Tuesday, February 20, 2018

Twelve Key Principles for Financial Success in Today’s World

Whenever a person makes a thoughtful decision, it’s usually based heavily on a set of internal principles, whether that person can spell out those principles or not.

Principles are simply sets of internal rules that you live by. They’re usually just a reflection of the things that you value, described in a way that guides your behavior clearly toward the values that you hold dear.

One of my journaling exercises as of late was to make a giant list of all of my principles. I wound up listing about ninety of them over the course of several days. After I finished dumping them all out on paper, I went through them and sorted them out a bit and I found twelve that applied strongly to personal finance (and quite a few more that did in a more secondary way, but if I included all of those, this article would turn into a book).

(An aside: a daily journaling practice is a really, really good practice for ferreting out exactly what you value and working through some of the unanswered questions in your life. My practice as of late is simple – I just open up a journal and write whatever comes into my mind until I fill three pages. It might be inane, it might be thoughtful, it’s usually a mix. Sometimes, I’ll get into a groove and continue a theme over several days, like this listing of principles; at other times, I jump from thought to thought with every other sentence. It always helps me feel more clear.)

What follows are those twelve principles, along with some additional thoughts on each one. These principles are ones that I was forming during the earliest days of The Simple Dollar, more than a decade ago, and every single one of them holds true today. They all help to guide me toward continuous improvement in my financial state.

The specific application of each principle might change over time, but the core principles remain the same.

Principle #1 – Spend less than you earn over any given period of time.

You should be striving for this over any period of time as long as or longer than a single pay period. It should be true over a pay period, a month, a quarter, a year, a decade – no matter how you slice it, you should be spending less than you’re earning.

Now, this is tricky to actually pull off and almost no one is perfect at it, but I will say that whenever you fall short on that principle, there’s almost always a financial problem lurking there that you can solve. It might be a problem of inadequate planning or a problem of too much impulsive spending or a problem of inadequate emergency preparation, but if you can find a period of time in which you’re spending more than you earn, then there’s a problem.

“But what about times where you’re traveling?” Yes, you’re probably spending more than your most recent paycheck on a well-planned trip, but a well-planned trip involves spending money that you put aside for that purpose earlier on. You should be spending less than you earn each period including your savings for future expenses, and then when those future expenses come along, you don’t actually count the money you’re spending from your savings. You effectively already “spent” it the moment you put it aside for that upcoming expense. We’ll get back to the importance of planning ahead shortly, but when you put aside money for a future goal, you’re effectively “spending” it now.

“But what about when I’m retired?” At that point, you should stop thinking at all about your retirement savings and instead apply this rule simply to the money coming in regularly. Your pension check, your Social Security check, your payouts from your 401(k) and so on should all be a pool of income, and you should strive to spend less than you’re “earning” from that pool. If you do that, you’re probably going to be fine for the rest of your life.

Principle #2 – You are never making a mistake by paying down a debt.

It is never a mistake to pay off debt. If you are unsure as to your next financial move, paying off debt is always at least a good move. It may or may not be the absolute best thing you can do, but it’s always a worthwhile choice.

Yes, there are situations where you have a debt with very low interest and you might earn more interest by putting that money in an investment or a savings account, but there are still two advantages to paying off debt that the other options won’t give you.

First, when you pay off debt, you’re reducing the future interest you’ll have to pay on that debt. You do not have to pay taxes on that reduction. On the other hand, you do have to pay taxes on any gains you make on that investment. So, for example, paying off a 5% interest loan is better than making a 5% return on an investment because you don’t have to pay taxes on the reduced interest whereas you would have to pay taxes on the 5% return.

Second, when debt is eliminated, it directly improves your monthly cash flow by eliminating a required monthly bill. When a debt is gone, you no longer have that bill coming in the mail and you have the freedom that comes with less money that you have to spend each month. This gives you options with that money, a power of choice that you didn’t have before.

Principle #3 – You are often making a mistake by taking on a new debt, so think very carefully before you do.

While paying off a debt is always a good thing, actually taking on a debt is often not a good thing. The reasons for this mirror the reasoning above.

First of all, it means that you’re saddling yourself with a new required regular bill. This means that even more of your income is tied up in required spending than before, which means that a higher level of income is required from you just to keep the bills paid. If you want to be tied to your job, the best way to do it is by pulling out the ropes of debt. Your life’s flexibility is reduced.

Second, almost all debts come with interest, which means that you’re going to be paying back more money than you borrowed. That’s not a good financial choice, as over the long run it comes down to overpaying for something.

This doesn’t mean that debt should be avoided, but that it should be taken on carefully and with great consideration to ensure that the benefits really are worth that cost. Sometimes, they are, as in the case for student loans to earn a degree that will lead to a huge increase in income. Often, they’re not, as in the case of a credit card balance rolled forward or a loan for a replacement car because you didn’t bother to save at all for it (so, in reality, your loan is used to pay for an inflated lifestyle that you already enjoyed before signing the car loan).

Principle #4 – The more you splurge, the less value each splurge has and the more money you’ve spent overall, so spread them out as much as possible.

If you buy something you really enjoy once in a great while, buying that thing is a treat. You’ll enjoy the anticipation of it, the experience of buying it has heightened enjoyment, and you’re much more likely to invest a lot of time and energy in actually enjoying that specific item. You get a lot of value out of your $5 or $20 or $100.

On the other hand, if you buy something you enjoy on a very frequent basis, that sense of a “treat” goes away. It’s still enjoyable, but it becomes much more ordinary. There’s almost no anticipation, no extra joy from actually choosing the item, and you’re probably not going to spend nearly as much time or energy enjoying the thing you purchased. After all, it’s just another thing, much like all the others you’ve bought. You’re getting a lot less value out of that $5 or $20 or $100.

Even more than that, you’re finding that you have to spend many multiples of that $5 or $20 or $100 to get as much joy out of one single expense if you keep those splurges frequent and routine.

Spread them out. Let your pleasurable spending be an oasis of joy in your life, one that gives you joy from anticipation and from the experience of actually doing it, and then because you don’t have nearly as many things competing with it, you’ll spend a lot more time with it afterwards, too.

Principle #5 – Ratchet down your spending on everything until you feel unhappy with the change, then ratchet back up just a notch. And then do it again a year or two from now.

Almost all people with some level of financial flexibility – the vast majority of people in the western world – end up spending an inflated amount on almost everything in their lives compared to what they actually need to get tasks done and feel fulfilled. We do that for tons of reasons: we’re influenced by the media and advertisements, we follow word of mouth (which was originally influenced in the same way), we take the most convenient or most familiar choice at first glance, we just keep doing what we always did.

The thing is, on so many things, we’re spending more than we need to just to meet our needs or fundamental wants for that item. For example, for the vast majority of household and nonperishable food items we buy, the store brand is perfectly fine for meeting our needs, but for a myriad of reasons, most people buy mostly name brands.

There’s a simple way to fix this. Go through your life regularly and ratchet down your spending on everythingif you discover that something hurts, rebound. Bring that thing back. Start ratcheting up that spending slowly until you find a level you’re happy with. If you stay in a state of “misery” because you “have to,” it’s very likely that you will rebound.

This should be a somewhat continuous practice, too. Every year or two, you should experiment with ratcheting down spending in each area of your life where you spend money, just to see what spending you’re actually getting value from.

Principle #6 – You’re better off owning a small number of well-made and reliable possessions that you use regularly than with a large number of possessions that you rarely use.

Let’s break this principle down into pieces.

First of all, a smaller number of possessions requires less living space, which means that your housing costs are lower and your utility costs for that space are lower, too. Consider how much of your living space is actually just used to store stuff. Having less stuff means having lower housing and utility costs. It also means lower costs for moving as well.

Second, a smaller number of possessions means that you actually get more use out of each one. Things don’t get shoved to the back of the closet because you’re actually using the stuff you have.

Third, higher quality possessions means that you spend a lot less time maintaining and replacing them. If you’ve made the decision to actually buy something, that means you’re intending to use it quite a lot, and a well made version of that item with low maintenance means that it’ll last a long time and you’ll spend less time keeping it in good working order.

Taken together, this means that the best route for spending on possessions is to own a smaller number of higher quality items rather than a larger number of lower quality ones.

Principle #7 – Consciously investing adequate time and energy into every part of your life cuts off a lot of destructive spending urges.

A lot of spending that people do comes from an underlying feeling that their life is out of balance. Sometimes, it’s easy to identify why – you’re not spending enough time with your kids, for example – and at other times it’s not so clear.

Many people handle that feeling of imbalance by throwing money at the element that feels underserved. If you’re not spending as much time as you’d like with your kids, you buy them things and take them on great experiences to “make up” for all of the things you missed. If you’re not spending as much time as you’d like on your hobbies, you buy more hobby items than you can possibly use. You get the idea.

Often, what’s going on is that you’ve allowed one or two areas of your life to expand and expand until it’s choking off the air from other areas that you care about, and that reckless spending is that section of your life gasping for air.

I’ve found that one really good financial practice is to simply give all areas of your life the air they need to breathe. Literally wall off time each day or each week for all of the major areas of your life – physical, mental, spiritual, emotional, marital, familial, social, intellectual, vocational, hobbies, and so on. What do you do on a regular basis to feed each area of your life? Wall off that time. Schedule it and make it sacrosanct, and if that means letting some other things go in your life, that’s fine.

If you don’t give every notable part of your life some love and care and attention, that part will start screaming for help, and you’ll often end up throwing resources at it in a haphazard way that will probably come with a financial cost. Don’t let it happen.

Principle #8 – If you see an expense coming in the future, even if it’s far off, start preparing for it now.

You know you’re going to have to replace that car in a few years. Start saving for it now so that you can just pay cash for it rather than taking on a car loan.

You know you’re going to pay for at least a part of your children’s college education. Start saving for it now so that you can just pay cash for some portion of it rather than cosigning on a loan.

You know you’re going to need to pay for insurance at some point, property taxes at some point, and so on. Again, save for those things now so that they’re not even a slight concern later on.

It’s easy. Just figure out how much you need to set aside each month to make sure that you can cover each of those expenses. Total it up and then start transferring that amount to your savings account each and every month. Make it automatic if you can; ask your bank to transfer that money automatically. Then, when the expense comes around, take the money you’ve already put aside out of your savings account and just pay for it directly. No debt, no worries, no stress, no anything – it’s just handled.

Not only does that policy avoid a lot of stress, it avoids a lot of debt, too. It also helps ensure that you’re always spending less than you earn (I count money put aside like this as money already “spent”).

Principle #9 – Don’t rely on your future self. Help your future self.

Many adults, particularly younger adults but a surprising number of older adults, assume that they’ll just take care of some issue down the road instead of worrying about it now. My “future self” will handle retirement savings. My “future self” will handle that car repair. My “future self” will actually do some professional development.

Here’s the truth. Your “future self” is going to be older. They’re going to have less energy than you do. They’re likely to have experienced some kind of misfortune. They’re going to look back at the most wasteful moves in their life with regret.

Right now, your life is quite likely in a better state than it will be for your “future self.” Rather than adding even more burdens to your already tired future shoulders, choose to shoulder some of those burdens now when you’re young and can handle it.

Don’t put off saving for retirement so you can do something frivolous. Don’t put off professional development so you can sit at your desk reading Facebook. Don’t put off that car repair because you’d rather go out with your friends a bunch this month – figure out some cheaper stuff to do with them instead.

Put as little burden as possible on your future self. Handle as much of it as you possibly can now without making your life miserable. Take pride in the fact that you’re making your life easier going forward. You’ll never, ever regret it.

Principle #10 – If you’re married, be open with your spouse about every dime spent and make that principle clear before you’re married.

There should be no hidden spending anywhere in your marriage, aside from perhaps some mutually agreed upon private discretionary spending in equal amounts for both of you so that you’re not quibbling over things like buying a morning coffee or how a gift could have possibly been afforded.

As soon as you start to hide expenses from each other, you end up putting a financial burden on your partner that he or she probably doesn’t want. You’re also damaging the trust in your relationship, and you’re almost always guaranteeing a huge fight as soon as that expense is uncovered.

There should never be hidden bills. There should never be hidden receipts unless it is directly due to a surprise using money that’s from agreed-upon discretionary spending. If those things are happening, then there’s a fundamental trust problem.

Obviously, as with all relationships, people can enter into different agreements from the outset, but communicating about money is vital in all relationships and such expectations should be clearly communicated from the start. This type of completely open approach is a great starting point because it ensures that everything is clear, open, and honest from the very beginning.

Principle #11 – Life is going to hand you unexpected events. Be prepared for them.

Your life is not going to go the way that you expect that it will. There are going to be unexpected successes and unexpected failures. There will be joy and pain and opportunities and challenges that you can’t possibly foresee. How can you possibly prepare for them?

One vital step is to have an emergency fund. It’s simply a pool of money that you set aside and feed regularly that is used solely for unexpected life challenges. I strongly encourage people to set up an automatic transfer from their checking account to their savings account, moving at least $20 a week into that emergency fund. That’ll save up more than $1,000 a year, which is going to really help when your car won’t start or the washing machine unexpectedly dies or you have to suddenly fly to Atlanta to visit your ailing father.

Another useful tool is insurance. It exists to handle unexpected events in your life – you pay a little each month and then when that type of event comes along, it steps up and helps pay for it. Most Americans have some form of medical insurance, and homeowners typically have homeowners insurance, and automobile owners usually have auto insurance. In addition, you should consider a term life insurance policy for anyone in your family whose passing would cause an undue financial burden on those who remain.

Life is going to go in unexpected directions. You can take care of at least a few of the worst potential zig zags now, and you should, because the cost of not doing so is very high.

Principle #12 – Treat everyone in your life as you wish you would be treated.

How is this a financial rule? It’s a financial rule because a good personal and professional network has a tremendous positive impact on your financial life.

A good professional network constantly opens the doors to new opportunities and help when you need it. If you decide it’s time to move to a new challenge or get a better paying position, your professional network is probably how you’ll get your foot in the door. Treating your coworkers and others in your field as you would like to be treated is a good way of facilitating that. Ask yourself how you would like to be treated by other people in your field and by those you respect, and attempt to always treat others in that way while attempting to connect with as many people as you can in a meaningful way.

A good social network is similar, but it comes through in much different ways. Good friends come through for you when you want social experiences and companionship. They come through for you when your life hits a real challenge, often filling in many gaps that would otherwise have to be filled with money.

If you stick to a fundamental principle of treating others as you would like to be treated, you’ll find that it’s quite easy to build a strong professional network and a strong social network, and both will provide real benefits to your life as long as you keep sticking to that principle. Others will often follow your lead in how you act toward them, after all.

Final Thoughts

If you live by these twelve principles, you’ll find that your financial life will flow along quite smoothly. You’ll find yourself with low expenses, the money to handle unexpected expenses when they come along, and a nice safety net for the curveballs that life throws at you.

Good luck!

The post Twelve Key Principles for Financial Success in Today’s World appeared first on The Simple Dollar.

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My Credit Card Issuer Lowered My Credit Limit – Why?

It may come as a surprise, but credit card issuers have the flexibility to modify the terms of your account after it’s been opened. While that fact may be understandably unsettling, there’s not much you can do about it. And one of the most common ways a card issuer will change the terms of your account is by lowering your credit limit.

Your Credit Card Issuer Is Watching You

The Fair Credit Reporting Act defines who can request your credit information from a credit reporting agency. You know lenders are going to request your credit information whenever you apply for new financing. What might be news to you, however, is that your current creditors are allowed to continue checking your credit long after your account has been opened.

Most credit card issuers will perform an “account maintenance” check of your credit report and score from time to time, perhaps even monthly. Since a credit card issuer is essentially loaning you money over and over again, they need to be sure that your level of credit risk remains the same.

If the condition of your credit worsens, then they may no longer want to continue doing business with you or they may, at the very least, decide to adjust the terms of your account more in their favor.

Reasons Your Credit Limit Might Be Lowered

In most cases, a credit limit reduction is a putative measure imposed upon you by your credit card issuer. In other words, you have done something which has increased your risk in the eyes of your lender and has caused the lender to react.

You might still have flawless payment history on that specific account, but if you have new derogatory information appear elsewhere on your credit report (e.g., a late payment on a different bill, a new collection account), then your card issuer may feel the need to take action in order to mitigate their risk.

A card issuer may take a variety of “adverse actions” if changes in your credit report or score become a cause for concern. These adverse actions may include:

  • Lowering your credit limit
  • Increasing your interest rate
  • Suspending your account
  • Closing your account

Sometimes your credit limit might be lowered simply because you haven’t been utilizing your account enough or because your account usage patterns have changed. Your level of credit risk might be the same, but the card issuer may opt to lower your limit anyway. It’s annoying, but it’s ultimately their prerogative — as you’re borrowing their money.

How a Credit Limit Reduction May Impact Your Credit Scores

Your credit card accounts can certainly have an impact on your credit scores, especially if your balance consumes too much of your credit limits. Because your credit utilization ratio — the percent of your available credit limit you’ve used up – comprises a big portion of your credit score, lowering your credit limit can

For example, if you have a $500 balance on a credit card with a $5,000 credit limit, your utilization ratio is a healthy 10%. If your credit card issuer suddenly slashes your credit limit to $1,000, however, and you still have a $500 balance, your utilization shoots up to 50% — and that would immediately hurt your credit scores.

The best habit when it comes to credit card accounts is to pay them in full each month. To take this habit one step further, you might consider paying off your credit card balances a day or two before the statement closing date – this way, those accounts will always show a $0 balance on your credit reports.

If you maintain $0 credit card balances on your credit reports, then no credit limit reduction is going to harm your credit scores, because you’re still using 0% of your available credit.

Can I Prevent My Card Issuer From Accessing My Credit Reports?

In short, no. The Fair Credit Reporting Act allows a creditor to review your account, and there is no language in the FCRA giving you the right to restrict them from doing so. In fact, if you read the language in your cardholder agreement you’ll see that you’ve affirmatively given them permission to access your credit reports and/or credit scores.

But at least you can take solace knowing that, when an existing creditor accesses your credit reports for account management purposes, that credit inquiry won’t have any adverse impact on your credit scores.

Related Articles: 

John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. He has written four books on the topic and has been interviewed and quoted thousands of times over the past 10 years. With time spent at Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.

The post My Credit Card Issuer Lowered My Credit Limit – Why? appeared first on The Simple Dollar.

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Monday, February 19, 2018

Questions About Flying, Subscription Boxes, Credit Unions, Mass Transit, and More!

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. International flight questions
2. The New Global Student?
3. More retirement contributions
4. Investing in cannabis
5. Asset allocation question
6. Career regrets
7. Banks versus credit unions
8. Subscription boxes
9. The Tyranny of Convenience
10. Financially strong employees
11. Is mass transit really cheaper?
12. Vegetarian help

Due to some personal changes, I’ve found it much more efficient to switch around my sleeping schedule a bit, going to bed closer to 9 PM each night and getting up closer to 4:30 AM each morning, whereas before this I stayed up until about 11 PM each night and got up at about 6:30 AM each morning.

The biggest reason for this shift is that I found I was often struggling during weeks when children were home sick from school. That simple change would basically wipe out a day of work for me, which as someone whose income is based on consistent production rather than hours worked, was a real problem. I don’t simply write fewer posts when I lose a day. This shift enables me to have a couple hours of work pretty much every day, with the cost of not staying up as late in the evenings, which is time that I used to just largely spend on hobbies.

I’m very much a “morning person” when it comes to writing. After I’ve been awake about 9-10 hours, my ability to write declines rapidly. I start making bad word choices and so on.

Before the change, I’d fall off that cliff at about 2 PM or so on an average day. Now, I fall off that cliff at noon.

I’m effectively now working from about 4:30 AM to about 12:30 PM each day rather than from about 6:30 AM to about 2:30 PM each day, which is what I used to do. So, for me, that leaves most early afternoons free as a blank of time. I find that I’m filling them with essential household chores and with some hobbies. Basically, I’m shifting my old 9 PM to 11 PM block to 12:30 PM to 2:30 PM or so, and shifting my old 12:30 PM to 2:30 PM block to 4:30 AM to 6:30 AM, and shifting that old block to 9 PM to 11 PM.

I’ve been joking with Sarah about how this is kind of like what it is like for people who switch shifts. They have to get used to having their free hours at a completely different time than before.

Q1: International flight questions

What are your thoughts on international flights? Is it worth it to pay more for a non-stop? Do the amenities and reliability of a traditional airline (ex. American Airlines) outweigh the value and hassles of a budget airline (ex. Wow Air)?
– Andrew

It really depends on what you need to get out of the flight.

If you have a very strict timeline for your trip, then the most reliable and direct flights are probably worth the premium. For example, if you’re going to a location and have to leave at X time and arrive by Y time or else the whole trip is a waste of time, a direct flight with a highly reliable airline is probably worth the premium.

On the other hand, if you’re flying for personal pleasure and a delayed flight isn’t going to bring you to crisis mode, then you’re better off hunting through the bargains for the cheapest way to get there.

I tend to think the direct flights with a reliable airline are probably worth the premium for professional travel unless you have a TON of breathing room on your schedule, or for an extremely short personal trip when you just need to be there for one specific event at a very specific time. If you’re going for a relatively lengthy (more than a day or two) personal trip without any major events to be present for or you have breathing room on both sides of the trip, then I’d bargain hunt.

Q2: The New Global Student?

I have children about the same age as yours and remember back to a book review you did years ago for “The New Global Student”. Have your thoughts on this book changed as your kids age?
– Gina

Here’s my review of The New Global Student, a 2008 book by Maya Frost that, in my own words from that review, argues that “the ‘traditional hypercompetitive SAT/AP/GPA path’ can be easily dumped and a new path to educational success can be found.”

I still agree with that core premise. As I said back then, “time and time again, throughout my college career, the people that seemed to have the best grasp of what they needed to do to succeed and the value they could get out of college were people who came in from outside that treadmill.” The people who came in for just a year or two to finish up a degree and already knew what they were doing and where they were headed on the back of life experience, community college classes, international experiences and classes, and so on tended to be very efficient at their studies and were usually set up for great jobs after graduation, too.

While I think that the book offers a great recipe for that kind of approach, it is just one recipe, and the book is ten years old at this point. The specifics of what she describes in the book have definitely changed, so you’ll want to supplement the details of the program with some effective internet searching.

My wife and I are still talking about what we want our children’s lives to be like in the years that lead up to college. We’re not sure yet, but we’re in agreement that we want to shield off a lot of the pressure of the SAT/ACT/college entrance pathway for them. I don’t think it’s a net benefit in the life of a teenager who hasn’t figured out their direction yet. I’m definitely not 100% sold on the idea that they should immediately go to college after high school. I know I wasn’t ready for it then – I would have received much more value from college if I had spent at least a year having other life experiences.

Q3: More retirement contributions

With the new federal tax laws I noticed my most recent pay check had less federal withholding taken out. I know that this tax law change also bumped me down from the 25% tax bracket to the 22% bracket. I have no debts other then my mortgage and student loans which are low interest. I already have a nice emergency fund. I have been contributing 18% to my 401k. When trying to determine how to best allocate this tax money my thought was since I am in a lower bracket now this is a good opportunity to take advantage of the Roth 401k that my company offers. What I am not sure about is will splitting my contribution to 9% 401k and 9% Roth 401k actually change my take home pay or should I be increasing my contribution as well. What do you think?
– Alex

Without additional numbers, I can’t comment as to whether your take home pay will change with this contribution shift, but my rough suspicion is that you will see a very slight decrease in take-home pay, on the order of less than 1%, as compared to your pay prior to the changes in federal withholding (and not including raises).

I also suspect that the splitting you’re doing here would be roughly the same as raising your 401(k) contribution to 19% or 20% or so. The Roth 401(k) contributions will obviously be better in terms of taxation in retirement.

In other words, no matter which of those two options you choose, I suspect that your take-home pay will end up being about the same and you’ll have a little bit more income from your retirement accounts when you retire (or retire just a bit earlier).

Q4: Investing in cannabis

I’m a 40 year old schoolteacher, planning for my retirement. I have an annuity that I save for retirement in, as well as a pension that my district will provide. My question is, do you think it’s a good idea to have some of my annuity invested in the cannabis industry? It is taking off obviously.
– Sara

Unless you are a full time investor or have some detailed knowledge of a specific industry, I think it’s a poor idea to ever invest in specific stocks or commodities. The reason is that as a “regular person” outside of the industry and without enough investment resources to deeply study things, it’s really hard to assess what the future looks like. It’s really hard even for people within that specific industry.

My consistent advice for everyone when it comes for investing for retirement is that unless you have very deep knowledge of a particular sector, all of your investing should be done in a very, very broad and diversified way, and the easiest way to do that is through a broad based index fund like the Vanguard Total Stock Market Index, or whatever the equivalent offered by your retirement plan is.

Investing in everything minimizes your risk by reducing the impact on you from changes in any specific sector. If you invest in a specific sector, you’re betting your retirement on the idea that nothing bad will happen in that sector or that other sectors won’t do substantially better, which is almost never a sound bet unless you have a ton of knowledge backing it up.

Q5: Asset allocation question

Have you written on allocations recently? I am averaging cash into my retirement portfolios and using this as an opportunity to think harder about allocation. After all, financial research consistently demonstrates that allocation is the most significant determinant of portfolio performance. So, what are your thoughts on allocation in the current market/long term?
– Margaret

I think that asset allocation, at least for long term goals, is pretty well spelled out by the asset allocations you can find in target retirement funds. Figure out the date of your goal, then either just use such a fund or match that allocation. If you want a little more aggressiveness, choose to match a fund with a date a few years further down the road. If you want to be a little more safe, choose to match a fund a few years closer to today. I don’t think an individual can do much better, honestly.

It wasn’t too many years ago when target retirement funds were a really novel thing and I wasn’t sure how their asset allocations matched up, but over time I feel like many have really proven themselves.

If you want one to match with your own asset allocations, I’d use the ones from Vanguard, like Vanguard Target Retirement 2040.

Q6: Career regrets

I’m 34, single, earned a master’s degree in social work more than a decade ago. Never earned more than $36K in a year and that number was reached during years where I had a second job in addition to my full time one. I did have my student loans forgiven. I regret this path, though. Almost every decision is a hard one and I will never have even a small nice house unless I move to another part of the country. Not worth it.
– Jenna

Although I don’t know where you live, it does seem to be in a fairly high cost of living area. My guess is that if you did similar work in a low cost of living area, your income would drop down to something approaching minimum wage.

That’s a challenge, no matter who you are. Unfortunately, social work is widely known to be both incredibly stressful and poorly financially rewarded. It’s a tough career path that people typically choose for purely non-financial reasons. It is a disastrous financial choice to follow almost all career paths within the social work field. You simply won’t make as much money as many other fields. That doesn’t mean that it’s right, but that’s the nature of the situation.

The question you should be asking yourself is whether it’s time for some kind of career change. I can’t answer that question for you, other than to say most paths of advancement in the social work field won’t lead to wealth.

Q7: Banks versus credit unions

What is the difference between banks and credit unions? They seem like the same thing.
– Cleve

The services they offer are similar, but how they’re organized is different. A bank is a for-profit business, intended to earn a profit for the individuals who own the bank. A credit union is a member-owned financial cooperative, usually intended to help build the credit of its members and provide financial services. They usually end up offering the same services with similar rates.

So, which one should a person use? It really depends on what you’re looking for and what you need the most. In general, credit unions tend to be way more forgiving of low balances and people who are struggling financially. Banks tend to provide better services if you’re the type of person who always has a healthy balance in their checking account and savings account and doesn’t have much of a problem with credit.

My advice to most people is to simply look at what each can offer to you as a customer. Treat them all as financial entities where you might take your banking business and compare what they can give to you. If they end up being about the same, I’d take a credit union over a bank for the simple reason that they’re more interested in helping people with past financial struggles and marginal credit and not a lot of money to start building or rebuilding their financial lives.

Q8: Subscription boxes

What are your thoughts on subscription boxes? Good idea?
– Anna

I think that subscription boxes are a really clever idea that treats “surprise” as a big value addition and thus enables the people behind such boxes to sell something at a markup because the buyer doesn’t know for sure what they’re buying.

So, from the company’s perspective, a subscription box is a way to sell something at a customer at a markup by not telling them exactly what it is, and from the customer’s perspective, a subscription box is an overpriced item where some of the value is in the surprise and packaging.

In general, I’m not a fan of subscription boxes. If I have $50 in my pocket, I’d rather buy $50 worth of stuff of my own choosing than $50 in subscription boxes because I know I’m much more likely to end up with stuff I actually want. On the flip side, receiving one as a gift if it targets an interest, like a craft beer of the month club or something like that, is fine. I would give one in the right situation, but I’d be more likely to just research an interest for that person and find something that really clicks for them.

Q9: The Tyranny of Convenience

Thoughts on this article?

The Tyranny of Convenience
– Tara

I think this nails what convenience is. Convenience means that you’re saving time or effort in some fashion, but likely paying for it in some other way, usually with money. For example, a washing machine saves time and effort, but it costs money – you could wash your clothes in the sink by hand and never have to own a washer, but it would take a lot of time and money.

Convenience has some drawbacks, though. It almost always means that you eliminate some of your own knowledge from the process; instead, you just remember how to use the convenience rather than to actually do the task you want. A rice cooker is a convenience, but it doesn’t take long for you to know how to use your rice cooker but not really remember how to cook rice without it. Convenience foods are the same way – your cooking skills atrophy if you rely on convenience foods too much.

There’s also the fact that many hobbies are about intentionally not choosing the convenient path and instead enjoying the process of doing something and making something. You might read a challenging book instead of a summary of it, or you might make a wooden table by hand, or you might cook really elaborate meals.

I think there’s a balance to be found, as there is with almost everything, and I think that there are sometimes errors on both sides of that balance.

Good article!

Q10: Financially strong employees

At work my boss said off the cuff that he didn’t trust employees who were doing well financially because they were likely to “cut and run” and would just run off with any training he invested in them. He’d rather give a job to “someone who needed it.” This seemed wrong to me but as usual I didn’t know how to discuss it at the moment so I said nothing. Is it an employment risk to be in good financial shape?
– Andrew

A person who is in poor financial shape likely needs the job more than the person who is in good financial shape, that’s true. At the same time, that means that the person in poor financial shape is more likely to suffer through some awful job situations in order to keep the pay flowing in. A person who is in good financial shape can afford to start looking elsewhere much more easily.

Your boss, honestly, gives off a vibe to me that he will treat employees pretty terribly at least some of the time. If there’s a crunch, he will put the pinch on employees and expects them to accept it. Likely, at some point, he had employees that were in good financial shape and they simply refused to take it. He wants a lower risk of that.

I don’t buy into the idea that people who have enough self-discipline or other skills to be in decent financial shape are going to make for bad employees. It takes some willpower to achieve financial health, and that’s a sign that an employee has character (not that people who aren’t in good financial shape don’t have character, but that getting in good financial shape and staying there is often a sign of self-discipline).

If I were hiring someone and I saw that someone in good financial shape wanted the job, I’d consider that a bonus in their favor. This would mean that a person with at least some self-discipline was coming my way.

Q11: Is mass transit really cheaper?

When I used to live out in Crystal Lake I took mass transit to work each day. I took a train into the city then a subway and I wound up about 1/4 mile from my office. It worked well and it was definitely cheaper than driving in and out each day and less hassle too.

When I moved to the Houston area for a career shift my new employer was about six miles away from my house and had their own parking lot. I didn’t really think about it because I was about 1/2 mile from the train station and the other train station was about 1/3 mile from my office and the train’s just $1.25.

I started thinking about it though and I’m spending $1.25 to go each way to work and it’s about 6 miles. I still own a car and it’s paid for and I’m going to be paying for registration and insurance no matter what. Isn’t it more sensible just to drive to work?
– Matt

In this situation, where you’re only six miles from your workplace, they have free parking, and you’re going to own a car anyway, it’s almost definitely worthwhile to just drive to work, and it’s probably cheaper, too, unless your car is massively inefficient in terms of fuel.

On the train, you’re spending $2.50 for a day’s ride, which is about 12 miles. If your car gets more than about 15-16 miles per gallon, the gas is cheaper, and if it’s more efficient than that, the maintenance plus gas is likely cheaper, too. Plus, it’s just way more convenient to have your car there, which allows you to leave from home and leave from work when you want and do needed errands along the way.

I’d absolutely switch to driving in your current situation.

Q12: Vegetarian help

I know that you and some of your family are vegetarians and I wanted some help with a few things. My wife and I decided to switch to a mostly plant diet and we eat meat maybe once a week.

It seems like vegetarian meals are a lot more work. Most of the meat I cook mostly involved just sticking it on the grill, maybe with some sauce. Thoughts?

It is definitely cheaper than eating meat, though. I don’t know where the idea that it is more expensive comes from.

Also one thing we have found is that we sometimes feel bloated after eating vegetarian foods. Does that go away after a while?
– Jim

For us, there are some vegetarian meals that are super simple and others that are more complex, just like meals that use meat. A lot of our meals are prepared in the slow cooker, which often amounts to just adding some ingredients, hitting start, and then eating eight hours later. There does tend to be some chopping, but it’s really not any more work than, say, cubing a chicken breast. I think that your comparison is between a simple meat preparation – just putting a steak on the grill – and a complex vegetable preparation – cutting up a bunch of different things and so on. Try grilling a mushroom cap or a baked potato or a sweet potato, for instance, or try making rice in a rice cooker (add dry rice, add water, hit button, rice in 45 minutes).

I find that vegetarian eating is way cheaper than meat. If you go to the store and compare the prices of things like produce and dry beans and dry rice to the cost of various meats, it doesn’t even compare. I have no clue where the idea that being vegetarian or eating a healthy diet is super-expensive comes from.

As for the bloating, it will go away. It’s due to the increased amount of fiber in your diet, which your guts are trying to figure out. When that happens, you won’t notice the bloating much any more. I do suggest that if you’re eating a lot of beans and you’re starting with dry ones, let them soak overnight and then drain off the water and rinse them, as that will really help.

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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These Financial Decisions You Make in Your 20s and 30s Can Make or Break Your Financial Future

Have you ever wondered which life decisions brought you to where you are right now – at this very moment? Or, how your life might be different if you made a few decisions differently along the way?

The truth is, some decisions we make early on can determine where our life is headed – especially in a financial sense. And, very often, the good and bad decisions we make in our 20s and 30s have a lifelong impact, mostly because there’s plenty of time for those decisions to snowball on themselves over and over again.

Which decisions matter the most when it comes to your money? If you’re older, you’ve probably mulled over your life choices plenty already. But the younger you are, the more time you still have to fix things — before they get too far out of hand. Your past financial mistakes may have put you on one path, but you can choose a different one going forward.

Here are some of the most important decisions we make in our 20s and 30s, and what you might want to do differently if you still have a chance:

#1: Where you live

Where you live – and how much you pay for housing – can play a huge role in your future financial state. However, it’s important to note that the sword strikes both ways. Living in the inexpensive south or Midwest will absolutely help you save money, but you may not have the same type of job opportunities you would in a larger city or metropolitan area.

The average rent in a one-bedroom apartment in Boston, San Francisco, or New York City may range from $2,930 – $3,680, but you have to factor in what big city living could do for your career. While you’ll pay out the nose for a place to stay, you could make connections that could lead to much greater earnings overall.

And, let’s not forget that salaries in big cities tend to be a lot higher. A marketing manager in the New York City metropolitan area earned an annual mean wage of $188,510 in 2016, but the same job in Western Central Illinois paid just $83,000.

Then again, you may never be able to afford a home in Manhattan, where the average home price is inching toward $1.4 million. In Springfield, Ill., on the other hand, the average home price is just $105,000.

The bottom line: Where you live can make a huge difference in your ability to purchase a home or save for the future. However, your location can impact your earnings and career potential, too.

#2: Your choice of college

Your choice of college affects more than your eventual circle of friends; it affects your finances, too. Choose a less expensive school, and you could graduate with a lot less debt, while a more expensive school could leave you saddled with student loans for decades.

Unfortunately, this decision is a lot more nuanced than just choosing between a public or private school. Your college choice may depend on the financial aid you receive, and also on the college major you want to pursue.

Either way, the consequences of overpaying for a college degree can absolutely last a lifetime. The average four-year public university now costs $20,770 per year for tuition, fees, and room and board. That’s over $80,000 for a degree — and that’s if you choose an in-state public university. A private, nonprofit college will cost you more than twice as much: $46,950 per year on average, according to College Board.

These figures may make a two-year degree seem like a better decision. As College Board notes, average tuition, fees, and room and board at two-year schools amounted to just $11,970 for the 2017-18 school year. While graduates with a bachelor’s degree or better tend to earn far more over the course of their careers, there are plenty of high-paying jobs that only require an associate’s degree.

No matter what you choose, any student loans you carry into adulthood can impact your ability to grow your wealth. So, make sure you choose wisely.

#3: Whom you marry – or whether you get married at all

Getting married comes with some tangible financial benefits. You get to split the costs of housing and daily living expenses, for example. If your partner has a higher salary than yours, you could also score a better standard of living than you could afford on your own.

But, the financial benefits of marriage could be truly limited if your partner isn’t that great with their finances. Will you marry a saver or a spender? Will your partner pay for their share of the bills, or will they cost you more trouble (and money) than you bargained for?

Whether you get married or share your life with someone can impact your financial future, but who you marry and their attitude about money matters just as much.

#4: Whether you negotiate your starting salary

If you don’t negotiate your salary – and especially your starting salary – you could be sacrificing up to $7,500 per year in lost earnings. This is according to GlassDoor’s “Know Your Worth” tool – an online calculator that helps people study salary data they can use to negotiate pay.

And as intimidating as negotiating sounds when you’re just starting out and willing to accept almost any entry-level job in your field, if you accept a first real salary that’s lower than it should be, it could follow you around for years – and even to other jobs.

For example, imagine you started a job with a salary of $40,000 and received a 3% raise each year. After 10 years, you’d be earning $52,190 a year. If you had started out with a $45,000 salary, on the other hand, you’d be earning $58,714 – more than $6,500 more per year. And if you decided to change jobs, you’d likely hold out for that extra $6,500 – and a potential employer would be more likely to offer it to you, since it’s what you’re already earning.

#5: Whether you rent or buy a home

There are a ton of factors that can impact whether someone decides to buy a home or rent. Fortunately, there are advantages to be had on both sides of the equation.

Buying a home comes with the notable benefit of being able to build equity as you pay down the principal on your mortgage over time. And if your home rises in value, you could also turn a profit on your property when you go to sell. It’s one of the most tried-and-true ways middle-class Americans have been able to build wealth, and the average homeowner’s net worth is 45 times that of the average renter.

Of course, homeownership isn’t always ideal since you’re also on the hook for maintenance, upkeep, and repairs. And, when you go to sell, there’s no guarantee you’ll break even after paying realtor fees and closing costs.

Renting can be a smart option since you don’t have to worry as much about fluctuations in your local real estate market or paying for repairs. You also have more flexibility to move if you come across an excellent job opportunity.

Either way, whether you choose to rent or buy can make a big impact on your financial health – good or bad.

#6: How long you wait to have kids – or if you have kids at all

Many people say that the cost of having kids is the best money they’ve ever spent, but that doesn’t mean that kids are affordable. Between the costs of daycare, housing, healthcare, and education, the USDA says the price tag of raising a kid to age 18 is over $233,000!

When you have kids is just as important to your financial future as whether you decide to have them.

If you have kids when you’re especially young and not earning a lot, for example, you might struggle so much to pay for essentials like childcare or healthcare that it’s hard to save for retirement or the future.

If you wait until you’re more established and older to have children, you could already have a small nest egg and more financial stability.

Of course, you can save a bundle by not having kids at all and skipping all child-related expenses.

#7: When you start saving for retirement

When you start saving for retirement matters as much, if not more, than how much you save. Why? Because the power of compound interest offers a distinct advantage for those who start saving and investing early.

To illustrate how big a difference this can make, let’s compare two people who start investing at different times in their life:

  • Kevin is a 25-year-old who invests $500 per month in a retirement account for 40 years, until he’s age 65.
  • Keith starts investing at age 45, saving $1,000 per month for 20 years to try and make up for lost time.

By age 65, Kevin would be sitting on $928,572 in retirement savings, assuming an average annual return of 6%. Keith, meanwhile, will be approaching retirement with $441,427 — less than half as much, despite contributing just as much money to his retirement account.

How did Kevin end up with so much more money saved? The answer is simple: time and compound interest.

#8: Your mentality about money

While all the choices on this list can lead to a financially fruitful future or a broke one, there’s one factor that may be more important than the rest – your money mindset. How will you prioritize your spending and savings goals in a world where consumerism is the norm and pretty much everyone you know is living above their means?

How you answer that question could make you richer or poorer – and that’s true no matter how much you earn. After all, we’ve all heard about “millionaire next door” types who live frugal lifestyles so they can save huge sums of money on unremarkable salaries. However, there are just as many people who earn a lot and spend every cent.

If you approach every financial scenario with a “YOLO” mentality, then it’s likely you won’t have much saved by the time you retire. But, if you’re dedicated to saving and only splurge for the things you want most, you have a better chance of reaching your goals.

Will you spend, or will you save? Like every other factor on this list, the choice is yours.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

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Sunday, February 18, 2018

Bulk or Bunk? We Compare Prices at Walmart vs. Sam’s Club

The common rule of thumb for consumers is that you ultimately pay less for goods that you buy in bulk. But does that necessarily make warehouse stores – and their paid memberships – a better deal than discount stores or supermarkets?

Walmart shocked dues-paying members of its Sam’s Club stores earlier this year when it announced the closure of 63 locations across the United States. While there are still close to 600 stores, many of the closed locations will be turned into “fulfillment centers” that package and ship out orders for Walmart’s online stores.

While this is an opportunity for Walmart to expand its online services and take on Amazon more directly, it’s also ceding some ground to other competitors. Warehouse chain Costco has kept Sam’s Club out of its native Washington state, as well as Alaska and Oregon. BJ’s Wholesale Club, meanwhile, has driven Sam’s Club out of its home state of Massachusetts and other New England markets including Vermont and Rhode Island.

But what is the effect on everyday shoppers? Sure, the average Sam’s Club shopper has to pay a minimum of $45 a year just for the privilege of shopping at its hangar-sized stores, but do they make it up in savings? Are the costs of staple goods low enough to make it worthwhile? Did Walmart do Sam’s Club customers wrong by shutting warehouse stores and sticking them with Walmart’s discount and “neighborhood” stores?

We put together a shopping list of 10 warehouse-store staples and opted to compare their prices by volume to those at a standard Walmart. While everyone’s shopping list will vary and sale prices can affect the final tally on some trips more than others, we figure that comparing Sam’s Club to Walmart itself — rather than another grocery store or discount chain — was the best way to determine exactly what Walmart as a company sees as “value” and how it passes that along to you, the shopper.

Paper Towls

While Walmart does have a 15-roll pack of Scott paper towels for $17.52, their 102 sheets apiece pales next to Great Value’s 168 sheets or even Member’s Mark’s 150. Still, considering Great Value’s extra 18 sheets per roll — making a 12-pack the equivalent of a 13.3 pack of Member’s Mark towels ($1.27 a roll) — this competition is much tighter than we thought it would be.

Still, even that more forgiving unit price would put Walmart’s Great Value at $19.07 for a pack of 15 – $1.59 more total.

Dishwasher Detergent

Functionally the same item, the Walmart version does 27 fewer loads of dishes for nearly $2 more. To get up to the Sam’s Club 105 count, the Walmart version would have to cost more than $23. That Makes the Sam’s Club version nearly $8 cheaper overall.

Toilet Paper

Walmart just hates to standardize the size of its generic paper products. Again, Great Value is more costly per roll, but has 308 sheets per roll, to Member’s Mark’s 275. That gives Great Value 20.16 Member’s Mark-sized rolls per pack, but still adds up to 73 cents a roll.

At $32.85 for 45 rolls, that’s a full $11.52 more than the Sam’s Club equivalent. If you buy just two of these in a year, you’re halfway to paying for a basic membership.


This is the best-selling coffee at both Walmart and Sam’s Club, and it’s sold in the exact same packaging. Yet Walmart charges nearly $1.70 more for it than Sam’s Club for no apparent reason. We realize that Folgers may not be everyone’s brand of choice, but it’s the most direct comparison available and Sam’s Club came out on top by almost 15%.


Congratulations, Walmart shoppers: You’re paying more than double for those mini servings of half-and-half you get at diners and restaurants. At that unit price, the $8.72 box from Sam’s Club would cost you nearly $18 at Walmart.


You’re seeing that correctly: That’s a 67-cent win for Walmart. While Domino is the name brand in this equation, most bakers or cooks who use sugar in this amount during the year aren’t going to scoff at the generic. This is a baking staple in the greatest quantity sold at either outlet, and the sugar companies just want to let you know that you won’t see much of a cost reduction.

Hand Soap

Once you have working dispensers, there’s no reason to buy hand soap in anything other than bulk. The price of Walmart’s largest Softsoap refill is nearly five times more per ounce than the Sam’s Club equivalent.

The fact that Sam’s Club is giving you 128 ounces for less than Walmart charges for 32 should be motivation enough. However, if you want to see the gory details, that amount of Sam’s Club Softsoap would cost $35.84 at Walmart prices. That $26.97 difference would put you more than halfway toward an annual Sam’s Club membership.


  • Sam’s Club: Honey Nut Cheerios, 2-pack of 24-ounce boxes for $6.98 (unit price 14 cents an ounce)
  • Walmart: Honey Nut Cheerios, 21.6-ounce box for $3.64 (unit price 17 cents an ounce)

Cereal always ends up being a better deal at a warehouse store. In this case, however, paying for a Sam’s Club volume of cereal at the Walmart price would cost $8.16. That $1.18 uptick is a 17% difference in price and substantial if you go through enough cereal in a year.


Yep, we’re dwelling on paper again, but only because the same amount of Kleenex you’d buy at Sam’s Club costs $17.91 at Walmart. The extra $1.93 doesn’t look like much on its own, but you’re basically paying 12% more by avoiding the warehouse store.

Cold and Flu Medication

A warehouse store offers surprising deals on over-the-counter medications, but sometimes it can be frustrating to see the deal you’re getting in bulk. Those 72 LiquiCaps from Sam’s Club would cost you a whopping $69.84 if you bought the same amount at Walmart. That’s a $54.24 difference that, alone, would pay for a basic Sam’s Club membership with cash to spare.

Then again, if you’re tearing through 72 doses of NyQuil in one season, you’ve probably got other things to worry about.

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Saturday, February 17, 2018

Finding Internal Measures of Personal Finance Success

Recently, in the midst of an exchange with someone who was considering some major life changes, I wrote the following almost-completely-off-the-cuff comment that I wanted to share here:

“Feeling “average” comes from using external measures to judge the quality of your life and not internal ones. Guiding my life by internal metrics rather than external ones has literally been the best thing that’s ever happened to me in terms of how I feel about myself and my place in the world. What’s important to ME? How do I build THAT and be better at whatever THAT is? Am I better at whatever THAT is than I was a year ago or five years ago? The amount of money you make is determined very, very much by factors outside of your control, so basing your personal value on your net worth or income isn’t going to bring happiness.”

This launched a completely different route in the conversation and led to a bunch of useful and interesting observations that I’ve been reflecting on deeply for the last several days.

External Measures of Success

I think that the biggest reason that the first several years of my professional life were troubled (to say the least) was that I subscribed to external measures of success for the first time in my life. Let me explain.

When I was young, most of my measures of success were internal ones – in fact, almost all of them were. Did I feel like I was a good person who lived up to my values (or the ones I was learning from Mom and Dad)? Was I learning something new? Was I treating other people in the way I would like to be treated?

My own internal sense of how well I was doing those things steered my own sense of worth and success. For the most part, those things steered my external measures of success, too. I had a healthy number of friends, especially for someone who was (and still is) pretty introverted. I got good grades in school. You get the idea.

Over time, though, I slowly began to put more and more value on external measures of success. I remember that transition starting in high school, when I began to care more about the grades than about learning the subject. It began to really take off in my college years, when I began to worry about inherently pleasing others with my actions. Rather than doing the right thing because it was inherently the right thing, I’d often try to do it because I knew it would please or impress someone else, and their reaction to what I was doing would tell me how worthwhile my choice was.

By the time I reached my early professional years, I was almost entirely subscribed to external measures of success.

My “success” was judged by the clothes I wore and the vehicle I drove and the gadgets I owned and how casually I paid for things and how fat my wallet was at the moment. The last real internal measure of success I held onto was some of the creative work I did in my career, and over time, even that slipped away as I constantly strove for numbers that would impress others.

I judged my worth by how many people applauded my talks and how many people gave me public kudos. I judged the value of my output entirely by how many people read it or used it.

It was no longer about what I thought was good or right, but what I believed other people thought was good or right.

Where did that leave me? It left me on the precipice of financial ruin, as I had spent tons of money chasing the idea that people would respect and value me if I just had this thing or that thing. At the same time, it left me with a social circle full of people that honestly didn’t care that much about me – I really only have one or two friends from that era of my life.

I was constantly spending money and time and energy chasing some kind of external validation that was never, ever going to come. There were never going to be enough people applauding. There were never going to be enough oohs and ahhs at my latest gadget. There were never going to be enough looks of appreciation at my wardrobe.

Why? External validation and external measures of success go away at the blink of an eye, and you’re left with just you. If my sense of success comes from the applause of a crowd, what am I left with when I’m all alone? If my sense of worth is based on others ogling my watch or visiting my website, what am I left with when I’m sitting alone on a hill somewhere?

The truth is, I’m not left with much at all.

Internal Measures of Success

The solution, I’ve found, is to live life by internal measures of success. It is only through doing this as much as possible that I’ve found good personal, professional, and financial results.

This might seem like a strange solution, particularly on a website that talks about personal finance. After all, isn’t a person’s net worth a pure measure of their external success, that they’ve made enough external choices to accumulate wealth?

Bear with me for a little bit, though. We’ll get around to answering that question.

An internal measure of success starts with one simple thing: what matters to me? In the absence of anything else in the world, what matters the most to me?

My first inkling of a new direction regarding that question came from having a child. The experience of holding an infant in my arms and realizing that Sarah and I were fully responsible for the care of this helpless little guy and ensuring that he grew up to be a functional member of society and able to care for himself on his own knocked me for a loop.

What I came to realize over the next few months is that raising this child to the absolute best of my ability was something that I wanted more than anything. My boss didn’t want it, and I didn’t really care that he didn’t. My social circle didn’t want it, and I didn’t really care that they didn’t, either. Being the best possible parent I could be mattered to me, and it mattered whether there were 500 people applauding or no one applauding. It mattered whether all of my friends were on board, or none of them were.

Being the best possible parent I could be for this child mattered to me. It didn’t even really matter that much how my child turned out (because I understood that nature and nurture both play a role in the process), but that I did everything in my power to be the best possible parent by my own internal sense of what a good parent is. If I succeeded at that, then I didn’t care what other people thought. I also didn’t really care that much about the exact nature of my child’s life in adulthood – even if he didn’t have the perfect life in adulthood, I would still know I did my absolute best to guide him there, and I couldn’t ask myself for more than that.

My sense of whether I am succeeding as a parent doesn’t come from whether my children express love for me or whether they get good grades in school. It comes from whether or not I’m listening to them when they speak or whether I am there for them when they need me, or whether I am striving always to find meaningful ways to nudge them toward good, sound internal principles for them to live by. Am I doing those things with my whole heart? If I am, then I’m succeeding as a parent, no matter the outcome.

Of course, part of that success comes from having the time and resources to be the best possible parent I can be. Am I providing them with quality nutrition? With shelter and safety and security? Am I able to be present in their lives without distraction and with minimal stress on my shoulders? Do I ever have to doubt whether or not I can provide those kinds of support?

Thus, in a secondary but quite important way, a certain level of financial success plays strongly into being the best parent I can possibly be. A certain level of financial success enables me to provide the core things they need without any question. It enables me to be present in their lives with a minimal level of stress and worry, and that enables me to give them focus and attention and thought and care when they need it.

So, let’s roll forward a few years. Let’s assume that I’ve spent those intervening years doing everything I can to be a good parent. I’ve done everything I can to provide shelter for them and care for them with as little stress as possible. I’ve made good financial choices so that they can have those things without much question.

Then, suddenly, calamity strikes. My net worth is wiped out. What now?

If I judged my success by that external measure – net worth – then I would feel like a failure. I had failed my children. I had failed myself. I had failed at life.

On the other hand, if I rely on my internal measures of success – have I done everything I can do to be a good parent? – then I’ve still succeeded. An unexpected event may have flattened my net worth, but that doesn’t change the fact that I have spent those years being a good parent, giving them my attention when needed, imparting principles into their life, providing shelter and nutrition and care. That doesn’t go away just because an external metric collapses.

Internal Versus External

There are three big ways that I like to use to describe the difference between an internal metric of success and an external one.

First, is this something that I care about myself with no input from others, or is this something that is heavily connected to what I think others care about? For example, I genuinely care about being the best possible parent for my children, not because of what the neighbors think, but because I want my children to have a good life on their own terms guided by solid principles where they have the tools they need to find joy and navigate through their inevitable missteps. That’s what I care about, thus it is an internal metric. It is entirely centered around my own values and principles, not trying to match what I think the values and principles of others are.

Second, am I judging success by the process – the steps that I’m taking along the way – or by the end result? Often, the end result of a long process is something that functions as an external measure of success. “I climbed Mount Everest!” looks amazing and is a good external measure. However, if you ask any mountain climber what tells them whether they’ve succeeded at their passion of mountain climbing, they’re likely to tell you about the day-in-and-day-out process of training that made a climb of Everest not only possible, but a reasonable outcome of their training. A huge success is amazing, but the true internal measure of it is whether or not you’re truly working toward it, day in and day out.

Third, could an unexpected external event definitely harm my sense of success? It is much, much harder for an external event to wipe out a sense of internal success. For example, an unexpected event could gobble up tens of thousands of dollars tomorrow, but that wouldn’t change the fact that I am a success at being a wise steward of my money. I just wouldn’t be a person with a high net worth. My external measure of success might not look good, but my internal one still does.

A measure of success that’s oriented around something that you care about without the input of others, that’s focused on the consistent process of getting there, and can’t really be derailed by a big unexpected event is an internal metric of success.

Finding Internal Measures of Success for Finances

So, how does all of this translate to finances?

Finances are a tricky thing to tie internal success to. After all, there’s almost nothing more obvious as an external measure of success than a person’s net worth, right?

However, if you look at your financial state as the outcome of a lot of wise choices and you also look at it as a foundation for almost everything else you want to do, then it’s much easier to make it an internal measure of success.

I want to be financially successful, not so that I have a big fat bank account, but so that I can give my daughter my full attention with minimal worry and stress hanging over my head, so that I can provide my son with the shelter and nutrition and care that he needs to grow well, so that I have the free time and space to reach my other son and help him build some strong internal principles. Financial success helps me find the space to do those things and many other similar things. While financial success can seem like a big external measure of success, it can also be seen as a strong foundational internal measure of success.

So, how does one measure it?

The approach I find most powerful is simply being mindful of my individual financial moves. If a dollar leaves my possession, I want it to be used in a wise way that brings some sort of genuine meaning into my life or provides a real foundational support for the things I care about.

I can do this whenever I please by simply reviewing all of my recent purchases. For example, I might pull out all of the receipts from a day that included shopping and paying bills and simply ask myself:

Did I spend every dollar wisely today?

I can ask myself that question at the end of virtually any day. It’s a guard against meaningless spending, and the more often I can answer that question with a strong yes, the more I inflate that internal measure of financial success.

People sometimes balk at a question like that because it seems to imply that incidental purchases and expenses are strictly a bad thing. I disagree. I have a line item in my budget that’s purely for incidental expenses, giving me the freedom to be spontaneous. A dollar spent out of that pool is wisely spent; it’s only when I start going out of that pool that it starts to become unwise.

If you dig into that question a little bit, you find that it nudges you toward being smart with your spending and really shopping around for the best value for your dollar. Paying your monthly cellular bill is probably a wise move, but isn’t it even more sensible to see if there isn’t a better cellular option out there for you, whether through your current provider or a new one? The same is true for all of your bills, from insurance to household supplies.

Of course, that question about the wisdom of each dollar is smartly paired with another one:

Am I wisely putting the rest of my dollars in a place where they can be used wisely tomorrow?

If you follow the first question closely enough, it’s likely that you’re spending less than you earn. If that’s true, then what are you doing with the leftover earnings you’re not spending? Ideally, you’re putting those earnings aside for the future.

Are you doing that wisely? Are you using your extra dollars to shore up an emergency fund? To pay off high interest debt? To save for retirement?

Just letting the extra dollars sit around until you can spend them on a big splurge rather undermines the decision to be wise with your spending. Doing something wise with those extra dollars now so that you can make wise choices with them later is a much better route to follow, one that helps support all of your internal measures of success over the long haul.

Just keep asking yourself those two questions:

Did I spend every dollar wisely today?


Am I wisely putting the rest of my dollars in a place where they can be used wisely tomorrow?

If you do those things day in and day out, week in and week out, month in and month out, and you really pay attention to situations where you don’t feel like you’re following through with this internal measure of success and figure out better ways of doing things, you will achieve financial success. These questions guide you slowly toward a very healthy relationship with your money, where it is just a tool to support the things that you most care about in your life, whether it’s parenting or marriage or learning or something else entirely.

A Funny Thing Happened on the Way to the Forum

The story of the last decade of my life has been a slow return to internal measures of success, which means a lot of figuring out what I truly value and then finding ways to live out those things in my daily life.

As time went on, for example, I went from a financial panic of not having enough money to pay my bills to the slow burn of eliminating debt and eventually to the point of realizing that money only held real value and meaning if it was serving some kind of genuine purpose in my life.

I went through similar changes in most aspects of my life. My parenting is about building the foundation of an independent and self-sufficient good citizen of the world, not a facade of a successful child. My marital life is about a deep and infinitely reliable relationship based on trust, not the “perfect marriage” on social media. These things are about what I want and what genuinely matters to me, not about what other people want or think. I started making an effort to treat others exactly how I would like to be treated, rather than excessively lauding some and looking down upon others.

Yet, a funny thing happened on the way to the forum. I now have more meaningful friendships than I think I’ve ever had at any point in my life even though I have less time for social activities than I ever have. Almost every day is filled with a long list of things to do, but they all feel like they have a reason behind them and that the eventual outcome of those things is going to be a good thing.

More than anything, I’m pretty happy most of the time. It’s not because I have lots of things and lots of things to show off, but because I know what I really want out of life and I’m stumbling in that direction, and every step in that direction brings a lasting sense of contentment and joy that exceeds almost all momentary pleasures.

Financial choices play a role in that. If I consciously choose to spend my money in ways that really further that stumbling toward the things I want most effectively and I smartly use what’s left to ensure I can keep gradually moving that way, then I’m pretty happy with where my money has gone.

I’m not perfect at any of this, don’t get me wrong. I make mistakes every day. I waste time. I stick my foot in my mouth. I waste money. I don’t do what I know I should be doing. I mess up and stumble backwards sometimes.

Overall, though, I’m heading to where I want to be, little by little, day by day, and that feels pretty good.

I just trust my internal measures of success, and my financial measure is definitely one of the big ones.

Trust me, you can find it, too. If I can find it, anyone can.

The post Finding Internal Measures of Personal Finance Success appeared first on The Simple Dollar.

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Friday, February 16, 2018

The Financial Value of a Quality Information and Media Diet

Over the last few weeks, the stock market has jumped up and down like a yo-yo. Many readers have contacted me asking if I think they should make moves in their retirement account.

My answer is an almost automatic “no.”

Here’s why. Investing for retirement is a long term plan, one that’s based on sound logic and careful consideration. A good retirement investment plan understands and expects short term fluctuations in investments.

If you have a good retirement investing plan, then the stock market noise of the last few weeks is just that – noise. It doesn’t matter. In fact, it should scarcely raise an eyebrow. Why? The reality is that the day to day fluctuations in the stock market are not actionable news for almost all individual investors who aren’t incredibly wealthy.

The news on the day to day fluctuations of the stock market isn’t worth my time. That might seem to be a stunning thing to hear from a personal finance writer, but it’s true. The day to day bubbling of the stock market isn’t worth my time or attention.

I’m going to go a step further. Information that isn’t relevant enough or solid enough to genuinely inform me or cause me to take action isn’t worth my time.

Now, let’s break down what I mean by “genuinely informing me.” Anything that isn’t causing me to increase my understanding of an issue I already care about in the world, or isn’t alerting me to something that I actually need to take action on isn’t genuinely informing me. All of that stuff is just trivia or pure entertainment. I am not a more genuinely informed person from having read the headline news on most websites. All I’ve done is accumulate a bunch of trivia, none of which is actionable, none of which benefits my life, some of which is incorrect, and virtually all of which is incomplete.

None of that information helps me with my financial plans. None of that information brings me to a deeper understanding of any issue I care about. Virtually none of that information is going to lead me to take action. None of that information is well-researched and well-argued enough to ever make me change my mind. So what value does it actually have, aside from entertainment?

Frankly, it doesn’t have any lasting value, and if it’s just entertainment, there are a lot more entertaining things out there than the news headlines or angry talking heads on television.

For a long time, I persisted under the idea I needed to be “well informed on the issues of the day” in order to be able to have meaningful conversations with people. That just isn’t true. If someone starts talking about an issue and I don’t happen to know much about it, I can continue the conversation by just asking questions and authentically listening to the answers. That might nudge me to learn more about a particular issue in a deeper way, and it’ll certainly forge a better bond with that person, but it doesn’t require me to spend time reading information that doesn’t benefit my life or change my way of thinking.

One of my major resolutions for 2018 was to follow up on this concept and largely cut “junk information” and “headline news” out of my information diet aside from very specific niche areas that I know will be actionable for me. I’ve barely kept track of the latest thing the President has done or the latest celebrity comings and goings or the latest product unveilings. I have drastically cut my time spent on social media, mostly just using it as a tool to directly contact close friends and family members to set up face-to-face engagements.

And, honestly, I’m happier for it.

What have I done instead? I’ve read a number of books on philosophy and recent events/history and self-improvement and some fiction, too. I got more understanding out of what our military is doing from a book by Col. Andrew Bacevich than I got in a year of headline news. I’ve read some well-researched journalism and essays, some of which changed my thinking and others that led me to some action in my life. I watched a few movies for family movie night, cuddled up in the family room with my wife and the children around us. I haven’t turned on a cable news network this year and I’ve scarcely visited what one would call a “news” website, either.

I was a little worried about having conversations with people about the latest news, but I found that if I just ask some good questions and listen, the conversations go really well. People are always happy to share what they’ve learned and we find things to talk about.

Another interesting thing I’ve found is that my desire for new things has fallen off of a cliff. I am becoming steadily less and less interested in new products of all kinds, and that has led to a noticeable reduction in non-essential spending in January and an even bigger fall-off in February to this point. I just don’t have much interest in new stuff right now, and I think it’s due to a conscious shift in my media intake.

Perhaps most of all, I’ve found that I’m almost always better off waiting on a news story because the first reports are almost always highly inaccurate and missing a lot of key details. You almost always get a more well rounded view by waiting a month or two until a journalist has really investigated the issue from a bunch of angles and discovers that the truth is, most likely, somewhere between the overhyped news stories a month ago that were also lacking some key details. That kind of reporting influences my thinking in a rational way; the headline news does not.

So, how can this impact you? I’m going to propose a very simple thirty day challenge for you.

First, for thirty days, stop watching cable news and stop visiting news websites and cut back on your social media to the absolute bare minimum. Cut them all out of your media diet. This might seem hard at first, but trust me – there’s almost nothing actionable or deeply accurate to be found on any of those things. Just focus on not turning on the news for a while and not reading all of the opinions and rantings on social media.

Instead, devote just a little of your day to really learning about something you actually care about or building a skill you wish you had. You can do that in whatever form feels most comfortable to you. You can watch a documentary – for example, Netflix has the amazing Planet Earth II and a ton of Ken Burns documentaries. You can read a book on a topic you’ve always wanted to understand a little better, and read it slowly and take the time to really understand it. Or, you can simply experience something more deeply. Take some walks in the woods or around your town and look around carefully at the details. Listen to the birds sing and the changes going on around town. Engage in a personal hobby you care about with some extended focused time and try to go a little deeper than you’ve gone before – maybe that means playing a more challenging board game or taking on a really tough knitting project. You should have that extra “little bit of your day” available if you’re not looking at the news.

After thirty days, step back and ask how you feel about your life. Are you happier? I’m actually quite willing to bet that you will be. Do you actually understand something you didn’t understand before? Probably. Did you learn something that genuinely shapes your understanding of the world, or something you can take action on? Again, most likely.

Another thing I’ve done this year, which might be useful for you, is I stepped back and asked myself why I believed a lot of the things that I did. Why do I really think this way about that issue? I’ve been seeking answers for those questions, and along the way I’ve found, more than anything, is that other people, almost all of the time, are just acting in an honorable way in accordance with their principles, and that everyone has some human flaws but is usually genuinely trying to live up to the things they believe in. Usually, that “flaw” is getting caught up in a wave of emotion or reacting to a piece of shoddy journalism, which causes a sharper reaction than is probably necessary, but it comes from a place of principle and values.

When I was caught up in the hubbub of headline news, I didn’t give myself the chance to step back and appreciate this. It was easy to buy into the idea that a lot of people were either utterly unprincipled or corrupt, but that simply isn’t true. Almost everyone you meet out there has some values and principles that they really do hold dear and they’re trying their best to act on them and follow through on them.

Stepping back a little might just show you that others aren’t being negative or hateful, but that they really care about something that really matters to them and they’re merely clumsy with their words. That kind of appreciation can salvage a friendship or a professional relationship, and that shift can have an incredible positive impact on your personal and professional life.

So, here are the benefits I’ve found from simply cutting back on the headline news and focusing more on more thoughtful media and experiences to replace it.

One, I’m less emotionally fraught about the state of the world. I just don’t feel as worried as I once was about things. There are too many good things going on that you don’t see if you look constantly at the headlines. Stepping back from the news flow enables you to look around and see a lot of good things going on, like a beautiful sunny morning and a successful park cleanup project and the fixing of a strained relationship.

Two, I’m less motivated to buy new things. I’m less aware of them in general, and I’m far less emotionally motivated to buy anything. I just don’t see the need, and I attribute that to less input from social media and headline news.

Three, I feel like I have a better understanding of several things I care about. There are quite a few issues that I’ve struggled to understand in the modern world and the headlines certainly weren’t helping in that regard. Stepping back and actually making a concerted effort to understand those things has actually helped me shape my worldview and understand the world a little better.

Four, I feel like I have a deeper appreciation of other people, even those who have different perspectives than me. Most people are genuinely good people, who sometimes believe very strongly and deeply about worthwhile things and allow that emotion to sometimes guide them to less kind words than they should be using. When you’re also caught up on the emotional wave of the headlines, it can be really hard to see that, especially of people you don’t immediately fully agree with.

Finally, I feel almost no need to make impulsive financial decisions. I don’t feel the need to impulsively buy things. I don’t feel the need to make big changes to my investments. I’m not worried about the ups and downs of the stock market at all. I have no desire at all to make any major spur-of-the-moment decisions that will impact my finances. That can only be a huge benefit for my financial life.

Give a better media diet a shot for a while. It might help more than you think.

The post The Financial Value of a Quality Information and Media Diet appeared first on The Simple Dollar.

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