We use money every day. We spend on things, experiences, etc. Maybe you are planning the next big adventure in your life…or figuring out how to save the money to remodel the bathroom. Behind these activities there is a presumption that money used in these ways will make us happy. Do money and happiness even belong together in the same sentence? In some of my workshops participants fill out a survey asking them to agree or disagree with statements on money beliefs. One of the statements is “money makes me happy.” I never kept a specific tally but I always looked at whether they checked yes or no on that question. My recollection is a fairly even split between those who agreed with the statement and those who didn’t. I wonder if some checked “no” because we’re not supposed to find happiness in such a thing as money
The idea of paying off the mortgage – usually our largest single debt - has an iconic and seemingly straightforward appeal. But is it really the best financial strategy? The analysis of the relative benefits of paying off a mortgage versus saving for retirement can be complicated. To answer the question it is important to consider your individual situation. Are you close to retirement age, or many years away? Do you have significant retirement savings or not? What tax bracket are you in and how much benefit do you receive from the mortgage interest deduction? Will the returns on your retirement investments exceed what you are paying for the mortgage? I will provide some guidelines to help you think through your particular situation. If you are already feeling dizzy contemplating the range of factors affecting such a decision, you are not alone. Professional guidance may be needed.
In the past several articles, we’ve looked at the variable nature of prices. What does a gallon of milk or a hotel room cost? How much does it cost to retire? What types of financial management services are there, how much do they cost, and which one might work best for you? In that vein, why pay someone to manage your money? I recently told the story of a client who experienced immense relief upon delegating the management of her finances. Making all the decisions on her own had left her plagued with fear and anxiety. My listener exclaimed, “But my father said never to pay fees!” Such advice might be good for one person, but not so good for another. While I agreed that one should pay as little in fees as possible, my listener’s objection raised the question: What are some of the reasons to have your money managed professionally?
Last month’s article about prices began as a rant about the difficulty of knowing what specific items should cost and how to assess their value. In this month’s article, we’ll look at the “price” of retirement. How much does it cost? Have you saved enough? As a financial planner I want to know what something is going to cost before I say “yes.” Sometimes this can feel a little embarrassing. I’ll be the first to ask the waiter, “So how much is that swordfish special?” Did you grow up hearing, “If you have to ask, you probably can’t afford it”? I have the excuse that “it’s my job,” but I know that many people experience fear around asking. I’m not the only one who wants to know.
Back in 2008 a woman in her mid 50’s came to my office for an initial meeting to discuss her personal finances. She had rescheduled at least three times. About half way into our meeting I asked her, “So, how was it for you gathering your information to come see me?” Her response displayed such vulnerability and courage I’ll always remember it. She said, “I’m am so embarrassed! I’m so disorganized! I’m at a point in my life where I feel like I should be more together. I’m ashamed that I don’t have more saved.” Whether you earn a little or a lot of money you can find yourself having similar feelings.
In their book, Why Smart People Make Big Money Mistakes, Gary Belski and Thomas Gilovich state: “Numerous studies over the years have demonstrated significant overconfidence in the judgments of doctors, lawyers, engineers, psychologists, and securities analysts.” According to these findings, highly educated people seem to see their “smarts” in one area as evidence that they are more knowledgeable in other areas as well. But it’s not just professionals who fall prey to this belief. It appears to be part of human nature generally to over-estimate our abilities. For instance, in rating our skills at driving, how many of us think we are “smarter than the average bear?”
Consider the following scenario. You are perusing the menu at a restaurant, deciding what to order. The fresh, local salmon in a piquant sauce with sun gold tomatoes and basil has your mouth watering. It is $32. You definitely want fish, but immediately conclude that the salmon is simply “too expensive.” No, can’t do that. So you order cod, perfectly respectable, broiled – but plain – at $22. It arrives. It’s OK – but it isn’t what you really wanted. We’ve all experienced this type of automatic compromise that seems so sensible we accept it as the “right” decision. Such thinking may become an unconscious principle behind our money decisions. This is the smart thing to do. But is it? Why do we so often deny ourselves what we really want? One obvious answer is that it is about the money. Ten dollars is . . . well, ten dollars.
It’s the sort of thing people ask friends and acquaintances. Recently at the gym I happened to overhear a conversation that began with this question. Unfortunately, I was on my way into the shower and didn’t get to hear the answer. It’s an intriguing question. What is a “good investment guy” anyway? At some point, you may want to find some investment guidance, too. What should you be looking for?
Many of the women I see in my financial planning practice have been through divorce. Many are experiencing for the first time what it is like to live independently. I hear familiar themes with respect to money —phrases like, “I should have paid more attention,” and “I shouldn’t have assumed my ex-husband knew what he was doing.” Finally, it dawned on me to start asking these women what lessons they would want to pass along to younger women, including their own daughters, about money. What follows are their stories and mistakes. Every one of these women has a valuable lesson to share!
Last month I posted a piece encouraging people to pay attention to their money. This, I argued, was “the one thing” that could make a meaningful difference in peoples’ financial lives. It may strike my readers this month, therefore, as counter-intuitive when I suggest that over-vigilance of one’s investments might backfire. Let me explain.
According to the old saying, where the eyes go, the body goes. It turns out the basis for this truth is not only physical, but psychological as well. I remember a recent motorcycle trip over the Sonora Pass. I had the road to myself and was enjoying the thrill of driving fast through the turns. Coming down the mountain looking out toward Nevada, I glimpsed a long stretch of road ahead. Accelerating out of a turn, I anticipated a clear sweep. Suddenly I saw a scrap of two by four on the road, directly in my path. My attention fixated on the piece of wood. Panicking, I hit it. Luckily, I didn’t wipe out, but instantly began berating myself for the collision with this obstacle. Perhaps if I had directed my eyes elsewhere, I could have avoided it. I’ve recently encountered a couple of people with financial challenges that reminded me of this event.
When facing life’s struggles, it is natural to look for a quick solution — the “one simple thing” that will solve the problem. The financial equivalent of the magic bullet tends to be the thought, “If I just make more money, my problems will be solved.” It is a fanciful notion; life is seldom that easy. And yet, on that skeptical note, I’m setting out to tell you there really is one thing you can do that will have a profound impact on your financial life. Are you ready? It’s not magic. The one simple thing is to pay attention to your money. What the heck does that mean? And, how will that possibly make an impact? Paying attention to your money is a three-step process.