No Worries

Jonathan Clements

ONE OF MY GOALS is not to think about money. This might sound odd coming from someone who has written about money for 34 years, runs a financial website and, indeed, wrote a book entitled How to Think About Money. So let me clarify: I’m happy to think about money in general. I’m even happy to think about your money. I just don’t want to think about my own.

I used to think about my finances all the time. In my 20s, when I was living on a junior reporter’s salary, married to a PhD student and raising two children, money was a constant preoccupation. What expenses were coming up? How could I cut costs? Where could I find a few bucks to invest? Did we have enough for pizza on Friday night?

Needless to say, this was not a great way to live.

Three decades later, I rarely think about my own money—and I consider that a great luxury. I spend as I wish. I rarely look at my investment portfolio. Admittedly, I don’t have many material desires and I have a balanced portfolio of index funds, so there’s not much reason to worry about either my spending or my portfolio’s performance.

But isn’t that the key? We should all strive to live beneath our means and settle on an investment strategy we’re comfortable with. Indeed, in the past, I’ve argued that a key reason to amass money is so we don’t have to worry about money.

The analogy I frequently use is our health. It’s only when we’re sick that we realize how great it is to feel healthy. Similarly, it’s only when we’re financially stressed that we realize how great it is to be in good financial shape.

The good news is, it may not take much to relieve a significant part of this stress—perhaps a small buffer of savings, no credit card debt and paying the bills on time. I’ve come to think of this as one of life’s great tradeoffs: In return for a little less spending each day, we can achieve a notable boost in our long-term happiness.

As we strive to think less about money, two strategies can help. First, we should automate as much of our financial life as possible, including both our bill paying and our regular savings.

Second, we should consider the simplicity of target-date retirement funds, especially those from Fidelity Investments, Charles Schwab and Vanguard Group that are built using index funds. These won’t necessarily give each of us the perfectly tailored, most tax-efficient, lowest-cost portfolio. But most of us can likely find a target-date index fund that’s pretty close to our desired portfolio—and owning just a single investment, which performs relatively sedately, may bring notable calm to our investment life.

But even if we live well within our means, automate our financial life, hold a cushion of cash and stick with a single target-date fund, there’s still the human element. Yes, we need to control what we can. But we also need to accept what we can’t control—and that’s awfully tough for many folks.

One way or another, we need to make our peace with the world of money, including fretting less about market turmoil, the financial setbacks we encounter, and how our income and net worth compares to others. That peace of mind, I suspect, only comes with age. If we adopt strategies designed to minimize our worries, our thinking will—fingers crossed—eventually catch up with our financial life.

Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Pay It Down, Saving Ourselves and Whither Vanguard. Also check out The Bonds That Gag, Jonathan’s new article for Creative Planning, where he sits on the advisory board and investment  committee. His latest books: From Here to Financial Happiness and How to Think About Money.

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3 years ago

I am about 2.5 years away from retirement and have put all of my wife and my retirement funds in Target Retirement Income, 30 stocks and 70 fixed income. Not sure if this is aggressive enough for the rest of our lives but it really helps when markets get hammered. I slept fine last night and was not worried about the markets yesterday. I do fear sequence of returns risk and do not want to watch our accounts dropping 30-50% as we start retirement. We will have my Federal employee pension and Social Security (hopefully) in addition to our savings.

3 years ago
Reply to  Michael

Congrats on your upcoming Federal retirement! Something else you might want to consider: as a Federal employee in the FERS retirement system, if you can hang on and work ’til age 62 vs quitting at age 60, your pension will get an automatic 12% boost for that extra 2 years. Plus, keep in mind that your pension won’t get a COLA adjustment until 62. So that will be another boost on top of that 12%.

3 years ago
Reply to  wtfwjtd

I’d like to hang in until 62. We’ll see how it goes.

3 years ago

I know it’s off topic, and many may not see a comment on a four day old article, but I just wanted to call out the Bonds That Gag article, linked above in the bio. This in particular struck me:

“If that inverted yield curve does foreshadow a recession, share prices will almost certainly decline. To revive the economy, the Federal Reserve will respond by slashing short-term interest rates, and today’s plump money-market fund yields will promptly disappear. With stocks suffering and money market fund yields plunging, what will save the performance of our portfolios? You guessed it: As interest rates drop, those much-hated bonds will ride to our portfolios’ rescue.”

Most of my fixed income allocation is actually in cash. I was reading the article thinking yes, but my stable value fund does even better than a money market, so can somewhat take the place of unpredictable bonds. A money market or stable value is always there, with the benefit that it will neither zig nor zag with the market. The bond difference is that it can do both, for better or worse. The particular reason to hold them even over a high(er) yielding stable value fund seems to be the tendency to do so in opposite directions from stocks – which I don’t completely have my head around, but the above comment helps bring out.

Editing to say one reads a lot about how bonds often zig when stocks zag, but I’ve never seen the useful point above about one way that can happen.

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