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    All the Math You Need to Get Rich: Thinking with Numbers for Financial Success
    All the Math You Need to Get Rich: Thinking with Numbers for Financial Success
    All the Math You Need to Get Rich: Thinking with Numbers for Financial Success
    Ebook229 pages2 hours

    All the Math You Need to Get Rich: Thinking with Numbers for Financial Success

    By Robert L. Hershey

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    About this ebook

    Written in a lighthearted and humorous style, this comprehensive guide is ideal for the general reader with little math experience who wants to understand the concepts underlying everyday financial decisions. Organized for easy reference, this book provides the necessary tools to make informed decisions about investments, mortgages, insurance, cash flow, and risk-taking.

    "As Robert L. Hershey points out in his new book, 'All the Math You Need to Get Rich: Thinking With Numbers for Financial Success' . . . none of us can afford to maintain a phobia about math.

    ". . . I highly recommend Hershey's book because he uses examples . . . to walk you through the many different mathematical equations you'll need to understand such concepts as percentages, the time value of money, and compound interest.

    " . . . As Hershey says, 'Thinking with numbers helps you to plan ahead, so you'll have money now and money later, too.'"

    Michelle Singletary, Washington Post, February 10, 2002

    LanguageEnglish
    PublisherOpen Court
    Release dateSep 30, 2011
    ISBN9780812697711
    All the Math You Need to Get Rich: Thinking with Numbers for Financial Success

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      Book preview

      All the Math You Need to Get Rich - Robert L. Hershey

      All the Math

      You Need

      to Get Rich

      All the Math

      You Need

      to Get Rich

      Thinking with Numbers

      for Financial Success

      ROBERT L. HERSHEY

      OPEN COURT

      Chicago and La Salle, Illinois

      To order books from Open Court, call 1-800-815-2280.

      Open Court Publishing Company is a division of Carus Publishing Company.

      © 2002 by Robert L. Hershey

      © 1982 by William Kaufmann, Inc.

      All the Math You Need to Get Rich includes some material originally published in How to Think with Numbers (Los Angeles: Kaufmann, 1982).

      First printing 2002

      Second printing 2002

      Third printing 2002

      Fourth printing 2002

      Fifth printing 2002

      All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher, Open Court Publishing Company, 315 Fifth Street, P.O. Box 300, Peru, Illinois 61354-0300.

      Library of Congress Cataloging-in-Publication Data

      Hershey, Robert L., 1941–

      All the math you need to get rich: thinking with numbers for financial success / Robert L. Hershey.

      p. cm.

      ISBN 0-8126-9447-3 (alk. paper)

      1. Finance, Personal—Mathematics. 2. Investments—Mathematics. 3. Consumers—Decision-making—Mathematics. 4. Business mathematics.

      I. Title.

      HG179 .H452 2001

      332.024'001'513—dc21

      2001036609

      Table of Contents

      What This Book Offers You

      Acknowledgments

      1.   WHY SHOULD I THINK WITH NUMBERS?

      2.   PLAY THE PERCENTAGES

      3.   WHAT ARE THE ODDS?

      4.   THINKING BIG AND THINKING SMALL

      5.   MONEY NOW—MONEY LATER

      6.   TIME IS MONEY

      7.   YOU GET RICH BY INVESTING

      8.   YOU CAN’T HAVE YOUR CAKE AND EAT IT TOO!

      9.   SUMMING UP

      About the Compound Interest Tables

      Compound Interest Tables

      What This Book Offers You

      This book is designed for a very specific task: to give you, in the simplest form, all the math you need to deal with practical problems of everyday life. Such problems, if they involve math at all, are nearly always financial.

      Only simple arithmetic is required. This book has nothing about algebra, geometry, trigonometry, or calculus, because those topics have no practical application for ordinary people in their daily lives. Those branches of mathematics have no bearing on the decisions you will make about jobs, taxes, insurance, saving, investment, or buying a house.

      The mathematical topics that are covered in this book are simple, and are explained very straightforwardly. If you want to make sensible financial decisions, you absolutely must learn these topics, and you must get to know them thoroughly. A hazy recollection is not good enough: you need the instantaneous certainty that comes from total familiarity. The way to acquire that total familiarity is to work carefully through this book, and to do this several times if necessary, until it is all second nature.

      If you have forgotten everything you learned about math in school, or if you were taught badly so that you never really ‘got it’, then you may have to go through this book several times. Don’t be discouraged: your difficulty with math is itself largely due to lack of familiarity, and will automatically evaporate as you become more used to it.

      If you have a natural flair for math, or if you use math in your job, it is still entirely possible that you are not quite confident about some of the ways you should think about everyday financial or business matters. Although you may find this book ‘too simple’, it’s still worth your while to go carefully through it, without skimming or skipping, to make sure that every step is completely clear in your mind.

      This book tests your growing familiarity by showing how simple problems are solved. To test yourself, when you get to a problem, you can try to solve it yourself, then compare the result with the solution given in the book.

      This book is called ‘All the Math You Need to Get Rich’. It is not called ‘All You Need to Get Rich’. Other qualities are needed to improve your financial position: perseverance, concentration, and good judgment, for instance. This book cannot give you those qualities, though it will help somewhat with the good judgment. What this book does offer, however, is absolutely essential: a thorough knowledge of that small portion of mathematics which is vital for understanding your economic decisions.

      Most people who are comparatively wealthy by the age of 60 were not born wealthy. They got that way by hard work and careful decisions. In making these decisions, total familiarity with some practical mathematical concepts is indispensable.

      Though limited in scope and designed for practical use, the math that this book teaches is perfectly sound and correct, so the book can be used in schools, by parents to help their kids with school math, or as a remedial aid for those who need some mathematical ‘brushing up’. The topics covered are: simple percentages, simple probabilities and mathematical expectation, scientific notation, rates of return, and trade-offs.

      All the Math You Need to Get Rich grew out of an earlier book I wrote called How to Think with Numbers, published in 1982. Since then, pocket calculators have become dirt cheap. This is a wonderful step forward: it means that you do not have to perform difficult computations. The calculator will do that for you. All you have to do is to set up the problem and punch in the numbers. But you do still have to know how to set up the problem!

      Another change since 1982 has been the vastly increased interest in investment. Far more people are investing in stocks and stock mutual funds. Stock index funds are readily available, such as the ones keyed to the Standard and Poor’s 500 stock average. Money market mutual funds are also used by many people today. These investment choices are out there. Everyone should know about them and know about the math involved in investing. All the basic concepts are explained in this book.

      Acknowledgments

      This book would not have been possible without the efforts of David Ramsay Steele, Editorial Director of Open Court. I also wish to thank Richard Miniter who suggested this book and steered me to Open Court. Carolyn Frank helped in the proofreading. Andrea Millen Rich encouraged both How to Think with Numbers and All the Math You Need to Get Rich.

      The Story of Ug

      Once upon a time there was a poor caveman named Ug. He was poor because he didn’t know how to count past 5. You see, Ug’s counting ability was limited to counting on the fingers of one hand. For any number bigger than 5, he ran out of fingers and he just said there were ‘many’. Ug thought that his system was just great—easy and not too much thinking. There were times, though, when he had an inkling that not being able to count higher was costing him something. Even though poor Ug couldn’t count past 5, he was an excellent fisherman. He was hardworking and patient and almost every day he caught 20 to 30 fish. Ug’s neighbor, Slik, wasn’t nearly as good a fisherman; he only caught six or seven fish per day. But Slik did know how to count!

      This evening, as every evening after the day’s fishing, Slik showed up at the entrance to Ug’s cave holding six fish. He always timed his appearance to be there just as Ug came back from the lake with his big string of fish.

      Many for many, offered Slik. Fair trade.

      Fair trade, said Ug, handing over 27 fish and accepting 6 fish in return.

      Poor Ug made the same deal with Slik every day of his working life. He couldn’t figure out why he and his wife, Nag, and his son, Ig, were always feeling hungry. After all, they had many fish to eat, just like Slik’s family, who always seemed to be fat and contented. Poor Ug suspected that the problem might have something to do with counting past ‘many’. He never was able to figure it out until his dying day, which came quite a bit earlier than it should have because of malnutrition.

      Winners and Losers

      It’s been twenty thousand years since the time of Ug but the same kinds of things are still happening today. People are still being ripped off because they don’t know how to think with numbers. These people are constantly being gypped, losing money, and missing opportunities. They are always falling for bad deals like installment purchases, gambling, and life insurance. We’ll discuss the hows and whys later in this book.

      On the other hand, there are many people who can think with numbers and are quite good at it. These people generally get ahead easily, have good jobs, make good investments, and have lots of money. They are usually well prepared for whatever happens. If an opportunity comes along they know how to use it, and if they get a bad break they come out of it smelling like a rose.

      It’s easy to tell the winners in life from the losers. Who wins and who loses is not just a question of basic intelligence or a question of luck. It depends to a great extent on how well you can think with numbers. If you’re already a winner, this book will show you how to win more by thinking more effectively with numbers. If you’ve been losing lately, this book will show you why and get you thinking with numbers like a winner.

      Pocket Calculators

      Years ago people might have said that they couldn’t think with numbers because pencil-and-paper arithmetic took too long or because they weren’t very good at computation. Today this has all been changed by the availability of cheap pocket calculators. You can buy a perfectly good calculator for less than $5.

      Today you don’t have to be good at mental arithmetic to think with numbers. The calculator does the computation for you in a fraction of a second. What you do have to be good at is setting up the calculations so that all that’s left are arithmetic computations for the calculator. This book will help you learn how to set up calculations.

      As you go through the book we’re going to show you how to set up the calculations for the kinds of problems that come up in your daily life. We’re going to assume you already have a calculator and that you’ll be punching in the numbers each time.

      If you don’t already have a calculator you ought to go right out and buy one now. Any old cheap calculator will do. You can get a more sophisticated calculator if you want, a

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