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On Finance: A First Financial Measure
From the blog at PaulOnLife.com
One of my favorite comedy routines is Bill Cosby’s “Noah” (you can hear it on YouTube). In this routine Mr. Cosby acts out some of the possible discussions that Noah has with God as he goes about building and populating the ark. Towards the end, as Noah loads two hippos into the ark, God’s voice calls down and informs him he has to take one back as he has two males and he needs to get a female. Noah, somewhat exasperated, tells God to change one of them. He then proceeds to complain about everything he has been through with the ark. As Noah goes on complaining God’s voice calls out and asks Noah; “How long can you tread water”. That one statement, and a little rain, brings great clarity to Noah’s thought process.
“How long can you tread water?” What an excellent question. What a great first measure on one’s financial position. How long can YOU tread water? How long can you go without an income before you begin to drown. How long can you absorb additional expenses associated with a life event, without using debt, before you are under water?
Why is this such a great question? Because, more than anything else, the answer to that question determine how stressful your life is going to be. The longer you can go, the more expenses you can absorb, the less stressful life’s events will be. Events which already add stress to your life will be more stressful or less stressful depending on how easily you can handle any financial impact.
Perhaps then, one of the first goals in financial planning should be to answer the question “How long can you tread water?” How long without income? How much in additional expenses. Obviously it would be great to answer “forever” and “any amount”, but we would probably do ourselves a favor by keeping the answers a bit more realistic. In reality the answer is a balance of what is reasonably likely to happen, what our other financial priorities are, and how much stress we are willing to accept.
Posted by Paul Gernhardt on Sunday, January 18, 2009