The big gain from homeownership is the imputed rent: the ability to live in the place. That’s highly valuable—but immediately consumed.
MOST OF US want to help our children financially. But we also want to avoid thwarting their ambition or unintentionally instilling bad money habits. And, no, this isn’t just a problem for the wealthy: All too many kids who grow up in middle-class households end up as financially irresponsible adults.
How can we avoid that fate, while still helping our children financially? Below are five strategies. The first three are cost-free and the other two don’t necessarily require serious sums of money:
1.
DESPITE MY independent nature, I called family and friends after my injury. I thanked them for what they’d already done following my husband’s death—and requested additional, more intensive support.
One aunt, a government employee, arranged to work for a week at a nearby federal building. My sister-in-law also came for a week, and a cousin who is a nurse volunteered, too. A professional colleague parked her RV in the driveway and brought along her friendly pooch.
BEATING THE STOCK market over the long term is no mean feat. Only a tiny proportion of investors—professional or otherwise—manage to do it. So why do so many people think they can?
Meir Statman, a finance professor at Santa Clara University, cites eight key reasons. In a new monograph titled Behavioral Finance: The Second Generation, he slots these reasons into two broad categories—five cognitive and emotional errors, followed by three expressive and emotional benefits:
1.
“THE INVESTOR’S CHIEF problem—even his worst enemy—is likely himself.” So wrote Benjamin Graham, the father of modern investment analysis.
With these words, written in 1949, Graham acknowledged the reality that investors are human. Though he had written an 800-page book on techniques to analyze stocks and bonds, Graham understood that investing is as much about human psychology as it is about numerical analysis.
In the decades since Graham’s passing, an entire field has emerged at the intersection of psychology and finance.
I USED TO THINK anybody could be taught to manage money sensibly. I no longer believe that.
When I was in my 20s and scraping by on a junior reporter’s salary, I had some sense for the financial stress suffered by everyday Americans. But after a handful of years of diligently saving, I was able to escape those daily worries. Many Americans, alas, never do.
This was hammered home when I recently took the financial well-being questionnaire offered by the Consumer Financial Protection Bureau (CFPB).
I HAVE NEVER broken a New Year’s resolution—because, until this year, I’ve never made one. But now that I’m retired, with time on my hands, I figure my wife and I ought to challenge ourselves with 10 financial resolutions for 2020:
We’ll continually monitor routine spending with the goal of reducing or eliminating at least half-a-dozen expenses this year. That’s one every two months. Phone companies, internet providers and insurers, be warned: Here we come.
When not paddling, biking or shooting, Phil Dawson provides technical services for a global auto manufacturer. He, his sweetheart Donna and their four extraordinary daughters live in and around Jarrettsville, Maryland. His previous blogs were Course Correction, A Thanksgiving Prayer and Life After Amazon. You can contact Phil via LinkedIn. THE TYPICAL U.S. homeowner is 55 years old and has lived for 14 years in a home built in 1978, reports the National Association of Realtors. Some 64% of U.S. families own their primary residence.
NO. 12: WE SHOULD focus less on the odds of something happening and more on the consequences. We likely won’t die during our working years. But if we did, how would our family cope?
NO. 7: GREAT RETURNS are a bad reason to save less. Thanks to strong investment performance, you may be closer than expected to your target nest egg. But if the markets have raced ahead of underlying fundamentals, the big returns may have effectively borrowed from the future, weaker results might lie ahead—and saving less could imperil your goals.
ADD UP YOUR FIXED living costs. Include mortgage or rent, car payments, property taxes, insurance premiums and other recurring monthly expenses. How long could you cover these costs if you lost your job? Are these expenses so high you find it tough to save—and suffer constant financial stress? Our advice: Keep fixed costs below 50% of pretax monthly income.
EFFICIENT FRONTIER. What mix of investments offers the highest expected return for a given level of risk—or the lowest risk for a target return? In theory, these optimal portfolios can be found on the so-called efficient frontier. Their key characteristic: broad diversification, thus reducing volatility by combining investments that don’t always move in sync.
MOST OF US want to help our children financially. But we also want to avoid thwarting their ambition or unintentionally instilling bad money habits. And, no, this isn’t just a problem for the wealthy: All too many kids who grow up in middle-class households end up as financially irresponsible adults.
How can we avoid that fate, while still helping our children financially? Below are five strategies. The first three are cost-free and the other two don’t necessarily require serious sums of money:
1.
DESPITE MY independent nature, I called family and friends after my injury. I thanked them for what they’d already done following my husband’s death—and requested additional, more intensive support.
One aunt, a government employee, arranged to work for a week at a nearby federal building. My sister-in-law also came for a week, and a cousin who is a nurse volunteered, too. A professional colleague parked her RV in the driveway and brought along her friendly pooch.
BEATING THE STOCK market over the long term is no mean feat. Only a tiny proportion of investors—professional or otherwise—manage to do it. So why do so many people think they can?
Meir Statman, a finance professor at Santa Clara University, cites eight key reasons. In a new monograph titled Behavioral Finance: The Second Generation, he slots these reasons into two broad categories—five cognitive and emotional errors, followed by three expressive and emotional benefits:
1.
“THE INVESTOR’S CHIEF problem—even his worst enemy—is likely himself.” So wrote Benjamin Graham, the father of modern investment analysis.
With these words, written in 1949, Graham acknowledged the reality that investors are human. Though he had written an 800-page book on techniques to analyze stocks and bonds, Graham understood that investing is as much about human psychology as it is about numerical analysis.
In the decades since Graham’s passing, an entire field has emerged at the intersection of psychology and finance.
I USED TO THINK anybody could be taught to manage money sensibly. I no longer believe that.
When I was in my 20s and scraping by on a junior reporter’s salary, I had some sense for the financial stress suffered by everyday Americans. But after a handful of years of diligently saving, I was able to escape those daily worries. Many Americans, alas, never do.
This was hammered home when I recently took the financial well-being questionnaire offered by the Consumer Financial Protection Bureau (CFPB).
I HAVE NEVER broken a New Year’s resolution—because, until this year, I’ve never made one. But now that I’m retired, with time on my hands, I figure my wife and I ought to challenge ourselves with 10 financial resolutions for 2020:
We’ll continually monitor routine spending with the goal of reducing or eliminating at least half-a-dozen expenses this year. That’s one every two months. Phone companies, internet providers and insurers, be warned: Here we come.
THE TYPICAL U.S. homeowner is 55 years old and has lived for 14 years in a home built in 1978, reports the National Association of Realtors. Some 64% of U.S. families own their primary residence.
NO. 12: WE SHOULD focus less on the odds of something happening and more on the consequences. We likely won’t die during our working years. But if we did, how would our family cope?
ADD UP YOUR FIXED living costs. Include mortgage or rent, car payments, property taxes, insurance premiums and other recurring monthly expenses. How long could you cover these costs if you lost your job? Are these expenses so high you find it tough to save—and suffer constant financial stress? Our advice: Keep fixed costs below 50% of pretax monthly income.
NO. 7: GREAT RETURNS are a bad reason to save less. Thanks to strong investment performance, you may be closer than expected to your target nest egg. But if the markets have raced ahead of underlying fundamentals, the big returns may have effectively borrowed from the future, weaker results might lie ahead—and saving less could imperil your goals.
EFFICIENT FRONTIER. What mix of investments offers the highest expected return for a given level of risk—or the lowest risk for a target return? In theory, these optimal portfolios can be found on the so-called efficient frontier. Their key characteristic: broad diversification, thus reducing volatility by combining investments that don’t always move in sync.
When not paddling, biking or shooting, Phil Dawson provides technical services for a global auto manufacturer. He, his sweetheart Donna and their four extraordinary daughters live in and around Jarrettsville, Maryland. His previous blogs were Course Correction, A Thanksgiving Prayer and Life After Amazon. You can contact Phil via LinkedIn.