Today we are spending most of the episode going further into the basic concepts that ground good financial practices and the personal finance topics that are often taken for granted. The three main areas we unpack in this episode are the cost of living, savings capacity, and emergency funds, and though these can be viewed as basic ideas, there are always areas of the simplest variety that deserve more attention. Listeners can also expect to hear a little more about what our role as financial advisors constitutes on a daily basis, as we respond to an audience member's question about how to conceptualize the profession. We welcome Dr. Wendall Mascarenhas back to the show for a brief cameo in which he shares his reading habits and approach with us, which contrasts with some of the opinions often expressed by other guests, so make sure to stay tuned in for that. We also find time for a quick recap of an old episode we had with Rick Ferri and a book review of Rethink Lead Generation by Tom Shapiro.

Key Points From This Episode:

• Discussing the cost of living and why an accurate picture of your expenses is so important. (0:04:08)

• Working out your saving capacity and when and how to save. (0:21:32)

• General advice for emergency funds and further considerations for households. (0:32:51)

• Recapping our episode with Rick Ferri on his index investing philosophy and the lasting impact of John Bogle. (0:40:21)

• This week's book review of Rethink Lead Generation by Tom Shapiro. (0:42:26)

• Dr. Wendall Mascarenhas talks about his reading habits and his prioritization of reading for pleasure. (0:49:23)

• A few favourite book recommendations from Dr. Wendall Mascarenhas. (0:58:12)

• Current debates around ChatGPT and the sources of its information. (1:06:18)

• Information about upcoming meetups for the Rational Reminder community. (1:09:38)

• Further explorations on our recent goals survey and the input we received from Morningstar. (1:11:00)

Read the Transcript:

Ben Felix: This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision making from two Canadians. We're hosted by me, Benjamin Felix and Cameron Passmore, portfolio managers at PWL Capital. Episode 241. Welcome, everybody.

Cameron Passmore: 241, Ben, still blows me away. Anyways, this week, you dive into some basic personal finance concepts, including cost of living, savings capacity and emergency funds.

Ben Felix: Yep. Not so basic take on those basic concepts. I think it's a good discussion.

Cameron Passmore: It sure is. And I'll do a quick 60-second review of our conversation back in episode 33 with Rick Ferri. We will dive into the book Rethink Lead Generation: Advanced Strategies to Generate More Leads for Your Business by Tom Shapiro. And we have a really great conversation with past guest and avid listener, Dr. Wendall Mascarenhas, who brings a bit of a different perspective to reading and reading habits. He reached out and asked to come on. It was great to talk to Wendall again.

Ben Felix: Yep. Quick shout out to PWL, as we've been doing, that there's a thread in the Rational Reminder community where someone basically asked, "What does a financial advisor actually do day-to-day?" And there's some other stuff in that question, too. And there's an interesting discussion I think that stem from it. But we thought we would talk about that. What are we actually spending time? Well, maybe not us as much. But what is our team spending their time doing right now?

Cameron Passmore: Especially this time of year, it's so interesting, because so many things happen now. For example, January is a very busy time with prescribed rate loans, which is a tool used for income splitting in Canada. But you need to calculate interest payments. You have to make sure those payments are made. And if you miss one of those steps, it could be pretty disastrous for that planning.

Ben Felix: Yep. We also go through and review contributions, RRSP contributions, which is the tax-deferred savings plan in Canada. Made at PWL and an external accounts through like an employer group plan type thing. And as we're reviewing the RRSP contribution room, we always verify the RRSP limits through the CRA online account. Canada tax service has online accounts where you can see how much room you have to contribute.

And one of the interesting things that we observe doing that going through and checking CRAs data against our data is that we sometimes catch little details like an RRSP contribution from a prior year that was not filed properly at tax time. Or a reassessment of a past income tax return that changed the available RRSP room based on like if we made contributions based on one amount of available room. If a previous year's tax return gets reassessed, that amount of room can change, which may mean having to do more or less top-up contribution.

And a lot of those conversations involve the client's accountant if we're deciding on should we max out any remaining available room? There's a whole long-term and short-term tax planning discussion in there.

Cameron Passmore: Yeah and the other big item, you mentioned tax, is the whole tax prep season comes right after this leading up to the tax deadline in Canada at the end of April. We do a lot of work to help clients get all their relevant tax documents in order and have them off in a nice clean bundle to their accountant. And of course, we're always checking people's TFSA, tax-free savings account limits and contributions. A lot of buttoning down these details, which are super important as part of the long-term plan.

Ben Felix: Yep. That's keeping us busy right now. If you think about it, it's like all of the stuff that you would have to do yourself to manage all of this stuff and make it go smoothly and make everything that needs to happen for tax season happen properly. Or for RRSP contribution, the deadline. We're doing all of that for other people. It's definitely time consuming. That's currently. And then hopefully we can bring more examples in the future of other stuff that we're working on.

Cameron Passmore: Awesome. All right. Are you ready to go to the episode?

Ben Felix: Let's go.

***

Ben Felix: Welcome to episode 241 of the Rational Reminder podcast.

Cameron Passmore: All right. You've got some really great basic personal finance concepts. So, let's kick it off with a discussion around cost of living.

Ben Felix: Yep. Cost of living seems pretty basic.

Cameron Passmore: Yeah, you bring some perspectives, which are interesting.

Ben Felix: It is easily one of the most important numbers in financial planning, your cost of living. And when I say cost of living, it includes all your expenses over some time interval. A month or a year. Either way. Understanding your cost of living tells you things. This is why it's important for financial planning. It tells you things like how much you can save. How much you need to accumulate for retirement. How much life and disability insurance you need? How much you should ideally keep in an emergency fund, which we'll talk more about later.

Cameron Passmore: I absolutely love the fact that you included disability insurance and life insurance of course, but particularly disability insurance. Because I think many people, especially with disability insurance, will say they can't afford it. Someone's starting out in Canada having their own disability insurance program can easily be over a hundred dollars a month, if not significantly more depending on your income and your profession.

The interesting thing to me is that the more you can't afford it, the more you absolutely need it. It's simply statistics that you could become disabled. Well, if you can't afford to get it, you can't afford to not have your income replaces should you become disabled. I'm so happy to see that in your notes.

Ben Felix: Yeah, you're referring to a concept that I would call economic slack. People who have less economic slack are taking more risk by not having disability insurance in place. And we'll talk more about economic slack in a bit.

All of those are super important core financial planning areas that we just mentioned. And all of them rely on having an accurate picture of your cost of living in order to determine the answers to all of those questions. How much can you save? How much should you save? How much Insurance should you have? All that kind of stuff.

Now, people frequently – and we know this from our conversation with Johanna Peetz, people estimate their future expenses in everyday life. Always. People are forecasting their expenses as they go through the day. When they do things like planning a vacation, or going to buy groceries, or casually mentally budgeting their expenses out for the next month. People budget to some extent, whether it's in written form or not.

Now, those estimates are super impactful to people's finances if you underestimate your future expenses. People are making these predictions all the time about how much they're going to spend. They're doing some form of budgeting. If you underestimate your future expenses, you might end up taking on financial commitments that you can't afford. You might end up with unwanted debt. Or you might end up with cash flow problems.

To avoid those types of issues, there are two primary acceptable, what I would call acceptable approaches, to determining your cost of living. And one approach that I would generally not recommend, the one that I would not recommend is guessing. Kind of what we were just talking about that people go through the day and they make casual predictions about their expenses. If you try and forecast your expenses in that casual way, what the data show is that people tend to underestimate their future expenses.

Now, anecdotally – and, Cameron, I'm sure you can attest this, too. When we are dealing with a client, and we're doing financial planning and we're doing the initial onboarding and getting to understand someone's situation, if you ask someone what their expenses are, typically – and this is my anecdotal experience. But we'll talk about the data in a second. Typically, you get responses that end up being, when you dig into their actual expenses, significantly lower than their actual expenses. Someone might have a cost of living that's truly 8,000 a month once you dig into it. But if you ask them, they might say three thousand a month or four thousand a month.

Cameron Passmore: Absolutely. And I would say those numbers are very common, in the people we're working with.

Ben Felix: Yeah, yeah. That range of numbers is common. I'm not in those meetings as often these days, but I had developed some level of intuition around being able to say like, "I don't know if that's right," when people say what their expenses are.

Cameron Passmore: What's interesting on that is if that is right, then where are the savings? Or the other thing I remember being told long time ago was always look at the line of credit balance. A line of credit balance always tells the truth. A line of credit, which many people have an outstanding balance, is it drifting up or drifting down. Because lines of credit don't lie. If it's drifting up, then clearly if you bring in 8. But if you think you're spending four, that line of credit should be going down. Lines of credit don't lie.

Ben Felix: Yeah, you're actually referring to the other approach to figuring out your cost of living. One is guessing. One is budgeting, which we'll talk more about in a second. And then the other one is basically doing that working backwards and figuring out from, we know how much income you have available, how much did you save last year or how much did your debt increase or decrease? And that can tell you or give you an estimate of your cost of living.

Okay. Now back to the casual forecasting. Our anecdotal observation is supported by quite a bit of academic research. People do tend to systematically underestimate their future spending. And interestingly and importantly for financial planning, the underestimates are empirically stronger for people with more ambitious saving goals.

Cameron Passmore: So, explain that. People with the ability to save more or those that have greater goals? Are you saying for better savers or people that wish they were better savers?

Ben Felix: In the paper that I'm referring to, people that have more ambitious saving goals are more likely to underestimate their expenses.

Cameron Passmore: Interesting.

Ben Felix: Yep. And we'll put, of course, all the paper references in the show notes. The explanations for this are interesting. There are a few interesting papers on this. And I'm going to reference three of them. Now, people base their predictions on the expenses that immediately come to mind when they are asked to think about their expenses. And this part's interesting. Expenses are highly skewed. If you think about only the ones that come to mind, it'll, on average, lead to persistent under-predictions.

People mentally stimulate. This is a separate finding. People separately, mentally simulate a simplified version of the future that omits many relevant expenses, which is kind of similar to the first one, I guess. And people view large exceptional expenses as one-offs as opposed to items that fit into a broader category of ongoing expenses. I find that one really interesting.

Interventions to resolve some of those include asking people to consider reasons why their expenses might be different from usual in the future. Asking them to unpack the details of their expenses and reminding them that purchase is viewed as exceptional fit into a class of purchases, like electronics or gifts. Those are a couple of interventions. And then, of course, the more comprehensive, though tedious, which is the trade-off, option for figuring out expenses is to do a detailed budget with category prompts, and asking yourself the previously mentioned questions.

Cameron Passmore: And I think that's the only true way to get details of which are actually spending money on. But you're right. It is a challenge to do that. What do you do?

Ben Felix: I do the method of knowing how much I need to save and spending the difference. And not letting my debt balances change year-to-year or increase.

Cameron Passmore: So, you're not tracking your spending by category week-in, week-out?

Ben Felix: I did it a while ago. And I would love to do it. I would love to have it done for me more than I would love to do it though. I think it's super important to have those data. But also, it's a lot of work to do it.

Cameron Passmore: And then a big expense could go and throw it all out the window anyways. Not throw it out the window, but skew it dramatically.

Ben Felix: A big unexpected expense, for sure. But part of budgeting ideally includes expected, unexpected expenses. Like home maintenance, for example, is a big one that should ideally be budgeted for.

Cameron Passmore: Yeah. Like you, I did it monthly for a couple of years and it didn't really move other than inflation. I was pretty persistent. I let it go.

Ben Felix: It's good to get inside though into what you're spending on and whether it aligns with your values. I think I have a reasonably good sense of that. I do go through monthly and audit where our money went. I don't have like a good annual picture of it from that perspective. But I think we run a fairly tight ship without having a budget document.

And we actually talked to [inaudible] about this, too, who's our guest next week. We talk about the limitations of budgeting. And one of her suggestions, which I think is pretty interesting, and although I'm not doing this right now either, I have done it in the past, is to have separate accounts with a free bank account institution where you can have as many accounts as you want. Have separate bank accounts for different major budget categories. And we'll talk more about how you can use mental accounting like that, which is technically a bias as a tool.

Okay. Anyway. Even though I'm not personally doing it at the moment. Although maybe I'm relying on the fact that we've done budgeting in the past. And I'm fairly certain that our expenses haven't changed too much in terms of allocations since the last time we did a detailed breakdown of where our money was going.

Okay. Completing a budget is the optimal tool for making better use of your income because it lets you see where your money goes and how that relates to your objectives. If you know what your strategic life objectives are, which is the topic we talked about a while ago, and you look at your expenses and you realize, "Wow! That thing that I'm spending a lot of money on really doesn't align with my strategic life objectives," that it's something you may want to reduce or eliminate.

And another thing that a budget helps with, although, again, it doesn't require having an actual – you don't have to have a piece of paper that says budget on it. Having a good understanding of your expenses I think is maybe a better way to explain it. It lets you draw the distinction between fixed expenses, essential expenses and discretionary expenses. Which, again, from a financial planning perspective is important. Fixed expenses are those that you have no discretion to change without materially disrupting your life. Like, your rent or your mortgage payment.

Essential expenses are things would be difficult to reduce without changing your habits. Like, your food and clothing costs. And then discretionary expenses are those that you can control without too much disruption to your life. I would say dining out and leisure travel. For some people, those may be more essential than others. But anyway, knowing what expenses you have that are discretionary I think is important. What you could cut if you needed to. The reason those matters, if we think of an example in an emergency, you would be willing to cut your discretionary expenses. If you would be willing to cut your discretionary expenses, you might be able to reduce the amount that you keep in an emergency savings account.

And then similarly – and David Blanchett at Morningstar, who we have coming up on the podcast again in a bit, he came up with a paper that was pretty interesting recently where he showed that breaking retirement expenses into needs and wants can significantly contribute to improved retirement and income projections.

And just one side note. Debt repayments should be included in your cost of living for these purposes because they're paying for past consumption. I'd probably put debt repayments under fixed expenses. I guess depends on the type of debt to an extent.

Now, likely for the reasons that we mentioned previously, people do tend – and this is an empirical observation. People do tend to make wildly optimistic budgets. But even still, those optimistic budgets tend to help consumers reduce their spending overall. And I think one of the best ways to deal with budget optimism is to reality test your budget.

And this is an interesting thing, too, right? It's like it comes back to that question earlier. What is a budget really? Is it a piece of paper that you wrote down how much you wanted to spend on stuff? Or is it a categorization of your past expenses of what you've actually spent? That's closer to the way that I would approach budgeting, is like what I said earlier. It's having a good understanding of your expenses as opposed to limits on your spending. Either way, it can work.

But if you're creating a prospective budget, how much you want to spend on stuff? I think because there's all this empirical evidence that people make optimistic budgets, comparing your budget to your actual expenses is a really important part of that overall exercise.

Now, budgeting also improves financial self-awareness. And more financially self-aware people tend to make more positive financial decisions. And they tend to be more satisfied in general. That was a research finding from one paper.

The budget of course contains your cash inflows, your income less taxes and payroll taxes, or payroll deductions. And your expenses categorized into categories. The categories are important in terms of making sure everything is being captured. It's kind of like the objective generation stuff we talked about a while ago where having categories can help people identify more objectives. I think it's probably similar for budgeting if you have categories that'll help you think of more expenses that you might otherwise omit.

Especially because of some expenses can be lumpy, if you look at a year of credit card statements, for example, there may be expenses that just aren't on there. But having budget categories to go through can help with that.

Cameron Passmore: And a lot of credit card statements. People, they'll just put down credit card as a line item in their budget as opposed to breaking down the items on a credit card.

Ben Felix: Yeah. And that's one of the interesting exercises that we got from Andrew Hallam, was to do an expense audit or a credit card statement audit where you take a credit card statement and just go through those expenses and see how they align with your strategic objectives. That's a little bit less time consuming than doing a comprehensive budgeting exercise.

Now, given the relatively tedious nature of budgets, an alternative approach to determining your cost of living is to work backwards. This is what you're talking about earlier with a line of credit. To work backwards and calculate your available income. If we know that last year, as an example, somebody earned a hundred thousand dollars. We know they paid thirty thousand dollars in taxes and contributions. And they saved five thousand dollars. And they didn't take on any new debt. We can infer that they spent sixty-five thousand dollars on their lifestyle. That's their cost of living.

Cameron Passmore: Yeah, and that's a pretty pragmatic approach to me. If someone hasn't done budgeting before, you can go at it that way. But I think about so much spending, why I think a lot of people is just because they feel they deserve it. Like, "Oh, it's been a rough winter. It's been super cold. Let's go on that trip." It may not have been part of your prospective budget, but you do it just because you deserve it. And those kinds of items – and I'm not saying there's anything wrong with that. But something that's on a whim like that can really put a dent in your overall budget.

Ben Felix: Yeah, something like that can blow up a budget for sure. But I guess that's the kind of thing, where if you look back at the last five years and you've taken a trip once every two years or once every year and you're doing a budget and you exclude that, that would be a perfect example of one of the biases we mentioned earlier where people exclude large lumpy expenses.

I think as financial planners, the working backwards method is useful if there's no other information available. But the big downside is that it doesn't give you insight into how well your spending corresponds to your values or how your expenses break down into fixed essential and discretionary.

But again, if we're doing financial planning for somebody, we need a number to give people financial advice about like how feasible is your retirement income goal? Or how much do you need to be saving? Or how much insurance do you need? All that kind of stuff. We need a number. If we're in need, we can use that available income method. But budgets are much more insightful. Yeah, and then for the reason that you can reflect on your expenses with respect to your values.

Another thing to think about on that is – and this is what we got from Ashley Whillans, is auditing your time. Because, of course, there's a relationship there where your time use won't show up in a budget typically if you're pulling the information in from financial documents. But there's a chance that if you're spending your time in less than ideal ways, that some of your budget money could be allocated towards solving that problem.

And then the other interesting idea that we got from a listener is putting labels on physical object purchases that say the purchase date and the amount that you paid for it. And then anytime that it gets used or put away in the garage or whatever, you can reflect on that purchase.

Cameron Passmore: From our friend, Dave.

Ben Felix: Yeah. That's cost of living. It's basically like you need to understand your cost of living. And again, you asked if I have a budget. I don't formally. But I think I do have a very good understanding of my cost of living and of what could be cut if needed. And I think I'm pretty in tune with my expenses. I think that's more the spirit of the concept, is to have an understanding of your cost of living even if that doesn't mean having an Excel document.

Cameron Passmore: Up next, you want to talk about savings capacity. Is this the teaser you put out a couple weeks ago suggesting that saving early may not be the best idea?

Ben Felix: That's in there. Yep.

Cameron Passmore: Because I received a text from good friend, Julian, asking if you misheard you in that podcast episode. I said, "Oh, yeah. No. You heard it properly. Just stand by. The answer is coming." So, this is the part.

Ben Felix: Yeah, I don't know if it's that controversial once you hear what I actually say about it.

Cameron Passmore: Well, it piqued his interest. So, Julian, here you go.

Ben Felix: Okay. The other side of your cost of living of course is your savings capacity. And we even talked about that explicitly a minute ago, is that if you don't know your cost of living, you can work it out partially from how much you saved.

A household can save the difference between their income and the sum of their taxes, payroll deductions and cost of living. And then they have a circular relationship. Because if you change one, the other must change. Unless new money appears in the system.

An interesting question though, is whether your cost of living should determine your savings rate. Or your savings rate should determine your cost of living? That is an interesting question. I'll relate this back to how I approach it in a bit. But the reason the question is interesting is because fixed savings rates, like, say you're always going to save 10% or 20% of your income, which is a strategy that's often promoted in personal finance books. Those strategies are actually at odds with economic theory.

Cameron Passmore: That is interesting, because I think I've told this story before. But the classic Canadian financial planning book, The Wealthy Barber, we had the author of that book, David Chilton, do a seminar for us close to 30 years ago. Part of the book was pay yourself first. 10% is the amount you should be putting away.

We asked David, "Is it 10% of your gross pay or your net pay?" And his response was simply, "Yes. Just do it." Sorry to start interrupt. Continue.

Ben Felix: Which is probably good advice. And we'll touch more on why in a minute. But before that, in the standard life cycle model, which is the economic model for how people change their consumption over time. And we talked with this with your balloon analogy in the last episode. In the standard life cycle model, people get satisfaction from consumption in each year of their life for each period of their life. Satisfaction increases with consumption but at a decreasing rate. Decreasing marginal utility of consumption, which results for a preference in smoothing consumption over the life cycle.

In the standard model, people want a smooth consumption by shifting it from periods where their income is higher to periods where it's lower. And that of course is accomplished through borrowing and saving. Moving economic value through time. Early on in the life cycle, people borrow. Or in the case of borrowing constraints, they spend most or all of their income.

In some interpretations of the life cycle model, and there's a paper that we can put in the notes for this one for the listener that was wondering about it, some interpretations of the life cycle model suggest that young people should not save at all. The examples from that paper are high income workers who tend to experience wage growth over their careers. For them, maintaining a steady standard of living requires spending all income while young and starting to save for retirement during middle age because of the trajectory of their income. And then for low-income workers whose wage profile tends to be flatter, they'll receive much higher replacement rates from government pensions making additional saving sub-optimal for them.

Cameron Passmore: The key line in there is steady standard of living, I assume?

Ben Felix: Well, that's the life cycle model. That's the smoothing consumption over time.

Cameron Passmore: Theoretically appealing. But often, people's lifestyle goes up with their income, right?

Ben Felix: Yeah. Well, this is the lifestyle inflation concern and the hedonic adaptation and all that stuff, which will touch on in a minute. But yes, there's this theoretical model of what people should optimally do and then there's what people actually do. And we're going to try and find a middle ground between those.

Cameron Passmore: Knowing Julian, he would be a steady standard of living kind of guy. There you go, Julian. There's your answer.

Ben Felix: And there're other problems, too. We don't know what our future earnings are going to be. People who are worried about that might save more, called precautionary savings. There are all kinds of caveats in there.

Okay. In that interpretation, in that paper that I was talking about, the welfare costs of automatic enrollment in employer-sponsored savings plans. Like, the big victory of increasing 401K savings for automatic enrollment, these authors argue has substantial welfare costs even with employer matching for these reasons of consumption smoothing. It's making people worse off overall by forcing them to save earlier instead of allowing to consume and smooth their income. A fixed savings rate results in smooth savings and volatile consumption over the life cycle, which at least in theory is sub-optimal.

Now, I mentioned earlier that I know how much I need to save each year, which sounds like it is a fixed savings amount. But it's not actually. I do allow my target amount of saving to vary. It's kind of confusing, I guess. I kind of have a sense of how much I'm going to need to consume in a year. Based on that, I determine how much I'm going to be able to save. And then I save that amount and consume the rest. I don't know how that works out in terms of my approach to budgeting.

Cameron Passmore: It's really interesting. I think about myself. I've said many times I've learned to spend less as I get older. Because maybe I have cheaper things that keep me happy. My saving rate actually is increasing as I get older. It's interesting.

Ben Felix: That makes sense in terms of these models we've been talking about, right? Saving should increase as your income rises over the life cycle. You would expect to be saving.

Cameron Passmore: But a lot of the spending is going down as well, which is interesting. Now the kids are getting through the system. So, kid expenses are falling off.

Ben Felix: There's a whole I didn't get into this. That's for a future discussion on retirement planning. But that's one of the things that Fred Vettese has written about recently. He's the past Rational Reminder guest. A lot of people love that episode. But he's recently been writing about what is the actual replacement rate required for retirement spending. And he makes a lot of arguments, like what you just said, that typical families who may, by the time that they're retired, no longer have kids in the home. They may no longer have a mortgage payment. When you account for all of that kind of stuff, your pre and post retirement replacement rate might be closer to 50% as opposed to the typically cited 70%.

Okay. Back to life cycle theory. It does have some empirical problems like the exponential growth bias and hyperbolic discounting that we mentioned back in episode 239. And a simple lack of self-control, which is I think more closely related to the lifestyle inflation stuff that we were just talking about. Those behavioural issues result in people waiting too long to start saving and not saving enough.

Even if it's not rational in an economic model, people should arguably start the habit of saving as early as possible. Or even better, if possible, they should start automating their habit of saving to increase with future pay increases. Even if there are some welfare costs to that, I think that there's also a pretty good argument that there are significant welfare costs to not saving enough. That's that difference between what works in the model versus what works in real life.

Now, to relate this back to that paper that talks about some people not needing to save at all, in Canada, as an example, and other countries would have – or some other countries would have similar systems, we have a contributory government pension plan that everybody with a salary pays into. This is again a topic that we'll cover in a future episode when we get into retirement planning. But for now, it's worth mentioning that if you're an employee in Canada, and again, this would generalize to some extent to other countries, in 2023, you're contributing 5.95 of your salary on income up to the CPP earnings ceiling, which is $65,700 in 2023 and your employer is matching that amount. And then starting in 2024, there will be an additional amount contributed on income above the earnings ceiling. There's a second earnings limit for an additional CPP benefit.

Depending on your income level, your CPP contributions may amount to a significant forced savings toward what is I would argue a valuable pension asset, which reflects, again, the earlier comments from that paper suggesting that some people may not need to save so much when they're younger. Or if they have a low income, they may not need to save so much more generally.

Now, financial planning, the practice of financial planning, I think can acknowledge, I think has to acknowledge the theory, the life cycle consumption smoothing theory, and the bias is again its way. And solution for an actual human is probably somewhere in between. I think that the application of the theoretical concept of marginal utility of consumption that drives the life cycle model, I think that can also change. Like, where is? It's kind of like what you just said, where does marginal utility start to decrease? I think that can even change after a conversation about money and happiness, and the spending audits and stuff like that that we talked about earlier, and the thoughtful determination of values and what spending is actually meaningful. I think there's a whole other interesting thing in there.

It relates to the hedonic treadmill that we talked about earlier, too. Which, again, that's a challenge for the life cycle model. People will spend even if they don't realize that the marginal utility of that consumption is low because they're reacting to the hedonic treadmill concept. Yeah.

It's reasonable for people to do some consumption smoothing. When I talk about my savings rate being different from year-to-year, I'm doing that. Maybe allowing for lower savings when income is low and higher when it's high. But I think we also have to be very aware of the biases that may lead you to save a decreasing amount over time, or save the same amount as consumption increases, or the same percentage as consumption increases when it should be consumption that's smooth at least in a model.

Cameron Passmore: Be aware what you're spending and be aware of what you need to save for the future.

Ben Felix: Yep. Yeah, back to the cost of living thing. You need to know those inputs. But I think it is interesting to figure out which one should drive which. Because it's so so common to see the advice of or get the question of how much of my income should I be saving? When at least, theoretically, the question should be how much of your income should you be spending?

Cameron Passmore: All right. You want to dive into emergency fund?

Ben Felix: Yeah. Well, I think it's important to mention that all those trade-offs have to be ideally modelled using the financial math that we talked about in the last episode. Because again, what's the exponential growth by stuff? Thinking about this stuff in a single period or thinking about it today often too heavily discounts how those decisions will affect the long-term. And so, yeah.

Okay, emergency fund is the last basic personal finance. Not such a basic discussion I don't think. But the last basic personal finance concept that we'll touch on. Having access to short-term cash, emergency fund as many people would I know it by, is generally considered a best practice in financial planning. And this is everywhere. It's in financial planning textbooks. It's everywhere. And it's identified as many households as being important to them.

Emergency savings is like a form of insurance against unexpected, irregular and unpredictable expenses. Having savings helps low-income households avoid material hardships like food insecurity and having a phone disconnected without resorting to alternative high-cost sources of credit, like bank overdraft, missed payments, payday loans, pawn shops, credit cards and retirement savings liquidation. Those issues may be less prevalent from more affluent households due to the concept of economic slack that I mentioned earlier or the ease with which a household can cut back on other expenses to meet an unexpected financial need.

But again, that ties back to the concepts of fixed essential and discretionary expenses. A low-income household that is already stretched then has less economic slack and more need for precautionary liquidity than an affluent household who can eliminate it or substitute their more frivolous expenses. The spirit of emergency savings is maintaining low-cost access to liquidity when liquidity is needed.

From that perspective, and this is American data. I'll mention some Canadian data, too. Many households are considered financially fragile in the sense that they could not come up with two thousand dollars in 30 days. That was an older American study. Statistics Canada just came out with data in late 2022 in their October to December survey, 26% of Canadian households said that they would not be able to cover a $500 unexpected expense. That's financial fragility. That's not good. You don't want to be in that situation.

Most people want to avoid financial hardship, of course. But households are going to have materially different needs for a distinctly designated emergency savings account. There are those rules of thumb that we mentioned, like having three to six months of living expenses. But I think it's important that each situation is unique and needs to be considered separately.

Even though it's probably generally good advice to have emergency savings. If we're going to be as general as possible and give advice that most generally applies to most households, I think the three to six months of living expenses is fine. But I think that there's a lot more to consider. I think households need to make an individual decision. Households need to consider the magnitude of their essential expenses, the period for which they would need to be covered in a liquidity emergency like a loss of employment or a major expense shock and there are alternative sources of liquidity. Because in a lot of cases, a household may have sources of liquidity that don't require having cash in a savings account.

Despite its general acceptance and financial planning, the concept of a separate cash emergency fund does not really have a clear place in an economic model for rational financial decision making. In John Campbell's textbook, he's another upcoming Rational Reminder guest, he suggests that some cash on hand may be justified by a liquidity motive for a household. But optimal portfolios for long-term investors contain very little cash.

Separating accounts into individual items rather than viewing all household assets as a single portfolio is a bias known as mental accounting. The set of cognitive operations used by individuals and households to organize, evaluate and keep track of financial activities.

From a total portfolio perspective, setting aside a separate account allocated to cash maybe sub-optimal compared to maintaining an appropriate long-term asset allocation across all accounts. Technically, this is a bias. Having an emergency fund is a biased action that doesn't really have a place in a model for rational long-term investing.

Cameron Passmore: Can't you hear Morgan Housel though, in the back of your mind right now? Remember him talking about that?

Ben Felix: Yeah, you got to be able to stay in the game.

Cameron Passmore: Yeah, "It may not be a rational for me to have all this cash," he said. "But boy, it feels good and we sleep great at night."

Ben Felix: Yeah. And there's some data on that, too, which I'll talk about. And this is, again, that difference between what makes sense in an economic model and what makes sense for an actual human. And that's actually my next point. While rational optimization is useful as a model, one of the most important aspects of financial planning is recognizing the limitations of human rationality. From that perspective, there are some pretty good arguments for allocating to a separate account earmarked for emergency expenses.

This is pretty interesting stuff here. Empirically, a single savings account used for multiple purposes may result in those dollars being double counted as available to fund all expenses associated with the account, which reduces overall saving and makes it harder to associate dollars to multiple costs. Or in other words, using mental accounting as a tool in this case may mitigate that effect. That's interesting.

And then another point is that designating an account specifically for unexpected expenses may protect those funds from being spent for other purposes and similarly may protect retirement savings from being spent to cover unexpected expenses when they arise. Because funds earmarked for certain purposes are less likely to be spent on other categories.

That's like if you have a one account that's for your retirement savings and your emergency savings, if an emergency happens, you're more likely to spend more than the emergency costs on resolving the issue if you're drawing from your single account that contains your retirement savings and your emergency savings. Whereas you'll be more constrained in your spending if it's a single emergency savings account.

And then the other point, which is the Morgan Housel of sleeping well at night point. Many people just want to have cash available to them. And we know this from Adriana Robertson's research, that people just have a desire to have cash. And she even talked about that when she was on the podcast about how that was the biggest surprise to her as an economist. That people don't just use their credit card and then reimburse through their portfolio. She was surprised that people want to hold cash.

And then the other interesting point there is that, empirically, consumers with at least a month of income saved score higher on subjective financial well-being than those with lower savings. There's some arguments to have an emergency fund. Some arguments not to. In determining an appropriate amount for a specific household, I think it's important to recognize that a lot of people underestimate their emergency savings needs. And interestingly, overconfident people seem to be more likely to underestimate their emergency savings needs than people with high measured financial knowledge. But it's also important to consider that many households can be financially resilient, which I think is the ultimate goal, without keeping a separate savings account on hand for emergencies.

Anyway, there's a whole bunch of stuff to consider. I'm not going to go through all the possible considerations. But I think the main takeaway there is – and we talked about this in the past episode. But the main takeaway is that you want to be financially resilient, which may or may not mean having a distinct cash emergency savings account.

Cameron Passmore: A little bit of inside baseball here for our good listeners. This might be basics. But you have 28 links two sources of data in your notes for this.

Ben Felix: And those are all academic papers.

Cameron Passmore: Right.

Ben Felix: Or academic textbooks. That's why we called it advanced basics.

Cameron Passmore: I know. It was awesome. Okay. Ready to keep going?

Ben Felix: Yeah.

Cameron Passmore: Okay, let's do our one episode in 60 seconds. Start the clock. Anyone who pays attention to the low-fee investment approach or is using predominantly tools from Vanguard will be aware of Rick Ferri, who was our guest on episode 33. Rick is a fee-only advisor in the US and hosts the popular and excellent podcast Bogleheads On Investing.

Rick is a former US marine pilot. And safe to say, brings a level of integrity, and accuracy and vigour to the world of investing. The service he delivers today has routes that go back to 1996 when he saw the light while reading Jack Bogle's book on mutual funds, which of course the bottom-line is don't bother trying to beat the market. But rather, buy the market and you'll be just fine.

Rick shared with us the four levels that an investor goes through in becoming an index fund investor. We learned Rick's opinion on one decision portfolios, factor investing and how a large part of his job is behavioural coaching. And in the end, Rick says successful investing boils down to discipline strategy and automation. And at the end of the conversation, the part that I thought was really cool was hearing him talk about Jack Bogle and the impact that he has had on so many people.

Ben Felix: Yep. Do you remember by chance the four stages of an index investor?

Cameron Passmore: I knew you were going to ask that.

Ben Felix: Well, of course. I'm trying to find it. I remember there was something about four stages. This is somebody else writing about Rick Ferri's thing. Hopefully it's actually what he said. Darkness, I think was when you just don't know about indexing. You're still trying to pick stocks and stuff. Enlightenment – Oh, yeah. Here it is. Enlightenment, where you have the low-cost index investing epiphany. Complexity, where you go down rabbit holes about optimal asked allocation, and factor investing, and asset location and all that kind of stuff. And then the last stage is simplicity. When you realize that none of the complexity matters. It's all about asset allocation.

Cameron Passmore: As our listener now knows, Ben does not like surprises.

Ben Felix: I don't like being teased.

Cameron Passmore: Says the guy who teased poor Julian. All right, let's do a quick –

Ben Felix: Oh, that was not on purpose.

Cameron Passmore: Well, it doesn't matter. It still was. Anyways, let's do a quick book review. I have another marketing book for you. This is something that we're, as I mentioned last time, digging into in our day jobs. Doing a quick book review of a book called Rethink Lead Generation: Advanced Strategies to Generate More Leads for Your Business by Tom Shapiro. Who, by the way, is a really nice guy. We had a chance to talk with him.

This is a book that I think goes really well with the last book we reviewed, which is Using Behavioral Science in Marketing by Nancy Harhut. Somewhat similar book. Has many key takeaways that I thought were super informative. Anyone who's in business and has a website always needs new leads to grow the business.

The key message that Tom makes is that too many marketers are not capitalizing on behavioural analytics. And to never forget that humans make decisions based on emotion and then rationalize that decision. 95% of purchase decisions are based on the subconscious. Even those buyers who are the most rational by nature are driven by the subconscious. What I did is I took this book and took my notes that I always talk about and broke them into two buckets. One is – first bucket is how to make your website a lead generation platform. And then number two, how to drive traffic to your website? I had a rapid fire through these tips. Much like I did for the last book.

To become a lead generation platform – Are you ready, Ben? Always frame the site from the visitor's vantage point. And once did it for me. Site visitors are self-interested and they came looking to solve a problem or eliminate pain. It is truly that simple. You have to try to evoke an emotional response from your target audience. Not a logical one.

Stop talking about you on your website. People don't care. Know their questions when they arrive at your website. Know what they're thinking about. Site visitors. So, your buyers tend to focus and latch onto a single aspect of your product or service instead of understanding holistically with all of as many features, benefits and nuances.

Don't spray your audience with every possible detail about your offering. Because so often, business owners, when they're building their website, just want to show how great they are in so many different areas. People don't care. It might be counterintuitive. But you should actually describe your product or service less.

Show what are the hardest hitting reasons why they should purchase from you. Why are you better than your competitors? Develop a schematic of the step-by-step process that each audience segment takes as it progress from arriving on your site all the way to reaching out to you.

Make the site journey clear, and easy and compelling. Keep the design clean and minimalist. Use concise compelling headlines. Focus on benefits. Not features. Include social proof. I know we talked about that last time. For your CTAs, calls to action, clarify what happens after they submit the form. A-B tests different aspects of your landing page. Go with the winners and drop the losers.

He did a lot of talking in the book about changing up your calls to action and to use behaviourally triggered call to action. One cool example he gave was to have a pop-up call to action after, say, a first-time reader opts into your mailing list. But only present it after they scroll down say 50% or 70% the article. It shows that that person is really interested. Or you can have a pop-up show up after they spend a certain amount of time on your site.

He also says you can check when people come to your site based on their IP location. So, you may have a different offering depending on where they're coming from. Well, have that offering show up depending where they do come from. And actively review the data on your site. Test often and do as many A-B tests as you can. And also, search for what topics people are reading about when they come to your site. That's the quick rapid fire for the first part.

Second part is to get people to drive traffic to your site. Two of the author's favourite ways to do this are SEO. So, search engine optimization. And content marketing. These become a very powerful flywheel. Focus on building the SEO topic clusters, which are a hub and spoke model of content centered on specific topic areas that you will presumably know about your target client.

Get this one, Ben. Develop long-form content. Try to match or beat the average word count on Google page one for a target keyword. And don't just fill it with fluff. 7,000-plus-word post generate three times more page views according to the author and 43% more online shares than a shorter posts that are, say, typically 900 to 1,200 words. Know your relevant keywords in your space. Add in stories. Then add in stats to make the post. The stories come alive.

Research your customers for what they want to learn about. Blog a lot. Answer questions. Solve problems. Then try to earn backlinks. Consider developing a free tool that others will link too on their site. He said that's a great strategy. He said make sure it's visually appealing whatever content you do produce. Roughly half the neurons in our brains are dedicated to vision.

The book started out with this example, which I thought was so interesting. Repurposed content. The start of the book he talked about SAP took a long-form piece of content and then created 650 different pieces of content from that one masterpiece. Generating a 23 million dollar pipeline from a single campaign. Isn't that wild? Collaborate with influencers and bloggers. Last idea I had for you.

Anyways, I thought it was a great book. Goes great with Nancy heart's book. Something we're working on actively in our day-to-day work.

Ben Felix: How did you find that book and how did you decide to read it?

Cameron Passmore: I think I found that people on LinkedIn talked about it. That's how I found it, I believe. Someone may have recommended it. I have to do a better job of keeping track of where I get my book ideas from. That's kind of my marketing phase for now. I'm going to go on to some other topics from here.

Ben Felix: And what do we do with that information?

Cameron Passmore: Well, it's the kind of stuff that we're working with Angelica on repurposing our website as we – I have a multi-phase approach to changing over the next three, six, nine months. I mean our business is a great example, right? You do these long white papers that can then be repurposed into all kinds of different things, like short blogs, short videos, TikTok. I mean it can go all sorts of different places, right? We're the perfect example of this in our space.

Ben Felix: Are you telling me that you're going to be on TikTok soon?

Cameron Passmore: No. I do not have TikTok on my phone. I guess it feeds into reels of some level. But a lot of people in our space are very successful on, for example, Instagram. Like, our friend, Robb Engen, had a great campaign. Was in a campaign. It was an AMA last week on Instagram. Phenomenally. Probably 40 questions he posted the answer on Instagram. Very cool. Very interesting platform.

Ben Felix: Yeah, I'm not on there. You sent me the screenshot. So, I did look. It looked like an amazing engagement. It was very cool.

Cameron Passmore: Yeah. For the 23 and 23 reading challenge, we get to welcome back Dr. Wendall Mascarenhas who dropped us an email asking if he could come and talk about it. Because he has a different take on reading than a lot of our past guests on this subject.

Wendall is an oral surgeon based in Toronto where he owns and operates a surgery practice. He also practices in various hospitals in the Toronto area. And get this, he specializes in facial trauma, jaw surgery and oral pathology. Been published numerous times in world-renowned dental journals. And he actually recently started up a podcast in that space called Teeth & Titanium podcast.

Ben Felix: I think the podcast has been going for a bit. I was on one of the earlier episodes. I did two back-to-back episodes with him, which was kind of fun to talk about. Like, investing basics.

Cameron Passmore: It's crazy that he was with us almost 200 episodes ago in episode 65. Anyways, good chat. Here's our conversation with Dr. Wendall Mascarenhas.

***

Dr. Wendall Mascarenhas, welcome back to the Rational Reminder Podcast.

Thanks a lot. I was saying it's been like over 200 episodes since I was here last. So, I don't know if I'd be invited on as a guest again, now that you guys are so popular. But I'm glad I got in kind of at the grassroots level.

Since then, you started your podcast also.

Yes. So I did. It's called Teeth & Titanium. It's about oral surgery. It's really a niche podcast just for oral surgeons. Similar to you guys, actually, it was originally meant for Canadians. But investing is global. Oral surgery is a field that's global, so we actually have quite a few listeners from abroad, Australia, England, the United States, like everywhere. So not as global as you guys but still reaching people across the world.

Very cool and congratulations. So you emailed us, Wendall, and you said you wanted to join because your reading style is not similar to the previous guest we've had on. So tell us more about that.

Yeah. So my motivations for reaching out, as I said, 200 episodes later, and my original motivation, we’re actually eerily similar. At the time, I was listening to your podcast, and I realized that there's a lot of niche things. There's a lot of detail-oriented topics. But as a casual listener, as a casual investor, I felt that I could offer just a casual perspective on investing, very low key simple approach, very easy things to do.

So then when you start this reading challenge, I was fascinated because reading for me is something that I did a lot of when I was younger and then not so much when I was older, and you kind of motivated me. Maybe get back into reading. Maybe give it a shot. So I was listening to all your episodes as usual, and it always had these people reading at the end and their habits, and I really liked it.

But I quickly came to realize that I think it's just the nature of the guests that you've had or such intellects. Their reading habits are pretty intense. They're reading a ton of material. I know, Cameron, you read a lot too. But they're reading a ton of material, and they have these sophisticated note-taking systems and highlighting systems and auto transcribing transcripts onto Evernote and all these different things. I felt like my approach to reading might resonate a lot with the more casual listener, the more casual reader. I think that that's what motivated me to reach out to maybe address the more casual listeners and the people that read more informally, I would say.

Well, what is it? What's your approach?

So my personal approach is I try not to think of reading as a chore. I think one of the biggest hurdles you have to get over is thinking that reading is work. You have to look at more reading as entertainment on one side or maybe growth on the other. I think what I like listening to you guys is, Cameron, you usually recommend books that are more on the growth-oriented side, how to be a better manager, better leader, better listener, and better communicator.

Sometimes, you'll mention a book, and I'll think, “Wow, that really resonates with me.” So for example, you mentioned making numbers count. As someone who listens to a lot of presentations, reads a lot of articles, I thought, “Okay, that's an interesting topic, and actually read that book.” But I try and keep it casual in the sense that I don't take any notes. I don't highlight. I don't go back and read. A lot of times, I rent from the library, so I don't even own the book, so I just give it back afterwards.

My approach really is just to read for pleasure and try and read a little bit every day, usually before bedtime. Even if you just get 10 minutes in, read a chapter. It's amazing how much you can read, just by reading a little bit every day.

Do you always read physical books?

So I have actually split it up perfectly into two formats. If it's a fiction book, I will read it a physical copy. If it's non-fiction, I will listen to the audiobook. The reason I do that is for fiction books, I really like to hold a physical copy, feel like I'm being immersed in the story and read it. I'm old school. I like reading physical paper.

But for an audiobook, if it's non-fiction, what you quickly realize is a non-fiction audiobook is just a really long podcast. I mean, it's a nine-hour audiobook that's really just a podcast that's super, super long. I mean the reality is people that write books are probably rolling their eyes because podcasts are really just probably short books or books divided into small pieces. But I find a non-fiction audio book really goes well because it's like listening to a long podcast.

So you mentioned the book Making Numbers Count. That's an interesting example. But you say you don't capture the information in some sort of mechanical way, like I've mentioned many times. So how does that seep into your future usage?

So the first preface I would say is that my ability to recall and learn from the content, I think, for sure is going to be lower than someone that is taking notes, is highlighting, is going back, doing the habits that you're talking about. There's no way I could say that I read the book once, and I will recall as much as someone else. My argument is more for me having to read constantly for my job, for my studies, for exams. I've been reading my whole life to study and memorize and recall information. My entire profession is recalling the 40 textbooks I've had to read during my residency to study for all the exams.

So when your entire life is built upon reading and recalling, I don't really want – It would make it more of a chore for me if I actually tried to memorize. So what I try and do is as I'm reading the book or listening to the book, just try and really actively listen and take points away from it, making numbers count. I didn't take any notes, but I still remember some lessons from the book that they explained, and I'll try and use those in my future presentations. But I won't be naïve to say that I'm going to recall or learn as much from the experience, as someone who is taking notes or is rereading multiple times.

So I got to ask. Since you've taken those exams and read those 40 textbooks, how do you recall that information and memorize that information?

That information is very easy because it applies to my daily life. For example, there's a famous pathology book for all of head and neck pathology. You have to read it cover to cover. You read the entire thing cover to cover, and then you recall some things. You're not going to remember the whole thing. But then guess what? You see a patient in your clinic. They have a condition. You don't remember everything about it. You go back to the textbook, you read that segment, and boom.

The thing is now that I'm so much more experienced and been working longer, I don't remember pathology or conditions sometimes based on the textbook. You remember it based on patients now. So I remember my patient had that. That was a treatment that I had to do, and this is what the result was. Because my job involves recalling that information literally 20 times a day for every single patient I meet, it's like forced to recall. So it's very easy to remember that stuff I find.

It is. So Wendall, what motivated you to reach out to us?

I think that one of the things that some of your previous listeners mentioned was how much they were reading and how frequently they're reading. I think it's okay to be a casual reader too. As I mentioned, I really try and aim for just reading at the end of the day before bed if I can. What I do is I pick up the book, and I try and read a chapter. Because usually, books are structured that the lesson or the story is – I mean, it's built into a chapter for a reason, right? So I think if you can read one chapter, you've accomplished something. You feel good, and then maybe that's enough reading for that day.

Now, some books have really long chapters, and some books have really short chapters. So you do kind of have to tailor it that way. Sometimes, if books have really short chapters like four or five pages, maybe you'll say I read three chapters every night. But what amazed me since starting kind of the reading that you promote is that if you just set aside a time, even 10, 15 minutes, and you do it consistently, you go through books really quickly. Like I've been astounded at how many books I've been able to finish over the last couple years, just by reading a little bit a day.

The second piece of advice I picked up from listening to your podcast that another guest said was one of the hardest other things to learn is that just because you start a book doesn't mean you have to finish it, especially I'm a type a person. Start something you want to finish. You don't want to feel like a quitter. You don't want to feel like you gave up, and it's really hard to say, “I don't like this book. I'm not enjoying this. Let me stop reading this.”

So your previous guest said 50 pages. I usually do 100 pages. Sometimes, 50 pages kind of the build up to the book and you're trying to get into things. But I strongly believe, if you're reading a book or listening to an audiobook and after 100 pages or maybe an hour, you don't enjoy it, just stop. There's like a trillion books. Just move on. That was really hard for me to do, but it's something I do now. If after 100 pages I don't like the book, I just stop it and I move on.

Do you have a favourite book that you'd like to recommend or give to other people?

It’s funny because on your show, you guys do recommendations a lot. On our podcast, we also do recommendations, and it's scary. Giving a recommendation, you don't want to feel like you wasted someone else's time. You don't want them to be angry because it's a bad recommendation. I think the trick with recommendations is you just put it out there. If they like it, they like it. If they don't, they don't. You have to like not take it personally.

Personally, for me, when it comes to the non-fiction side, I always start off people with the books by Atul Gawande because he's a physician I wrote four books, and they're not about specifically medicine, but they involve medicine. They really resonated with me as far as non-fiction goes. Like it definitely opened my perspective and made me think different about the elderly and being mortal. It made me feel differently about my own practice, my own career, with complications and being better, those ones. I feel like non-fiction, that's where I would start.

For fiction, I really – I think fiction is the hardest thing to recommend to someone because it's so based on what your interests are and what you like. So I usually just try and say what category because I think people should decide. Do they want a murder mystery? Do they want science fiction? Do they want fantasy? There are all these different ones. Personally, for me, I really like science fiction, so I really like the author Blake Crouch and the books that he's written recently. For example, the most recent was Upgrade.

But I'm a big fan of just saying the most popular books of all time are popular too. If you've never read Harry Potter, go read Harry Potter. Try it out. Maybe you'll like it. It doesn't have to be the most intellectual stimulating book in the world. Remember, you're reading for entertainment. When you watch TV, you don't have to always watch the most groundbreaking documentary ever. You can watch whatever you want. So those are the books I usually start off with I would say, though, for non-fiction and fiction.

Awesome. What are you reading now, Wendall?

So for non-fiction, remember, my non-fiction is always an audiobook. I'm a big fan of if you find an author that wrote a book, and you really enjoy the book. Just read the author's other books. You don't need a huge variety. If you liked it, you liked it for a reason. So the movie The Social Network was based off a book called Accidental Billionaires. I loved the movie The Social Network. So then I went and listened to the book, The Accidental Billionaires, and it was just as good, and the movie did a really great adaptation of it.

That author, Ben Mezrich, actually wrote another book called Bitcoin Billionaires, which this is not the crypto series, so we're not – Don't worry. This isn't a book saying you're going to be a billionaire from bitcoin. It's actually the true story of what happened after the Facebook lawsuits kind of ended between the Winklevoss twins and Mark Zuckerberg. Once that lawsuit ended and they took all their money, which ended up being around 500 million at the time or became 500 million, what did they do with it?

They, by chance, were looking for startups, and they bumped into bitcoin. It shows how they got involved and what happened, and it's not a book that is trying to promote crypto or investing in bitcoin. It's similar to The Social Network. It's just the true story of what happened and how they became the first bitcoin billionaires in the world. So that's the non-fiction book that I'm listening to.

Then for fiction, as I mentioned, I like science fiction. I like Blake Crouch. So his most recent book is called Upgrade, and it's just a science fiction. If you could modify the human genome to be upgraded, so now you're perfect in almost every way, does it actually help or does it actually hurt you? No spoilers, but, I mean, that's the book that I'm reading right now.

Awesome. Some great recommendations. Any final thoughts, Wendall?

Yeah. I mean, my overall message to people would be even if you don't think you're a reader, give it a shot. Pick up a book. Try reading it 10 minutes a day, a chapter a night. If you're not enjoying it after 100 pages or a bunch of chapters, just put it down and try something else. Don't get turned off by a bad book.

If you're listening to a podcast, and someone recommends a book, and you like the podcast, and you like their opinions, give that book a shot because you're listening to podcasts for a reason. You like their personality. If they like that book, you're more likely to like it. So when I listen to podcasts like yourselves or other ones, and you guys mention a book, I may be more likely to listen or read it because I like the content and I like the personalities behind it.

Great advice. Wendall, it was awesome to have you back on.

Yeah. Thanks so much for inviting me. I really appreciate it, and it was great talking to you guys.

***

Cameron Passmore: All right. Welcome to the after show. I thought that was a great conversation with Wendall.

Ben Felix: Yep. That was a great conversation. If people haven't listened to episode 65 with Wendall, he talks about the evidence pyramid that exists in medicine, and we relate it back to investing. It was a really fun conversation. I don't know how many people have gone back and listened to that episode, but a lot of people have said that's one of their favorites.

Cameron Passmore: A lot of people go back and listen to the old episodes. It's incredible to look at the data. So he was here as part of the 23 and 23 challenge. Lots of time to sign up. Visit rationalreminder.ca and look for the tab with instructions. I just finished my seventh book of this year, which was The Status Game, interesting book referred to by a friend of ours.

Get this, Ben. Dug up the numbers. We have 308 participants already in the challenge for this year, and 543 books have been read, and 48 book reviews have been submitted. Top five books are similar to last year. Number one is Psychology of Money. Number two, Atomic Habits. Number three, Man's Search for Meaning. Number four, Happier Hour. And number five is Dopamine Nation. All great books. They're all great books.

I think I mentioned this before. But if you're looking for a series to watch, Your Honor is phenomenal. In Canada, it’s on Crave. It’s on Crave in Canada. It’s phenomenal.

Ben Felix: I don't have that one.

Cameron Passmore: Bryan Cranston. It's really good. So I know you liked Animal Kingdom. A little bit different but as engaging.

Ben Felix: I upgraded my internet a while ago, and so I had to use Bell because they put fiber lines in where I live finally. So I got Bell fiber in it, which is phenomenal. But that came with one billing period trial of Bell TV. So I said fine. We haven't used it for anything, but it does have Discovery Channel, which lets me watch BattleBots. So every Thursday night, there's a new episode of BattleBots, and that's something that I have not been able to watch for like years properly. Like watch the full episode.

You can kind of find sometimes people post on YouTube like a sketchy version of one of the battles or whatever. Or sometimes, BattleBots on their official channel will post one battle. But to sit down to watch a full episode on Discovery Channel, I haven't been able to do it because I haven't had TV or cable or whatever. Anyway, you can watch BattleBots, Cameron. You'll be excited to know if you subscribe to the Discovery Channel.

Cameron Passmore: Yeah. I don't know if I have it on Rogers or not. I have no idea. Are you actually doing 3D printing of BattleBots? I haven't talked about 3D printing in a long time.

Ben Felix: The last bot that I tried to print, the design was great, I think, and it was a lot of fun to build. But I used brushless, sensorless motors for the wheels to power the wheels, and many people may not know what that means. But brushless, sensorless motors are not very good for low RPM applications. So the robot works but basically only if you go full speed, which is really fast. It doesn't do very well if you try and go slow. So I need to do a rebuild of that with censored brushless motors, which basically have a feedback mechanism that tells the motor what position it's in. Anyway, I don't want to try and explain how a brushless motor works. Yeah.

But I have 3D-printed other stuff. Like we have a conduit that goes through our foundation to the outside of our house. That is where the water softener drains to, but it's a larger conduit that had a smaller pipe for the water softener that sat inside of it. There's some really heavy rain a while ago, and that water was actually coming in through the conduit. So I 3D-printed a little thing that fits inside the larger conduit but outside the smaller pipe, and I just pushed those two pieces. So I clamped them on either side of the smaller pipe and then shoved it into the conduit. Now, it's watertight enough for that purpose, but it'll keep bugs and stuff out too.

We 3D-printed a birthday present for one of my kids that was invited to a birthday party. We 3D-printed a shark with the kid’s name on the bottom. I printed on there.

Cameron Passmore: Oh, my gosh. That is so cool.

Ben Felix: He loved it, so that was cool. What else? Yeah. I don't know. We still do 3D printing for sure.

Cameron Passmore: Very cool. I wanted to chat briefly about AI and ChatGPT. I think the whole world is talking about this now. But I listened to the All-In Pod last week, which I'm sure many listeners are aware of, and they talked about the business side of ChatGPT, which I thought was really interesting. Like the whole Google model is based on advertising and having lots of places to go to search. Whereas when we do ChatGPT, we get the answer or an answer. But how do you know it's the best answer? How do you know where they get their contents?

So something that they debated on the All-In was should they show where they get their answer from? Should the source of that answer get some economic benefit from them finding the answer? I haven't thought about the business side of this at all, but it's really interesting, and what might sway ChatGPT to choose one source over another? There's all kinds of interesting questions that go on behind the scenes that I hadn't really thought about a whole lot.

Ben Felix: The issue is you getting a single answer because Google's still giving you a ranked search results. Is that much different?

Cameron Passmore: But you could search through and see the sources to make up your own mind, whereas instead of that, you're getting an answer. How do they choose that answer? I think that's interesting. So they debated it. I don't know what the answer is. I just – Something I hadn't really thought about before.

I also wanted to shout out to Justin King who had me on his podcast last week. It's called The Retirement Café. So if anyone's interested, he does a very nice podcast, and we had a great conversation. Easy to find. Recent contacts in the community, Daniel Dee, one of our moderators said, “Was a good book recommendation from me this week. The book was How to Live on 24 Hours a Day. I got myself a Kindle, and we'll be dedicating 90 minutes each morning to non-fiction reading. Already waking up at 5:45 AM, so that part is sorted.”

Ben Felix: There's an email here from Eric. I'm going to read an email?

Cameron Passmore: Part of it.

Ben Felix: Parts of it?

Cameron Passmore: Yeah.

Ben Felix: Oh, man. Eric listens to our content on their commute. And it's truly life-changing. But this episode made me stop when I, Ben, spoke about my daughter's birth on the previous Friday and the way that I had to spend 24 hours in the hospital. His daughter was born the same week, on the Monday. And he wasn't allowed to stay with his young family because of the UK Covid restrictions at the time. I never thought much about it until today. And it's weird that a weekly reality check on sensible investing and financial decision making four Canadians, from two Canadians now, will make me well up. He's just saying thank you for that.

Cameron Passmore: Yeah, a little small world story. Nice email from Christian in Montreal as well. He thanked you and I for the podcast. And that has become a marvellous weekly ritual. Want to let us know that his wife has started to listen after he shared with her that Chris Hadfield episode, which was phenomenal. In five years, he has gone from knowing nothing about finance and feeling pretty Savvy and helping others around him. He'll also be coming to our Montreal Meetup.

Liam reached out to me on Goodreads. Recommended that I check out Die with Zero by Bill Perkins, which is about maximizing life fulfillment versus maximizing savings. I've added it to my reading list.

Ben Felix: And then the last one we have is from Ezekiel, who says that he loves a podcast and he's looking forward to the episode that – Oh, I did tease. That I teased about life cycle economics, which we talked about today. And covered calls which we did not. Sorry for that.

Cameron Passmore: I mentioned the meetups. The Ottawa one will be the evening of March 21st. And Montreal will be March 28th. We were asked about a Toronto Meetup. Yes, there will be one in Toronto in September. We've been asked about also a New York City, LA and Brazil. I think it's suffice to say that is to be determined, Ben.

Ben Felix: Yeah. I mean LA could happen because I think we're heading out that way anyway. NYC is only – what is it? Like, a six-hour drive?

Cameron Passmore: Or a 40-minute flight.

Ben Felix: It's not a 40-minute flight though, because it's an hour drive just to the airport. And then you have to go through all the blah-blah-blah. And by the time you get there, no thanks. I would drive.

Cameron Passmore: I just had word confirmed just now that, and I got approval to say this, Dennis Moseley Williams, past guest on the pod, will be joining us at the Ottawa Meetup. How much fun will that be?

Ben Felix: Dennis is a lot of fun.

Cameron Passmore: Dennis is awesome. Look forward to seeing Dennis again. A lot of people picked up hoodies lately in the store. Just to let you know, we have lots of hoodies. They are super soft. And lots of free stuff comes with every order. Check out the website and look for the shop tab. And don't forget the teachers get a free deck of Talking Cents Card.

We just sent a deck out to another teacher this past week. And Lisa brought her deck to school last week for her colleague. Reach out to us and we will send that off to you.

You want to mention the conversation we had recently with Morningstar?

Ben Felix: Yeah. When we did our goals survey project that the people listening to the podcast were very involved with. Because many of them responded to the survey that we did. And I talked a while ago about how we had sent our data off to some people who had more expertise and looking at that type of data than us. And that was Morningstar. I sent it to Morningstar's Global Head of Behavioral Research I think is his title. And he re-responded, which I mean maybe it shouldn't surprised me. But it still did. He responded and said, "Sure, we'll look at your data." And so, they did.

And they used – so we had used a manual coding method to pull out what the goals that people had were. And they used I think it was natural language processing and one other approach. Machine learning. Is that what it was? They used two different approaches to more systematically pull out what the underlying goals that people had were, which was interesting. And it ended up being fairly similar to our manual coding, which I think is reassuring from all angles.

But then, the other thing that they did is they measured how abstract the goals that people had were after each prompt. Because remember, in our goal survey, we asked people, "What are your goals? What are your financial goals?" And then we asked to double the list of goals. And then we gave some props, some categories, that goals might fit into.

And they found that the level of abstractness changed. But there's a large change I think from the first prompt to the second prompt. And so, that was interesting because it made people think in a different way just by getting that other prompt. And then we had an interesting conversation with us. They actually presented their findings to us in like a slide deck that they're in some form going to use for future presentations. And they'll give us credit for the initial work in the data, which is kind of cool.

Anyways, it was really interesting. They pulled out some additional insight. Just the piece that people change the type of goals they identify based on the process. In the discussion that we had with them, one of the big things that, from my perspective, came out of it, was that in the past there have been efforts to come up with really good questions to ask financial planning clients to help them think of what their goals are. And Ryan, the Head of Behavioral Research at Morningstar, what his comment was is that he thinks, based on what the research that we did, one of the big takeaways is that it may be more about process than the questions that are being asked. Just the process of asking one question and getting them to double their list and then presenting the category.

The future work – and they may do a write-up of this. But in future work, the big question is how do we identify what that kind of optimal process is for eliciting goals? Instead of trying to figure out what the optimal questions to ask somebody are, how do you figure what the optimal process is to elicit the right mix of less and more abstract long-term goals?

Cameron Passmore: That's what I took away. Because I've been thinking about let's get the the goals printed on cards. Like, our Talking Cents Cards. But that negates the process. You just give the answers. My takeaway was you can't short circuit the process.

Ben Felix: Yeah. Some interesting stuff may come of that in the future. But the fact they've looked at it was amazing. I hadn't mentioned who it was at the time because I wasn't sure if they were going to get back to us. And they did. And they did the work. And so, for a future podcast episode, we'll have them on for a short segment to talk about the work that they did, and their findings and their thoughts on it. There's three people from Morningstar there that we spoke with. And so, we'll have all of them on to talk about it.

Anyway, super cool, because Morningstar is a company that I hold in very high regard. And they do a lot of fantastic work and research including the paper that inspired us to do that research in the first place, their Mining for Goals paper. And to have them – they respond, but actually follow up, analyze their data and speak to us about it I thought was – I mean personally a very cool experience.

Cameron Passmore: They were pretty jazzed with the work that was done, which is cool. All right. As always, you can connect with us. We're both on Twitter. You can follow the YouTube channel, of course. Rational Reminder is on Instagram. I'm on Goodreads. And I love hearing from people on LinkedIn.

Ben Felix: Oh, I wanted to mention, we didn't have any new written reviews this week, I don't think. But some new ones were submitted but they haven't been – I think Apple like reviews all of the reviews that's to be posted.

Cameron Passmore: That's right. Yeah.

Ben Felix: So we can see there's new ones submitted but they haven't been published yet. But we're at 950 – Oh! Those are ratings. Not not reviews. 950 ratings on Apple podcast. Maybe that was it. Maybe some people posted new ratings but not written reviews. Anyway.

Cameron Passmore: I think the rating shows up right away. It's the reviews that are delayed for verification. It would be awesome to get the ratings up over a thousand.

Ben Felix: As a totally arbitrary target. And we will benefit in no way at all other than a slight feeling of arbitrary accomplishment. But if anybody listening is enjoying the podcast and has not yet written a review, we would appreciate it for our sense of accomplishment based on reaching the arbitrary target of a thousand ratings.

Cameron Passmore: Terrific. As always, everybody, thanks for listening. Have a great week.

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Extra References:

Cost of Living

'Predictions on the go: Prevalence of spontaneous spending predictions' — https://www.researchgate.net/publication/297046434_Predictions_on_the_go_Prevalence_of_spontaneous_spending_predictions

'Is There a Budget Fallacy? The Role of Savings Goals in the Prediction of Personal Spending' — https://journals.sagepub.com/doi/10.1177/0146167209345160

'Understanding and Neutralizing the Expense Prediction Bias: The Role of Accessibility, Typicality, and Skewness' — https://journals.sagepub.com/doi/full/10.1177/00222437211068025

'Bigger Not Better: Unpacking Future Expenses Inflates Spending Predictions' — https://www.researchgate.net/publication/276370209_Bigger_Not_Better_Unpacking_Future_Expenses_Inflates_Spending_Predictions

'The Exception Is the Rule: Underestimating and Overspending on Exceptional Expenses' — https://academic.oup.com/jcr/article-abstract/39/4/800/1798285?redirectedFrom=fulltext

'Redefining the Optimal Retirement Income Strategy' — https://www.tandfonline.com/doi/full/10.1080/0015198X.2022.2129947

'The Influence of Budgets on Consumer Spending' — https://www.researchgate.net/publication/363030671_The_Influence_of_Budgets_on_Consumer_Spending

'Know thyself financially: How financial self-awareness can benefit consumers and financial advisors' — https://onlinelibrary.wiley.com/doi/abs/10.1002/cfp2.1069

'The mental accounting of sunk time costs: why time is not like money' — https://onlinelibrary.wiley.com/doi/abs/10.1002/bdm.370

Savings capacity 

'Popular Personal Financial Advice versus the Professors' — https://www.nber.org/papers/w30395

'The Life-Cycle Model Implies That Most Young People Should Not Save for Retirement' — https://www.aei.org/research-products/journal-publication/the-life-cycle-model-implies-that-most-young-people-should-not-save-for-retirement/

'Exponential-Growth Bias and Lifecycle Consumption' — https://www.jstor.org/stable/43965317

'Save More Tomorrow™: Using Behavioral Economics to Increase Employee Saving' — https://www.jstor.org/stable/10.1086/380085

Emergency fund

'What Matters to Individual Investors? Evidence from the Horse's Mouth' — https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12895

'Millionaires Speak: What Drives Their Personal Investment Decisions?' — https://www.nber.org/papers/w27969

'Emergency savings for low-income consumers' — https://www.irp.wisc.edu/publications/focus/pdfs/foc301c.pdf

'Emergency Saving and Household Hardship' — https://www.researchgate.net/publication/269468202_Emergency_Saving_and_Household_Hardship

'Savings Policy and Decisionmaking in Low-Income Households' — https://www.researchgate.net/publication/289069441_Savings_Policy_and_Decisionmaking_in_Low-Income_Households

'Insufficient Funds: Savings, Assets, Credit, and Banking Among Low-Income Households' — https://www.jstor.org/stable/10.7758/9781610445887

'Financially Fragile Households: Evidence and Implications' — https://www.nber.org/papers/w17072

'One in four Canadians are unable to cover an unexpected expense of $500' —https://www150.statcan.gc.ca/n1/daily-quotidien/230213/dq230213b-eng.htm

'Who Should Buy Long-Term Bonds?' — https://www.jstor.org/stable/2677900

‘Mental accounting matters' — https://people.bath.ac.uk/mnsrf/Teaching%202011/Thaler-99.pdf

'The Bucket Approach for Retirement: A Suboptimal Behavioral Trick?' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3274499

'Should Households Establish Emergency Funds' —https://www.proquest.com/openview/042e8ea8f8e3986ec6c93e5cfca265c0/1?pq-origsite=gscholar&cbl=38873

'Is an All Cash Emergency Fund Strategy Appropriate for All Investors?' — https://www.financialplanningassociation.org/article/all-cash-emergency-fund-strategy-appropriate-all-investors

'Building emergency savings through employer-sponsored rainy-day savings accounts' — https://www.journals.uchicago.edu/doi/full/10.1086/708170

'Double Mental Discounting: When a Single Price Promotion Feels Twice as Nice' — https://journals.sagepub.com/doi/10.1509/jmr.15.0559

'The Role of Mental Accounting in Household Spending and Investing Decisions' — https://onlinelibrary.wiley.com/doi/10.1002/9781119440895.ch6

'Emergency Savings and Financial Security: Insights from the Making Ends Meet Survey and Consumer Credit Panel' — https://www.consumerfinance.gov/data-research/research-reports/emergency-savings-financial-security-insights-from-making-ends-meet-survey-and-consumer-credit-panel/