Ben Felix Evidence-Based Financial Decisions Framework

// When should you use the Ben Felix Evidence-Based Financial Decisions Framework?

Use this skill whenever you face a significant financial decision (housing, investing, saving rate, tax planning, insurance, marriage finances) or want to audit your current financial situation against evidence-based principles. Also use it when someone feels overwhelmed by financial complexity and needs a structured starting point.

// What information do you need before applying the framework?

• Financial decision or situationrequired
  The specific decision or financial area the user wants to analyse (e.g. 'Should I buy or rent?', 'How should I invest $50,000?', 'Am I making financial mistakes?')
• Age and life stagerequired
  User's approximate age and stage (early career, mid-career, pre-retirement) — affects saving rate guidance and asset allocation
• Country of residence
  Determines which tax-advantaged accounts apply (TFSA/RRSP, Roth/401k, ISA, etc.) and relevant real estate market context
• Current net worth / savings snapshot
  Rough breakdown of assets: cash, investments, home equity, debts — needed to identify opportunity costs and gaps
• Spending profile
  User's self-assessed tightward / unconflicted / spendthrift profile, ideally from the Carnegie Mellon 'pain of paying' quiz

// What core principles does the Ben Felix framework follow?

// How do you apply the Ben Felix framework step by step?

1. 1

   Diagnose which of the Top 10 Financial Mistakes apply to the user's situation

   Run through the full list: (1) Not earning enough / underinvesting in human capital; (2) Not saving enough; (3) Not setting financial goals; (4) Overspending on the wrong things; (5) Not taking enough investment risk; (6) Taking the wrong investment risks; (7) Missing tax planning opportunities; (8) Missing estate planning; (9) Marrying the wrong financial profile; (10) Underinsuring catastrophic risks. Flag which are active problems before moving to solutions.

2. 2

   Run the Goal-Setting Three-Step to establish what 'winning' actually looks like for this user

   Step A — List goals freely (no filter). Step B — Double the list: force the user to generate at least twice as many goals as they initially wrote. Research shows this elicits goals later rated as equally meaningful. Step C — Apply the PERMA categorical prompt: for each of the five PERMA categories (Positive Emotion, Engagement, Relationships, Meaning, Accomplishment), ask whether any goals belong there that were missed. Then audit each goal against PERMA: goals that map to zero categories are candidates for removal or demotion.

3. 3

   Apply the 5% Rule to any rent-vs-own decision

   Formula: (Home purchase price × 5%) ÷ 12 = monthly break-even rent. If the user can rent a comparable property for less than this number, renting is the better financial decision. Adjust the 5% figure if: (a) the user is a high-tax investor (opportunity cost decreases); (b) maintenance costs are known to exceed 1–2% (the rule likely understates true costs); (c) use the PWL Capital online calculator for more precise inputs. Never compare mortgage payment to rent directly — always account for the full stack of unrecoverable costs: mortgage interest + opportunity cost of equity + property taxes (~0.5–1%) + maintenance (~1–2%+) + emergency reserves + renovation spending drift.

4. 4

   Define the correct investment strategy using the index fund baseline

   Default answer for virtually all users: low-cost, broadly diversified index funds. The academically supported allocation finding (from the lifecycle asset allocation paper) suggests approximately one-third domestic stocks, two-thirds international stocks, with 100% equity being optimal for long-term investors. The conventional wisdom of shifting toward bonds with age is challenged by this research — bonds are more exposed to inflation risk than typically assumed. Do not deviate from this baseline toward individual stocks, sector funds, crypto, or covered call ETFs without explicitly accounting for the negative or uncertain expected-return implications.

5. 5

   Quantify the opportunity cost of any deviation from the index fund baseline

   Use the 7% long-run equity return assumption as the baseline. Calculate: (Amount at stake) × (1.07)^(years to retirement) = future value of investing. Calculate the same for the alternative (cash at ~2%, home equity appreciation near inflation, etc.). The difference is the implicit cost of the deviation. Apply this to spending decisions too: every $10,000 spent today costs ~$150,000 in 40 years at 7%. This is not an argument against spending — it is a prompt to run that spend through the PERMA filter to confirm it earns its cost.

6. 6

   Audit tax-advantaged account usage and estate planning gaps

   Identify the user's jurisdiction and check: Are they maximally using available tax-sheltered accounts (TFSA/RRSP, Roth/Traditional IRA + 401k, ISA, etc.)? For higher-income users, flag that a qualified CPA or fee-only financial planner should be consulted for jurisdiction-specific tax planning. For anyone with dependants: confirm a will exists. Without one, the government's default rules apply — which may not match the user's wishes and may create avoidable tax exposure. Flag the prenup / marriage contract conversation for users in new relationships or with asymmetric assets.

7. 7

   Check catastrophic risk coverage: life insurance and disability insurance

   If the user's household depends on their income: they need term life insurance sufficient to replace their human capital (future earning potential), and disability insurance to replace income if they cannot work. Disability insurance is often expensive but critical. Life insurance (term, not whole life) is generally cheap. This check is especially important for users who are not yet financially independent.

8. 8

   Assess the user's spending profile and, if relevant, partner compatibility

   Administer the 'pain of paying' self-quiz (four questions covering: (1) buying a discounted coat, (2) splitting a restaurant bill unevenly, (3) overall spending/saving balance, (4) emotion when buying something expensive). Score: mostly A = tightwad; mostly B = unconflicted; mostly C = spendthrift. Tightwad + spendthrift pairings statistically produce more marital financial conflict. If the user is partnered, flag whether both partners have taken the quiz and whether their financial goals are aligned. Misalignment is a planning risk, not just a relationship risk.

9. 9

   Address the human capital investment question for users under 35

   For young users: resist the social pressure that aggressive saving is always optimal. Academic research supports saving less when income is low and more when income is high (consumption smoothing). The higher priority in early career is investing in rare, complementary skills that the market values — formal education, trade skills, entrepreneurship, and non-obvious skill combinations. Evaluate: (a) How rare is their current skill stack? (b) Is it being sold in the highest-value market? (c) What complementary skill would most increase rarity and market value? A biotech-experienced marketer earns 5x a general marketer. An engineer who also builds a public content audience becomes one of very few globally.

10. 10

    Synthesise findings into a prioritised action list with the behavioural guardrail

    Produce a ranked list: what to do first (typically: use tax-advantaged accounts, set up low-cost index fund portfolio, confirm insurance), what to do second (goal-setting, rent-vs-own analysis, estate planning), and what to monitor but not obsess over (portfolio performance). Include the single most important behavioural instruction: look at your investments as infrequently as possible. Frequent monitoring reduces risk tolerance and return. Set it, automate contributions, and review at most quarterly.

// What does the Ben Felix framework look like in real-world scenarios?

// What mistakes should you avoid when using this framework?

• Comparing mortgage payment to rent directly without adding all unrecoverable costs (property taxes, maintenance at 1–2%+, opportunity cost of equity, emergency reserves, renovation drift) — this is the most common and most expensive analytical error in the rent-vs-own decision.
• Believing you need deep background knowledge before investing — this leads to paralysis or, worse, acquiring enough knowledge to hurt yourself by picking individual stocks or sectors instead of index funds.
• Treating past real estate returns (e.g. a house bought for $70,000 selling for $1,000,000) as a reliable expectation rather than a sample from a specific historical environment of falling interest rates and supply constraints.
• Conflating investment risk with speculative risk: not taking enough risk (staying in cash, under-allocating to equities) is a mistake; but taking the wrong risks (individual stocks, crypto tokens, covered call ETFs with high implied costs) is an equally serious separate mistake.
• Looking at your investment portfolio too frequently — academic evidence shows this increases perceived risk, reduces equity allocation, and lowers long-term returns. Frequent checking is a behaviour that actively costs money.
• Underestimating maintenance costs on owned property — the academically supported estimate is 1–2%+ of property value per year, not the 0.5% most buyers assume. The true cost including time and coordination overhead is higher still.
• Assuming the conventional lifecycle wisdom (shift from stocks to bonds as you age) is settled fact — the lifecycle asset allocation research challenges this strongly, showing bonds carry underappreciated inflation risk for long-term investors.
• Dismissing the tightwad/spendthrift dynamic as a personality quirk rather than a financial planning variable — mismatched spending profiles produce measurable marital conflict and directly impair the ability to execute a shared financial plan.
• Not using tax-advantaged accounts optimally before pursuing any other investment strategy — this is a simple, once-optimised, high-impact action that a disproportionate number of people leave incomplete.
• Skipping estate planning and insurance because death and disability feel distant — for anyone with dependants, underinsuring human capital (no term life, no disability coverage) and having no will are among the highest expected-cost omissions in a financial plan.

// What key terms and concepts does the framework use?

Unrecoverable Costs

Money paid in the course of owning a home that is permanently gone regardless of what the asset does — specifically: mortgage interest, property taxes, maintenance costs, emergency costs, and renovation spending. The opportunity cost of equity is also classified as an unrecoverable cost. The critical insight is that the mortgage payment is only one of these; summing all of them typically makes owning far more expensive than it appears.

The 5% Rule

A rule of thumb to find the monthly rent equivalent to the unrecoverable costs of owning a home: (Purchase price × 5%) ÷ 12. The 5% is composed of roughly 1% property taxes + 1% maintenance + 3% cost of capital (opportunity cost + borrowing cost). If you can rent a comparable property for less than this number, renting is the better financial decision.

Opportunity Cost of Equity

The investment return foregone by having capital locked in an illiquid asset (home equity, cash) rather than invested in the stock market. At a ~7% expected equity return, this is typically the single largest unrecoverable cost of home ownership, and it applies to every dollar of equity, not just the down payment.

PERMA Model

A five-factor model of human flourishing from positive psychology used to evaluate and generate financial goals: Positive Emotion (enjoying daily life), Engagement (flow states, absorbing challenges), Relationships (strong close connections), Meaning (being part of something larger than yourself), Accomplishment (achieving hard things). A financial goal that maps to none of these categories is unlikely to produce lasting satisfaction.

Goal-Setting Three-Step

A process for eliciting high-quality financial goals: (1) List your goals freely. (2) Double the list — force yourself to generate at least twice as many goals, which research shows surfaces goals rated as equally meaningful. (3) Apply the PERMA categorical prompt — review each PERMA category and ask what goals belong there that you missed.

Human Capital

A person's accumulated capacity to earn income — comprising their knowledge, skills, reputation, network, and experience. For most people under 40, human capital is their largest asset. Investing in rare, complementary skill stacks that the market values increases the value of human capital more than accumulating more of the same skill.

Tightwad

A spending profile (from Carnegie Mellon / University of Michigan research) characterised by high 'pain of paying' — emotional distress when spending money, even on needed items. Tightwads tend to under-spend relative to their own preferences.

Spendthrift

A spending profile characterised by low pain of paying — little emotional friction when spending, often resulting in spending more than intended. Spendthrifts may struggle with long-term saving goals.

Unconflicted

The middle spending profile — neither tightwad nor spendthrift. Unconflicted individuals balance spending and saving without significant emotional distress in either direction.

Pain of Paying

The emotional distress some people feel when spending money, measured by the Carnegie Mellon tightwad/spendthrift scale. High pain of paying = tightwad; low pain of paying = spendthrift. This trait is stable, influences marital financial conflict, and is a meaningful input to financial planning.

Covered Call ETF

A financial product that holds stocks while simultaneously selling call options on them to generate income. Ben Felix's critique: these products cap upside appreciation, have high implied costs, and exploit investors' mental accounting bias (preference for income over capital gains). The income is not 'free' — it is exchanged for foregone appreciation.

Target Date Fund

A retirement account fund that automatically shifts from higher equity allocation when the investor is young toward higher bond allocation as the target retirement date approaches. The lifecycle asset allocation research challenges this approach, finding that a 100% equity portfolio (roughly one-third domestic, two-thirds international) produces better retirement outcomes across simulations.

Life Cycle Asset Allocation

The question of how the mix of stocks and bonds should change throughout an investor's life. Conventional wisdom says increase bond allocation with age. The academic paper Ben Felix calls 'the most controversial paper in finance' — drawing on data from 39 countries back to 1890 and simulating one million hypothetical lifetimes — finds that 100% equities (one-third domestic, two-thirds international) is optimal, and that bonds carry more inflation risk than conventionally assumed.

Bootstrap Simulation

The statistical method used in the lifecycle asset allocation paper: randomly drawing multi-year blocks of actual historical returns from different countries and currencies, weaving them together to simulate one million hypothetical investor lifetimes, then testing which asset allocation produces the best retirement consumption and bequest outcomes across those simulations.

// FREQUENTLY ASKED QUESTIONS