How can I be more rational when making spending decisions?

If you’ve read my book or blog, you probably recognize a consistent theme of using highly-rational, financially-oriented decisions when making purchases, especially ‘big money’ decisions like buying a house or raising a child. In my book, I attempt to help readers connect with relatively dry content on money management by linking rational concepts to emotions. For example, using the terminology “Fun Money” to explain the concept of controlling discretionary spending, or “Pride Money” to describe the notion of building wealth. In this article, my objective is to show you how to make more rational spending decisions, but before we get there it is important for you to understand the differences between rational and emotional decision making and how it impacts your personal finances.   Continue reading “How can I be more rational when making spending decisions?”

How much house should I buy?

Even for the most fiscally disciplined people, emotions can creep into the buying decision for a house. People spend a lot of time in their houses, so aesthetics matter. Combine that with savvy real estate agents, and there’s a good chance you’re going to overbuy or overpay to make a house your home.  Continue reading “How much house should I buy?”

Raising a child: A million dollar decision

For anyone who has raised a child, it might be the hardest ‘job’ you have in your lifetime. In fact, going to a job that actually pays you might even be easier (at least on some days). Despite all the work involved, it’s hard to imagine anything more rewarding in life than seeing your “creation” grow up, leave the nest, and become a productive member of society. Who knows, they may even help out around the house, have their own children, and wind up taking care of you in your old age.  Continue reading “Raising a child: A million dollar decision”

You don’t need a budget to manage spending

60% of people don’t use budgets to manage spending, according to the 2017 Consumer Financial Literacy Survey from The National Foundation for Credit Counseling. While that number may be surprising, what is more shocking is that this number has not changed much since the 2007 survey. For all the advances in technology, including spreadsheets and online budgeting software, people’s habits related to managing money and tracking spending have not really changed that much over the last decade.  Continue reading “You don’t need a budget to manage spending”

Don’t be passive when managing investment costs

As you know, gains in your stock investments are not guaranteed, even though it may feel like it if you’ve been invested in the market for the last decade.  Looking at the last five years, the S&P 500 index has increased an average of nearly 17% annually, with only minor corrections along the way.  In fact the S&P 500 returns have been so consistent that most large cap equity funds haven’t been able to beat this performance. Over a five year period only 17.6% of large cap equity funds beat the S&P Index (see exhibit 1 below).  In other words, if you had simply invested in the S&P 500 index then you would have done better than the majority of professional stock investment managers. But that’s not the end of the story. Even if you had invested in a fund that tracks the S&P 500 index, you still could have under-performed depending on the fees you paid to the investment company that managed your money.  Continue reading “Don’t be passive when managing investment costs”

Don’t pay to manage your credit score

I was asked earlier this week what’s the best way to check a credit score? There are a few ways to get your credit score, but check to see what your credit card company offers first. Many credit card issuers now provide cardholders with their credit score as a free benefit.  The card issuer I use provides my FICO® score, score history, key factors affecting my score, and suggestions on how to improve my score.  Continue reading “Don’t pay to manage your credit score”

How much money do I need to retire?

I was recently asked by a friend if I’ve calculated the amount of money I need for retirement, and if so, how did I do it?  I think he was surprised by my response that I calculated the amount a long time ago when I first started working and have been updating the plan numbers every year based on new information. I asked him if he had a retirement plan and his response was that he’s also been saving for retirement since he started working many years ago, but his “plan” was to save as much as he could, whenever possible.  Continue reading “How much money do I need to retire?”

Have we declared our financial independence?

Financial literacy (a.k.a. FinLit) is the education and understanding of various financial areas, such as saving, spending, investing, insurance, budgeting, retirement and tax planning. The positive impacts of financial education on people are clear, as are the negative impacts to those that lack FinLit.

Continue reading “Have we declared our financial independence?”