Tuesday, January 19, 2010

Boost your financial IQ

People with high IQ have one thing in common, they recognize patterns, even the most complex ones, and they can act upon it. Making the right choice at the right time is very valuable, and it happens more often than you think. IQ is not limited to paper puzzles, many real-life situations can be categorised and mapped on patterns, for which the solution then becomes obvious. The main problem is to be able to identify the pattern in the first place. This is what intelligent people with high IQ scores are good at.

For example, highly intelligent people schematize real-life situations into decision trees which enable them to come up with the best strategy. Normal people tend not to do that, especially when the situation becomes complex. We, normal people, are submerged by the complexity of the situation and we just guess and pray for our choice to be the right one.

Now, just try to see yourself in the future, what kind of car you want, where will you live, how many children you will have, etc. Just try to imagine what the costs will be and the associated nest egg you need to build up over time to be able to achieve it, can you come up with the funds you need? Probably not. A gifted person might make a quick calculation and tell you that she needs to invest $500 a month to achieve her objective, but most of us can’t do that without help.

This is where simulation models can save your life. Simulation models are built to compute the real-life situation for you, because not everybody has a high IQ. Financial planning models are there to this work for you, peak at the future and tell you how much you need to save today to be able to achieve your objective tomorrow.

Financial planning models are therefore boosting your financial IQ; No surprises, just see the future, define your strategy and make the best decision to achieve your goals.

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