Jonathan Clements's Blog, page 406

Low Fidelity

WE HAVE FINALLY hit rock-bottom. Last week, Fidelity Investments announced that it was introducing two index funds with zero annual expenses, while also slashing expenses on its other index funds and dropping the required minimum investment on all funds, both actively managed and indexed. All of this raises five key questions.

1. Why is Fidelity doing this? I view Fidelity’s move as both bold and borne of desperation. When I started writing about mutual funds in the last 1980s, Fidelity’s swagger bordered on nauseating, as it relentlessly pedaled a slew of star fund managers, notably Magellan’s Peter Lynch.

But like almost everybody who plays the market-beating game, the odds eventually caught up with the Boston behemoth. Today, its reputation for minting winners is all but forgotten. The upshot: After decades of pooh-poohing index funds, Fidelity has clearly decided they’re its best bet for getting new investor dollars in the door.

2. Is this a bait-and-switch? When Fidelity, iShares and Charles Schwab started slashing expenses on their broad market index funds to compete with Vanguard Group, I initially feared that they were looking to lure unsuspecting investors into their funds and then, once the funds were bloated with assets, they’d jack up the fees. It wouldn’t be the first time this has happened. We’ve seen it before with both money-market funds and S&P 500-index funds.

That’s still a risk, especially if we got a long, brutal bear market that puts pressure on profit margins at fund management companies. But today, I find I’m less concerned. With so many major fund companies engaged in this price war, any company that backtracked on its expense cuts would be tarred and feathered for betraying the trust of fund shareholders—and deservedly so.

Instead, investors need to be leery of a subtler bait-and-switch. Fidelity’s zero- and minimal-cost index funds are open-end mutual funds, not exchange-traded index funds. Why go that route? Fidelity wants folks to open accounts at Fidelity itself, rather than having an account at, say, Schwab and using that to buy a low-cost Fidelity ETF. Fidelity’s hope is to build lifelong relationships with customers, who might start out with index funds that make no money for Fidelity, but end up owning Fidelity’s pricier merchandise. My advice: If you have a fondness for your financial future, stick with the cheap stuff.

3. Is Fidelity’s move significant? It isn’t clear that paying nothing in fund expenses is a whole lot better than paying, say, 0.04%. There are other issues that are also of importance, like skill in replicating the underlying index, which index is tracked, and how much the fund makes from lending out the securities it owns and whether that money is credited to fund shareholders. Earlier this year, I looked at the performance of some major index funds in 2017. Tiny differences in annual expenses didn’t necessarily show up in fund returns.

While Fidelity’s lower expenses may not be significant, I think its scrapping of investment minimums is hugely important. Mutual funds are supposed to be the way for everyday Americans to tap into the financial markets, and yet lately the price of admission has become too steep for my taste. I think it’s great that Fidelity has dropped its investment minimums. Schwab, too, has no required minimum—at least for its index funds—which I also find admirable.

We need to make it easy for folks to get started as investors. Cash-strapped families, who might be deterred by the $1,000-plus minimum required by so many fund companies, now have two great choices.

4. What does all this mean for Vanguard? I have all my investment money at Vanguard. I love that the firm operates its funds at cost and I trust the folks there to act in my best interest. But there’s no doubt that Vanguard is in a bind. Fidelity, iShares and Schwab can only offer super-low-cost index funds because other parts of their business are subsidizing these funds.

Vanguard doesn’t operate that way. It manages each fund at cost. If it were to mimic Fidelity and these other fund companies, it would be forced to subsidize its flagship index funds with its other funds. The fund complex would still be operated at cost, but not each fund—and that would be contrary to what investors expect of Vanguard. The price war among total market index funds is hardly an existential threat to Vanguard, but it does mean the firm may grow a tad slower.

5. Should you move your money to Fidelity? I’m not. In my taxable account at Vanguard, I have funds with large unrealized capital gains and selling would mean big tax bills.

But if I were starting out, I might well favor Fidelity or Schwab over Vanguard, especially if I had a modest sum to invest—and especially if I was investing retirement account money. If either firm jacked up expenses, it would be easy enough to move the money elsewhere, with no taxes owed, thanks to the tax deferral offered by retirement accounts.

As I see it, minimal-cost index funds are sort of like rewards credit cards. If you pay off your balance in full every month, you can collect your cash back and travel points, with those rewards effectively subsidized by folks who foolishly carry a balance. Similarly, Fidelity, Schwab and others are offering the chance to buy low-cost index funds that are effectively subsidized by other investors. If you can resist the temptation to buy the higher-cost merchandise these firms offer, you’ll get your reward—and others will pay the price.

What if everybody opts for the bargain-priced funds? Instead of Vanguard, it would be Fidelity, Schwab and others who would be in a bind. But I don’t think they have much to worry about: An outbreak of rationality doesn’t appear imminent.

Follow Jonathan on Twitter  @ClementsMoney  and on Facebook . His new book, From Here to Financial Happiness, will be published Sept. 5 and can now be preordered from Amazon.

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Say Something

THE LATEST UPGRADE to HumbleDollar: We’ve improved the system used for commenting. Before, if you wanted to comment on the site, you needed a Facebook account—and that triggered a slew of complaints from those who aren’t among Facebook’s 2.2 billion active users.

Now, anybody can comment on HumbleDollar using either an existing account, such as Facebook, Google or Twitter, or by creating a unique username and password. Please check out the new commenting section, which can be found at the bottom of every blog and newsletter, as well as on every page of our money guide.

There was a downside to making the switch: All earlier comments have disappeared. To keep the existing comments, our site developer would have had to transfer them over manually—at considerable cost. Today, HumbleDollar just about breaks even. We’d like to keep it that way.

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Ten Commandments

WE’RE FACED WITH a host of thorny retirement issues: Keep Social Security solvent. Make Medicare affordable. Many Americans aren’t saving enough. They want to retire earlier than they can reasonably afford. They’re effectively financially illiterate.

But in the end, you don’t need to worry about all Americans. Instead, what you need to worry about is you. Want a comfortable retirement? Here are my 10 commandments:

If your preretirement lifestyle is set with a view to what you can sustain after you quit the workforce, you’re likely on track. If not, retirement could mean a sharp drop in living standards.
Remember that Social Security is designed to replace no more than 40% of preretirement income—and for many, that 40% is an overestimate, because the benefit calculation is skewed toward lower income Americans. In retirement, you’ll want some steady sources of income, and Social Security is probably the most secure. But recognize that it’s intended to be a minor part of your total income.
Have a financial and estate plan that provides for your spouse and any others who depend on you financially—and who may outlive you. Income annuities, investment income streams and life insurance might all be part of that plan.
Never forget the non-financial aspects of your retirement are important, too. Think about any significant relocation long before you retire—and consider trying it out first. It’s a big mistake to think of retirement purely as leisure time. And remember, when it comes to the fun stuff, that takes money.
Pay attention to communications from your employer, Social Security, Medicare, personal advisors and others. What you don’t know can hurt you. A missed deadline and any number of other goofs can do severe financial damage.
Put retirement savings ahead of other goals, like college or a vacation home. Unless you have a good pension plus Social Security, it’s mostly up to you—and there are no second chances.
Save as much as possible as soon as possible. You can always reduce your savings rate later. Investment compounding really is powerful. Load up on savings early in your career and let the money work for you in the decades that follow. When money gets tight, such as when paying for the kids’ college, you may need to trim savings for a few years. But if you over-saved during the first 10 years or so of your career, you will likely still reach retirement in good shape.
Recognize that your taxes may not be lower during retirement. All the signs point to higher taxes in the future for everyone. To reduce my retirement tax bill, I favor Roth accounts and municipal bond mutual funds.
Place health care high on your list of fixed expenses. Medicare plus supplemental insurance can cost a retired couple more than $700 a month. Even if you’re fortunate not to need much medical care, those premiums are a big monthly hit and they’ll grow each year. Prescription drugs can also be a large expense. What if you aren’t so fortunate? Remember that Medicare has no out-of-pocket limits.
Invest in ways that will provide a steady income stream in retirement. In many ways, retirement is no different from your working years: You want a steady flow of income. Do not be totally exposed to stock market fluctuations. You don’t want to worry about where that 4% withdrawal rate will come from each year.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous blogs include Running on Empty, Taking Your Lumps and Pain Postponed. Follow Dick on Twitter @QuinnsComments.

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Life Interrupted

I HAVE SPENT my career writing about personal finance and investing—in other words, how to make the most of your money. But when I was downed by an accident that resulted in nearly five years in and out of hospitals, and the amputation of most of my left side, I was left a financially devastated invalid.

How could I have avoided this? What did I learn? I knew the rules. I had good health insurance and I had put away some money—but, of course, not enough. Could it ever be enough?

I want to pass on what happened and what I did right and wrong. It started when a street person attacked me when I was running with the family dog on a New York City street. He shoved me down. I shattered my left hip, had it patched up and continued on with my life.

Before long, we moved to the country and the patch became loose. The first—and worst—mistake I made was having it repaired locally, rather than returning to New York City, where I could get an expert surgeon to repair it. I had the hip replaced again and again—four times in all—before a serious infection set in. I lost three years of my life visiting orthopedic surgeons, infectious disease doctors and submitting to daily doses of intravenous antibiotics, before the doctors decided that the only way to get rid of the infection was amputation.

At that point, there were few choices left. I did seek the advice of a premier health care consulting firm, which confirmed the decision to amputate. The consultation was an important rung in the ladder. It has saved me from looking back and rethinking the decision. Two years ago, I had the amputation. I initially thought that we were talking about my left leg, but it turned out to be most of my left side.

My life had centered on my writing and on being an athlete. I ran the New York Marathon regularly, participated in 100-mile bike rides and enjoyed working in the garden, as well as hiking, skiing and regular visits to the gym to work out. Now, I can do none of that.

So that is a second thing I learned: Diversifying your financial portfolio is not enough. You must also diversify your personal portfolio, by which I mean physical pursuits and leisure activities. Once I became an invalid, there was little left for me to do—and, in any case, I was too weak to do much of anything.

Diversification is not exactly new advice. We hear it all the time. I did. But I ignored it. Or perhaps I was just too busy. So my advice is this: Follow the standard personal finance advice. Protect yourself, your heirs and your property with insurance. Set aside savings, including in and outside retirement accounts.

But also consider your personal portfolio. Cultivate leisure activities and learning experiences. And follow—and safeguard—your dreams.

Mary Rowland has been a journalist for more than three decades, writing for top publications like BusinessWeek, Fortune, The New York Times and USA Today. You can learn more at MaryRowland.com.

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Getting Carded

UNTIL OUR SON turned 15, most of our financial education efforts focused on having conversations about money, but in different buying contexts. How we decide on food purchases. How much we budget for clothes. Why we use credit cards. What a credit card bill looks like. The consumer research we do before making a major purchase.

We figured no one conversation would stick, but the knowledge and the ideas would create a general understanding over time. We also explained the importance of paying all our bills in full and on time, and consistently spending less than we earned. In addition, we said we lived by the motto that, “We never buy something on a credit card if we don’t already have the cash in the bank to pay for it.”

But when should we give our son an actual credit card?

Today, you need to be at least age 18 to get your own credit card. But because 18-year-olds need to prove they can make the necessary card payments, they often end up opening an account jointly with one of their parents.

What if your children are under 18? Instead of opening a joint account, you can add them as authorized users. Authorized users aren’t legally responsible for paying the credit card bills involved. Nonetheless, adding your children to one or more of your credit cards can help them build a credit history—though you should check with your credit card companies to make sure they do indeed pass along information on authorized users to the credit bureaus.

We did just that. When our son turned 15, we added him as an authorized user to some of our cards. Like that idea? Before you adopt this strategy, you need to understand credit histories and credit scores, and what this strategy could mean—both positive and negative—for your children.

Credit Karma offers details on different types of credit scores. Here are the five FICO score ranges and what they mean:

800-850 is Excellent
740-799 is Very Good
670-739 is Good
580-669 is Fair
300-579 is Poor

Meanwhile, if you want to know how your score compares with the rest of the country, the Motley Fool has a chart that shows the distribution of FICO credit scores. For example, 21% have a score between 800 and 850.

Before we did anything, we checked our credit scores to make sure they were reasonably high. Why? If you have an excellent credit score and you want to add a child as an authorized user, there isn’t a problem. Indeed, there’s not too much to worry about if your credit score is above 775. But if it’s any lower or likely to head lower, you’re potentially saddling your children with credit scars they don’t need. Remember, whatever you do with the credit cards that are attached to your children, that’ll become part of their credit history.

We were comfortable with our credit scores and our prospects for the future, so we signed up our son as an authorized user on three different cards. Discover and American Express have a minimum age of 15 for authorized users, while Chase has no age minimum.

Alan Cronk retired after spending 32 years in the newspaper industry as a marketer, editor and writer at the Winston-Salem Journal. This is the fourth in a series of blogs about his and his wife’s experience educating their child about money. Previous blogs: Baby Steps, No Laughing Matter and Generating Interest.

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Non Prophet

THE SELF-PROCLAIMED fortune-teller Nostradamus published more than 6,000 predictions during his lifetime. With the benefit of hindsight, it’s easy to see that his prophecies had little substance or predictive value. In fact, in his day, even astrologers dismissed Nostradamus as incompetent.

But what if the person making a prediction is the opposite of Nostradamus? What if he is a serious individual, someone who is universally respected and whose forecasts have a demonstrated track record of success? Consider Robert Shiller, a Yale University economics professor and Nobel Prize winner, who has a reputation for making prescient calls. With his book Irrational Exuberance, he predicted the 2000 stock market crash. Later, he also foresaw the late-2000s housing market blowup. With that kind of track record, it seems worth paying attention to Shiller. 

What is he saying about today’s stock market? Pointing to a measure he developed, the cyclically adjusted price-earnings ratio or CAPE, Shiller makes two observations.

First, the market is more expensive today than at any other time since 1871—with one exception. That one exception? December 1999, just before the dot-com crash took the broad market down by almost 50%. Second, among major world markets, the U.S. stands alone. In April, Shiller proclaimed the U.S. “the most expensive market in the world.” Since then, it has only gone up more.

If Shiller were the only one making these kinds of statements, they might be easier to explain away. But unfortunately, Shiller is not alone. There’s also Joel Greenblatt, author of The Little Book That Beats the Market and an investor whose track record puts him nearly in a league of his own. When he ran a hedge fund, Greenblatt delivered returns of 50% per year in his first 10 years. To put that in perspective, he took each dollar invested and turned it into $38, an astonishing accomplishment.

What is Greenblatt saying about today’s market? He sees what Shiller sees: The market is expensive. In fact, looking back over the past three decades, he believes it has rarely been more expensive.

With these kinds of observations, how should you, as an investor, respond? These are the steps I recommend:

First, be careful not to misinterpret these observations. Both Shiller and Greenblatt are quick to point out that these are observations, not predictions. Neither sees himself as a Nostradamus. While Shiller is confident that the market will correct at some point, he acknowledges that it’s very difficult to know exactly when that day will come. Meanwhile, Greenblatt’s research indicates that the market may actually continue to rise from here, albeit at a slower pace than in the past.

Second, use asset allocation to protect your nest egg. Remember, you incur a permanent loss only when you choose to sell something at a low price. The simplest way to sidestep such losses is to avoid being forced to sell any of your investments when the market goes through one of its periodic downturns. How do you accomplish that? By keeping a sufficient number of years of spending money outside the stock market to carry you through a typical downturn.

Third, avoid trying to “time the market.” In other words, don’t look to profit by selling when the market is high and then attempting to buy back later when it’s lower. While that sounds appealing in theory, it turns out to be very difficult in practice. This was proven most recently by Aswath Damodaran, a New York University professor and authority on investment valuation. Using Shiller’s CAPE Ratio, Damodaran tested a variety of market timing strategies. His conclusion: “I couldn’t find a single way you could use CAPE to make money from timing the market.”

Adam M. Grossman’s previous blogs include Stress Test, All of the Above and Not My Thing . 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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August’s Newsletter

CAN MONEY management be reduced to a series of relatively simple rules that make sense for most Americans? For the past month or so, I’ve been inviting readers to test the Two-Minute Checkup, which I hope will one day be part of a larger website that helps folks figure out what to do with their money and then nudges them to act.

In HumbleDollar’s latest newsletter, I explain some of the logic that drives the Two-Minute Checkup’s recommendations. How much should you spend and how much can you reasonably borrow? What insurance do you need? What estate planning steps should you take? Are you in good financial shape? For most people, all of these questions can, I believe, be answered using a series of fairly simple rules.

August’s newsletter also looks at some recent changes at HumbleDollar, plus it includes our usual list of the seven most popular blogs from the past month.

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Try This at Home

FOR THE PAST MONTH, I’ve been inviting readers to test a rough-and-ready financial tool called the Two-Minute Checkup. The tool is designed to provide a quick initial financial assessment.

The hope: It’ll eventually be one component of a larger website and app that help folks figure out what financial steps they need to take and then nudges them to follow through. This reflects a notion that’s been much on my mind in recent years: Improving America’s personal finances is partly about education—but it’s also partly about finding ways to change behavior.

Because we’re in test mode, my business partner Derek and I are doing everything on the cheap. The Two-Minute Checkup is just a spreadsheet loaded onto a web page. It isn’t pretty—and navigating the spreadsheet can be frustrating. But I like to think the underlying logic is far more robust than the clunky user experience suggests.

The Checkup asks for just nine pieces of personal information—things you likely know off the top of your head—and then provides feedback across 10 areas of your financial life. How can we say so much based on so little information? Here’s a look at some of the logic behind the Two-Minute Checkup:

Financial Fitness. Suppose you make $80,000 a year. You expect some money from Social Security, so you want a nest egg that, as of age 65, will replace half your $80,000 income, or $40,000 a year. Assuming a 4% portfolio withdrawal rate, you’d need 12.5 times your current income saved by retirement, equal to $1 million in this example.

For the Two-Minute Checkup, we took that end point and figured out what milestones those still in the workforce need to hit along the way. This notion isn’t original. Others have made similar calculations.

So what milestones should you be hitting? You would want 0.8 times your income saved at age 30, 2.7 times at age 40, 5.5 times at 50 and 9.7 times at 60. The multiples increase slowly at first and then ever faster, as an increasingly large portfolio reaps escalating benefits from each year’s market gains.

Spending. As regular readers know, I put a big emphasis on limiting fixed living costs—things like mortgage or rent, car payments, cable bills and insurance premiums—to 50% or less of pretax income. That’s built into the Checkup’s spending advice for those still in the workforce.

What about retirees? The Checkup suggests withdrawing 4% to 5% each year of a portfolio’s beginning-of-year value—unless a retiree is age 50 or younger, in which case it recommends 3%.

Borrowing. Lenders will typically let borrowers take on monthly mortgage payments equal to 28% of pretax monthly income. This is the so-called housing ratio. But before lending that much, lenders also assess borrowers using another measure: the debt ratio. This looks not only at the proposed mortgage payment, but also at other debt payments, such as credit cards, car payments and student loans. As a rule, lenders don’t want to see all these various debt payments consuming more than 36% of a borrower’s pretax monthly income.

The difference between the 28% housing ratio and the 36% debt ratio is 8%. That’s the maximum sum that lenders believe borrowers should be devoting to nonmortgage payments, so that’s the threshold suggested by the Two-Minute Checkup.

Houses. For the Checkup, we use the housing and debt ratios to assess how much folks might borrow to buy a home. But we had to guess at one number: How much, as a percentage of pretax income, would most folks end up devoting to property taxes and homeowner’s insurance? Remember, the 28% housing ratio considers the total proposed mortgage payment—and that includes property taxes and insurance.

After researching the issue, we settled on a number that may surprise folks: As a percentage of pretax income, we assume most homeowners are likely to devote 6% of monthly income to property taxes and insurance. That means that—under the housing ratio—just 22% of someone’s monthly income is left for a mortgage’s principal-and-interest payment.

Financial Emergencies. An emergency fund is, more than anything, an unemployment fund—and that notion drives the Two-Minute Checkup’s recommendation. If your job is stable, it advises keeping three months of living expenses. If it’s iffy, it recommends six months. If you’re a couple and both have jobs, the Checkup combines the two figures.

The Checkup pegs living expenses at 60% of pretax monthly income. This is above the 50% figure we suggest for fixed monthly living costs. But we wanted to leave some room for error—and we realize not everybody hits that 50%.

Insurance. The Checkup recommends disability insurance if you’re working, life insurance if you’re in a relationship or have children age 21 or younger, and long-term-care insurance if you’re over age 50.

All these recommendations get dropped if you have $1 million or more in savings, on the assumption that your household would be fine financially, even if disaster struck. At the same, however, the Checkup recommends umbrella liability insurance for the seven-figure crowd, because of the risk that your wealth will make you a target for lawsuits.

Estate Planning. The Checkup’s estate planning advice has three components. First, everybody should have a will, while also making sure they have the right beneficiaries listed on their retirement accounts and life insurance. Second, those with children age 21 or younger should make sure they name a guardian for the kids in their will. Finally, those over age 50 are advised to get powers of attorney—preferably one for financial matters and one for health care issues—in case they’re incapacitated.

If you try the Two-Minute Checkup, please also take the survey we created, by double-clicking on the link at the bottom of the spreadsheet. Alternatively, you can head to the survey directly from here.

Even More Humble

OVER THE PAST YEAR, readers have repeatedly asked for more frequent newsletters—perhaps weekly—with a list of HumbleDollar’s latest blog posts. Up until now, I’ve resisted, because I’m not sure most subscribers want to hear from me that often. As a compromise, I’ve decided to increase the newsletter’s frequency to twice a month, with each newsletter including a list and brief description of all blogs that have appeared over the prior few weeks. The first such newsletter will go out on Aug. 18.

In addition to five or six blogs each week, HumbleDollar’s homepage also includes a host of other features—our daily insight, intriguing financial statistics, suggested action items and more. I recently added two more regular features. “Truths” spotlights things we can say with some certainty about the financial world, while “Archive” offers a second look at blogs and newsletters that the site has published over the years.

Finally, my next book is slated to be published by Wiley on Sept 5. You can now preorder From Here to Financial Happiness from Amazon. The book takes readers on a 77-day journey that helps them figure out where they stand, what they hope to achieve and what they need to do.

July’s Greatest Hits

HERE ARE THE SEVEN most popular blogs published by HumbleDollar over the past month:

Two-Minute Checkup
When I’m 64
Not So Predictable
Telling Tales
Pain Postponed
All of the Above
Nothing to Chance

The site also saw large readership for July’s newsletter, our list of HumbleDollar’s top blogs during 2018’s first six months and a blog from June, Yes, It’ll Happen.

Follow Jonathan on Twitter  @ClementsMoney  and on Facebook .

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Running on Empty

AT 75 YEARS OLD, I find myself living paycheck-to-paycheck. I now understand how that feels and how it can happen. But you can put away the violin: It’s only temporary.

Being fiscally conservative, I don’t like being in debt or having unpaid bills. I even pay credit cards before they are due—or I used to. Until a month ago, I paid all my bills, with considerable money left over at the end of each month. I also had significant savings outside of my retirement accounts. Now, there is no money left at the end of the month and my non-retirement accounts are empty.

Did my income drop? Nope. But I greatly changed my spending, at least temporarily. The fact that this is temporary does not help me sleep better. The fact that, within the next several months, I will again have money in the bank at month’s end doesn’t ease my current stress.

All this has got me thinking about the folks whose paycheck-to-paycheck life is not temporary and how much their situation is driven by spending, not just income. Indeed, for all but the chronically poor, I suspect spending is the key factor.

I was talking recently with a young woman, who relayed her story about ending up each payday with $2 in the bank. Then she noticed I was looking at her well-manicured nails. “Oh, that’s the one thing I just have to have,” she said, as we sipped our drinks in a high-end coffee shop.

They say there are two sides to every story and two parts to every equation. I see that as especially true when it comes to money matters. In determining most people’s financial situation—whether good or bad—spending matters as much as income. But getting people to acknowledge that is a major challenge.

So how did I get into my fix? I bought a new residence and took on a large mortgage, because we hadn’t yet sold our current home of 45 years, plus my wife sees all new furniture as part of the deal. Now, we’re not only paying the mortgage, but two property taxes, two utility bills and so on, as well as a hefty homeowners’ association fee. That means we’re living pension check-to-pension check and Social Security-to-Social Security.

My goal was to make the move less stressful, so we can be in the new place before having to leave the old. But I fear I may have traded one stress for another.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous blogs include Taking Your Lumps, Pain Postponed and Sharing It. Follow Dick on Twitter @QuinnsComments.

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My Favorite Word

I HAVE A NEW favorite word. That word is “no.” My favorite word used to be “yes,” but no more.

I used to be a yes-man. I used to say “yes” to everything, like Jim Carrey in the movie “Yes Man.” You want me to work on that project? Yes. You want me to be on that committee? Yes. You want me to pick up that extra duty in my free time? Yes.

Yes. Yes. Yes. Yes. Yes. Yes. Yes.

Now, I’m a no-man. You want me to be in charge of that committee? No. You want me to work on that new project? No. You want me to deal with that delicate issue? No.

I’m sure that, in the past, I would have said “yes.” Why have I become a no-man? Three reasons.

First, saying “no” is the superpower that being financially independent gives me. What does being financially independent mean?

According to an article I recently read, “Financial independence typically means having enough income to pay your living expenses for the rest of your life without having to work fulltime. Some people achieve this through saving and investing over many years, while others build successful businesses that can generate income without daily supervision.”

I did it by simply staying in the military and becoming a super-saver. Now, I have F U money. If you don’t know what I’m talking about, watch these videos, which are neither work- nor kid-friendly.

Second, I was recently selected for what is very likely my final military promotion, locking in a very significant military pension.

Finally, I realize that I have enough money, but not enough time. My grandfather just died, and no one cared about how much money he did or didn’t have. What’s important is the kind of man he was, and the impact he had on the world and the people who knew him.

I’m not saying I won’t say “yes” ever again. But when I do, it will be because I want to. Committee work someone else can benefit from? Projects that might be important, but I really don’t want to do? Dealing with difficult people when I have the option not to?

No.

Joel M. Schofer, MD, MBA, is a Commander with the U.S. Navy’s Medical Corps. His previous blogs for HumbleDollar were Winning the Game, Getting Used and The $121,500 Guestroom. He blogs about personal finance at MilitaryMillions.com and can be reached at Still-In@MilitaryMillions.com. The views expressed in this article are those of the author and don’t necessarily reflect the official policy or position of the Department of the Navy, Department of Defense or the U.S. Government.

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