Jonathan Clements's Blog, page 346

Peace of Mind

I HAVEN���T BEEN feeling myself lately. Until now, I didn���t understand what had brought this on. You see, I have this different attitude toward money���and it���s changed the way I behave.

Before, it seemed like money was always on my mind. I used to love to read Barron���s every week. Now, I just pick it up in front of my house and toss it in the garage, where it joins 20 other unread copies.��I also rarely check my retirement portfolio. I couldn���t tell you how much money I have. I can���t remember the last time I looked. I used to look four or five times a week.

This indifference has nothing to do with not caring about the financial news or my portfolio’s performance. It has to do with my new feeling about money.��I know what has caused this��not��thinking about money. It���s Carl, my financial advisor, whom I hired about a year ago. Ever since he started showing me charts about my money, it���s dawned on me what great shape I���m in financially.

There���s no need to think about my money because, according to Carl, I���m not going to run out. I have enough to live a comfortable life based on my spending goals. You know what? I believe Carl. For the first time in my life, I realize I���m financially secure.

With this new mindset, everything in life seems so much better. The food at restaurants tastes better, the hotel beds are more comfortable and my vacations are more enjoyable.

Why? Because financial security buys peace of mind. It allows you to live a life without worrying about money. It gives you a sense of calmness. When I���m experiencing the finer things in life, I no longer worry about how much they’re costing me. When I have dinner at a nice restaurant, I have a new sense of appreciation for the food and wine.

Unfortunately, many retirees aren���t spending as much as they could. They don���t have peace of mind. They���re not enjoying retirement as much as they should. Liz Miller, president of Summit Place Financial Advisors, told a Bloomberg reporter that, ���I am surprised how often I sit with a retired couple and have to encourage them to spend more.���

The Employee Benefit Research Institute released a research paper in 2018 that found that many retirees were slow to spend down their money. The study���s author, Sudipto Banerjee, wrote that, ���In fact, those with the highest level of assets show the lowest rates of spending down.���

It seems many retirees are thinking and worrying too much about their money, even when they don���t have to. My advice: Hire a fee-only financial advisor, so you feel more confident about your spending. It helped me���and I���m now enjoying retirement far more.

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. His previous articles include Getting Schooled,��Battling Time��and��Don’t Want to Know. ��Follow Dennis on Twitter��@DMFrie.

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Late Fee

I���M JUST A FEW years from age 65���and being eligible for Medicare. One of my concerns: making a mistake that could trigger penalties.

If you file for Social Security before age 65, you���ll be automatically enrolled in Medicare Part A and B. What if you���re still working at 65? Ask your human resources department for advice. Your coverage at work will dictate whether you should file for Medicare.

If you aren���t covered by an employer���s health insurance plan and you aren���t yet collecting Social Security benefits, the best time to file for Medicare is three months before you turn age 65. That���ll allow time for the paperwork to be processed���and coverage should begin on the first day of the month you celebrate your 65th birthday. If you wait until age 65 to file, you might not have coverage for another month or so.

What if you wait too long? There���s a penalty period that begins three months after you reach age 65. If it���s been more than three months since the month you turned 65 and you haven���t signed up for Medicare Part B, your monthly Part B premium will increase 10% for each full 12-month period that you could have been enrolled in Medicare Part B, but weren���t. You���ll pay this penalty for the rest of your life.

There���s a similar penalty for Medicare���s Part D prescription drug coverage, but that penalty is calculated at 1% per month. It���s also permanent. These penalties are an inducement not to wait until you���re sick to get coverage and start paying Medicare premiums.

The other penalty is potentially triggered if you���re stashing money in a health savings account (HSA) before you���re on Medicare Part A. HSAs, which offer unsurpassed tax advantages, are often funded by those with high-deductible health plans. But you aren���t allowed to fund an HSA if you���re covered by Part A.

For those who begin Medicare at age 65, you can only fund the HSA up until your birthday month. What does that mean in dollar terms? If you���re over age 55 in 2019, you can put $4,500 in an HSA, consisting of the $3,500 regular annual contribution, plus $1,000 because you���re 55 or older. To figure out how much you can contribute in the year you enroll in Medicare, you take that $4,500 and divide it by 12, which comes to $375. You then multiply that $375 by the number of months in the year before you turn age 65. If you contribute more than the maximum allowed, it���s included in your taxable income and a 6% excise tax may apply.

For those who continue to work past age 65 and delay filing for Medicare because they���re covered by an employer���s health plan, there���s another potential HSA surprise. When you enroll in Medicare Part A, you receive up to six months of retroactive coverage, but only going as far back as age 65. If you are over age 65�� and don���t stop HSA contributions at least six months before Medicare enrollment, you may incur a tax penalty. Don���t assume your employer���s benefits administrator will shut off your contributions automatically to prevent this mistake.

My plan: In the year I turn 65, I intend to file for Medicare three months before my birthday���and, because my birthday is in June, I���m only going to fund my HSA for the first five months of that year.

James McGlynn CFA, RICP, is chief executive of Next Quarter Century LLC��in Fort Worth, Texas, a firm focused on helping clients make smarter decisions about long-term-care insurance, Social Security and other retirement planning issues. He was a mutual fund manager for 30 years. James is the author of��Retirement Planning Tips for Baby Boomers. His previous articles include Where to Begin,��As the Years Go By��and��Package Deals.

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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A Graceful Exit

WHEN STEWART MOTT died in 2008, his��obituary��in��The New York Times��described him as offbeat. That���s probably a fair description. Mott���s father, Charles Mott, had been one of the founding shareholders of General Motors. As a result, the younger Mott didn’t need to work and instead pursued other passions.

Among his many activities, Mott enjoyed political activism, but he wasn���t a strict partisan. To underscore this, he once brought both a live elephant and two donkeys to a fundraiser. He was also an environmentalist. At his home in New York City, Mott converted a penthouse apartment into a garden, complete with a chicken coop and a compost pile. He also spent time living on a��junk��on the Hudson River. In the Manhattan phone book, he listed his profession simply as ���philanthropist.���

Mott���s pleasant, charmed life stands in contrast to that of John du Pont. A contemporary from a similarly wealthy family, du Pont���s inheritance led him down a darker path. Like Mott, du Pont was also offbeat. He loved birds, and collected stamps and conch shells. He was a major supporter of amateur wrestling teams. But unlike Mott, he abused his position of privilege. In business meetings, he would often brandish a gun. In 1997, he ended up shooting someone and spent his last years in jail.

While these are both unusual cases, they highlight a challenge many families face: how to use their resources to benefit their children without inadvertently leaving them worse off. In theory, we���d all like to help our children succeed in life. But when there���s wealth involved, it can be hard to get it right. There���s no simple formula to guarantee success.

Warren Buffett probably said it best: You should leave your children “enough money so that they would feel they could do anything, but not so much that they could do nothing.” That sounds ideal���but it���s not necessarily easy. There���s no one ���right��� way to do this.

Still, below I offer some ideas to help you develop a plan for your own family. Many of these ideas apply equally well, whether you���re leaving money to your children or to others. Planning to gift your assets to charity rather than to family? These principles should still work.

Start now.��Help your children���or your charitable beneficiaries���now, while you���re still living. This has a number of benefits. It allows you the opportunity to give incrementally and to see how the recipients handle your gifts, before you give more. In the case of children, it will allow you to help them when they need it most���early in their careers, when they���re contending with home purchases and other big expenses. If they receive an inheritance at age 60, it���s helpful, but far less helpful than receiving a hand at age 30. And if you give while you’re still living, you���ll be able to help guide and educate them in handling money.

Equity.��If you have more than one child, they will inevitably be in different financial circumstances. You may be tempted to try to even things out���leaving more to the schoolteacher than to the banker, for example���but I recommend against this. It���s very hard to know what someone else���s true circumstances are, and the risk is very high that you end up creating hard feelings among your children. My advice: Treat them all equally. If one of your children ends up like Bill Gates, he���ll likely have the good sense to help his siblings.

Communication. When in doubt, I always advocate transparency. Speak with your children. Let them know your plans and���in rough terms���the dollars involved. If you���re very wealthy but plan to leave most of it to charity, it would be unfair to surprise your children with that information after you���re gone. Similarly, if you���re making significant gifts while you���re living, such that there won���t be much left over, that���s also important for them to know.

More often than not, I believe people make incorrect assumptions, so it���s best to share the facts. But you don���t need to reveal everything at once. I would approach it incrementally, over time, allowing you to shift course as needed and as you see fit.

Control.��Estate planners use the term ���dead-hand control.��� This refers to complicated estate-planning strategies that attempt to control the behavior of future generations. So-called incentive trusts might require grandchildren to attain a certain level of education, to be��married��or to meet other requirements. Other families try to keep��special homes��in the family indefinitely. While these ideas might sound nice in theory, real life is never that neat. My advice: Leave your heirs what you plan to leave them���and don���t try to control them from the grave.

Adam M. Grossman���s previous articles��include Time Out,��Staying Home��and��Happiness Formula . Adam is the founder of�� Mayport Wealth Management , a fixed-fee financial planning firm in Boston. He���s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter�� @AdamMGrossman .

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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Signal Failure

U.S. STOCKS have been at nosebleed valuations for much of the past three decades���or so say the yardsticks used to measure stock market value. But what if the problem isn���t the lofty price of stocks, but rather the yardsticks we���re comparing them against?

When we try to gauge whether shares are pricey or cheap, we typically look at the dividends that companies pay, the profits they generate and the assets they own. Yet these three crucial numbers have all undergone fundamental changes in recent decades���and the result is that stocks appear more expensive than they should.

Don���t get me wrong: I���m not claiming U.S. shares are cheap. Far from it. But I���ve come to believe the U.S. market is less overpriced than it seems. Consider:

Dividends. When declaring whether the stock market is over- or undervalued, experts no longer pay much attention to the market���s overall dividend yield, currently 1.9% for the S&P 500. Yes, that���s well below the 2.9% average for the past 50 years.

Problem is, many companies are downplaying dividends and instead using spare corporate cash to buy back stock. I have mixed feelings about this, in part because buybacks seem like a sneaky way to cover up the impact of employee stock options, which effectively take a slice of the company from outside shareholders and gives it to management.

Still, there���s no doubt that buying back shares is more tax-efficient than issuing dividend checks. Those dividend checks mean an immediate tax bill for all taxable shareholders, while a buyback program only generates a tax bill for those shareholders who choose to sell.

What if you combine the S&P 500���s 1.9% dividend yield with the so-called buyback yield���the percentage of their own shares that the S&P 500 companies are repurchasing each year? The total annual cash return to shareholders appears to be more than 5%.

Earnings. Under generally accepted accounting principles, or GAAP, if a company buys a building, land or a piece of equipment, it���s allowed to write off that expense over the useful life of the investment. Result: The immediate hit to reported earnings can be relatively modest, plus these capital expenditures show up as an asset on the company���s balance sheet.

By contrast, under GAAP, research and development costs are expensed in the year they occur. That means there���s an immediate hit to reported corporate profits, plus the fruits of that R&D typically aren’t counted among the assets on the balance sheet. Let���s say a pharmaceutical company develops a new drug. The R&D cost would hurt earnings right away and the resulting patent usually wouldn���t appear as an asset, unless it was acquired from another business, and yet the drug might be hugely valuable.

This impact can be especially harsh for fast-growing companies that are spending more and more on R&D each year. That burgeoning R&D cost may be setting these corporations up for an even brighter future, and yet the hit to reported earnings may make their shares look overvalued.

This is a bigger issue than it was three decades ago. Think about today���s superstar companies, like Apple, Alphabet���s Google, Facebook and Netflix. These companies haven���t prospered by building huge factories. Instead, they���re renowned for their valuable brand names and great intellectual capital.

As such companies have come to dominate the stock market, valuations have gotten distorted: Reported earnings are lower than if these firms were spending on capital improvements���and the stock market���s overall price-earnings ratio has been driven higher. Indeed, despite the boost to earnings from the recent corporate tax cut, the S&P 500 stocks today are trading at 22.8 times trailing 12-month reported earnings, versus a 50-year average of 19.4.

Assets. Back in the mid-1980s, when I started writing about finance, investors used to pay close attention to how stock prices compared to book value. Book value is the difference between a company���s assets and its liabilities, expressed on a per-share basis. Three decades ago, if a stock was trading well below its book value, that was often taken as a sign that the shares were a bargain.

Today, book value is still used to sort the stock market into growth and value stocks���but the focus is on how stocks are priced relative to one another, based on their price-to-book value. What about using book value to assess whether the entire market or individual stocks are absolutely cheap? You don���t hear about many folks doing that.

Why not? Just as GAAP accounting penalizes spending on R&D, it also penalizes intangible assets, such as patents, copyrighted material and brand names, which typically don���t show up on a corporation���s balance sheet.

One consequence: The S&P 500 now trades at 3.6 times book value, versus less than 1.5 times in the mid-1980s. Similarly, Tobin���s Q���which compares share prices to what it would cost to buy a corporation���s assets today���has also fallen out of favor. Based on Tobin���s Q, stocks are trading at an 81% premium to replacement values, compared with a discount of some 60% in the mid-1980s.

All this is yet another example of why the financial markets are so utterly maddening. We imagine we have some concrete way to assess the stock market���s fundamental value, only to discover that the truths we hold dear are no longer true.

So what is true? As always, we should fret less about the markets and focus more on the things we can control. Those things are fivefold: risk, investment costs, taxes, our emotional reaction to market turmoil, and our savings rate if we���re still in the workforce and our spending rate if we���re retired. Diligently focusing on all five? If you are, it likely doesn���t matter whether stocks today are overvalued or not.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook .��His most recent articles include October’s Hits,��Cash Back,��Crazy Like a Fox��and��Guessing Game . Jonathan’s ��latest books:��From Here to��Financial��Happiness��and How to Think About Money.

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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Weighty Decisions

LET���S SAY YOU come into some extra money. Do you take the family on a great vacation or do you remodel that room you try to stop guests from seeing? To come to a decision, you might weigh the fun of the vacation against the pride of the redone room.

It���s at this point that some intrepid economist, risking his or her life-of-the-party reputation, would pop up and say, ���You���re not doing it right.���

Economics is the study of choice���and the big engine for choosing is cost-benefit analysis. That���s what most people will tell you they do. In the above example, however, the economist would point out that the decision-maker is only really comparing the benefits of choice A and choice B, while ignoring the costs.

For instance, the cost of a vacation might include:

The time to agree on���and plan for���the vacation
A family expectation that henceforth all vacations will be grand
Lingering regret every time you pass the not redone room, amplified by the look and sigh of your spouse

Meanwhile, the room remodeling might bring these costs:

Bored kids
Money and effort invested in something that will be taken for granted a week after the ���wows��� have died out
The feeling that redoing one room means having to redo another��� and another���

It���s tricky to thoroughly balance out the costs and benefits of a decision, in part because the weight of each factor is totally subjective and personal. When I teach this to kids, I use a more student-oriented choice, such as deciding between watching TV and studying. First, we list the benefits of each choice, simplistically valuing each benefit as +1 if the benefit is liked and +2 if the benefit is liked a lot.

Benefit of doing schoolwork:

Better grade +1
Parents happy +2
Helps with next lesson +2
Total benefit +5

Benefit of watching TV show:

Entertainment +2
Can talk about show with friends +2
Helps me to be cool +2
Total benefit +6

With the TV show at +6 and schoolwork at +5, it would seem the show wins. But this is only half the job. It���s only a benefit-benefit comparison. To do a cost-benefit analysis, the student must now list the costs of doing each and mark them as -1 (bad) and -2 (really bad).

Cost of doing schoolwork:

Missing show -1
Spoiler may be given away by friend -2
Need time later to catch up on show -1
Total cost -4

Cost of watching TV show:

Parents disappointed -2
Parents ban TV watching -2
Behind other students -1
Give up weekend to study -2
Total cost -7

How does this all net out? The total cost-benefit score of doing schoolwork comes to +1, once you subtract the -4 cost from the +5 benefit. Meanwhile, the net score of choosing the TV show is -1, once the -7 cost is subtracted from the +6 benefit.

Lo and behold, once you factor in the potential negative consequences, choosing to study has a higher value than watching TV, so it���s probably the better choice. Did you really expect anything different from a teacher?

In weighing two choices, what we���re actually weighing are the consequences��of our choices. To be sure, in the above simplistic model, the probability��of each consequence isn���t measured. Still, the principle remains: All choices have consequences and, to the extent we know them in advance, we should consider those consequences.

Usually, we simply do this sort of analysis in our head. The question is, are we thoroughly��considering costs and benefits when making a choice? If we aren���t sure we���re being thorough���and it���s a big decision���we may want to list the pros and cons, and then assign formal numbers to each. It often doesn���t take long. We could probably get it done during the TV show���s next commercial break.

Jim Wasserman is a former business litigation attorney who taught��economics and humanities for 20 years. His previous articles include Scenes From a Life,��Changeup Pitch��and��Bored Games. Jim���s three-book series on teaching behavioral economics and media literacy,���� Media, Marketing, and Me , ��is ��being published in 2019.��Jim lives in Granada, Spain, with his wife and fellow HumbleDollar contributor, Jiab. Together, they write a blog on retirement, finance and living abroad at�� YourThirdLife.com.

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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Take a Break

SAVE FIRST for the kids��� college or for your own retirement? Pundits generally recommend that parents put themselves first. But I���d argue the question demands a more nuanced answer. The tax code offers numerous tax-savings opportunities for families with dependent children���and those tax breaks shouldn���t be overlooked.

To be sure, for cash-strapped parents, the top two financial priorities should be building up an emergency fund and putting at least enough in their 401(k) or 403(b) to capture the full employer match. Already doing that? Instead of shoveling further money into retirement plans, consider whether you���d be better off exploiting these seven kid-related tax strategies:

A 529 plan is arguably the best tax-favored college savings account. The plans come in two flavors. Prepaid tuition plans allow you to buy credits toward the cost of particular colleges, effectively locking in current tuition rates. Meanwhile, 529 savings plans offer the opportunity to earn tax-free gains by investing in a menu of mutual funds. Note that 529 money is an asset that can affect financial aid eligibility.

Want flexibility? Think twice before opening a prepaid tuition plan. One friend funded a prepaid plan, but his kids later balked at all the in-state colleges covered by the plan. The go-to website to review all things 529 is SavingforCollege.com.

Like 529 plans, Coverdell education savings accounts offer tax-free growth to pay for qualified education expenses. Coverdells can also be used for primary and secondary schools���now also an option for 529s, thanks to 2017���s tax law.

The downside: Coverdells have a relatively modest $2,000 per year contribution limit, plus there are income limits on who can fund these accounts. We contributed to Coverdells for just a couple of years and used the money for high school costs, so our tax savings proved quite small. Today���s 529s are almost certainly a better alternative, because all families can contribute, no matter what their income, and you���re allowed to contribute substantial sums.

A custodial account, set up under your state���s Uniform Gifts or Transfers to Minors Act, offers parents the opportunity to save money in a child���s name. In 2019 and 2020, the first $1,100 of annual earnings are tax-free and the next $1,100 are taxed at the child���s rate. Earnings above $2,200, however, are taxed at the steeper rate that applies to estates and trusts.

While custodial accounts can generate small amounts of tax-free income each year, they come with some serious drawbacks. The money becomes the child���s, typically at age 18 or 21, and the balance counts heavily against college financial aid eligibility. Some parents don���t tell their children about any custodial accounts, while others spend the money on behalf of the child prior to college���especially if the kid is an out-of-control teen. The maximum each parent can transfer to a child without triggering the tax gift is $15,000 in 2019 and 2020.

We funded modest custodial accounts for both kids and structured the investments to provide income below the threshold where taxes kicked in. That saved our family a few hundred dollars in taxes each year. We never used the custodial accounts for college expenses. Instead, our daughter���s account became a townhouse down payment, while our son���s account continues to grow.

Savings bonds can be cashed in tax-free if the bond owner uses the proceeds to pay qualified higher education expenses. The tax break phases out at higher income levels. Even if you���re likely to qualify, buying savings bonds to pay for college isn���t a great strategy, as new EE and I savings bonds pay low interest rates, though the rate on EE bonds becomes more attractive if you hold them for 20 years.
A trust is a way to transfer money and future investment earnings to children, while retaining some control over when and how the money is used. Problem is, trusts add complexity and cost, and they can be rendered unnecessary by future tax law changes. For these reasons, trusts are probably not the best savings option for cash-strapped families. One example of how trusts can go awry: I���m an eventual beneficiary of an outdated, generation-skipping trust from my grandparents. It���s mostly ended up as a vehicle to transfer small amounts of wealth to the trust manager, thanks to 50-plus years of annual fees.
Working parents can claim a tax credit for childcare expenses for kids under age 13. The credit provides a direct tax reduction for expenses of up to 35% of $3,000 for one child and $6,000 for two or more children, though the percentage drops as low as 20% at higher income levels. As an alternative, parents might be able to set up a flexible spending account, or FSA, through their employer. The maximum FSA contribution is $5,000 per year. Yes, setting up and managing the FSA is more work than simply claiming the tax credit. But you avoid federal income and payroll taxes on the money contributed, and perhaps state taxes as well.

Which will save you more in taxes, the childcare credit or the FSA? You���ll need to crunch the numbers, given your childcare costs and tax situation. If you���re strapped for cash, funding the FSA and then later reclaiming the money might seem like a short-term financial drain. But those with higher incomes will typically fare better with an FSA���assuming it���s offered by their employer.

Your employer may also offer an FSA for health care costs, which can be a great way to pay deductibles and copays for both you and your kids. Health care FSA contributions are limited to $2,750 in 2020. Think carefully about how much to contribute, because unspent money could be lost.�� We maxed out our health care FSA for many years to pay for both kids��� orthodontist costs.

When children become teens and start earning income, they become eligible to contribute to IRAs, including Roth IRAs. Probably nothing beats the return from funding a child���s Roth, which can potentially deliver 60 or 70 years of tax-free growth. All of our kids��� income from those initial years earning money found its way into Roth IRAs.

John Yeigh is an engineer with an MBA in finance. He retired in 2017 after 40 years in the oil industry, where he helped negotiate financial details for multi-billion-dollar international projects. ��His previous articles include 7,000 Days,��Window Dressing��and��Creeping Costs.

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Why FI?

���FINANCIAL��independence��� has become a catchphrase over the past decade���in part because it���s the FI in FIRE, short for financial independence/retire early, a movement that���s captured the imagination of some and earned scorn from others.

The strategies touted by the financial independence movement are simple enough: Earn a large salary. Live frugally. Invest a substantial percentage of your income in low-cost mutual funds. The objective: Accumulate savings equal to at least 25 times your total annual spending. At that point, you should have a nest egg big enough to support your lifestyle���assuming a 4% drawdown rate���and you can consider yourself financially independent.

The ultimate goal? For many, it���s the opportunity to exchange a typical nine-to-five job for the fulltime pursuit of a passion, either as a hobby or as an entrepreneurial enterprise. The idea isn���t to leave employment behind completely, but rather to devote time to projects with personal meaning.

The financial independence movement has spawned an entire cottage industry, including blogs, podcasts and books. I recently read one of the latest books: Choose FI by Chris Mamula, Brad Barrett and Jonathan Mendonsa. Filled with anecdotes from people claiming to be financially independent, the book discusses strategies often used in the quest for financial freedom. The case studies profiled in the book frequently mention six-figure salaries and savings rates approaching 80%, but many of the principles presented could be applied by lower-income families simply interested in increasing the amount they save.

The book includes extensive information on tax-reduction strategies and budgeting tips, as well as a chapter devoted to reducing���or even eliminating���the cost of college. Other topics, such as how to get health care coverage if you don���t have access to an employer���s plan, are only briefly touched upon. New to the financial independence movement? Choose FI will guide you, step-by-step, through the process of eliminating debt, increasing income and saving a large percentage of your salary.

Obviously, financial independence is a good thing. But we warned: Sprinting toward that goal isn���t for everybody. A few years ago, I became intrigued by the idea of financial independence. By practicing extreme frugality, I managed to get my savings rate up to nearly 50% on a salary of $65,000 a year. While I liked seeing the value of my retirement accounts grow, I found it difficult to balance a high level of savings with the ability to engage in the activities I enjoy. Experiences��like mine aren���t unusual.

Moreover, financial independence is, in many ways, just a new wrapper on some long-cherished financial notions. While the movement has taken hold among millennials, the core ideas will be familiar to a lot of baby boomers and Gen Xers. Earlier generations often subsisted on a single income. Owning just one car, and raising a family of four in a home with two bedrooms and a single bathroom, weren���t unusual. ���Earn more, spend less��� isn���t exactly a new idea. Perhaps the financial independence movement could most accurately be described as a throwback to earlier times.

Kristine Hayes is a departmental manager at a small, liberal arts college. Her previous articles include Pet Project,��Educated Consumers��and��Nervous Bride. Kristine��enjoys competitive pistol shooting and hanging out with her husband and their three dogs.

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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Getting Schooled

MANY BELIEVE we���ve raised a bunch of financial illiterates. If people were better educated about personal finance, the argument goes, they���d make smarter money decisions.

North Carolina this year became the 20th state to require high schoolers to take a financial literacy class. Its Lieutenant Governor, Dan Forest, said the new law would ���ensure future students, prior to graduating high school, will be more financially literate and economically sound in their decision making as adults.���

But many aren���t sold on the idea that a personal finance class in high school is going to make much of a difference. According to the Huffington Post, ���The way we make financial decisions has more to do with our money personality, our math skills, logical thinking, the ability to investigate, the confidence to ask questions and spot BS answers, and recognizing the unconscious influences in ourselves that have long been studied by behavioral scientists.���

There are many studies that show that teaching financial literacy in high school has little effect on how people handle money. For example, a 2014 paper for the journal Management Science looked at the results from nearly 170 papers covering more than 200 scientific studies on financial literacy. It found that financial education did little to improve subsequent financial behavior.

According to Timothy Ogden, managing director of the Financial Access Initiative, a research center, ���It���s easy to boost financial knowledge: Lots of programs show positive outcomes when you ask people a few questions before and after a financial-ed course. Unfortunately, the impact disappears when you measure what people who take the courses��actually do��(not just what they��say they do, which is a problem with a lot of studies that claim to find an impact).���

What these studies may be telling us is that we need to change the way we teach financial literacy. Financial education can have more of an impact if it���s based on the students��� short-term needs and delivered in a timely manner. For example, teaching high schoolers about college loans and credit card debt could make a difference in the debt load of students going to college.

Personal finance classes also need to deal with economic realities. How to find the lowest interest rate on a car loan is more important than how to calculate interest on that loan.

We should keep in mind that just because you know more about personal finance doesn���t mean you���re going to behave better. We all have emotions and biases that can keep us from making rational decisions.

What would have a greater impact than a financial literacy class? How about also improving consumer protection laws, so the public is less likely to get ripped off? Such laws could guard against financial institutions who design products that are misleading and use deceptive sales techniques to market them.

Our current consumer protection laws result in lengthy disclosures that are often attached to the financial transactions we sign as consumers. But who reads that mountain of paperwork? Disclosure alone isn���t enough. Some suggest we should also improve the default options embedded in financial transactions. That would force financial institutions to think more carefully about the products they sell.

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. His previous articles include Battling Time,��Don’t Want to Know��and��Are We There Yet? ��Follow Dennis on Twitter��@DMFrie.

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October’s Hits

WHAT WERE FOLKS reading last month? Here are the seven most popular articles that we published in October:

Better than Timing . Tempted to guess the stock market’s direction and invest accordingly? Robin Powell suggests five alternatives���none of which requires a crystal ball.
Happiness Formula . There���s a connection between money and happiness���but it���s a complicated one, says Adam Grossman. He offers three insights from the research.
It’ll Cost You.��When we spend $1 today, we give up perhaps $5 in retirement spending. What if we sign up for a $1 recurring monthly expense? It could cost us $1,000. Sanjib Saha explains.
Peter Principles .��With the stock market near record highs, what should you do? Adam Grossman offers up some wisdom from Peter Lynch.
Staking Your Claim .��“Arguably, we look at delaying Social Security benefits the wrong way,” writes Richard Quinn.��“It���s not that we add benefits by waiting. Rather, it���s that we lose less.”
Open Season .��Shopping for health insurance for 2020? Whether you get coverage through Medicare, your employer or an individually purchased policy, check out the eight tips from Richard Quinn.
Battling Time .��“My mother’s currently waging her biggest battle of all against time,” writes Dennis Friedman. “It���s her ability to continue living in her own house���the place she���s called home for 40 years.”

Meanwhile, October’s most popular newsletters were 50 Shades of Risk and Guessing Game. A newsletter from September, Show Me the Money, also received substantial traffic in October.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook .��His most recent articles include Cash Back,��Crazy Like a Fox��and Improving the Odds . Jonathan’s ��latest books:��From Here to��Financial��Happiness��and How to Think About Money.

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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Time Out

IN WINTER 2012, I experienced what every traveler dreads: a lost bag. Stranded without so much as a toothbrush, I had to replace everything���and fast. At first, this seemed like a pain. But in the end, I came to see it as a blessing. Why? Replacing everything���from head to toe, including the toothbrush���became an unexpected opportunity for a fresh start.

To be sure, all I���m talking about here are clothes and toiletries. Still, the experience made me realize that, in the absence of a disruptive event like this, it���s all too easy to get stuck in our ways. Careers, habits, ways of thinking���they all run the risk of atrophying.

During the many years that he ran Microsoft, Bill Gates was famous for taking ���think weeks.��� Twice a year, he would spend seven days by himself at a cabin in the forest. To ensure maximum productivity, no one was allowed to visit���not friends, not family. To this day, the location has been kept secret.

During those weeks away, Gates would spend all of his time reading, writing and thinking about the future of technology. In interviews, he has said that these “think weeks” were instrumental in helping him stay on top of trends and ahead of the competition.

While the idea of a week of contemplation might be appealing, it���s a luxury few can afford. But you don���t need a secret cabin to engage in renewal. What���s most important is to recognize the need to revisit and reevaluate existing habits, beliefs and ways of doing things���and to do this on a regular basis.

In a 2013��paper, psychologist Jordi Quoidbach and colleagues coined the term ���end-of-history illusion.��� What does this mean? As the authors put it, people tend to believe that ���they had changed a lot in the past but would change relatively little in the future.��� Put another way, people ���regard the present as a watershed moment at which they have finally become the person they will be for the rest of their lives.��� The upshot: Everyone acknowledges that they���ve undergone significant change in the past, but they mistakenly think they won���t change much in the future. The study found that people of all ages���from children to the elderly���saw themselves this way.

This illusion is a problem. At best, it can make us uninterested in changing. At worst, it can make us resistant to change. Yes, there���s value in stability. We can���t throw everything out the window every day. But on balance, change is vital���whether it���s professionally or personally. In his classic book��The Innovator���s Dilemma, Harvard professor Clayton Christensen goes further, making the point that change is important��regardless of how successful you already are. This is why, presumably, Bill Gates continued to devote so much time to learning and thinking, despite having already achieved enormous success.

What can you do if you aren���t Bill Gates and don���t have unlimited time to sequester yourself? I recommend a three-part formula that should fit into anyone���s schedule. Note: If you���re married, I’d suggest you spend some of this time together with your spouse. Even though Bill Gates spent his time alone, what he was reading were things his employees had written for him. Collaboration is key.

First, choose a topic.��Here, I���d favor thinking broadly. For instance, it���s important to focus on the details of your finances and investments. But you should also recognize that the relationship between money and happiness runs in both directions.��Research��has shown that, if you increase your level of happiness, that can translate into increased earnings.

As you build an agenda for your thinking time, consider your health, stress level, friendships and other areas that you might not view as specifically money-related. Then move on to more obvious topics like your career, household finances and financial plan.

Second, choose a place.��I don���t think you have to travel far. The key here is just to get away from your day-to-day environment and avoid interruptions. For that reason, your local Starbucks isn���t a good idea. Some people like to book a hotel room. If that sounds too isolating, you might seek out a comfortable hotel lobby. Just find a place that���s a little off your beaten path.

Finally, choose a time.��Most folks can���t afford a week in the woods and, in any case, that���s probably overkill for most of us. You might set aside as little as 30 minutes on a Sunday, or maybe half a day two times during the year. Just as you might use daylight saving time as a reminder to change the batteries in your smoke detector, I recommend setting a regular schedule. Otherwise, it���s too easy for life to get in the way���and that���s precisely what you���re trying to avoid.

Adam M. Grossman���s previous articles��include Staying Home,��Happiness Formula��and Yet Another Reason . Adam is the founder of�� Mayport Wealth Management , a fixed-fee financial planning firm in Boston. He���s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter�� @AdamMGrossman .

HumbleDollar makes money in four ways: We accept��donations,��run advertisements served up by Google AdSense, sell merchandise and participate in��Amazon‘s Associates Program, an affiliate marketing program. If you click on this site’s Amazon links and purchase books or other items, you don’t pay anything extra, but we make a little money.

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