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Driving That Tractor and The Law of Small Numbers – The Financial Preserve from Lonier Financial Advisory LLC
Conscientious Financial Planning and Retirement Income Management | 201-741-9528
from Lonier Financial Advisory LLC, Osprey, FL

Driving That Tractor and The Law of Small Numbers

Driving That Tractor and The Law of Small Numbers

Climbing off my venerable old John Deere lawn tractor, I happened to notice the little LCD by the steering wheel with the numbers. Bleary-eyed from hay fever, I looked a little closer and saw “403.” That would be hours, or, about 16-3/4 days.

Two weeks and a long weekend, sitting on that tractor. Not all at once, of course. But a sizable block of time, even if spread over a decade. No wonder the seat is wearing out.

It’s an instance of what I call the Law of Small Numbers, a corollary of the Law of Large Numbers: Do something small over and over again and sooner or later you’ll have something of significance.

My Law is different from it’s big brother, which has to do with the average outcome and therefore expected probability of random events repeated a significantly large number of times. My small number corollary isn’t about probability, though math geeks have their own unofficial “small number” corollary that dismisses random results from too few trials, like say, stock returns from a mere hundred years or so, or Deng Xiaping’s comment about the French Revolution that “It’s too early to tell.”

My small number law is about water wearing down a rock. The big law is about a million coin tosses and not winning the lottery. The small law is about the certainty of planning. The big law is about the predictability of randomness.

Take that tractor. There was a time I thought it made sense to pay someone to mow my lawn so I could literally bill another hour of higher value work for the week. Then later on, all the billable hours I could stand to work were maxed out. I was too busy with work to think straight, so my time trade was no longer profitable, but it turns I could still spare an hour a week to mess around in the yard. It even became therapeutic.

So my time with the tractor became a series of small numbers that added up to an after-tax savings that paid for a pricey year of college (Would four tractors have covered undergraduate school?).

And there was an added benefit, a compounding of value, if you will—there was time to think while scooting around the flower beds and trimming around the trees, carved out of an otherwise too busy life. I suspect in those hours over that decade that I came up with not a few product ideas, resolved some tricky technical problems, worked through personnel issues, even pondered the meaning of (suburban) life. Riding commuter trains is also good for that, if you can stay awake.

It’s a few minutes a week that you hardly miss in the scheme of things, but it makes a difference. Like funding a 529 plan. That’s the Law of Small Numbers.

I read somewhere this week that we accumulate the bulk of our life’s savings in a ten to fifteen year span in mid-career. Not that we don’t start saving earlier, and hopefully never give up the habit. But when we’re first starting out, the increments are small, and so don’t amount to much at first. And much later on, like now, it starts to go the other way and there isn’t much time left for the small numbers to work.

So if you miss that span, you might miss the boat. So how do you make sure you don’t forget to save when you start getting too busy to think, which coincidentally happens about the same time as that 10-15 year span?

The Law of Small Numbers, of course! Develop a habit, automate it as much as you can (isn’t that what a habit is, a kind of automated behavior?), and set aside some portion of every paycheck for the future—divert it into a sponsored retirement plan, an IRA, and/or a taxable account.

Start the habit on your first day of work, review it quarterly or at least every year. It’s a small number from each check. You’ll quickly adjust to the difference, and you’ll hardly miss it.

Once you get going, set up monthly transfers from funds and accounts that have grown to those that haven’t done as well. Rebalancing—and compounding—will do the heavy lifting for you. Some professional advice may be helpful setting up the framework.

If you start early and tune it up as you go along, when you hit the 10-15 year max earnings zone in mid-career and are too busy to think, your “habit” will take care of you. If you’re a late starter and miss the big bump, you’ll probably have to play catch-up by increasing your savings and working longer. You should start with the money you might otherwise waste on lottery tickets.

So if you want to make a bet with your money, bet on the small law, not the big one.

–Michael Lonier, RMA℠

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