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Math and Money

Knowing the difference is essential.

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When does 2 + 2 = 0? Answer: When we are counting oranges.

Suppose we have two oranges on the kitchen table and we add two more. We now have four oranges. If we seal the room and return in 30 years, how many oranges are on the table? Answer: 0.

After 30 years, what we have on the kitchen table is a mound of green dust.

Let's start over. Suppose we plant four oranges in the ground and give the appropriate water and nutrients. After about 5-7 years, now how many oranges do we have?

The answer has a lot to do with the location. If we planted oranges in North Dakota, we will have zero. If we planted the oranges in Florida, we can make a lot of orange juice.

One problem with traditional financial strategies is that it assumes that math is money and money is math. It assumes that $2 + $2 = $4. That may not be true.

Money functions more like a commodity. Isn't it possible to have $2 in an account, add another $2, and end up with something less than $4? Like a commodity, money has to be handled carefully.

We get into trouble when we think of money like math ... simply adding numbers together and expecting a predictable result. It becomes even more dangerous when we project such numbers into the future and assume we will have a certain amount of money.

Unlike counting numbers, money has a host of eroding factors. Factors such as: taxes, inflation, market declines, unexpected needs, lawsuits, etc. If we don't have a plan to deal with the eroding factors, we can end up with the equivalent of green dusk on the kitchen table.

Math is not money and money is not math.

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