combination of debt and earnings to even out your income as well as your expenditures for each year that you live.

What worked for me:

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The book provides a very clear reasoning as to why education is key, and how different career choices can have very different impacts on your earning potential. Needless to say, this was a chapter that I read together with my son. Obviously, while financial payoff is not the only criterion in the selection of a career, its still important for kids to learn how this choice has long term implications.

The idea of consumption smoothing is an intriguing concept since it not only implies that it is okay to take on debt early on in your career, when your consumption far outstrips your limited income, but also states that it’s okay not to save much during this period of relative hardship.

What didn’t work:

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It really bothered me that I couldn’t find a significant correlation between the contents of the book and its marketing blurbs. For instance, I found nothing that would help me “learn how to diversify [my] marriage, pensionize my kids, and enjoy a greater retirement income.” Likewise, the device of using basic arithmetic operations (add, subtract, multiply, divide) to help make financial decisions seemed to be “cutesy” and artificial – and something only a publisher would think up. The unfortunate part is that the book would have been a good read without relying on these marketing hooks.

The book approaches personal finance as an academic treatise rather than as a folksy exploration (a la Suze Orman). Almost every page in the book contains references to studies, surveys, statistics, research papers, articles, and the like. This results in a very information rich book, but it also makes it harder to extract the key nuggets of information from it.

There are also minor typographical/construction errors that you’ll run into in the book (the use of “alternate” as a synonym for “alternative” being the most egregious), but nothing that’s too distracting.

Conclusion:

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This book relies on the principle of teaching a man how to fish, and so it is neither a primer on personal finance, nor is it a workbook. It is not even an how-to manual. What it is, is a book that helps you understand the psychology underlying personal finance decisions.

In the end, however, everything boils down to there not being enough practical advice. For instance, the chapter on debt indicates that individuals who are ignorant of the basic principles of debt end up paying more, but it doesn’t say much about those basic principles.

All that being said, there are some good rules of thumb that you’ll find in its pages. For instance, avoid using higher tax withholdings as a form of forced savings; or that borrowing from your 401(K) is prudent especially when your expected rate of return on your 401K funds is lower than the interest rate that you expect to pay.

Would I recommend it to family? Yes, I would. But only after warning them about what to expect.

Hence my overall rating of 3 stars (“It’s Okay”).

The chapters that are particularly worth reading are: Chapter 1 – which will be useful in helping your child (or yourself) navigate career choices; Chapter 3 – which shows why you should consider raiding your 401(k); and Chapter 7 – which provides a unique way of looking at extended warranties.

Happy Reading!

~Damodar
Rating: 3 / 5

Moshe Milevsky PHD a York University business professor and author of Your Money Milestones Suggests:

* Debt diversification destroys value

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* Is marriage a safe investment on the balance sheet?

* Are kids investments?

* Do people who win the lottery behave rationally?

* Is long term value of an education worth short-term cost?

* *You maybe wasting money on insurance.

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” Dr. Milevsky makes you rethink about money and the math that you have been doing and the ones you should be doing to preserve your wealth. He suggests everyone follow the following principles of addition, subtraction(Liabilities), multiplication and division in your life making your decision based on if the math adds up or not. Dr. Milevsky concede that the future is unpredictable and you should manage your most important financial decisions with clearheaded math.

For example, you should pay for a higher education when you’re young, so the investment can pay off over the long term while you are in the workforce. Look to the stock market investment with more diversifications while you are younger while you can work more.

The author also reasons why we should pay less on our insurance “what Ifs” the car gets a dent or house needs repair, better to pay out of pocket then to pay a higher rate. Overall an interesting book on the subject of money.

Rating: 5 / 5

Moshe A. Milevsky’s, career as an award winning, author, public speaker, corporate advisor, and tenured finance professor at the Schulich School of Business at York University, Toronto, Canada adds an extra measure of professionalism and credibility to his book “Your Money Milestones.” The book is written to provide a useful guide to making financial decisions. Milevsky discusses nine money milestones and four basic principles necessary to better understand and evaluate your financial decisions throughout the life cycle.

The book is well organized. Each chapter becomes a step in building a broad foundation, however since the chapters each explore a different financial milestone, which can stand alone and can be read separately as well.

A unique feature of the book is the inclusion of links to various capital calculators to assist the reader in establishing a holistic personal balance sheet and financial strategy. The life cycles begin with education and take the reader through the regular cycle life events which influence and become a part of every financial journey through to the retirement years.

The format of the book is reader friendly and uses charts, graphs, and tables to reinforce the comprehensive well articulated narrative. I appreciated the topic headings within each chapter and the balance of white space, print, and shaded areas called “detours.” Other features of the book include: chapter summaries, references for additional study or future reading, and a complete index.

The subtitle “A Guide to Making the 9 Most Important Financial Decisions of Your Life” clearly defines the essence of “Your Money Matters.” This is more than “Money 101″ for college students but should become an ongoing resource for every family or individual in establishing a strategy for the cycle of lifetime financial decisions. An important and powerful resource for navigating your personal financial journey.

Rating: 4 / 5

I usually enjoy reading books on finances and financial decisions and thought this particular entry into that niche looked very interesting. To cut straight to the bottom line – I wanted to like this book more than I actually did. It wasn’t a waste of time for me, but I didn’t get out of it nearly as much as I had hoped. The subtitle is “A guide to making the 9 most important financial decision of your life” and the blubs on the back talk about this being a “practical roadmap to a financially sound future”. That’s what I was expecting, but that’s not what I got.

On the plus side, this is a more holistic view of financial decisions than many other published books provide. Really thinking about your income stream over the course of your lifetime and thinking about smoothing things out rather than looking at your earning years separate from your retirement years was very helpful. I also thought the author did take on the sacred cow of homeownership (sort of) as not necessarily being the absolute right answer. I have actually done the math and by the time you pay property taxes, maintenance, and repairs, plus and remodeling or update necessary prior to sale, homeownership isn’t necessarily all it’s cracked up to be. He talks about renting may be a better solution for many people, but doesn’t do very well at explaining much about the costs of ownership including is mowing the grass or repairing the toilet how you want to spend your weekends (and your life energy).

He has a good discussion about people spreading their debt over multiple instruments and the high cost of doing that, but doesn’t get into that people who max their credit cards, then take out a home equity loan (or other lower interest rate device) only to rack up the credit card debit or other consumer loans really is worse off than before. The academic side of this particular discussion totally ignores people’s propensity to continue doing what they have always done even when it gets them in significant trouble.

Overall – some good bits and pieces and some nuggets worth reading but it fell short on many fronts.

Rating: 3 / 5

The book is very interesting in its concepts of managing your money through mathematical concepts based on how your personal balance sheet looks currently in your life. The nine most important financial decisions you will make in your life are:

1. Your human capital:How you invest in education early in life.

2. Smoothing your spending over your lifetime:Do not be a tightwad and miss enjoying your early years, but also don’t get yourself in so much debt that you retire poor.

3. The right amount of debt: How much debt is to much and how much is to little.

4. Your children: They start out as liabilities but can become assets for you as you age.

5. Taxes: Pay your legally required amount but no more.

6. Home ownership: Contrary to popular belief, it does not make sense for everyone.

7. Insurance: Insure against situations that will effect your standard of living, not an electronic device that does not manner.

8. Portfolio construction: Diversify based on the volatility of your employment income, if you have a risky job, invest conservatively. If you have a safe job you can invest aggressively with more risk.

9. Retirement: A defined pension plan puts retirees at ease. If your employer does not provide one you can buy your own.

The book presents the mathematical principles for decision making:

ADDITION:-Identify the true value of all your financial and human capital resources. You must add your future ability to earn wages to your personal balance sheet. Through out your life you convert your human capital to money and add it to your financial assets.

SUBTRACTION-Recognize and budget for all the hidden liabilities in your future. Don’t add assets without subtracting any corresponding liabilities. You must account for the hidden liabilities on your personal balance sheet. You must identify, hedge, and bridge all the liabilities you encounter in life.

DIVISION-Plan to spend your total resources evenly and smoothly over time. It makes little sense to starve yourself for decades so you can enjoy life life in middle age, or to live it up today without any consideration for tomorrow. Think long term and avoid foreseeable disruptions by budgeting for all predictable liabilities and have a balanced standard of living through out your life based on your long term human capital.

MULTIPLICATION-Prepare for many alternative and unexpected universes. Your life circumstances could take multiple financial paths, make sure that you make decisions that help smooth your consumption over all possible paths and not just the expected or hoped for path. Insure against all catastrophic and unforeseeable disruptions.

This book is outstanding, it approaches personal finance from very thought provoking angles. This is not your run of the mill or boring personal finance book, it is an education on making thoughtful decisions when your milestones occur. I highly recommend.

Rating: 5 / 5