The Stuff Weighing You Down

Over Father’s Day weekend, when my dad and I were alone for a few minutes, he brought up a subject that had obviously been weighing on his mind.  He said he realized he and mom live 2 ½ hours away from my brother, sister and I, and if anything were to happen to either of them, it wouldn’t be easy for us to be there to help.  He would like to downsize, and move closer to us.

Dad will turn 78 this August, and he’s a very healthy, active person that looks at least 10 years younger. But the reality of the situation is he has cardio pulmonary obstructive disease, caused by a near-death experience with pneumonia when he was a baby and the ‘bad lungs’ he and his siblings inherited from his father, who also struggled with it.  My grandfather died when he was 87, and my father has taken much better care of himself; but the disease has reduced his ability to breathe freely, saps his energy, and causes more frequent sick days.   As a result, birthdays are causing him to think more and more about his mortality. 

As we talked, he said he didn’t want to wait until problems with his health forced them to move.  Due to her vision, my mother doesn’t drive more than a few miles from home, and that will become more of an issue as Dad’s health deteriorates.  He wants to move to the Cincinnati area so he can be closer to his grandkids and great grandsons.  He wants to be able to attend soccer games, birthday parties and just be more a part of their day-to-day lives.  The problem is their stuff.

My parents are very frugal savers.  Mom still has clothing she wore in college, and my dad still wears a tux he bought to sing in a concert the year I was born.  They were born in the 1930’s, shaped by the Great Depression, and spent their childhood ‘making do’ with whatever they had.  Mom was particularly shaped by her experiences.  She holds onto everything they acquire because “one of you kids might need it someday.”  This need to save things has gotten so bad she recently pulled glassware and furniture out of a bulldozed, burned down house and salvaged them.  I cannot make this up.

In order to move, they will have to let go of things.  Dad knows how difficult it will be, and how long it will take them to do it.  He said if they start now, they might be ready in 2-3 years.  Then he said something else I think is closer to the truth.  “When you’re accumulating stuff, it allows you to focus on the future because you have all these things you might eventually use.  When you downsize, it forces you to acknowledge the reality that you are going to die someday, and you don’t need it all.”

Maybe if we ask ourselves if we really need something before we accumulate it, we’ll have less to weigh us down when we get older, and the transition will be a little less painful. 

Heavy stuff.      

 

Jeannette A. Jones, CPA, CFP®

jjones@taaginc.com

www.taaginc.com

The Real Reasons Why You Buy

(from Carl Richard's New York Times' Bucks blog, 4/16/2012 - click here for the original post. Carl is a Certified Financial Planner in Park City, Utah. His sketches are archived on the Bucks blog and on his personal Web site, www.BehaviorGap.com.) His new book The Behavior Gap is on shelves now.

Before we buy something we tell ourselves stories.

We are particularly fond of the story that goes like this: We have researched all the options, and the decision we have made represents that best one we could make given the facts. Just the cold, hard facts.

Of course, that story isn’t really true.

And we make up other stories as well, many of which have absolutely nothing to do with the actual facts. We create these stories to help ourselves feel good about a decision we have already made.

For instance, many times we actually reverse the process. We decide what we want, often for emotional reasons, and then we go looking for evidence to support the decision. As we are gather the evidence, we carefully omit anything that doesn’t fit into the story we’re writing.

This is so easy to do you could say that it’s natural to us. We don’t really have the time to consider every single option. If you did, you would never get past your closet in the morning. So we take shortcuts. We decide what we want and then gather a few facts to prove to ourselves, our spouse and our family or friends that we did the right thing.

When it comes to spending money, one of the stories we like to tell ourselves is that we aren’t just spending. This item is actually an investment. It’s an investment in ourselves and our quality of life, or an investment that will actually save us money over the long run.

So we run the numbers, or more likely we read about someone who ran the numbers. Then if the narrative matches, we use that as evidence that we’re doing the right thing.

It seems easy. A simple case of addition or subtraction.

Things get complicated pretty quickly, however, when we start using the argument of saving money as a Trojan horse to hide the real reasons we’re doing something. Let’s take the case of whether to buy a hybrid or electric car.

If you decided that you want a hybrid, it’s pretty easy to find evidence to support that decision, but be careful if you’re telling yourself that it will save you money.

Except for two hybrids, the Prius and Lincoln MKZ, and the diesel-powered Volkswagen Jetta TDI, the added cost of the fuel-efficient technologies is so high that it would take the average driver many years — in some cases more than a decade — to save money over comparable new models with conventional internal-combustion engines … Gas would have to approach $8 a gallon before many of the cars could be expected to pay off in the six years an average person owns a car.

To be clear, there are plenty of legitimate reasons to buy a more fuel-efficient car. Unfortunately for the buyers relying on the numbers argument, one of them isn’t saving money in the short term unless you buy specific models.

So why do we hide behind saving money?

It’s easy to point to the price of gas. It’s harder to explain why the environment benefits from one more person driving an electric car. And it’s harder still to explain why driving a hybrid just makes you feel good.

And few people want to admit to adult peer pressure. How could you live with the story that you actually bought that Prius because you wanted a cool spot to put your Apple sticker?

Obviously cars aren’t the only thing we try to make the saving-money logic stick to. How about the recent argument at Slate that you should run out and “buy, buy, buy” a house if you are currently renting? This is a classic case of using tons of “evidence” to tell a nice little story while ignoring the data that might not fit nicely in the narrative.

Based on the facts presented in this particular story, it looks like it might actually be cheaper to buy than rent, but it states that any consideration of where prices might be headed is “irrelevant.” It’s just one more example of how far we can go in our storytelling exercises.

And it’s not that simple, as you’ve probably guessed. What if prices fall 10 percent and you have to relocate for another job? What if you know you’re moving in three years and prices stay the same?

You may be very hard pressed to break even after you consider the costs associated with buying and selling the house (e.g., real estate commissions, closing costs, moving costs and taxes). With a little honesty, there goes that nice, clean “time to buy” story.

While cars and houses might require the most complex stories, we often tell ourselves little ones about things like vacation “deals,” using a rewards credit card and buying in bulk. Often they get brushed with the halo of saving money. In each instance, saving money may be one of the reasons you’re doing something, but you can rarely say that it’s the only reason.

And that’s the point.

We tell ourselves stories about why we’re buying something, and saving money is a good story.

But I think one of the best conversations you can have with yourself, your spouse or your family is about the real reasons behind why you spend money. Be honest, even if it means having to admit that you’re buying something only because you simply want it. Blurring our reasons for our decisions around spending money is a slippery slope that can lead to a lot of financial headaches.

Enough

At a party given by a billionaire hedge fund manager, Kurt Vonnegut informed his friend, Joseph Heller, that their host made more money in a single day then Heller had earned from his popular novel, Catch-22, over his entire lifetime. Heller responded, “Yes, but I have something he will never have………enough.”

This story opens the introduction to the book, Enough, by John Bogel, the founder and former CEO of the Vanguard Mutual Fund Group. It’s my favorite part of the book, because it perfectly summarizes what I have observed as a financial advisor over my entire career.

When we were first married, and very poor, my husband would tease me when he could tell I was getting stressed over our finances with his quip, “Let’s go buy something to cheer ourselves up!” The sad thing is, many people use acquiring things as a way make themselves happy, and then are disappointed when the good feeling quickly wears off. Years go by and they are never quite able to accumulate what they need to stop working. Our consumer society has helped fuel the growth of manufacturing countries like China, increased the trade deficit, and caused storage facilities to pop up all over the suburbs to help alleviate the overcrowding in our homes.

If there is anything good to come from the Great Recession we have experienced over the last two years, I hope it encourages people to stop and give real thought to what ‘enough’ means to them.

I have been fortunate to observe and learn from the collective experiences of our clients over the past 21 years. People who are conscious spenders, those who know what they are acquiring and why, have been much more successful and able to handle the financial ups and downs that life has handed them. This doesn’t mean they live as paupers, they simply decide early on what is important to them and what isn’t, and then prioritize their spending to enhance the areas of their lives that have meaning to them, versus blindly upgrading and expanding their possessions. This accomplishes two things. The money they spend truly does enhance their lives and adds to their long-term happiness versus giving them a temporary boost, and they have funds left over to save so they don’t have to work until they die.

I realize I may sound like a critical parent lecturing on spending, but it’s much more than that. I’m suggesting that we, as a society, do a lot of mindless acquiring that is damaging to our financial security, and at the risk of sounding dramatic, to our souls. Unlike the bumper sticker, I do not believe that “He who dies with the most toys, wins.”

Jeannette A. Jones, CPA, CFP ®
jjones@taaginc.com
www.taaginc.com

You Need A Budget (.com)

Over the last several months, many of us have re-realized the importance of a good budget. This is normally a four-letter word at worst and, at best, something we periodically place on the to-do list between “clean out the gutters” and “wash the windows”.

When we do get around to it, we spend a rainy weekend knee deep in piles of old bills, credit card statements and receipts trying to figure out where exactly all of our money went. Whether through Excel, Money or Quicken, we eventually produce some kind of budget that represents the recent past in a somewhat coherent pattern. We make a few cuts, have a talk with members of our household and set forth with our new budget. The net result of all of this effort generally proves to have the same staying power as our new year’s resolution to eat less and workout more. Perhaps it’s time to revisit this time honored approach to budgeting and look at some new tools and ideas that can help.

A budget, in short, is what allows you to live within your means. The word “live” is optimal here as your budget needs to be a part of your daily life. That’s not to say that it needs to become an obsessive habit, but with all the technology available to help you stick to your well made plans, why not make keeping this resolution as easy as possible? Mint, Finicity, Wesabe and YNAB (You Need a Budget) are just a few of the online-based products out there today that attempt to take these principles to the next level.

YNAB, a personal favorite, goes as far as to suggest a whole new way to look at your budget, establishing four rules as keys to a successful budget. To borrow from their website, they are paraphrased as follows . . .

1. Stop Living Paycheck to Paycheck – or, simply, live on last month’s income not this month’s. While it may take 4-6 months to save and work to that point, it will greatly increase responsible spending while alleviating many of the stresses that come from timing monthly expenses to pay day, whether that be waiting on the next pay check, social security payment or monthly portfolio withdrawal.

2. Give Every Dollar a Job – sit down each month and allocate where the income you’ve built up from the prior month is to be allocated. Continue this process until you have no more dollars to allocate. Once you’re comfortable with this process, it should take no more than 15-20 minutes each month and will greatly improve financial communications and comfort levels throughout the household. Whether a car payment, entertainment, savings, or a vacation, every dollar will be assigned a task. As the website suggests, “dollars are like teenagers, unless given some guidance, they’ll own you.”

3. Prepare for Rain – This is fairly self explanatory. Make sure you are saving in advance for those bigger ticket items like property taxes or auto insurance and that you’re setting some additional funds aside for the unexpected.

4. Roll with the Punches – You and your budget will fail from time to time. The key is to recover quickly and make adjustments to the current allocation that will allow for a softer correction rather than a harsh, unexpected cash flow stoppage down the road.

Regardless of what you decide to do, do something different next time the budget makes your to-do list. As we will undoubtedly see dramatic changes over the next several years in how we approach finance in this country, it only makes sense to make this a time of personal review as well.

By Chip Workman