IN THE 1990s, when I started working fulltime, conventional wisdom suggested two possible routes to a comfortable retirement: Find a public sector job that offered a traditional pension plan or, alternatively, join the private sector and set aside 10% of my salary each year in my employer’s 401(k) plan. I was led to believe that if I followed either recommendation, I could sit back, let compound interest do its magic and achieve a financially secure retirement.
IMAGINE YOU HAD one shot at offering financial advice to a high school or college graduate. Your mission: Come up with 10 rules that’ll help your graduate succeed financially in the years ahead. What would you recommend? Here’s my list:
1. Question yourself. No doubt you’re entering the adult world with a slew of strong opinions—about what you want from life, what will make you happy, what you’re good at, what constitutes success and how to achieve it.
I LIKE LEARNING from successful people. If you want to be good at something, why not hear from somebody who’s actually done it?
Back when it was first published, I read The Millionaire Next Door and became fascinated with these folks. Over the next couple of decades, I applied the book’s teachings and eventually reached millionaire status myself.
Along the way, I started writing about personal finance, combining my interest in millionaires with my passion for learning from experts.
WHILE TALKING recently to an estate-planning client about investments costs, she showed me a letter from her financial advisor stating that he charges her 1% of assets a year. Maureen didn’t understand that she also pays each mutual fund’s annual expenses, a portion of which is also paid to her advisor. Her fund expense ratios average 1.14%, which includes a 0.25% 12b‑1 fee that her advisor pockets. Result: Maureen’s total cost is 2.14% a year,
NO DOUBT YOU would draw up a somewhat different list. But here’s what I consider life’s greatest pleasures:
Talking to my wife over a glass of wine at the end of the day
Losing myself for a few hours in an interesting piece of work
Walking in nature
Spending time with my kids
Waking up after a great night’s sleep
Knowing I did the right thing
Wrapping up work on a Friday
A raucous dinner party
Feeling physically spent after a good workout
Finally sorting out a long-simmering problem
Taking a nap
Ending the day with a sense of accomplishment
MY SISTER JUST HAD A BABY, our family’s first grandchild. That officially makes me a PANK: a Professional Aunt, No Kids. This often-overlooked demographic takes an active role in the lives of children they’re close to. They spend not only time, but also money: 76% of PANKs lavish more than $500 a year on each of their nieces and nephews, resulting in some $9 billion in annual purchases.
The opportunity to buy adorable items for baby Henrik is not lost on me.
MY FAVORITE DIVORCE QUOTE, if one can have such a thing, comes from comedian Louis C.K.: “No good marriage has ever ended in divorce. If your friend got divorced, it means things were bad. And now, they’re better.”
For myself, these words certainly ring true. But “better” comes at a price: Being a divorced, middle-aged woman means looking at financial matters from a different perspective than my married friends. Since I no longer have a spouse,
YOU CAN BUILD a great portfolio with just three index funds: a U.S. total stock market fund, an international fund that buys both developed and emerging stock markets, and a high-quality U.S. bond fund. Thanks to the ongoing price war among major index-fund providers, all three funds are now on offer at extraordinarily low annual expenses.
Below are some of the funds available, with their expenses listed in parentheses. These figures come from fund company websites or a fund’s latest annual report:
MY WIFE AND I just got from two weeks of travel through Vietnam and Cambodia. For us, traveling strengthens our relationship and reminds us what we want in life. International travel is a luxury—there’s no doubt about it—but it’s also a meaningful experience that is easier to afford if you follow some basic principles before crossing oceans or international borders:
1. Save in advance. Before booking a trip, take the time to build up the funds needed to cover your expected costs.
AS I PREPARED to retire at the relatively young age of 55, it was important to me not to become isolated, not to lose touch with the world beyond my home. My husband continues to work, leaving me on my own for much of the day. I consider myself a social person. All my jobs have involved working with employees and customers, from my first job as a delicatessen cashier through to running my own landscape maintenance company with 25 employees and hundreds of accounts.
MOST OF US WILL never be fabulously wealthy and we’ll never earn huge incomes. Self-help authors, get-rich-quick seminars and motivational speakers might try to convince us otherwise. But if we turn to these folks for assistance, they’re the ones who typically make heaps of money—at our expense.
Such hucksterism doesn’t just carry a short-term cost, however. It also causes us to think about our lives in the wrong way, leaving us with an unwarranted sense of failure and distracting us from the right path forward.
OUR STANDARD of living has more than doubled over the past four decades. Has all that extra money bought happiness? Not a chance. In 1972, 30% of Americans described themselves as “very happy.” As of 2016, we’re still at 30%, according to the latest General Social Survey.
Over the 44 years, there was a slight uptick in those describing themselves as “pretty happy” and a tiny decline in those who said they were “not too happy,”
A FEW MONTHS ago, my retirement account hit a milestone—$250,000. I’d been looking forward to achieving “quarter-millionaire” status for a while, so when it finally happened, I decided to announce it on social media. I took a photo of my computer screen, with the value of my account highlighted, and uploaded the photo. Just as I prepared to make the post public, I decided to obscure the actual balance and edit the text to say my account had reached a “new personal record,” instead of revealing the specific amount.
AS INVESTORS FLOCK to stocks in search of heady returns, this is a good time to think about risk. Remember, nobody has a clue how stocks will perform over the short-term, so it’s best to focus on things we can control—namely investment costs, taxes, risk and our savings rate.
Short-term risk is often assessed using beta and standard deviation. I just added a section on those two volatility measures to HumbleDollar’s money guide. While researching the new section,
AS A CHILD, I thought my father had a memory problem. He had a habit of repeating stories and sayings. It made me feel sad, until I figured out it was intentional. He didn’t believe in bells: School was never out.
“Make it a habit to keep and grow some of the money you make,” was one of Dad’s sayings. I was reminded of it recently, after reading that seven out of 10 Americans have less than $1,000 in their savings account—the sort of place you might turn if you have a financial emergency.