This is really cool, albeit a bit high-level and leaves you with the question: ok, what does this actually mean for me?
I hate these startup plugs on random threads (genuinely), but here it actually might be helpful for people. At Finimize, we're basically taking all the stuff that Adam is talking about and we're putting it into an algorithm that will tell you what you should be doing – from savings to investments to debt.
Like I said, not trying to pitch anything here, but feel free to check it out www.finimize.com/mylife – or ping me an email to hello[at]finimize.com if you want to get a demo (we're still in closed beta).
Can you really boil down all financial decisions to an algorithm?
For example, should I pay off a low-interest mortgage earlier with higher monthly payments, or should I invest each marginal dollar in a low-cost index fund?
There's certainly a psychological benefit (for some people) to have the mortgage paid off; it's one less bill to keep track of, but of course, over a long period of time such as a 30 year mortgage, it's quite possible that it'd appreciate more than your home (plus mortgage interest) will.
Or another question I see asked a lot: Should I take a year off work in my 20s to travel abroad, not knowing how hirable I may be in twelve months, or how the state of the economy might be for hiring early career individuals?
It seems half science and half art to me. You can graph and show what decision X vs Y will look like for your finances, showing which will leave you with more dollars in old age, but I do not think that is the difficult question for younger savers today. They wonder, is this marginal dollar I have more valuable spent on an experience today, or should it be invested for tomorrow? It's the opportunity cost of saving.
One of your most valuable assets is time, and enjoying the present sufficiently (but not gratuitously) is important for a balanced life. Saving too much or too little will lead to serious imbalances either earlier or later in life. Maybe an algorithm can hint you are savings are too low, or too high, but it can't tell you exactly what to do.
> There's certainly a psychological benefit (for some people) to have the mortgage paid off; it's one less bill to keep track of, but of course, over a long period of time such as a 30 year mortgage, it's quite possible that it'd appreciate more than your home (plus mortgage interest) will.
This is such a great point. I’ve been switching off between student loan payments, investing in index funds, and investing in individual stocks I’m interested in.
Objectively, an algorithm would tell me to invest in index funds only because they are considered to have the best risk vs return ratio - my student loans have a low interest rate (3-4%) and individual stocks are hugely variable for an uninformed investor. You could imagine adding a couple more things into this mix such as gold, crytocoins, and property as well.
I have started to rationalize this behavior as implicitly “buying the ability to choose”. Choosing where and how to allocate my money is surprisingly empowering and there is a hidden value associated with that which may be worth more than the difference between the marginal gains. Does anyone else see themselves rationalizig similar behavior that may be economically irrational through this route? I wonder how this could be exploited in some sense by a financial device that gives that same sense, but instead captures some of the value left on the table normally.
> have the mortgage paid off; it's one less bill to keep track of
Most people will get an increase in billing complexity when paying off their mortgage. I have paid off one and now have to pay insurance and real estate taxes separately (rather than them previously being escrowed amounts from the PITI payment). My tax bill cannot be easily auto-paid either, so I now have to pay more attention (insurance can be auto-paid).
well know you pay off your debt with the highest coupon first if you have a low interest mortgage it can make sense not to pay that off as inflation will hopefully reduce the cost for you
Basically, I created Finimize so we, the millennials, can finally start understanding finance. Too many hours are spent forcing ourselves to read the Wall Street Journal or listening to bankers -- and we don't really understand what they're telling us and, in the case of bankers, if it is actually true. But it's important that we at least have a basic understanding of what's going on in finance, so we can manage our savings (especially in a world of basically zero interest rates on saving accounts) and somewhat understand what all these up-and-coming FinTech startups actually do (from robo advisers to lending providers).
So we built Finimize to give you a tool to de-mystify this complex world of finance. We want your finances to suit you, not the suits ;)
I would love to hear your feedback on what we're doing! You can either post it here or e-mail me at hello@finimize.com
