4 Things An Actuary Can Teach Us About Money

In a post last week about how choosing the right life partner can be the most financially wise choice you ever make, I wrote about how my husband Steve is my financial inspiration. He truly is a “financial hero,” who’s made wise choices about money his entire life. I am continually impressed by his natural talents as a money manager. I came to my financial beliefs and behaviors the hard way, learning from missteps I made in my 20’s…not Steve. He was born this way – a sensible, long term, evidence-based investor. 

It won’t surprise you to learn that Steve works as an actuary in reinsurance. An actuary, in case you didn’t know, is a business professional who deals with the measurement of risk and uncertainty. Reinsurance companies are those who accept risks transferred by other insurance companies. You don’t need to have passed ten actuarial exams and been born financially sensible to manage finances well as a couple. But there are a few financial behaviors we can all learn from Steve that will make the journey easier:

Make logical choices

Steve’s a logical guy, which informs every decision he makes. Unlike most of us, he doesn’t carry many  limiting beliefs about money. It’s just about the math. Before making a purchase or an investment decision, he runs the numbers. Based on the results, which is the most logical choice?

This plays out in all areas of his financial life, from choosing a hybrid car to always remembering to bring the coupons when he goes to the grocery store. One great example of a small but sensible habit he uses is to always enter items in the checkbook register rounded up or down to the nearest dollar. That makes the checkbook easier and faster to balance, without less risk of an error.

Determine expected value  

Making the logical choice is sometimes different than the most frugal choice. He will determine the expected value of a decision – what something is worth based on the probability of different outcomes. To give you a simple example, if there’s a 50% probability that an investment will be worth $100 and a 50% probability it will be worth $60, the expected value of the investment is $80.

Steve’s also not afraid to include things in his decision making that are hard to quantify, like whether something will be pleasant or fun or even whether he’ll find something annoying or frustrating. Not sure how to quantify the price of fun? This New York Times article by Carl Richards can help.

Take time for financial business

For Steve, making wise financial decisions is a priority so he takes the time needed to gather a reasonable amount of data to make an informed decision. The time he spends is proportionate to the importance of the decision. He builds in time every week for financial decision making, whether it’s scanning the grocery store circular for useful coupons, checking up on his portfolio, or discussing our investment choices. Feeling like you don’t have enough time in the day to do everything to manage your money? Try my Two Hour a Week Money Prescription or my fellow blogger Erik Carter’s Less than Two Hour a Week Money Prescription.

Work towards financial independence

To become financially independent, you have to align your behaviors to that goal. When Steve and I met, we were both savers, but he’d been saving a lot longer, having started as soon as he got his first job. Now that he’s in his fifties, money he saved and invested early in his career has been compounding for thirty years. We enjoy our life, but we also prioritize saving and investing. If financial independence or early retirement is a goal, consider increasing your savings until you are saving at least 20% for the future.

Is your partner your worst financial enemy or your best financial friend? Let me know by emailing me at [email protected]. You can also follow me on Twitter @cynthiameyer_FF

 

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