The last two chapters might have been a bit more than what you were expecting (or bargaining for) from a book on personal financial planning. Indeed, when we mention the terms Ito's lemma, control theory, or diffusion processes to graduate students and university colleagues – when asked about the tools of our research trade – they immediately assume that we work in the esoteric field of option pricing or derivative hedging. For most of the 1980s and 1990s that would have been the only conclusion to draw, but not anymore.

Indeed, most people are surprised to learn that one can actually use these mathematical concepts to analyze and provide guidance on practical questions such as how much and which type of life insurance you should purchase, the best age at which to start drawing a retirement pension annuity, or the optimal home mortgage loan for their family. Indeed, the models of quantitative finance that spawned a revolution in the 1970s and 1980s, which then filtered through to corporate finance and strategy in the 1980s and 1990s, have arrived at your personal doorstep in the last decade or two. The objective is crystal clear: to use the concept of “consumption smoothing” – in all its mathematical glory – to help individuals make better personal wealth and risk management decisions. We call it strategic financial planning (SFP) over the lifecycle. In the last decade financial luminaries such as Harry Markowitz, William Sharpe, and Robert Merton have penned articles, given presentations, and encouraged research on this same topic.