Jonathan Clements's Blog, page 181

Better Than a Budget

I'VE TALKED IN EARLIER articles about��asset-liability matching.��It���s�����a��concept popular with��insurance companies��to manage investment risk.��It���s��a very formal approach��and not one I would expect an individual investor to follow too��literally. But it���s a notion that, in general, can help individuals make asset allocation decisions.

In his book,��The Outsiders, William Thorndike highlights another well-known principle in corporate finance that can also be applied to personal finance: It���s called capital allocation.

Capital allocation refers to the choices that managers face in allocating corporate profits each year. In general, companies can allocate cash in one of five ways:

Reinvesting in the business
Issuing dividends to shareholders
Paying down debt
Buying back shares
Acquiring other companies

Because there are so many possible ways to use their��cash, companies will often develop a policy for guiding these decisions. Procter & Gamble, for example, tends to allocate 5% of revenue each year to capital projects���new factories and the like. Then it allocates $9 billion to dividends, and between $6 billion and $8 billion to share repurchases. If you examine the company���s cash flow statements, you���ll find that these figures are fairly consistent from year to year.

If this seems like a topic that we don���t hear much about, you���re right. It isn���t the most interesting area���even for corporate executives themselves. As far back as 1987, Warren Buffett��called out��fellow CEOs for not paying enough attention to capital allocation. ���It���s a critical job,��� Buffett said, but ���plenty of unintelligent capital allocation takes place in corporate America.���

In his book, Thorndike confirms Buffett���s assertion that capital allocation is critical.��The Outsiders��looks at a group of extraordinarily successful companies. A trait common to all of them, as you might guess, is a wise approach to capital allocation.

Like asset-liability matching, capital allocation is a very formal approach to financial management. But there are ways in which individual investors can borrow from this idea to better manage their personal finances.

Most important, thinking in terms of capital allocation can help break the logjam many of us face when the word ���budget��� is mentioned. The reality is that, despite all of the budgeting tools now available, no one really enjoys it. And the task has only gotten harder. These days, money is moving in more directions, making it harder to track. In addition to cash, checks and credit cards, there are now apps like Venmo. If you���re like most people, a proliferation of little monthly charges also hits your checking account each month.

All of this makes budgeting seem more elusive than��ever. The result: Many families today have only a general sense of their monthly spending. This isn���t good for long-term planning and, in the short term, it can lead to anxiety.

That���s where capital allocation can help. It can free you from the Herculean task of trying to track every little expense���a task so unrealistic that, in my experience, I have seen only two families ever really accomplish it. Instead, a capital allocation approach to budgeting would allow you to think about spending in an entirely different way. Below, for example, is a framework that a young family might use. Notice the very broad categories:

Housing and utilities: 20%
Student loan payments: 20%
Transportation: 10%
Discretionary expenses: 30%
Additions to savings: 20%

What about an older family? Here���s what its framework might look like:

Housing and utilities: 10%
Tuition for children: 20%
Transportation: 5%
Discretionary expenses: 30%
Additions to savings: 20%
Gifts to adult children: 10%
Gifts to charity: 5%

At first glance, you might wonder what benefit these simplified categories would really offer.��After all, as I mentioned above, the challenge is that money is going in too many different directions, making it difficult to track. Whether we use five categories or 50, that data still need to be tracked.

That���s where capital allocation can really pay off. Instead of trying to track every transaction the old-fashioned way, capital allocation takes an entirely different tack. What you want to do is to rearrange your finances such that budgeting becomes automatic. Below are a few ways to accomplish this. Note that these are just examples, and there���s��no��need to cover��every last dollar. You might try some of these techniques, and then modify them to suit your needs.

Split paycheck.��If you���re in your working years, you can ask your employer to split your��pay among more than one bank account. This should be simple enough for your employer���s payroll processor, and it���s the easiest way��to divert money away from your day-to-day checking account. If you have a retirement account like a 401(k), you���re already doing a version of this, and I���m sure you���d agree it���s very effective.

Earmarked accounts.��The next step is to earmark each of your bank accounts for specific purposes. For example, you might have one account for fixed monthly expenses and another for discretionary. You would then use a debit card tied to your discretionary account at Starbucks, at restaurants and so forth. The advantage of this approach: If you allocate a fixed sum into��this account from every paycheck, you won���t need to track every little expense. Instead, you can simply use the account���s balance as a barometer to tell you where you stand relative to your budget.

One common question: How many separate accounts should you have? Since the objective here is to develop a system that���s easy and automatic, you want to keep things as simple as possible. As a rule of thumb, you might aim for just a small handful of accounts. In the example above, you���d have just two. You might consider a third, earmarked for subscription services, which��have a habit of quietly building up over time.

Another common question: It seems like there could be a chicken-and-egg kind of problem here. If you don���t yet know how much you���re spending in each category,��how��would��you know how much to allocate to each��account? That���s a fair question, and it is a bit of a trial-and-error process to gauge the right amount. The good news: A benefit of this process is that it���ll help you identify those figures without the tedium of trying to total up every minor expense.

In retirement.��If you���re retired, this approach can work equally well. Instead of allocating your paycheck among accounts, you would instead allocate scheduled monthly transfers from your investment accounts. A key additional benefit of this approach: Instead of viewing your investment portfolio as a sort of bottomless resource���which can be a risk when one���s entire life���s savings is a few clicks away���this technique can help you gear your spending to a predetermined withdrawal rate.

Major purchases.��To borrow another concept from corporate finance, it���s helpful to accrue cash in separate accounts for significant purchases. Suppose you want to allocate $10,000 for family vacations each year. Instead of raising these funds in an ad hoc way when the vacation bills arrive,��you could instead set up regular deposits into a vacation account, so the funds are there when you need them.

Charitable giving.��For charitable giving, donor-advised funds can be very tax-efficient. They also work well with a capital allocation approach to budgeting. Suppose you like to donate $5,000 to charities each year. If that���s the case, you could transfer that sum all at once���perhaps in December of each year. Then,��throughout the year, you could��use the tracking tools built into the donor-advised fund���s website��to see where you stand relative to your annual target.

Adam M. Grossman��is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on Twitter @AdamMGrossman��and check out his earlier articles.

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News You Can’t Use

THE COLUMN I WROTE for The Wall Street Journal for more than 13 years was popular with readers���which was just as well, because it wasn���t always popular with Journal editors.

As best I could tell, top management appreciated the column, as did most of the editors I reported to directly. But others were critical. One editor, during his annual review of my performance, even demanded that I change my approach to writing the column. I threw a world-class hissy fit, the deputy managing editor intervened and I was able to carry on as before.

Still, the criticisms I received during that employee review, as well as those I heard over the years from other editors, say a lot about how the financial media operates���and why it often does a disservice to everyday investors. So, what were the criticisms I received? They were threefold:

You���re repetitive. Week after week, I���d hammer on themes like the superior long-run return from stock investing, the importance of diversification and holding down investment costs, and the futility of trying to beat the market. Was I repetitive? Absolutely.

But there���s value in repetition. Amid the financial markets��� daily turmoil, investors often lose sight of fundamental truths and make foolish changes to their portfolio. To stay the course, many folks need to be regularly reminded of what sensible investing looks like.

Equally important, the alternative to repetition���espousing a new investment strategy with every new column���would almost certainly hurt readers��� portfolio performance. Some writers, of course, do indeed devote every article to a new stock, mutual fund or market outlook. That certainly gives them plenty to write about. But I���m not sure it does much for readers, beyond getting them to fret unnecessarily over their investment mix and probably trade far too much.

Your advice is unsophisticated. Journal readers often have high incomes and fat portfolios. Some editors believed that meant these readers should be pursuing ���sophisticated��� investment strategies, and that I should be writing about such nonsense in my columns.

���Sophistication,��� of course, is a Wall Street ruse to extract hefty fees from ill-informed investors. How many investors have ended up regretting the money they sunk into hedge funds, real estate partnerships, managed futures, private equity, family trusts and goodness knows what else?

I believe the low-cost index funds I own are an appropriate choice, whether the value of someone���s portfolio runs to four figures or eight. I can���t recall ever hearing an investor regret buying broad market index funds���but I���ve heard plenty of regrets about purchasing purportedly sophisticated investments.

Your columns aren���t newsy. If you kick around for long enough, the latest hot thing seems suspiciously like some earlier hot thing. Who couldn���t observe 2021���s housing frenzy and not think of 2005 and early 2006? Who couldn���t watch the rise and fall of Cathie Wood���s ARK Innovation ETF and not recall the late 1990s and managers such as Ryan Jacob and Garrett Van Wagoner?

The financial media focuses on the markets and its key players because there���s constant change���and that makes for easy news. Is the Dow Jones Industrial Average up or down? For the financial media, it doesn���t much matter. What does matter is the market is open five days a week, delivering a ready-made topic that helps fill that day���s news hole.

But the truth is, each day���s news offers little of value to longer-term investors. Instead, for those striving to be prudent managers of their own money, the big wins are to be found in subjects that rarely rank as news, things like when to claim Social Security, what insurance you need and don���t need, estate planning, trimming taxes, saving for college and funding retirement accounts.

When I���d write about such topics, editors would want to know what the news hook was. I���d tried to cook something up. But I���m proud to admit that I often failed.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier��articles.

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Counting the Cash

EARLIER THIS YEAR, HumbleDollar unveiled its Two-Minute Checkup. All you need to do is input up to nine pieces of information and it spits out advice covering 10 areas of your financial life. When I tried it, I thought it was great���except for one thing. The amount it suggested my wife and I have in emergency cash was $13,000 higher than what we currently had.

I felt comfortable with the amount of cash we were holding, partly because the interest earned on our emergency fund was so low and I preferred to invest the money instead. But little did I know, the Two-Minute Checkup was more correct than I was.

When stocks went down over the summer, I told myself this was a good opportunity to throw some extra money into the market. It felt to me like stocks were selling at a discount, and I was intent on investing for the long term. I invested the $6,000 limit in my Roth IRA for the current year.

That drove down our cash reserves, but I knew we could replenish our emergency fund over the next few months. We still had enough for four months of living expenses. I felt like I was being an intelligent, rational investor. I was buying when stocks were on sale.

But then we had to pay for a series of costly items. Some were planned, some weren���t. Some we had to pay on short notice. Among other things, we paid for a trip to Orlando, Florida, for a wedding, paid a contractor to install ceiling fans in our house, paid for tickets to Denver to visit the in-laws because we promised we���d go, and paid for a 50-person birthday pool party for the kids.

Suddenly, within the span of a month, we were covering $5,000 of expected and unexpected expenses. We had to dip into our emergency cash to cover much of the cost. A combination of poor planning, coupled with carrying the minimum amount of cash for emergencies, led us to use up a large chunk of our cash savings.

Of course, money isn���t everything, and sometimes we just need to pay up and enjoy ourselves. As the research tells us, treating ourselves to experiences is one of the best investments we can make.

Still, I can���t shake this uneasy feeling. Seeing our cash balance so low has stressed me out. I hate seeing our balance below the cash level I���d set for our family. I feel like our emergency fund is a warm blanket of protection against risk, and every dollar missing is one step closer to the unknown. There���s nothing better than cash for the freedom and safety it provides.

I always planned on having enough cash to cover one or two big unexpected expenses, and I���ve banked on our ability to quickly replenish our cash reserve if we needed to dip into our emergency fund. But the past few months have changed my thinking. Cash isn���t just there for emergencies. It���s also the best asset for spontaneous and fun experiences.

From now on, we���ll be carrying more cash, even if it does just sit there, losing ground to inflation. I���ll get on the same page with my spouse, and get more involved in planning our trips and preparing for large expenses. And, of course, I���ll think twice before using our cash to make a large one-time investment.

Charlie Schafer is an aerospace engineer with an interest in personal finance and investing. His other hobbies include reading widely and homebrewing beer. Charlie lives with his wife and two children in South Philadelphia. His previous articles were Harsh Reminder and��A+ for Effort.

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Why I���m Sitting Tight

WHEN I WAS AGE 10, we moved from Ohio to California. My father got a job by answering a help wanted ad in a local newspaper. When we first arrived in 1961, we lived in a 36-unit apartment building in Inglewood. It���s located about two miles from the Forum, where the Los Angeles Lakers and Kings sports teams used to play their home games.

One of our neighbors in the building was an older gentleman called Jack Tarentino. He loved to play chess. It seemed like Jack was always playing chess with someone. He would sit in the common area with his tiny chess set waiting for someone to challenge him to a game. One day, he asked me if I wanted to learn chess. I guess he was desperate for someone to play with.

We played frequently until he moved away. After that, I didn���t play very often. But when I retired, I started playing more. One of the things I like about chess is that you have to think before you make a move.

I like to believe the game has taught me to be more patient and to avoid too many emotional decisions. When I slow down and think about making a move during the current bear market, I can���t think why I should. Here are seven reasons I haven���t made any changes to my investment portfolio:

1. My financial goals haven���t changed. Since my goals and investment time horizon remain the same, there���s no reason to change my asset allocation in this bear market. More important, I sleep well at night because my current portfolio is appropriate for my risk tolerance.

2. It���s hard to time the stock market. If I sell stocks to protect myself from further losses, I���d have to be right at least three times���the day when I exit an asset class, the day when I reenter and the amount of money I move with each trade. That would be tough to do.

3. Being out of the stock market for just a few days can be extremely costly. A study by Bank of America, using data going back to 1930, found that if investors missed the S&P 500���s 10 best days each decade, their cumulative share price return would be just 28%. But if they held firm through the ups and downs, the return would have been 17,715%. In addition, many of the best market days were bunched close to the worst days, making the market difficult to predict.



4. The bond market is just as unpredictable as the stock market. Like stock investors, bond investors are constantly looking ahead and factoring in new information. If I sold my bonds and planned on buying them back when the Federal Reserve stopped raising interest rates, it might be the wrong move and I could find I���d locked in my losses. In the past, bonds have partially or fully recovered before the Fed stopped raising rates. The upshot: It���s best to stick with my current bond allocation.

5. I don���t want to lose the power of compounding. Compounding is what propels a portfolio���s growth. If I���m not invested in the market, I���m giving up the ability for those dollars to compound over time.

6. Cash isn���t a better alternative. Money market yields have climbed in 2022. Still, rates remain low and are well below inflation. It doesn���t make sense, even in the short term, to swap into an asset that hasn���t in the past kept up with inflation over the long haul.

7. It���s usually best to do nothing. In a bear market, that���s often the less risky approach. In the past, the broad stock market has always bounced back. Since my investment time horizon is almost certainly longer than this down market, my portfolio should recover.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor's degree in history and an MBA. A self-described "humble investor," he likes reading historical novels and about personal finance. Check out his earlier��articles��and follow him on Twitter @DMFrie.

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Just Another Car

ONCE I GRADUATED college and started working fulltime, I knew what my first major purchase would be: a sporty new car. I was jealous of the cars my friends drove in high school. I had just spent four years grinding through an undergraduate engineering program. I was ready to reward myself.

To prepare for the purchase, I minimized my expenses. I shared an apartment with two friends who had also just graduated from college. I ate peanut butter and jelly sandwiches every day for lunch. I routinely kept my grocery bill under $20 per week, while eating out only on rare occasions.

One year after I started working fulltime, I got a call from the dealer saying that my car had just arrived and was ready for pickup. I still remember exactly where I was when I received that call, and I immediately started the hour-long drive to the dealership, giddy with excitement.

Once I arrived, I spent another hour signing paperwork. Finally, I was handed the keys and walked over to the service bay where the car was parked. I remember sliding into the front seat. My hard work and patience had finally paid off. As I gripped the steering wheel for the first time, I prepared for a wave of satisfaction to wash over me.

But nothing happened.

Instead, it quickly dawned on me that this was just another car. Sure, it was newer, faster and had more features than my current car. But it was still just a car. I was confused. This purchase was supposed to bring me so much joy. Instead, all I could think was, ���Is this really the best way to spend $40,000?���

As I drove home, I had a lot of time to think. I definitely didn���t feel any more satisfied than when I was driving my old car, though I also didn���t feel any less satisfied. That was an epiphany for me, one I���ll never forget: At that moment, I realized that if I���m not satisfied with what I currently have, I won���t be satisfied with what I have later.

Through that experience, I learned that satisfaction comes more from my mindset than it does from a single possession or a new purchase. Over the prior five years, I had unknowingly grown satisfied with working hard at school, starting a new career and learning to be frugal with my finances. The financial habits I had to develop to afford the new car had, ironically, also forced me to find satisfaction outside of material possessions.

Realizing that my car wouldn���t satisfy me has actually freed me up to enjoy it more. After six years and nearly 100,000 miles, I still enjoy driving the car. But that satisfaction now comes from seeing how long I can keep the car, rather than from pondering how soon I���ll be able to buy a new one.

There���s one story that���ll always stick with me from my first year of owning the car. I was at a gas station filling up when a man came up to me, excited to see the car I was driving. He gushed over how cool he thought the car was and asked how I could afford it.

Embarrassed by the attention and eager to shift the focus to something else, I truthfully explained that I had eaten peanut butter and jelly sandwiches every day for an entire year to pay for the car. Upon hearing that, his smile waned and I could tell that he doubted the sacrifice was worth it. I love telling others that story���because it captures a timeless truth: The disciplined savings needed to afford a major purchase is often more satisfying than the item we think we want.

Austin Dorenkamp wears many hats including software engineer, program manager, landlord, husband and therapy dog handler. He���s even been called an ice cream sommelier. If he���s not giving those around him unsolicited financial advice, Austin���s likely cracking a joke or driving in a time-efficient manner.

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Trip of a Lifetime

MY FAVORITE NOVEL by Jules Verne is Around the World in 80 Days, which I first read as a child. It was published in 1872, and documented Phileas Fogg���s attempt to circumnavigate the world in 80 days.

The book has been made into a play, six movies and a half-dozen television series, including a recent entertaining PBS series. The Three Stooges even released a feature film version in 1963.

The Wikipedia entry for the novel lists 10 real-life attempts to replicate the fictional journey. In 1988, Michael Palin���of Monty Python fame���completed a similar trip in 79 days and seven hours for a BBC documentary.

The idea of traveling around the world has always intrigued me. A good friend took a Semester at Sea��voyage in 1999. The trips are intended for fulltime students, but offer a handful of slots for ���lifelong learners.��� My friend fit that description. His stories from the trip were fascinating.

Another colleague and his wife took an extended South Pacific cruise. The cruise lasted about 100 days, with an equal number of days on land and at sea. It originated in Los Angeles and ended in Australia. In between, they cruised to Hawaii, New Zealand and a number of idyllic-sounding South Pacific islands.

My wife and I just booked a 2023 trip to Alaska���s Inner Passage with Road Scholar. My brother and sister-in-law are also going. They���re veterans of Road Scholar trips.

Road Scholar also offers a 107-day voyage on the Queen Mary 2. The trip begins and ends in London. In between, it visits 18 countries and four continents. The price starts at $39,999 for an inside stateroom and goes up to $49,999 for a suite with a balcony. This is the price per person, double occupancy.

That sounded pretty steep to me. But the trip includes 105 nights of lodging, 312 meals, 45 excursions, and transportation to and from the embarkation point. At the lowest price point, it amounts to $374 per day, or $2,617 per week.

To put this in perspective, I did a little analysis to break down the costs. These are my guesses, but I think they���re reasonable. The estimates are per person, and roughly add up to $40,000. The cost per couple would be double.

Airfare to and from London: $1,000
105 nights of lodging: $200 per night
105 dinners: $40 per meal
102 lunches: $30 per meal
105 breakfasts: $15 per meal
45 excursions: $100 each
54 lectures: $100 each

The Queen Mary 2 is a luxury ship. The lodging cost includes use of the ship���s amenities, such as the gym, library and planetarium. It also includes entertainment, like live music, magic shows and Broadway-style extravaganzas. And, of course, there's afternoon tea.

A trip like this provides some real advantages. You don���t have to switch hotels, board flights or trains, or repack your bags. Your cabin includes a king size bed and private bath. Meals are prepared for you, and stewards clean your room.

Moreover, a trip like this offers the chance to see a large swath of the world with minimal effort. There are alternative voyages available, with price tags ranging from $20,000 to $100,000 per person.

I view trips like this as a once-in-a-lifetime experience. I���m not sure I���m ready to fork over that kind of money���or, for that matter, to spend three months on a cruise ship. But the idea of a longer trip that hits many of the world���s iconic sites has its appeal, and not just to me: The 2023 Road Scholar trip is already sold out.

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D Is for Delay

REMEMBER THE OLD sayings that ���the cobbler���s children have no shoes��� and ���the carpenter���s house is falling down���? That���s how I felt last month as I frantically tried to enroll in Medicare.

My 65th birthday was in early September. Medicare has an initial enrollment period that lasts seven months. It starts three months before you turn age 65, includes your birth month, and ends three months after the month you turn 65. Suppose you were born on Sept. 15. Your open enrollment period would begin June 1 and last until Dec. 31.

If, say, you���re still working at age 65 and have health care coverage through your employer, special rules apply to Medicare enrollment and to when benefits begin. What if you aren���t covered by one of the exceptions? If you���re currently receiving Social Security benefits, you should be automatically enrolled and you���ll receive your Medicare card before your 65th birthday. This happened to a friend of ours���a widow���who was receiving Social Security survivor benefits.

What if you aren���t yet receiving Social Security? You���ll need to apply for Medicare and, if you want coverage to start in the month you turn age 65, you should submit your application no later than the month before. I understood that timeline. Problem is, I got hung up researching and choosing among Medigap plans, those add-on insurance policies that help cover what Medicare doesn���t.

My previous employer���s pension plan offers a Part B supplement plan and a Part D drug coverage plan. About three months prior to my 65th birthday, the company sent me a detailed package and enrollment forms. Unfortunately, I misplaced the package. I requested another one, but it took time to arrive.

My mistake: I should have applied for Medicare while I waited for the information and before I settled on a Medigap and Part D drug policy. The fact is, you need to enroll in Medicare before you can apply for these supplement policies. I wised up and, on Aug. 25, applied for Medicare Parts A and B through my online Social Security account. This should have ensured my coverage would start Sept. 1.

But things didn���t go smoothly. A few days later, I received a letter requesting an original birth certificate to verify my date of birth. I could mail it or drop it off at a local office. The Social Security Administration (SSA) would then return the birth certificate once it had verified my date of birth.

Recent articles talked of long lines and extensive waits as the SSA reopened offices this past April. I learned that offices were still observing COVID-19 protocols. Despite this, I drove to a local office to drop off my birth certificate in person. I reasoned I could speak to an agent to make sure there was nothing else required.

The line outside the local SSA office was a dozen deep. The office allowed just six people in at a time. When one person left, the friendly security guard let another person in. After about 30 minutes, the security guard came out and asked if anyone was only dropping off documents. He explained that I could enter the office, place my document in a special envelope and drop it in a secure box.

Three days later, I received another letter from the SSA, returning my birth certificate, and requesting that I mail in or bring to an office my birth certificate and ID. Yes, the SSA was asking for the same document it had just returned.

This confused me. The letter supplied a phone number for the local office, so I called to get clarification. Amazingly, an agent answered on the third ring. I explained my confusion and she looked up my file. I was concerned when she let out a perplexed ���huh.��� She told me that my first name was misspelled on my online Social Security account. I���ve had that account for at least a decade. Somehow, my first name was spelled with an extra ���D��� at the end.

She apologized and said this should have been communicated to me. She told me I needed to come to the office with two forms of identification, plus an original birth certificate, and apply for a replacement Social Security card. This was on a Friday afternoon. The office was open for a few more hours. I thought that maybe it wouldn���t be too crowded.

I rushed over and joined a substantial queue. An hour later, the line hadn���t moved. It was obvious I wasn���t getting in that day. I returned Monday morning 30 minutes before the office opened. I was fourth in line. Twenty minutes later, they let six of us in. About 15 minutes after that, I was at a window talking with a live agent.

She was polite and helpful. She took my documents and created the application for my replacement Social Security card. She then reviewed my Medicare application and said it had been approved. I should receive a new card, as well as my Medicare ID card, within a few weeks, the agent said.

When I got home, I checked my online Social Security account. Sure enough, the Medicare application section of my account had been updated to say my application had been approved. I was able to create an account on Medicare.gov and print an ID card.

Waiting in line at the office, I heard horror stories from my queue-mates. One woman had received benefits as a child when her father died prematurely. She had recently received a letter from the SSA saying she had to repay some of those benefits���benefits she���d received in the 1970s.

Still, I have to say that the SSA employees I dealt with at the office were very professional. They���re on the frontline of an enormous bureaucracy and deal with people who are frustrated, confused and scared. I don���t envy them.

Over the next few weeks, it all came together. I enrolled in Medigap and Part D supplement plans. I received my official Medicare ID card, a new Social Security card and the supplement plan ID cards. I���ve been able to register my new insurance information with all of my doctors.

The lesson of my saga is clear: Don���t wait. If you don���t yet have an account on Social Security���s website, create it now. It���s easy to apply for benefits online and monitor the progress of your applications. Do your research before your enrollment period begins. After all, you never know what gremlin is lurking in the system that���ll hold things up. Take it from me���your friend Richardd.

Richard Connor is��a semi-retired aerospace engineer with a keen interest in finance. He��enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter��@RConnor609��and check out his earlier articles.

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Six Tips on Term Life

I RECENTLY LISTENED to a podcast during which the speakers lamented the death of a colleague who was in his 30s. They mentioned a GoFundMe campaign to assist his family, so I assume the deceased had no life insurance. According to LIMRA, which collects data on the life insurance industry, less than 50% of millennials have individual life insurance.

There are two major types of life insurance: term and whole life. Term insurance is intended to cover a specific period, such as 10 or 20 years. Whole life insurance is more expensive because it���s designed to cover the insured���s ���whole life��� and part of each premium goes to fund an investment account.

Want the maximum death benefit for minimal cost? Term insurance is the way to go. Here are six pointers:

Life insurance is least expensive when the applicant is younger, healthier and a non-smoker.
It���s more expensive for men, thanks to their shorter life expectancy.
Both husband and wife should usually get coverage���even if one doesn���t earn an income. Why? The spouse who doesn���t work outside the home typically performs tasks���cleaning, cooking, child care���that would be costly to replace if he or she died.
The death benefit from life insurance is usually tax-free.
If a beneficiary is named, there���s no need for the policy���s payout to go through probate.
When buying term insurance, a good rule of thumb is to structure the insurance so it���ll be in place at least until the children graduate college. The amount of coverage might include enough to pay for college and pay off the mortgage.

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Four Signs of Slowing

WHEN I WAS A KID, I remember being puzzled by all the newspaper stories devoted to a recession. First, the articles said that one might be ahead. Then they said it had arrived. Immediately afterward, the stories shifted to, ���Is the recession lifting?���

The same loop is starting in my newsfeed now, with daily stories asking if a recession is ahead. It���s a definite maybe, according to the experts, but it hasn���t arrived yet. To my eye, though, it seems as if we���re already there. I take no satisfaction in this judgment, nor���for that matter���in my reduced investment account balance.

I���m sure you see the signs of a slowdown, too. I scan gas stations as I drive, looking for the least-high prices. Would-be homebuyers I know are discouraged because mortgage rates have doubled to 7%. And I���m grateful that my trusty Volvo wagon just passed inspection, as the prices for new ones seem absurd���$50,000 to $70,000.

Of course, anecdotes like these don���t count as evidence. Economists demand objective data, as they should. To be official, a recession must be declared by an eight-member committee of the National Bureau of Economic Research. It���s the keeper of the historical��record of the U.S. business cycle.

The bureau defines a recession as ���a significant decline in economic activity that is spread across the economy and lasts more than a few months.��� The last time it declared that a recession had occurred was in 2020. When it did so, the recession had already passed. While we wait for the bureau���s judgment, here are four reasons I think the recession���s already here.

First, by one definition, a recession is two consecutive quarters of economic decline, and we already crossed that bridge this summer. Gross domestic product fell 1.6% in 2022���s first three months, according to the Commerce Department. Then it contracted a further 0.6% in the second quarter, which ended June 30.

Second, the yield curve is inverted. This happens when short-term Treasury notes pay a higher rate of interest than longer-term Treasury bonds. This anomaly occurs when the Fed is putting the brakes on the economy by jacking up short-term interest rates.

The inverted yield curve was first observed to be a recession indicator by economist Campbell Harvey of Duke University in 1986. It���s preceded every recession we���ve had since 1955 and has only flashed a false signal once, according to a research��paper issued by the Federal Reserve Bank of San Francisco.

When the yield curve inverted this spring, Harvey said in an��interview that the inversion has to be between the two-year and 10-year Treasury notes and last for three months to be a true signal of a recession, and that hadn���t happened yet.

Unfortunately, we���ve now passed that milestone, according to the Federal Reserve Bank of St. Louis. The yield curve inverted briefly back in April and has been continuously inverted since early July. A yield-curve inversion can precede a recession by anywhere from six to 24 months, and it���s been seven months since the first warning flashed on April 1.

Third, the Federal Reserve is not our friend. After the 2008-09 Great Recession, bad economic news paradoxically would send the stock market up, as Wall Street felt the Fed would refill the punchbowl to keep the party going. But it played the part of a host too well, with the hangover of inflation arriving last year. The 12-month inflation rate shot up from 1.4% in September 2020 to 8.2% in��September 2022, near a 40-year high.

Now, the Fed���s goal is to cool the economy, and it���s using rough medicine. With its third consecutive 0.75-percentage-point interest rate increase in September, it brought the federal funds rate to the 3% to 3.25% range, the highest it���s been since 2008.

The Fed is also letting about $60 billion worth of Treasurys and $30 billion worth of mortgage-backed securities mature each month without reinvestment, a practice called quantitative tightening that leads to higher interest rates. Fed Chair Jerome Powell estimates this is equivalent to a 0.25-percentage-point rate hike in its effect on the economy.

Higher rates have already cooled demand for big-ticket items like houses and cars, and retail stores are also reporting slower sales this fall. Amazon held a special Prime Day this month to work off its inventories, and reports are that sales were like that of an ordinary day.

Fourth, international trade is��slowing, according to the World Trade Organization. Ever since the North American Free Trade Act became law in 1993, U.S. companies were free to seek cheaper labor in other nations and, in return, the prices of food, clothes and TVs dropped for U.S. consumers.

The great English economist David Ricardo proved that both sides benefit from such an exchange, as each nation specializes in what it makes best in a rising tide of commerce. Some one billion��people rose out of extreme poverty around the globe over the past quarter century, according to the World Bank, as economic integration grew around the globe.

Now, those immense supply lines have proven fragile, and many goods produced far away are in short supply. I���ll end with one more anecdote. Shortly before the pandemic, my wife and I ordered a new stove for our kitchen. It was coming from the factory and we were told there were ���supply chain issues.��� More than two years passed as our four-burner worked its way around the world.

When it finally arrived at our door last Wednesday, it didn���t quite fit. We were told it would cost another $318 to install. With the world feeling so completely changed from the easy-money days of 2020, the new stove suddenly seemed like a needless extravagance. The current one works fine and just needs a new vent switch. The store gave us a full refund, and we felt relieved to avoid a $3,800 expense.

Has the recession begun? Yes, and I think I can see it in my kitchen.

Greg Spears is HumbleDollar's��deputy editor.��Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger���s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph���s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.

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Hitting the Brakes

FOR MORE THAN 30 years, my primary hobby has been training dogs. I���ve trained my own dogs, winning multiple performance titles along the way. I���ve also devoted years to coaching dogs, and their owners, as part of a dog sports team. I���ve spent thousands of hours���and thousands of dollars���attending dog competitions.

My husband shares my passion for dog training. He spent nearly three years training one of our German shepherds to be a member of a canine search and rescue team. I���m adept at training dogs to perform tricks and various obedience behaviors. My husband prefers to work on solving the complex behavioral issues that plague certain dogs.

Late last year, we began contemplating whether to start our own dog training business. The retirement community where we live is home to thousands of dogs. We assumed their owners might be interested in tapping into our dog training knowledge. We thought a training business might be the ideal way to provide us with some supplemental income.

In June, my husband and I launched our business. We started small, handing out business cards and brochures at our neighborhood dog park and veterinary office. I posted a couple of advertisements on Nextdoor and Facebook. In the first week, I fielded four phone calls from people interested in learning more about our training programs. I became convinced there was a need for our services.

We landed our first paying client within two weeks of starting to advertise. Soon after, we attended a gathering of local small business owners. It seemed everyone we spoke to was enthusiastic and encouraging about our business model. This fueled my belief we were destined for success.

I registered our business name with the state, opened a business banking account and filed the appropriate forms with the IRS. Since we didn���t have a facility where we could hold classes, we offered to train dogs at their owner's home. We were convinced, however, that we would need to rent a location if we wanted our business to prosper. How could we possibly compete with the training offered by a big-box pet retailer���located just a couple of miles away���if we didn���t have our own facility?

Our search for a location began in July. Within a couple of weeks, we found an ideal location. The 1,300-square-foot retail space was located four doors down from a busy veterinary clinic and directly across the street from a dog grooming salon. I contacted a real estate agent and we began negotiating the terms of the lease.

For the next three weeks, I had visions of both overwhelming business success and dismal failure. One minute, I imagined we would be so busy we���d be turning people and their dogs away. The next minute, I���d picture our space completely devoid of customers.

At the same time, I noticed how���despite spending more time and money on advertising���we were no longer getting inquiries from potential clients. I chalked it up to people being on vacation or too busy with other activities.

When the lease negotiations were nearly finalized, I sat down and looked at the financial implications of our business model. Between startup costs, three years of rent and various other expenses, we���d be out at least $100,000. Even with a steady stream of clients taking classes, I questioned if we���d be able to make a profit.

I began to wonder if I was projecting my own enthusiasm for dog training onto the population as a whole. It was easy to believe the activity I���m passionate about must be the same thing everyone else loves to do. I knew I needed to step back and look at our business plan like an outside investor rather than as a dog-crazy entrepreneur.

I started to assess our customer base. My husband and I own four high-drive working dogs. We spend several hours a day training and working with them. By contrast, the majority of people in our community own one low-drive pet. For most of those dogs, going for an early morning walk or a trip to the dog park may be enough to satisfy them mentally and physically.

I began to think about economic realities. My husband and I have a stream of income from a state pension, Social Security and a rental property. We���ve been able to maintain a reasonable level of disposable income despite recent increases in the cost of living. But many of our neighbors may not be as lucky. For them, spending money on dog training would be a luxury, not a necessity.

On the day we were to sign the lease, the Dow Jones Industrial Average dropped almost 1,300 points.�� A worse-than-expected inflation report was also released. My husband and I decided that starting a business, when the country may be on the brink of a recession, was not the best idea.

For now, we will continue to offer to train dogs in people���s homes. We���re also considering alternatives. Local shelters are often in need of trainers to work with clients who adopt dogs. In addition, we may look into starting a dog training club in our community.

Kristine Hayes Nibler recently retired, and she and her husband now live in Arizona. She enjoys spending her time reading, writing and training their four dogs.��Check out Kristine's earlier articles.

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