Jonathan Clements's Blog, page 388

The Office

AFTER NEARLY 50 years in the employee benefits profession, there are a few conversations that stand out���and they all relate to money. What people do, or don���t do, when it comes to money never ceases to amaze me. All the stories below are true.

I received a call from a recently deceased employee���s wife, followed by a call from the same employee���s other wife, both named Mary. One was in New Jersey and the other in South Carolina, and both were claiming his group life insurance. Each family had three children. There followed a long quarrel over who gets what. ���Mary��� was the designated beneficiary; that was no help. I let the insurance company sort it out.

I���ll never forget another employee���s wife, who yelled at me that she was holding me responsible if her children died from Lyme disease, because our health plan didn���t cover vaccinations. ���You don���t expect me to pay with my money, do you?��� she shouted. It was then that it hit me that spending on health care was different from other purchases. Here was a person who was concerned about her children dying, but not to the point of spending $60. This story comes to mind every time I hear about one of those surveys that finds that many people believe the cost of prescriptions and health care co-pays is ���unaffordable.���

Then there was the call from a new widow, asking about her survivor���s pension. I had to tell her that no survivor benefit had been elected. ���But my George told me I would get everything I deserved,��� she said.

That was in the days before spouses were required to agree to any waiver of their survivor benefits under a pension or 401(k) plan. Before 1984, when the law was changed to require spousal consent, it wasn���t unusual for surviving spouses���almost always the wife���to be left with no income.

This is still an important issue, especially for Americans with no employer retirement plan. When planning for retirement, I rarely hear about planning for two lifetimes. The death of the first spouse often brings financial hardship, especially for women. The poverty rate among surviving wives age 65 and older is 20%, versus 15% for surviving husbands.

Our company���s benefits plan offered several health insurance options. The options all covered the same range of doctor���s visits and medical procedures, but with different deductibles, out-of-pocket limits and, of course, premiums. After a few years, I learned the hard way how powerful adverse selection can be. While many who opted for the Cadillac plan had only routine or even no expenses, a core group were exceptionally big consumers of health care. The plan became a large financial drain, prompting us to raise the premiums substantially.

We did everything we could to explain to employees that the Cadillac option, with its $150 deductible, was no longer a good value. But the word ���Cadillac��� was powerful, because employees assumed it meant best. One day, an employee���who was enrolled in the Cadillac option���stopped by my desk and asked me what he should do. I sat with him for some time, explaining that it was impossible for his current option to be the best choice, given that the extra premiums he would pay were larger than the potential out-of-pocket cost on any of the other options. Even if his family incurred $1 million or more in health care bills, the difference in premiums he paid would always be higher than his possible out-of-pocket costs on the other options.

When we finished, he said he finally understood. As he was leaving, I asked if he knew what decision he would make. ���I think I���ll stay with the Cadillac plan,��� he replied. The unrealistic fear of health care costs is a powerful motivator. Eventually, with the agreement of the unions, we simply eliminated the option.

That brings me to my saddest memory. A few months after starting work, a young woman got married and came to our department to change her beneficiary designation to her new husband. Just a few weeks later, the women was dead, the result of a bizarre accident. She and her husband were in a park with a cliff at one end that overlooked an interstate highway.

Within two days of the death, the new widower was in my office, looking for his insurance payment. What had happened? The husband told the police that they were playing leapfrog and, with the last leap, the woman went over her husband���and over the cliff and onto the highway.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous blogs include Still Learning,��Healthy Change,��Saving Ourselves��and��Required Irritation.��Follow Dick on Twitter��@QuinnsComments.

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Seeking Certainty

SELF-EMPLOYED individuals, freelancers and commissioned workers all struggle with a key area of their finances: managing a variable income. When you don���t know how much you���ll make this month or this year, it���s tough to start saving. I know this all too well as a self-employed financial planner.

The uncertainty can leave you stuck, unsure which steps to take next. How can you risk putting money into long-term investments if you might need it to pay the bills a few months from now? My advice: Take these five steps���and you���ll slowly gain the confidence to invest in your future self:

1. Pay yourself a salary.��Look back at the income you earned over the past 12 months. Use the month with the least amount of income as your baseline. You���ll pay yourself this sum on the first day of each month as your ���salary.��� Don���t forget to set aside money for self-employment taxes. With any luck, this new salary will be enough to cover your fixed living expenses. Thereafter, if you have a month with income above this level, you can put the extra money toward your financial future.

2. Track your spending.��You need to track not only your personal spending, but also your business spending. Self-employed workers have a bad habit of mixing business and personal expenses. If your business expenses are modest, you might track spending on your own. But if the finances grow more complex, consider hiring a bookkeeper.

You also need to track your personal spending, so you know how much you have available to invest. The alternative: Automate your monthly investment contributions and then force yourself to live on whatever is left.

3. Keep a larger emergency fund.��A variable income brings additional risk to your financial life. Without a sizable savings account, a dry spell for business income could force you into credit card debt. Build up your emergency fund to six months of business and personal expenses, and perhaps more. Salaried employees, by contrast, can get away with a smaller emergency fund, because their income is more predictable.

4. Live off last month���s income.��The online budgeting tool YouNeedABudget.com��has a philosophy I love: It���s called ���age your money.��� This rule limits your spending to the amount you made last month. If you���re paying yourself a baseline salary, hopefully this won���t be an issue. But if you get hit with a lower income month, temporarily restricting your spending will keep you afloat until more income comes along.

5. Invest the rest.��Review your baseline income and monthly spending on a quarterly basis. Since your baseline salary was the least you earned over the previous 12 months, you should have money left over. If you have any high-interest debt, pay it off. After that, start maxing out your tax-favored accounts, including a solo 401(k), Roth IRA and Health Savings Account.

Ross Menke is a certified financial planner and the founder of Lyndale Financial , a fee-only financial planning firm in Nashville, Tennessee. He strives to provide clear and concise advice, so his clients can achieve their life goals. Ross���s previous articles include��Spending Happily,�� Picture This ��and�� Rewriting the Script . Follow Ross on Twitter @RossVMenke .

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B Is for Bias

IN THE WORLD of personal finance, researchers have long understood that��behavioral biases��negatively impact investors. Examples include recency bias, hindsight bias, confirmation bias and many others. These are all well documented. Recently, a group of researchers uncovered yet another investor bias: This one is called ���alphabeticity bias.���

Alphabeticity, as you might guess, refers to the bias that can occur when choices are presented in alphabetical order. This bias, the researchers note, is found in a number of domains: In elections, candidates at the top of the ballot often win more votes. In fundraising, solicitors call people with A names more frequently (and, as a result, those folks give more). Consumers do this, too, which is why companies favor names like Acme.

In this case, researchers wanted to find out whether alphabeticity impacts the way people make investment decisions. They examined this question by looking at corporate 401(k) accounts, where workers typically choose from a list of 10 or 20 mutual funds.

The result: Alphabeticity strikes again. Even when it’s a short list, the data shows that workers disproportionately choose funds that appear near the top of the list. On the surface, this is unfortunate, because a fund’s position on a list shouldn’t tell you anything about the quality of the fund. But it’s doubly unfortunate for this reason: Two companies with expensive funds���American Funds and American Century���land at the top of most lists, while low-cost leader Vanguard Group usually falls near the bottom.

If you’ve been struggling to make sense of the mutual funds in your company’s 401(k), I suggest asking these 10 questions as you evaluate each option:

1. What type of fund is it?��Most funds fall into one of three categories. First, there are target-date funds, which offer a mix of investments that automatically becomes more conservative as you get older. Second, there are hybrid funds, which offer a fixed mix of investments. Finally, there are single-asset-class funds, such as a pure stock fund or pure bond fund. In my view, this is the most important question to ask, since asset allocation is the single most important factor influencing a fund’s performance.

2. What’s inside it?��This question is especially crucial if you���re looking at a target-date or hybrid fund. You really need to understand what you’re buying. Retirement plan providers are notorious for abbreviating fund names to the point where they barely make any sense. Among the names I’ve seen: ���25 To-Go��� and ���Interest Income Fund.��� If you aren���t sure what a fund owns, consult an independent source like��Morningstar.com. Simply type in the fund’s ticker symbol and then click the ���Portfolio��� tab.

3. What��exactly��is inside it?��If it’s a stock fund, is it a domestic fund or international? Does it cover the entire market or just part of it? If it’s a bond fund, does it consist of corporate bonds, government bonds, junk bonds or a mix? Does it own short-term or long-term bonds?

4. Is it an index fund or actively managed?��Does the fund employ a highly paid stock-picker who is attempting to beat the market, or is it an index fund that���s simply trying to match the market at low cost?

5. What does the fund cost?��In addition to inscrutable fund names, 401(k) menus are notorious for concealing the cost of each fund���known as the ���expense ratio.��� If you can’t find expense ratios in the documents you have, ask your human resources department. Fees are always available in supplementary disclosure materials. Yes, you can also find fee information online. But funds come in many ���share classes,��� each with their own pricing, so be sure to consult your own company’s documents. Favor funds that charge 0.5% a year or less���preferably much less.

6. How has the fund performed?��A good index fund should deliver performance very close to its index. But if your plan offers only actively managed funds, you’ll need to evaluate its track record more carefully. Again, refer to Morningstar, but be careful. You want to look at returns over multiple years. But also be sure to look at each individual year, rather than just at average annual returns, which can sometimes conceal an uneven history���an indication that the manager���s impressive track record might be the result of one or two lucky years.

7. What is the fund’s turnover ratio?��When mutual fund managers trade frequently, they incur costs that are invisible to you, but have a very real impact. Desirable funds will have turnover below 20%. If it’s much more than that, I’d steer clear.

8. Is the fund mainstream?��In the U.S., there are more than 25,000 mutual funds on offer, if you add up all the various share classes, according to the Investment Company Institute. To differentiate themselves in a crowded market, fund companies often create oddball investments that are expensive and unnecessarily complex. I would keep it simple: Stick to stock and bond funds.

9. Is it narrow or broad?��These days, fund companies understand that the word ���index��� is appealing. But beware: Not all index funds are created equal. Many indexes are very narrow and, as a result, potentially risky���a commodities fund, for example. My advice: Choose only broadly diversified index funds. Ideally, you’ll want to see words like ���total market fund��� in the name.

10. Who runs the fund?��When in doubt, look for the Vanguard name. To be sure, Vanguard isn’t perfect and it isn���t the only high-quality provider. But many of their funds are index funds and even their actively managed funds carry very low price tags. Where can you find Vanguard���s funds? Just scroll to the bottom of that alphabetical list.

Adam M. Grossman���s previous articles��include Humble Arithmetic,��Repeat for Emphasis��and��Apple Dunking . 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 .

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Newsletter No. 42

THERE ARE almost 139 million houses and apartments in the U.S. Based on the reader reaction I’ve received over the years, that’s probably also a pretty good estimate of how many people have strong opinions about the virtues of homeownership, or the lack thereof. It seems real estate discussions almost always deteriorate into debates driven by anecdotal evidence.

But what if we set aside the stories, and focus instead on statistics and commonsense? That’s what I try to do in HumbleDollar’s latest newsletter, where I offer my 13 rules for real estate. The newsletter also includes our usual list of the dozen blog posts run in the two weeks since our last newsletter.

Follow Jonathan on Twitter��@ClementsMoney��and on Facebook.��His recent articles include Price Still Slight and��Choosing Our Future. Jonathan’s��latest book:��From Here to��Financial��Happiness.

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House Rules

FOLKS USED to say, ���You can���t go wrong with real estate.��� They sure don���t say that anymore. It���s been a rollercoaster dozen years for home prices���and some experts think another rough patch is in the offing.

Since mid-2006, the S&P CoreLogic Case-Shiller U.S. National Home Price Index first tumbled 27.4% and then bounced back 53.6%, for a cumulative 12-plus year gain of 11.5%, equal to 0.9% a year. Could we be facing another dip? According to the National Association of Realtors, home sales fell 10% over the past year, in part because of rising mortgage rates. That���s worrisome: Slowing home sales often precede a fall in house prices.

But my goal here isn���t to scare away potential home buyers. Quite the opposite: I think everybody should strive to become a homeowner���but they should do so with their eyes wide open.

What do I mean by that? Real estate discussions almost invariably fall hostage to anecdotal evidence. We all know folks who supposedly made a mint in real estate, as well as people who lost their shirt. But forget the anecdotal evidence, and instead focus on statistics and commonsense. To that end, here are my 13 rules for real estate:

1. Homeownership isn���t as safe as it feels. A house is a big, leveraged, undiversified bet���arguably riskier than owning a diversified stock portfolio. Yet it doesn���t feel that way. Why not? Partly, it���s familiarity. We look around our house and see the value that���s there. And partly, it���s a money illusion. If we got daily updates on our home���s value, like we do on our stock portfolio, we wouldn���t be nearly so sanguine about our huge real estate wager.

2. We shouldn���t buy unless we can see staying put for at least five years���and preferably seven years or longer. Buying and especially selling real estate involves steep transaction costs, and we need many years of price appreciation to overcome that hit.

3. Over the long haul, home prices nationwide should rise roughly in line with per-capita GDP. Why per-capita GDP? That���s a gauge of our ability to pay. Sure enough, over the past 40 years, per-capita GDP has climbed 4.5% a year���and home prices are up 4.3%, according to Freddie Mac. Meanwhile, inflation clocked 3.4% annually.

Obviously, we���ll get years when home prices climb faster or slower. But over the long haul, we shouldn���t expect to do a whole lot better than a percentage point or so a year more than inflation.

4. The land underneath our homes should appreciate, but the dwelling itself will depreciate���and we���ll need to fork over hefty sums just to keep up with the general increase in home prices. As a rule of thumb, expect to spend a sum equal to between 1% and 2% of a home���s value on maintenance each year.

5. Any gain in our home���s value will likely be largely or entirely offset by transaction costs, maintenance, property taxes and homeowner���s insurance. Subtract those costs from our home���s annual price gain, and we probably aren���t keeping up with inflation and there���s a good chance we���re losing money.

6. The benefits of leverage are often offset by the cost of leverage. Homeowners may put down just 10% or 20% of a home���s purchase price���but they collect 100% of any price appreciation. Result: Even prosaic property price increases can be transformed into wondrous gains���or so it seems.

Let���s say we might put down $30,000 on a $300,000 home. If the home���s price rises 30% to $390,000, our home equity would soar 300%, from $30,000 to $120,000. But how much did we pay in mortgage interest to get that leveraged gain? Often, the total interest paid rivals the increase in home equity.

“If we sold soon after making home improvements, we might recoup as little as 50% of the money spent.”

7. The mortgage-interest tax deduction has always been overrated���and, today, that���s truer than ever. If we pay $1 in mortgage and we���re in the 22% tax bracket, we only save 22 cents in taxes, which means the other 78 cents is coming out of our pocket.

This assumes we itemize our deductions. But with the 2019 standard deduction at $24,400 for couples filing jointly, many homeowners will find their total itemized deductions are less than their standard deduction���which means they���re getting zero tax benefit from all the mortgage interest they pay.

8. If you���re a homeowner with a fixed-rate mortgage, what you really want is inflation. Why? That inflation will likely drive up both your home���s price and your salary, while leaving your mortgage payment unchanged. That means you can repay the mortgage company with depreciated dollars, while having more disposable income for everything else.

9. While a home���s price appreciation and mortgage-interest tax deduction will likely prove disappointing, homeowners enjoy one huge benefit: They get to live in the place. How much is this imputed rent worth? Think about how much you���d collect each year if you rented out your house.

10. All homes should be priced to deliver the same expected total return. Folks will talk about real estate in, say, San Francisco and Silicon Valley, as though these are magical markets that somehow defy economic norms.

The reality: The total return���the combination of price appreciation plus rent or imputed rent���should be similar across property markets. In other words, in highflying real estate markets, rents tend to be modest relative to home prices, so total returns aren���t unusually high. This has been borne out by academic research.

11. A paid-off home is the cornerstone of a comfortable retirement, for two reasons. First, by paying off our mortgage, we eliminate a major expense, making retirement more affordable. Second, thanks to the forced savings that come with paying down a mortgage���s principal balance, we eventually come to own a major asset free and clear. That asset can then help us to finance our retirement, either by trading down to a smaller place or taking out a reverse mortgage.

12. Remodeling is a money loser. If we undertake home improvements, we���ll increase the value of our home���but by less than the dollars we spend. For proof, check out Remodeling magazine���s annual cost vs. value survey. It analyzes 22 home improvement projects. Depending on the project, if we sold soon after making these home improvements, we might recoup as little as 50% of the money spent.

13. A real estate agent���s greatest financial incentive isn���t to get us the best price, but to get us to act quickly. If we spend an extra month looking for the right home���or holding out for a higher price���the agent might make little or no additional commission, but he or she will have to put in substantially more work.

Still, don���t allow yourself to be rushed. If you keep your house on the market for an extra month and make $10,000 more, that would be a huge win. And if you buy a house you aren���t entirely happy with and end up moving soon after, that would be a terrible mistake.

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“The townhouse required significant parental assistance with the down payment,” notes John Yeigh. “As I now tell friends, my daughter lives in my retirement Porsche.”

Follow Jonathan on Twitter��@ClementsMoney��and on Facebook.��His recent articles include Price Still Slight and��Choosing Our Future. Jonathan’s��latest book:��From Here to��Financial��Happiness.

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January’s Hits

LAST MONTH was the best ever for web traffic in HumbleDollar’s brief 25-month history. What were folks reading? These were January’s most widely read blog posts:

Still Learning
Subtraction Mode
Saint Jack
Never Retire
Nursing Dollars
Repeat for Emphasis
Price Still Slight

January also saw readers flock to our early��January newsletter, as well as to a newsletter published in December.

Follow Jonathan on Twitter��@ClementsMoney��and on Facebook.��Jonathan’s��latest book:��From Here to��Financial��Happiness.

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This Old House

HOW DID MY��husband and I get where we are today���early retirement in Spain? One of the most critical decisions concerned our biggest expense: housing. As the one in charge of the family���s financial planning, I wish I could say I planned this outcome all along, but I didn���t. We were just lucky���though I like to think it was ���lucky��� in the sense that luck is when preparation meets opportunity.

When Jim and I got married in 2003���a second marriage for both of us���we needed a new place for our combined family of four, plus cats. I was happy to move into his rented 1,700-square-foot townhouse, but Jim wanted to buy a home that had more room for our two boys.

I was concerned about committing to a house purchase. Before I met Jim, I had been a single mom for five years. Like most divorcees, I���d experienced a huge financial setback, compounded by receiving no financial or child support from my ex. When I remarried, I felt I had barely gotten back on my feet financially and was wary of taking on debt. Additionally, at the time of our marriage in 2003, my salary was $47,000. My new husband had a teacher���s salary that wasn���t much more. To afford a home, our total mortgage payment would likely be right at the maximum recommended 28% of income.

In the end, we did what most couples do: We compromised. Our nonnegotiable common ground was our sons��� education. We agreed to buy a house in a good school district. It wasn���t necessarily ���the best,��� but it provided ample opportunity and had a diverse student body.

We didn���t fall for the realtor pitch to ���buy the biggest house you can afford.��� We ended up buying the most modest home that we could all be comfortable in. It came with a lower price than most homes in the neighborhood, because the house hadn���t been upgraded for 10-plus years, with old-fashioned but solid kitchen cabinets, wallpaper and older bathroom fixtures���and just enough room for a family of four.

We avoided renovations that merely beautified the house, such as cosmetic kitchen and bathroom upgrades. We loved the old-fashioned cabinets, the big Spanish floor tiled entrance that we were told was out of style, and the simple white bathroom tiles. They were functional, good quality and built to last���and, indeed, had done so since the house was constructed 40 years earlier.

We also didn���t spend a lot of money on home decor. In fact, when we moved in, all our furniture was already secondhand, either passed on to us from relatives or found at garage sales, thrift stores and even on the sidewalk on bulk trash pickup days.

Our one big mistake was buying a house that came with an old, unkept swimming pool that required year-round maintenance and incurred high electricity and water costs. We did the unthinkable: We had the pool filled in and replaced with a deck and yard. It cost us $7,000, but the $200 monthly savings in electricity and water meant we broke even after three years.

We did invest to make our home more energy efficient by adding $3,000 worth of insulation. That allowed us to claim a tax deduction, while ultimately saving on utilities. We took advantage of the home warranty program that came with the home to replace the dishwasher, hot water heater and double ovens, all at very little cost to us. Over the years, we also did some projects ourselves, like painting, installing new hardwood floors and putting up shelving. What we lost in professional installation was more than made up for by the family bonding time and the memories, which we all still cherish to this day. In addition to keeping our housing expenses low, we took advantage of rock-bottom rates during the Great Recession to refinance our mortgage from 5.5% to 3.5%.

This was the preparation. Opportunity came in 2016, when Dallas became one of the top places in the nation for��population��growth.��That growth drove housing prices to record levels three years in a row, with the median price of a single-family house in the Dallas area shooting up more than 50% from 2012���s level. It was a seller���s market, especially in our area, with its good school district. Since both our boys had graduated high school, we no longer needed to stay in the district. We seized the opportunity and sold.

The upshot: The house we bought in 2003 for $200,000 was sold for $340,000 in 2016. After paying off the $100,000 owed on the mortgage, we netted about $240,000, which enabled us to buy a smaller townhouse with cash. We had become mortgage-free in just 13 years. In 2018, we rented out our home. That provides us with rental income, which helps support our retirement here in Spain.

Jiab Wasserman recently left from her job as a financial analyst at a large bank at age 53. She’s now semi-retired. Her previous articles for HumbleDollar include The Gift of Life, Odds Against��and��Mind the Gap.��Jiab and her husband currently live in Granada, Spain, and blog about downshifting, personal finance and other aspects of retirement���as well as about their experience relocating to another country���at��YourThirdLife.com.

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Off the Payroll

WHEN OUR daughter landed a great job after her 2018 college graduation, we expected her to soon move off the family payroll. She immediately budgeted to take on all routine living expenses, including housing, food, car and utilities. We did volunteer to cover some smaller expenses, largely in situations where family plans are available, such as cellphones, Netflix, Amazon Prime and AAA. We also kept her on our employer-provided health insurance, which involved no added cost.

Today, a third of millennials still live at home. I get it. Young adults may be seeking a job, continuing college studies, saving for a down payment or wedding, temporarily displaced, or simply lazy or fearful about entering the workforce. Even if they move out, many others receive parental financial help, similar to what we planned for our daughter.

But in our case, parental help turned out to be far larger than we expected.

My daughter���s first big challenge was finding a place to live. In her new city, tiny apartments rent for some $2,000 per month. These apartments were too small to store snow tires, camping gear, skis and other stuff that should now be hers to manage. I also struggled with throwing away $24,000 a year on rent. That���s when I suggested she look into buying.

This was a seismic shift from the original plan. Suddenly, our daughter had to step up and earn an instant PhD in real estate. She quickly learned that buyers get what they pay for���and that location, location, location is everything. Two important criteria were neighborhood safety and resale potential. After all, she might get a job transfer���a frequent occurrence early in a career. After considering many cheaper dumps, our daughter landed on a three-bedroom townhouse with a basement. It struck all of us as a solid value.

Of course, the townhouse cost far more than we ever anticipated and required significant parental assistance with the down payment. In effect, we moved forward part of her inheritance by a few decades. Still, her monthly housing costs, including principal, interest and property taxes, were lower than rent on an apartment, plus she had three times the space and was building home equity. Longer-term family wealth had clearly been improved���but we hadn���t exactly thrown her off the parental payroll. As I now tell friends, my daughter lives in my retirement Porsche.

This wasn���t the only payroll challenge. Our daughter���s company provides a matching contribution to participate in the 401(k) plan and a significant price discount on shares bought through the employee stock ownership plan. Over the past four years, our daughter has also funded a Roth IRA by contributing all summer job and internship earnings.

To make the most of these three plans, our daughter would have to save nearly 25% of her income. The upshot: If the goal was to maximize family wealth, further parental help made sense. The good news is, our daughter has a two-year plan to take over funding of all three programs, so parental help should be temporary. An added benefit: She���s locked into funneling her money into real estate and savings. That means there���s not a whole lot left over for the mall.

John Yeigh is an engineer with an MBA in finance. He recently retired after 40 years in the oil industry, where he helped manage and negotiate the financial details for multi-billion-dollar international projects. John now manages his own portfolio and has a robust network of friends, with whom he likes to discuss and debate financial issues. His previous blog post was Half Wrong.

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I Can’t Do That

THERE ARE TWO New Year���s resolutions I���d like to accomplish: I would like to gain weight and spend more money.

I’ve been trying to gain weight for such a long time that I���ve just about given up. I eat all day long until my stomach is about to explode. The next morning, I jump on the scale and my weight is back where I started the previous morning. Rachel looks at me amazed, as if I’m some kind of human garbage disposal. She���s always asking, “Where does all that food go?”

My friends tell me to eat a lot of high-calorie food. They suggest foods like jumbo pretzel hot dogs, fettuccine Alfredo and cheesecake. One friend offered to buy me a Denny’s Lumberjack Slam breakfast, noting it has almost 1,000 calories. He said it would be a great way to start my day if I wanted to put on weight.

I thought about all this advice. Do I really want to eat a lot of unhealthy food loaded with calories, so I can gain some weight?

The same thing can be said about my effort to spend more money. Do I really want to buy things I don’t need just so I can spend down my portfolio? I mentioned in a previous blog post that my financial planner told me that, if I don’t increase my spending, I���ll die with more money at age 100 than I have today.

I find the root cause of my eating and spending problem is very similar. My diet is low in calories. It���s comprised mostly of vegetables, fruits and lean poultry. It’s hard to gain weight when you���re eating food low in calories.

Ditto for my spending. My fixed expenses are low and my discretionary spending doesn’t involve any high-ticket items. Although I feel I���ve lately increased my purchases, they are mostly lower priced items.

I haven’t made it to the upper echelon���and I don’t think I’m getting there anytime soon. I always thought purchasing an expensive watch, SUV or designer clothing was like eating an unhealthy high-calorie chocolate cake with ice cream and whipped cream on top. I just can’t do it. I���ve abstained all my life from those kinds of purchases. I don’t think I have it in me to change now.

Rachel is no help. She���s as bad as me when it comes to loosening the purse strings. When we go grocery shopping, I better have a good reason to buy another box of cereal, when the cereal box at home still has two more servings in it. When it comes down to it, we���re both minimalists and live a simple life. We are two peas in a pod when it comes to spending.

When we buy something, it’s a lifetime commitment. We drive our cars until the wheels fall off. Rachel’s Honda Fit has 193,000 miles on it. My previous car, a Toyota Camry, had 237,000 miles. I’m still using my first iPhone. If all Americans spent like us, the economy would be in a recession.

In all honesty, there���s really nothing that I want to buy. We often have dinner out and we plan to go on some trips this year. But there are no other significant expenditures slated for the year ahead.

I now realize the amount of money you have doesn’t always determine the lifestyle you live. As my investment portfolio has grown over the years, my lifestyle hasn���t changed much. Sometimes, your life experiences and values determine how you live your life, not how much money you���ve accumulated.

Since I���ll likely never spend down my portfolio, I will probably donate part of my estate to charity. There are some causes I’m passionate about. Of course, I will also make sure Rachel is well taken care of���and, hopefully, she���ll find it within herself to spend the money. And if not, that’s okay: It’s all about enjoying life in the way you want to live it.

Dennis Friedman retired at age 58 from Boeing Aerospace Company. He enjoys reading and writing about personal finance. His previous articles include Say Yes,��Subtraction Mode,��Time to Reflect��and��Be Like Neil��Young . Follow Dennis on Twitter��@dmfrie.

The post I Can’t Do That appeared first on HumbleDollar.

Spending Happily

IN THE GRAND scheme of things, money is just a tool and net worth is just a number. We shouldn���t work solely to make more money. Instead, our goal should be to use that money to create as happy a life as we possibly can.

In their book��Happy Money: The Science of Happier Spending, Elizabeth Dunn and Michael Norton explore this idea. How can we best use money to buy happiness? Dunn and Norton offer five key suggestions.

1. Buy experiences. The millennial generation gets a hard time in the press. We���re constantly berated for our spending habits, including traveling too much, eating avocado toast and drinking expensive coffee. But whatever our failings, the millennial generation believes in buying experiences over owning things���and that���s an effective way to use money to increase happiness, according to Dunn and Norton.

We���ve witnessed the generations before us purchase and hold onto far more items than can fit into their homes���which is why many folks also have storage units. We millennials don���t want to make that mistake: Buying experiences, and sharing them with others, gives us lasting memories that���ll bring far more happiness than we���ll ever get from another pair of shoes.

2. Make it a treat. If you commute to work every day, there���s a good chance you drive past a Starbucks. There���s an even better chance that the Starbucks drive-thru line is packed with cars.

I���m not here to tell you that you need to cut out the daily latte. Still, that special coffee drink may not be making you as happy as it once did. We adapt quickly to new habits and routines, including the coffee we consume. When we get used to having a special coffee every day, we don���t feel the same spike in happiness we initially enjoyed.

To combat this, we should forgo the daily latte and make it a treat instead. Drink a regular coffee Monday through Thursday and save the special coffee for Friday. That way, you���ll be able to look forward to the treat all week long, which is crucial: It isn���t always the event itself, but our anticipation of the event, that makes us happy.

3. Buy time. Are there any regular chores you absolutely hate? Whether it���s vacuuming, mowing the lawn, cleaning the shower or something else, outsourcing may be the key to increasing your happiness. We could use this newfound time to be with family, take a hike at a nearby trail or have a night out with friends.

That said, I think everybody should do a rigorous audit of their schedule before insisting that they simply don���t have enough time. We���re notorious for claiming we are busier than we really are. In fact, Dunn and Norton note that Americans, on average, spend about two months per year in front of the television, equal to some four hours per day.

4. Pay now, consume later.��Another simple way to increase happiness is to adjust when you pay for things. It���s been found that when we pay for goods or activities beforehand, we free ourselves up to enjoy the purchase much more. Conversely, if we don���t pay until later, we���re less happy.

Have you been to an all-inclusive resort? You���ll know that there���s no hesitation when ordering that cold drink while sitting by the pool. When we pay for goods or services upfront, it allows us to stop worrying about the money and instead focus on enjoying what we paid for.

5. Invest in others. If you���ve ever given to charity, monetarily or with your time, you have probably enjoyed the good feelings that come with it. Giving back is a wonderful way to boost not only your happiness, but also the happiness of others in your community.

In one research study, participants were each given $20. Some of the participants were instructed to spend the money on themselves, while others were instructed to spend the money on someone else. After the task was completed, those who gave their $20 to others reported greater levels of happiness.

My challenge to you: In the week ahead, spend your money to increase happiness in as many ways as possible. For example, what if you bought a Starbucks gift card today (pay now, consume later), used it later in the week to buy a special kind of coffee (make it a treat) and also paid for the drink of someone else in line (invest in others)? It could make for a far happier week.

Ross Menke is a certified financial planner and the founder of Lyndale Financial , a fee-only financial planning firm in Nashville, Tennessee. He strives to provide clear and concise advice, so his clients can achieve their life goals. Ross���s previous blogs include Picture This,��Rewriting the Script��and�� Paper Chase . Follow Ross on Twitter @RossVMenke .

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