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Experience is a great teacher. But a little parental guidance can be a whole lot cheaper.

Into the Woods

JADAV PAYENG lives on a remote river island in India and is eloquently known as “Forest Man.” He has been planting trees his entire life, one at a time, to revive the ecosystem of his native land.
Today, the island is a dense 1,300-acre forest. It’s home to hundreds of thousands of trees and a variety of animals, such as tigers, deer, monkeys and elephants. How did he do it? Payeng credits nature.
In a 2017 interview with NPR,

Read more »

Danger Ahead

I’LL NEVER FORGET my first interaction with Wall Street. I was in my early 20s and just getting started in my career, when I was introduced to a stockbroker—let’s call him Eddie. He was a pleasant fellow with a good reputation and all the trappings of success, including a DeLorean in the driveway. He seemed like a safe choice.
My interactions with Eddie were straightforward. He would call from time to time with stock ideas.

Read more »

Great Debates

IN THE FINANCIAL world, making money is the most popular pastime—but having a good argument is a close second.
What do folks argue about? HumbleDollar’s online money guide has always included a handful of sections labeled “great debates.” I decided to expand that collection to 12—and gather them together in their own chapter. Below you’ll find one of the new sections, plus links to the other 11.
Debate No. 8: Is Indexing Dangerous?

Read more »

Making a Mesh

THERE ARE AREAS in my life where I’ve spent too much money and time trying to be cheap. My reward: steady aggravation—until I spent a bit more to get the right solution.
Which brings me to home networking technology. Most of us spend some $500 a year or more for internet broadband service. The problem: Many families are still living with old networking gear that’s slower than it should be, sometimes unreliable or provides poor wi-fi coverage in parts of their house.

Read more »

Crying Poverty

I HAVE BEEN accused of being too critical of America’s spending habits. I’m not in touch with families who live paycheck to paycheck, or so I’m told. I was roundly attacked by folks on Facebook, who claimed I lacked sympathy for the federal workers who ran out of money during the government shutdown—even before they missed a payday.
We all know there are Americans who struggle to get by on very low incomes. But that’s the minority.

Read more »

Not My Priority

SOME YEARS AGO, I had a health scare—and it taught me an important lesson about my relationship with money. My primary care physician wanted me to see a hematologist. “Your white blood cells have been trending lower for the last five years,” he opined. “We need to find out what’s causing it.”
After a number of tests, the hematologist thought I might have a rare blood disease. He said the test results were inconclusive,

Read more »

Money Guide

Deducting Interest

YOU CAN potentially take a tax deduction for the interest on the three types of loan: mortgages, education loans and margin debt. Education loans are discussed in the money guide's college chapter. Suppose you take out a loan costing 6% and you’re in the 24% federal income tax bracket. If the interest is tax-deductible, your after-tax cost is just 4.56%. Keep that tax-deductibility in mind as you consider how best to borrow. Tax deductibility also comes into play as you weigh which debts to pay down first or whether, instead, you should invest your spare cash. Under the 2017 tax law, you can deduct the interest on up to $750,000 borrowed to buy, build or improve a first or second home. You used to be able to deduct the interest on an additional $100,000 of home equity borrowing used for any other purpose, but that deduction was nixed by the 2017 law. The interest on loans used to buy taxable investments remains tax-deductible. In other words, you can take out a margin loan against your portfolio’s value and deduct the interest if you buy stocks—but you can’t deduct the interest if you use the money to buy municipal bonds or a new car. An important detail: You need to offset deductible investment interest against net investment income. The latter includes taxable interest that you earned, and perhaps also dividends and realized capital gains. Next: Mortgages Previous: Secured vs. Unsecured Article: Hitting Home
Read more »

Archive

Happily Misbehaving

IN SUMMER 2011, a rural Illinois man named Wayne Sabaj was in his backyard picking broccoli, when something caught his eye. Half buried in the dirt, he found a sealed nylon bag. Inside was $150,000 in cash. For Sabaj, who was unemployed and had, in his words, “spent my last $10 on cigarettes,” this was a godsend. Though it remains a mystery who had buried this particular stash of money, these sorts of finds are not uncommon. With some regularity, homeowners doing renovations unearth money buried in backyards, basements and bedroom walls. Often, the money dates back to the Depression era, when there was greater concern about the solvency of banks. But that’s not always the case: I was born long after the Great Depression—and I’ve seen cash hidden in some unusual places around homes. While these stories are humorous, I would argue that people who squirrel away cash like this are not altogether irrational. In fact, I would go a step further and say that—as long as they don't forget about it—these folks are actually making the right decision with their money. Why? The reality is that many, if not most, of our financial decisions are driven by emotional goals and not by any kind of logical or numerical cost-benefit analysis. While perhaps less colorful than hiding money in the broccoli garden, we all make financial decisions that are motivated by what makes us feel good. Whether it is a $5 latte, $1,000 phone or $100,000 sports car, every one of us allocates money in ways that bring us happiness, even if our spending might seem irrational to the next person. In my view, a cash hoard is no different. Whether it is in the garden or in the bank, if this is what provides you with happiness and security, then I would say it is, by definition, the right way to allocate your resources. And it's not just cash. People often struggle with financial decisions when the “right” answer from a numerical standpoint doesn't feel like the right answer from an emotional standpoint. Consider three examples:
  • Suppose you live in New York City, where the cost of living is 50% or 100% higher than it might be somewhere else. Yes, you could move and keep more money in your pocket. But you'd also be giving up a lot in terms of quality of life, so you stay.
  • Let’s say you have a very low-rate, 30-year mortgage. The math would say that you shouldn't pay down this mortgage any faster than you need to, even if you have the financial wherewithal to do so. But emotionally, you like the feeling of being debt-free, so you pay it off.
  • Suppose your grandmother left you a handful of shares in a collection of companies that you don't completely understand. Sure, you could sell them and diversify the proceeds. But each time you open your monthly statement, the shares remind you of your grandmother, so you decide to keep them.
I wouldn't criticize any of these choices. Just because they seem like purely financial decisions doesn't mean that they need to be decided on a purely quantitative basis. I don't see them as being any different from the choices I mentioned earlier—to drive a fancy car, for example. All of these choices are, in fact, rational decisions in the sense that they bring the individual happiness or security. For that reason, you shouldn't worry if you make such decisions. I will, however, add one caveat: Decisions like this are all okay as long as they are in the context of an overall financial plan that is designed to get you where you want to go. I definitely would be concerned and would recommend a change if your excessive cash holdings, your sentimental attachment to a stock or your decision to live in a high-cost city were jeopardizing your retirement. But if a certain financial choice will bring you happinessand it won't greatly hurt you—then I wouldn't be concerned. Your financial assets should bring you happiness and peace of mind. If that means burying them in the backyard, that's okay. Just don't forget where you put them. Adam M. Grossman’s previous blogs include Laying ClaimProceed with Caution and Old Story. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.
Read more »

Numbers

THOSE AGES 45 to 59 typically say they’re on track for retirement if they have at least $250,000 saved—but only 27% of this age group have that much socked away, found a Federal Reserve survey.

Home Call to Action

Manifesto

NO. 33: WE HAVE two great financial advantages: time and our income-earning ability. To grow wealthy, we should take a slice of each month’s earnings—and invest it for as much time as possible.

Truths

NO. 76: TAX DEFERRAL lets you use dollars that’ll eventually go to Uncle Sam to earn extra gains for yourself. An example: If you invested $1,000 at 6% a year and paid 22% in taxes every year, you would have $3,944 after 30 years. But if you put off the 22% tax bill for 30 years by funding a retirement account, you’d have $4,700.

Act

SET UP TWO-FACTOR authentication. If a thief gets online access to your financial accounts, your life’s savings could be at risk. What to do? If your bank, brokerage firm or fund company offers it, set up two-factor authentication. The firm will text you a special access code every time you log on or when you log on from an unrecognized computer.

Think

FIXED COSTS. Our fixed monthly expenses include items like mortgage or rent, car payments, insurance premiums, utilities and groceries. The higher these costs, the less we’ll have for savings and for discretionary expenses. The latter include things like vacations, concerts, eating out and hobbies—typically the spending that brings greatest happiness.

Into the Woods

JADAV PAYENG lives on a remote river island in India and is eloquently known as “Forest Man.” He has been planting trees his entire life, one at a time, to revive the ecosystem of his native land.
Today, the island is a dense 1,300-acre forest. It’s home to hundreds of thousands of trees and a variety of animals, such as tigers, deer, monkeys and elephants. How did he do it? Payeng credits nature.
In a 2017 interview with NPR,

Read more »

Danger Ahead

I’LL NEVER FORGET my first interaction with Wall Street. I was in my early 20s and just getting started in my career, when I was introduced to a stockbroker—let’s call him Eddie. He was a pleasant fellow with a good reputation and all the trappings of success, including a DeLorean in the driveway. He seemed like a safe choice.
My interactions with Eddie were straightforward. He would call from time to time with stock ideas.

Read more »

Great Debates

IN THE FINANCIAL world, making money is the most popular pastime—but having a good argument is a close second.
What do folks argue about? HumbleDollar’s online money guide has always included a handful of sections labeled “great debates.” I decided to expand that collection to 12—and gather them together in their own chapter. Below you’ll find one of the new sections, plus links to the other 11.
Debate No. 8: Is Indexing Dangerous?

Read more »

Making a Mesh

THERE ARE AREAS in my life where I’ve spent too much money and time trying to be cheap. My reward: steady aggravation—until I spent a bit more to get the right solution.
Which brings me to home networking technology. Most of us spend some $500 a year or more for internet broadband service. The problem: Many families are still living with old networking gear that’s slower than it should be, sometimes unreliable or provides poor wi-fi coverage in parts of their house.

Read more »

Crying Poverty

I HAVE BEEN accused of being too critical of America’s spending habits. I’m not in touch with families who live paycheck to paycheck, or so I’m told. I was roundly attacked by folks on Facebook, who claimed I lacked sympathy for the federal workers who ran out of money during the government shutdown—even before they missed a payday.
We all know there are Americans who struggle to get by on very low incomes. But that’s the minority.

Read more »

Not My Priority

SOME YEARS AGO, I had a health scare—and it taught me an important lesson about my relationship with money. My primary care physician wanted me to see a hematologist. “Your white blood cells have been trending lower for the last five years,” he opined. “We need to find out what’s causing it.”
After a number of tests, the hematologist thought I might have a rare blood disease. He said the test results were inconclusive,

Read more »

Free Newsletter

Numbers

THOSE AGES 45 to 59 typically say they’re on track for retirement if they have at least $250,000 saved—but only 27% of this age group have that much socked away, found a Federal Reserve survey.

Manifesto

NO. 33: WE HAVE two great financial advantages: time and our income-earning ability. To grow wealthy, we should take a slice of each month’s earnings—and invest it for as much time as possible.

Home Call to Action

Act

SET UP TWO-FACTOR authentication. If a thief gets online access to your financial accounts, your life’s savings could be at risk. What to do? If your bank, brokerage firm or fund company offers it, set up two-factor authentication. The firm will text you a special access code every time you log on or when you log on from an unrecognized computer.

Truths

NO. 76: TAX DEFERRAL lets you use dollars that’ll eventually go to Uncle Sam to earn extra gains for yourself. An example: If you invested $1,000 at 6% a year and paid 22% in taxes every year, you would have $3,944 after 30 years. But if you put off the 22% tax bill for 30 years by funding a retirement account, you’d have $4,700.

Think

FIXED COSTS. Our fixed monthly expenses include items like mortgage or rent, car payments, insurance premiums, utilities and groceries. The higher these costs, the less we’ll have for savings and for discretionary expenses. The latter include things like vacations, concerts, eating out and hobbies—typically the spending that brings greatest happiness.

Money Guide

Start Here

Deducting Interest

YOU CAN potentially take a tax deduction for the interest on the three types of loan: mortgages, education loans and margin debt. Education loans are discussed in the money guide's college chapter. Suppose you take out a loan costing 6% and you’re in the 24% federal income tax bracket. If the interest is tax-deductible, your after-tax cost is just 4.56%. Keep that tax-deductibility in mind as you consider how best to borrow. Tax deductibility also comes into play as you weigh which debts to pay down first or whether, instead, you should invest your spare cash. Under the 2017 tax law, you can deduct the interest on up to $750,000 borrowed to buy, build or improve a first or second home. You used to be able to deduct the interest on an additional $100,000 of home equity borrowing used for any other purpose, but that deduction was nixed by the 2017 law. The interest on loans used to buy taxable investments remains tax-deductible. In other words, you can take out a margin loan against your portfolio’s value and deduct the interest if you buy stocks—but you can’t deduct the interest if you use the money to buy municipal bonds or a new car. An important detail: You need to offset deductible investment interest against net investment income. The latter includes taxable interest that you earned, and perhaps also dividends and realized capital gains. Next: Mortgages Previous: Secured vs. Unsecured Article: Hitting Home
Read more »

Archive

Happily Misbehaving

IN SUMMER 2011, a rural Illinois man named Wayne Sabaj was in his backyard picking broccoli, when something caught his eye. Half buried in the dirt, he found a sealed nylon bag. Inside was $150,000 in cash. For Sabaj, who was unemployed and had, in his words, “spent my last $10 on cigarettes,” this was a godsend. Though it remains a mystery who had buried this particular stash of money, these sorts of finds are not uncommon. With some regularity, homeowners doing renovations unearth money buried in backyards, basements and bedroom walls. Often, the money dates back to the Depression era, when there was greater concern about the solvency of banks. But that’s not always the case: I was born long after the Great Depression—and I’ve seen cash hidden in some unusual places around homes. While these stories are humorous, I would argue that people who squirrel away cash like this are not altogether irrational. In fact, I would go a step further and say that—as long as they don't forget about it—these folks are actually making the right decision with their money. Why? The reality is that many, if not most, of our financial decisions are driven by emotional goals and not by any kind of logical or numerical cost-benefit analysis. While perhaps less colorful than hiding money in the broccoli garden, we all make financial decisions that are motivated by what makes us feel good. Whether it is a $5 latte, $1,000 phone or $100,000 sports car, every one of us allocates money in ways that bring us happiness, even if our spending might seem irrational to the next person. In my view, a cash hoard is no different. Whether it is in the garden or in the bank, if this is what provides you with happiness and security, then I would say it is, by definition, the right way to allocate your resources. And it's not just cash. People often struggle with financial decisions when the “right” answer from a numerical standpoint doesn't feel like the right answer from an emotional standpoint. Consider three examples:
  • Suppose you live in New York City, where the cost of living is 50% or 100% higher than it might be somewhere else. Yes, you could move and keep more money in your pocket. But you'd also be giving up a lot in terms of quality of life, so you stay.
  • Let’s say you have a very low-rate, 30-year mortgage. The math would say that you shouldn't pay down this mortgage any faster than you need to, even if you have the financial wherewithal to do so. But emotionally, you like the feeling of being debt-free, so you pay it off.
  • Suppose your grandmother left you a handful of shares in a collection of companies that you don't completely understand. Sure, you could sell them and diversify the proceeds. But each time you open your monthly statement, the shares remind you of your grandmother, so you decide to keep them.
I wouldn't criticize any of these choices. Just because they seem like purely financial decisions doesn't mean that they need to be decided on a purely quantitative basis. I don't see them as being any different from the choices I mentioned earlier—to drive a fancy car, for example. All of these choices are, in fact, rational decisions in the sense that they bring the individual happiness or security. For that reason, you shouldn't worry if you make such decisions. I will, however, add one caveat: Decisions like this are all okay as long as they are in the context of an overall financial plan that is designed to get you where you want to go. I definitely would be concerned and would recommend a change if your excessive cash holdings, your sentimental attachment to a stock or your decision to live in a high-cost city were jeopardizing your retirement. But if a certain financial choice will bring you happinessand it won't greatly hurt you—then I wouldn't be concerned. Your financial assets should bring you happiness and peace of mind. If that means burying them in the backyard, that's okay. Just don't forget where you put them. Adam M. Grossman’s previous blogs include Laying ClaimProceed with Caution and Old Story. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.
Read more »