Month: February 2020

Economics & Investing

Americans strive to do “better than the Jones’” by earning enough money (and accumulating debt) to buy fancy McMansions, nice cars, and family vacations. But the never-ending pursuit of the trappings of wealth can get in the way of the truly important things in life such as relationships, job satisfaction, and extracurricular pursuits. Debt accumulation is often the end result of aspiring to acquire “stuff and things” so we can impress others and make ourselves feel like we have succeeded. Acquiring material possessions rarely leads to happiness. In addition to increased debt, it impairs our ability to provide adequate savings for retirement. In fact, research shows that the average American has very little saved for retirement.

According to research from the 2014 Retirement Confidence Survey (RCS) conducted by the Employee Benefit Research Institute, 58 percent of workers and 44 percent of retirees report having a problem with their level of debt, and a sizable percentage of workers have virtually no money in savings and investments. Among the workers that responded to the RCS, 60 percent report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000. Only roughly 22% had savings over $100,000.

Mr. Anthony’s article offers some advice to live debt free and counterbalance the materialistic slant of today’s world.

First, he mentions a tip his father taught him– that he should always try to live on only half of what he earns each year.

Most Americans will need to save far more than they anticipated for retirement. Whereas a 10% savings rate was appropriate in the past when workers had robust pensions and could count on receiving Social Security, a retirement savings rate of at least 15% is now more appropriate. If you include additional annual saving for an auto reserve, future college expenses for your kids, and six months of cash for an emergency reserve, a number closer to at least 25% might be more practical. His father’s point was that you should try to live way below your means so that there would be a cushion of safety as well as turbo charged savings for future goals like retirement. If we live a frugal lifestyle, we won’t get too addicted to a cushy lifestyle.

Second, it is essential that we relax about what our “position” is in life and not fall prey to the belief that “we are what we own.”

The key concept here is that true happiness is “wanting what you have.” As we get older and start to reflect on our lives, we realize that health, relationships, and experiences are far more valuable than all of the physical things that were once so imperative for us to acquire. In fact, we have learned by experience, that just because we bought that truck or went on our dream vacation, it did not fundamentally change our lives. Learning to love exactly where you are in your life at any one point in time is a concept that will result in great joy, peace, and satisfaction. Mr. Anthony writes, “life does not consist of the abundance of things, but of the abundance of enjoying where we are and who we are with.”

Finally, Mr. Anthony suggests that we should not place an unrealistic burden on ourselves regarding where we “should be” at certain ages or stages of our lives.

You should live the life that YOU want, not the life you think your parents, friends, or colleagues think you should live. You have the power to write the script of your life.

Our life goals, and especially our retirement goals are very important, as they help define our lifestyle and determine how much money we need to achieve our heartfelt desires. If we can live by the principles that Mitch Anthony outlines, we can have control over our money as opposed to our money and debt having control over us.

If you want to read more about goal setting for retirement, I suggest that you read Mitch Anthony’s book The New Retirementality. It will inspire you to be more intentional about planning for that next phase of your life. The book also provides valuable exercises to help you determine how you will spend your time and money to live a purposeful retirement. The Millionaire Next Door is also a great read to inspire you to downscale your life. The book, written by Tom Stanley and William Danko, presents research on the habits and lifestyle of wealthy Americans and how they accumulated millions by not flaunting their wealth, but instead by living a practical life.

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Personal Finance

A recent study conducted by Timothy Gubler and Lamar Pierce from the Olin Business School, Washington University in St. Louis shows that poor physical health is driven by the same psychological factors that determine whether or not you contribute to your retirement plan at work.  See this related article in the NY Times:

In the study, employees who contributed regularly to their 401(k) plan were not only more likely to take steps to improve their health but also had a 27 percent improvement in their blood scores. “Non-contributors continued to suffer health declines,” the paper said.

This study underscores the importance of having a mindset that is focused on planning for the future.

The same mentality that drives you to increase your 401K contributions also inspires you to enhance health measures such as weight and blood pressure. The participants who improved their health scores were incentivized to make changes to their physical health after receiving information and education from the study coordinators. Once informed, they took the appropriate action and their health improved.

Whereas some people are motivated to save and are more future-oriented, others apparently only act when they are forced to make a change. This is something I see frequently in my practice. The clients who are able to pull together their financial statements easily and quickly and who are more organized and committed, fare far better than those who are not as concerned about the future and do not have their financial life organized and top of mind. The key is to be intentional about making the changes you need to improve your future. Helping the client creating a clear vision of the future often helps motivate someone who up to that point had been procrastinating savings and unwilling to address key areas of his or her financial life that needed to be addressed.

A fee only financial planner can act as a personal fiscal fitness coach to provide motivation as well as a well defined action plan to ensure that steps are taken to improve the clients financial independence now and in the future.

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Economics & Investing

Many people are loathe to increase their cash reserves when the rate of return on cash accounts is miniscule. Yet cash may be the exact asset to bolster when markets are frothy and the economy is sputtering. Here are some recent articles that underscore the importance of having a stash of some cash.

Having at least 6 months of living expenses is very important to protect you and your family from an unexpected event like a job loss, disability, medical emergency or even divorce. Although money market and checking accounts are yielding close to nothing, you can research on line savings accounts. Current yields are roughly 0.9% (9-14). You can compare rates, restrictions, bank ratings and other factors at bankrate.com.

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Personal Finance

I still remember when I was little, my parents often gave me a piggy bank made of clay with a simple dome shape. The goal is simple, to save pocket money until December is solved and used to buy new clothes or shoes. Usually, my parents buy it for 6 months even since the previous year, which is January.

I remember, breaking every savings from the clay became a long-awaited habit at Christmas because I knew I would get a lot of money, my size as a child 7-9 years old, to buy my own Christmas present! Fair enough for my parents, I think.

Now, I already have 2 toddlers, and I think maybe later I will apply this too. Actually my husband and I have bought our first child who is now 4 years old piggy bank, but because of his unique model, only one has been saved for more or less a year even if only by entering coins. Now there is one but my husband is filling it. Maybe, next year when my child is 5 years old, he will understand enough to save his money, we will try again to teach my child to save by buying another piggy bank or can go directly to the local bank in our area.

Kids Can Start At 5

Courtesy:www.onefamily.com

According to George Washington University Professor Annamaria Lusardi, “We have to make sure the next generation is well-equipped and parents must set an example. They must teach kids about money.

Lusardi is one of the nation’s foremost authorities on debt management and prudent financial practices. She thinks too many parents are counting on schools, employers or even peers to teach personal finance education and that is not going well.

Parents can teach their children to save money starting at age 5, according to research from the Consumer Financial Protection Bureau.

The Simple Step

Courtesy:www.todaysparent.com

So tips for parents to teach their kids to save money are:
1. Be a role model
  Like my simple experience when I was a child, but it really made an impression on me was to give our children a good example of saving
2. They learn to be patient
When your child saves, you indirectly teach them the meaning of waiting and being patient. If there are expensive toys or gadgets that are quite expensive, they can learn the meaning of trying and be patient through saving in a piggy bank or in a bank.
3. Look for information about child savings at the bank
This teaches them also a modern way to save at the same time simple transactions that occur in banks as money-saving institutions in addition to their simple piggy bank.

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