Don’t Die With Zero: Money Still Buys Better Experiences When You’re Old

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The idea of “consumption smoothing” tries to balance how our income changes over time with our spending needs. In theory, it may be ideal to go into debt when you are really young, save heavily when you are middle-aged, and spend it down when you are old (source):

The book Die With Zero (my review) reminds us that when we are young, we tend to have little money but lots of health. When we are old, we tend to have lots of time and much less health. So we should spend most of our money during our younger “best years” instead of when we are old. Here is a graphic from the book:

I enthusiastically support the idea of creating a specific bucket list of items designed for each stage of your life. However, I don’t like the title “Die with Zero” because it suggests that your time at the end is not valuable. A young, healthy person might think – why bother saving too much when you’re too old to enjoy it? Well, I would say that you start to appreciate the bottom layers of Maslow’s Hierarchy of Needs when you see them missing in someone’s life. (image credit)

We help take care of an older relative, and she has recently gotten to the stage where she can no longer safely live independently. According to the Katz Index of Independence, here are the basic activities of daily living (ADLs):

  • Bathing and showering: the ability to bathe self and maintain dental, hair, and nail hygiene.
  • Continence: having complete control of bowels and bladder.
  • Dressing: the ability to select appropriate clothes and outerwear, and to dress self independently
  • Mobility: being able to walk or transfer from one place to another, specifically in and out of a bed or chair.
  • Feeding (excluding meal preparation): the ability to get food from plate to mouth, and to chew and swallow.
  • Toileting: the ability to get on and off the toilet and clean self without assistance.

You may be 100% there mentally and only be struggling with one of these things, but that’s enough that you can’t live independently. The next level of “instrumental” activities of daily living includes things like cleaning, laundry, paying the bills, managing medication, cooking, shopping, communicating via telephone/computer, or transportation.

According to AARP, nearly 80% of adults age 65 and older want to remain in their current residence as long as possible. Seniors vastly prefer “aging in place” to facility care, and why wouldn’t they? The standard of care in an average nursing home is simply not that great. You live on their schedule, ignored most of the time. They are only required to give two baths a week. There are no national laws or regulations for staff to resident ratios. You may face a ratio of 15 residents to 1 nurse aid or worse. Medicaid pays for 6 in 10 nursing home residents. In 2021, a single Medicaid user must have under $2,382 per month in income and less than $2,000 in countable assets to qualify financially. Truly having “zero” near the end is not fun.

However, if you have the financial means, you can hire your own personal home health aide. This 1:1 ratio gives you your freedom back. You get to live in your own house. You wake up and live on your own schedule. You get to choose the food that you eat. You bath every day. You have someone to drive you wherever you want. You can still do your own shopping. You can have lunch with your friends. You can go to social events (memories! experiences!). This can get expensive at $15 to $30 an hour (often less overnight), but I’ve discovered that 1-on-1 help is the “luxury good” that the wealthy buy at this stage of their lives.

One of the findings of behavioral psychology is that above a certain level of income (maybe $80k a year in 2021?), you don’t get that much happier. At a certain point, you have your needs met and you feel safe and relatively comfortable. Above that, it’s mostly a nicer house, fancier car, more expensive restaurants, etc. Earning more doesn’t give you a more loving family and group of friends. When you get older, I’ve now seen how extra money can get you back to that level of satisfied comfort if you have health issues. The difference that I see in happiness levels was surprising to me. It just reminds me that the freedom to spend our time how we wish is the true goal.

Upgrading from the “economy” to “business class” lifestyle in your 40s is nice, but so is upgrading from a nursing home to 1-on-1 personal attention in your 70s and 80s. The very wealthy can afford both. But for the rest of us, it’s something to think about. Maximize pleasure when you are younger, or minimize suffering when you are older?

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Die With Zero: How to Spend (All) Your Money

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You might be saving too much money right now! You need to spend more! That is the unconventional message of the book Die With Zero by Bill Perkins. Some delayed gratification can be a good thing, but it can be a very bad thing if you simply end up dying with a big pile of money. Life is about having as many positive experiences as possible, and dying with more than zero means you wasted potential experiences.

The main problem is that our incomes, free time, and health vary differently with age. Incomes generally rise with age. Yet, our health and physical ability generally drops with age. Free time is a bit different, as you tend to have more free time when you are either quite young or quite old.

Therefore, the idea that we should save all the money we can in order to spend it in retirement isn’t ideal. Certain experiences are best during certain seasons of life, and you should spend your money at the times when it has the most impact. That also means you shouldn’t save much money in your 20s, as that is the best time for many of those “valuable” experiences. Here are some suggestions from the book about how to fill those “time buckets” (click to enlarge):

While I agree with many of the messages in this book, the tone often rubbed me the wrong way. Too put it bluntly, this book felt written by a “really rich guy” for his really rich friends. The author lives in a different world. In one example, he was proud that he threw a party in the Caribbean island of St. Barts which involved flying out all the attendees, renting out an entire hotel, and hiring Natalie Merchant for a private concert. Huh?

When you write a book, you ask your friends to leave an Amazon review. Perfectly reasonable. But read this:

I have to start off by saying that I know Bill Perkins personally, and that is going to make my review biased. With that being said, in my 1 year of knowing Bill, Ive had the most amazing experiences of my life. Everything from travelling around the world to playing chess with Sir Richard Branson on his private island.

🤔

via GIPHY

My primary criticism is the implicit assumption that “valuable” experiences have to cost a lot of money. Hiring celebrities to sing for you. Dropping $100,000 on a birthday party. Is it really a great tragedy if someone doesn’t end up skiing in the Swiss Alps? I’m pretty sure I’m going to die without sailing the Amalfi coast, because I have no idea where that is!

Today, my three kids went to their great-grandmother’s and great-aunt’s house. My wife spent her youth climbing a large lemon tree in the yard. Her grand-aunt is 93 years old and the kids got to help her pick the lemons and made (very messy and sticky) lemonade together. My wife reminisced about how she used to do the exact same thing (including the messy and sticky part) with her late grandmother. That was also a priceless memory, but it has little to do with money. It was about love and making an effort to spend time together.

My secondary criticism is that the book doesn’t actually teach you how to “Die with Zero”. I was honestly hoping for some insights about spending down an investment portfolio in order to accomplish “maximum spending”. Unfortunately, the book contains little practical investment advice. There is only a quick mention to “look into” annuities, and to use a longevity estimator.

There was no rebuttal to the fact that with nearly every investment, you’ll need to leave yourself some wiggle room because you don’t know how long you’ll live, future expenses, future investment returns, future interest rates, and future inflation. The only safe solution might be a TIPS ladder, which would require a lot more money than what you might need with stocks.

Let’s end on a positive note. Here are the best takeaways from this book.

  1. The most valuable things in life are experiences shared with loved ones.
  2. Each stage of your life is special and unique.
  3. Make a list of truly valuable experiences that you want at each stage. Think about why they are different for each stage (health, free time).
  4. Make them a priority. If it costs money to make it happen, then spend it happily and consciously.

Some things can wait, and others can’t. Maybe you want to learn how to surf, raise a huge family, start a nonprofit, or move somewhere warm and breezy. However, I would reiterate that I do not equate “valuable” with “expensive” or “rare”. Here are the most valuable memories that I can thing of:

  • Early 20s: I met my future wife, who is my best friend and inspires me every day. Finding the right life partner was so important to my happiness.
  • Early 20s: I did backpack around Europe and stay in hostels as a single person. The total cost was probably a couple thousand dollars and I paid cash (no debt). It was fun, but I would have also had amazing memories hiking the Appalachian Trail or teaching English in Japan.
  • Early 20s: I quit a well-paying job to take a risk and try to switch careers. It didn’t work out as I imagined, but it did work out.
  • Late 20s and early 30s: Once we had things lined up, we “spent” our energy mostly on many hours of work and high saving rates. No regrets as it set us up for the rest of our lives.
  • Mid-30s to Early-40s: We “spent” some of our money by choosing to work less and be able to raise our young children. I will never have to say the words “I wish I spent more time with them while they were young, and less time working”. We still work but our saved money gives us flexibility and the ability to choose what we work on. I am able to exercise and socialize regularly.
  • So what’s left? In my 20s, I wish I spent more time with my friends doing simple things like hanging out at bars. Today, I wish I kept in touch with them better as well. This book has strengthened my resolve to take the effort to meet up with them soon. It’s hard with everyone’s work schedules, families, etc. Something simple like go-karts, hiking, or bowling. We probably won’t stumble into Richard Branson, but who knows?

Looking back, it was more about constructing a daily life of purpose and happiness, rather than a bucket list of limited experiences. My “must haves” are based on the components of happiness, where I use money so that I can say things like:

  • I consistently lead a purposeful and meaningful life. I spend my time on things that are important.
  • I consistently become absorbed in what I am doing. Time seems to pass quickly when I am working.
  • I am in excellent health and am satisfied with my level of health.
  • I consistently receive help and support from others when I need it.
  • I am consistently excited and interested in things.
  • I rarely feel lonely.
  • I consistently feel loved.

It’s a good message not to hoard your money forever. We do have some bucket-list items like travel destinations, but honestly checking them off won’t change our lives from “good” to “awesome”. Our personal concept of financial freedom leads to a ideal lifestyle that wouldn’t change much if you were to give me more money to spend. We have “enough”.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Happiness Exercises: Take Action To Improve Your Well-Being

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As I reach the end of the 10-week free Yale Happiness Course, I definitely recommend this course if you are ready to commit time and effort into making yourself feel better mentally. One of the key points is the G.I. Joe fallacy, which is the false notion that knowing about a mental bias is enough to overcome it. Knowing isn’t enough! Taking repeated action is required to achieve lasting change.

As such, much of the course is based on “rewirements”, but I think of them as “happiness exercises” because they only work temporarily for me. When I do them, I feel better immediately and for a little while afterward, but the effect wears off. This is similar to my experience with diets, in that diets don’t work.

Once you go back to your original eating habits, you’ll go back to your original weight. Therefore, any changes you make should be something you can maintain for the rest of your life.

Can you really change your life to include these habits? Well, here are the happiness exercises, along with a short description from the Yale course. Try each one for a week and discover which ones work best for your personal situation. I found the prompts to commit acts of kindness and initiate social connections were the most helpful, and a really do hope to keep them up forever. (I’ve already been working on the sleep and exercise bits for a while.)

Savoring

Savoring is the act of stepping outside of an experience to review and appreciate it. Often we fail to stay in the moment and really enjoy what we’re experiencing. Savoring intensifies and lengthens the positive emotions that come with doing something you love. For the next seven days, you will practice the art of savoring by picking one experience to truly savor each day. It could be a nice shower, a delicious meal, a great walk outside, or any experience that you really enjoy. When you take part in this savored experience, be sure to practice some common techniques that enhance savoring. These techniques include: sharing the experience with another person, thinking about how lucky you are to enjoy such an amazing moment, keeping a souvenir or photo of that activity, and making sure you stay in the present moment the entire time.

Gratitude

Gratitude is a positive emotional state in which one recognizes and appreciates what one has received in life. Research shows that taking time to experience gratitude can make you happier and even healthier. For the next seven days, you will take 5-10 minutes each night to write down five things for which you are grateful. They can be little things or big things. But you really have to focus on them and actually write them down.

Random Acts of Kindness

Research shows that happy people are motivated to do kind things for others. Over the next seven days, you will perform seven acts of kindness beyond what you normally do. You can do one extra act of kindness per day, or you can do a few acts of kindness in a single day. These do not have to be over-the-top or time-intensive acts, but they should be something that really helps or impacts another person. For example, help your colleague with something, give a few dollars or some time to a cause you believe in, say something kind to a stranger, write a thank you note, give blood, and so on.

Social Connection

Our social connections matter. Research shows that happy people spend more time with others and have a richer set of social connections than unhappy people. Studies even show that the simple act of talking to a stranger on the street can boost our mood more than we expect. Over the next seven days, you will try to focus on making one new social connection per day. It can be a small 5-minute act like sparking a conversation with someone on public transportation, asking a coworker about his/her day, or even chatting to the barista at a coffee shop. But you should also seek out more meaningful social connections, too. At least once this week, take a whole hour to connect with someone you care about— a friend who’s far away or a family member you haven’t talked to in a while. The key is that you must take the time needed to genuinely connect with another person.

Exercise

Research suggests that ~30 minutes a day of exercise can boost your mood in addition to making your body healthier. For the next week, you will spend each day getting your body moving with at least 30 minutes of exercise. Set aside a location and time (write it in your calendar!). Then hit the treadmill at the gym, do an online yoga class, or throw on some headphones and dance around your room to cheesy pop songs. This isn’t supposed to be a marathon-level of activity; it’s just to get your body moving a bit more than usual.

Sleep

One of the reasons we’re so unhappy in our modern lives is that we’re consistently sleep deprived. Research shows that sleep can improve your mood more than we often expect. For the next week, you must get at least seven hours of sleep for at least four nights of the next week. I know, I know. You’re super busy this week. There are deadlines to meet, friends to see, errands to run, etc. But sleep is going to make you feel better— both physically and mentally. So pick four nights this week, note them in your calendar, and get ready to get some much needed sleep. Also be sure to practice good sleep hygiene too— no devices before bed and try to avoid caffeine and alcohol on the days you’re getting your sleep on.

Meditate

Meditation is a practice of intentionally turning your attention away from distracting thoughts toward a single point of reference (e.g., the breath, bodily sensations, compassion, a specific thought, etc.). Research shows that meditation can have a number of positive benefits, including more positive moods, increased concentration, and more feelings of social connection. For the next week, you will spend each (at least) 10 minutes per day meditating. Find a quiet spot where you won’t be disturbed while you’re meditating. If you are new to meditation, you can try one of three guided meditations available on SoundCloud. And remember— meditation isn’t about the meditation itself; it’s about building a skill that we can use later. Lots of people find it hard at first, but stick with it and see if it allows you to feel a bit calmer over the course of the week.

For all of these exercises, you should find a way to track them – physical notebook, Notes smartphone app, daily planner, or the unpolished-but-free ReWi app (iOS, Android). By keeping track, you make it much more likely that you’ll maintain a streak and eventually make it a life-changing habit like eating healthier foods or regular exercise.

Also see:

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Four Pillars of Retirement: Money, Purpose, People, and Health

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While it is understandable that most talk about “retirement planning” concerns money, a truly successful retirement requires more than that. Coincidentally, the same week I was pondering the Components of Happiness, I also stumbled upon a 6-year leanFIRE update from LivingaFI. It was a very honest and thoughtful story of someone who carefully planned and quit their job at age 37. I usually focus on my reason for financial indepedence as “spending my time as I wish”, but now I realize that it may help to specifically address certain areas regularly.

For your consideration, here are The Four Pillars of Retirement*:

  • Money: You need enough money to pay for housing, transportation, food, healthcare, and everything sold at Walmart/Target/Amazon/Costco.
  • Purpose: You need to feel that you are useful, moving forward, pursuing a goal, and/or making the world a tiny bit better.
  • People: You need love. Love and social interaction from your life partner, children, family, friends, and/or animal companions.
  • Health: You need to feel physically healthy, or be at peace with your level of health.

Imagine each pillar as one of the legs of a square table. We have to maintain and shore up any cracks before it gets serious. If you are lacking in any one of these pillars, your retirement gets wobbly. If any two are crumbling, that’s enough to make the entire thing tip over.

Most people say that they hate work, but working takes care of more than just the money pillar. In addition to income, work can provide a sense of purpose and self-worth, as well as a wide social circle. Some people just like having something fixed to build their routine around; they flounder with “nothing to do”. People often imagine retirement as a perpetual weekend – playing golf, eating out, travel, shopping, etc. – but it can get weird when all your friends are still working. Here is a WSJ article on how leaving work can put a lot of strain on couples.

It can be difficult to get out of the “I must be busy and productive” mindset. When you retire, use the opportunity to sit in the quiet and ponder what is most important to you. Choose your hard thing.

Finally, even if you have done all you can to be prepared, life still happens. The author of LivingaFi had nearly $1 million in assets, reasonable expenses, a committed life partner with a similar level of assets, lots of outside interests, and good health. This is not judgment, but a scary reminder for all of us: jobs, bull markets, relationships and good health can all end faster than you think. Your actions matter, but luck matters too. For example, the Social Security Administration says that a 20-year-old worker has a 1-in-4 chance of being disabled before retirement age. (Where available, we should buy adequate life, health, and disability insurance.)

My biggest blind spot was that if you have children, any one of them may also develop a health condition or other special needs that may require additional financial support indefinitely. I really didn’t appreciate the hidden struggles that so many families go through that is no fault of their own. I also didn’t fully appreciate how lucky I was to not have to deal with any of these things while growing up as a kid.

If you accept that luck matters in your investments, then the optimal choice might be to retire earlier with a more modest amount so that if things go well, you get more retirement years, but if things go badly, then you fall back on some part-time back-up work. Being willing to be flexible can pay off. You have to balance your odds of running out of money with the odds of running out of time.

On the other hand, if you are a high-earner, it might be better to work “One More Year” while you work on planning for the other pillars. Finding a new purpose, finding new friends, finding a new routine, it can be quite difficult. Looking back, I am thankful that we did not attempt to retire early and instead adjusted our hours (and income) downward while still keeping our foothold in the workforce. I’m still working on these pillars myself, but our middle path has worked well for us.

(* A nod to the classic The Four Pillars of Investing, one of the first investing books I ever read and reviewed here way back in 2004.)

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Scott Galloway’s Algebra of Wealth (or: How To Become Rich)

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Scott Galloway shares in The Algebra of Wealth his thoughts on how to achieve financial security (be rich). You should read the entire thing, but the ingredients in his formula are Focus, Stoicism, Time, and Diversification. I’m only including a few notes and personal interpretations here.

Focus. If you want to get rich, you have consciously take action to make it happen. It rarely happens by accident. Look for a good wave to ride when you are young. Look carefully for the right life partner.

Successful people often unwittingly head fake young people with the humblebrags of “follow your passion” and “don’t think about money.” This is (mostly) bullshit. Achieving economic security requires hard work, talent, and a tremendous amount of focus on . . . money. Yes, some people’s genius will be a tsunami that overwhelms a lack of focus and discipline. Assume you are not that person.

Stoicism. Develop some self-discipline and character. Be generous and helpful to others. This will help you spend less money.

Determine what you can and can’t control. You can control your reactions to temptation — a lack of discipline is the antichrist to economic security. Our society of superabundance makes this difficult. Billions of dollars are spent every year on schemes to manipulate our natural impulses into spending more money, consuming more fat, and believing everyone around us is more successful than we are. The upgrade from economy to premium to business to first class to private jet can seem like an investment in yourself — it’s not. The most powerful forward-looking indicator of your financial freedom is not how much you earn, but how much you save.

Time. Steady improvements over time can supercharge your results. Don’t focus only on the short-term. As the saying goes, “Time in the market is more important than timing the market.”

Compounding is not just a financial thing. The most important returns in life come from the compounded effects of our investments over time, whether in our finances, careers, hobbies, or relationships.

Diversification. Never expose yourself to a fully catastrophic loss. Make sure you can walk away to fight another day. If you do it right, you only need to get rich once.

Diversification is the kevlar that protects you — with it, bad decisions will still hurt, but they won’t prove fatal. Diversification, in other words, is your bulletproof vest. […] That doesn’t mean I don’t look for opportunities that offer asymmetric upside — I do. I just don’t ever take off my kevlar. You don’t need to be a hero to get to economic security.

There is no simple step-by-step plan to become financially independent, otherwise everyone would be rich. Luck matters too, but working on all of these factors helps maintain maximum exposure to good luck.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

My Money Blog Portfolio Income Update – February 2021

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dividendmono225

While my February 2021 portfolio is designed for total return, I also track the income produced. Stock dividends are the portion of profits that businesses have decided they don’t need to reinvest into their business. The dividends may suffer some short-term drops, but over the long run they have grown faster than inflation. Interest from bonds and bank deposits are steadier, but these days it actually lags inflation a bit.

I track the “TTM” or “12-Month Yield” from Morningstar, which is the sum of the trailing 12 months of interest and dividend payments divided by the last month’s ending share price (NAV) plus any capital gains distributed over the same period. I prefer this measure because it is based on historical distributions and not a forecast. Below is a close approximation of my portfolio (2/3rd stocks and 1/3rd bonds).

Asset Class / Fund % of Portfolio Trailing 12-Month Yield (Taken 2/10/21) Yield Contribution
US Total Stock
Vanguard Total Stock Market Fund (VTI, VTSAX)
25% 1.43% 0.36%
US Small Value
Vanguard Small-Cap Value ETF (VBR)
5% 1.65% 0.08%
International Total Stock
Vanguard Total International Stock Market Fund (VXUS, VTIAX)
25% 2.13% 0.53%
Emerging Markets
Vanguard Emerging Markets ETF (VWO)
5% 1.85% 0.09%
US Real Estate
Vanguard REIT Index Fund (VNQ, VGSLX)
6% 3.92% 0.24%
Intermediate-Term High Quality Bonds
Vanguard Intermediate-Term Treasury ETF (VGIT)
17% 1.53% 0.26%
Inflation-Linked Treasury Bonds
Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)
17% 1.19% 0.20%
Totals 100% 1.76%

 

Trailing 12-month yield history. Here is a chart showing how this 12-month trailing income rate has varied since I started tracking it in 2014.

Portfolio value reality check. One of the things I like about using this number is that when stock prices drop, this percentage metric usually goes up – which makes me feel better in a bear market. When stock prices go up, this percentage metric usually goes down, which keeps me from getting too euphoric during a bull market.

This quarter’s trailing income yield of 1.74% is the lowest ever since 2014. At the same time, my portfolio value is also bigger than ever. This just confirms that much of the recent US stock market price rise has been due to P/E ratio expansion, as opposed to higher earnings and profits. Either prices will drop quickly and then the future will look brighter, or prices won’t drop and the future will simply hold lower returns.

I choose to treat this income as a “no-stress, perpetual withdrawal rate”. There are countless articles debating this topic, but I support a 3% withdrawal rate as a reasonable target for planning purposes if you want to retire young (before age 50) and a 4% withdrawal rate as a reasonable target if retiring at a more traditional age (closer to 65). If you are not close to retirement, your time is better spent focusing on earning potential via better career moves, investing in your skillset, and/or looking for entrepreneurial opportunities where you own equity in a business asset.)

How we handle this income. Our dividends and interest income are not automatically reinvested. I treat this money as part of our “paycheck”. Then, as with a real paycheck, we can choose to either spend it or reinvest in more stocks and bonds.

Although we are not retired, this portfolio income does enable us to have more flexible working hours as parents of three young kids. If we’re being honest, I don’t think either of us truly wants to be a full-time stay-at-home parent while the other works for money full-time. Nor do we want to be the sole full-time worker while the other stays at home. This works best for us.

We are very thankful for this financial flexibility (always, but especially during this pandemic), which has been both a result of conscious preparation over 15+ years and good fortune. Others may use their portfolio income to pursue new interests, start a new business, sit on a beach, do charity or volunteer work, and so on.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Happy Holidays from My Money Blog!

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Wishing you a safe and joyous holiday season. I hope that your resilience, hard work, and optimism pays off even more in the new year. We made some ornaments and characters out of salt dough today… I call this piece “Tired Snowdaddy and his three little snowgies”. (Posting will be light for while.)

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Wishing You a Hopeful and Happy Thanksgiving

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Imagine an aeroplane makes an emergency landing and breaks into three parts. As the cabin fills with smoke, everybody inside realises: we’ve got to get out of here.

What happens?

On Planet A, the passengers turn to their neighbours to ask if they’re okay. Those needing assistance are helped out of the plane first. People are willing to give their lives, even for perfect strangers.

On Planet B, everyone’s left to fend for themselves. Panic breaks out. There’s lots of pushing and shoving. Children, the elderly and people with disabilities get trampled underfoot.

Now the question: which planet are we living on?

According to the book Humankind: A Hopeful History by Rutger Bregman, about 97% of people believe that we live on Planet B. This book systemically breaks down all of the various “evidence” supporting that assumption, and shows us that the historical evidence actually shows that we live on Planet A. The daily news machine loves to focus on the negative and outrageous. (I switched the letters initially, too sleepy from late-night Thanksgiving food prep!)

Let’s take Lord of the Flies. Most of us think we understand the story of those feral kids, but that’s a fictional book! Meanwhile, we have a real-world example of what happens when a group of young boys get marooned on a remote and uninhabited island. This excerpt from Humankind was republished in The Guardian: The real Lord of the Flies: what happened when six boys were shipwrecked for 15 months.

I haven’t finished the book, but the basic idea is that the world could look very different if we assume that people are basically decent and naturally look to help others. Many things in life are self-fulfilling. Prisons are presented as an opportunity to implement. In the same way, perhaps we can change our own lives by assuming that others are basically decent. If someone cuts us off in traffic, perhaps they aren’t just a jerk but distracted and/or late for a job interview because their child is sick. (Besides, getting angry only hurts us and not them.) Assuming the good in people allows you to ask others for help, and makes you more likely to help others. This can lead to better job opportunities, better friends, who knows? A better life? You may get burned once in a while, but on the whole it is better to lean toward the positive, virtuous cycle. (Don’t be reckless, of course.)

I’m sure that many of you have had an extraordinarily difficult year, in ways that I can’t even imagine. Still, there are many reasons to be hopeful. Thank you for reading. Happy Thanksgiving!

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Three Pillars of Self-Determination: Autonomy, Competence, and Community

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After reading the book Sapiens about how the history of our species affects our everyday experience, I found the related book Tribe: On Homecoming and Belonging by Sebastian Junger. Again, our genetic material hasn’t had enough time to change much from a human living 10,000 years ago, when all humans roamed together in nomadic bands of around 30-50 people. Humans today still retain a strong instinct to belong to such small, social groups that work together toward a common purpose – “tribes.”

What happens we can’t live in tribes anymore? Why does living in our modern, affluent society actually lead to higher rates of depression and suicide?

First agriculture, and then industry, changed two fundamental things about the human experience. The accumulation of personal property allowed people to make more and more individualistic choices about their lives, and those choices unavoidably diminished group efforts toward a common good. And as society modernized, people found themselves able to live independently from any communal group. A person living in a modern city or a suburb can, for the first time in history, go through an entire day—or an entire life—mostly encountering complete strangers. They can be surrounded by others and yet feel deeply, dangerously alone.

In contrast, when a large-scale catastrophe occurs, rates of depression and suicide actually drop for a while, perhaps because we again feel united and connected with others.

[Researcher Fritz] was unable to find a single instance where communities that had been hit by catastrophic events lapsed into sustained panic, much less anything approaching anarchy. If anything, he found that social bonds were reinforced during disasters, and that people overwhelmingly devoted their energies toward the good of the community rather than just themselves.

The book includes many examples of how this need for true community is behind many societal problems. This also fits in with self-determination theory:

The findings are in keeping with something called self-determination theory, which holds that human beings need three basic things in order to be content: they need to feel competent at what they do; they need to feel authentic in their lives; and they need to feel connected to others. These values are considered “intrinsic” to human happiness and far outweigh “extrinsic” values such as beauty, money, and status.

Here how Wikipedia describes these three pillars:

  • Autonomy – Desire to be causal agents of one’s own life and act in harmony with one’s integrated self. (This does not mean you want to be alone.)
  • Competence – Seek to control the outcome and experience mastery.
  • Relatedness (Community) – Will to interact with, be connected to, and experience caring for others.

We want to help others. We are perfectly willing to sacrifice to do so. But we also want to be in a trusted group that would also risk themselves to help us. These smaller groups that extend past your nuclear family are a common element of Blue Zones.

What would you risk dying for—and for whom—is perhaps the most profound question a person can ask themselves.

A lighter version might be, how many people do you know that would be willing to commit real, significant sacrifice to help each other?

In the big picture, our country is struggling because we don’t feel united as one team. In the small picture, this is a critical part of “retirement planning”. Many people derive both competence and community from their work, and you will have to replace that to create a happy post-work life. (Similarly, if you hate your work, you probably don’t find community and competence there.)

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Financial Independence Not As a Number, But Creating a Content Lifestyle

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If you’re reading this, then financial independence is probably a goal of yours. Yet, most people who accumulate a pile of money big enough to retire upon keep on working if they are able. Why? They may truly love their job and be willing to work for free, they may worry that they won’t have enough, they might decide they’d rather have nicer things, or they may simply not have fully considered a life after paid work.

The problem is that reaching your “Number” is like finally buying that big house or fancy car or 100,000th social media follower. There is never a point at which you can say “I’m here! I’ll be forever happy and satisfied from now on.” It is always tempting to keep reaching for more. As the saying goes: If all you care about is money, you’ll never have enough money. If all you care about is social prestige, you’ll never have enough social prestige. You are forever stuck on the hamster wheel.

The article Redefining Success So It Doesn’t Crush Your Soul touches on many concepts related to this puzzle.

It’s high time to redefine success. Success is not something that you reach—not something that is outside of yourself, just down the field. Success is creating a life you want to live in right now. The great tragedy, Fromm writes, is that “man misses the only satisfaction that can give him really happiness—the experience of the activity in the present moment—and chases after a phantom that leaves him disappointed as soon as he believes he has caught it—the illusory happiness called success.”

According to decades of psychological research, a successful life is one in which your basic needs for food, shelter, health care, and income are met and in which you have a sense of autonomy, mastery, and belonging. A life that is not about enduring means you can’t stand in order to reach ends you are supposed to want; but rather, about selecting pursuits based on how much you’ll enjoy the process of doing them.

Happiness is not a goal. It is a side effect of how you spend each day. Imagine a day where money is not limitless, but it also doesn’t matter to your wellbeing. You can pick to “work” on something you both enjoy and find meaningful, while also spending time with people you love. What would that look like? I completed a similar Dream Day activity in 2005, and the improved clarity definitely helped.

Starting out, I thought of financial independence as a race to a fixed goal. Track numbers, plot them on a chart. I’d work hard, save hard, reach my net worth target, and finally turn in my resignation letter and disappear.

Looking back, what worked better was a gradual transition between two versions of the same sustainable lifestyle. To build up your assets, you have to enjoy your daily process so you don’t burn out, while also maintaining a gap between your income and expenses. Invest that excess money into productive assets (building a private business, buying stock shares of public businesses, rental real estate, etc), and over time your choices expand. You can work the same job but less hours, work a different job with lower pay/lower stress, decline promotions, or simply do nothing (much rarer than you think). Part of this is the ability to be content with your non-work lifestyle and expenses. Life should just keep getting better and better, instead of you simply wanting more and more.

But it all starts with that work lifestyle, which requires something meaningful, moderately enjoyable, and pays well. Even with an aggressive savings rate, you’ll need to work for more than a decade, so invest money into yourself first! Get a job that is more interesting, more enjoyable, or just pays better. Use your money to take time off, switch to a entry-level job in a different industry, go back to school full-time, or spend nights and weekends working on new skills. Perhaps find a government-based job with a secure pension agreement if that fits you.

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I plan to advise my own kids to spend their 20s in this manner. Live cheaply and invest in yourself. An emergency fund is important, but after that – What are you willing to spend 80 hours a week doing? Take the job that opens up future opportunities. Work with a great mentor. Study hard and don’t settle until you finally get into your target professional school. Work 80 hours a week because you (and maybe your friends) are building a business from scratch. Take asymmetric risks with big upsides and minimal downsides. Find your joys, and don’t waste money on the rest.

I’m still working on improving my own daily routine. I look back onto my 20s as a special period because time felt so abundant before you have others to support (partners, kids, parents). Having dependents also makes it harder to take risks and change your life. These two factors help explain why life satisfaction is lowest in your 40s. Yet harder doesn’t mean impossible. My father went back to school in his 30s and didn’t finish his schooling until I was already 10 years old. I constantly remind myself that I will eventually think of today as “back when I was young”:

Bottom line. Financial independence is not simply a faraway number like accumulating $1,000,000 in 30 years. Most important is figuring out how to enjoy the process by creating a content lifestyle that is meaningful and aligned with your values so that saving regularly doesn’t feel like a constant struggle. You want life to keep getting even better as you go vs. simply wanting ever more.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Economics of Shared Living: How Much Money Do You Save With Roommates?

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For most households, the biggest expense is housing. A time-tested way to reduce your housing costs is to share a place with others, but usually we think of a bigger house as the result of a bigger nuclear family. However, even young professional adults can choose to boost their savings rate by embracing shared living past the college days, and families can save big money by embracing the multigenerational households that are popular in other cultures.

In the article The “N” Factor and Retirement Planning, Scott Burns focuses on the financial impact of having kids but also shares a interesting way to estimate how the size of a household affects how much it spends overall:

Here’s the algorithm: The cost of living for a household is the square root of the number of people in the household. So if you are single, your cost of living is the square root of 1 or… 1.

But if you are recently married, your cost of living is the square root of 2, or 1.414. Yes, two can’t live for the price of one. But they can live for only 42 percent more than the price of one. Economists call this “economies of shared living.”

The article is focused on families with children, but here I am shifting it to talking about individual adults. Therefore, I’d rather talk about it in terms of the amount you are saving through shared living as a percentage of your previous level

Theoretical savings from shared living. If you’re single and live by yourself, your total cost of housing may be $2,000 per month.

  • Get one roommate, save 29%. Your cost goes down to √2/2 = 1.414/2 = 71% of living alone, or $1,420 per month.
  • Get two roommates, save 42%. Your cost goes down to √3/3 = 1.73/3 = 58% of living alone, or $1,160 per month.
  • Get three roommates, save 50%. Your cost goes down to √4/4 = 2/4 = 50% of living alone, or $1,000 per month.

Does this match up with actual rental prices? Using rental data from Abodo.com, I found the average rents for a one, two, and three bedroom rental in four major metro areas from around the US: Austin, San Francisco, Atlanta, and New York City. For example, if a 1-bedroom costs $1,366 in Austin and a 2-bedroom costs $1,725, that means your per-person share is $862.50, which is 63% of the cost of a 1-bedroom. This should provide a quick check for this rule, even though we are just looking at housing. It turns out to be pretty close:

According to the √N Rule, the biggest relative benefit comes when you stop living alone, at a savings of nearly 30%. This magnifies the savings ability of a dual-income couple, with possible double the income and 30% less in housing expenses.

Burns applies this to the savings that parents can feel after their kids move out of their house. As a result, retirees may be able to survive on much less than might be expected based on other rough rules of thumb.

Bottom line. Shared living is a powerful way to reduce your housing costs. As rents rise, this may result in more single adults sharing a house, or increased rates of multigenerational family living. Consider shared living as an available option to save more money and increase your financial stability, as opposed to only a last resort. Put another way, “Cooperation is a wonderful but generally overlooked substitute for money.”

[Revised and updated from original post from many years ago. I’m cleaning up my archives and updating selected articles.]

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Thankful: Replacing “I Have To” With “I Get To”

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One trick that I picked up these year was to replace “I have to” with “I get to” when I start feeling tired, stressed, and grouchy. It’s a simple way to remind myself to be thankful for many of the everyday things we “have” to do. Here are some recent examples:

  • I get to wake up in the middle of the night to soothe a crying child.
  • I get to make a healthy(ish) dinner in between school homework and various activities/lessons and worrying that the kids get enough sleep.
  • I get to maintain my older house from peeling paint, broken appliances, overgrown trees, termites, and other pests.
  • I get to clean dog poop off in the cold rain after he steps in it without me realizing.
  • I get to make a budget, search for points redemptions, and compare prices for our upcoming summer vacation.
  • I get to drive back to school again to drop off a forgotten lunch or school project.
  • I get to help my parents with a mundane tech support task.
  • I get to remember to call my friend on their birthday.
  • I get to fly on a crowded plane across the country with young children to visit family for the holidays.
  • I get to worry about getting all of our estate planning affairs in order.

There are so many things that I “get” to do because I am healthy and able-bodied, live in a safe area, have a reliable source of income, and have a loving family. I’m always surprised at how easy it is to take such things for granted when you get engrossed in your own situation.

Happy Thanksgiving and I remain thankful for you as a reader! I hope that you find yourself surrounded by some of your own blessings this weekend.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.