What Is the Biggest Threat to Financial Security?

What Is the Biggest Threat to Financial Security?

One especially curious phenomenon deeply impacts the financial decisions we make. We are all affected by it. No one is immune to it, including myself. It is commonly known as “keeping up with the Joneses.” The Danger of Comparison We enter dangerous ground when we care more about what others think of us than we care about doing what is right for ourselves and our families. This is a slippery slope that can ruin us financially because we can never be completely satisfied that we are impressing everyone around us. We will always be able to find someone who has more and better things than we do. The sad news is that even if we spend every last penny to impress others, most of the people we are trying to impress may never even notice. Most people do not care about our image as much as we think they do. Think about it. How much time do you spend thinking about how idiotic someone is because they drive a junky old car or how awesome another person is because they live in a mansion? If you notice at all, I suspect you may give it a fleeting thought for a few seconds, and then you move on to focus on what you are trying to accomplish. No one is really paying much attention to our possessions. They are all too busy worrying about themselves. If we do have friends who make fun of us for not buying all the expensive toys they have, maybe we shouldn’t hang out with them so much. Many reckless spenders poke at frugal people...
Interdependent Financial Decisions

Interdependent Financial Decisions

Each category of our finances is interdependent, not independent of one another. This means that every decision we make in one category really does impact the other categories, whether or not we realize it. Examples of Financial Interdependence How? If I were at fault in a serious automobile accident and did not have adequate insurance, I may be required to liquidate a significant amount of my investments to satisfy a judgment. The court may also decide to garnish my wages for several years, which might require me to wait much longer to retire or prohibit me from ever retiring. It may also reduce my current standard of living or increase my debt. So what does car insurance, which on the surface appears to be only a protection decision, have to do with my assets, liabilities, and cash flow? Everything! Let’s say I’m the employee of a large corporation and I’m asking my HR director whether or not I should sign up for the company’s 401(k) retirement plan. The HR director probably would not even be allowed to ask about my mortgage payment, liquid savings, credit card debt, or taxes. However, would these questions be relevant to my decision whether to invest in a 401(k) and how much to contribute? Absolutely. What if I only have $1,000 in liquid savings and my monthly mortgage payment is 30% of my gross monthly income? I may be better off putting the money in a liquid savings account to cover unexpected emergencies or unemployment, because I may not be able access my 401(k) for these purposes without significant penalties. What if I have...
The Best Gifts

The Best Gifts

Giving gifts during the holidays is a wonderful tradition that can help unite families and friends. When we give in the right spirit, we remember that giving can be even more joyous than receiving. With all this love and generosity in the air, why do we often feel so much stress and financial strain this time of year? Could it be that we focus a little too much on trying to fulfill everyone’s expectations – or at least our perception of their expectations – rather than truly giving from our hearts? Of course, we all want to find the perfect gifts for our loved ones because we want to maximize their happiness and minimize their disappointment. It’s nice to have some idea of what people would like, but where’s the fun in simply picking from a list of never-ending “pre-ordered” items, especially when you know there’s no way you could buy even half of what’s on the list and still call yourself a prudent parent or grandparent! Be a Detective Giving meaningful gifts doesn’t have to cost a fortune, and can be a lot more fun if you think of yourself more as a detective than an order taker. If we pay enough attention over time, we can easily discover on our own what would be the perfect gifts for our loved ones without even asking them. Then they will be a lot more surprised (and hopefully more delighted) at what they get, and we might even get away with not spending so much money on junk they don’t need, and probably won’t even want after the holidays. Just...
The Election’s Impact on the Market

The Election’s Impact on the Market

For better or for worse, the suspense is finally over and our next president has been elected. Whether you are shouting for joy or crying your eyes out, what does this all mean for the stock market? Many people are shocked that Donald Trump won. Based on concerns we’ve heard about how this election would affect the market, many people are probably just as shocked that the Dow Jones Industrial Average jumped up 1.4 percent (256 points) the day after the election, and the S&P 500 rose 1.1%. A lot of people were expecting a big drop in the market because that’s exactly what happened after the past two elections. Could it be that after the past two elections the market was reacting negatively to news that our next president would be a Democrat, and that now the market is reacting positively to the election of a Republican? Don’t count on it. The market fell the day after George W. Bush was elected in 2000, and it rose the day after the re-election of Bill Clinton in 1996. Historically, there has been no predictable impact on the market based on whether a Republican or Democrat takes office in the White House. Furthermore, the day after the election gives no indication as to how the market will perform over the next 12 months. In fact, although the S&P 500 dropped 5 percent the day after Barack Obama won the presidency in 2008, over the course of the following 12 months the S&P 500 gained 26%. In 2012, the swing was even more dramatic, losing 3% the day after the election,...
More Money, More Stuff? Don’t Count on More Happiness

More Money, More Stuff? Don’t Count on More Happiness

By Carl Richards What is the one thing that, if you could just get your hands on it, would make you much happier? Go ahead. Get out a piece of paper and write down the first thing that pops into your head. Got it? O.K., now fess up. Who wrote something about a new car? How about a promotion? A bigger house? A raise? A yacht? But if you wrote down almost anything at all (except a wish for deeper and more long-lasting relationships), you’re probably wrong. It turns out that happiness doesn’t come from more money, more stuff or even big life events like getting a raise or landing that dream job. A study from the 1970s by Philip Brickman, Dan Coates and Ronnie Janoff-Bulman for the Journal of Personality and Social Psychology even found that lottery winners took less satisfaction than nonlottery winners in everyday events, and in general, they were not any happier than those who didn’t win the lottery. If winning the lottery doesn’t bring happiness, how likely is it that a new boat will? Not long after my wife and I married, we were walking around in a Salt Lake City park, superexcited to be newlyweds and with big dreams about the future. We started talking about money. While I can’t recall the exact number, I do remember saying something like, “If I can just make X dollars, we’ll be so much happier.” It seems so shallow to think that some thing or number will make me happier. But then I realize how often I have heard others say it, too. Even more common...