The best predictor of our future behavior is our past behavior. Did you panic during 2008-09’s market crash? You have seen the future.
SEVERAL MILLION households every year deal with a crucial decision involving their teenage children. Will their kids head to college, enter the labor force, join the military or perhaps do something different entirely? Often, this involves weighing the costs and benefits of a college education vs. the immediate income from getting a job.
About two-thirds of high school graduates end up being college freshmen. The remaining third defer or never go to college, but they can still end up earning above-average incomes.
WE’VE ALL GOT stuff. Too much stuff. George Carlin was among the first to highlight our obsession with stuff in his 1980s standup comedy routines. I hadn’t thought much about Carlin or stuff for decades—until 2015, when I inherited my parents’ stuff.
Not only did I inherit their stuff, I inherited some of their parents’ stuff and their grandparents’ stuff. Boxes, drawers and shelves full of unlabeled stuff. I wouldn’t call my parents hoarders.
IT ISN’T EASY sticking to a budget. I get it. Surprise expenses pop up all the time. How can you possibly be expected to live on a strict dollar amount each and every month?
The answer is, you don’t. But the key is to make sure you have enough financial breathing room, so you aren’t living paycheck to paycheck. That brings me to three common budget busters. These areas of your financial life, if ignored,
WE LIKE TO THINK we’re rational, especially when it comes to spending and investing. But in truth, all of us are susceptible to impulsive decision-making and unconscious persuasion. Result? We often end up wasting our hard-earned money.
According to traditional economics—which depicts humans as conscious, rational decision-makers—this shouldn’t happen. But this traditional view has been under attack since the late 1800s, when Thorstein Veblen explored conscious irrational decisions, such as buying items simply to impress others.
I SUBSCRIBE to a number of financial magazines, as well as a daily newspaper. Lately, they’ve been piling up in my garage unread. I scan the front cover of the magazines and the headlines of the newspaper, but I’m not that interested. I don’t care about “Where to Invest Your Money in 2019” or “The Best Stocks for the Long Run.”
I guess it’s because I’m no longer in charge of my investment portfolio.
IN SUMMER 2000, the Art Institute of Chicago fell under the spell of a young hedge fund manager named Conrad Seghers. The allure? Seghers claimed that his funds, called Integral, offered “the highest Sharpe ratios in the industry.” The Sharpe ratio is supposed to measure an investment’s risk relative to its returns and is popular in the world of hedge funds. Convinced by this pitch, the Art Institute committed more than $40 million of its endowment to Seghers’s funds.
ALMOST HALF of Americans receive health care coverage through an employer, 21% from Medicaid, 14% from Medicare, 7% through individual policies and 9% are uninsured, according to 2017 data from the Kaiser Family Foundation.
WE CAN MEASURE our financial progress by the size of our net worth. But that’s hardly the only gauge. Equally important, I’d argue, is the evolution in how we think about money—and how we use it to improve our lives.
What does this journey look like? I picture it as having five stages:
1. Head above water. This is when you emerge from the primordial financial swamp and begin to walk upright.
NO. 27: COST-CONSCIOUS investors can save thousands over their lifetime. Take two investors who salt away $5,000 a year for 40 years. One pays 1% in annual costs, while the other incurs 0.1%. If both earn 5% a year before expenses, the cost-conscious investor will amass $618,000, while the high-cost investor garners $494,000.
FUND YOUR IRA—FOR 2019. This time of year, folks are exhorted to get their IRAs funded for 2018 before the mid-April tax-filing deadline. That’s a good idea. But if you want to get the most out of your IRA, you should also make your 2019 contribution. That way, your money will be invested for longer—and there’s the potential for even more tax-advantaged growth.
NEUROECONOMICS. To understand why we often make poor decisions, neuroeconomics studies how the brain reacts to financial situations. The research has confirmed insights first uncovered by behavioral finance, such as our strong aversion to losses, our fondness for long-shot investments and our preference for small rewards now over larger rewards later.
HumbleDollar is edited by Jonathan Clements, author of From Here to Financial Happiness.
SEVERAL MILLION households every year deal with a crucial decision involving their teenage children. Will their kids head to college, enter the labor force, join the military or perhaps do something different entirely? Often, this involves weighing the costs and benefits of a college education vs. the immediate income from getting a job.
About two-thirds of high school graduates end up being college freshmen. The remaining third defer or never go to college, but they can still end up earning above-average incomes.
WE’VE ALL GOT stuff. Too much stuff. George Carlin was among the first to highlight our obsession with stuff in his 1980s standup comedy routines. I hadn’t thought much about Carlin or stuff for decades—until 2015, when I inherited my parents’ stuff.
Not only did I inherit their stuff, I inherited some of their parents’ stuff and their grandparents’ stuff. Boxes, drawers and shelves full of unlabeled stuff. I wouldn’t call my parents hoarders.
IT ISN’T EASY sticking to a budget. I get it. Surprise expenses pop up all the time. How can you possibly be expected to live on a strict dollar amount each and every month?
The answer is, you don’t. But the key is to make sure you have enough financial breathing room, so you aren’t living paycheck to paycheck. That brings me to three common budget busters. These areas of your financial life, if ignored,
WE LIKE TO THINK we’re rational, especially when it comes to spending and investing. But in truth, all of us are susceptible to impulsive decision-making and unconscious persuasion. Result? We often end up wasting our hard-earned money.
According to traditional economics—which depicts humans as conscious, rational decision-makers—this shouldn’t happen. But this traditional view has been under attack since the late 1800s, when Thorstein Veblen explored conscious irrational decisions, such as buying items simply to impress others.
I SUBSCRIBE to a number of financial magazines, as well as a daily newspaper. Lately, they’ve been piling up in my garage unread. I scan the front cover of the magazines and the headlines of the newspaper, but I’m not that interested. I don’t care about “Where to Invest Your Money in 2019” or “The Best Stocks for the Long Run.”
I guess it’s because I’m no longer in charge of my investment portfolio.
IN SUMMER 2000, the Art Institute of Chicago fell under the spell of a young hedge fund manager named Conrad Seghers. The allure? Seghers claimed that his funds, called Integral, offered “the highest Sharpe ratios in the industry.” The Sharpe ratio is supposed to measure an investment’s risk relative to its returns and is popular in the world of hedge funds. Convinced by this pitch, the Art Institute committed more than $40 million of its endowment to Seghers’s funds.
ALMOST HALF of Americans receive health care coverage through an employer, 21% from Medicaid, 14% from Medicare, 7% through individual policies and 9% are uninsured, according to 2017 data from the Kaiser Family Foundation.
FUND YOUR IRA—FOR 2019. This time of year, folks are exhorted to get their IRAs funded for 2018 before the mid-April tax-filing deadline. That’s a good idea. But if you want to get the most out of your IRA, you should also make your 2019 contribution. That way, your money will be invested for longer—and there’s the potential for even more tax-advantaged growth.
NO. 27: COST-CONSCIOUS investors can save thousands over their lifetime. Take two investors who salt away $5,000 a year for 40 years. One pays 1% in annual costs, while the other incurs 0.1%. If both earn 5% a year before expenses, the cost-conscious investor will amass $618,000, while the high-cost investor garners $494,000.
NEUROECONOMICS. To understand why we often make poor decisions, neuroeconomics studies how the brain reacts to financial situations. The research has confirmed insights first uncovered by behavioral finance, such as our strong aversion to losses, our fondness for long-shot investments and our preference for small rewards now over larger rewards later.
WE CAN MEASURE our financial progress by the size of our net worth. But that’s hardly the only gauge. Equally important, I’d argue, is the evolution in how we think about money—and how we use it to improve our lives.
What does this journey look like? I picture it as having five stages:
1. Head above water. This is when you emerge from the primordial financial swamp and begin to walk upright.
HumbleDollar is edited by Jonathan Clements, author of From Here to Financial Happiness.