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Running the Numbers

John Lim

I RECENTLY LISTENED to a podcast featuring Richard Thaler, the Nobel prize-winning economist. To say I’m a huge fan of his work is an understatement. Thaler has that rare ability to communicate a complex topic—behavioral economics—to a lay audience in a way that’s both accessible and enjoyable. His book Misbehaving offers a fascinating historical account of behavioral economics, a field he played a major role in developing.

But it was a casual comment that Thaler made toward the end of the interview that really caught my attention. Podcast host Meb Faber asked him for some best practices for teaching personal finance to high school students. Thaler suggested replacing subjects like trigonometry—with near zero practical value—with more useful ones, such as teaching students how to use a spreadsheet.

Use a spreadsheet. It suddenly dawned on me just how heavily I’ve relied on spreadsheets throughout my life, particularly when it comes to personal finance. So many financial questions are ripe for analysis through the use of spreadsheets. The following is a list of nine problems for which I’ve depended on them. Some of the resulting spreadsheets were relatively simple, while others devilishly complex.

  • Creating a budget.
  • Seeing how different savings rates would lead to differing levels of wealth accumulation.
  • Estimating my cumulative savings by refinancing or prepaying a mortgage. (This was before online mortgage calculators became ubiquitous.)
  • Determining whether and how much to contribute to my employer’s cash balance plan—a type of defined benefit pension plan. This was a truly complex problem given the myriad factors involved.
  • Helping to choose between health insurance plans, including some that were compatible with health savings accounts and others that weren’t.
  • Setting buying thresholds in 2020’s bear market based on a “worst-case scenario” analysis, as detailed in an article early last year.
  • Analyzing and rebalancing my investment portfolio.
  • Creating a savings rate calculator for a talk I gave on financial independence. The primary input was “years to financial independence”—there were, of course, other inputs as well—and the output was the “required savings rate.”
  • Calculating the yield to maturity on bonds.

Looking for help creating a spreadsheet? Microsoft offers a slew of Excel templates that are available for download.

Many of my HumbleDollar articles—and the financial analyses that underlay them—would never have seen the light of day if it weren’t for spreadsheets. Of the 24 articles and blog posts that I’ve written so far, a full quarter of them relied on spreadsheets in some manner. In particular, this article, this one and this one were essentially spreadsheets disguised as prose. These articles also happen to be among my favorites.

How often have I used trigonometry in my finances? Meet the null set.

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