Jonathan Clements's Blog, page 268
September 4, 2021
No Point Shouting
TEACHERS SHARE space with people who aren���t as knowledgeable or understanding of a subject as they are. Sometimes, students will display incredible depths of ignorance. Most students try, but there are some who are unwilling to meet a teacher even halfway. Worst of all are the insolent ones. Proud of their ignorance, they dismiss the subject���and the teacher���with not-so-veiled disrespect.
You know what a good teacher does in the face of all this? She takes a moment, squelches all her frustration and even anger, and tries again.
Jonathan Swift observed more than 300 years ago that, ���Falsehood flies, and the Truth comes limping after it.��� Imagine his reaction to today���s instantaneous, million-multiplying falsehoods that travel at the speed of social media? We���ve all been faced with the sneer of the doubters, adamant about their misinformation.
Unfortunately, most of us aren���t good teachers. We shout, we question the person���s intelligence, we throw out gratuitous insults. We could ask for the source of their information. Instead, we opt for rhetorical questions like, ���How can you be so stupid?���
We need to be good teachers. Spewing venom, even as a return shot, does nothing to educate the ignorant person. In fact, it drives them (and perhaps you) further from learning. It may feel good, but it���s really a prideful display of our supposed superiority. This only tends to escalate the situation.
You may say you don���t have time for such lost souls. But that���s like a doctor saying he only treats the healthy and has no time for the truly sick. If you���re out of patience, just walk away. Spewing bile only leaves the other person more entrenched and more difficult for the next person to persuade.
You already know this. Everyone does. No one has ever experienced a change of heart after being yelled at or insulted, no matter how wrong he may be.
Good teachers also know one other thing. Education is a life-long process. There is almost never an ���aha��� moment like in the movies. Understanding is gained inch by inch, from open-minded people willing to revisit what they think they already know. It���s a long road traveled on little wheels. It takes lots of turns to make progress���and it goes faster if the road is paved with patience.
You know what a good teacher does in the face of all this? She takes a moment, squelches all her frustration and even anger, and tries again.
Jonathan Swift observed more than 300 years ago that, ���Falsehood flies, and the Truth comes limping after it.��� Imagine his reaction to today���s instantaneous, million-multiplying falsehoods that travel at the speed of social media? We���ve all been faced with the sneer of the doubters, adamant about their misinformation.
Unfortunately, most of us aren���t good teachers. We shout, we question the person���s intelligence, we throw out gratuitous insults. We could ask for the source of their information. Instead, we opt for rhetorical questions like, ���How can you be so stupid?���
We need to be good teachers. Spewing venom, even as a return shot, does nothing to educate the ignorant person. In fact, it drives them (and perhaps you) further from learning. It may feel good, but it���s really a prideful display of our supposed superiority. This only tends to escalate the situation.
You may say you don���t have time for such lost souls. But that���s like a doctor saying he only treats the healthy and has no time for the truly sick. If you���re out of patience, just walk away. Spewing bile only leaves the other person more entrenched and more difficult for the next person to persuade.
You already know this. Everyone does. No one has ever experienced a change of heart after being yelled at or insulted, no matter how wrong he may be.
Good teachers also know one other thing. Education is a life-long process. There is almost never an ���aha��� moment like in the movies. Understanding is gained inch by inch, from open-minded people willing to revisit what they think they already know. It���s a long road traveled on little wheels. It takes lots of turns to make progress���and it goes faster if the road is paved with patience.
The post No Point Shouting appeared first on HumbleDollar.
Never Better
BECAUSE WE���RE HUMAN, we always find something to complain about. But I���ve come to believe there���s never been a better time to be a regular, everyday investor.
No, I���m not suggesting stocks are some great once-in-a-lifetime bargain. Rather, I mean the choices available to investors have never been greater, thanks in part to the growth of exchange-traded funds and the disappearance of brokerage commissions. On top of that, the costs of fund investing have never been lower.
This was demonstrated again by the latest annual��fund-fee study from independent fund analysis firm Morningstar. The study found that the average expense ratio paid by fund investors is half that of 20 years ago. The study includes all mutual funds and exchange-traded funds (ETFs).
���Between 2000 and 2020, the asset-weighted average fee fell to 0.41% from 0.93%,��� says Morningstar. ���Investors have saved billions as a result.�����Even just the change from 2019 to 2020���from 0.44% to 0.41%��� saved investors $6.2 billion last year.
One factor driving the decline is competition among fund companies. Some index funds and ETFs now charge investors no expense ratio at all. That���s right: You can own a piece of every publicly traded company in the world at zero cost.
Since 2016, the average expense ratio for passive funds that just try to match market indexes has fallen 12%. What about active funds, which try���without much success���to beat the market? They fell 11%.
But there���s another factor at work: Investors are voting with their feet by moving money to less-expensive funds, be they index funds or actively managed funds. A big reason has been the migration to target-date funds that are composed of index funds, rather than actively managed ones. ���The downward pressure on fund expenses is unlikely to abate,��� notes Morningstar���s Ben Johnson in his ETF Specialist column.
It���s important for investors to tune out the noise and focus on the fundamentals, and low costs are one of the most fundamental of fundamentals. Your investments may be higher or lower this time next year���but, whatever happens, your results will be better if your costs are lower.
No, I���m not suggesting stocks are some great once-in-a-lifetime bargain. Rather, I mean the choices available to investors have never been greater, thanks in part to the growth of exchange-traded funds and the disappearance of brokerage commissions. On top of that, the costs of fund investing have never been lower.
This was demonstrated again by the latest annual��fund-fee study from independent fund analysis firm Morningstar. The study found that the average expense ratio paid by fund investors is half that of 20 years ago. The study includes all mutual funds and exchange-traded funds (ETFs).
���Between 2000 and 2020, the asset-weighted average fee fell to 0.41% from 0.93%,��� says Morningstar. ���Investors have saved billions as a result.�����Even just the change from 2019 to 2020���from 0.44% to 0.41%��� saved investors $6.2 billion last year.
One factor driving the decline is competition among fund companies. Some index funds and ETFs now charge investors no expense ratio at all. That���s right: You can own a piece of every publicly traded company in the world at zero cost.
Since 2016, the average expense ratio for passive funds that just try to match market indexes has fallen 12%. What about active funds, which try���without much success���to beat the market? They fell 11%.
But there���s another factor at work: Investors are voting with their feet by moving money to less-expensive funds, be they index funds or actively managed funds. A big reason has been the migration to target-date funds that are composed of index funds, rather than actively managed ones. ���The downward pressure on fund expenses is unlikely to abate,��� notes Morningstar���s Ben Johnson in his ETF Specialist column.
It���s important for investors to tune out the noise and focus on the fundamentals, and low costs are one of the most fundamental of fundamentals. Your investments may be higher or lower this time next year���but, whatever happens, your results will be better if your costs are lower.
The post Never Better appeared first on HumbleDollar.
Trading Off
WHEN WE CHOOSE to do one thing with our time and money, we���re also choosing not to do countless other things. The purchases made and the possibilities forgone sometimes turn into lasting regrets.
That is, to a degree, unavoidable. We often misjudge not only what we want today, but also the wants of our future self. Still, I firmly believe we can all do better���if we avoid impulsive decisions and instead spend time thinking through life���s key tradeoffs. Here are 18 of the biggest:
1. Spending today vs. saving for tomorrow. Financially, this is the biggest tradeoff of all, one that raises issues of self-control, happiness and future financial security. Living solely for today isn���t the answer, but nor is excessive frugality.
2. Risk vs. return. This is arguably the next biggest financial tradeoff. Do we take more investment risk in hopes of earning higher returns, or should we favor a potentially slower but less treacherous path to wealth? This is partly about so-called risk capacity, which encompasses notions like time horizon and job security. But it also depends on our personal risk tolerance.
3. Retirement vs. other goals.��We all have multiple goals: funding retirement, buying a home, paying for the kids' college, driving a nice car, giving to charity, being prepared for financial emergencies and more. Which should take priority? To me, it's no contest. Retirement should always come first because it's life's most expensive goal���and one day it'll almost certainly happen.
4. Hire an advisor vs. do it yourself. An advisor could potentially save you time, money and anguish. Is the cost worth it? There���s no one right answer for everybody. Instead, much hinges on whether we have the temperament and intellectual interest needed to manage our own money. What if we don���t? For goodness sake, make sure the advisor you hire is legally obligated to act as a fiduciary and that you understand all the fees involved.
5. Indexing vs. active management. We can either buy index funds and collect the market���s return or we can try to do better���a route that may lead to far greater wealth, but probably won���t.
6. Invest vs. pay down debt. There���s an emotional aspect to this one: Some folks simply don���t like being in debt. But if the focus is purely on returns, the answer is usually straightforward. If the alternative is to invest in stocks, you should probably do that rather than reduce debt, unless it���s credit-card debt or other high-interest borrowing. What if the alternative is to buy bonds? Often, you���ll be better off paying down debt.
7. Take on debt vs. pay cash. We can borrow to buy what we want right away and incur interest charges���or we can wait and, in the meantime, save up the purchase price and earn interest while we���re at it. If the item in question is a college education or a starter home, paying all cash usually isn���t an option. What if it���s a new car or a kitchen remodeling? In that case, there���s more room for choice, and those who opt to borrow can end up paying significantly more.
8. More education vs. immediate earnings. If we get an undergraduate or graduate degree, that���s time when we could be in the workforce earning a paycheck. Yes, some folks manage to get a degree while also working a fulltime job. But that, of course, involves other tradeoffs, such as sacrificing time with friends and family.
9. Pursue passions now vs. later. To save enough for retirement, we might need to save diligently for three decades. But which three decades? Many pursue their passions in their 20s, and then turn their attention to making and saving money in their 30s, 40s and 50s. But I���d put in a plug for earning and saving starting in our 20s, so we can pursue our passions in our 50s, when we likely have a better idea of what���s important to us.
10. Work vs. family. For many, this is a lifelong balancing act, as they strive to get ahead in their career without shortchanging their family. But this, I believe, is a false choice stemming from a foolish workplace culture: Too many managers equate productivity with long workdays, prompting many employees to stay later at the office than needed, despite the sharply diminishing returns from all those extra hours logged.
11. Buy vs. rent. More than anything, this choice should be driven by time horizon. Planning to stay put for a minimum of five years and preferably longer? Buying a home could make sense.
12. Bigger house vs. shorter commute. To get more space for the same dollar amount, many folks opt to move farther from where they work. But the result is more time commuting, which research suggests is a major source of unhappiness.
13. New, costlier car vs. older, less reliable model. I���m a fan of buying used cars. But while the price is less, there���s a greater chance of breaking down. On top of that, even many frugal HumbleDollar readers tell me they���re more inclined to buy newer vehicles���because they want the latest safety features.
14. More insurance vs. less. Insurance is a major item in most family budgets. My advice: Make sure you have all the insurance policies you need, while keeping down the total price tag by favoring higher deductibles, longer elimination periods and opting for term life insurance over cash-value varieties.
15. More emergency money vs. less. The pandemic and accompanying economic turmoil have been a wakeup call for many, who discovered they didn���t have nearly enough rainy-day money. Still, cash investments today offer the tiniest of yields, so there���s a huge incentive to keep your emergency fund on the small side���and consider alternative sources of cash, a topic I tackled recently.
16. Retire earlier vs. later. Delaying retirement is one of the most powerful financial levers: It gives us more time to save and collect investment returns, while shortening our expected retirement. That shorter retirement means we can spend down our portfolio at a faster rate, get more from any immediate annuity purchase and delay claiming Social Security. But there���s an obvious downside: We need to keep turning up at the office. Still, many folks get a lot of pleasure from work, plus working longer seems to boost life expectancy.
17. Smaller Social Security benefit at 62 vs. larger check later. This one is endlessly debated, and I���m not inclined to rehash it here. That said, if you���re claiming benefits simply because you just retired or just turned age 62, there���s a good chance you���re doing yourself a disservice.
18. Higher retirement spending vs. larger bequest. I always encourage retirees to enjoy their accumulated wealth. After a lifetime of hard work, that���s what folks deserve. Still, that will inevitably mean a smaller estate���and, for some, helping their heirs is also an important goal.
Latest Posts
HERE ARE THE SIX other articles published by HumbleDollar this week:
"There are hundreds of good colleges where a smart kid can make a start," notes Greg Spears. "And we discovered you can shop among them and find a bargain���even when you have just 72 hours."
Want some perspective on U.S. health care, living standards, average home size, cars, tipping practices, politics, taxes, savings rates and more? Try traveling abroad, says Dick Quinn.
"It costs a great deal to sue," writes Jim Wasserman. "No lawyer enjoys telling clients that they���re legally correct, but the case will cost more than they can expect from the court."
Looking to brush up on your personal finance knowledge? Adam Grossman recommends a dozen books.
August was HumbleDollar's best month ever for pageviews. What were folks reading? Check out the site's most popular articles and blog posts.
"Getting into college is relatively easy," argues Howard Rohleder. "It���s much harder to earn a degree in four years in a field that has good job prospects. Fully 40% of students��fail to graduate in six years."
Meanwhile, also give the past week's blog posts��a read, including Rand Spero on bargain hunting, John Lim on spreadsheets,��Dick Quinn's 12 commandments, Sanjib Saha on unnecessary life insurance, Kyle McIntosh on California's virtues and James McGlynn on his credit card rewards.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier��articles.
That is, to a degree, unavoidable. We often misjudge not only what we want today, but also the wants of our future self. Still, I firmly believe we can all do better���if we avoid impulsive decisions and instead spend time thinking through life���s key tradeoffs. Here are 18 of the biggest:
1. Spending today vs. saving for tomorrow. Financially, this is the biggest tradeoff of all, one that raises issues of self-control, happiness and future financial security. Living solely for today isn���t the answer, but nor is excessive frugality.
2. Risk vs. return. This is arguably the next biggest financial tradeoff. Do we take more investment risk in hopes of earning higher returns, or should we favor a potentially slower but less treacherous path to wealth? This is partly about so-called risk capacity, which encompasses notions like time horizon and job security. But it also depends on our personal risk tolerance.
3. Retirement vs. other goals.��We all have multiple goals: funding retirement, buying a home, paying for the kids' college, driving a nice car, giving to charity, being prepared for financial emergencies and more. Which should take priority? To me, it's no contest. Retirement should always come first because it's life's most expensive goal���and one day it'll almost certainly happen.
4. Hire an advisor vs. do it yourself. An advisor could potentially save you time, money and anguish. Is the cost worth it? There���s no one right answer for everybody. Instead, much hinges on whether we have the temperament and intellectual interest needed to manage our own money. What if we don���t? For goodness sake, make sure the advisor you hire is legally obligated to act as a fiduciary and that you understand all the fees involved.
5. Indexing vs. active management. We can either buy index funds and collect the market���s return or we can try to do better���a route that may lead to far greater wealth, but probably won���t.
6. Invest vs. pay down debt. There���s an emotional aspect to this one: Some folks simply don���t like being in debt. But if the focus is purely on returns, the answer is usually straightforward. If the alternative is to invest in stocks, you should probably do that rather than reduce debt, unless it���s credit-card debt or other high-interest borrowing. What if the alternative is to buy bonds? Often, you���ll be better off paying down debt.
7. Take on debt vs. pay cash. We can borrow to buy what we want right away and incur interest charges���or we can wait and, in the meantime, save up the purchase price and earn interest while we���re at it. If the item in question is a college education or a starter home, paying all cash usually isn���t an option. What if it���s a new car or a kitchen remodeling? In that case, there���s more room for choice, and those who opt to borrow can end up paying significantly more.
8. More education vs. immediate earnings. If we get an undergraduate or graduate degree, that���s time when we could be in the workforce earning a paycheck. Yes, some folks manage to get a degree while also working a fulltime job. But that, of course, involves other tradeoffs, such as sacrificing time with friends and family.
9. Pursue passions now vs. later. To save enough for retirement, we might need to save diligently for three decades. But which three decades? Many pursue their passions in their 20s, and then turn their attention to making and saving money in their 30s, 40s and 50s. But I���d put in a plug for earning and saving starting in our 20s, so we can pursue our passions in our 50s, when we likely have a better idea of what���s important to us.
10. Work vs. family. For many, this is a lifelong balancing act, as they strive to get ahead in their career without shortchanging their family. But this, I believe, is a false choice stemming from a foolish workplace culture: Too many managers equate productivity with long workdays, prompting many employees to stay later at the office than needed, despite the sharply diminishing returns from all those extra hours logged.
11. Buy vs. rent. More than anything, this choice should be driven by time horizon. Planning to stay put for a minimum of five years and preferably longer? Buying a home could make sense.
12. Bigger house vs. shorter commute. To get more space for the same dollar amount, many folks opt to move farther from where they work. But the result is more time commuting, which research suggests is a major source of unhappiness.
13. New, costlier car vs. older, less reliable model. I���m a fan of buying used cars. But while the price is less, there���s a greater chance of breaking down. On top of that, even many frugal HumbleDollar readers tell me they���re more inclined to buy newer vehicles���because they want the latest safety features.
14. More insurance vs. less. Insurance is a major item in most family budgets. My advice: Make sure you have all the insurance policies you need, while keeping down the total price tag by favoring higher deductibles, longer elimination periods and opting for term life insurance over cash-value varieties.
15. More emergency money vs. less. The pandemic and accompanying economic turmoil have been a wakeup call for many, who discovered they didn���t have nearly enough rainy-day money. Still, cash investments today offer the tiniest of yields, so there���s a huge incentive to keep your emergency fund on the small side���and consider alternative sources of cash, a topic I tackled recently.
16. Retire earlier vs. later. Delaying retirement is one of the most powerful financial levers: It gives us more time to save and collect investment returns, while shortening our expected retirement. That shorter retirement means we can spend down our portfolio at a faster rate, get more from any immediate annuity purchase and delay claiming Social Security. But there���s an obvious downside: We need to keep turning up at the office. Still, many folks get a lot of pleasure from work, plus working longer seems to boost life expectancy.
17. Smaller Social Security benefit at 62 vs. larger check later. This one is endlessly debated, and I���m not inclined to rehash it here. That said, if you���re claiming benefits simply because you just retired or just turned age 62, there���s a good chance you���re doing yourself a disservice.
18. Higher retirement spending vs. larger bequest. I always encourage retirees to enjoy their accumulated wealth. After a lifetime of hard work, that���s what folks deserve. Still, that will inevitably mean a smaller estate���and, for some, helping their heirs is also an important goal.
Latest Posts
HERE ARE THE SIX other articles published by HumbleDollar this week:
"There are hundreds of good colleges where a smart kid can make a start," notes Greg Spears. "And we discovered you can shop among them and find a bargain���even when you have just 72 hours."
Want some perspective on U.S. health care, living standards, average home size, cars, tipping practices, politics, taxes, savings rates and more? Try traveling abroad, says Dick Quinn.
"It costs a great deal to sue," writes Jim Wasserman. "No lawyer enjoys telling clients that they���re legally correct, but the case will cost more than they can expect from the court."
Looking to brush up on your personal finance knowledge? Adam Grossman recommends a dozen books.
August was HumbleDollar's best month ever for pageviews. What were folks reading? Check out the site's most popular articles and blog posts.
"Getting into college is relatively easy," argues Howard Rohleder. "It���s much harder to earn a degree in four years in a field that has good job prospects. Fully 40% of students��fail to graduate in six years."
Meanwhile, also give the past week's blog posts��a read, including Rand Spero on bargain hunting, John Lim on spreadsheets,��Dick Quinn's 12 commandments, Sanjib Saha on unnecessary life insurance, Kyle McIntosh on California's virtues and James McGlynn on his credit card rewards.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier��articles.The post Trading Off appeared first on HumbleDollar.
September 3, 2021
Can���t Stop Looking
LIKE MANY RETIREES, I have a 401(k), a brokerage account and a couple of modest rollover IRAs, plus a small���very small���annuity purchased 35 years ago in my more naive days.
Unlike most retirees, I also have a pension. My pension and our Social Security benefits comprise the income that covers our ongoing spending.
Why then am I addicted to checking my investment performance every day? Ask me and I���ll know my 401(k) balance. In fact, on any given day, I can tell you my net worth. Wait, let me check the value of my house since yesterday. I view my Bloomberg Watchlist several times a day, triggering unjustified elation or depression.
What���s wrong with me? I fear I have a bit of Scrooge DNA.
Shares of my former employer���s stock make up a significant portion of my brokerage account. It���s an S&P 500 company, its share price moves very little and it has paid a dividend for more than 100 years. Still, I look every day and I react to each up and down. My wife says she���s tired of hearing about it. I have no intention of selling shares and the dividends are reinvested. I track each dividend payment to see how many new shares are acquired.
Do I need help? Is it just greed?
I admit I get a kick out of seeing my account balances grow. I view it as a measure of success���not the most important type of success, I acknowledge���but it is some measure of accomplishment.
I remember advising employees, ���Don���t check your 401(k) every day. Just set it and forget it.��� Is there a difference between looking at investments and trading every day? I���m not sure. If my wife and I were living off our investments, I���d be stressed out on a daily basis.
Any advice on my affliction?
The post Can���t Stop Looking appeared first on HumbleDollar.
Look Before You Leap
A FEW WEEKS AGO, fellow contributor Dennis Friedman discussed how he���ll remain in California for retirement, despite the lower cost of living elsewhere. Dennis���s post got me thinking about the conversations I hear at my local dog park in Newbury Park, California.
A local realtor regularly talks about the many longtime homeowners who are moving out of state. Within days of listing their home, sellers receive multiple offers above asking price. The sellers then move to places like Arizona, Idaho, Utah and even North Dakota.
While I appreciate the rationale for selling in a hot market, I hope that those leaving California have asked themselves these three questions:
How���s the weather? We recently completed a cross-country road trip along Interstate 40 from California to South Carolina. During our three-week trip, the best two weather days were the first (when packing the car) and the last (when unpacking the car). While there���s something to be said for having seasons, those planning to leave California would likely be well-served by digging into historical weather data for their new location.
Where���s Trader Joe���s? There are downsides to living in densely populated areas. Still, I���ve grown used to having so much available to us within a small radius of our home. While there are benefits���such as less traffic���to living in a less crowded area, those departing should consider the longer driving distances to doctor���s offices, grocery stores and (gasp) Starbucks.
What���s the overall tax impact? While most leaving California will benefit from lower income taxes in other states, many could see a significant increase in their property taxes. Another potential tax downside for some sellers: Their home-sale profit could be subject to federal and state capital gains taxes.
A local realtor regularly talks about the many longtime homeowners who are moving out of state. Within days of listing their home, sellers receive multiple offers above asking price. The sellers then move to places like Arizona, Idaho, Utah and even North Dakota.
While I appreciate the rationale for selling in a hot market, I hope that those leaving California have asked themselves these three questions:
How���s the weather? We recently completed a cross-country road trip along Interstate 40 from California to South Carolina. During our three-week trip, the best two weather days were the first (when packing the car) and the last (when unpacking the car). While there���s something to be said for having seasons, those planning to leave California would likely be well-served by digging into historical weather data for their new location.
Where���s Trader Joe���s? There are downsides to living in densely populated areas. Still, I���ve grown used to having so much available to us within a small radius of our home. While there are benefits���such as less traffic���to living in a less crowded area, those departing should consider the longer driving distances to doctor���s offices, grocery stores and (gasp) Starbucks.
What���s the overall tax impact? While most leaving California will benefit from lower income taxes in other states, many could see a significant increase in their property taxes. Another potential tax downside for some sellers: Their home-sale profit could be subject to federal and state capital gains taxes.
The post Look Before You Leap appeared first on HumbleDollar.
Self-Dealing
ARE THERE TIMES when we waste too much energy in pursuit of a good deal? I have clients who get so caught up in proving they���re smart consumers that they can neglect their own needs.
One client runs a successful business. She���s saved more than enough to retire early, should that become her goal. She���s an outstanding negotiator. The problem is, her diligence can sometimes cause her stress.
She and her husband have young kids. They could use a new minivan. Amid the pandemic, dealers are demanding far more than list price for the few vans they have in stock. She feels she���d be a chump to buy when prices are so high. The situation is causing her tremendous frustration because it���s unclear how long the shortage will last. While she understands that this ���overpriced��� purchase wouldn���t measurably affect her family���s savings, her concerns have stopped her from moving forward with the purchase.
An elderly couple that I work with was also having issues buying a car because of today���s tight supply. Their current car had been breaking down, so they had safety concerns, as well as repair bills. The lack of reliable transportation���even to important medical appointments���was nerve-racking. Still, they fretted about ���overpaying��� for a vehicle that a neighbor had bought for well below list price a year earlier.
It���s clear that ego can influence our buying decisions. This raises some questions that may be helpful to others:
Do some of us take such pride in always being smart consumers that we forget that money is only a medium of exchange?
Are we so concerned about not getting taken advantage of that we impose unnecessary limits on ourselves?
Is our habit of being clever���as opposed to wise���always helpful?
Are there situations when we should just accept unfortunate timing and move on with our lives?
Clearly, if any purchase jeopardizes our finances, we should be cautious. That���s just good planning. But if we���re fortunate enough to comfortably afford a purchase, our energy may be better spent being grateful rather than being shrewd customers.
One client runs a successful business. She���s saved more than enough to retire early, should that become her goal. She���s an outstanding negotiator. The problem is, her diligence can sometimes cause her stress.
She and her husband have young kids. They could use a new minivan. Amid the pandemic, dealers are demanding far more than list price for the few vans they have in stock. She feels she���d be a chump to buy when prices are so high. The situation is causing her tremendous frustration because it���s unclear how long the shortage will last. While she understands that this ���overpriced��� purchase wouldn���t measurably affect her family���s savings, her concerns have stopped her from moving forward with the purchase.
An elderly couple that I work with was also having issues buying a car because of today���s tight supply. Their current car had been breaking down, so they had safety concerns, as well as repair bills. The lack of reliable transportation���even to important medical appointments���was nerve-racking. Still, they fretted about ���overpaying��� for a vehicle that a neighbor had bought for well below list price a year earlier.
It���s clear that ego can influence our buying decisions. This raises some questions that may be helpful to others:
Do some of us take such pride in always being smart consumers that we forget that money is only a medium of exchange?
Are we so concerned about not getting taken advantage of that we impose unnecessary limits on ourselves?
Is our habit of being clever���as opposed to wise���always helpful?
Are there situations when we should just accept unfortunate timing and move on with our lives?
Clearly, if any purchase jeopardizes our finances, we should be cautious. That���s just good planning. But if we���re fortunate enough to comfortably afford a purchase, our energy may be better spent being grateful rather than being shrewd customers.
The post Self-Dealing appeared first on HumbleDollar.
Let’s Be Honest
THE GREEN KNIGHT
is a new, Arthurian-age fantasy film that was released at the end of July. The crux of the story: The Green Knight offers a challenge at King Arthur���s court.��He will allow any knight to take a swing at him with his great axe, as long as that knight agrees to receive a blow a year and a day later. Sir Gawain, one of the youngest of the Round Table, accepts the challenge. He beheads the Green Knight with one swing���only to see the Green Knight recover his head and tell Gawain he shall see him in a year and a day.
The rest of the saga is about what happens to Gawain leading up to their second meeting. It���s filled with the ideals of knightly honor and chivalry that now seem lost in the past. I contend, however, that this 14th-century tale has much to teach us about how we should conduct ourselves in today���s legal and financial worlds.
The medieval tale has been studied��at length. What many literary analyses overlook is the significance of the contract being a year and a day. English common law held that a contract for services that could not be performed within a year���s time had to be written down. (Every first-year law student meets his own challenging knight when facing its statutory form, the Statute of Frauds of 1677.) As the Green Knight���s contract was oral, Gawain has no technical obligation to make good on his oath. Yet he keeps his word.
This is not just chivalry. It���s about preserving the order of things. At a time when most people were illiterate, keeping public oaths was vital to society. If folks could shake hands and promise but later renege, no contract was safe. Indeed, nobody wanted a reputation for being untrustworthy. Traders would avoid such individuals. The root of the word ���warlock��� is not about magic. It comes from ���oath breaker.��� In the Inferno, Dante reserves hell���s lowest level for Judas, Brutus and Cassius. All were guilty of breaking their oaths and changing loyalty.
As literacy has improved, we���ve become more reliant on written contracts. We click that we agree to a website���s terms and conditions, and then move on. Disclaimers and fine print abound. Yet the national ethos of personal gain, combined with mobile buyers and sellers with whom you may never again do business, has led to sharper dealings.
If someone doesn���t live up to the terms of a contract, we can run to the courts. Legal resolution, however, should be the fallback position. It costs a great deal to sue. No lawyer enjoys telling clients that they���re legally correct, but the case will cost more than they can expect from the court.
We could use more dedication to oath-keeping today. People like knowing they can rely on a seller or service provider. Merchants have easy ways to demonstrate their��trustworthiness. Good online reviews translate to more sales. Customers want an assurance of fair dealing before clicking the ���buy��� button.
Life was not perfect in medieval times. There were enough cheats and oath-breakers to populate Chaucer���s many tales. When I taught high school, I used the Pardoner���s Tale in my media literacy class as an early example of marketing chicanery. Still, most businesses understand that their future business depends on their honesty in today���s transactions.
Unfortunately, we may feel outrage at a dishonest dealer, yet return later strictly out of convenience. Or, if powerful businesspeople are accused of dishonesty but we like their politics, we may excuse their behavior as ���smart business.��� Then there���s ���cause fatigue.��� It seems that every business today has some black mark against it. It���s nearly impossible to be aware of them all, let alone separate fact from rumor.
My advice: Start small. Go local. Frequent that mom-and-pop store in your neighborhood. Reward both its ���local-ness��� and its reliability in the community. If you know of oath-breakers, let them know their dishonesty has led you to withhold your patronage. Shout it out on Yelp, Twitter, Google reviews or wherever there���s a local forum. Sometimes companies do respond to criticisms. Yes, businesses do game sites by leaving positive reviews for themselves. Still, a truthful negative review may raise a red flag. The reviews��matter. And don���t forget to post praise as well when you find a knightly merchant who is both fair and true.
Jim Wasserman is a former business litigation attorney who taught��economics and humanities for 20 years. He's the author of a three-book series on how to teach elementary, middle and high school students about behavioral economics and media literacy. He has authored several educational children's books, including "Summa," a children's story for multiracial, multi-ethnic and multicultural families. Jim lives in Texas with his wife and fellow HumbleDollar contributor, Jiab. Together, they are currently working on a book, ���Your Third Life: Reflections on Finding Our Way by Taking the Long Route.�����Check out Jim's earlier articles.
The rest of the saga is about what happens to Gawain leading up to their second meeting. It���s filled with the ideals of knightly honor and chivalry that now seem lost in the past. I contend, however, that this 14th-century tale has much to teach us about how we should conduct ourselves in today���s legal and financial worlds.
The medieval tale has been studied��at length. What many literary analyses overlook is the significance of the contract being a year and a day. English common law held that a contract for services that could not be performed within a year���s time had to be written down. (Every first-year law student meets his own challenging knight when facing its statutory form, the Statute of Frauds of 1677.) As the Green Knight���s contract was oral, Gawain has no technical obligation to make good on his oath. Yet he keeps his word.
This is not just chivalry. It���s about preserving the order of things. At a time when most people were illiterate, keeping public oaths was vital to society. If folks could shake hands and promise but later renege, no contract was safe. Indeed, nobody wanted a reputation for being untrustworthy. Traders would avoid such individuals. The root of the word ���warlock��� is not about magic. It comes from ���oath breaker.��� In the Inferno, Dante reserves hell���s lowest level for Judas, Brutus and Cassius. All were guilty of breaking their oaths and changing loyalty.
As literacy has improved, we���ve become more reliant on written contracts. We click that we agree to a website���s terms and conditions, and then move on. Disclaimers and fine print abound. Yet the national ethos of personal gain, combined with mobile buyers and sellers with whom you may never again do business, has led to sharper dealings.
If someone doesn���t live up to the terms of a contract, we can run to the courts. Legal resolution, however, should be the fallback position. It costs a great deal to sue. No lawyer enjoys telling clients that they���re legally correct, but the case will cost more than they can expect from the court.
We could use more dedication to oath-keeping today. People like knowing they can rely on a seller or service provider. Merchants have easy ways to demonstrate their��trustworthiness. Good online reviews translate to more sales. Customers want an assurance of fair dealing before clicking the ���buy��� button.
Life was not perfect in medieval times. There were enough cheats and oath-breakers to populate Chaucer���s many tales. When I taught high school, I used the Pardoner���s Tale in my media literacy class as an early example of marketing chicanery. Still, most businesses understand that their future business depends on their honesty in today���s transactions.
Unfortunately, we may feel outrage at a dishonest dealer, yet return later strictly out of convenience. Or, if powerful businesspeople are accused of dishonesty but we like their politics, we may excuse their behavior as ���smart business.��� Then there���s ���cause fatigue.��� It seems that every business today has some black mark against it. It���s nearly impossible to be aware of them all, let alone separate fact from rumor.
My advice: Start small. Go local. Frequent that mom-and-pop store in your neighborhood. Reward both its ���local-ness��� and its reliability in the community. If you know of oath-breakers, let them know their dishonesty has led you to withhold your patronage. Shout it out on Yelp, Twitter, Google reviews or wherever there���s a local forum. Sometimes companies do respond to criticisms. Yes, businesses do game sites by leaving positive reviews for themselves. Still, a truthful negative review may raise a red flag. The reviews��matter. And don���t forget to post praise as well when you find a knightly merchant who is both fair and true.
Jim Wasserman is a former business litigation attorney who taught��economics and humanities for 20 years. He's the author of a three-book series on how to teach elementary, middle and high school students about behavioral economics and media literacy. He has authored several educational children's books, including "Summa," a children's story for multiracial, multi-ethnic and multicultural families. Jim lives in Texas with his wife and fellow HumbleDollar contributor, Jiab. Together, they are currently working on a book, ���Your Third Life: Reflections on Finding Our Way by Taking the Long Route.�����Check out Jim's earlier articles.The post Let’s Be Honest appeared first on HumbleDollar.
September 2, 2021
Parents Know Best
A DECADE AGO, I was sure I knew everything. I scrimped and saved as much as I could to fully fund my retirement accounts. My goal was to retire early. All that was fine for me.
My error: casting my credos on others. I gave my parents grief for what I considered to be their excessive spending and insufficient regard for long-term planning. I was wrong.
While it���s imperative for those in their 40s and 50s to have their retirement plan on track, it���s also imperative to make memories by leading an enjoyable life. I was���and likely still am���at one end of the spectrum. I focused on growing my net worth as much as possible. My parents, back in the day, leaned the opposite way. They aggressively invested in experiences for my siblings and me.
Jump ahead to today. I love the idea that my folks want to upgrade their kitchen. Maybe it isn���t the most opportune time, given supply chain bottlenecks and raw material price spikes. But who cares? After a decade of stock, bond and real estate gains, they���re in good financial shape. Delaying their Social Security benefits to age 70 was another prudent choice.
I say go ahead and put in those fancy new countertops, sleek cabinets and stylish appliances. Despite recent health scares, my mother still works. She uses the kitchen as her office. Why shouldn���t she have a great place to spend the day? I think back to what my 23-year-old self would think about that. I���m sure I would have made rude comments about how the money would be better invested in a low-cost, target-date fund instead of depreciating material items. Now I think spend-shaming is never the answer.
It turns out my parents knew best.
My error: casting my credos on others. I gave my parents grief for what I considered to be their excessive spending and insufficient regard for long-term planning. I was wrong.
While it���s imperative for those in their 40s and 50s to have their retirement plan on track, it���s also imperative to make memories by leading an enjoyable life. I was���and likely still am���at one end of the spectrum. I focused on growing my net worth as much as possible. My parents, back in the day, leaned the opposite way. They aggressively invested in experiences for my siblings and me.
Jump ahead to today. I love the idea that my folks want to upgrade their kitchen. Maybe it isn���t the most opportune time, given supply chain bottlenecks and raw material price spikes. But who cares? After a decade of stock, bond and real estate gains, they���re in good financial shape. Delaying their Social Security benefits to age 70 was another prudent choice.
I say go ahead and put in those fancy new countertops, sleek cabinets and stylish appliances. Despite recent health scares, my mother still works. She uses the kitchen as her office. Why shouldn���t she have a great place to spend the day? I think back to what my 23-year-old self would think about that. I���m sure I would have made rude comments about how the money would be better invested in a low-cost, target-date fund instead of depreciating material items. Now I think spend-shaming is never the answer.
It turns out my parents knew best.
The post Parents Know Best appeared first on HumbleDollar.
Running on Empty
THE GOVERNMENT will be able to pay full Social Security benefits only until 2033, according to the latest trustees��� report on the Social Security and Medicare trust funds. After that, Social Security's trust fund will be depleted���and it could only cover 76% of scheduled benefits with the money it collects in payroll taxes.
The timetable is even worse for Medicare Part A, which pays for inpatient hospital care. Its trust fund will be empty in 2026. Thereafter, tax collections would cover 91% of projected expenses.
The best financed benefit programs are Medicare Part B���which pays primarily for doctor visits���and Part D, which covers prescription drugs. How do they escape insolvency? Simple. If their premiums don���t fully cover their costs, both are backed up by the federal government���s general tax revenue.
Which raises an interesting question: Why can���t Social Security and Medicare Part A get the same backup funding from general tax revenue? Currently, Social Security and Medicare Part A are financed by payroll tax collections���and it won���t be enough. For a generation, Americans have been debating how to keep these programs going. On offer has been a distasteful stew of solutions: Raising the eligibility age for benefits, reducing promised benefits, and increasing taxes on workers and their employers. No wonder we haven���t made any progress.
The counterargument: It would be costly to cover these programs��� deficits using general tax revenue. The unfunded obligation for Social Security alone is estimated at $19.8 trillion through 2095, according to the trustees. The other counterpoint: Using general tax revenue would tip Social Security and Medicare into the category of welfare programs, because they���d no longer be self-funding.
That said, these programs are arguably already backed up by general tax revenue. After all, the trust funds are invested in special-issue government bonds. When the trust funds receive interest on those bonds and when they cash some of them in, where do you think the money comes from?
The timetable is even worse for Medicare Part A, which pays for inpatient hospital care. Its trust fund will be empty in 2026. Thereafter, tax collections would cover 91% of projected expenses.
The best financed benefit programs are Medicare Part B���which pays primarily for doctor visits���and Part D, which covers prescription drugs. How do they escape insolvency? Simple. If their premiums don���t fully cover their costs, both are backed up by the federal government���s general tax revenue.
Which raises an interesting question: Why can���t Social Security and Medicare Part A get the same backup funding from general tax revenue? Currently, Social Security and Medicare Part A are financed by payroll tax collections���and it won���t be enough. For a generation, Americans have been debating how to keep these programs going. On offer has been a distasteful stew of solutions: Raising the eligibility age for benefits, reducing promised benefits, and increasing taxes on workers and their employers. No wonder we haven���t made any progress.
The counterargument: It would be costly to cover these programs��� deficits using general tax revenue. The unfunded obligation for Social Security alone is estimated at $19.8 trillion through 2095, according to the trustees. The other counterpoint: Using general tax revenue would tip Social Security and Medicare into the category of welfare programs, because they���d no longer be self-funding.
That said, these programs are arguably already backed up by general tax revenue. After all, the trust funds are invested in special-issue government bonds. When the trust funds receive interest on those bonds and when they cash some of them in, where do you think the money comes from?
The post Running on Empty appeared first on HumbleDollar.
College in 72 Hours
OUR NEPHEW JESSE, age 19, took a gap year after high school to explore meditation and work for UPS. He���s a great kid. But he had worn out his welcome with family friends in Florida, so he decided to sleep in his car.
That was in May���and that���s when we invited him to live with us in Pennsylvania.
Jesse hasn���t had an easy life. His mother died of cancer when he was four years old. He became the youngest of four kids in a blended family. We wanted to help Jesse the way his mother���my wife���s sister���would have if she were still here.
After a few weeks, we knew that Jesse was extremely bright and intellectually curious. He can discuss the elements of the periodic table and breathing techniques for relaxation. He���s also a teenager, doing dumb things like losing his debit card. We felt his best path forward was to enroll in college, the same way our kids had been launched into the world.
There was only one little problem: Classes began in a month.
When our son and daughter applied to college, it was a two-year slog. We scoured the college guide books for small schools that change lives. There were campus visits. SAT prep classes. A software package that handicapped the odds of admission to any college. By the time we dropped our youngest at Franklin & Marshall, my wife Laurie could have made a living as a college admissions consultant.
We had been down this road before���only now we were traveling at 120 mph.
Jesse needed financial aid for college. He didn���t qualify for in-state tuition in Pennsylvania, so even community college would be expensive. As we considered options, the opacity of the college application process was frustrating. You don���t know what a college will cost when you apply, even though it���s one of life���s largest expenses.
A retired college dean told us there might be large scholarships available at small, private schools for a student as good as Jesse. He earned a 3.87 grade point average in high school. His SAT scores placed him among the top 5% of students. He had passed four Advanced Placement tests, including biology and calculus.
We began by cold-calling small private colleges in our area, places like Susquehanna, Chestnut Hill, Moravian, Immaculata, Ursinus, Ithaca and Hobart. Almost all were interested in Jesse for this fall. But only one, Alfred University in upstate New York, said they still had substantial merit money left to award.
Our son���s girlfriend had graduated from Alfred, and she recommends it. It has small classes, a warm atmosphere and open-minded students. Alfred is nestled among forests and farmland, far from the big city lights. But that was a plus to Jesse, who likes to camp and hike.
Now all we needed to do was apply���immediately. On a Tuesday night, after working all day at a farm, Jesse wrote his admission essay in under an hour. It was a fluid discourse on the nature of consciousness. As I said, this is a kid who belongs in college. The next day, a kind-hearted administrator at Jesse���s old high school sent his transcript���plus the required teacher recommendation, which the school still had on file���to Alfred.
My wife formed a phone connection with an admissions officer at Alfred, who kept us posted on what was received and what was still needed for Jesse���s application. On Friday night, she told us informally that Jesse was accepted, and recommended for the top award���$25,000 a year in merit aid. His FAFSA form for need-based aid knocked another $5,000 off the sticker price.
Laurie and I agreed to pay Jesse���s room and board, which is $10,300 a year. Altogether, we whittled the cost of Jesse���s college down to less than $12,000 a year. That can be paid by his dad or using federally subsidized loans, or with a combination of both. That���s certainly not free���but it���s on par with a community college if he lived with us in Pennsylvania.
After his acceptance, Jesse visited Alfred and liked it, and now he���s back there again for his first semester. We���ll miss him at the dinner table, but it���s time for him to fly the nest. We hope that college will help him find his place in this big world. There are hundreds of good colleges where a smart kid like Jesse can make a start. And we discovered you can shop among them and find a bargain���even when you have just 72 hours.
Greg Spears worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger���s Personal Finance magazine. After leaving journalism, he spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. Greg currently teaches behavioral economics at St. Joseph���s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. He is also a Certified Financial Planner certificate holder. Check out Greg's earlier articles.
That was in May���and that���s when we invited him to live with us in Pennsylvania.
Jesse hasn���t had an easy life. His mother died of cancer when he was four years old. He became the youngest of four kids in a blended family. We wanted to help Jesse the way his mother���my wife���s sister���would have if she were still here.
After a few weeks, we knew that Jesse was extremely bright and intellectually curious. He can discuss the elements of the periodic table and breathing techniques for relaxation. He���s also a teenager, doing dumb things like losing his debit card. We felt his best path forward was to enroll in college, the same way our kids had been launched into the world.
There was only one little problem: Classes began in a month.
When our son and daughter applied to college, it was a two-year slog. We scoured the college guide books for small schools that change lives. There were campus visits. SAT prep classes. A software package that handicapped the odds of admission to any college. By the time we dropped our youngest at Franklin & Marshall, my wife Laurie could have made a living as a college admissions consultant.
We had been down this road before���only now we were traveling at 120 mph.
Jesse needed financial aid for college. He didn���t qualify for in-state tuition in Pennsylvania, so even community college would be expensive. As we considered options, the opacity of the college application process was frustrating. You don���t know what a college will cost when you apply, even though it���s one of life���s largest expenses.
A retired college dean told us there might be large scholarships available at small, private schools for a student as good as Jesse. He earned a 3.87 grade point average in high school. His SAT scores placed him among the top 5% of students. He had passed four Advanced Placement tests, including biology and calculus.
We began by cold-calling small private colleges in our area, places like Susquehanna, Chestnut Hill, Moravian, Immaculata, Ursinus, Ithaca and Hobart. Almost all were interested in Jesse for this fall. But only one, Alfred University in upstate New York, said they still had substantial merit money left to award.
Our son���s girlfriend had graduated from Alfred, and she recommends it. It has small classes, a warm atmosphere and open-minded students. Alfred is nestled among forests and farmland, far from the big city lights. But that was a plus to Jesse, who likes to camp and hike.
Now all we needed to do was apply���immediately. On a Tuesday night, after working all day at a farm, Jesse wrote his admission essay in under an hour. It was a fluid discourse on the nature of consciousness. As I said, this is a kid who belongs in college. The next day, a kind-hearted administrator at Jesse���s old high school sent his transcript���plus the required teacher recommendation, which the school still had on file���to Alfred.
My wife formed a phone connection with an admissions officer at Alfred, who kept us posted on what was received and what was still needed for Jesse���s application. On Friday night, she told us informally that Jesse was accepted, and recommended for the top award���$25,000 a year in merit aid. His FAFSA form for need-based aid knocked another $5,000 off the sticker price.
Laurie and I agreed to pay Jesse���s room and board, which is $10,300 a year. Altogether, we whittled the cost of Jesse���s college down to less than $12,000 a year. That can be paid by his dad or using federally subsidized loans, or with a combination of both. That���s certainly not free���but it���s on par with a community college if he lived with us in Pennsylvania.
After his acceptance, Jesse visited Alfred and liked it, and now he���s back there again for his first semester. We���ll miss him at the dinner table, but it���s time for him to fly the nest. We hope that college will help him find his place in this big world. There are hundreds of good colleges where a smart kid like Jesse can make a start. And we discovered you can shop among them and find a bargain���even when you have just 72 hours.
Greg Spears worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger���s Personal Finance magazine. After leaving journalism, he spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. Greg currently teaches behavioral economics at St. Joseph���s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. He is also a Certified Financial Planner certificate holder. Check out Greg's earlier articles.The post College in 72 Hours appeared first on HumbleDollar.
