One of the legendary figures of my high school years was a teacher named Mr. Canova. A burly, balding, faintly simian-looking dude, he was someone you didn’t want to tangle with in a dark alley, or in the brightly-lit classroom where he presided over a senior-year course called Problems of Democracy.
A big reason he was legendary was his unpredictable nature. One day, he departed from his lesson plan to lecture the female members of class on their choices in boyfriends. Why, he asked, was it always the jock or the flashy guys the girls went for? Why didn’t they notice the quiet, studious boys who never got any female attention? Mr. C. went so far as to single out for attention a kid named Rick, a bespectacled blond lad many viewed as the archetypical nerd.
Rick was just the kind of guy the girls overlooked — to their own detriment, the instructor opined.
Canova’s riff was destined to loiter in my memory forever, perhaps due to the image of it being greeted by languid yawns from the classroom’s mini-skirted lovelies, whose evident ennui made it clear his pontifications had fallen on deaf ears. But there was one more reason the recollection has caromed around my brainpan for 40 years. Read on.
Ahead of his time
Mr. Canova proved a visionary, in more ways than one. I was able to keep tabs on Rick, who was the cousin of a college friend of my sister’s, and later learned he’d retired to a Florida beach in his 40s, having salted away multiple millions.
If only those girls in Canova’s class had been able to read tea leaves. Rick hadn’t taken corners on two wheels in a candy apple red 1970 Dodge Charger. He hadn’t been the crazy-legged star wide receiver on the football team, or a long-haired, self-destructive, Jim Morrison-like lead singer in a garage rock band. In short, he wasn’t anything like the guys who got the girls at my, and dare I say many a high school around the country back in those bad old days.
What he had been was a gentle, decent kid and a good student who possessed a later-revealed flair for gathering and saving greenbacks. Scads of them, in fact. Not a bad choice for life partner, had anyone cared to look beyond his pen-filled pocket protector.
As well, Canova may have peered long into the future and somehow foreseen that in 2013, University of Michigan researchers would release a report called “A Penny Saved is a Partner Earned: The Romantic Appeal of Savers.”
Saving is sexy?
Their study revealed that in a reversal of the way things always went in the old days, today’s romantics find thrift, not free-spending, the key to an attractive mate. It’s someone who searches out the best savings account rates, and sifts through zero-percent-APR-credit-card offers that gets hearts racing.
“Males and females find savers more attractive,” says Jenny Olson, a Ph.D. candidate at the University of Michigan’s Ross School of Business, who co-authored the report with an associate professor of marketing at the same institution. The reasons have a lot to do with the appeal of self-control, a fact not likely lost on the very wise Mr. Canova back in the Nixon era.
“Self-control over a variety of issues is important because it prevents partners from saying hurtful things or engaging in infidelity,” Olson reports. Self-control often results in a person who is more pleasant and worthy of trust, as well as one more inclined to take all the steps personal finance experts advise, from paying ourselves first to saving early and often throughout our earning years.
As Jennifer Waters of MarketWatch noted in an article on the University of Michigan study, choosing a partner who is a good saver also is likely to earn you a physically and mentally healthier mate. Waters cited a Northwestern University Feinberg School of Medicine study that discovered direct links between debt levels and health, including both psychological and general health. In the NU study of 8,400 24- to 32-year-old individuals, those with higher debt-to-asset ratios suffered from elevated levels of perceived stress and depression, as well as poorer self-reported general health.
When tested, they also registered a 1.3 percent increase in diastolic blood pressure, a clinically significant number, as reported in the study. “A two-point hike in diastolic blood pressure can be tied to a 17 percent higher risk of hypertension, and a 15 percent higher threat of stroke,” Waters wrote.
Back at the University of Michigan, Olson did admit that if you’re looking for a one-night stand, you probably want a big spender. That’s because savers tend to be a bit boring. But, she added, “Long-term, savers just win across the board.”
The finding that savers are the most sought-after partners should rewrite the rules of romantic best sellers, feature films and popular songs, where the “meet cute” will now take place in the deposit line at the local bank. And in real life, when they’re out to meet a significant other, guys and gals in search of Mr. or Ms. Right will want to avoid singles bars and dances.
The new prime pick-up place? Why, a budget bakery thrift store, of course.
This post comes from Jen Smialek at our partner site Quizzle.com.
For the past five weeks, I’ve been fortunate enough to realize one of my wildest dreams: Taking a trip around the world. A whirlwind tour due to various professional and personal responsibilities, I flew over 30,000 miles and visited 13 different countries in the span of 40 days. Aside from an extreme exercise in jetlag and culture shock, my travels introduced me to the various ways that money—or the lack of it—plays a role in societies around the globe.
The Quest for More
At home, I live in Boston. A mecca for education and business development, my city is overrun with smart, successful people. Unfortunately, a lot of those people are driven by their quest for money. $100 dinners and designer suits are a dime a dozen here, and it’s sometimes hard to find your path if you’re not someone whose motivation is tied to a bank statement or an investment property.
Now of course there are plenty of seemingly happy people who live here in New England. But even those people can feel the squeeze of an exorbitant cost of living and the ever-present pressure to earn more and have more and consume more. It’s a pretty amazing dichotomy to live in a place like Boston yet travel and spend time in less developed countries where people might not know where the next influx of cash is coming from, let alone their next meal.
Being Happy Regardless of What You Have
As I traveled through places like Bali, Fiji, Thailand, and Egypt, I found myself awestruck by the beauty around me. But I was utterly mesmerized by how happy the people were despite the circumstances surrounding them. These are people who have little to nothing to their names; who are lucky to even have a roof over their heads—even if it is a pile of sticks that leaks profusely during each rainstorm.
Speaking of rainstorms, the rain is celebrated in Bali because its arrival means bath time. During a downpour, you’ll find some of the locals washing themselves—in the ditches along the side of the street which are usually filled with garbage, debris, and animal waste. But as the water rushes over them and they’re able to take a “shower,” you’d never once guess that any of them are anything less than elated.
While money is a priority and a main source of stress on many levels, it doesn’t dictate these peoples’ sense of self, confidence, or priorities in their lives. The man who walked down the dirt road barefoot was genuinely happy and well-adjusted whereas the tourist with the $3K camera around her neck was overheard complaining about having to walk a few blocks…
Placing Less Emphasis on Money
While I had plenty of time to process what I was observing and have plenty of other anecdotes that could be shared, the main takeaway for me is that life shouldn’t be all about the money. Yes, I need to eat and have a place to sleep, but I don’t need to have the latest and greatest of everything. And I certainly don’t need to fuel my life through the constant quest for more money.
What we need to do is to stop, take a look around, and be thankful for the non-monetary blessings in our lives. When you strip away the money, the fancy cars, and the nice clothes, what do you have? If there isn’t substance below the surface, are you truly living a happy life as a happy person? I think my new friends in Bali are on to something—walking barefoot down a dirt road isn’t all that bad when you have someone you love next to you.
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Even the most passionate avoiders of news have heard: the government of the mightiest country in the world has shut down. Even the Taliban is having a field day over something that must seem really strange to them, being hardly the most devoted civil servants in the known world.
And indeed it is a strange sight, even for “civilized” countries. Do any other of them have the same problem? In a word, no. If you look at the Wikipedia website for government shutdown (and yes, there is indeed one) you learn a few quite interesting facts:
1. We do this to ourselves
It’s not Osama bin Laden, the communists, the hippies or the ghosts of Halloween doing this to us. No airplanes, bombs, chemicals, terror tactics or bags of candy are involved. The people doing this pass through TSA X-ray machines every day… and their underwear is clean. It’s us, or at least some of us, doing this to ourselves. More accurately, it’s our government, but with no help or hindrance from outsiders. Even lobbyists, the latest cadre of bad guys, seem to be sitting this one out… but of course we can never be totally sure of that, can we?
2. We are the only ones
Our leadership, the best government money can buy, according to some cynics, is the only one that imposes a debt ceiling on itself. Other countries like Japan, China, France, Britain, Germany, simply borrow what they need and carry on. Not to say they have no squabbles or disagreements among their parties and politicians, but none of them have imposed a debt ceiling on themselves which, when reached, shuts down their countries’ governments. (Well, there is one other country, Denmark, according to the Wikipedia article, that shares the dubious distinction of being creative in finding ways to shut down their government.)
3. This isn’t the first time
This is in fact the 17th time the United States Federal government has shut itself down in just a few years. In fact, since 1976, the average runs close to one government shutdown every two years or so. Okay, that includes postponements, but if you ignore those, the average still comes out not far from about once every four years.
This means we have a government imposing this phenomenon on its country, all by itself, on a regular basis. And we’re the only nation doing it.
What’s Going To Happen?
Of course, that’s the big question on everyone’s mind. As usual, there’s no shortage of questioners, or answerers, happy to fill pages and screens with their opinions. Here are a few answers you probably are not hearing:
1. Bureaucrats don’t starve
The way the shutdown was portrayed initially, it sounded like honest, hardworking bureaucrats will be furloughed without pay, through no fault of their own. It’s interesting to me that when workers at Boeing, Caterpillar or Wells Fargo get furloughed because of a recession, well, that’s bummer sad, but when government workers get furloughed for exactly the same reason (sorry, we don’t have money to pay you) somehow there’s an unspoken undertone of injustice, of innocence, and of needlessness. Why is that? Nobody else seems to have commented on that. Life happens. Did someone send a letter from heaven that government workers should be treated better than those working elsewhere?
However, in the past almost all Federal workers eventually received back pay. We have no reason to believe it will be any different this time. And so, a shutdown amounts to extra paid vacation for most affected workers, not quite the human drama portrayed in some quarters.
2. Government is not really serious about this
One of the best examples is the Department of Defense, those guardians entrusted with protecting us from all evil. Just minutes before the shutdown took effect, they pushed through about $5.5 billion of purchases (most of it classified under the conveniently vague heading of “parts”). Cynics can have a field day about that, but that’s not the best part.
While doing that, they also released a press release lamenting that, because of the shutdown, the Air Force/Navy football game would be canceled. One supposes the idea behind the announcement would have been to garner sympathy, and possibly even outrage, at the misery our government was absolutely forced to perpetrate on those it so longs to protect (and entertain).
It didn’t quite work out that way, though. A few sane people, not furloughed, pointed out that those games didn’t cost the armed forces anything. In fact, the games actually brought in money from ticket sales, $10 stadium hot dogs, and the billions of dollars Disney (through ESPN) pays all colleges to broadcast their games. In vintage bureaucrat fashion, the backpedaling was a lot quieter than the dramatic announcement. Life went on. (Navy won, 28-10.)
3. The nation discovers how little we miss the government
Traffic on the Beltway in Washington, D.C. reportedly was just as heavy after the shutdown as before. Some people are just hard to please, though. A shutdown HAS to impact the Beltway. Truck drivers, of all people, decided to step into the breach. If the government shutdown won’t close the Beltway, they will, by golly, according to the Washington Post.
Meanwhile, media members, fishing for dramatic human interest stories stemming from the shutdown are having a hard time finding any. Seems the National Parks Service, among allllllll the services our diligent government blesses us with, is the only one we we really miss. Not only are vacationers inconvenienced, but small businesses close to park entrances are being affected. But that seems to be about it. Here is the greatest country on earth, with by far the largest contingent of Pulitzer hunting media professionals money can buy, intently focused on scouring the earth for any crumb of drama, and the National Parks Service is all they can hang their hats on.
4. Investments are unaffected
Listening to some news reports, it sounded like the financial version of the end of the earth last week. “Dow crashes” screamed one headline. Not hardly. As of last Friday, the stock market didn’t seem to be moving any differently than its usual up-and-down pattern in the weeks before the shutdown.
Business Week had a video of an analyst who looked back on previous shutdowns to see if any of them had any effect on the stock market. Conclusion: if anything, the markets went up, not down, around and after the shutdowns.
The GDP, mathematically, includes the government, but it’s a small portion. Therefore, we can expect the GDP (“the economy”) for this quarter to be down by 0.x percent, where x won’t be all that large. Depending on when the politicians feel like doing their job again, that small number will be added back as all those back payments are made and all the usual purchases get made before the end of the fiscal year, so as not to lose the budget for the next year.
So the economy probably won’t be affected by the shutdown all that much. It never was in the past.
The fact that this is the seventeenth government shutdown is probably news to many. This is in stark contrast to the great stock market crashes of 1929, 1987 and 2008. We remember each one of those — we even give those days names with colors (Black Monday, for example).
The reality is that no previous government shutdown has affected the country as much as 9/11 or any of the stock market crashes. From all appearances, this one doesn’t look like it will be any different. We will still go see Gravity this weekend, still buy tickets to our favorite college football game, and still invest for the long term.
You are investing for the long term, aren’t you?
We will be welcoming our first child in less than a week. We started having a lot of conversations about starting a family a couple of years ago and have been preparing for it, including moving from dual incomes to one. It has been a roller coaster ride for us — emotionally, mentally, financially and physically. Of course, we cannot prepare for everything, but we wanted to do our best. And preparing financially for the baby is what we could anticipate best. I want to share what we have done so far in the hope that it could help other new parents, but also to ask for feedback on what we missed.
I won’t be talking about baby expenses per se. We have saved some money for the initial expenses, but in this post I am talking about lifestyle changes and long-term financial impacts. If you are interested in what to buy for the arrival of little bundle of joy, check out this post - Preparing for a baby.
Going from a dual-income-no-kids household to starting a family
Due to personal and health reasons, I quit my job a little more than a year ago, even before I got pregnant. When we were a dual-income family, we had above-average income and a lifestyle to match. So cutting half our pay was a really pressing issue. We prepared for the income reduction for a year before I quit making sure we could manage the baby expenses in one income and still save for essentials.
- Debt under control: We paid off our car loans and made sure not to incur any debt. Currently, the only debt we have is a mortgage.
- Getting expenses under control: This is still an ongoing process, but we have improved a lot since we started. We pretended we didn’t have my salary and saved that entire amount. We redid our budget to fit whatever my husband brings in. It was really difficult to squeeze both our spending and savings from my husband’s income. Slowly, we were able to bring it under control.It also helped that…
- My husband got a new job with better pay: This increased our cash flow and helped ease our anxiety.
- We moved to a less expensive neighborhood: We used to live in Los Angeles. After I quit my job, we decided to move to an area that would help us stretch our dollar even more.
- Increasing our income streams: Cutting the expenses only took us so far. We still want to fund our targeted savings goals and not stop our retirement contribution. So I picked up a few freelancing jobs and implemented other projects to increase our income.
- Career debate: I don’t want to give up on my career, so I wanted to make sure I had a plan to get back to my career after a break. I reached out to some of my mentors to figure out how I can continue to stay in touch with people in my field. That way, when I re-enter, I hope to be a competitive candidate.
- Childcare: We don’t think we will need a lot of child care presently, but might in the future if I do want to develop my freelancing career and my business. So I have been surveying childcare options to make sure we can fit that in the budget if necessary.
Change in lifestyle
I can only imagine how much having a child will change our lifestyle. It feels like we have already made a lot of lifestyle changes, and I am sure it is only the tip of the iceberg. We expect to have to reconfigure our lives, our schedules and goals.
- Review goals: So far our long-term and short-term goals don’t include another little person. We like to travel, eat out and value certain material comforts. Our goals will need to be re-evaluated.
- Emergency fund: I calculated my emergency fund based on my current risk tolerance level. But if I include a child in the equation, my risk tolerance goes to zero. We have increased our contribution to our emergency fund quite a bit.
There are some benefits and perks available to us; but with all the excitement, most of us wait too long to think about these and miss out.
- HSA/FSA: We do not have this option with our insurance; but you may, so I wanted to include it. We did calculate the amount required for deductibles (mine + baby’s), all the doctors, ultrasound & lab co-pays, and saved it in a separate savings account. If we had access to an FSA, we would have put our savings in that account and saved on taxes.
- Health Insurance: I dropped my cheaper insurance and opted to join my husband’s expensive insurance this year because it covers a lot of things mine didn’t, had better coverage and better hospitals.
- Qualifying-event period: Having a child is a qualifying event to change health insurance coverage. Usually, I throw away all the junk that comes with the insurance paperwork. This time, I saved the pamphlet that detailed the procedure to add/change our insurance.
The child’s future
- Will/Estate planning: We have a very basic will at this point. I am assuming it won’t change much, but we will need to add another beneficiary and think about the child’s future if we die during his/her young years. We also discussed about who will become our child’s guardian in case something were to happen to both of us and will add it to the estate planning documents.
- Life insurance: Until recently, we didn’t see the need for life insurance. We recently bought our first home and now that we are starting a family, we added enough life insurance for both of us.
- Education: We have talked about how much of her education will be funded by us. We would like to pay for our child’s college expenses if they choose to go to college. I don’t know how much that will cost, but I can imagine it will be a boat load. I have been researching 529 plans, but right now we have decided to use a ROTH IRA as a 529 plan to avoid over-saving for college or if they decide to not go to college or get a lot of scholarships. (I would like to think this will be the case!)
We would like to retire some day
Retirement planning: As part of our cutting costs, we had cut our retirement contribution to save for the house down payment quickly. I also lost access to the company match when I quit my job. So that put a dent in our retirement savings. This year I am opening a solo 401k to catch up. We are also very slowly increasing my husband’s 401k contribution.
I know we have to be flexible and adapt our financial plan as we learn and grow with our baby, but I would just like to have an initial plan we can work off of. I know we are in for a wild ride!
How did having a child change your lifestyle and your financial planning?
Most people wrestle with a conflict between the present and the future — how do they meet immediate financial needs and still set aside money for retirement? Learning how to use budgets can be a way of bridging this gap between present and future.
When you are getting started, budgeting can seem a little intimidating. It’s like any time you are faced with a blank sheet of paper (or in this case, a blank spreadsheet) where do you start? And how do you know when you are finished?
To help you along, here are six stages that will help you start from scratch to develop a detailed budget discipline that will guide you into the future.
- Getting started. Perhaps the easiest way to start budgeting is to track your expenses, and then use those expenses as the basis of a budget for the upcoming period. The only problem with this is that existing expenses take on a momentum of their own, when possibly they represent opportunities to save money. If you aren’t afraid of the tyranny of the blank page, another approach is zero-based budgeting. Corporations pursue zero-based budgeting when they are intent on cutting costs. Rather than automatically using last year’s expenses as the basis for this year’s budget, they start from the assumption of a zero budget for each line item, and then decide on the extent to which adding expenses is justified, line by line. In either case, whether you take a zero-based approach or base your budget on prior expenses, start by budgeting for a short period of time, perhaps even from one paycheck to the next. As you get better at budgeting, you can start stretching out the time period.
- Filling in the details. Don’t expect to be able to anticipate everything at once. If you get too caught up in trying to create a perfect budget, you might never get started. Start with the items you can think of, and steadily fill in the details as they come up. You will have to think ahead to anticipate expenses that don’t come up regularly, but the majority of budget items will probably come up often enough that the details will start to fill in pretty quickly.
- Holding yourself accountable. A budget isn’t just something you set and forget — you have to regularly check how your actual expenses are tracking to the budget. In part, this is to keep yourself honest — answering to a budget will help keep you from spending everything in your pocket, or worse, spending up to every credit limit.
- Fine tuning. Besides keeping yourself honest, reconciling actual to planned expenses is a way of fine tuning your subsequent budgets. By doing this, you’ll not only get a sense of where you were off target to begin with, but you’ll also start to understand the dynamics of how certain expenses change over time. These adjustments will help make your budgeting more accurate in the future. With this kind of follow-up, your budget can evolve from a blunt instrument to a precision tool.
- Factoring in raises. Budgets aren’t just about expenses. There is that top line to think about too. How much money will be coming in? It may seem reasonable for someone early in his or her career to assume steadily increasing paychecks over time, but being cautious about those assumptions can lead to a stronger savings discipline. If you assume only modest pay growth, you’ll avoid taking on onerous financial obligations. Too many people get into debt trouble on the assumption that they’ll be better able to afford those debts in the future, and then it never happens. Plus, if pay raises prove to be better than you assumed, more of your income can be directed toward retirement saving.
- Planning for the future. From the start, retirement saving should be part of your budget; but as time goes on, you should become more and more targeted about how much you’ll need to save. Project your expenses into the future with an inflation adjustment. Historically, inflation has averaged 3.21 percent a year, which means prices double roughly every 22 years. Use that projection as a starting point for a retirement budget and you’ll start to get an idea of how much money you’ll need to retire. Saving toward that amount should become one of the top priorities in your current budget, which is how you start to bridge the gap from the present to the future.
Of course, there is no way of knowing exactly what your expenses will be in 30 or 40 years. However, by projecting your current expenses into the future, you can start to get a concrete sense of what your retirement needs will be. Seeing the future in terms of real needs instead of vague retirement goals should help motivate savings, which depends on making room in this year’s budget for some of those future needs.
This post comes from Sean T. Johnston at our partner site Quizzle.com
They say that “cash is king.” But some people would like nothing more than to overthrow his majesty in favor of electronic payments. After all, cash is dirty, insecure and hard to account for.
For some, the personal check is still the standard way to pay for goods when you don’t have the cash and don’t want to use a card. But is it a really good idea to have a document floating around that has your name, address, phone number and bank account information?
As recently as a few years ago, it wasn’t really possible to go completely or even mostly paperless. Now, with the rise and ease of electronic payments, direct deposit, and with most vendors accepting credit and debit cards, it’s easier than ever to take paper out of the equation.
Are you a tech-savvy personal finance fan who’d like nothing more than to get rid of cash and checks? Read on. I’ll examine the most common instances of where money would need to change hands, and what your options are for going cash/checkless. From easiest to most difficult:
If you aren’t on direct deposit already, chances are your employer would like you to be. It costs a surprising amount of money to print and mail checks. If you don’t want the hassle of making a trip to the bank every time you get paid, consider direct deposit. It’s a win for everyone.
Most creditors have online payment options directly through their website. But that’s not always the case, especially if you’re dealing with smaller companies like medical practices or gardeners. That’s why online bill pay comes in handy. Not to be confused with online payments, online bill pay is usually through your bank and works just like a virtual checkbook. All you do is enter your payee’s information and your bank prints and mails a check from your account, directly to them. It’s a free service offered through most banks and they don’t even charge you to mail it.
While You’re Shopping
You’d be hard-pressed to find a company that doesn’t accept credit or debit card payments anymore. There is the occasional mom-and-pop shop or super-trendy coffee house that operates on cash only, but they’re the exception.
That said, there are a couple of occasions where cash is required. For instance, have you ever tried to pay for parking at a private lot or tried to pay for a hot dog from a cart outside of work? Pull out a credit card and you’re likely to get a laugh. Sadly, there are still a few transactions where cash is the only method of payment. That’s why I keep an “emergency $20” on me.
Nothing beats the well-thought-out present that you wrap yourself. But in a world filled with obligations where you just need to stick something in a card and give it your wife’s friend’s kid for his middle school graduation, that’s not always an option.
Gift cards are always an option. But what if you don’t know the person very well? Sometimes you just can’t beat the ol’ standby of a few crisp bills in a card. Unfortunately, sending a PayPal or ETF to a child on his or her birthday is not exactly socially acceptable…yet.
Lending to Others
If you have a buddy who needs to borrow a few bucks, sometimes it’s just easier to give them cash or write them a check. Lifehacker has a great article on some of the more tech-savvy ways to send money to individuals. But, as they conclude, it can sometimes take a long time and be difficult to withdraw funds depending on which platform you use.
While it’s possible to take paper out of the vast majority of your transactions, we’re still not quite ready for 100%. Until all brick-and-mortar stores accept credit cards and giving someone liquid money is as easy as handing them cash, we’re going to have to keep cash and checks nearby as a last resort.
But if you think about the technological progress that has been made in the past ten years, it’s not difficult to imagine that we could live in that world, and soon.
What do you think? Do you try to keep cash and checks out of your finances? If so, what’s your biggest challenge?
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Philosophers, op-ed writers and other big thinkers are among the many folks always scouring for linkages between seemingly disparate trends and occurrences.
Want a few examples? Well, there’s the link between the need for World War II defense workers and the post-war emergence of the film noir femme fatale. There’s the connection between choosing zero percent APR credit cards and the inclination to take longer vacations. And there’s the tie between the proliferation of karaoke bars and the surge in sales of earplugs and replacement glass.
But there’s one linkage I believe can never be explored, discussed and analyzed enough. That’s the link between psychology and personal finance behaviors.
I can’t begin to enumerate the times I’ve examined the approach to money of friends and acquaintances, and seen — or thought I did — connections between saving woes and self-esteem issues, associations between spending and feelings of loneliness, bonds between indebtedness and delusions of grandiosity.
Scratch many big spenders, and you may find people still embarrassed by the humble homes in which they were raised 30 years before. Psychoanalyze women whose closets bulge with clothes they’ve never worn, and you may find ladies seeking to assuage deep-seated unhappiness through wanton consumerism. Focus on siblings with 180-degree-different approaches to money, and you’ll often find one more motivated by fun, the other more driven by fear.
So it was that I rejoiced when notified that a couple professors had finally zeroed in on one of the biggest puzzlers in the entire American money management realm, the choice of when to start monthly Social Security checks.
Even the most cursory look offers convincing proof that you will profit from delaying taking benefits and thus claiming larger monthly payments over your entire lifespan. Nonetheless, it is very common for Americans confronted with this choice to show as much restraint as would a cheetah over a fresh antelope kill. They lunge for their Social Security checks at the earliest possible age, 62.
By doing so, they lock in the lowest possible monthly Social Security payments — and they ensure they will suffer those low payments the rest of their lives.
In fact, in talking to people who have arrived at this decision tree and made their choice, I can’t recall one who delayed payments. All chose to ignore the widely-available advice of financial planners and retirement experts to postpone taking Social Security until around the age of 70, and by so doing treat themselves to payments 80 percent larger than those if the stream is begun at age 62.
Four influences on claiming
Recently, the professorial duo of UCLA’s Suzanne Shu and Duke University’s John Payne collaborated on a study that revealed four powerful psychological traits that influence decisions to take Social Security. The first is the individual’s feelings about his or her life expectancy. The second is his fear of losing money. The third is whether or not she believes the Social Security system is fair. And the fourth and final trait is, not surprisingly, the individual’s level of patience.
About 3,000 people, most in their 40s and 50s, were surveyed in the study, whose findings were reported at the August meeting of the Retirement Research Consortium in Washington, D.C. People younger than those at Social Security-claiming age were chosen because they think about the issue, but haven’t yet acted on their plans. Shu and Payne used online surveys to ask respondents a series of questions, each designed to drill down into respondents’ psyches.
After probing the deep recesses of the study participants’ noggins, the profs also asked at what age participants would claim Social Security payments. It was then a simple matter of identifying what psychological traits were — and here’s that word again — linked with those who planned to file at the earliest ages.
Here’s what was discovered:
Many people justify early Social Security claiming by arguing they likely won’t live long. The study confirmed this tendency, finding those who figured they’d cash in their chips early also cashed in on benefits early. But even expectations of longer lives skewed toward earlier claiming. For every 10 additional years folks thought they would live, Social Security filings were delayed by only six months.
Fear of loss
The respondents with the greatest fear of financial loss generally planned to claim their Social Security checks earlier. The irony is that studies have shown that people tend to live longer than they think they will, and that Social Security plays a larger and larger role in funding their lives the longer folks live. By locking in lower payments late in life, they’re trading fear of loss for assurance of loss.
The system’s fairness
The professors asked respondents how strongly they agreed with statements such as “I feel I’ve earned these retirement benefits.” The stronger the agreement, the earlier participants planned to seize their checks.
Patient study participants were more likely to report planning to take benefits later, while those with the least patience planned to line their pockets sooner.
There you have it. Despite all the evidence they will benefit by waiting to turn on the Social Security payment stream, people still let their psychological and emotional leanings outweigh their analytical selves.
In short, you can show people the math, but all too many retort: “Show me the money.”
There are two categories of tasks that keep the financial machine running smoothly — essential tasks and beneficial tasks. Most people recognize the essential tasks as something they should do at least once a year: Open or review your retirement account, re-balance your portfolio, review your insurance needs, etc.
But somehow the beneficial tasks don’t seem to get the same attention. It doesn’t occur to many people to do these tasks because they are not essential, yet they are extremely beneficial when it comes to saving time and money. So here is a list of the beneficial tasks. It’s time to do all the things you’ve been putting off!
Review your medical spending
Open enrollment is right around the corner. People often wait until the last minute to fill out the form and pick a plan that sounds reasonable at that time. Same deal with flexible spending accounts. Instead, if you take the time to review your medical spending, make an inventory of what kind of medical needs you had during the year and what you expect in the way of future medical expenses, you can do a much better job of picking the right plan and saving the right amount of money in your flexible spending account.
Time required: 30 minutes.
What to do? Log in to your insurance (health, dental, and vision) sites and…
- Review the list of claims
- Add up how much you paid in co-pays
- Use the list to remind yourself of any upcoming visits/procedures
- Use the insurance website’s calculator to check how much it will cost you for those procedures
Review your credit card benefits
We spend a lot of money (small things add up!) on things that are available to us for free. No, I am not talking about credit card rewards. I’m talking about the other benefits your credit card provides, like rental car coverage, stores that offer a discount for using your particular brand of card, and whether your card will extend warranty benefits so that you can skip adding it during checkout.
Time required: 15-30 minutes.
What to do? Log in to your credit card website and look for card benefits. Also check the main Visa, MasterCard, American Express and Discover sites for general benefits.
- Car rental collision damage waiver
- Travel/trip cancellation insurance
- Roadside assistance
- Premier lounge access
- Purchase protection
- Extended warranty
- Discounts to stores, cell phone insurance, etc.
Review all your membership benefits
Similar to the previous point, this is unfortunately even less like to be remembered. Your car insurance, health insurance and AAA membership may have quite a nice list of perks. For example, my health insurance provides discounted rates for gym memberships and my car insurance & AAA membership also have a laundry list of discounts and coupons. Don’t forget your professional organizations, sororities or fraternities. I am a member of the freelancer’s union and get a discounted cell phone plan and Zipcar membership, among other things.
Time required: Approximately 1 hour (depending on how many organizations you need to check.)
Visit your local library
The library is a treasure trove for frugal folks. Most people think of libraries as the home for books and movies, but they offer so much more. My library offers a plethora of benefits — free passes to local museums, free digital magazine subscriptions, several career services, notary services, homework help and story time for kids, and Kill-a-Watt rental to name a few.
Time required: 1-2 hours.
Put an end to the junk/unsolicited mail
Junk mail is more than an annoyance. It clogs up your mail box, could potentially cause you to miss important mail, and opens the door for identity thieves. Spend some time to stop the unsolicited offers. You’ll be so glad you did!
Time required: 15 minutes.
What to do?
- Use www.optoutprescreen.com to opt out of pre-screened credit card and insurance offers. (You can opt out for a 5-year period or permanently.)
- Use the National Do Not Call Registry to register your phone number. This will greatly reduce the telemarketing calls that waste your time.
- Use the Direct Marketing Association’s (DMA) Mail Preference Service (MPS) to opt out of general commercial marketing mail. They also have eMPS to opt out of junk emails.
Shop your closet
Take some time to organize your closet based on season. Take an inventory of what you have and what you need. Remove the clothes that are old or no longer fit and donate them. (Make sure to get a receipt for your donation and use it during tax time). Look through your accessories and plan some new looks.
Time required: Depends on your closet size. If the task is too time-consuming, divide it into more manageable chunks over a couple weeks.
Browse through your HR website
Many companies offer perks to their employees; but in my experience, the benefits are not always communicated very well. You could be missing out on a discounted Costco membership or reduced rates for rental cars.
Time required: 15-30 minutes.
What to do? Log in to your HR site to see what perks you get.
- Make a list of perks that will be relevant to you.
- Consolidate the lists from credit cards and membership sites.
- Keep the list where you can easily access it when you are using a particular service.
Review your use of utilities
Can you make a small lifestyle change that can save money on your utilities? It could be as simple as reducing your thermostat down by 1 degree or changing the sprinkler time from afternoon to early morning. Review your usage over the last year to see if there is anything you can change. Many utility companies offer great usage graphs and are happy to make helpful suggestions that you can implement in a few minutes.
Time required: 30 minutes to review.
Cancel services you don’t need
Now that you have a list of the services you have access to, review your needs and see if you can cancel or change any of your services. For example, I cancelled my subscription to a number of magazines when I found out I can access them digitally for free through my library. Your employer may offer an extra 10 percent off your mobile phone rate which could reduce your bill — in which case, it would be time to call your phone company to add that to your account!
Time required: 30-60 minutes.
Create a maintenance calendar for home and car
I used to postpone my oil changes due to poor planning. I would have a tight schedule for the week when the oil change light would come on, and I would try to push it out so that I didn’t have to reschedule a lot of appointments. It is important to come up with a rough calendar that shows when things need to get done so that you can plan accordingly. Use Google calendar (or whatever you’re familiar with) to set a date for small maintenance — check the fire alarm battery one weekend and change your vent filters the next. Make a list, set up a date, and create reminders so you know it is coming.
Time required: It took me a few hours to set this up initially. As a first-time homeowner, I spent quite a bit of time looking for what needed to be done. If you know this already, it should take a lot less time.
What to do? Make a list of tasks that need to get done by season and assign a date for each task. I used the HUD’s Home maintenance checklist (pdf) to get my list started.
Schedule your annual wellness checkup
Nothing is as important as taking care of your health. Most health insurance policies offer free annual wellness checkups. Take the time to schedule your appointment for a health tune-up.
Time required: 5 minutes.
These are just a few of the things you can do to supplement your fiscal health. Taking a few hours every six months to a year to get these things done can save you a lot of time and money.
Do you take advantage of all the benefits for which you are eligible? Do you include these as part of your financial plan?
This post comes from Miranda Marquit at our partner site Quizzle.com.
A lot of the time, when we consider income and expenses, we think mainly in terms of how much is coming and how much is going out. When we struggle with finances, we assume that we need more money, or that we need to spend less. While this might be true, just looking at your financial situation in terms of income minus expenses does you a disservice.
The reality is more nuanced, and it involves timing as well as sheer numbers. When looking at your financial situation, you need to understand your cash flow.
The Basics of Cash Flow
Cash flow is the way money moves through your own personal economy. Cash flow takes a look at the money that comes in, and the money that goes out, and also considers where it is moved to — and when it all these changes happen.
Paying attention to your cash flow is about more than just understanding that you will have an income of $4,000 this month and expenses totaling $3,500. Rather, cash flow takes a look at when all of this will happen as well. If you are paid on the 3rd and the 18th of each month, that should factor into your calculations, since you will get $2,000 on the 3rd, and it will have to cover all of your expenses until you are paid another $2,000 on the 18th.
The timing of your bills matters, as well as the timing of your income. I divide up my expenses so that they match up with my expected income. This is a little more difficult for me, since I have a variable income, and sometimes my freelance clients pay late. In these cases, timing becomes especially important. The fact that it takes three to four business days for my money to transfer from PayPal to my bank account matters. In fact, one day can make the difference between whether or not there is enough money in my “bills” account to pay the mortgage.
Know Where Your Money Should Be — And When It Should Be There
When you plan your finances, make sure you understand the “when” behind your money, as well as the how much. Timing matters. If you expect to receive money on the 5th of the month, and you arrange to have your car loan paid on the 6th of the month, you might be cutting it close. What if the money isn’t there? What if you you had an unexpected expense or if a clerical error means that your paycheck is smaller than you expected?
It can make sense to schedule bill payments (if you can) with a little wiggle room. It also helps to have a backup plan so that you can implement alternatives if your cash flow gets a little off track.
Plan your finances, but do so with the bigger picture in mind. Consider diagraming your cash flow so you have a visual idea of where your money goes when once you earn it. Make a flowchart showing the money that goes to savings, paying bills, and other expenses, as well as identifying the dates that all of this happens. Once you understand how money is moving through your personal economy, you can make tweaks so that you have what you need when you need it.
If you didn’t hear the news, the America’s Cup was run in San Francisco recently.
What it isn’t
The way the sailboaters and media make it sound, the America’s Cup pits one nation’s best against the best of another nation to determine who’s the champion of the world. That, as it turns out, is not exactly the truth. If you Google the America’s Cup, you’ll quickly learn it’s really only a contest between two billionaires from different countries who have the chutzpah to claim they represent their country. One article in particular summed the essence of the contest thus: “…in many ways, the race is perhaps best understood as a pissing contest between the world’s richest men.” The truth is their country hardly knows these teams exist, and Team USA had only one American on its boat. But that doesn’t change the fact that the contest was interesting, especially seeing two tons of boat and crew being lifted out of the water by the wind.
What it is (or was)
The America’s Cup is a series of races between two sailboats, and the first one to score 9 wins gets the Cup. The challenger, Emirates Team New Zealand, led the contest by 8 wins to 1, and needed only one more win to clinch the championship. The defender, Oracle Team USA, to retain the Cup, had to win 8 races in a row. Given that they had lost so many races, it’s easy to see how impossible that seemed.
Well, they pulled it off.
When all seemed lost, Oracle Team USA reeled off eight victories in a row and pulled off one of the greatest “come from behinds” in sports history.
Okay, this blog is about money, so what’s the connection between the America’s Cup and your money? No, it’s not that you, too, can compete in this race once you’re worth a billion or two.
Here’s the connection: It’s never over until it’s over, and victory comes to those who stay at it.
You might feel that you’re down 8-1 when you look at your finances and your future. You’re not able to put anything away for a rainy day, because every day is rainy already. When you think about your golden years, the only thing you see is the total lack of gold. You don’t have anything saved. You know you have to invest; but when you see how little you can put aside, your heart just sinks. The race that is life is over and you’re not even halfway yet.
Just like Larry Ellison’s Oracle team came back and won the America’s Cup, you too can snatch victory from the jaws of the defeat you’re so sure of.
The key to success is understanding that what you see at this moment does not represent the final outcome. There is still a lot of time to change things. Even if you’re fifty, you still have at least another twenty years to grasp a few key facts and put them to use.
1. The rules change from time to time. Everyone has a choice when that happens: You can adapt to the changed rules, or you can complain that they’re unfair, untimely and/or unjust. Those who adapt find a way to get ahead, while those who complain get left behind. The complaints may be as valid as all get-out, but the complainers get left behind regardless. They may (and usually do) blame others for being left behind, but the only thing that changes their outcome is adapting.
2. Your abilities and circumstances change. When you start out, you only make “young money.” Everyone knows how that feels: Just when your need is the highest (because you have to set yourself up) your income is at its lowest. However, as you gain experience and knowledge, your income rises. It may not feel like that, but it does. Things which seemed impossible gradually become available to you. That gradual thing, that’s the deceptive part. If you’re unaware of it, you fall victim to the common curse of lifestyle inflation. However, if you pay attention, you understand that your abilities, and earnings, improve over time and with that the ability to do something about your future. But that has to be something intentional. It doesn’t happen by itself.
3. You get smarter. Again it’s one of life’s ironies that when you need wisdom the most, you’re most inclined to reject advice offered by boring dinosaurs and fuddy-duddies who seem bent on spoiling fun more than anything else. As time passes, though, something amazing happens — those fuddy-duddies become smarter and their counsel makes more and more sense. Learn early and often, especially from those whose lives indicate they’ve figured things out.
4. You don’t have to be perfect. Many people don’t start because they look around at others and tell themselves, “I could never do that well, so what’s the point?” I’ve spoken to many people who have done well for themselves, and from those conversations I’ve learned two things:
- Every one of them made mistakes along the way, some many.
- Every one of them (a) started and (b) kept at it.
Investing in some form is the cornerstone of any plan for any financial future.
Doing something, anything, will achieve infinitely more than doing nothing. The good news is that success, however it’s defined, comes to those who do something and keep at it, improving as they go. Team USA did, and now they have a nice cup to display (even if it’s in some fancy club accessible only to people with lots of money).
It’s like the old Nike commercial: Just Do It.
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