Tag Archives: personal finance

Putting Fun Into Finance

Can personal finance be fun?

Photo: Melodi2. Source: Morguefile

For most of us, money matters are unpleasant. They involve budget issues and trade-offs and hard choices that frustrate everyone. So we need to encourage ourselves, to set up some kind of incentive program.

For example, estate planners say you should update your will every three years or so. So: think about what would be a special treat—like eating at a favorite restaurant, or going to a special show—and reward yourself when you update your plan. Similarly, you should look at how you are doing against your budget quarterly. Find a special activity that you can look forward to, and treat yourself when you do a review. (Just be sure it doesn’t break the budget.)

This may seem hokey, but it works. We like to do things that are fun for us, and we avoid the stuff that’s unpleasant. If couples fight over money, they tend to avoid dealing with those issues, which usually makes any problem worse. If they can find some way to make money matters less daunting or more enjoyable, they’ll probably address these problems more faithfully.

Photo: Pexels. Source: Pixabay

Not everyone finds balance sheets and cash-flow statements boring or intimidating, (although most folks do). But everyone responds to incentives. By encouraging ourselves to act responsibly, personal finances can change from being a chore to being something to cheer.

Douglas R. Tengdin, CFA

High (Financial) Anxiety

Do your finances keep you up at night?

Photo: Bhoj Rai. Source: Unsplash

Researchers have found that folks often fall into six common errors when they deal with their money: risk-takers, hoarders, retail-therapists, cash-splashers, controllers, and avoiders. Each of these mistakes is avoidable – and they typically stem from personal issues that have little or nothing to do with money. Instead, they may be compensating for some personal needs they have.

Risk takers have a bias towards action. Given a choice between waiting and doing, they almost always choose to do something. They tend to be overconfident, and trade frequently. Paradoxically, they don’t usually measure their performance in any tangible way. That’s because they’re focused on the next opportunity, rather than learning from the past. Trading fires up the endorphins in our brain; it can be addictive.

For hoarders, money represents security. They often stockpile cash rather than invest it. If they were raised at a time when money was tight, they may find security in a large bank account. While we all need an emergency fund, there’s no reason to let cash build up excessively. At a time when interest on bank deposits doesn’t even equal inflation, the real value of cash is steadily eroding.

Retail-therapists feel good about shopping: shopping makes them happy. They don’t even have to buy things for themselves. Just pulling out their credit card can boost their self-esteem. At the extremes, these folks resemble alcoholics—stashing bags of new purchases around the house, the way problem drinkers stash empty bottles. Both women and men can indulge themselves this way. These folks often end up with debt problems.

Cash-splashers are conspicuous consumers, and it’s the having, not the getting, that’s the thrill. They are likely to wave their checkbooks at charity auctions, and spend money on visible, frivolous things. They’re unlikely to quietly go to the front of a restaurant and quietly cover the tab. Rather, they’ll make an announcement that the meal is on them. Often, these people are motivated by wanting to be admired. But there’s nothing admirable about showing off.

Public Domain. Source: Pixabay

Controllers are obsessive about bank balances, credit card points, and comparison shopping sites. They want to keep on top of money matters, but sometimes this is because they have lost control in other areas of their lives. And – let’s face it – life can be unpredictable. While keeping on top of money matters is a good thing, controllers can make it too much of a good thing.

Finally, there are the avoiders: ostriches who bury their heads in the sand. Bills and bank statements lie unopened. Either they are easily distracted, or they don’t want to decide, because making no decision is always easier than the possibility of making the wrong decision.

The way to break out of these habits is to have a plan and stick to it. Start by keeping a money journal, and make entries for purchases and investments. Work into it gradually, starting by reviewing your finances for a half hour every week or so. This may be like shock therapy to a controller, but the rest of the people on this list need to address – not avoid – their money issues. Ultimately, you want to have a budget – one that includes long-term investments, as well as categories for day-to-day spending.

Photo: Michael Jarmoluk. Source: Pixabay

Because the most meaningful things for us come from experiences we share. And they don’t have to be expensive – like going to the park or the library with kids, or cooking a meal for friends. As Art Buchwald – the political columnist and satirist – once said, the best things in life aren’t things.

Douglas R. Tengdin, CFA

Chief Investment Officer

On Financial Advice

Where do you go for financial advice?

Photo: A Livmann. Source: Morgufile

Financial advice is tricky. There’s lots of TV shows and news shows touting the next hot stock, lots of specialized jargon, lots of web sites. Google the phrase “questions for a financial adviser” and you’ll get millions of hits. Some of the suggested questions are pretty off-the-wall: “Do you believe in ghosts?” Or, “Have you ever been arrested?” You know that it’s an important area—you’ve worked hard for your money, and you don’t want to get bilked by the next Bernie Madoff. What do you do?

The first step is to go to someone you genuinely trust. It could be a relative or a close friend, but it should be someone that you have an ongoing relationship with. That person doesn’t have to be an expert, but find out who they use, or what they do. Most likely, they have someone they’ve been working with. Get their recommendation.

Second, set up a couple of meetings with different advisors. Ask them what their background is, what their approach to finance is, then ask a trick question: ask what they would recommend for you—before you give them many details about your life. If they have a quick or detailed answer, don’t go any further. Financial advice needs to be tailored to an individual’s personal situation. Anyone who would make recommendations before learning much about your circumstances isn’t qualified to be your advisor, no matter what credentials they have or where they went to school.

Ask yourself: “Do I want to meet with this person on a regular basis?” Financial advice isn’t like going to the dentist. You need to have a two-way conversation, usually on a pretty regular schedule. When things go wrong in the market—like during the financial crisis, or the dot-com crash—you’ll want to talk more often. Your advisor should be someone you like talking to, who is qualified.

Photo: Unsplash

Finally, is the advice they’re offering easy to understand? Finance is complex, with a lot of confusing elements—taxes, insurance, options, liquidity, and so on. If someone has a deep grasp of what they’re talking about, they should be able to explain it with ease. The explanation won’t involve “black boxes” or proprietary algorithms. And you should be able to follow what they’re saying. If they can’t make themselves clear, maybe they don’t understand it themselves.

J.R.R. Tolkien once called advice “a dangerous gift.” You especially want to be sure that when it’s advice about your money it’s not going to blow up in your face.

Douglas R. Tengdin, CFA

Chief Investment Officer

Cheat Codes?

Are there cheat codes for getting rich?

I have two teenage boys at home. When they play computer games, they want to find the “cheat codes”—special keyboard tricks that allow them to advance to the next level without going through the steps of the game. Cheat codes often are put into a game by the developers to help them test their program, and are sometimes left there as a kind of “Easter Egg.”

People are often obsessed with finding cheat codes in their lives: interview tricks to help land a job; test-taking techniques to improve SAT scores; magic foods to help lose weight. When I was in college some students bought fully-written term papers to help them with their classes on Shakespeare or Aristotle. An entire industry has emerged around buying and selling various “cheats.”

Are there cheat codes to wealth? It’s tempting to think so. Lottery sales or casino ads play on this hope. But it’s deceptive. There are only three ways to get rich: marriage, inheritance, or savings. The first two approaches aren’t available to most folks. But the third is always there—you can usually find a way to control your spending.

Cheat codes are a feature of many computer games, but don’t expect to find them in the real world. Good grades demand study; good health depends on diet and exercise. And wealth is built through disciplined saving and careful investment. “Cheating” money is fleeting money.

Douglas R. Tengdin, CFA

Chief Investment Officer