Saving Early Can Start Today

plant-a-treeI usually hate inspirational quotes.  If you ask me “what would you do if you knew you could not fail” I will answer “un-follow you yesterday.”  But I am pulling this proverb out because the ‘save early’ advice can be as discouraging as it is wise.  The New York Times printed an article this summer suggesting that you set up your ROTH IRA with your first summer job as a teenager.  I mean, that’s a great idea, but…who does that?

So here’s to say- forget about all that you could have should have saved, and just start now.  Now is a great time to start, and in 20 years now will seem early.  Not first-summer-job early, but early enough.

 

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Money + Kids

kids-money-1Many people say they would have more kids if they had more….money, of course!  Kids are expensive no doubt.  Especially when you factor in lost earnings as you sideline or abandon your career in order to care for them.

I am not one to say money doesn’t matter, but there are lots of ways to raise kids, and it can be done with any budget.  So while number crunching seems like a calculating way to approach growing your family, I think the question really comes down to people trying to figure out what type of lifestyle they want to provide for their family.  Is private school part of your vision?  A big house?  Domestic help?  What type of family vacations will you take?

kids-money-2

My vision for my kids was to have lots of them (check) and to have a loving house filled with happy chaos.  Also, I’m banking on the idea that there is usually a big earning change (hopefully) in the 18 years it takes to raise a kid up and out (hopefully, again) of your house.

p.s. I thought this was funny…apparently Iran is regretting its campaign for it’s citizens to have small families.  So they have removed billboards that said “Fewer kids, better life” and replaced them with billboards that show small sad families juxtaposed with pictures of big happy families.  Ha!  Which ad campaign would you endorse?

[pic 1 + pic 2]

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Work Lunch

sahm-work-lunch

Eating lunch and working, two things that need to happen pretty much every day.

Do you pack it, buy it, or ignore it?

I tend to stand in front of the pantry and shovel carbs into my mouth with the singular goal of fixing the hungry problem.  Not a great dieting strategy, btw.

p.s. ban.do speaker, and katespade saturday for the rest.

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Investing 101: Index Funds with Brandeis, Bogle, and Buffett

index-funds-be-clever[Be clever.  Index.]

While I love talking about stock picks and gut investing, this type of investing is not where most of your money should be.  Picking stocks is gambling, it is way too risky for your savings!

So how and where should you be investing?  In index funds, no doubt. Index funds track the market by owning a bit of all the stocks.  So if the market goes up, the index fund goes up.  This tracking of the market is done by a computer algorithm with little to no human input, making them passively managed.  You can choose from a fund that tracks the entire Standard+Poor’s 500 (the 500 leading companies in America), a fund that tracks the Wilshire 5000 (all publicly traded companies in America), or a fund that tracks a subset of the market, like international bonds, or pharmaceuticals, or energy.  You can pretty much find a fund for any market segment, or for the market as a whole.

Index funds are different than actively managed mutual funds in two big ways.  One, index funds do not try to beat the market, they try to match the market.  Two, index funds are passively managed by algorithms, versus actively managed mutual funds where the stocks are hand-chosen.

Why invest in an Index Fund?  Two big reasons.  One, because the vast majority (usually around 80%) of actively managed funds do not beat their respective indexes!  This has proven true over decades of study (the first index fund was started in 1975), in both up and down markets.  Two, with Index Funds you pay no commission (in finance-talk this is called no-load) and you pay a very low percentage fee on the money you invest (called an expense ratio).

So with an index fund chances are you will beat the return of an actively managed fund, while not paying a commission.  And it turns out that fees matter – a lot.

the-relentless-rules-of-humble-arithmeticWhy are Index Funds so great?  It’s easy to take them for granted now, but these are new and pretty revolutionary funds.  Before Index Funds we were forced to pay high fees to invest with mutual funds that got lower returns than the market as a whole, especially once fees were considered.  But then, inspired by many folk before him, the original indexer John Bogle came along.  He founded Vanguard in 1974 and created the first index fund in 1975.  He is kind of awesome and is a firm believer that costs matter.  If you’re paying tons of fees your returns are going to suffer.  He calls this, in the words of Louis Brandeis, being governed by the “relentless rules of humble arithmetic.”

index-funds-listen-carefully[the rabbit is relentless and humble.  and cute.]

How to invest in Index Funds?  Go to Vanguard and open an account.  Then look for index funds with no-load (remember this means you aren’t paying a commission) and a very low expense ratio (the percentage that you pay as a fee – it shouldn’t be higher than .4).  Now continue to fund your account so you are buying gradually, and hold it so you don’t lose on transactional costs.

Think this sounds like investing for dummies?  Think the top-dogs pick their own stocks or pay money managers to buy expensive mutual funds?  Well, this is the exact same investment strategy as our friend Warren Buffet is setting out for his heirs.  Yup.

And finally, one last quote to motivate you to listen to the studies and put your money in Index Funds instead of actively managed funds…from Brandeis’ 1914 book Other People’s Money that John Bogle pulled out about self serving financial management:

index-funds-delusion

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Gambling vs Investing

lucky-acesInvesting in individual stocks is gambling.  It is going to the casino and making a bet.  It is something you do only with money you are ready to never see again.

I personally love gambling, taking risks, and betting on hunches.  Plus, irrational optimism is a chronic condition for me.  So I love picking stocks, and always think my picks are going to skyrocket.  But they don’t always skyrocket, because…it’s a gamble!!!!!!!! 

I want to be a voice of reason here, because if you start looking for advice on investing there are so people who will be delighted to take your money to pick stocks for you.  This is like paying someone else to pull the lever on your slot machine at the casino.

Your real investing should always be in index funds.  Always always.

Picking stocks is not an investment strategy, it is a game.  #dontbecrazy

Here is Jon Stewart taking Jim Cramer to task for giving people over-hyped, manic, and in retrospect doomed investing advice.

Coming up – practical advice! Where, when, how to invest your nest egg.  Don’t have a nest egg?  Doesn’t matter!  Whatever savings you have should be protected and positioned to grow.

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Hopping Off of the Hedonic Treadmill

diamond-finch[marc johns' finch gets it: 1) we want the rare bird.  2) value is all about perception.]

How can we indulge in little (or big) luxury purchases without being on the hedonic treadmill, which leaves us quickly numb to our new purchase and looking for the next?

The key, it seems, is simply to buy less.  Depriving yourself of the things you want saves money (obviously) but it also makes the money you do spend more enjoyable.   What?

As Gretchen Rubin puts it in The Happiness Project: “Because money permits a constant stream of luxuries and indulgences, it can take away their savor, and by permitting instant gratification, money shortcuts the happiness of anticipation.  Scrimping, saving, imagining, planning, hoping – these stages enlarge the happiness we feel.  Even a modest pleasure can be a luxury if it’s scarce enough.

Wait a little longer to buy those new pants, buy a coffee only for a rare treat, eat out less frequently.  The less you indulge, the more you can enjoy the indulgence.  I am pro-indulge and pro-saving.  This is, finally, the way to reconcile these competing yet deeply-held  tendencies.

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