FREE NEWSLETTER

Why do we save so little? We overestimate the happiness from spending. But with any luck, repeated disappointments will bring wisdom.

45 Steps to Success

WHAT DOES a good financial life look like? Here’s a quixotic roadmap—comprised of 45 steps:

Stuff part of your babysitting or lawn mowing money in a Roth IRA. Suggest to your parents that they should encourage this sort of behavior—by subsidizing your contributions.
Get a credit card when you head off to college, charge $5 every month and always pay off the balance in full and on time. You’ll soon have an impressive credit score.

Read more »

Applying Pressure

TO BORROW from the movie Casablanca, we are all “shocked, shocked” at the college admissions scandal recently uncovered by the FBI. We are seemingly united in condemning the extremes that these wealthy—and sometimes famous—parents went to, as they sought college admission for their children. We’re talking fraudulent inclusion on sports teams, submitting fake standardized test scores and outright bribery.
But the idea of parents gaming the system for their child’s benefit is nothing new to those of us in high school education.

Read more »

Beefing Up Security

MANY OF US have little more than a weak, reused password standing between our financial assets and a remote attacker—one armed with powerful tools and a database of passwords from security breaches. This is a losing battle. It’s the most likely way for weak computer security to put our finances at risk.
Think this can’t happen to you? I’ll bet you have at least one password taken in a big security breach. A quick way to find out is entering your email address at Troy Hunt’s HaveIBeenPwned site.

Read more »

What I Value

A WAR IS RAGING. On one side of this conflict is the individual and, on the other, society and culture. To the victor goes your attention and your money.
I submit you’ll win through intentionality—and you’ll lose if you let society determine what’s of greatest value to you. I was on the losing side for many years.
As an undergraduate, I thought I wanted to be a lawyer. Why? Not because I had a deep passion for the law.

Read more »

Bracketology

EVERY YEAR, the NCAA basketball season concludes with the March Madness playoffs. Many Americans engage in bracketology—trying to figure out which teams will get knocked out in each round and which will advance. Warren Buffett even offers an annual bracket-picking challenge, where Berkshire employees can win $1 million a year for life.
This year, however, Americans with substantial retirement accounts might also want to try another form of bracketology: studying the 2017 tax law—and asking whether it offers a unique opportunity to convert hefty amounts of traditional IRA money to a Roth IRA.

Read more »

Head Games

AS I DRIVE around town these days, I notice a lot of cars with temporary license plates—an indication they were recently purchased. What’s the reason? When I turn on the TV, I see a commercial for a local car dealership that’s offering to accept your tax refund as the down payment on a new car. Now it starts to make sense.
The dealership knows consumers are about to receive an influx of cash. It wants to make it as painless as possible to buy a new car.

Read more »

Money Guide

Future Value

WHEN YOU ESTIMATE how much a dollar today will be worth in the future, or how much a series of regular deposits will be worth in the future, you’re calculating a future value. But sometimes, you’ll want to reverse engineer this calculation.

Read more »

Numbers

AMONG THOSE ages 23 to 38 who have had student loans, 73% have delayed one or more major financial milestones, found a Bankrate survey. This includes saving for emergencies (38%), buying a home (31%) and saving for retirement (25%).

Newsletter

Got to Believe

AS I’VE BUILT out HumbleDollar.com over the past few years, I’ve come to view the site not merely as a place where folks can learn about financial issues, but as a community that thinks about money in a unique way.
This shows up repeatedly in articles from guest contributors, with their focus on topics like spending thoughtfully, helping family, behavioral finance, indexing and achieving financial freedom. It’s a community where folks are trying to be rational about money,

Read More »

Archive

What It Takes

SAVING DILIGENTLY sounds like such a rudimentary skill that it gets scant respect. Who couldn’t spend 10% or 15% less than they earn, so they set aside a little money for the future? And yet the U.S. savings rate remains miserably low and many folks are pitifully ill-prepared for retirement. The reality: Saving money may be simple but, clearly, it isn’t easy. What does it take? Here are six key ingredients. 1. There’s the obvious: We need an income. The more we earn, the easier it should be to save. But it doesn’t always work out that way. I have met many folks with modest incomes who sock away impressive sums, and others with fat paychecks who manage to save very little. 2. Low fixed costs. Why do many families fail to save? Often, they simply can’t, because they’ve boxed themselves in with a litany of monthly fixed costs, everything from mortgage payments to insurance premiums to recurring fees for phone, internet, cable, music streaming and more. Result: They have so little financial wiggle room that it’s almost impossible to save. 3. Self-control. Even with low fixed costs, saving can be a struggle, because temptation abounds. When something catches our eye, we need to squash the impulse to immediately open our wallet. By delaying gratification, we’ll have time to consider whether it’s truly money well-spent. For some, this is easy. For many, it’s hard—in the same way it’s hard to eat less and exercise more. For instance, if I’ve had a long day banging away at the computer keyboard, I’ll often forget all my good intentions, and reward myself with some unhealthy food and a glass or two of wine. For others, spending serves the same purpose. It makes them feel better in the moment, even if they won’t feel good when the credit card bill arrives. 4. An aversion to financial stress. Spending may give us a short-term thrill. But excessive spending can also lead to ongoing financial stress, as we discover we can’t pay the credit card bill and maybe not even the rent. As we come to appreciate how terrible that stress can be and how great it feels to have our finances under control, spending can lose its allure. 5. Self-reflection. When we’re young, it isn’t surprising that we spend too much on items that deliver little happiness. We simply haven’t had time to learn from experience. But as the spending disappointments pile up, we gradually come to appreciate how little happiness we receive from our purchases. Self-control is no longer a problem, because the goodies no longer seem tantalizing. The sooner we get to this point, the easier it’ll be to lasso our spending and get on the right financial track. 6. A fondness for our future self. If we spend money today, we can’t spend it tomorrow, let alone in 30 years. If we’re rational, we would care more about the future when we’re younger, because there’s potentially so many years ahead of us. But ironically, it seems our concern for our future self grows as we get older.
Read more »

Manifesto

NO. 31: WE SHOULD plan for returns below the historical averages. Today’s rich stock valuations and modest bond yields don’t guarantee low returns—but it’s prudent to assume that’s what we’ll get.

Truths

NO. 67: MOST MUTUAL funds are sector bets. Funds often aim for style purity, sticking with just one stock- or bond-market niche. To gauge whether a fund is any good, compare it to others in the same category. But to build a diversified portfolio, buy just one or two funds from any given category—and diversify with funds from other categories.

Act

SET UP A HOME equity line of credit. These have lost some of their allure under the 2017 tax law, because you can only deduct the interest if it’s used to buy, build or substantially improve your home. Still, a HELOC is one of the cheaper ways to borrow, and it could come in handy if you have a financial emergency or as an alternative to education and car loans.

Think

NET WORTH. To calculate our wealth, we need to add up our assets and then subtract all debts. What counts as an asset? Include financial accounts and any homes you own. Ignore cars and household possessions, because these depreciate over time—and they typically can’t be sold, because you can’t reasonably live without them.

About Jonathan

Jonathan Clements

HumbleDollar is edited by Jonathan Clements, former personal finance columnist for The Wall Street Journal.

Home Call to Action

45 Steps to Success

WHAT DOES a good financial life look like? Here’s a quixotic roadmap—comprised of 45 steps:

Stuff part of your babysitting or lawn mowing money in a Roth IRA. Suggest to your parents that they should encourage this sort of behavior—by subsidizing your contributions.
Get a credit card when you head off to college, charge $5 every month and always pay off the balance in full and on time. You’ll soon have an impressive credit score.

Read more »

Applying Pressure

TO BORROW from the movie Casablanca, we are all “shocked, shocked” at the college admissions scandal recently uncovered by the FBI. We are seemingly united in condemning the extremes that these wealthy—and sometimes famous—parents went to, as they sought college admission for their children. We’re talking fraudulent inclusion on sports teams, submitting fake standardized test scores and outright bribery.
But the idea of parents gaming the system for their child’s benefit is nothing new to those of us in high school education.

Read more »

Beefing Up Security

MANY OF US have little more than a weak, reused password standing between our financial assets and a remote attacker—one armed with powerful tools and a database of passwords from security breaches. This is a losing battle. It’s the most likely way for weak computer security to put our finances at risk.
Think this can’t happen to you? I’ll bet you have at least one password taken in a big security breach. A quick way to find out is entering your email address at Troy Hunt’s HaveIBeenPwned site.

Read more »

What I Value

A WAR IS RAGING. On one side of this conflict is the individual and, on the other, society and culture. To the victor goes your attention and your money.
I submit you’ll win through intentionality—and you’ll lose if you let society determine what’s of greatest value to you. I was on the losing side for many years.
As an undergraduate, I thought I wanted to be a lawyer. Why? Not because I had a deep passion for the law.

Read more »

Bracketology

EVERY YEAR, the NCAA basketball season concludes with the March Madness playoffs. Many Americans engage in bracketology—trying to figure out which teams will get knocked out in each round and which will advance. Warren Buffett even offers an annual bracket-picking challenge, where Berkshire employees can win $1 million a year for life.
This year, however, Americans with substantial retirement accounts might also want to try another form of bracketology: studying the 2017 tax law—and asking whether it offers a unique opportunity to convert hefty amounts of traditional IRA money to a Roth IRA.

Read more »

Head Games

AS I DRIVE around town these days, I notice a lot of cars with temporary license plates—an indication they were recently purchased. What’s the reason? When I turn on the TV, I see a commercial for a local car dealership that’s offering to accept your tax refund as the down payment on a new car. Now it starts to make sense.
The dealership knows consumers are about to receive an influx of cash. It wants to make it as painless as possible to buy a new car.

Read more »

Numbers

AMONG THOSE ages 23 to 38 who have had student loans, 73% have delayed one or more major financial milestones, found a Bankrate survey. This includes saving for emergencies (38%), buying a home (31%) and saving for retirement (25%).

Manifesto

NO. 31: WE SHOULD plan for returns below the historical averages. Today’s rich stock valuations and modest bond yields don’t guarantee low returns—but it’s prudent to assume that’s what we’ll get.

Act

SET UP A HOME equity line of credit. These have lost some of their allure under the 2017 tax law, because you can only deduct the interest if it’s used to buy, build or substantially improve your home. Still, a HELOC is one of the cheaper ways to borrow, and it could come in handy if you have a financial emergency or as an alternative to education and car loans.

Truths

NO. 67: MOST MUTUAL funds are sector bets. Funds often aim for style purity, sticking with just one stock- or bond-market niche. To gauge whether a fund is any good, compare it to others in the same category. But to build a diversified portfolio, buy just one or two funds from any given category—and diversify with funds from other categories.

Think

NET WORTH. To calculate our wealth, we need to add up our assets and then subtract all debts. What counts as an asset? Include financial accounts and any homes you own. Ignore cars and household possessions, because these depreciate over time—and they typically can’t be sold, because you can’t reasonably live without them.

Home Call to Action

Free Newsletter

Got to Believe

AS I’VE BUILT out HumbleDollar.com over the past few years, I’ve come to view the site not merely as a place where folks can learn about financial issues, but as a community that thinks about money in a unique way.
This shows up repeatedly in articles from guest contributors, with their focus on topics like spending thoughtfully, helping family, behavioral finance, indexing and achieving financial freedom. It’s a community where folks are trying to be rational about money,

Read More »

Money Guide

Start Here

Future Value

WHEN YOU ESTIMATE how much a dollar today will be worth in the future, or how much a series of regular deposits will be worth in the future, you’re calculating a future value. But sometimes, you’ll want to reverse engineer this calculation.

Read more »

Archive

What It Takes

SAVING DILIGENTLY sounds like such a rudimentary skill that it gets scant respect. Who couldn’t spend 10% or 15% less than they earn, so they set aside a little money for the future? And yet the U.S. savings rate remains miserably low and many folks are pitifully ill-prepared for retirement. The reality: Saving money may be simple but, clearly, it isn’t easy. What does it take? Here are six key ingredients. 1. There’s the obvious: We need an income. The more we earn, the easier it should be to save. But it doesn’t always work out that way. I have met many folks with modest incomes who sock away impressive sums, and others with fat paychecks who manage to save very little. 2. Low fixed costs. Why do many families fail to save? Often, they simply can’t, because they’ve boxed themselves in with a litany of monthly fixed costs, everything from mortgage payments to insurance premiums to recurring fees for phone, internet, cable, music streaming and more. Result: They have so little financial wiggle room that it’s almost impossible to save. 3. Self-control. Even with low fixed costs, saving can be a struggle, because temptation abounds. When something catches our eye, we need to squash the impulse to immediately open our wallet. By delaying gratification, we’ll have time to consider whether it’s truly money well-spent. For some, this is easy. For many, it’s hard—in the same way it’s hard to eat less and exercise more. For instance, if I’ve had a long day banging away at the computer keyboard, I’ll often forget all my good intentions, and reward myself with some unhealthy food and a glass or two of wine. For others, spending serves the same purpose. It makes them feel better in the moment, even if they won’t feel good when the credit card bill arrives. 4. An aversion to financial stress. Spending may give us a short-term thrill. But excessive spending can also lead to ongoing financial stress, as we discover we can’t pay the credit card bill and maybe not even the rent. As we come to appreciate how terrible that stress can be and how great it feels to have our finances under control, spending can lose its allure. 5. Self-reflection. When we’re young, it isn’t surprising that we spend too much on items that deliver little happiness. We simply haven’t had time to learn from experience. But as the spending disappointments pile up, we gradually come to appreciate how little happiness we receive from our purchases. Self-control is no longer a problem, because the goodies no longer seem tantalizing. The sooner we get to this point, the easier it’ll be to lasso our spending and get on the right financial track. 6. A fondness for our future self. If we spend money today, we can’t spend it tomorrow, let alone in 30 years. If we’re rational, we would care more about the future when we’re younger, because there’s potentially so many years ahead of us. But ironically, it seems our concern for our future self grows as we get older.
Read more »
Jonathan Clements

About Jonathan

HumbleDollar is edited by Jonathan Clements, former personal finance columnist for The Wall Street Journal.