The Limitations of Budgeting

Today we are spending most of the episode going further into the basic concepts that ground good financial practices and the personal finance topics that are often taken for granted. The three main areas we unpack in this episode are the cost of living, savings capacity, and emergency funds, and though these can be viewed as basic ideas, there are always areas of the simplest variety that deserve more attention. Listeners can also expect to hear a little more about what our role as financial advisors constitutes on a daily basis, as we respond to an audience member's question about how to conceptualize the profession. We welcome Dr. Wendall Mascarenhas back to the show for a brief cameo in which he shares his reading habits and approach with us, which contrasts with some of the opinions often expressed by other guests, so make sure to stay tuned in for that. We also find time for a quick recap of an old episode we had with Rick Ferri and a book review of Rethink Lead Generation by Tom Shapiro.

Key Points From This Episode:

•    Discussing the cost of living and why an accurate picture of your expenses is so important. (0:04:08)

•    Working out your saving capacity and when and how to save. (0:21:32)

•    General advice for emergency funds and further considerations for households. (0:32:51)

•    Recapping our episode with Rick Ferri on his index investing philosophy and the lasting impact of John Bogle. (0:40:21)

•    This week's book review of Rethink Lead Generation by Tom Shapiro. (0:42:26)

•    Dr. Wendall Mascarenhas talks about his reading habits and his prioritization of reading for pleasure. (0:49:23)

•    A few favourite book recommendations from Dr. Wendall Mascarenhas. (0:58:12)

•    Current debates around ChatGPT and the sources of its information. (1:06:18)

•    Information about upcoming meetups for the Rational Reminder community. (1:09:38)

•    Further explorations on our recent goals survey and the input we received from Morningstar. (1:11:00)

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Links From Today’s Episode:

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.

Rational Reminder Website — https://rationalreminder.ca/

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Benjamin on Twitter — https://twitter.com/benjaminwfelix

Cameron on Twitter — https://twitter.com/CameronPassmore

Dr. Wendall Mascarenhas — https://www.fcos.ca/meet-dr-mascarenhas/

Teeth & Titanium Podcast — https://podcasts.apple.com/us/podcast/teeth-titanium/id1514989809

Extra References:

Savings capacity

'Popular Personal Financial Advice versus the Professors' — https://www.nber.org/papers/w30395

'The Life-Cycle Model Implies That Most Young People Should Not Save for Retirement' — https://www.aei.org/research-products/journal-publication/the-life-cycle-model-implies-that-most-young-people-should-not-save-for-retirement/

'Exponential-Growth Bias and Lifecycle Consumption' — https://www.jstor.org/stable/43965317

'Save More Tomorrow™: Using Behavioral Economics to Increase Employee Saving' — https://www.jstor.org/stable/10.1086/380085

Emergency fund

'What Matters to Individual Investors? Evidence from the Horse's Mouth' — https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12895

'Millionaires Speak: What Drives Their Personal Investment Decisions?' — https://www.nber.org/papers/w27969

'Emergency savings for low-income consumers' — https://www.irp.wisc.edu/publications/focus/pdfs/foc301c.pdf

'Emergency Saving and Household Hardship' — https://www.researchgate.net/publication/269468202_Emergency_Saving_and_Household_Hardship

'Savings Policy and Decisionmaking in Low-Income Households' — https://www.researchgate.net/publication/289069441_Savings_Policy_and_Decisionmaking_in_Low-Income_Households

'Insufficient Funds: Savings, Assets, Credit, and Banking Among Low-Income Households' — https://www.jstor.org/stable/10.7758/9781610445887

'Financially Fragile Households: Evidence and Implications' — https://www.nber.org/papers/w17072

'One in four Canadians are unable to cover an unexpected expense of $500' —https://www150.statcan.gc.ca/n1/daily-quotidien/230213/dq230213b-eng.htm

'Who Should Buy Long-Term Bonds?' — https://www.jstor.org/stable/2677900

‘Mental accounting matters' — https://people.bath.ac.uk/mnsrf/Teaching%202011/Thaler-99.pdf

'The Bucket Approach for Retirement: A Suboptimal Behavioral Trick?' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3274499

'Should Households Establish Emergency Funds' —https://www.proquest.com/openview/042e8ea8f8e3986ec6c93e5cfca265c0/1?pq-origsite=gscholar&cbl=38873

'Is an All Cash Emergency Fund Strategy Appropriate for All Investors?' — https://www.financialplanningassociation.org/article/all-cash-emergency-fund-strategy-appropriate-all-investors

'Building emergency savings through employer-sponsored rainy-day savings accounts' — https://www.journals.uchicago.edu/doi/full/10.1086/708170

'Double Mental Discounting: When a Single Price Promotion Feels Twice as Nice' — https://journals.sagepub.com/doi/10.1509/jmr.15.0559

'The Role of Mental Accounting in Household Spending and Investing Decisions'  — https://onlinelibrary.wiley.com/doi/10.1002/9781119440895.ch6

'Emergency Savings and Financial Security: Insights from the Making Ends Meet Survey and Consumer Credit Panel' — https://www.consumerfinance.gov/data-research/research-reports/emergency-savings-financial-security-insights-from-making-ends-meet-survey-and-consumer-credit-panel/