How to Ruin Your Financial Life (Book Review)
Ben Stein’s latest book offers a different, destructive take on one’s personal finances. How to Ruin Your Financial Life contains over fifty popular ways people sabotage their financial lives.
With each lesson taking no more than a couple of minutes, the book is a quick read. It’s also a funny book; Ben’s trademarked dry humor abounds, reaching Saharan levels as he explains why and how you should ruin your financial life.
Each rule is designed to shock readers from their complacency. Although most of the rules might sound like bad ideas, Ben assures us that things will be different for us. So, you see, there really is no reason to be afraid.
Now while we might not spend as much as we want, bravely going into debt (rule 6) and we probably don’t believe that we are not responsible for our financial well-being (rule 16), we still might be making a few of the mistakes described.
If you do see a little of yourself in this book, changing your financial habits should be a little easier after reading about the company you keep.
Photo by E l i o
Investing is like good intentions
Have you heard that advertising campaign about people almost helping their neighbors? It’s a powerful message. Sometimes we think about doing good, but we fail to follow through.
The thought is either pushed aside or we fool ourselves into thinking that it’s the thought that counts. We’ll just do that later.
With investing, like doing good, the thought or intention is not good enough. We can intend to start saving for retirement all we want, but our problem is only going to grow bigger and bigger. It will continue to grow until we actually come up with an investing plan and a written game plan (budget) for setting aside money for our future.
I could list statistics and facts like the amount we must save doubles for every decade we delay, but statistics won’t change most people’s minds. Just as we have to want to do good, we have to want to be responsible in order to be financially successful.
Do you have any plans, dreams, or good intentions lying around gathering dust? Today could be the day to make the leap, plunge, or effort. No one is stopping you, but yourself.
Photo by Anita Martinz
Exhaustion is financial success’ kryptonite
I am most likely to spend money when I am stressed or exhausted.
For this reason, I hate working.
But seriously, I am naturally very serious and analytical. I see potential hurdles as challenges, not problems. However, building our first house stretched the limits of my patience as we encountered roadblock after roadblock.
As the months rolled by, our costs kept rising, and our general contractor’s incompetence multiplied, I lost the will to focus on reducing expenses on the “little things”. Staying frugal seemed pointless after we discovered we couldn’t build as affordably as we’d planned.
Ironically, tightening our belts is exactly what we should have done.
We eventually finished the house, but we had to live five months without power and six months without potable water. We took solar showers, cooked on a camp stove, and even totaled our car driving through a falling tree before we reached the end.
But when our house was eventually finished, the pressure eased off. Our energy levels rose. We were motivated again—motivated to get the mortgage off our back.
It doesn’t always turn out that way
But for others, the stress can lead to surrendered control which almost always leads to more stress, often resulting in ruined relationships and a financial mess.
The best strategy is to avoid prolonged exposure to stressful situations that might cause you to let things slip. If that’s not possible, at least be aware of how your exhaustion will impact your decisions.
Have you ever been in a stressful situation or exhausted to the point where you don’t care about money?
It’s hard to be optimistic when you forget the past
Everyone knows life is hard for America’s middle class.
Or, is it possible that “what we all know” simply isn’t true?
Recession. Credit crunch. War on the middle class. Health care crisis. If you listen to the media’s fear mongering, you might think the world is coming to an end.
These impending catastrophes, however, are only believable when you are not familiar with the past. Our standard of living is vastly greater than any time or place in history.
The real problem is “the cost of living high,” enjoying and consuming all of today’s many benefits. While most prices continue to drop–even as quality rises–we continue to demand more. This demand quickly outpaces falling prices.
So relax and enjoy the spread of prosperity. If you’re personally feeling squeezed, re-evaluate your priorities, spending, and skills. There are more options than ever before. Focus on what matters most to you and remember that you don’t need to enjoy every luxury or toy available today.
If you need more convincing, check out Drew Carey in reason.tv’s eye-opening video below.
This article was featured in the Carnival of Personal Finance by My Dollar Plan.
The Invisible Heart: An Economic Romance (Book Review)
Do you know that feeling of anticipation, when you hold a new book, knowing full well it will be a joy to read from start to finish?
Russell Roberts has managed to craft another such a gem. But The Invisible Heart is more than a good story, it’s a love letter about economic freedom.
Roberts has a knack for making economic lessons accessible, even fun to read. In his first book The Choice: A Fable of Free Trade and Protectionism he made the case for trade.
With The Invisible Heart, Roberts pioneers a new genre, the economic romance. The story features an unlikely pair; a couple so unlikely, that the ending remains a surprise up till the end.
Invisible Heart features more plot turns than Roberts’ first book, but still contains plenty of his trademark dialog. In fact, the only way economics instructor Sam and idealist co-worker Laura might have a chance together is through many deep discussions.
Many of their discussions involve Sam defending his profession. Laura sees businesses as greedy and economists, like Sam, as their stooges. Instead, Sam explains that he loves freedom and he has little to no faith that the government can improve life through regulation (restricting freedom).
As their relationship progresses, Sam has the opportunity to dispel many common myths about the dismal science, and the dangers of government intervention.
The Invisible Heart is an exciting story full of rich dialog. Sam’s arguments might not convince everyone about the free market’s advantages. But all readers will better understand the dangers of government intervention and why some people prefer to let the market work.
You can learn more about economics at Russell Roberts’ homepage, or at Cafe Hayek where he blogs. He also hosts a regular “economics podcast for daily life” called EconTalk. The Invisible Heart is available at Amazon.com and sample chapters of his books are available.
Photo by ARTchemist
Make your savings productive
One of the most ironic aspects of modern life is the lack of instruction on how to handle money, especially considering the consequences of poor money management.
There are only three things people can do with money: spend it, give it, and keep it.
The proper balance is important. If you spend everything, you’re broke. If you give it all away, you’re still broke. And if you keep all of it, you’re a miser.
Unfortunately, most of us are off balanced. We spend the majority of our day working for someone else and we keep little, if any, of our earnings which makes giving money away especially difficult.
You are productive, shouldn’t your savings be productive too?
Most people like to dream about a day in the future when they no longer have to work for someone else. Some people call this retirement. For others, it’s simply the opportunity to do work you enjoy when you want to.
This dream is possible if you start working for yourself today instead of simply collecting and then spending your paycheck. This decision is vital because you might need to radically restructure your finances. But first, you’ll need to have some savings to work with.
The more you save, the faster you can realize your dream. Consider 10% of your salary a good starting point. If you think that’s impossible, pull your head out of the clouds. Many people tithe 10% of their salary and save for retirement.
Break the paycheck to paycheck cycle
Living paycheck to paycheck works for some people, at least until it stops working. Not only is the lifestyle risky, but many of life’s pleasures remain out of reach (freedom, retirement, etc). Below you’ll find three types of savings and how to safely make your savings productive.
1. Life happens
Life happens, sometimes at the most awkward of times. For this reason, you should have at least 3-6 months of income set aside for emergencies. Stash the money in a high-interest savings account to protect yourself from inflation while still keeping it accessible.
2. Big purchases
Many of life’s biggest expenses can be anticipated (cars, college, and houses). And because these expenses are typically no more than 10-15 years out, you should be able to estimate how much you’ll need.
Make sure you carefully consider your assumptions. You will need to save significantly more if you plan to pay the majority of your children’s college expenses. Also, remember that the costs vary dramatically from college to college (just like with cars).
If college is five or more years away, you might want to invest in the stock market via a tax-advantaged account. Otherwise, you’ll want to stash your savings somewhere safe like a high interest savings account. Your down-payment and car savings will be safer in a savings account as well (just make sure to keep your different savings categories separate on paper at least).
3. Nest egg
Retirement is the biggest expense we can anticipate and yet most people do not save enough or even save for retirement. This is tragic because people deprive themselves of freedom later in life by indulging in short-term conveniences and luxuries.
Your nest egg isn’t necessarily just for retirement. For example, you might want to change careers, perhaps to something you would enjoy in semi-retirement. Whatever your goal, it is important to clearly define what you want to do and how much you’ll need to do it.
A clearly defined plan will help you save enough if you start now. How many dreams remain unpursued for lack of a plan? Do you have any long-term goals? How do you plan to make them a reality?
The Choice: A Fable of Free Trade and Protectionism (Book Review)
When is a book more than a book? Occasionally a book comes along with an idea so powerful, so simple that it threatens to transform the world.
Russell Roberts’ The Choice: A Fable of Free Trade and Protectionism is more than a book.
Roberts offers us a glimpse of a different America, an America free from foreign competition. A poorer America because it shunned trade. This alternative history is particularly relevant today as members of the media and politicians are all too happy to promote the idea that foreign countries like China are stealing our jobs.
Instead, Roberts shows readers how trade does not affect the number of jobs, instead it affects the types of jobs people work. Fortunately for us, one of the main characters is resistant to the idea.
This resistance to change provides the premise for the story. Ed Johnson, CEO of the Stellar Television Company is facing increased competition from lower priced Japanese televisions. Johnson is a generous man who wants to see his employees protected. His solution is a tariff on Japanese televisions.
In 1960, the tariff passes and employees of the Stellar Television Company continue to prosper. But this tax puts American down a dangerous path and it’s up to nineteenth-century economist David Ricardo to show Ed why (and to earn his heavenly wings in the process).
Their discussions range from outsourcing to tariffs to trade deficits and whether globalization helps the poor.
Roberts view of trade is anything but naive. Sometimes a few people are made worse off when their job moves overseas, but most people’s lives are enriched. The foreign worker now has a job much better than what was available before. Everyone now has access to a more affordable product. And the displaced worker is freed to pursue other opportunities that might pay more or be more rewarding.
Ultimately, the next generation has more money and more choices that were simply unimaginable when the jobs initially moved.
The Choice is a wonderful little book full of powerful examples that will help you better understand the benefits of trade. A clearer understanding is important today as free societies are faced with the choice between allowing people to make mutually beneficial transactions or protecting the incomes of a few at the expense of many.
You can learn more about the benefits of trade at Russell Roberts’ homepage, or at Cafe Hayek where he blogs. He also hosts a regular “economics podcast for daily life” called EconTalk. The Choice is available at Amazon.com and sample chapters of his books are available.
Photo by lasky
New year’s resolution may be too late
Like all new year’s resolutions, the sooner we change, the more we benefit. And much like our health, the consequences of poor financial decisions can take years to appear. Fortunately, it is possible to restore our financial health later in life.
Just like exercise, but different
But just like exercise, the longer you delay saving, the harder you have to work to restore your financial health. So unless you have access to a trust fund or have earned a generous pension, you will need hundreds of thousands invested (a nest egg) to generate income for you when you are no longer able or no longer want to work.
There are two ways your nest egg can grow: contributions and investment returns. Thanks to the power of compounding interest, early, consistent contributions can grow to hundreds of thousands of dollars during your lifetime. If you’re young, start now because you will need to invest twice as much for every decade you delay.
If you’re not so young, start now. Further delay will only make the situation worse. Thankfully, this is not your health we’re talking about. You can turn this ship around if you to want to badly enough.
Smart strategies for a late start
When time is not on your side, you have three options. (1) You can work longer than you intended to make up for a smaller nest egg, (2) or you can make bigger contributions. (3) Some people even take on more risk in hopes of making up for lost time.
This is not a good idea.
Riskier investments, late in life is akin to going “all in” at a casino, hoping your luck has changed. This strategy will work for some investors thanks to dumb luck, but the vast majority will find themselves worse off than before.
If you have a large income, the solution will be simple—but not painless. Bigger contributions might require you to downsize your lifestyle, but you by no means will have to be frugal.
If your income isn’t quite as large, then you’ll need to cut some unnecessary expenses, earn more, or both.
So when is it too late?
What is the lesson here? Is it too late to begin saving? No—like all positive changes, the sooner made, the better off you’ll be. Begin saving today (or paying down debt) because even a modest nest egg will have a profound impact in your golden years.
Here’s four steps to get you back on track:
- Start now with a written plan outlining your future needs and aggressively eliminate any debts
- Contribute as much as you can by following a written budget
- Invest responsibly with low-cost index mutual funds and a plan for allocating your investments
- Don’t rule out valid options like downsizing your goals, working longer, or finding a career you can enjoy part-time during retirement
You might also want to checkout Four Steps to Financial Success, a pamphlet on four key steps to achieving financial success. Also, make sure to subscribe to On Financial Success to learn how to grow and protect your wealth.
Photo by Stephan
Plan for the future, live for today
While we’ve experienced unparalleled growth and prosperity around the globe, history teaches us that everything comes to an end.
- Alexander the Great carved out an empire over 13 years, but died one month shy of his 33rd birthday. His empire didn’t last.
- The Roman empire lasted for 1,480 years in one form or another.
- China was united and ruled by a succession of dynasties for 2,132 years.
Individual lives are even shorter
Even-though many people now live into their late seventies and beyond, many people do not.
So, don’t put off living today in hopes that you’ll have time to enjoy life later.
- Don’t live like a miser because that early retirement might be just as unsatisfying.
- Don’t put off your dreams, you might not have a better chance later.
- Most of all, don’t neglect your loved ones. Money can be replaced and priorities can be rearranged for more time, but death is final.
Sit back and re-evaluate how you use your time and what you’ve unintentionally been missing. If you haven’t started saving for the future, start now. If you’re not quite ready to pursue a dream, make sure you aren’t letting fear delay you.
Moving forward with a plan will help you resume living with vigor, focusing on what matters because you know you’ve prepared for a bright future.
