What is the biggest way people waste money? (/r/AskReddit)

Reddit is an enormous, influential website which is truly a vast panorama of human experience.*  Today, a user asked “What is the biggest way people waste money?”  I think these are some of the best answers:**

  1. “Something I’m guilty of: eating out too often, both at work and at home. Making your own food is much cheaper and, often, much healthier.” – evilstickman
  2. “3rd party ATM fees” – atomtom65
  3. “Textbooks. I pay hundreds of dollars and some I’ve opened maybe 4 times.” – cmjohnson7799
  4. “Weddings.  I can’t understand how people (who aren’t rich) will spend 15k+ on one day. ” – lemmingparty
  5. “Interest. On anything. Credit cards, loans, whatever. Pay it back as soon as you can.” – AngryB3ar
  6. “If this hasn’t been said yet, Consumer Electronics. You guys have no idea how badly everyone is being gouged on cables, and accessories.” – Neocataboi
  7. “Long time smoker here, nearly 2 packs a day of American spirit organic lights. $6.41 per pack, 2 packs a day X 365 days a year =$4,679.3 every…single…year. Ten years of smoking at this rate=$46,794. If I never started smoking I could have a decent house paid off in full. I’m smoking a cigarette as I type this.” – Napalm_Heart77
  8. “Coke and soft drinks in general. At least 2 dollars at every restaurant and much more for big cases of them. It adds up to be a problem on the wallet and the pancreas.” – jamalegbaria
  9. “Confusing “want” with “need”. You need nutritious food, potable water, shelter, clothing, physical activity and social interaction. Maybe medication. That’s pretty much it. Nobody “needs” to go out for lunch, buy bottled water, wear designer clothes, smoke, have cable, join a gym etc. etc.” – Smitty20
  10. “A lot of people are talking about items that people waste money on, but another way people burn money is NOT BUDGETING” – jlederluis

* Honestly? It’s more of a hive of scum and villainy than a vast panorama of human experience; but it’s a more literate hive of scum and villainy than Facebook or YouTube.

**  Also, I’m not linking because Reddit is the last site you’ll ever visit.  It’s worse than TVTropes.  I don’t want to be responsible for your internet addiction.

Posted in Thrift | Tagged ,

If You Die, Do Your Heirs Know Where To Find Your Passwords?

I wrote a little about making sure you put your estate documents where someone could find them in the past.  But what about your digital life?  If you die, do your heirs know where to find your passwords?  There were a couple of good articles in the New York Times about the issue.  Here’s how I addressed it in my own estate planning.

Like many people, I have far more passwords than I actually want (over 150 and still increasing,) and most are different due to each site’s or system’s security requirements.   At a certain point, it’s impossible to keep track of that many passwords with pencil and paper.  That why I got a password management program.  I chose to use KeePassX.

KeePassX is a cross-platform* computer program that stores my passwords in an encrypted file.  You can open your file and easily search or organize the passwords.  It can also make print outs of the files so that you can keep a hard copy with your estate documents.  Combine this program with Dropbox so that you have access to your passwords from anywhere, even your mobile devices.

There are several types of password vault programs out there, so do your homework and find one that has security that makes you comfortable and works with your lifestyle.

*  Works on Windows, Mac, Linux, and mobile.

Posted in Documents, Estate, Financial Planning | Tagged ,

Look, a Deer!

Melissa took a picture of this deer from the office window with her cell phone.

Melissa took a picture of this deer from the office window with her cell phone.

It’s nice to have an office near Reservoir Park, there’s such lovely wildlife!  Melissa took this great picture  of a deer wandering by our office with her cell phone.

Posted in News | Tagged

EXCLUSIVE: Jamie Dimon’s Recommended Reading List

So, I was in New York a few weeks ago, at JPMorgan Asset Management for their Wealth Management Summit.  As it so happened, Jamie Dimon was our keynote speaker at the conference.  Yes, that Jamie Dimon.  He chose to take questions from the audience, so I got to ask a question.  Awesome!

Mr. Dimon mentioned, in his talk, that he read a lot.  So, I asked him what he read, and what he thought advisors should read.  I really put him on the spot with that one, so I felt a little like a jerk (I wouldn’t have a ready-to-go, top-of-mind reading list either, and I also read all the time.)  It turns out that he thought it was a good question – and he made a reading list!  I asked the good folks over at JPMorgan Asset Management if I could share it with you, and they said “yes.”  So, without further ado, I present to you Jamie Dimon’s Book List. Now, you can’t say I don’t get you anything nice. 😉

P.S. – Cindy (you know, the person in charge around here) just came back from a trip where she visited with her study group, Capstone Study Group.  As it turns out, one of her colleagues was also at the JPMorgan Wealth Management Summit, and he wanted to share Jamie Dimon’s Book List with the group.  He was a little surprised to hear that it was I who asked the question!  What a coincidence!

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Posted in Goodies, News | Tagged , , | 1 Comment

Why I Don’t “Bank on Yourself,” and You Shouldn’t, Either

First, I don’t think “Bank on Yourself” is a scam, I think it’s a terrible, terrible deal.  Here’s my understanding of how the “Bank on Yourself” concept is supposed to work (abridged version)*:

  1. You create a financial plan with an advisor.  The plan will involve the purchase of a life insurance policy.  Coincidentally, the advisor is almost certainly an insurance agent.  This is not at all suspicious.  Pay it no mind.
  2. You open up a policy a minimum monthly premium of at least $250.  You diligently save for 1-3 years to build up cash value so that you can start all the wacky hijinks that game your life insurance contract to make you rich (somehow.)
  3. You finance large purchases through your life insurance contract, and pay yourself back.  Oh, by the way, when we say pay yourself, we mean pay the insurance company for your contract.  And you have to keep making premium payments, for-pretty-much-ever.
  4. Profit?

Alright, the bank on yourself contingent makes a lot of claims, and I can’t address them all in the space of this blog.**  Let’s just look at the overarching concept.

  • You put money into a financial product monthly.
  • You build up a balance in that product over time.
  • You take some of that money out to buy something.
  • You replace the money you took out to make a purchase, while continuing to make your regular payments.

Congratulations, bank-on-yourself-ers.  You’ve managed to unlock a variant of saving.  Woo.

I can do a “bank on yourself”-like maneuver, for free.  Want to hear how it goes?

  1. Save money in a savings account, diligently and consistently, for one to three years.  Put away enough money to make a substantial purchase (say, a new-to-you car.)
  2. When you need to make your substantial purchase, withdraw the money for the purchase.
  3. Go to any online calculator (try searching for “debt amortization calculator”) and create a your own loan to yourself.  If you want, make a pay-off period and loan rate similar to what you would be offered by conventional financing.  Now you’re “banking on yourself.”
  4. Save the new “loan” payment while continuing to save the same amount you did before.
  5. Profit. Increase net worth.

There.  Enjoy your weird way to save.  Of course, with a savings account, you aren’t locked in to a contract. Nor are you paying for heaven-knows how much life insurance.  You also don’t have a surrender charges or mystery fees.  And you can get your money whenever you want it.  So…

* I think.  The websites I’ve seen are pretty cagey about how this is exactly supposed to work.  I’m pulling a lot of this stuff from a website with the same name as the concept, which I won’t link to because I really don’t want to give them traffic.

** Nor would I want to.  These guys are experts at the Gish Gallop: a debating technique of drowning the opponent in such a torrent of half-truths, lies, and straw-man arguments that the opponent cannot possibly answer every falsehood in real time.  Since I only have so much time to work on this blog, and I appreciate my sanity, I’m not going to address their bajillion counter-claims.
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Posted in Banking, Financial Planning, Insurance | Tagged , , , , | 2 Comments

FRONTLINE: The Retirement Gamble

Go forth, watch “The Retirement Gamble” by Frontline on the PBS website, then come back and I’ll talk you down off the ledge.  Here are my reactions.  First off:

  1. Of course people don’t know how much they need to retire.  They don’t hire the people who can tell them that (financial planner,) so they don’t know.  Apparently most people plan their retirement by shrugging.
  2. Pensions, when they worked, were good things.  I notice the video doesn’t talk about pension failures.  Pensions weren’t all puppies and honeysuckle.  Many pensions failed and impoverished their retirees.  Here’s a list: “The 10 Biggest Failed Pension Plans” from USNews.  Also, pensions aren’t portable.  You lose your job, you can lose your pension (if you’re not fully vested.)  It’s incredibly destructive to employees in fast-moving industries, and those laid off.
  3. There are, from my observation, four major areas of diversification in the average household’s wealth: equity in personal residence (real estate market), value of retirement accounts (dependent on stock and fixed income markets), income from work (labor market*), and cash (generally not exposed to market forces.)  During a normal recession, you should expect one or two of these to get whacked in the nose.  During the last recession many people took a hit from real estate, retirement, and their job.  That’s terrible.  But I suspect a lot of the people speaking in the program didn’t have an emergency fund or liquid savings.  Having liquid savings is like recession-proofing your finances.  If the households that were hurt so badly in the big recession had ample cash, the recession would’ve been a great opportunity instead of a nightmare.  But that’s neither here nor there.
  4. Reading a prospectus isn’t that hard.  Honestly.  The people on the program make it out like it’s the end of the world.  Here’s a prospectus.  The fees are listed in the table of contents, and on page one.  It took me, literally, less than ten seconds to find them.  Oh, think I just picked an “easy one?”  Here’s another prospectus.  This one is a lot more complicated than the first.  I found the fees listed on the fifth page.  I found the fees faster than the prospectus was downloaded.  So someone call the wahmbulance.  ProTip:  Your unwillingness to check the price of the thing you buy does not entitle you to cry about the price.
  5. Lord.  If you don’t know what something means, look it up.  If you don’t know what “EXP Ratio” means, type it in the search bar in your web browser and find out!  I just typed “EXP Ratio” (without quotes) into my generally inferior search engine and the definition for “expense ratio” was the first dad-gum link!  Don’t act like it was some harrowing voyage of discovery.

Wow, I sound cranky.  It’s not so much critical of the show as I am critical of the attitude.  It comes across as a little juvenile, like people are saying “I don’t understand what’s going on with my money, my investments, and my retirement; and I think some institution should do it for me.”  It rubs me the wrong way.  Taking care of your money and your retirement is about being a responsible adult.  Kids ask people to just take care of them.  Grown ups act to fix their problems.  They do research, and get help if they need it.  The show just keeps triggering my distaste of childish whiney-ness.

Anyways, maybe I’m just cranky today.  Next thing you know, I’ll be yelling at kids to get off my lawn.

*Technically not “wealth,” but the household needs income from some source to exist, so I’m lumping it in for convenience.
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Posted in Current Events | Tagged , , , , , , , , ,

Smart Phone Savings Trick, Part 2

In my previous post, Wade asks:

“Coincidentally I’m looking into this topic as well these days. I’m trying to figure out what the downsides are for the Walmart / Straight Talk system that provides data plans for about 1/2 the price of anyone else, given that you pay full price for the phone. Have you heard of this?”

I have an opinion – not on the “Straight Talk” plan form Wal-Mart* – but on the idea of freeing your phone from your carrier.

Mobile phones have developed to the point where they’re now miniature computers.  Having a computer that’s tied to your data/voice carrier is like having a home computer that’s tied to your internet provider: it’s unacceptable for the customer, but a great deal for the carrier.  After all once they have your hardware and your data, you can’t go anywhere without loosing a lot of valuable information and your expensive phone.  This is not at all cool, in my opinion.  While there are some ways to protect your data, the techniques don’t cover everything.

Would you let me know if you go for it and what your experience is?

* Not only do I have no experience with the Straight Talk plan, I do have experience with Wal-Mart.  The experiences I had with Wal-Mart were to overpay for extremely poor quality merchandise, so I don’t plan to do any business with them in the future.

Posted in Thrift | Tagged , , ,

Encore Career Resources

So, Cindy found some neat resources for people looking for an “encore career” after they choose to leave their first career: mynextmove.org.

They have a load of resources for job hunters.  My favorite is their Interest Profiler.  I took a quick 60 question quiz and here’s what I got:

My Interest Profiler Results

Apparently I’m artistic.  Too bad I never actually do art.  Anyways, I’d say the profiler is pretty accurate in most respects.  I think I scored abnormally low on the social metric because most of the socially-related questions were about caring for children, which is not something I would wish on myself for eight hours a day.

So, now that I know my interests, I have to match them to my current or expected level of training and education.  The profiler calls these “job zones.”  The training and preparation job zones range from level one, which requires almost no training or experience, to level five, which requires extensive experience and graduate or post-graduate education.  I went with level five because I come from the land of go-big-or-go-home.

Interest Profiler Results

Well, I’m not wild about the idea of being and economist, thanks.  I think I only say that, though, because I already know that I want to be a financial planner/wealth manager.  If I didn’t think that I was already in the perfect job for me, right now, I would look into work that’s something similar to being an economist – being a Professor in Consumer Sciences.

There are also loads of information about lots of careers on the website.  I’m not confident about the information the site gives about how to develop the suite of skills needed for a given job.  Take a look at the resource for Personal Financial Advisors. The list under the knowledge heading is pretty much the case, but not as accurate as it could be.  The list of skills is not really that accurate, either.  There’s one big skill they’re missing: the ability to sell product and bring in clients.  Most jobs in the personal financial advising industry are sales jobs and those that aren’t are usually based on the ability of an advisor to bring in clients.  It’s a pretty big omission.  Also, the technology section omits some pretty big names in software and includes some that you don’t need to know unless it’s specific to your job.  For example, every financial planning advisory job I’ve run across requires a high level of skill with Microsoft Excel, Word, and PowerPoint.  No personal financial advisory job I’ve seen requires knowledge of specific types of portfolio optimization software, CRM software, or document management software.  They may have a preference in the job listing, but most firms realize that it’s unreasonable to expect someone to already be trained on that kind of software, since there are so many providers.  My point is that you shouldn’t leap into training yourself on whatever these job profiles say.  You should take a look at a substantial sample of job listings for the position you want, and figure out what they’re looking for.

I don’t want to detract from the overall point, though.  The mynextmove.org has a great collection of job resources for someone who’s looking for guidance when looking for  a new career.

Posted in Career | Tagged , ,

Smart Phone Savings Trick

So, my current smart phone is getting ready to give up the ghost.  The camera’s broken, and it won’t turn on without a battery pull.  Plus, it’s a BlackBerry, which means that it will probably brick* itself soon.  That means I’m shopping for a phone.

I’ve already decided that I’m going with a phone that uses the Android operating system.  It’s an open source operating system (which I prefer), has a mature app market, and looks really fast and handy.  I also have a lot of phones which will run android to choose from.  Being a financial planner and all around tightwad, I’m hesitant to plunk down money to buy a phone retail.**  So, I started shopping around, and I found a neat way to get a decent phone on the cheap.

New phones are like new cars, in that they depreciate quickly right after you buy them.  That’s why I’m buying a phone that’s a few years old, but is still new form the box.  My hope is that I’ll have the long useful life of a new phone, but the lower cost of something that’s cheaper because it’s behind the curve.  It’s no guarantee of a good deal, but I think it’s a reasonable plan to get a decent overall value, over time.

Do you have an awesome smart phone savings trick?  Share in the comments!

* BlackBerry phones are widely known for failing such a way that the phone is unrecoverable, thus turning a multi-hundred-dollar smart phone into a little plastic brick.  And RIM wonders why people don’t buy their phones.

** I’m not upgrading, because upgrading would cost me my unlimited data plan, and I won’t have that.

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Posted in Thrift | Tagged , , , | 1 Comment

I Am Loving On Career Planning,

Just loving on it.

Let’s think about personal finance for a moment,* through the lens of the accounting model.  You bring in a paycheck – that’s your gross income.  You spend money (your expenses) and you end up with a net income every month.  Hopefully your net income is consistently large and positive.  You take your net income, and if it is positive; add to your assets  on your balance sheet, or reduce your liabilities.  If your net income is negative, then you’re making your liabilities larger, or reducing your assets.

So, wouldn’t you agree that making sure your paycheck is large enough to create a big, positive gap between your income and your expenses would be a good thing?  I thought so.

I think a career plan is a great step in the income-increasing direction.  For most families, the wages they earn is the greatest source of income they will ever have.  Doesn’t it make sense to think about your career in terms of both increasing your income and enjoyment in life?

The only problem I have with most career plans is that they’re non-strategic and don’t address a couple of critical development areas.  You’re going to see a few more posts from me about your strategic career plan in the near future (as tax preparation permits), so don’t forget to add our RSS feed to your feed reader to get updates.

* Because we do it so rarely around here. 🙂

Posted in Career | Tagged , ,

It’s Not The 401(k)’s Fault

USA Today published a controversial column titled “401Ks are a disaster” by Duncan Black on February 5th of this year. The article has a lot of assertions in a tiny word count, and would take a lot of time to unpack here, so I won’t address each and every one. However, I do want to talk about a couple of his central themes: that 401(k)s are insufficient to pay for the retirement of most upcoming retirees, and that young people can’t be expected to save in them because of their high student loan balances.  Therefore, 401(k)s are a disaster.

I say it’s not the 401(k)s fault.  I hate to see a decent long-term savings and investment vehicle get thrown under the bus, becasue the 401(k) is not the problem. After all, 401(k)s didn’t lose money in the market crash, the underlying investments did. If a 401(k) investor were blessed with prescience before the big recession, and put their money into a money market fund in their 401(k), they wouldn’t have lost money. It’s also not the fault of the 401(k) if your debts are so large that you have no money to invest in it.

On the other hand, the temptation, when reading this article is to jump to “personal responsibility.” I can see it now:  “If only those foolish retirees managed their investments properly,” says the uncharitable reader, “or were disciplined enough to save like me! Then they wouldn’t be in this mess. And those kids. They should’ve done the basic math and then they would’ve known they couldn’t afford that school.  I also bet they used their loan money for frivolities while they were there, too.”

Unfortunately, Mr. or Ms. Personal Responsibility is ignoring the underlying reasons 401(k)s aren’t working for most people, by blaming their suffering on their poor character. Instead of presuming a character failing for the majority of the U.S. population, I instead think the reason 401(k)s are not working well is that most people don’t understand how they need to work to replace a pension.  I think it’s simple ignorance.

401(k)s have become the de facto pension plan of the majority of the U.S. workforce.  Like any change, it comes with some positives and negatives.  On the plus side, the 401(k) allows investors to direct their own investments and to access their money (with penalties) when they need to.  On the negative side, investors direct their own investments and can access their money.  If you treat a 401(k) like a pension, your changes of a successful retirement will probably be a lot higher.  To treat your 401(k) like a pension, you would:

  • Calculate the amount of money you would need to put away to fund your retirement
  • Have a disciplined contribution plan that funds your “pension” such that it will be able to bay out “benefits” when you retire
  • Hire a competent investing professional to allocate your funds across a diversified asset mix that makes a reasonable return while controlling for risk
  • Never, ever take money out until you retire, no matter how badly you need it (just like a pension)*

Instead, people use their 401(k) like this:

  • Put in just enough to get the match, if you put in any money at all
  • Or maybe put in 10%, because you read that you should
  • Or maybe put in 15%, because a guy said you should on the radio
  • Invest the contributions in the default investment, because you don’t understand investments
  • Invest in what your colleague has down the office, because he watches CNBC and knows some money stuff
  • Take out money to pay off some debt, or pay for college, or make a down payment, or to live on when unemplyed, or settle a divorce, etc.

The 401(k) is treated as if it were a long-term savings account, where you put money in for 5 or ten years, and you take money out when you have a big expense come up. It’s not the 401(k)’s fault that it’s used this way.  People don’t know any better, and the default settings on most 401(k) plans aren’t what most participants need to meet their retirement goals.

Let’s not throw the 401(k) out with the bathwater, because it’s not the 401(k) that’s not working, it’s how it’s wrongly used.

* I’m not necessarily recommending this, because sometimes reality makes us invade a 401(k).  I’m just saying, if you’re going to use your 401(k) to replace your pension, you need to cherish and protect your 401(k) funds like Gollum cherishes and protects his “Precious.”  You don’t need to have conversations with your 401(k), though.

Posted in Current Events, Investments | Tagged , , , ,

Required Reading About Healthcare

As a financial planner, I talk to people about saving up for emergencies, and having adequate insurance coverage.  There are situations where all the prudent planning in the world won’t help you.  We don’t talk about it much, because it’s an extremely uncomfortable truth.  That’s why I’m asking you to read “Bitter Pill: Why Medical Bills Are Killing Us” by Steven Brill at Time Magazine.  It’s an astonishing exposé on medical billing practices, and why getting sick in the U.S., for many, also means getting a bankruptcy.

Posted in Current Events, Financial Planning, Insurance | Tagged , , , , ,

Furnish Your Home Cheaply

Do you have the same problem I have – more apartment than stuff?  Do you want to fill it with somewhat inexpensive things of reasonable quality?  Are you disinclined to be squeamish about using a dead person’s stuff?* Then maybe shopping at estate sales are for you.

So, I’ve been shopping around at estate sales this past year, and I’ve been very pleased with both the quality and price of  what I’ve bought.  Unfortunately, estate sales can be tough to find.  Happily, I’ve found an eNewsletter that rounds up estate sales in the Little Rock and outlying areas called “Ashley’s Finds.”

Every week they send out a multi-page list of upcoming estate sales and auctions, where you might be able to find good deals on household goods and antiques.  You can sign up for free on their website, ashleysfinds.com.  I’m not compensated in any way for writing about them, it’s just a service I use that use and think you may like.

* Here’s the way I see it:  These things wouldn’t be at an estate sale unless someone wanted to sell it.  I’m not plundering their household or taking advantage of someone’s misfortune, I’m helping them turn their unwanted possessions into money.  Also, I’ve been using an awesome little egg slicer I got from an estate sale for the last few months, and had 0% hauntings or poltergeist activity, so it’s probably ok.

Posted in Spending | Tagged , ,

Age Sixty-Five is the Deadline for Becoming Independently Wealthy?

The standard retirement age in the U.S. is age 65.  Most people see that as the date they should be ready to retire, but retirement has changed significantly over that past hundred years.  I think our expectations have changed from “retiring” from the workforce to becoming independently wealthy.  I also think these changes have confused people on whether or not they have enough money saved for their old age.

Back in the day (say the 1880’s,) there was no retirement in the sense we use now.  Instead of saving for a late stage in life when they didn’t have to work, people saved for a time when they couldn’t work.  If they had children, they expected their children to care for them. There were even contracts that were drawn up between parents and their children guaranteeing the parents a certain amount of food or firewood in return for the parent’s property.  Anyone with few or no children would need to make up the difference with personal savings, or face indigency.

Over the last 100+ years, the labor force participation rate at age 65 has dropped significantly. This has been attributed to the institution of Social Security and private pension plans in the last century.

Derived from "Economic History of Retirement in the United States" by Joanna Short

Derived from data from “Economic History of Retirement in the United States” by Joanna Short

Remember, the period when people weren’t expected to work was expected to be brief and immediately precede illness and death. When they were done working, it was expected that they would be largely home-bound. That’s not the case now, is it?

Current retirement expectations hold that one should retire at 65, with enough personal savings to create an income large enough to keep a retiree comfortable for 15+ years while allowing the retiree to engage in a variety of leisurely pursuits.  In effect, the retirement goals that come up in magazines and other media is the dream of becoming independently wealthy by age 65.  Of course, it’s difficult (if not impossible) to save up the amount of money a person would need to fund that sort of retirement, on the average income. Many of the people who manage to amass that much money are helped along by investing in a robust market with enough diversification to reduce the likelihood of being wiped out by sudden market drops.  So, we end up with a lot of ideas about how much money people need to retire, and most of the numbers are in the neighborhood of a million dollars.  We’ll, yes, you do need a lot of money if your plan is to be wealthy.

But what if you plan to work until you can’t work anymore? What if you have a different retirement? There aren’t many models of an old-fashioned retirement in the media.  If you’re not interested in living like a king in retirement, retirement becomes much more affordable. So, if age 65 is staring you in the face, and you can’t afford the media portrayal of retirement, don’t despair.  Instead of trying to become independently wealthy by age 65, focus on having savings to make you secure in your old age.  Don’t’ let perfection be the enemy of your good.

Posted in Investments | Tagged , , , , ,

Cindy Says…

“It’s not the market that’s unstable, it’s Fox News.”

Aside | Posted on by | Tagged , ,