Tackle Your Finances!

Posted on Posted in Financial Planning

I’ve been thinking a lot this year about my finances. Since moving overseas, I’ve held my own, which is no small feat, but now it’s time to start thinking long-term. I’ve made it a point in 2018 to get my financial house in order: by earning more, paying down debt and building my client base.

My new motto comes from Michelle Singletary:

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Here are some of the books and articles I’ve been reading:

  1. Nuts and Bolts: The 7-Day Financial Tune-up After a short survey, you’ll get a daily email assigning various tasks to help you tackle your finances. Topics range from pulling your credit, budgeting, retirement planning and my favorite “Optimizing your thinking”, which helped me prioritize what I should be spending my money on. The advice comes from experts hired by the New York Times who have decades of financial experience.
  2. Forget Frugality. Start Earning More Instead by Ramit Sethi. A radical departure for me, as I tend to focus on controlling costs.
  3. My Year of No Shopping  by Ann Patchett. I enjoyed this article even though I have no intention of trying it. The author, by setting such a stringent goal, had to address some of the psychological reasons for why she bought what she did: like feeling compelled to buy a new dress when interviewing someone she hadn’t met before. This experiment left her with a sense of gratitude for what she already had.Screen Shot 2018-03-30 at 11.03.29 AM
  4. If You Can: How Millennials Can Get Rich Slowly by William Bernstein. Several years ago, William Bernstein, a financial writer and trained neurologist, published a free book/reading list (now $1.27) to help millennials with investing. It does a good job of avoiding the condescending tone often directed at young people who are supposedly wasting all their money on avocado toast. His investment advice is easy to understand but difficult to follow: save 15% of your salary throughout your career. Bernstein’s list of books help investors avoid the various hurdles that prevent that from occurring. I haven’t made it through all the books he recommended, but here are some highlights from those I have read:
    • The Millionaire Next Door by Thomas Stanley and William Danko. An older book that remains relevant. Danko and Stanley’s survey of wealthy Americans found that they tend not to be ostentatious with their wealth. The book’s premise: spending a lot of money to keep with your peer group impedes your ability to build wealth. I got some unexpected tips from this book, like how to shop for a reliable used car.
    • Common Sense on Mutual Funds by Jack Bogle. It pains me to say this since Jack Bogle is one of the titans of finance, but I found this book long and repetitive. Tip: listen to Freakonomics’ podcast, “The Stupidest Thing You Can Do with Your Money” for a synopsis. Bogle is the founder of Vanguard, an investment company which is known for charging extremely low fees for Exchange Traded Funds (ETFs) based on market indexes like the S&P 500.Bogle’s crusade is against high mutual fund fees that erode investment returns. He estimates that fees on US mutual funds tend to be about 2%, and these funds would have to outperform the market by 2% for their investors to get a better return. From Freakonomics:

      If the market return is 7 percent and the active manager gives you 5 after that 2 percent cost, and the index fund gives you 6.96 after that four basis point cost — you don’t appreciate it much in a year — but over 50 years, believe it or not, a dollar invested at 7 percent grows to around $32 and a dollar invested at five percent grows to about $10. Think what an investor thinks about when he looks at that number. He says, “Wait a minute! I put up 100 percent of the capital. I took 100 percent of the risk and I got 33 percent of the return.” Well, anybody that thinks that’s a good deal, I’ve got a bridge I want to sell them.

      I enjoyed Bernstein’s book, and intend to finish the reading lists which cover topics like market psychology and history. However, I was disappointed that he did not address how the job market for Millennials and Gen Xers has changed from the one he was in. We are more likely to experience job loss or make a living doing freelance work and it’s not always feasible to save anything at certain points in our careers, much less 15%. It’s called If You Can for a reason.

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