Your Money: The Missing Manual

by J.D. Roth

If you have so much Stuff that you need to rent a storage shed, you have more than Enough. If the Stuff leads to clutter that stresses you out, you’ve passed the peak of the Fulfillment Curve and your added luxuries are bringing you less happiness, not more.

final 40% of happiness comes from intentional activity — the things you choose to do. Whereas circumstances happen to you, intentional activity happens when you act by doing things like exercising, pursuing meaningful goals, or keeping a gratitude journal.

These problems all stem from one issue: lack of control. When you feel like you have no control over money, you’re worried and stressed. By taking charge of your finances, you can get rid of many of these stressors and be happier. Wealth gives you options and makes it easier to focus on things that can make you content.

life well-lived is rich in: Security. It’s hard to be happy when you’re constantly worrying about how to pay the bills. If you have money, you don’t have to worry about those things. (But, as you now know, you don’t have to be rich to be happy.) By living below your means and avoiding debt, you can gain some financial control over your life. Relationships. True wealth comes from relationships, not from dollars and cents. Wealthy or poor, people with five or more close friends are more apt to describe themselves as happy than those with fewer. A long-term, loving partnership goes hand in hand with this. And as you’ll learn later (Social Capital), social capital can be worth as much as financial capital. Experiences. As explained in the Note on How Money Affects Happiness, memories tend to grow more positive with time, but Stuff usually drops in value — both actual value and perceived value. As Gregory Karp writes in The 1-2-3 Money Plan (FT Press, 2009), “Experiences appreciate, assets depreciate.” And in Your Money and Your Brain (Simon & Schuster, 2008), Jason Zweig notes, “Doing and being are better than having.” Remember these three pillars of happiness and you can build a rich life even on a limited income. To further improve your relationship with money,

For a goal to motivate you, it has to be specific. It should also be based on your values and desires. Do you really want to be rich in the sense of simply having lots of cash? Or were you just dreaming about what you could do with that wealth?

One way to multitask without becoming overwhelmed is to work on one short-term goal, one mid-term goal, and one long-term goal at the same time.

You’re more likely to stick to a budget if the categories you track reflect your situation and spending habits, not somebody else’s. Make sure your budget reflects your goals and values: If you want to travel, then budget for travel;

Pay your bill on time and in full every month. This is the #1 way to keep credit cards under control. The Credit CARD Act of 2009 says card issuers have to send bills at least 21 days before the due date. This gives you plenty of time to send a check. But it’s best to take care of business as soon as possible, so set up automatic payments or pay your bills as they arrive.

As a rule of thumb, every year you should set aside about 1% of your home’s purchase price for maintenance and repairs. So if you bought a $300,000 home, figure about $3,000 for annual upkeep.

Don’t buy a government bond fund with annual expenses over 0.75%. Don’t buy a blue-chip U.S. stock fund with annual expenses over 1.00%. Don’t buy a small-stock or high-yield bond fund with annual

You can keep things simple by sticking to index funds with expense ratios below 0.50% (or even better, below 0.25%).

Warren Buffett (http://tinyurl.com/WB-greedy), the world’s greatest investor: “Be fearful when others are greedy, and be greedy when others are fearful.”

This two-fund portfolio from financial columnist Scott Burns may be the simplest way to achieve balance. It’s evenly split between stocks and bonds, and should appeal to you if you’re both lazy and risk-averse: 50% Vanguard Inflation-Protected Securities (VIPSX) 50% Vanguard Total Stock Market Index (VTSMX) You can read more about this portfolio at http://tinyurl.com/LP-potato. Burns has also created a “couch potato cookbook” that lists several different lazy portfolios and answers some common questions; you can find it at http://tinyurl.com/LP-cookbook.

Allan Roth is a Certified Financial Planner and a Certified Public Accountant, so he knows a thing or two about money. In his book How a Second Grader Beats Wall Street, Roth explains how he taught his son about investing. Here’s his lazy portfolio, which adds foreign stocks to the mix: 40% Vanguard Total Bond Market Index (VBMFX) 40% Vanguard Total Stock Market Index (VTSMX) 20% Vanguard Total International Stock Index (VGTSX)

The No-Brainer Portfolio by William Bernstein William Bernstein is a retired neurologist who has turned his attention to financial matters. He wrote The Four Pillars of Investing (McGraw-Hill, 2002), which is one of the best books on investing published in the past decade. In his book, he suggests several different portfolios, including this “no-brainer” collection of index funds that keeps things simple: 25% Vanguard 500 Index (VFINX) 25% Vanguard Small-Cap Index (NAESX) 25% Vanguard Total International Stock Index (VGTSX) 25% Vanguard Total Bond Market Index (VBMFX) You can read more about this portfolio at http://tinyurl.com/LP-nobrain.

Bill Schultheis, the author of The New Coffeehouse Investor (Portfolio, 2009), believes that the secret to financial success is mastering the basics: saving, asset allocation, and matching the market. He says you can match the market with this lazy portfolio: 40% Vanguard Total Bond Index (VBMFX) 10% Vanguard 500 Index Fund (VFINX) 10% Vanguard Value Index (VIVAX) 10% Vanguard Total International Stock Index (VGSTX) 10% Vanguard REIT Index (VGSIX) 10% Vanguard Small-Cap Value Index (VISVX) 10% Vanguard Small-Cap Index (NAESX)