Making the Life-Cycle Model Real
Adding a software solution
Practice from theory is ready to be applied to a framed case study of Charles and Gabriela Diaz who live in Albuquerque with their two children, Jenny and Gabriela. The Diazes, millennials just out of their 30s, have questions common to young mid-life families. How will we pay for child care? Should we set aside money for the future education of the children? Are we saving enough? Can we spend more?
The book's first two chapters provide the terminology and introduce the reasoning behind a living standard as the metric for financial happiness. Textbook Roxanne illustrated the year-by-year give and take to arrive at the optimal living standard under very limiting assumptions. Real-world life-cycle modeling requires taxes, inflation expectations, expected return and risk of investments, and other factors thrown into a computationally complex process. While the ideas of economic-based financial planning go back to Irving Fisher, technological capability is a 21st-century occurrence.
The Diazes financial plan is introduced next week. Households with children are a good follow-up case to a single-person household. In this installment, we present “Steve,” a young single, to illustrate how to build a baseline financial plan with commercial software I use in class. Through step-by-step screenshots, Steve’s financial inputs take the reader through a tutorial that results in Steve’s plan while giving the reader the “how-to” for their planning.
Today: A step-by-step introduction to MaxiFi Planner that brings economics-based financial planning to life. I am grateful to Laurence Kotlikoff, who is offering PFE subscribers a 20% discount for one week using the code PUELZ for any of their products. FYI, I receive no commission and have found the Premium version important because of household investment risk and return considerations. Advisors would want the Pro version for client organization.
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