Cash is King but Flow is the Empress

David Trahair writes on financial matters and provides a very welcome Canadian point of view on retirement and investment considerations.  In his 2012 book: Cash Cows, Pigs and Jackpots; The Simplest Personal Finance Strategy Ever he provides both financial advice and some self-help to boot!

The central theme running through this book is the importance of positive cash flow (Cash Cows) versus negative flow (Cash Pigs).  Trahair also goes into a few pleasant surprises such as lottery winning as a retirement strategy (Jackpots).

Pig Tied to a Stake; Frederick George Richard Roth; Metropolitan Museum of Art: #06.404

Keep your Cash Pigs under control. Pig Tied to a Stake; Frederick George Richard Roth; Metropolitan Museum of Art: #06.404

On the one hand, much of what is in this book you may have read elsewhere in similar financial and investement books.  On the other hand, he does a good job of combining a number of different threads together including why happiness should be a high on your list of wealth

Happiness as an Investment Strategy

Trahair references the science of happiness, for example, you have a happiness set point.  50% of your happiness is pre-determined by both your genetics and your early up bringing.  The other 50% is split 10/40 between external circumstances (e.g. job, new things; 10%) and intentional activities (e.g. things you choose to do such as physical activity, 40%).

Huh? What the heck does happiness have to do with my investment strategy?

The answer is, be careful that you are not trying to buy things that are free.  If you had an unhappy working career there is every chance you will have a miserable retirement. Figure out how you can be happy and then plan the money around it.  You may discover that you need less treasure then you originally thought!

Before leaving this theme, Trahair references a movie and a book that I will need to track down and read on the subject of happiness:

  •  ‘Happy‘; a documentary on happiness by Roko Belic; and
  • Happy for No Reason‘; a book on the same subject by Marci Shimoff.

Some Old (But Still Very Good) Advice

Trahair revisits advice given by other financial sages such as David Chilton, the Wealthy Barber including these timeless gems:

  • Record your expenses, doing so will help you understand where your money goes.
  • Avoid bad debt, e.g. debt to purchase non-enduring assets such as vacations, electronics or meals (Bad debt = Cash Pig).
  • Avoiding debt is easier by living within your means.
  • Living within your means includes owing less house than what the bank says you can afford.
  • Enter into home ownership only after considering the merits of renting.

To the last point, Trahair provides a good summary of the merits, terms and considerations of owning a home, renting and even buying a condo.  Once again this material is available in other sources but Trahair does a good job of making these technical details easy to read and understand.

This includes understanding what inflation is (how the Canadian Price Index is calculated) as well as the state of the Canada Pension Plan (pretty good by all accounts).  Pulling it altogether, Trahair provides an overview of how a Cash Pig at one point in your life (saving for retirement) can become a Cash Cow later on (cashing in RRSPs).

A Bit Too Much Excel but Still a Good Graduation Gift

One fault Trahair has is going into too much detail of his Excel tools (which you can download free from www.trahair.com).  I recognize that these are good mechanisms to demonstrate his point and the scenarios that he is painting – but they also bog down the narrative.  Hopefully in future editions he sticks to the key messages and moves Excel-Explanations into annexes.

Nevertheless, if you know someone who is graduating this year and are thinking about a present I would suggest a bundle of books.  Firstly all of Trahair’s editions (available from his website) and Chilton’s series on the Wealthy Barber.

Good luck with you cash pigs and cows – and may the FLOW be with you!