When examining how one can live at their highest lifetime living standard I think it is incredibly important to take time to examine what exactly the full financial details are within said persons life; both now and in the measurable future. I think many times individuals will sway to one extreme or the other (either only present or only future) but, for one to live their best financial life one will need to take both of those time frames into account. When this is done properly one can create a budget that not only allows them to spend at their at their optimal level in the present and put aside ample money to create a stable future. I think the Diaz family example is a perfect case of learning how to adjust from original situations and work diligently to acheive the proper balence between extremes and end up eventually finding the best financial life for one to operate in.
Thank you for your remarks. One great benefit of the life-cycle approach is that it provides the right target that hopefully would reduce "swaying." Future adjustments are easy, too. Obviously, life changes will require a new turn of the model's crank and many planners would suggest that financial plan be revisited annually whether a household experiences a significant financial life event or not. If I was a planner, I would revisit my clients' plans to embody changes to expected inflation.
I agree that every household is different, yet when setting a budget, everyone needs to find their highest sustainable lifetime living standard. I find it interesting how a household can make the same income as another household, however, their non-discretionary household expenses is what changes the difference in their total spending. Moreover, in the Diaz example, since Carlos and Gabriela earn a pre-tax income of $160,000 together as a household, they must find their optimal living standard for when they want to retire at age 67. I want to affirm that the Diaz family can allocate more their spending in order to achieve their best and sustainable living standard. However, each year may vary depending on certain expenses such as costly monthly car leases, meaning the optimal living standard may either call for a cut or increase in one’s actual spending depending on the year’s expenses.
Interesting points. Let me clarify. First, the sustainable level of lifetime spending is the summing up of the annual living standards adjusted for inflation for the lifetimes of the adults in the household. In this manner, the total amount of "optimized" spending for the Diazes this year does consider their lifetime resources (work-related income, social security retirement benefits and other assets). Comes to reason that if the Diazes today has $1 million of stock in their brokerage account that they can spend more today and the balance of their lifetime. Even higher spending and a higher living standard if they had $10 million in their brokerage account. Second, we would have to do the analysis on a comparable income-level household that had higher non-discretionaries, such as a heftier mortgage, to see the resulting living standard. In general, if such a family had a more expensive home and mortgage then their would be less for discretionary spending for this comparable family.
When examining how one can live at their highest lifetime living standard I think it is incredibly important to take time to examine what exactly the full financial details are within said persons life; both now and in the measurable future. I think many times individuals will sway to one extreme or the other (either only present or only future) but, for one to live their best financial life one will need to take both of those time frames into account. When this is done properly one can create a budget that not only allows them to spend at their at their optimal level in the present and put aside ample money to create a stable future. I think the Diaz family example is a perfect case of learning how to adjust from original situations and work diligently to acheive the proper balence between extremes and end up eventually finding the best financial life for one to operate in.
Thank you for your remarks. One great benefit of the life-cycle approach is that it provides the right target that hopefully would reduce "swaying." Future adjustments are easy, too. Obviously, life changes will require a new turn of the model's crank and many planners would suggest that financial plan be revisited annually whether a household experiences a significant financial life event or not. If I was a planner, I would revisit my clients' plans to embody changes to expected inflation.
I agree that every household is different, yet when setting a budget, everyone needs to find their highest sustainable lifetime living standard. I find it interesting how a household can make the same income as another household, however, their non-discretionary household expenses is what changes the difference in their total spending. Moreover, in the Diaz example, since Carlos and Gabriela earn a pre-tax income of $160,000 together as a household, they must find their optimal living standard for when they want to retire at age 67. I want to affirm that the Diaz family can allocate more their spending in order to achieve their best and sustainable living standard. However, each year may vary depending on certain expenses such as costly monthly car leases, meaning the optimal living standard may either call for a cut or increase in one’s actual spending depending on the year’s expenses.
Interesting points. Let me clarify. First, the sustainable level of lifetime spending is the summing up of the annual living standards adjusted for inflation for the lifetimes of the adults in the household. In this manner, the total amount of "optimized" spending for the Diazes this year does consider their lifetime resources (work-related income, social security retirement benefits and other assets). Comes to reason that if the Diazes today has $1 million of stock in their brokerage account that they can spend more today and the balance of their lifetime. Even higher spending and a higher living standard if they had $10 million in their brokerage account. Second, we would have to do the analysis on a comparable income-level household that had higher non-discretionaries, such as a heftier mortgage, to see the resulting living standard. In general, if such a family had a more expensive home and mortgage then their would be less for discretionary spending for this comparable family.