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It’s amazing how many dollars people will spend to save pennies on their taxes.

Seven Figures

A FEW WEEKS AGO, my net worth hit the $1 million mark. It was a milestone I’d been looking forward to for years.
Almost a decade ago, I performed my first net worth calculation. Back then, I was recently divorced and living on my own for the first time in my life. My only assets were three retirement accounts and a seven-year-old car, plus half the proceeds from the sale of a house my ex and I had owned.

Read more »

Stay Positive

AMONG THE AREAS of law that have made me miserable over 16 years of practice, it’s the adversarial roles that have made me most miserable. My experience in labor and employment law has been particularly difficult because the interaction with opposing counsel is usually contentious, each side compelled to zealously advocate for their position.
Almost any type of litigation is a zero-sum game. One side wins, the other loses. Because the outcome is never guaranteed,

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Short Stuff

Close but No Cigar

BEAR MARKET territory. On Friday, that phrase was all over the “financial pornography” channel, as commentator Carl Richards labels it. During trading, the S&P 500 finally dropped 20% from its early January all-time closing high. In truth, that number alone doesn’t mean much. Consider that stocks in both 2011 and late 2018 briefly encroached on 20% before bouncing back in a big way.
The media was ready last week to go with all the flashing banners and alerts.

Read more »

That Losing Feeling

LOSS AVERSION IS ONE of the most powerful behavioral-finance phenomena. It’s often defined as “losses loom larger than gains.” It’s been said that the psychological pain from a loss is about twice as powerful as the pleasure from an equivalent gain.
Boy, am I feeling that right now. This year’s market losses have many of us concerned. But this year is different for my wife and me. This is our first year with no consistent earned income.

Read more »

Hard to Follow

“BUY LOW, SELL HIGH.” This is probably the most famous investment adage. It sounds so simple and commonsensical—a sure path to success. Like so many investing truisms, however, following it is easier said than done.
For one thing, how do we really know when we’re buying low? When it comes to a pair of jeans or a laptop computer, we have a good sense of value. When they go on sale, we snap them up without hesitation.

Read more »

A La Carte

I REMOVED THE YOKE of cable TV several years ago. Thanks to today’s streaming channels, I have endless options—and I’m still saving money.
If you thought cable offered an overflowing abundance of choices, buy a Roku or other streaming device. You could stay glued to the screen 24/7 and never see anything twice, probably for years.
A Roku device, available for as little as $24, will give you access to more than 200 channels,

Read more »

Agency Problem

MOST PEOPLE THINK that selling real estate is the flip side of buying. But in most cases, selling is a very different enchilada, and that should drive who you hire as a REALTOR®—and, yes, that is the preferred style.
Buyers face an almost infinite list of potential properties to purchase. Initially, almost every house is a possibility. As the buyer and agent review the buyer’s requirements, the list is whittled down until the dream home is found.

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Bringing Up Baby

EVER SINCE OUR OLDEST was born three years ago, my wife and I have had to confront the cold reality of paying for childcare. We visited four different daycare providers in the Boston area. None was below $2,300 a month. The gap between what we saw as the best and the worst was only $200.
Our monthly childcare outlay—now covering two kids following the birth of our second child last October—is close to $5,000.

Read more »

Longer Reads

Under the Radar

RESEARCH SHOWS HOW subtle sales pitches, called nudges, can influence our buying. Think of tricks like putting the more expensive potato chips on eye-level grocery-store shelves. Over time, such nudges create spending habits. Those habits become ingrained, nonthinking ways of dealing with money.
A collection of such poor habits begun in childhood can result in a hard-to-alter lifestyle of poor saving and foolish spending. Even worse, nudging sends a stealth message, especially to children,

Read more »

The Taylor Rule

IF YOU’VE TRIED TO buy a car or a home recently—or have even just been to the grocery store—I’m sure you’re aware how much prices have jumped over the past year. John Taylor certainly has an opinion on the topic.

Taylor is an economics professor at Stanford University. While not a household name, he’s a leader in economic circles. Before Jerome Powell was appointed Federal Reserve chair in 2018, Taylor was a candidate for that spot.

Read more »

Following My Muse

WHEN I WAS A YOUNG boy, my grandmother kept telling me, “You must go into the family warehouse business.” She was a product of the Great Depression. To her, this well-established business represented security. Many people would crave an offer of financial stability and a career roadmap. But I hated the feeling that my life path was being dictated by my family.
Maybe my financial journey was complicated by two competing influences—my father and my mother.

Read more »

Driving a Bargain

“NEVER BORROW MONEY to buy a depreciating asset.” This personal finance tip is often used to dissuade folks from taking out car loans. But does a car really leave folks poorer?

When we value an asset, it’s typically thought of as its dollar value on a balance sheet. The monetary value of my car might indeed decline, and quickly at that, but it has far more usefulness than my personal balance sheet shows. When I consider my car’s true value,

Read more »

The Krone Stops Here

I LIKE TO KEEP my wallet organized. It’s a bit obsessive. All my bills must face the same direction and be upright, with the 20s in the back and singles in front. I’m thinking that means something. Turns out an organized wallet is indeed a thing.

I also save my change. All those little coins add up. To what purpose? Before we travel, I take the coins to the bank and then add the proceeds to our spending money.

Read more »

Ten Points of Pain

I JUST COMPLETED my fourth year preparing tax returns as part of the federal government’s Volunteer Income Tax Assistance (VITA) program. I’ve seen first-hand how confusing our tax code can be for many taxpayers. Here are the 10 areas of confusion I’ve encountered most often:
1. Income. Anyone looking through a tax return will see multiple definitions of income. There’s total income, adjusted gross income (AGI), modified adjusted gross income, provisional income and taxable income.

Read more »

Voices

Which life decisions shouldn’t involve financial considerations?

"It depends upon your location, culture, and environment. If you live in a capitalist society, all decisions should consider financial implications and ramifications."
- Moesha
Read more »

What’s your No. 1 goal for retirement?

"Work consistently on my health ... without it none of the other things (travel,golf,hobbies etc) are enjoyable"
- George Counihan
Read more »

If you could buy just three funds or less, what would they be?

"Vanguard Dividend Growth VDIGX- Aggressive but not Speculative Growth Vanguard Wellington VWELX - Balanced Vanguard Wellesley VWINX - Income Three funds I understand but more importantly three funds my wife can understand when I check out."
- Wayne Koppa
Read more »

Money Guide

What Size Cushion?

DO YOU REALLY NEED an emergency fund equal to six months’ living expenses? Partly, that’s a matter of personal preference and hence how much you need to set aside to feel financially secure. But you should also give some thought to your job situation. While you might tap your emergency fund to pay for a major car or home repair, the No. 1 reason to have an emergency fund is to cover a prolonged period of unemployment. Indeed, if you’re retired and don’t rely on a regular paycheck, you arguably don’t need a separate emergency reserve. Still in the workforce? If your job is tenuous or you’re self-employed, you may need the full six months of emergency money and perhaps more. But if your job is reasonably secure, you might keep just three months’ living expenses in a savings account. Similarly, you might opt for a smaller emergency fund if your spouse also works, unless there’s a risk you could both lose your jobs at the same time because you work for the same company or in the same industry. Our Humble Opinion: As you save for retirement and other goals, you may find yourself socking away money not just in 401(k) plans and individual retirement accounts, but also in a regular taxable account. You can tap that taxable account at any time without worrying about the 10% tax penalty that’s typically levied on retirement account withdrawals before age 59½. As your taxable account grows, keeping a separate emergency fund may seem unnecessary. After all, if you lost your job, you could always dip into some of the retirement money you have in your regular taxable account. What if you find yourself out of work and you have little or no money in your taxable account? You might be compelled to dip into your retirement accounts. There will be no taxes owed if you're withdrawing your regular annual Roth contributions—a point we made in the previous section. But what about other retirement accounts? As the tax chapter explains, the consequences may not be as dire as you feared. Next: Step 2: Insurance Previous: Step 1: Emergencies Article: All Too Predictable
Read more »

Manifesto

NO. 49: WE SHOULD ensure our family will be okay financially, even if we aren’t around. That means making sure there’s enough money—and making sure our affairs are well organized.

Truths

NO. 60: SHORT-TERM results matter to long-term investors. Even if you’re investing for the long haul and have a strong stomach for short-term price swings, this volatility can have a huge impact on your long-run returns. Want to retire rich? Pray for lousy markets as you regularly save money during your working years—and buoyant markets as you approach retirement.

Act

CHECK WHO YOU have named as beneficiaries. Your retirement accounts, life insurance and any trusts will typically pass to the beneficiaries specified on those assets and not to the people named in your will. If your family situation has changed, or you simply don’t remember who you have listed, take a few minutes to review your beneficiary designations.

Think

INSTINCTS. Our brain’s instinctual side makes most decisions. That’s usually a plus: It tells us to jump out of the way, even before we’re fully aware of the speeding car. But our instincts can also lead us to overspend and to panic when markets tumble. Making money decisions? Try pausing, so your brain’s slower-moving, contemplative side can weigh in.

Second Look

Retirement

Calling for Backup

WHEN I RETIRED, I was surprised by how many of my friends and former colleagues had a financial advisor. My thought: Why would folks pay someone else to manage their money when they could easily do it themselves?
But I found out early in retirement that hiring an advisor was a good idea. There’s a big difference between investing while drawing a paycheck and investing without one. When I retired, I realized that the money I was investing was all the money I’d ever have,

Read more »

Family Finance

Where It Goes

WHEN I DIVORCED a few years ago, I found myself needing a crash course in financial management. My first task: Understanding where my money went—and figuring out where I could cut back.
Today, I create a budget each month. I don’t use any type of program or app—I prefer paper and pen. At the top of a page, I write down my take-home pay. I use take-home pay, rather than my $5,500 monthly gross income,

Read more »

Investing

Mind the Trap

MY FRIEND JIT learned the hard way that you can never be too careful when dealing with a financial advisor. Despite being a cautious and responsible investor, he made one small oversight—and ended up with his money trapped in an unsuitable product.
I’ve known Jit for more than 15 years. He’s smart and financially savvy. He saves diligently and manages his own investments. He funds his son’s 529 plan, maxes out his 401(k), uses the backdoor Roth and so on.

Read more »

Lists

Ten Principles

I RECENTLY LEARNED a new expression, TL;DR, which stands for “too long; didn’t read.” Twitter users and bloggers use it when they want to summarize an idea for readers who are short on time. It’s the modern equivalent of saying, “Here’s the executive summary.”
Coincidentally, this week, two people separately asked me what I see as the most important principles in personal finance. In other words, they wanted the TL;DR version, without too much commentary.

Read more »
Home Call to Action

Mindset

That’s Enough

WE CONSTANTLY strive for more: A bigger paycheck. A loftier job title. A larger home. A more luxurious car. New electronic toys. Higher investment returns.
Make no mistake: There can be great pleasure in this striving—but we may not be so happy with the results. Indeed, on this holiday that celebrates America’s independence, let me put in a plug for a most un-American concept: How about settling for enough—and perhaps even opting for less?

Read more »

Longer Reads

Under the Radar

RESEARCH SHOWS HOW subtle sales pitches, called nudges, can influence our buying. Think of tricks like putting the more expensive potato chips on eye-level grocery-store shelves. Over time, such nudges create spending habits. Those habits become ingrained, nonthinking ways of dealing with money.
A collection of such poor habits begun in childhood can result in a hard-to-alter lifestyle of poor saving and foolish spending. Even worse, nudging sends a stealth message, especially to children,

Read more »

The Taylor Rule

IF YOU’VE TRIED TO buy a car or a home recently—or have even just been to the grocery store—I’m sure you’re aware how much prices have jumped over the past year. John Taylor certainly has an opinion on the topic.

Taylor is an economics professor at Stanford University. While not a household name, he’s a leader in economic circles. Before Jerome Powell was appointed Federal Reserve chair in 2018, Taylor was a candidate for that spot.

Read more »

Following My Muse

WHEN I WAS A YOUNG boy, my grandmother kept telling me, “You must go into the family warehouse business.” She was a product of the Great Depression. To her, this well-established business represented security. Many people would crave an offer of financial stability and a career roadmap. But I hated the feeling that my life path was being dictated by my family.
Maybe my financial journey was complicated by two competing influences—my father and my mother.

Read more »

Driving a Bargain

“NEVER BORROW MONEY to buy a depreciating asset.” This personal finance tip is often used to dissuade folks from taking out car loans. But does a car really leave folks poorer?

When we value an asset, it’s typically thought of as its dollar value on a balance sheet. The monetary value of my car might indeed decline, and quickly at that, but it has far more usefulness than my personal balance sheet shows. When I consider my car’s true value,

Read more »

The Krone Stops Here

I LIKE TO KEEP my wallet organized. It’s a bit obsessive. All my bills must face the same direction and be upright, with the 20s in the back and singles in front. I’m thinking that means something. Turns out an organized wallet is indeed a thing.

I also save my change. All those little coins add up. To what purpose? Before we travel, I take the coins to the bank and then add the proceeds to our spending money.

Read more »

Ten Points of Pain

I JUST COMPLETED my fourth year preparing tax returns as part of the federal government’s Volunteer Income Tax Assistance (VITA) program. I’ve seen first-hand how confusing our tax code can be for many taxpayers. Here are the 10 areas of confusion I’ve encountered most often:
1. Income. Anyone looking through a tax return will see multiple definitions of income. There’s total income, adjusted gross income (AGI), modified adjusted gross income, provisional income and taxable income.

Read more »

Free Newsletter

Voices

Which aspect of the tax code do you hate the most?

"form 8938 report of foreign bank accounts - especially having to report joint accounts because my wife is American and is the second holder on some of our accounts. I am Canadian and feel like this is an unwelcome invasion of my privacy. Also Fincen 114 is no party either"
- Glenn Hyde
Read more »

Is there a downside to the current popularity of indexing?

"I have maintained a portfolio of both index funds and well-chosen individual stocks. 20 years in, the individual stocks have vastly outperformed the index funds. In the current bearish market, the index funds have fallen faster. These are my 20-year results, not the current popular theory of how to invest."
- M Plate
Read more »

If you inherited $5 million, how would you use the money?

"3 Million goes to invest, 1/2 million to pay off the mortgage, add to the E.F., create a my own "Escrow" for condo fees & taxes and renovate, 1/2 million to travel, and 1 million for my wife & I to retire 10 year ahead of schedule."
- Ed Hanson
Read more »
Home Call to Action

Manifesto

NO. 49: WE SHOULD ensure our family will be okay financially, even if we aren’t around. That means making sure there’s enough money—and making sure our affairs are well organized.

Act

CHECK WHO YOU have named as beneficiaries. Your retirement accounts, life insurance and any trusts will typically pass to the beneficiaries specified on those assets and not to the people named in your will. If your family situation has changed, or you simply don’t remember who you have listed, take a few minutes to review your beneficiary designations.

Truths

NO. 60: SHORT-TERM results matter to long-term investors. Even if you’re investing for the long haul and have a strong stomach for short-term price swings, this volatility can have a huge impact on your long-run returns. Want to retire rich? Pray for lousy markets as you regularly save money during your working years—and buoyant markets as you approach retirement.

Think

INSTINCTS. Our brain’s instinctual side makes most decisions. That’s usually a plus: It tells us to jump out of the way, even before we’re fully aware of the speeding car. But our instincts can also lead us to overspend and to panic when markets tumble. Making money decisions? Try pausing, so your brain’s slower-moving, contemplative side can weigh in.

Money Guide

Start Here

What Size Cushion?

DO YOU REALLY NEED an emergency fund equal to six months’ living expenses? Partly, that’s a matter of personal preference and hence how much you need to set aside to feel financially secure. But you should also give some thought to your job situation. While you might tap your emergency fund to pay for a major car or home repair, the No. 1 reason to have an emergency fund is to cover a prolonged period of unemployment. Indeed, if you’re retired and don’t rely on a regular paycheck, you arguably don’t need a separate emergency reserve. Still in the workforce? If your job is tenuous or you’re self-employed, you may need the full six months of emergency money and perhaps more. But if your job is reasonably secure, you might keep just three months’ living expenses in a savings account. Similarly, you might opt for a smaller emergency fund if your spouse also works, unless there’s a risk you could both lose your jobs at the same time because you work for the same company or in the same industry. Our Humble Opinion: As you save for retirement and other goals, you may find yourself socking away money not just in 401(k) plans and individual retirement accounts, but also in a regular taxable account. You can tap that taxable account at any time without worrying about the 10% tax penalty that’s typically levied on retirement account withdrawals before age 59½. As your taxable account grows, keeping a separate emergency fund may seem unnecessary. After all, if you lost your job, you could always dip into some of the retirement money you have in your regular taxable account. What if you find yourself out of work and you have little or no money in your taxable account? You might be compelled to dip into your retirement accounts. There will be no taxes owed if you're withdrawing your regular annual Roth contributions—a point we made in the previous section. But what about other retirement accounts? As the tax chapter explains, the consequences may not be as dire as you feared. Next: Step 2: Insurance Previous: Step 1: Emergencies Article: All Too Predictable
Read more »

Second Look

Retirement

Calling for Backup

WHEN I RETIRED, I was surprised by how many of my friends and former colleagues had a financial advisor. My thought: Why would folks pay someone else to manage their money when they could easily do it themselves?
But I found out early in retirement that hiring an advisor was a good idea. There’s a big difference between investing while drawing a paycheck and investing without one. When I retired, I realized that the money I was investing was all the money I’d ever have,

Read more »

Family Finance

Where It Goes

WHEN I DIVORCED a few years ago, I found myself needing a crash course in financial management. My first task: Understanding where my money went—and figuring out where I could cut back.
Today, I create a budget each month. I don’t use any type of program or app—I prefer paper and pen. At the top of a page, I write down my take-home pay. I use take-home pay, rather than my $5,500 monthly gross income,

Read more »

Investing

Mind the Trap

MY FRIEND JIT learned the hard way that you can never be too careful when dealing with a financial advisor. Despite being a cautious and responsible investor, he made one small oversight—and ended up with his money trapped in an unsuitable product.
I’ve known Jit for more than 15 years. He’s smart and financially savvy. He saves diligently and manages his own investments. He funds his son’s 529 plan, maxes out his 401(k), uses the backdoor Roth and so on.

Read more »

Lists

Ten Principles

I RECENTLY LEARNED a new expression, TL;DR, which stands for “too long; didn’t read.” Twitter users and bloggers use it when they want to summarize an idea for readers who are short on time. It’s the modern equivalent of saying, “Here’s the executive summary.”
Coincidentally, this week, two people separately asked me what I see as the most important principles in personal finance. In other words, they wanted the TL;DR version, without too much commentary.

Read more »

Mindset

That’s Enough

WE CONSTANTLY strive for more: A bigger paycheck. A loftier job title. A larger home. A more luxurious car. New electronic toys. Higher investment returns.
Make no mistake: There can be great pleasure in this striving—but we may not be so happy with the results. Indeed, on this holiday that celebrates America’s independence, let me put in a plug for a most un-American concept: How about settling for enough—and perhaps even opting for less?

Read more »