Jonathan Clements's Blog, page 230
February 14, 2022
Be Suspicious
THIS IS NOT MY favorite topic. But it���s a necessary one these days���when a seemingly endless number of companies and individuals are intent on separating us from our money. Some of them will use any means, fair or foul.
I���m going to share a story about a longtime friend whose kindness and generous nature were used against him when he was vulnerable. As much as anyone I���ve ever known, my friend���I���ll call him Bill���was a gentle man and a gentleman. He treated everybody with respect. He was honest and trustworthy. And he was always willing to help somebody in need.
A few years ago, after his wife passed away, Bill came to regard opening his mail as a daily highlight. We all know the usual content of the mail. If you separated your mail into two piles, one for people or organizations sending you money and the other for people or organizations wanting your money, almost everything would go on the second pile.
Now imagine that reality from Bill���s point of view: The mail is an important regular event, you read every piece of mail and you never want to say no. Bill���s generosity was his ticket to a growing number of mailing lists that charitable organizations bought and sold.
Fortunately, Bill made friends with a woman who we���ll call Anita, a nurse he had met at a hospital during his wife���s last illness. Anita lived near Bill and eventually became his caregiver.
One day, when Anita stopped by his house, Bill told her he had just gone to the bank. What she heard prompted her to offer to help with his bills and finances. Bill always answered the phone, and the previous day he had said yes to somebody who asked him to wire money directly from his bank account.
Bill wired $1,600. The following day, the same person called back to say that the wire transfer had not gone through. He asked Bill to send the $1,600 again. Bill went to the bank and���fortunately for him, but not for the scammer���the teller knew Bill. She not only stopped him from making that transaction, but also helped him report a fraud claim.
Anita soon learned that, in just one month, Bill had written 108 checks to 14 charities and political organizations. The checks were small, usually $10 to $25 each. But they added up to a hefty financial outflow.
Then she found that Bill had somehow signed up for monthly withdrawals from his bank account for things like ���internet repair services,��� extended warranties on items he no longer owned and undefined technical support. He was unaware of these ���services��� he had been buying. At his bank���s suggestion, Bill closed his account, though he didn���t want to because he had memorized the account number.
Anita suspected that he was being taken advantage of in other ways. Oh, was she ever right. She noticed he was receiving large boxes filled with materials that apparently were part of a ���start your own business from home��� scheme he had signed up for, thinking it would give him something to do. She opened one of the boxes and discovered it contained an invoice for $325 for ���supplies and pamphlets.���
The damage from that particular scam was much larger, as I discovered when I got involved. All told, Bill���s efforts to keep busy and be useful cost him more than $100,000.
Fortunately, Bill completely trusted Anita, and soon she got his financial affairs under control. Among other things, she persuaded him to let her review whatever checks he wrote before he put them in the mail. And she set up a laptop in a way that made it easy for them to monitor his bank account.
Unfortunately, many other seniors don���t have somebody like Anita to help them. Sometimes, the ���helper��� turns out to be the scoundrel. I knew a retired couple who relied on the choir director at their church for investment advice. When they inherited $50,000���a very substantial sum to them���they turned to this ���friend.���
The choir director was not a fiduciary advisor, and he had become very good at gaining the trust of parishioners. Maybe you can sense where this is going. From any objective viewpoint, this couple had a pretty low risk tolerance. They could not afford to lose this money.
Nevertheless, once the choir director learned of the couple's inheritance, he persuaded them to invest in limited partnerships���thus earning himself some hefty sales commissions. One limited partnership was invested in a coal-mining venture. Another was financing a grove of palm trees in South America. With a friend like this, do you need an enemy?
If I hadn���t intervened, the couple most likely would have lost all their money while the choir director kept his commissions. But after we threatened legal action against the choir director and the firm he worked for, the couple recovered all their money.
Another story comes from a friend who worked for a moving and storage company. An elderly man living in a downtown Seattle hotel, with daily visits from a paid caregiver, occasionally ordered things online. He received packages that, with the hotel���s blessing, were delivered directly to his room.
One day, a UPS driver realized she was delivering six to eight packages a day to this man, and she sensed something might be amiss. It didn���t take long for the driver to determine that most of the deliveries were things the caregiver had ordered for herself, but was charging to the man���s credit card. Fortunately, the solution was simple: a new credit card number���and a new caregiver.
There are countless other ways that older people are taken advantage of: COVID-19 scams, banking scams, phone scams, IRS scams, charity scams, investment scams, pyramid schemes. The U.S. government has created an excellent��online resource to help identify these and more���and to protect yourself or somebody you care about.
If you use email, you are a target. You may get messages asking you to confirm ���account information,��� including your phone number and shipping address. Maybe there���s ���a problem with your bank account������even a bank where you don���t have an account.
What to do? Maybe the No. 1 all-purpose suggestion I have is to simply slow down. No transaction you���re likely to make is so urgent that it can���t wait for you to think about it or get a second opinion from someone who has earned your trust. Educate yourself using the government���s website. Don���t give out personal information by phone unless you initiated the call.
I hate the need to give blanket advice to be suspicious. But as too many people have learned the hard way, that can be very good advice. In fact, that advice could save you more dollars than you care to think about.
Paul Merriman runs
PaulMerriman.com
, a site dedicated to financial education. Richard Buck contributed to the above article. Paul and Richard are the
authors
of�����We���re Talking Millions! 12 Simple Ways to Supercharge Your Retirement,��� which is also available as a free PDF.
I���m going to share a story about a longtime friend whose kindness and generous nature were used against him when he was vulnerable. As much as anyone I���ve ever known, my friend���I���ll call him Bill���was a gentle man and a gentleman. He treated everybody with respect. He was honest and trustworthy. And he was always willing to help somebody in need.
A few years ago, after his wife passed away, Bill came to regard opening his mail as a daily highlight. We all know the usual content of the mail. If you separated your mail into two piles, one for people or organizations sending you money and the other for people or organizations wanting your money, almost everything would go on the second pile.
Now imagine that reality from Bill���s point of view: The mail is an important regular event, you read every piece of mail and you never want to say no. Bill���s generosity was his ticket to a growing number of mailing lists that charitable organizations bought and sold.
Fortunately, Bill made friends with a woman who we���ll call Anita, a nurse he had met at a hospital during his wife���s last illness. Anita lived near Bill and eventually became his caregiver.
One day, when Anita stopped by his house, Bill told her he had just gone to the bank. What she heard prompted her to offer to help with his bills and finances. Bill always answered the phone, and the previous day he had said yes to somebody who asked him to wire money directly from his bank account.
Bill wired $1,600. The following day, the same person called back to say that the wire transfer had not gone through. He asked Bill to send the $1,600 again. Bill went to the bank and���fortunately for him, but not for the scammer���the teller knew Bill. She not only stopped him from making that transaction, but also helped him report a fraud claim.
Anita soon learned that, in just one month, Bill had written 108 checks to 14 charities and political organizations. The checks were small, usually $10 to $25 each. But they added up to a hefty financial outflow.
Then she found that Bill had somehow signed up for monthly withdrawals from his bank account for things like ���internet repair services,��� extended warranties on items he no longer owned and undefined technical support. He was unaware of these ���services��� he had been buying. At his bank���s suggestion, Bill closed his account, though he didn���t want to because he had memorized the account number.
Anita suspected that he was being taken advantage of in other ways. Oh, was she ever right. She noticed he was receiving large boxes filled with materials that apparently were part of a ���start your own business from home��� scheme he had signed up for, thinking it would give him something to do. She opened one of the boxes and discovered it contained an invoice for $325 for ���supplies and pamphlets.���
The damage from that particular scam was much larger, as I discovered when I got involved. All told, Bill���s efforts to keep busy and be useful cost him more than $100,000.
Fortunately, Bill completely trusted Anita, and soon she got his financial affairs under control. Among other things, she persuaded him to let her review whatever checks he wrote before he put them in the mail. And she set up a laptop in a way that made it easy for them to monitor his bank account.
Unfortunately, many other seniors don���t have somebody like Anita to help them. Sometimes, the ���helper��� turns out to be the scoundrel. I knew a retired couple who relied on the choir director at their church for investment advice. When they inherited $50,000���a very substantial sum to them���they turned to this ���friend.���
The choir director was not a fiduciary advisor, and he had become very good at gaining the trust of parishioners. Maybe you can sense where this is going. From any objective viewpoint, this couple had a pretty low risk tolerance. They could not afford to lose this money.
Nevertheless, once the choir director learned of the couple's inheritance, he persuaded them to invest in limited partnerships���thus earning himself some hefty sales commissions. One limited partnership was invested in a coal-mining venture. Another was financing a grove of palm trees in South America. With a friend like this, do you need an enemy?
If I hadn���t intervened, the couple most likely would have lost all their money while the choir director kept his commissions. But after we threatened legal action against the choir director and the firm he worked for, the couple recovered all their money.
Another story comes from a friend who worked for a moving and storage company. An elderly man living in a downtown Seattle hotel, with daily visits from a paid caregiver, occasionally ordered things online. He received packages that, with the hotel���s blessing, were delivered directly to his room.
One day, a UPS driver realized she was delivering six to eight packages a day to this man, and she sensed something might be amiss. It didn���t take long for the driver to determine that most of the deliveries were things the caregiver had ordered for herself, but was charging to the man���s credit card. Fortunately, the solution was simple: a new credit card number���and a new caregiver.
There are countless other ways that older people are taken advantage of: COVID-19 scams, banking scams, phone scams, IRS scams, charity scams, investment scams, pyramid schemes. The U.S. government has created an excellent��online resource to help identify these and more���and to protect yourself or somebody you care about.
If you use email, you are a target. You may get messages asking you to confirm ���account information,��� including your phone number and shipping address. Maybe there���s ���a problem with your bank account������even a bank where you don���t have an account.
What to do? Maybe the No. 1 all-purpose suggestion I have is to simply slow down. No transaction you���re likely to make is so urgent that it can���t wait for you to think about it or get a second opinion from someone who has earned your trust. Educate yourself using the government���s website. Don���t give out personal information by phone unless you initiated the call.
I hate the need to give blanket advice to be suspicious. But as too many people have learned the hard way, that can be very good advice. In fact, that advice could save you more dollars than you care to think about.
Paul Merriman runs
PaulMerriman.com
, a site dedicated to financial education. Richard Buck contributed to the above article. Paul and Richard are the
authors
of�����We���re Talking Millions! 12 Simple Ways to Supercharge Your Retirement,��� which is also available as a free PDF.The post Be Suspicious appeared first on HumbleDollar.
February 13, 2022
Four Debates
HARRY MARKOWITZ was a graduate student in economics at the University of Chicago. It was 1954, and he had just finished defending his thesis. Most of the committee accepted his work. But Milton Friedman, an economist with a national reputation and easily the most influential member of the economics faculty, had a problem. While he found no errors in Markowitz's work, the��problem��was that it contained no economics. Markowitz���s thesis was about investments and, in Friedman's view, that wasn't economics.
In the end, the department granted Markowitz his PhD. But Friedman had raised an interesting question: What exactly��is��finance? Is it a science like biology or chemistry? Or is it more like sociology or psychology? Or is it something else?
In 2013, the committee that awards the Nobel Prize in economics offered one clue. In that year, one prize went to Eugene Fama, an academic who had pioneered what���s now known as the Efficient Markets Hypothesis. Fama���s theory argues that investors are rational, and that they act with mathematical rigor and discipline when they buy and sell investments.
But at the same time, the Nobel committee also awarded a prize in economics to another academic, Robert Shiller, who holds the opposite view. In Shiller���s work, he���s found that investors are only sometimes rational and that psychology is a significant���if not��the��most significant���factor motivating investor behavior.
That, of course, doesn���t offer a very satisfying conclusion. The Nobel committee seemed to be saying that investing might be a rigorous science���or it might not be. But the members really weren���t sure and they didn���t say. Perhaps what they were trying to communicate is that both views are partly correct. Fama is right that sometimes investors approach things scientifically. But Shiller is also right in observing that investors lose their heads sometimes. In general, that���s the way I see it. Investors can be rational, but they can also be quite irrational.
In the decades since Markowitz���s initial work, researchers have helped to more clearly delineate the aspects of finance that are scientific from those that are more subjective. The trouble, though, is that it can be tough to know which is which. Oftentimes, that gives rise to disagreements among partisans within personal finance. One camp will view a particular question as purely scientific���with a right and a wrong answer���while the other will view it as entirely subjective and open to debate.
When disagreements like this arise, the two camps rarely see eye to eye. Those who view a question as having a right and a wrong answer can���t comprehend why anyone would persist in debating it���like continuing to debate whether the Earth is round. On the other hand, those who see a question as subject to debate are endlessly frustrated by the stubbornness of those who believe there���s only��one��answer.
This dynamic poses a problem for investors. As Mark Twain purportedly once said, ���It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.��� Over the years, I've come across many such debates. Below are the four that, in my experience, seem to cause the most consternation. On each of these questions, people tend to become overly dogmatic. In my view, though, each is an open question and should be subject to discussion:
Should you bet on cryptocurrency?��In the past, I���ve described��my concerns��about bitcoin. In short, I don���t like it because it lacks measurable intrinsic value. For that reason, I don���t recommend it. Others, however, point out that the dollar itself has no intrinsic value. It only has value because we all agree it has value.
Crypto enthusiasts believe that one or more digital currencies may one day attain that same status. While the U.S. government has the ability to create new dollars, which can generate inflation���as we���re now��witnessing���bitcoin, by design, is capped. No more can be created. This debate has gone round and round for years. So far, I���m not convinced on cryptocurrencies. But this is a case in which I don���t think anyone should say there���s a right and a wrong answer. Like a lot of new things, it bears watching.
When should you claim Social Security?��If you���re eligible for Social Security, you can claim it as early as age 62 or as late as 70. With only a few exceptions, the benefit increases by about 8% for each year that you wait. For that reason, many believe that the best strategy is to wait as long as possible to maximize the benefit. That���s my view.
But I���ve also seen people develop detailed analyses to argue that claiming earlier makes more sense and that it can be a waste to forgo multiple years of benefits. This camp believes that benefits should be claimed early so those dollars can be invested in the stock market, where they would likely earn a higher return. This is another argument which seems to have no end. There are, of course, too many unknowns���including your own longevity and market returns���to be too wedded to any one strategy. There���s no right or wrong on this.
Should you pay down your mortgage?��If you have extra funds, should you make extra mortgage payments and perhaps even pay off your balance entirely? This debate is similar in spirit to the Social Security question. The strictly mathematical view is that it doesn���t make sense to pay off a mortgage with an historically low rate of 2% or 3% when those funds could be invested in the stock market and potentially earn 8% or 10%.
There���s a good amount of logic to this argument because the stock market does go up���on average. The U.S. market has historically delivered a positive return, on an annual basis, almost 75% of the time. But as we���ve seen so far this year, it doesn���t always go up. It���s hardly guaranteed that an investor will earn more by investing than by making extra mortgage payments. On top of that, this strictly mathematical approach ignores certain realities, including the satisfaction of being debt-free. The upshot: There���s no right or wrong on this question, either.
Is 4% still a safe portfolio withdrawal rate?��In 1994, financial planner Bill Bengen concluded that 4% is the safest portfolio withdrawal rate for retirees. In short order, this became known as the ���4% rule.��� But as Bengen himself noted, this 4% conclusion was based on a number of��assumptions��and, therefore, not universally applicable. In his own practice, in fact, Bengen said he preferred 4.5%.
The bottom line: There���s no reason 4% should be treated as a rule. Still, there are many who regard it as such. On the other side, though, there are now those who believe that 4% is an outdated figure and that it would be borderline reckless to build a plan around that number. Over the years, the research on withdrawal rates has been extended and refined, and it���s certainly worth following. But since every retiree is different and will live through different market conditions, I wouldn���t be too swayed by the dogma on either side of this debate.
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.
In the end, the department granted Markowitz his PhD. But Friedman had raised an interesting question: What exactly��is��finance? Is it a science like biology or chemistry? Or is it more like sociology or psychology? Or is it something else?
In 2013, the committee that awards the Nobel Prize in economics offered one clue. In that year, one prize went to Eugene Fama, an academic who had pioneered what���s now known as the Efficient Markets Hypothesis. Fama���s theory argues that investors are rational, and that they act with mathematical rigor and discipline when they buy and sell investments.
But at the same time, the Nobel committee also awarded a prize in economics to another academic, Robert Shiller, who holds the opposite view. In Shiller���s work, he���s found that investors are only sometimes rational and that psychology is a significant���if not��the��most significant���factor motivating investor behavior.
That, of course, doesn���t offer a very satisfying conclusion. The Nobel committee seemed to be saying that investing might be a rigorous science���or it might not be. But the members really weren���t sure and they didn���t say. Perhaps what they were trying to communicate is that both views are partly correct. Fama is right that sometimes investors approach things scientifically. But Shiller is also right in observing that investors lose their heads sometimes. In general, that���s the way I see it. Investors can be rational, but they can also be quite irrational.
In the decades since Markowitz���s initial work, researchers have helped to more clearly delineate the aspects of finance that are scientific from those that are more subjective. The trouble, though, is that it can be tough to know which is which. Oftentimes, that gives rise to disagreements among partisans within personal finance. One camp will view a particular question as purely scientific���with a right and a wrong answer���while the other will view it as entirely subjective and open to debate.
When disagreements like this arise, the two camps rarely see eye to eye. Those who view a question as having a right and a wrong answer can���t comprehend why anyone would persist in debating it���like continuing to debate whether the Earth is round. On the other hand, those who see a question as subject to debate are endlessly frustrated by the stubbornness of those who believe there���s only��one��answer.
This dynamic poses a problem for investors. As Mark Twain purportedly once said, ���It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.��� Over the years, I've come across many such debates. Below are the four that, in my experience, seem to cause the most consternation. On each of these questions, people tend to become overly dogmatic. In my view, though, each is an open question and should be subject to discussion:
Should you bet on cryptocurrency?��In the past, I���ve described��my concerns��about bitcoin. In short, I don���t like it because it lacks measurable intrinsic value. For that reason, I don���t recommend it. Others, however, point out that the dollar itself has no intrinsic value. It only has value because we all agree it has value.
Crypto enthusiasts believe that one or more digital currencies may one day attain that same status. While the U.S. government has the ability to create new dollars, which can generate inflation���as we���re now��witnessing���bitcoin, by design, is capped. No more can be created. This debate has gone round and round for years. So far, I���m not convinced on cryptocurrencies. But this is a case in which I don���t think anyone should say there���s a right and a wrong answer. Like a lot of new things, it bears watching.
When should you claim Social Security?��If you���re eligible for Social Security, you can claim it as early as age 62 or as late as 70. With only a few exceptions, the benefit increases by about 8% for each year that you wait. For that reason, many believe that the best strategy is to wait as long as possible to maximize the benefit. That���s my view.
But I���ve also seen people develop detailed analyses to argue that claiming earlier makes more sense and that it can be a waste to forgo multiple years of benefits. This camp believes that benefits should be claimed early so those dollars can be invested in the stock market, where they would likely earn a higher return. This is another argument which seems to have no end. There are, of course, too many unknowns���including your own longevity and market returns���to be too wedded to any one strategy. There���s no right or wrong on this.
Should you pay down your mortgage?��If you have extra funds, should you make extra mortgage payments and perhaps even pay off your balance entirely? This debate is similar in spirit to the Social Security question. The strictly mathematical view is that it doesn���t make sense to pay off a mortgage with an historically low rate of 2% or 3% when those funds could be invested in the stock market and potentially earn 8% or 10%.
There���s a good amount of logic to this argument because the stock market does go up���on average. The U.S. market has historically delivered a positive return, on an annual basis, almost 75% of the time. But as we���ve seen so far this year, it doesn���t always go up. It���s hardly guaranteed that an investor will earn more by investing than by making extra mortgage payments. On top of that, this strictly mathematical approach ignores certain realities, including the satisfaction of being debt-free. The upshot: There���s no right or wrong on this question, either.
Is 4% still a safe portfolio withdrawal rate?��In 1994, financial planner Bill Bengen concluded that 4% is the safest portfolio withdrawal rate for retirees. In short order, this became known as the ���4% rule.��� But as Bengen himself noted, this 4% conclusion was based on a number of��assumptions��and, therefore, not universally applicable. In his own practice, in fact, Bengen said he preferred 4.5%.
The bottom line: There���s no reason 4% should be treated as a rule. Still, there are many who regard it as such. On the other side, though, there are now those who believe that 4% is an outdated figure and that it would be borderline reckless to build a plan around that number. Over the years, the research on withdrawal rates has been extended and refined, and it���s certainly worth following. But since every retiree is different and will live through different market conditions, I wouldn���t be too swayed by the dogma on either side of this debate.
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.The post Four Debates appeared first on HumbleDollar.
February 12, 2022
Road to Nowhere
I���M DEBATING whether my life is better described by Tom Cochrane���s Life Is a Highway or Eddie Rabbitt���s Driving My Life Away. In a recent article, I noted that our family has driven our cars about 1.9 million miles. Since I���m the family���s King of the Road, I���ve been along for at least two-thirds of that ride.
I���m also, alas, the king of lost time.
The average commuting speed in the Washington, D.C., area���where I live���has been estimated at 24 and 46��mph. Whatever the right number is, the roads here have been described as the nation���s most congested. Let���s split the difference and call it 35 mph. If I take my 1.25 million miles at 35 mph, I���ve been in a car for more than 35,000 hours. That works out to almost 1,500 days, or roughly four years.
Four years out of a likely 65-year adult life translates to about 10% of my total waking hours. That���s scary. These estimates don���t count our six years living overseas or time spent in others��� cars. However you run the calculation, this much is clear: Lots of my life has been spent in a car seat.
Despite this, I mostly didn���t mind my car time���as long as the car was moving. My long commute allowed us to live in a resort town, plus it gave my wife a shorter ride to work. I enjoyed audiobooks, practiced hundreds of work presentations to the windshield, pondered life���s daily challenges, worked by cell phone, listened to NPR and tuned into my favorite radio stations. My non-commuting car time���to get to family, friends or a vacation���were even less lamented.
I���m not alone in my comfort with Washington commuting, despite the congestion. According to a 2019 study by the National Capital Region Transportation Planning Board, ���Half of commuters were satisfied with their current commute,��� even though they averaged 43 minutes. Yes, there���s a federally funded group to study transportation and gridlock around the D.C. beltway. Unfortunately, no post-pandemic update has been published.
Although my work commuting has ended, I still worry about lost car time���because my daughter has ended up with a similarly long commute. I don���t want her to spend as much time in cars as I have. Her commute is 51 miles each way and averages about 50 minutes since it���s all on uncongested highways.
My commute was 60 miles and also started under an hour. Over 25 years, it extended to 90 minutes and sometimes more. It lengthened due to population growth and constant accidents, which are averaging an astonishing 22,750 per year in the D.C. region. Distracted driving has been growing thanks to cell phones, which are said to be involved somehow in 64% of accidents worldwide.
I���m hopeful and reasonably confident that future generations won���t lose as much commuting time as we baby boomers have. Telecommuting is growing, with its adoption accelerated by the pandemic. In addition, today���s commuters enjoy a host of driving assistance and entertainment technologies to enhance car time, including the accident-causing mobile phone. And, of course, autonomous driving is coming.
Technology may rescue my daughter, but it won���t bring back the four years I���ve lost. As a retiree, my car time has declined precipitously because I have no commute and drive at off-peak hours. Still, my older cars don���t have the latest tech enhancements. My one concession: I now have access to drive-time music from SiriusXM or Spotify whenever I���m On the Road Again.
I���m also, alas, the king of lost time.
The average commuting speed in the Washington, D.C., area���where I live���has been estimated at 24 and 46��mph. Whatever the right number is, the roads here have been described as the nation���s most congested. Let���s split the difference and call it 35 mph. If I take my 1.25 million miles at 35 mph, I���ve been in a car for more than 35,000 hours. That works out to almost 1,500 days, or roughly four years.
Four years out of a likely 65-year adult life translates to about 10% of my total waking hours. That���s scary. These estimates don���t count our six years living overseas or time spent in others��� cars. However you run the calculation, this much is clear: Lots of my life has been spent in a car seat.
Despite this, I mostly didn���t mind my car time���as long as the car was moving. My long commute allowed us to live in a resort town, plus it gave my wife a shorter ride to work. I enjoyed audiobooks, practiced hundreds of work presentations to the windshield, pondered life���s daily challenges, worked by cell phone, listened to NPR and tuned into my favorite radio stations. My non-commuting car time���to get to family, friends or a vacation���were even less lamented.
I���m not alone in my comfort with Washington commuting, despite the congestion. According to a 2019 study by the National Capital Region Transportation Planning Board, ���Half of commuters were satisfied with their current commute,��� even though they averaged 43 minutes. Yes, there���s a federally funded group to study transportation and gridlock around the D.C. beltway. Unfortunately, no post-pandemic update has been published.
Although my work commuting has ended, I still worry about lost car time���because my daughter has ended up with a similarly long commute. I don���t want her to spend as much time in cars as I have. Her commute is 51 miles each way and averages about 50 minutes since it���s all on uncongested highways.
My commute was 60 miles and also started under an hour. Over 25 years, it extended to 90 minutes and sometimes more. It lengthened due to population growth and constant accidents, which are averaging an astonishing 22,750 per year in the D.C. region. Distracted driving has been growing thanks to cell phones, which are said to be involved somehow in 64% of accidents worldwide.
I���m hopeful and reasonably confident that future generations won���t lose as much commuting time as we baby boomers have. Telecommuting is growing, with its adoption accelerated by the pandemic. In addition, today���s commuters enjoy a host of driving assistance and entertainment technologies to enhance car time, including the accident-causing mobile phone. And, of course, autonomous driving is coming.
Technology may rescue my daughter, but it won���t bring back the four years I���ve lost. As a retiree, my car time has declined precipitously because I have no commute and drive at off-peak hours. Still, my older cars don���t have the latest tech enhancements. My one concession: I now have access to drive-time music from SiriusXM or Spotify whenever I���m On the Road Again.
The post Road to Nowhere appeared first on HumbleDollar.
February 11, 2022
Saving the Day
I ENJOY WATCHING superhero shows. It feels good to see the hero swoop in and save the day. Truth is, however, I also get a bit annoyed, as there are always some citizens who seem to ignore imminent danger. They sometimes just stare at it coming, doing nothing to get out of harm���s way.
It���s almost like they just count on the hero saving the day, and that���s a bad strategy. Strangely, many people in real life adopt the same strategy, relying on a particular financial superhero to swoop in and save them. I call this hero Future Self.
I wrote about Future Self in the comment section below a recent��article��from Phil Kernen. Phil explained a new version of an old scheme, the buy-now-pay-later option. It sounds great���until you miss a payment and draconian interest penalties are levied.
Why do people fall for such a trap? Because they imagine that their Future Self will be a hero. He or she will regularly make all payments and save present self from the burdens taken on today. Notwithstanding any financial obligations that Future Self will have of his or her own, people expect Future Self will also be able to shoulder the debts of present self.
Future Self will have more money or, because of inflation, the money Future Self pays with will be worth less. No doubt folks also count on Future Self to get in shape, eat healthily, redeem all the accumulated airline points, and regularly call his or her mother. Future Self will save the day!
I ended up discussing Future Self with my writing collaborator, Dave. Like me, Dave likes to take an intriguing concept and riff off it. He liked the superhero analogy of Future Self saving the day, but then he took it further.
���Why do ordinary citizens always stand to the side just watching when the hero arrives, but only try to help when the hero gets in trouble? Why don't they try to help the hero earlier, distract the bad guy, give weapons or tools to the hero, or at least some water?��� he asked.
We then applied that question to Future Self. If we���re counting on Future Self to pay our debts and get us out of financial trouble, why don���t we start helping him now? How can we help Future Self? Give him tools, and that means money and means.
Max out our retirement contributions. Keep a cash reserve for the expected unexpected villains that���ll pop up, such as an out-of-network medical bill. We can also mark the calendar with the expiration dates of airline and hotel points. Most helpful to Future Self would be to minimize debt now. Future Self will have his or her own foes to battle, and doesn���t need ours as well.
When we anticipate Future Self having a big physical challenge���like running a marathon���we train, we plan and we monitor Future Self���s fitness to make sure the physical challenge will be met. Why can���t we do the same to help Future Self prepare for the financial challenges that loom on the horizon?
When we do help Future Self, we should feel free to add a note saying, ���You���re welcome.��� Future Self will like that.
It���s almost like they just count on the hero saving the day, and that���s a bad strategy. Strangely, many people in real life adopt the same strategy, relying on a particular financial superhero to swoop in and save them. I call this hero Future Self.
I wrote about Future Self in the comment section below a recent��article��from Phil Kernen. Phil explained a new version of an old scheme, the buy-now-pay-later option. It sounds great���until you miss a payment and draconian interest penalties are levied.
Why do people fall for such a trap? Because they imagine that their Future Self will be a hero. He or she will regularly make all payments and save present self from the burdens taken on today. Notwithstanding any financial obligations that Future Self will have of his or her own, people expect Future Self will also be able to shoulder the debts of present self.
Future Self will have more money or, because of inflation, the money Future Self pays with will be worth less. No doubt folks also count on Future Self to get in shape, eat healthily, redeem all the accumulated airline points, and regularly call his or her mother. Future Self will save the day!
I ended up discussing Future Self with my writing collaborator, Dave. Like me, Dave likes to take an intriguing concept and riff off it. He liked the superhero analogy of Future Self saving the day, but then he took it further.
���Why do ordinary citizens always stand to the side just watching when the hero arrives, but only try to help when the hero gets in trouble? Why don't they try to help the hero earlier, distract the bad guy, give weapons or tools to the hero, or at least some water?��� he asked.
We then applied that question to Future Self. If we���re counting on Future Self to pay our debts and get us out of financial trouble, why don���t we start helping him now? How can we help Future Self? Give him tools, and that means money and means.
Max out our retirement contributions. Keep a cash reserve for the expected unexpected villains that���ll pop up, such as an out-of-network medical bill. We can also mark the calendar with the expiration dates of airline and hotel points. Most helpful to Future Self would be to minimize debt now. Future Self will have his or her own foes to battle, and doesn���t need ours as well.
When we anticipate Future Self having a big physical challenge���like running a marathon���we train, we plan and we monitor Future Self���s fitness to make sure the physical challenge will be met. Why can���t we do the same to help Future Self prepare for the financial challenges that loom on the horizon?
When we do help Future Self, we should feel free to add a note saying, ���You���re welcome.��� Future Self will like that.
The post Saving the Day appeared first on HumbleDollar.
Early and Often
MY FIRST JOB WAS��driving the golf-ball-picker cart on the driving range at a local municipal course. That was 2003, when I was a high school sophomore. My salary: $10 a day in cash plus free golf privileges. Playing time was important to me. I was a mediocre golfer trying to make my high school team.
Eighteen years later, and now age 34, I have more than $1 million socked away���the sort of sum my teenage self would have dreamed about. But along the way, I���ve discovered that amassing seven figures is far less meaningful than I once imagined.
Back in 2003, I saved all I could, stashing my $10 in a drawer after each day on the job. While getting hit by golf balls in the picker cart, I listened to FM radio. The Clark Howard Show ran during the late afternoons. My parents sometimes also had that station on in the car during errands around Jacksonville, Florida, where everything seems to be at least 20 minutes away. I had always been interested in money, so Howard���s personal finance show resonated with me.
I learned about the wonders of the Roth IRA and the new target-date mutual funds from Vanguard Group. My first investment came in early 2004, although not at Vanguard. My mom accompanied me to a local bank, where I bought a certificate of deposit yielding a solid 2.1%. I thought, ���I can make money without having to work for it? I���m in.��� In hindsight, I should have bought stock in Apple���which is up about 40,000% since then.
I left my money to grow at the bank while I continued picking up balls at the golf course. I got a pay raise in 2004���to $15 a day. The following June, I also began working at Publix, the main grocery store chain in the Southeast. My hourly wage was $7. I spent the summer of 2004 bagging groceries and sweating at the golf course. I went on to make the golf team that fall semester.
By late 2004, I had saved $3,000. Taking Clark Howard���s advice, I opened a Roth IRA at Vanguard and bought shares of the 2040 target-date retirement fund. My $3,000 was the minimum investment needed at the time. When my certificate of deposit matured the following January, I used the proceeds to start on my 2005 IRA contribution. It took months, but I accomplished my goal, contributing the annual IRA maximum of $4,000.
My junior and senior years in high school were devoted to three things: golf, money and tracking hurricanes. I remember doing time-value-of-money exercises on my TI-83 scientific calculator in English class. I���d never heard the term ���TVM,��� but that���s what I was doing���forecasting what my net worth might be by the time I retired, some 45 years down the line. Hurricanes were also barreling toward Florida during those two active seasons. I enjoyed giving impromptu hurricane forecasts and weather reports in front of my classes, so much so that I chose meteorology as my first major in college.
Winds of change. In 2006-07, I spent my freshman year at Florida State University. I enrolled in a few ���met��� classes and even launched a weather balloon from the roof of the Love Building in Tallahassee. I still thought of myself as a weather-nerd first and a money-nerd second. But I quickly realized that, while I loved presenting weather information to a crowd, I wasn���t as excited about learning physics, chemistry and computer science. I made the switch from meteorology to finance in early 2007.
I still recall 2007���s first quarter: I was earning a cool 6% in an online savings account and the stock market was doing well. I began dabbling more in international developed and emerging market stock funds since both kept beating the lousy S&P 500. I even took my speculative talents to the next level and opened an account at E*Trade right before the spring semester ended. Apple was my first individual company stock purchase. The shares went up 10% in a matter of a few weeks. I banked my profits and felt like a genius. In reality, it was the worst sell of my life.
While at college, I kept working at Publix so I could bolster my savings and pay some bills. One significant market trend wasn���t in my favor���gas prices. A gallon of regular gasoline surged from under $2 in 2005 to above $4 by mid-2008. My 1998 Toyota Camry, while great on gas, was no fun to fill up as prices rose. It took nearly a full day���s work, after taxes, to cover the cost of a fill-up. Still, I was able to keep hitting my goal of maxing out my Roth IRA each year.
Having switched majors from meteorology to finance, I decided to move back to Jacksonville and attend the University of North Florida (UNF). Meteorology was a specialty at Florida State. But since I was no longer going to be a weatherman, there was no point staying in Tallahassee. I also increased my savings rate by living at home and commuting to classes. My net worth swelled to $30,000 as of October 2007���s stock market peak.
UNF was great because classes were in the evenings. I could work at Publix during the day and be in class at night. Unfortunately, I had extra time on weekdays, when the stock market was open. I began day-trading. Naturally, I lost a few grand during a year of trading individual stocks and options. But I learned a valuable lesson: I didn���t have the talent or temperament to beat the market over such a short timeframe. I realized I was on the wrong track and wouldn���t become the next hedge-fund billionaire. I focused once again on my long-term strategies for building wealth, including continuing to max out my Roth IRA and maintaining a high savings rate.
One of the many benefits of pursuing a finance degree at UNF was the ability to work enough hours at Publix so the company paid part of my tuition. I took advantage of Publix���s tuition reimbursement program from 2007 through my graduation in 2011. My grandmother was also kind enough to contribute to a college savings account that grew to $2,200. She endearingly dubbed it my ���Legg Mason��� money, after the firm where she invested.
At the University of North Florida, I took part in several supplemental programs, helping with the student-managed investment fund, presiding over the finance society and even writing an investment column for the school���s newspaper. Yes, for a young finance nerd, this was what constituted fun.
My final two years at college were a whirlwind. I worked for an independent insurance salesperson and then took a part-time job as a wealth management intern at a local registered investment advisor. River Capital Advisors was just across the road from college. I learned the ropes of the advisory business during the afternoons and then shot over to campus for evening classes. I was paid by the hour, allowing me to invest a tidy sum around the stock market lows of 2009. While my net worth had declined to under $20,000 by then, I knew it was smart to be buying at cheaper prices.
Trading places. Another internship opportunity came my way in 2010 at The Energy Authority, a nonprofit in downtown Jacksonville that assists utility companies in navigating the energy market. I woke up in the dark to be on the trading floor in front of four glaring computer monitors by 6:30 a.m., so I could help schedule trades. I didn���t return home until 10 p.m.
With each job, I stashed away as much money as possible. I kept my living expenses low���like ���below poverty level" low. I maxed out my retirement accounts every chance I got. When I graduated from UNF in April 2011, my net worth was $80,000, with no debt.
I began working fulltime as a stock research analyst at a local mutual fund company, but found that I was too hyperactive to spend my days reading company 10-Ks and tweaking Excel models. I struggled to find my way. A bear market struck in 2011���s third quarter. From its peak near $90,000, my net worth dipped below $70,000.
I took a job at a major brokerage firm in late 2011. I worked overtime and saved as much as possible, but burned out after a year. Still, my net worth hit a big milestone while I was a licensed representative, eclipsing $100,000 in July 2012. I celebrated by purchasing a 100 Grand chocolate bar���no joke. That early financial success got me featured in Living Large for the Long Haul, a book written by my childhood hero Clark Howard.
My new goal was to max out my 401(k) each year. I was even savvy enough to do an in-plan Roth conversion at the end of 2012, so my 401(k) would grow tax-free thereafter. I moved on from the brokerage firm and began work as an operations associate at a major investment bank with a large office on Jacksonville���s Southside, just across the street from River Capital Advisors.
I settled in with a decent salary for someone my age. I continued investing as much as I could in my Roth IRA and 401(k). I drove a 2004 Honda Civic, which was better on gas than the Camry, and was dirt-cheap. I paid just $4,200 in cash for it. It lasted about five years with little maintenance. Meanwhile, at the investment bank, I nabbed a few raises.
In late 2014, Pat, my old manager at The Energy Authority, contacted me about a job on the trading floor. We dined at a nearby Applebee���s���which he and I look back on with nostalgia���to discuss what he had up his sleeve. A month later, I was back in front of four computer monitors, but this time I was the trader doing the deals. It was a steep learning curve. My salary also grew, including a 53% pay raise in 2015.
That���s when my net worth started taking off. I ended 2014 just shy of $200,000. I moved closer to my new office, saving money in the process. After college, I rented from my parents at a rate of $1,000 per month, partly because I felt guilty about living at home rent-free during college. The 2014 move lowered my monthly rent to $469, including utilities and internet. Conveniently, I was within walking distance of Target, Walmart, Publix and church. It was a great situation���and thrifty, too.
I finished my MBA at the University of North Florida. Once again, the tuition was covered by my employer. I was on the hunt for my next challenge. I found it: the Chartered Financial Analyst (CFA) designation. Back in 2011, I had attempted to pass Level 1���and failed. Undeterred, I sought to round out my CV with the most respected and challenging finance designation around. I believed that, if I earned the CFA, I would boost my future earnings potential.
In late 2016, my net worth was rising fast. I was up to $350,000. I put my nose to the grindstone and passed each level of the CFA program, one after another. To this day, my greatest feeling of accomplishment was receiving that email confirming I completed the program and earned the right to put those three letters���CFA���after my name. My net worth climbed above $600,000 by mid-2018.
When I was a wide-eyed undergraduate at UNF, Prof. Reinhold Lamb had overseen the student-managed investment fund. During my MBA studies, I had also enrolled in three of his courses. But it turned out I wasn���t done with UNF. Lamb offered me the chance to teach his portfolio management class. I had been a regular guest lecturer for his students, but this was a whole new ballgame. I had to ensure my finance knowledge and communication skills were on point.
I began teaching in the fall of 2017 and continued through spring 2021. Teaching taught me lessons, including patience, how to listen and how to present. A university adjunct is not big money, though. Whatever I earned, I plopped in the university���s 403(b) plan, which complemented my employer���s 457(b) plan. I also kept socking money away in my Roth IRA.
Following the CFA program, I felt the obligation to monetize my CFA to the fullest. I offered my analytical and writing services on an online financial advisor forum. I got a couple of bites. I began doing portfolio due diligence and writing blog posts at an hourly rate. I wrote early in the morning before my day job started, while also teaching at UNF at night.
Meanwhile, I was advancing at The Energy Authority. I went from trader to assistant portfolio manager to portfolio manager. My total income peaked in 2019 and 2020, thanks to my work as a portfolio manager, investment writer and instructor. My net worth swelled to more than $800,000 as the ball dropped in Times Square and the fateful year of 2020 began.
Seven figures. A key lesson I learned over the past five-plus years: You can only drive down your expenses so low. I spent under $10,000 per year but couldn���t get that figure down any further, short of being homeless. Still, that was low enough, especially with my income growing rapidly. Indeed, that was the key to my financial freedom���minimal expenses and a rising income. I switched roles at The Energy Authority to the risk group in early 2020. My writing business was flourishing, and I still taught at UNF. Everything was on track.
Then came the pandemic.
My net worth notched a short-term peak near $860,000 in January 2020. That���s when I began writing for HumbleDollar. The following month, the stock market crashed. The numbers looked ugly on the personal finance spreadsheet I had kept since 2007. My portfolio bottomed at $640,000���the same level that I���d reached in September 2018. I didn���t care. I was confident the markets would recover.
They did indeed snap back, plus I still had my various jobs. I approached a huge psychological number that so many savers strive to hit: $1 million. I���m not going to lie. I checked my net worth frequently in October 2020 as I neared seven figures. Then the day finally came. Guess what? It felt like any other day. I didn���t have a profound sense of accomplishment, as I did when I earned the CFA designation. Eclipsing $1 million just seemed so empty. ���Is this it?��� I pondered the question on my daily walks. I���d achieved financial independence by saving early and often. But there were downsides to delaying gratification in such an extreme way.
I was also stressed about life at The Energy Authority. My work turned from something I looked forward to on Sunday afternoons to a job that no longer felt like a good fit. My former manager was helpful and encouraging, but I had no passion for the work, aside from the daily updates I published each morning on the energy market and weather. We agreed to a breakup in early 2021. I embarked down an uncertain road. I was writing and teaching, but doing so without a steady paycheck or comforting employee benefits.
Then the spring semester ended. After that, my only income came from the five to 10 hours a week of hourly contract work for advisors and financial firms. It was rewarding to work with others by phone, email and Zoom. I was living the good life���on paper���writing a couple of hours at most in the morning, then reading and charting before lunch. In the afternoons, I got some of that awesome Florida sunshine while listening to financial podcasts during my regular walks. Unfortunately, it was also a rather lonely life, especially now that I no longer had a trading floor full of friends and happy acquaintances with whom to socialize.
You could call me the ���reluctant FIREist.��� As of 2021, I was financially independent (FI)���and I discovered I���d unintentionally retired early (RE). It was never my goal to retire at age 33.
Realizing that I wasn���t one for the FIRE movement, I started applying for jobs, not so much for the money, but to find a little more purpose in my life. Oh, and my net worth? It hit $1.4 million by late 2021. But I don���t pay as much attention these days.
As for my portfolio, I���ve not scored big in crypto or highflying tech stocks. My tilts toward value stocks, small-caps and international shares���along with keeping more cash than I need to hold���have resulted in relatively modest annual returns compared to a portfolio heavier on U.S. stocks and technology shares. That tells me that, in my financial success, my savings rate has mattered more than my rate of return. Maybe I���ll have better investment performance in the years ahead. Who knows?
At 34 years old, I have much more work to do and, God willing, many joyous moments in life left to savor. I hope my future work will be less focused on money and more centered on having a purpose. Still, it���s comforting to know that I���m financially independent, barring a confluence of financial disasters. It���s my goal to keep working, while resisting the urge to constantly track my net worth on my old spreadsheet. I should heed the wise words of a neighbor who recently wished me a happy birthday, and then said, ���Now, go spend some of that money.���
My story may inspire others to save. But I hope it also makes them realize that they also need to enjoy life. I���ve had extreme savings habits from an early age because I���ve always been somewhat anxious. I���ve long wanted enough saved in case bad things happen. I struggle with just going with the flow. Like many people, I feel the need to be in control. But as I���ve discovered, money is not an elixir. Sure, ample cash and high retirement account balances provide financial security. But they will not bring peace and joy. My advice: Try to strike a balance, preparing financially for the long run���but also living in the moment.
Mike Zaccardi is a freelance writer for financial advisors and investment firms. He's a CFA�� charterholder and Chartered Market Technician��, and has passed the coursework for the Certified Financial Planner program. Mike is also a finance instructor at the University of North Florida. Follow him on Twitter @MikeZaccardi, connect with him via LinkedIn, email him at MikeCZaccardi@gmail.com��and check out his earlier articles.
Eighteen years later, and now age 34, I have more than $1 million socked away���the sort of sum my teenage self would have dreamed about. But along the way, I���ve discovered that amassing seven figures is far less meaningful than I once imagined.
Back in 2003, I saved all I could, stashing my $10 in a drawer after each day on the job. While getting hit by golf balls in the picker cart, I listened to FM radio. The Clark Howard Show ran during the late afternoons. My parents sometimes also had that station on in the car during errands around Jacksonville, Florida, where everything seems to be at least 20 minutes away. I had always been interested in money, so Howard���s personal finance show resonated with me.I learned about the wonders of the Roth IRA and the new target-date mutual funds from Vanguard Group. My first investment came in early 2004, although not at Vanguard. My mom accompanied me to a local bank, where I bought a certificate of deposit yielding a solid 2.1%. I thought, ���I can make money without having to work for it? I���m in.��� In hindsight, I should have bought stock in Apple���which is up about 40,000% since then.
I left my money to grow at the bank while I continued picking up balls at the golf course. I got a pay raise in 2004���to $15 a day. The following June, I also began working at Publix, the main grocery store chain in the Southeast. My hourly wage was $7. I spent the summer of 2004 bagging groceries and sweating at the golf course. I went on to make the golf team that fall semester.
By late 2004, I had saved $3,000. Taking Clark Howard���s advice, I opened a Roth IRA at Vanguard and bought shares of the 2040 target-date retirement fund. My $3,000 was the minimum investment needed at the time. When my certificate of deposit matured the following January, I used the proceeds to start on my 2005 IRA contribution. It took months, but I accomplished my goal, contributing the annual IRA maximum of $4,000.
My junior and senior years in high school were devoted to three things: golf, money and tracking hurricanes. I remember doing time-value-of-money exercises on my TI-83 scientific calculator in English class. I���d never heard the term ���TVM,��� but that���s what I was doing���forecasting what my net worth might be by the time I retired, some 45 years down the line. Hurricanes were also barreling toward Florida during those two active seasons. I enjoyed giving impromptu hurricane forecasts and weather reports in front of my classes, so much so that I chose meteorology as my first major in college.
Winds of change. In 2006-07, I spent my freshman year at Florida State University. I enrolled in a few ���met��� classes and even launched a weather balloon from the roof of the Love Building in Tallahassee. I still thought of myself as a weather-nerd first and a money-nerd second. But I quickly realized that, while I loved presenting weather information to a crowd, I wasn���t as excited about learning physics, chemistry and computer science. I made the switch from meteorology to finance in early 2007.
I still recall 2007���s first quarter: I was earning a cool 6% in an online savings account and the stock market was doing well. I began dabbling more in international developed and emerging market stock funds since both kept beating the lousy S&P 500. I even took my speculative talents to the next level and opened an account at E*Trade right before the spring semester ended. Apple was my first individual company stock purchase. The shares went up 10% in a matter of a few weeks. I banked my profits and felt like a genius. In reality, it was the worst sell of my life.
While at college, I kept working at Publix so I could bolster my savings and pay some bills. One significant market trend wasn���t in my favor���gas prices. A gallon of regular gasoline surged from under $2 in 2005 to above $4 by mid-2008. My 1998 Toyota Camry, while great on gas, was no fun to fill up as prices rose. It took nearly a full day���s work, after taxes, to cover the cost of a fill-up. Still, I was able to keep hitting my goal of maxing out my Roth IRA each year.
Having switched majors from meteorology to finance, I decided to move back to Jacksonville and attend the University of North Florida (UNF). Meteorology was a specialty at Florida State. But since I was no longer going to be a weatherman, there was no point staying in Tallahassee. I also increased my savings rate by living at home and commuting to classes. My net worth swelled to $30,000 as of October 2007���s stock market peak.
UNF was great because classes were in the evenings. I could work at Publix during the day and be in class at night. Unfortunately, I had extra time on weekdays, when the stock market was open. I began day-trading. Naturally, I lost a few grand during a year of trading individual stocks and options. But I learned a valuable lesson: I didn���t have the talent or temperament to beat the market over such a short timeframe. I realized I was on the wrong track and wouldn���t become the next hedge-fund billionaire. I focused once again on my long-term strategies for building wealth, including continuing to max out my Roth IRA and maintaining a high savings rate.
One of the many benefits of pursuing a finance degree at UNF was the ability to work enough hours at Publix so the company paid part of my tuition. I took advantage of Publix���s tuition reimbursement program from 2007 through my graduation in 2011. My grandmother was also kind enough to contribute to a college savings account that grew to $2,200. She endearingly dubbed it my ���Legg Mason��� money, after the firm where she invested.
At the University of North Florida, I took part in several supplemental programs, helping with the student-managed investment fund, presiding over the finance society and even writing an investment column for the school���s newspaper. Yes, for a young finance nerd, this was what constituted fun.
My final two years at college were a whirlwind. I worked for an independent insurance salesperson and then took a part-time job as a wealth management intern at a local registered investment advisor. River Capital Advisors was just across the road from college. I learned the ropes of the advisory business during the afternoons and then shot over to campus for evening classes. I was paid by the hour, allowing me to invest a tidy sum around the stock market lows of 2009. While my net worth had declined to under $20,000 by then, I knew it was smart to be buying at cheaper prices.
Trading places. Another internship opportunity came my way in 2010 at The Energy Authority, a nonprofit in downtown Jacksonville that assists utility companies in navigating the energy market. I woke up in the dark to be on the trading floor in front of four glaring computer monitors by 6:30 a.m., so I could help schedule trades. I didn���t return home until 10 p.m.
With each job, I stashed away as much money as possible. I kept my living expenses low���like ���below poverty level" low. I maxed out my retirement accounts every chance I got. When I graduated from UNF in April 2011, my net worth was $80,000, with no debt.
I began working fulltime as a stock research analyst at a local mutual fund company, but found that I was too hyperactive to spend my days reading company 10-Ks and tweaking Excel models. I struggled to find my way. A bear market struck in 2011���s third quarter. From its peak near $90,000, my net worth dipped below $70,000.
I took a job at a major brokerage firm in late 2011. I worked overtime and saved as much as possible, but burned out after a year. Still, my net worth hit a big milestone while I was a licensed representative, eclipsing $100,000 in July 2012. I celebrated by purchasing a 100 Grand chocolate bar���no joke. That early financial success got me featured in Living Large for the Long Haul, a book written by my childhood hero Clark Howard.
My new goal was to max out my 401(k) each year. I was even savvy enough to do an in-plan Roth conversion at the end of 2012, so my 401(k) would grow tax-free thereafter. I moved on from the brokerage firm and began work as an operations associate at a major investment bank with a large office on Jacksonville���s Southside, just across the street from River Capital Advisors.
I settled in with a decent salary for someone my age. I continued investing as much as I could in my Roth IRA and 401(k). I drove a 2004 Honda Civic, which was better on gas than the Camry, and was dirt-cheap. I paid just $4,200 in cash for it. It lasted about five years with little maintenance. Meanwhile, at the investment bank, I nabbed a few raises.
In late 2014, Pat, my old manager at The Energy Authority, contacted me about a job on the trading floor. We dined at a nearby Applebee���s���which he and I look back on with nostalgia���to discuss what he had up his sleeve. A month later, I was back in front of four computer monitors, but this time I was the trader doing the deals. It was a steep learning curve. My salary also grew, including a 53% pay raise in 2015.
That���s when my net worth started taking off. I ended 2014 just shy of $200,000. I moved closer to my new office, saving money in the process. After college, I rented from my parents at a rate of $1,000 per month, partly because I felt guilty about living at home rent-free during college. The 2014 move lowered my monthly rent to $469, including utilities and internet. Conveniently, I was within walking distance of Target, Walmart, Publix and church. It was a great situation���and thrifty, too.
I finished my MBA at the University of North Florida. Once again, the tuition was covered by my employer. I was on the hunt for my next challenge. I found it: the Chartered Financial Analyst (CFA) designation. Back in 2011, I had attempted to pass Level 1���and failed. Undeterred, I sought to round out my CV with the most respected and challenging finance designation around. I believed that, if I earned the CFA, I would boost my future earnings potential.
In late 2016, my net worth was rising fast. I was up to $350,000. I put my nose to the grindstone and passed each level of the CFA program, one after another. To this day, my greatest feeling of accomplishment was receiving that email confirming I completed the program and earned the right to put those three letters���CFA���after my name. My net worth climbed above $600,000 by mid-2018.
When I was a wide-eyed undergraduate at UNF, Prof. Reinhold Lamb had overseen the student-managed investment fund. During my MBA studies, I had also enrolled in three of his courses. But it turned out I wasn���t done with UNF. Lamb offered me the chance to teach his portfolio management class. I had been a regular guest lecturer for his students, but this was a whole new ballgame. I had to ensure my finance knowledge and communication skills were on point.
I began teaching in the fall of 2017 and continued through spring 2021. Teaching taught me lessons, including patience, how to listen and how to present. A university adjunct is not big money, though. Whatever I earned, I plopped in the university���s 403(b) plan, which complemented my employer���s 457(b) plan. I also kept socking money away in my Roth IRA.
Following the CFA program, I felt the obligation to monetize my CFA to the fullest. I offered my analytical and writing services on an online financial advisor forum. I got a couple of bites. I began doing portfolio due diligence and writing blog posts at an hourly rate. I wrote early in the morning before my day job started, while also teaching at UNF at night.
Meanwhile, I was advancing at The Energy Authority. I went from trader to assistant portfolio manager to portfolio manager. My total income peaked in 2019 and 2020, thanks to my work as a portfolio manager, investment writer and instructor. My net worth swelled to more than $800,000 as the ball dropped in Times Square and the fateful year of 2020 began.
Seven figures. A key lesson I learned over the past five-plus years: You can only drive down your expenses so low. I spent under $10,000 per year but couldn���t get that figure down any further, short of being homeless. Still, that was low enough, especially with my income growing rapidly. Indeed, that was the key to my financial freedom���minimal expenses and a rising income. I switched roles at The Energy Authority to the risk group in early 2020. My writing business was flourishing, and I still taught at UNF. Everything was on track.
Then came the pandemic.
My net worth notched a short-term peak near $860,000 in January 2020. That���s when I began writing for HumbleDollar. The following month, the stock market crashed. The numbers looked ugly on the personal finance spreadsheet I had kept since 2007. My portfolio bottomed at $640,000���the same level that I���d reached in September 2018. I didn���t care. I was confident the markets would recover.
They did indeed snap back, plus I still had my various jobs. I approached a huge psychological number that so many savers strive to hit: $1 million. I���m not going to lie. I checked my net worth frequently in October 2020 as I neared seven figures. Then the day finally came. Guess what? It felt like any other day. I didn���t have a profound sense of accomplishment, as I did when I earned the CFA designation. Eclipsing $1 million just seemed so empty. ���Is this it?��� I pondered the question on my daily walks. I���d achieved financial independence by saving early and often. But there were downsides to delaying gratification in such an extreme way.
I was also stressed about life at The Energy Authority. My work turned from something I looked forward to on Sunday afternoons to a job that no longer felt like a good fit. My former manager was helpful and encouraging, but I had no passion for the work, aside from the daily updates I published each morning on the energy market and weather. We agreed to a breakup in early 2021. I embarked down an uncertain road. I was writing and teaching, but doing so without a steady paycheck or comforting employee benefits.
Then the spring semester ended. After that, my only income came from the five to 10 hours a week of hourly contract work for advisors and financial firms. It was rewarding to work with others by phone, email and Zoom. I was living the good life���on paper���writing a couple of hours at most in the morning, then reading and charting before lunch. In the afternoons, I got some of that awesome Florida sunshine while listening to financial podcasts during my regular walks. Unfortunately, it was also a rather lonely life, especially now that I no longer had a trading floor full of friends and happy acquaintances with whom to socialize.
You could call me the ���reluctant FIREist.��� As of 2021, I was financially independent (FI)���and I discovered I���d unintentionally retired early (RE). It was never my goal to retire at age 33.
Realizing that I wasn���t one for the FIRE movement, I started applying for jobs, not so much for the money, but to find a little more purpose in my life. Oh, and my net worth? It hit $1.4 million by late 2021. But I don���t pay as much attention these days.
As for my portfolio, I���ve not scored big in crypto or highflying tech stocks. My tilts toward value stocks, small-caps and international shares���along with keeping more cash than I need to hold���have resulted in relatively modest annual returns compared to a portfolio heavier on U.S. stocks and technology shares. That tells me that, in my financial success, my savings rate has mattered more than my rate of return. Maybe I���ll have better investment performance in the years ahead. Who knows?
At 34 years old, I have much more work to do and, God willing, many joyous moments in life left to savor. I hope my future work will be less focused on money and more centered on having a purpose. Still, it���s comforting to know that I���m financially independent, barring a confluence of financial disasters. It���s my goal to keep working, while resisting the urge to constantly track my net worth on my old spreadsheet. I should heed the wise words of a neighbor who recently wished me a happy birthday, and then said, ���Now, go spend some of that money.���
My story may inspire others to save. But I hope it also makes them realize that they also need to enjoy life. I���ve had extreme savings habits from an early age because I���ve always been somewhat anxious. I���ve long wanted enough saved in case bad things happen. I struggle with just going with the flow. Like many people, I feel the need to be in control. But as I���ve discovered, money is not an elixir. Sure, ample cash and high retirement account balances provide financial security. But they will not bring peace and joy. My advice: Try to strike a balance, preparing financially for the long run���but also living in the moment.
Mike Zaccardi is a freelance writer for financial advisors and investment firms. He's a CFA�� charterholder and Chartered Market Technician��, and has passed the coursework for the Certified Financial Planner program. Mike is also a finance instructor at the University of North Florida. Follow him on Twitter @MikeZaccardi, connect with him via LinkedIn, email him at MikeCZaccardi@gmail.com��and check out his earlier articles.
The post Early and Often appeared first on HumbleDollar.
Treasured Trash
WHEN PEOPLE DISCUSS financial matters or take the ���A Year to Live��� class that I lead, there���s a common refrain: They don���t want to be a burden to their loved ones. They���re concerned about having enough money to take care of themselves when they���re older.
But even if we have plenty of money, we can still end up being a burden. How so? Our kids and other loved ones don���t want��the stuff we���ve gathered over the years. I was reminded of this recently when talking with some older friends about downsizing. For some, getting rid of beloved books, albums and paper records is like saying goodbye to long-held friendships. When we moved four years ago, we gave away more than 10 boxes of books. We still have too many.
I always ask people in my class what their five most precious possessions are, and what they plan to do with them when they���re gone. The good news: People typically hold memories much tighter than material things. The bad news: They usually have no idea who, if anyone, will want the material objects they love.
I���ve seen this up close. I was challenged and fortunate to take care of my dad when he went into home hospice care. The six weeks he thought he���d live turned into one year. I spent much of the year dealing with stuff that he and his late wife had accumulated. She was a collector, and had so many teddy bears and dolls that it was hard to get rid of them all.
When my dad died, I was grateful that the company that bought his mobile home promised to dispose of any items that remained. I have no idea where they donated the furniture and boxes of china I left behind, but I was relieved that I didn���t have to deal with them.
On the small altar in my office, there���s a handful of special keepsakes that have belonged to those I have loved. A ceramic Santa Claus my grandmother took out every year. The International House of Pancakes mug that we used to scatter most of my mom���s ashes, and which now contains eight ounces of her remains.
My favorite keepsake from my dad? A small coffee scoop I used to make his coffee each day when I took care of him during the last year of his life. When I use it each morning to make my coffee, I smile and remember that final year, and how lucky I was to share it with him so intimately.
I���m trying to dispose of as much of my stuff as I can, so my kids and other loved ones don���t have to do it when I���m gone. I hope my legacy can be a memory or a coffee scoop, not several trips to the dump.
The post Treasured Trash appeared first on HumbleDollar.
Cutting Their Cut
LET���S SAY YOU bought a few stocks on the advice of your financial advisor for $300,000. One year later, that same advisor says you���ve done really well on the stocks���which are now worth $400,000���and you should sell. After the sale, you net a $100,000 profit. Would you be willing to pay your advisor a 6% fee on the $400,000, equal to $24,000, for the advice he gave you?
If so, I���d think you were crazy. He took no risk. All he did was make a suggestion. Even if you had a $2 million portfolio and he was charging 1% of assets, you would have paid just $20,000.
Yet people think nothing of paying that same 6% commission if the $400,000 investment is a house or condo. Why would they pay such an exorbitant fee to someone who took no risk, and literally spent a fraction of that commission on marketing?
As a young airline pilot in the 1970s and ���80s, it occurred to me that I needed a backup plan since I worked in such a volatile industry. That plan was building houses. Of course, those houses needed to be sold to generate income. The first house, which I built for $80,000, we lived in for two years and then sold for $150,000. No agent. No commission. We sold it to friends. That���s where the backup plan idea came from.
During construction of the second house, I had a real estate agent stop by and ask if I���d be interested in listing the house with him. He said he���d sell it quickly and for top dollar, charging only a 6% commission. I told him I���d be interested if he���d be willing to share the risk with me by covering the payments that I needed to make on the construction loan until the sale. After all, he said he���d sell the house quickly.
He looked at me like I had four eyes. That���s not the way this works, he explained.
I listened to his pitch, politely said no, and proceeded to build and sell one or two houses a year for the next 20 years. No real estate agent. No commission. And this was at a time when there was no internet, no cellphones and no mass marketing opportunities other than the local newspaper. By some miracle, I was able to sell those homes without using a real estate agent.
Another example is when I developed a small neighborhood. I bought the property from a relocating family without an agent being involved. I started the project and eventually ended up with 25 nice-sized lots in a desirable area. A large number of real estate folks wanted a piece of that pie.
In each case, I offered them the same deal���sharing the risk to make some money. None of them accepted. None. We sold all of the lots and not once did we use a real estate agent. The average sale price was $40,000. The total commission savings on that project were about $60,000. The commissions I avoided nearly paid for the initial price of the property before improvements.
Today, there���s a variety of ways to bypass a real estate agent���s 6% fee. Most involve you doing some work, but it seems well worth the effort. I imagine that most of you reading this have already figured this out since HumbleDollar is about doing the right things with our money and investments.
Sometimes, you may need to use a real estate agent. When we moved from Ohio to South Carolina, we hadn���t sold our home in Ohio before our move. It took another 11 months to sell that home, and I wasn���t able to be there to show it or keep tabs on potential buyers. We used a reputable real estate agent and negotiated a flat fee for that transaction.
The sale price was about $400,000 and the flat fee was $10,000. The savings over a 6% commission were $14,000. The fee was acceptable to me because of the circumstances. It was also acceptable to the real estate agent because things were slow at the time. Most reputable real estate agents are willing to negotiate their fees if you take the initiative to bargain. If they aren���t willing, move on to the next agent. You���ll eventually find one.
If, however, you can show and advertise your property yourself, you should consider doing so. The savings can be substantial. There are several ���for sale by owner��� sites you can peruse to find a company that suits your needs. Some will even list your house in the valuable multiple listing service (MLS), which can be essential in making buyers aware that your property is for sale.
These companies vary according to state, so I won���t link to them in this article. Look for them using a search engine. Type in ���flat fee MLS listing services.��� You���ll be surprised at what pops up.
Just so you know, I���m not knocking real estate agents. They have their place and I don���t doubt that some of them earn what they charge. There are people out there who have no interest in selling on their own or who can���t sell on their own. There absolutely is a place for real estate agents.
I think most of us would agree that 1% of assets is an outrageous amount to pay for investment advice, especially with all the tools now available and when we know that simplicity generally yields solid results. I believe the 6% real estate commission is equally outrageous. It���s not hard to advertise or show your property to a buyer���and hanging on to that 6% is a pretty good return on the effort involved.
Tom Kubik recently retired from American Airlines after 42 years as a pilot. Working on both the management and union side of the business, he saw prosperity, bankruptcy and the disappearance of pension plans. Today, Tom and his wife still travel extensively.��Three children and seven grandchildren keep them on the go. Tom's previous articles were Why Am I Late and��The Unfriendly Skies.
If so, I���d think you were crazy. He took no risk. All he did was make a suggestion. Even if you had a $2 million portfolio and he was charging 1% of assets, you would have paid just $20,000.
Yet people think nothing of paying that same 6% commission if the $400,000 investment is a house or condo. Why would they pay such an exorbitant fee to someone who took no risk, and literally spent a fraction of that commission on marketing?
As a young airline pilot in the 1970s and ���80s, it occurred to me that I needed a backup plan since I worked in such a volatile industry. That plan was building houses. Of course, those houses needed to be sold to generate income. The first house, which I built for $80,000, we lived in for two years and then sold for $150,000. No agent. No commission. We sold it to friends. That���s where the backup plan idea came from.
During construction of the second house, I had a real estate agent stop by and ask if I���d be interested in listing the house with him. He said he���d sell it quickly and for top dollar, charging only a 6% commission. I told him I���d be interested if he���d be willing to share the risk with me by covering the payments that I needed to make on the construction loan until the sale. After all, he said he���d sell the house quickly.
He looked at me like I had four eyes. That���s not the way this works, he explained.
I listened to his pitch, politely said no, and proceeded to build and sell one or two houses a year for the next 20 years. No real estate agent. No commission. And this was at a time when there was no internet, no cellphones and no mass marketing opportunities other than the local newspaper. By some miracle, I was able to sell those homes without using a real estate agent.
Another example is when I developed a small neighborhood. I bought the property from a relocating family without an agent being involved. I started the project and eventually ended up with 25 nice-sized lots in a desirable area. A large number of real estate folks wanted a piece of that pie.
In each case, I offered them the same deal���sharing the risk to make some money. None of them accepted. None. We sold all of the lots and not once did we use a real estate agent. The average sale price was $40,000. The total commission savings on that project were about $60,000. The commissions I avoided nearly paid for the initial price of the property before improvements.
Today, there���s a variety of ways to bypass a real estate agent���s 6% fee. Most involve you doing some work, but it seems well worth the effort. I imagine that most of you reading this have already figured this out since HumbleDollar is about doing the right things with our money and investments.
Sometimes, you may need to use a real estate agent. When we moved from Ohio to South Carolina, we hadn���t sold our home in Ohio before our move. It took another 11 months to sell that home, and I wasn���t able to be there to show it or keep tabs on potential buyers. We used a reputable real estate agent and negotiated a flat fee for that transaction.
The sale price was about $400,000 and the flat fee was $10,000. The savings over a 6% commission were $14,000. The fee was acceptable to me because of the circumstances. It was also acceptable to the real estate agent because things were slow at the time. Most reputable real estate agents are willing to negotiate their fees if you take the initiative to bargain. If they aren���t willing, move on to the next agent. You���ll eventually find one.
If, however, you can show and advertise your property yourself, you should consider doing so. The savings can be substantial. There are several ���for sale by owner��� sites you can peruse to find a company that suits your needs. Some will even list your house in the valuable multiple listing service (MLS), which can be essential in making buyers aware that your property is for sale.
These companies vary according to state, so I won���t link to them in this article. Look for them using a search engine. Type in ���flat fee MLS listing services.��� You���ll be surprised at what pops up.
Just so you know, I���m not knocking real estate agents. They have their place and I don���t doubt that some of them earn what they charge. There are people out there who have no interest in selling on their own or who can���t sell on their own. There absolutely is a place for real estate agents.
I think most of us would agree that 1% of assets is an outrageous amount to pay for investment advice, especially with all the tools now available and when we know that simplicity generally yields solid results. I believe the 6% real estate commission is equally outrageous. It���s not hard to advertise or show your property to a buyer���and hanging on to that 6% is a pretty good return on the effort involved.
Tom Kubik recently retired from American Airlines after 42 years as a pilot. Working on both the management and union side of the business, he saw prosperity, bankruptcy and the disappearance of pension plans. Today, Tom and his wife still travel extensively.��Three children and seven grandchildren keep them on the go. Tom's previous articles were Why Am I Late and��The Unfriendly Skies.The post Cutting Their Cut appeared first on HumbleDollar.
February 10, 2022
Flying Blind
IN THE EARLY 1990s, my employer���an aerospace manufacturer���sent a small group of employees to Winnipeg, Canada, to help set up a production line. We were chosen because of our familiarity with the product involved.
The company provided us with a furnished apartment, a rental car and $40 a day for food. They flew us back home every two weeks, so we could take care of personal business. I���d fly to Los Angeles on Friday and return to Winnipeg on Monday. This went on for about one year.
I���d take Northwest Airlines���now part of Delta���and the flight would always make a stopover in Minneapolis-St Paul. I never liked the flights between Minneapolis and Winnipeg, which were typically on smaller, older planes. One time, I noticed some of the overhead compartment doors were held shut with duct tape. I wondered what other parts of the plane were held together with tape. The plane seemed to rattle more than other planes.
If you fly often, you���ll eventually encounter some problems. I���ve experienced my share of cancellations, delays and lost luggage. But my flight one morning from Winnipeg to Minneapolis was by far the most alarming.
About halfway through our flight, the pilot told everyone to return to their seats and fasten their seatbelts immediately because of a severe storm in our path. The flight attendants, who were in the process of serving snacks, stopped what they were doing and hurried back to their seats.
The flight got bumpy right away. You could see the lightning from the storm. Then the turbulence got intense. The plane was bouncing around like a rubber ball. There were loud noises as if the plane might fall apart in midair. I was wondering if they were still using tape to hold things together.
I noticed a woman to my left in a window seat with her head down as if she was praying. Meanwhile, I was struggling to stay in my seat. I couldn���t get the seatbelt fastened tight enough. I didn't know if it was me or the seatbelt. I was training to run a marathon and was thin as a rail. I clenched the armrests and had my feet firmly planted. I was fighting to keep from sliding under the seatbelt and onto the floor.
Everybody on the plane was quiet as a mouse, except for two men to the right of me. They were talking and laughing while they looked out the window. They were having a good time. I thought they must have had one drink too many or they were traveling salesmen who were used to these kinds of flights.
The pilot told everyone to prepare for landing. I was wondering how the pilot was going to land the plane with us bouncing around like this. There���s no way he could land with so much turbulence. As we descended, the plane suddenly leveled out. Then I could feel and hear the tires touch the runway. We made it.
As we taxied over to the gate, the stewardess said over the intercom, ���Let���s give Captain Riley a round of applause for the safe landing.��� All the passengers were clapping loudly. As I waited in line to exit the plane, I could see passengers hugging and shaking Captain Riley���s hand. I shook his hand and thanked him, too.
Afterward, I walked through the airport���s concourse with another passenger, laughing about our flight. At the time, I didn���t appreciate life���s fragility.
When I look back, I realize how financially unprepared I was when I boarded that flight. I wasn���t certain who my beneficiaries were on my retirement accounts. I didn���t have a . I had financial accounts with multiple financial institutions. The saving bonds I���d accumulated were in a plain envelope thrown in a filing cabinet with miscellaneous paperwork. I had hundreds of dollars hidden throughout my apartment, including in clothes hanging in my closet.
Instead of leaving a legacy, I would have left a major financial problem for my heirs. There was no roadmap they could have followed that would have led them to all my financial assets. Some of those assets might have gone unclaimed and wound up with the state of California. Since I didn���t have a living trust, part of my estate���s assets would have been tied up in probate court.
Today, I���m better prepared. My living trust, will, and powers of attorney for health care and financial decisions are in a three-ring binder located on my wife���s side of our walk-in closet. The binder also includes spreadsheets with all financial information, including our online accounts. Every once in a while, I point to the binder when my wife and I are in the closet, as a reminder of its importance.
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.
The company provided us with a furnished apartment, a rental car and $40 a day for food. They flew us back home every two weeks, so we could take care of personal business. I���d fly to Los Angeles on Friday and return to Winnipeg on Monday. This went on for about one year.
I���d take Northwest Airlines���now part of Delta���and the flight would always make a stopover in Minneapolis-St Paul. I never liked the flights between Minneapolis and Winnipeg, which were typically on smaller, older planes. One time, I noticed some of the overhead compartment doors were held shut with duct tape. I wondered what other parts of the plane were held together with tape. The plane seemed to rattle more than other planes.
If you fly often, you���ll eventually encounter some problems. I���ve experienced my share of cancellations, delays and lost luggage. But my flight one morning from Winnipeg to Minneapolis was by far the most alarming.
About halfway through our flight, the pilot told everyone to return to their seats and fasten their seatbelts immediately because of a severe storm in our path. The flight attendants, who were in the process of serving snacks, stopped what they were doing and hurried back to their seats.
The flight got bumpy right away. You could see the lightning from the storm. Then the turbulence got intense. The plane was bouncing around like a rubber ball. There were loud noises as if the plane might fall apart in midair. I was wondering if they were still using tape to hold things together.
I noticed a woman to my left in a window seat with her head down as if she was praying. Meanwhile, I was struggling to stay in my seat. I couldn���t get the seatbelt fastened tight enough. I didn't know if it was me or the seatbelt. I was training to run a marathon and was thin as a rail. I clenched the armrests and had my feet firmly planted. I was fighting to keep from sliding under the seatbelt and onto the floor.
Everybody on the plane was quiet as a mouse, except for two men to the right of me. They were talking and laughing while they looked out the window. They were having a good time. I thought they must have had one drink too many or they were traveling salesmen who were used to these kinds of flights.
The pilot told everyone to prepare for landing. I was wondering how the pilot was going to land the plane with us bouncing around like this. There���s no way he could land with so much turbulence. As we descended, the plane suddenly leveled out. Then I could feel and hear the tires touch the runway. We made it.
As we taxied over to the gate, the stewardess said over the intercom, ���Let���s give Captain Riley a round of applause for the safe landing.��� All the passengers were clapping loudly. As I waited in line to exit the plane, I could see passengers hugging and shaking Captain Riley���s hand. I shook his hand and thanked him, too.
Afterward, I walked through the airport���s concourse with another passenger, laughing about our flight. At the time, I didn���t appreciate life���s fragility.
When I look back, I realize how financially unprepared I was when I boarded that flight. I wasn���t certain who my beneficiaries were on my retirement accounts. I didn���t have a . I had financial accounts with multiple financial institutions. The saving bonds I���d accumulated were in a plain envelope thrown in a filing cabinet with miscellaneous paperwork. I had hundreds of dollars hidden throughout my apartment, including in clothes hanging in my closet.
Instead of leaving a legacy, I would have left a major financial problem for my heirs. There was no roadmap they could have followed that would have led them to all my financial assets. Some of those assets might have gone unclaimed and wound up with the state of California. Since I didn���t have a living trust, part of my estate���s assets would have been tied up in probate court.
Today, I���m better prepared. My living trust, will, and powers of attorney for health care and financial decisions are in a three-ring binder located on my wife���s side of our walk-in closet. The binder also includes spreadsheets with all financial information, including our online accounts. Every once in a while, I point to the binder when my wife and I are in the closet, as a reminder of its importance.
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.The post Flying Blind appeared first on HumbleDollar.
February 9, 2022
Advance to Know
DURING A RECENT vacation, my son Max and I played Monopoly. I was amazed at all the personal finance lessons you can learn from the game���one that was first produced in 1935.
We played by the actual Monopoly rules. That includes not getting money just by landing on Free Parking. It also means not auctioning off properties if the person landing on them decides not to pay the list price. These rules are important for two reasons.
First, it keeps the length of the game reasonable, important when playing with an eight- or 48-year-old boy. Second, it emphasizes the harsh realities of life in a capitalist society. Here are five key lessons you can learn from Monopoly:
1. Cash reserves are crucial. In the game, much like the current real-life environment, cash earns zero. But that doesn���t mean cash is trash. As in life, it���s important to have some cash around to pay your bills, take advantage of opportunities and get yourself out of the occasional jam. It���s also important, however, to realize that too much cash doesn���t do you much good. That cash is likely better deployed in high-rent-generating houses or, better still, hotels.
2. Debt isn���t always your friend. Whether it���s a business loan, student debt or a home mortgage, borrowing can be a wise short-term and even long-term decision. And let���s face it, sometimes it���s your only option. But borrowing can create a vicious cycle if things stop going your way.
Monopoly can teach this lesson quickly, especially if you can���t pay the required rent and find yourself mortgaging your properties. There���s a famous line in Ernest Hemingway���s The Sun Also Rises. ���How did you go bankrupt?��� Bill asked. ���Two ways,��� Mike said. ���Gradually,��then suddenly.��� I���ve experienced this on more than one occasion playing Monopoly.
3. Illiquidity bites. Real assets like land, houses and hotels can generate significant income. But if you need to sell them quickly, you might not always get your money back. The rules of Monopoly dictate that houses and hotels are liquidated at a 50% discount to their original purchase price. Though this rule is extreme, it teaches an important lesson: If you need to sell an illiquid asset in a hurry, you might not like the price.
4. Remember the golden rule. You may be expecting me to say, ���Treat others the way you want to be treated.��� But I���m referring to the other golden rule: He who has the gold makes the rules. In Monopoly, the owner of the most land, houses and hotels generally wins. One major caveat���see rule No. 2���is that these assets must be unencumbered by a mortgage to be productive. Unlike in real life, the landlord receives zero rent when there���s a mortgage on a property in Monopoly.
5. Don���t discount luck. Just like in real life, luck plays a major ���roll��� in Monopoly. Yes, I believe that ���the harder I work, the luckier I get��� and that ���you make your own luck.��� But whether it���s a game like Monopoly where you literally roll the dice, or the real world of random occurrences, luck can indeed play a key part in our success.
We played by the actual Monopoly rules. That includes not getting money just by landing on Free Parking. It also means not auctioning off properties if the person landing on them decides not to pay the list price. These rules are important for two reasons.
First, it keeps the length of the game reasonable, important when playing with an eight- or 48-year-old boy. Second, it emphasizes the harsh realities of life in a capitalist society. Here are five key lessons you can learn from Monopoly:
1. Cash reserves are crucial. In the game, much like the current real-life environment, cash earns zero. But that doesn���t mean cash is trash. As in life, it���s important to have some cash around to pay your bills, take advantage of opportunities and get yourself out of the occasional jam. It���s also important, however, to realize that too much cash doesn���t do you much good. That cash is likely better deployed in high-rent-generating houses or, better still, hotels.
2. Debt isn���t always your friend. Whether it���s a business loan, student debt or a home mortgage, borrowing can be a wise short-term and even long-term decision. And let���s face it, sometimes it���s your only option. But borrowing can create a vicious cycle if things stop going your way.
Monopoly can teach this lesson quickly, especially if you can���t pay the required rent and find yourself mortgaging your properties. There���s a famous line in Ernest Hemingway���s The Sun Also Rises. ���How did you go bankrupt?��� Bill asked. ���Two ways,��� Mike said. ���Gradually,��then suddenly.��� I���ve experienced this on more than one occasion playing Monopoly.
3. Illiquidity bites. Real assets like land, houses and hotels can generate significant income. But if you need to sell them quickly, you might not always get your money back. The rules of Monopoly dictate that houses and hotels are liquidated at a 50% discount to their original purchase price. Though this rule is extreme, it teaches an important lesson: If you need to sell an illiquid asset in a hurry, you might not like the price.
4. Remember the golden rule. You may be expecting me to say, ���Treat others the way you want to be treated.��� But I���m referring to the other golden rule: He who has the gold makes the rules. In Monopoly, the owner of the most land, houses and hotels generally wins. One major caveat���see rule No. 2���is that these assets must be unencumbered by a mortgage to be productive. Unlike in real life, the landlord receives zero rent when there���s a mortgage on a property in Monopoly.
5. Don���t discount luck. Just like in real life, luck plays a major ���roll��� in Monopoly. Yes, I believe that ���the harder I work, the luckier I get��� and that ���you make your own luck.��� But whether it���s a game like Monopoly where you literally roll the dice, or the real world of random occurrences, luck can indeed play a key part in our success.
The post Advance to Know appeared first on HumbleDollar.
February 8, 2022
Showing Up
MY WIFE AND I recently re-watched a video made by one of our nephews. In the video, he interviewed his grandparents���my wife���s parents���about their lives. He wanted to understand what they���d done or taught that built such strong family bonds that lasted over such a long time.
My wife is one of five children: three boys and two girls. Each of her four siblings is married with at least two children���11 kids in total. Eight of those 11 are married and have, so far, produced 12 grandchildren. Not an enormous family, but a family event usually consists of at least 40 attendees.
Far from perfect, the family represents the broad spectrum of humanity. But there are some obvious similarities. First, I���d say everyone possesses a strong work ethic. All work or���in the case of those who have retired���once worked. This they surely got from their parents.
My father-in-law drove a truck for almost 50 years, regularly logging 60-plus hours a week. My mother-in-law was a nurse. When the youngest child was old enough to be on his own, and with college costs looming, she went back to work. She handled the midnight shift as a nursing supervisor at a major Philadelphia hospital. She had an amazing ability to work from 11 p.m. to 7 a.m., come home, sleep four hours, and then get up and run the household.
All of their five children share a reasonable approach to money. No one lives a flashy, wasteful life. Their parents somehow owned a home, raised, fed and educated five children, and saved for retirement. They lived well within their means, didn���t spend wastefully, and saved regularly. This allowed them a comfortable retirement.
The strongest and most important trait they share is devotion to family. They had lots of aunts, uncles and cousins that they saw regularly growing up. It was just part of life���dinners at grandparents, family parties, weddings, you name it.
The family���s annual Thanksgiving reunion is a great example. My wife describes it aptly. It���s not a command performance���no one is required to be there. But year after year, four generations make whatever effort is necessary to be there.
In the video, my nephew asked his grandparents what it was that made it such a strong family. My father-in-law said the key was ���showing up.��� If someone had a wedding, a baptism, birthday party, whatever���you showed up. It wasn���t always easy, as their mom said, but you made the effort. If somebody needs you to do something or to be somewhere, you do it.
After my father-in-law passed away, we learned even more about what it meant to show up. Some cousins told my wife that her father, after dropping off his family at a family event, would quietly go pick up his nieces and nephews who didn���t have any way to get there. He also made sure there were Christmas presents under their tree.
I believe that financial strength and family strength are strongly correlated. I was lucky enough to marry into a family that lived that ethic. So much depended on those two words���showing up. They showed up at work, at home, for their neighbors and for their community. I���m happy to say their progeny still do.
My wife is one of five children: three boys and two girls. Each of her four siblings is married with at least two children���11 kids in total. Eight of those 11 are married and have, so far, produced 12 grandchildren. Not an enormous family, but a family event usually consists of at least 40 attendees.
Far from perfect, the family represents the broad spectrum of humanity. But there are some obvious similarities. First, I���d say everyone possesses a strong work ethic. All work or���in the case of those who have retired���once worked. This they surely got from their parents.
My father-in-law drove a truck for almost 50 years, regularly logging 60-plus hours a week. My mother-in-law was a nurse. When the youngest child was old enough to be on his own, and with college costs looming, she went back to work. She handled the midnight shift as a nursing supervisor at a major Philadelphia hospital. She had an amazing ability to work from 11 p.m. to 7 a.m., come home, sleep four hours, and then get up and run the household.
All of their five children share a reasonable approach to money. No one lives a flashy, wasteful life. Their parents somehow owned a home, raised, fed and educated five children, and saved for retirement. They lived well within their means, didn���t spend wastefully, and saved regularly. This allowed them a comfortable retirement.
The strongest and most important trait they share is devotion to family. They had lots of aunts, uncles and cousins that they saw regularly growing up. It was just part of life���dinners at grandparents, family parties, weddings, you name it.
The family���s annual Thanksgiving reunion is a great example. My wife describes it aptly. It���s not a command performance���no one is required to be there. But year after year, four generations make whatever effort is necessary to be there.
In the video, my nephew asked his grandparents what it was that made it such a strong family. My father-in-law said the key was ���showing up.��� If someone had a wedding, a baptism, birthday party, whatever���you showed up. It wasn���t always easy, as their mom said, but you made the effort. If somebody needs you to do something or to be somewhere, you do it.
After my father-in-law passed away, we learned even more about what it meant to show up. Some cousins told my wife that her father, after dropping off his family at a family event, would quietly go pick up his nieces and nephews who didn���t have any way to get there. He also made sure there were Christmas presents under their tree.
I believe that financial strength and family strength are strongly correlated. I was lucky enough to marry into a family that lived that ethic. So much depended on those two words���showing up. They showed up at work, at home, for their neighbors and for their community. I���m happy to say their progeny still do.
The post Showing Up appeared first on HumbleDollar.
