Recently, I had the distinct privilege to join Sheinelle Jones on the Today show, discussing some rapid-fire personal finance issues in Simple Money style. Is now a good time to buy stocks? Is it a good time to buy, sell, refinance or renovate a home? We even discussed a version of the Simple Money Portfolio and my top two picks for cash flow apps that can improve your financial situation. Click HERE or on the image below to view the segment.
Parents have sacrificed their financial futures on the altar of their children’s education. Fueled by easy federal money and self-interested colleges, the result is a student loan crisis that appears already to be eclipsing the catastrophic proportions of mortgage indebtedness leading up to the financial collapse of 2008.
Please allow me to disclaim a few things:
- I’m not anti-education. In fact, I valued my college education so much that I went back to teach at my alma mater, Towson University, for seven years.
- I believe that a college education is a) inherently valuable, b) an enhancer of career prospects and c) fertile ground for unforgettable life experiences beyond the classroom.
- I’m a parent. I’ve encouraged my two sons, 13 and 11, to strive for a college education, and I’ve also offered to share in the financial burden.
- I’m not a prognosticator. Therefore, I’m not predicting an imminent crisis akin to the Great Recession, led by student loan defaults. Crystal balls don’t work, and anyone who claims to have one is selling something.
I’m also not a conspiracy theorist, but the facts, according to a new Wall Street Journal article, are indisputable:
- Overall student debt—with over 42 million loans outstanding—is north of $1.3 trillion.
- Roughly 40% of borrowers had credit scores below the subprime threshold of 620. Subprime mortgages peaked at nearly 20% of mortgage originations in 2006.
- The vast majority of the loans were originated by the federal government and cannot be eliminated, even in bankruptcy.
- As of September 2015, 11% of borrowers had gone at least a year without making a payment on a Parent Plus loan. That exceeds the default rate on U.S. mortgages at the peak of the housing crisis.
- A new generation of retirees is now having to reduce their tax refunds and Social Security benefits in order to pay delinquent loans.
Parent Plus loans, by the way, are those that parents take out to cover tuition and living expenses typically after kids have maxed out their student debt allowance, ensuring that both the apple and the tree are sufficiently indebted.
Interestingly enough, all the way back in 2011, the Obama administration placed tighter restrictions on Parent Plus loans due to concern that unqualified borrowers were loading up on unsecured debt. But schools put up a fight (successfully), suggesting that such limits impaired students’ ability to get an education.
And this is where we get a glimpse of the fundamental problem: Education has been deemed invaluable—at any price.
Yes, college can be very expensive. The cost of college education has risen well above inflation for decades, resulting in apparent absurdity. (Really, you’re telling me that the collective benefits of any college experience are worth $65,000—per year? Really?)
BUT, college doesn’t have to be outrageously expensive.
A student who commutes to a community college for two years and then transfers to State U for the final two years can get an undergraduate degree from a reputable university for the same cost as a single semester on campus at an elite private school.
With $1.3 trillion in school loan debt, a lot of water has already flowed under the collegiate bridge, but I’ll speak to those parents and students who’ve yet to burden themselves:
Sacrificing yourself financially for the sake of writing your children a blank check for education isn’t generous—it’s actually selfish. It would be much less expensive for a young adult to pay off a reasonable college loan than to bail out his or her parents who’ve run out of money in retirement and have health care bills piling up.
As they instruct on the airplane, you have to take care of yourself before you can take care of those who depend on you. Your long-term financial security (including your retirement) is a priority over your children’s education—for both of your sakes. And there are few opportunities more ripe for teaching our children financial and life wisdom than the discussions regarding college.
(If you’re looking for some guidance, here’s my “Non-Conformist’s 4-Step Education Savings Plan.”)
Please don’t take advantage of your parents. They love you, and they desperately want to see you succeed in life. But if you let them take on loans so you can party your way to a diploma, it could literally ruin them financially.
And if you’re like many who are navigating this decision on your own, please realize that the mystique of the college experience loses its luster very quickly if you’re buried in student loan debt. College truly is a value proposition, so try to restrict your total student loan debt to no more than you expect to make in your first year’s salary.
Then you’ll be able to enjoy employing your education without being stalked by its cost.
Just for fun, Google the words “market pullback.” There are over 2.2 million results–most of them market predictions–and the first page of results is dominated by calls for an imminent market reversal that the simple desk calendar has already proven false.
However, despite their worthlessness, market predictions remain as predictable as market opens and closes. (And I predict no end in sight.)
First, there’s a clear profit motive. Apparent urgency leads to activity, and activity is still how most of the financial services industry makes its money.
“Bullish predictions encourage investors to pour fresh money into the markets, helping asset management companies to enjoy rising profits,” the New York Times reported, noting that the Wall Street forecaster’s consensus since 2000 has averaged a 9.5% increase each year. They accidentally got it (almost) right in 2016, but in 2008, the consensus prognostication missed the mark by 49 percentage points (an outcome that makes your local weatherman seem like a harbinger of accuracy)!
But not everyone’s positive either. My colleague and the co-author of the new book “Your Complete Guide To Factor-Based Investing,” Larry Swedroe, analyzed Marc Faber’s perpetually cataclysmic proclamations and rendered the good doctor “without a clue.”
It’s old news that we’re busy and that we wear our busyness as a badge of honor. But a new study found that Americans, in particular, are actually buying it. Specifically, the study concluded that Americans who always say they’re “busy” are actually seen as more important. Unfortunately, it’s all a charade.
Numerous studies have shown that busyness isn’t actually good business, and here’s the big reason why: It makes us less productive. We’re all susceptible to it, but If I’m saying to myself (and I have), “Woo, I’m busy; really busy,” I’m likely being distracted from the most important, most productive work that I could be doing. I may feel like I’m doing more, but the net result is actually less. And it often feels like it.
But not everyone wears busyness as a status symbol. In response to the research and their own well-informed gut feelings, many are finding enjoyment in more productive work at a less busy pace. I wanted to know how these people recognize when they’re devolving into busyness and what they do to stop the downward spiral, so I asked 12 thought leaders who’ve inspired me two simple questions:
- How do you know when you’ve gotten too busy?
- What is a technique that you use to “unbusy” yourself?
Here’s what they had to say:
In 1967, the Beatles released the song, “When I’m Sixty-Four.” The lyrics are a preemptive plea to secure a relationship even when the realities of old age set in. Now, as the nation’s largest generation whistles this tune into retirement, the question seems less rhetorical:
Who is going to take care of us in retirement?
Not everyone will need long-term care insurance (LTC), but everyone needs a long-term healthcare plan. Your long-term care plan should incorporate the following: facts about you (and your spouse, if applicable), your age, your personal health, longevity of lineage, your retirement income and assets, your tolerance for risk, the costs and demographics of long-term care in your geographic area and information about any long-term care insurance that you own or have considered owning.
This post is the second in a two-part series. You can read the first on Long-Term Disability (LTD) by clicking HERE.
Long-Term Care Insurance
One very important thing to remember is that Medicare does not cover the costs of most long-term care needs. Allen Hamm, in his book, Long-Term Care Planning, shares the following statistics:
- 71 percent of Medicare recipients mistakenly believe Medicare is a primary source for covering long-term care.
- 87 percent of people under the age of 65 mistakenly believe their private health insurance will cover the cost of long-term care.
As an educator in the arena of personal finance, I generally avoid matters of public policy or politics because they tend to devolve into dogma and division, all too often leaving wisdom and understanding behind. But occasionally, an issue arises of such importance that I feel an obligation to advocate on behalf of those who don’t have a voice. The issue of the day revolves around a single word: “fiduciary.”
At stake is a Department of Labor ruling set to take effect this coming April that would require any financial advisor, stock broker or insurance agent directing a client’s retirement account to act in the best interest of that client. In other words, the rule would require such advisors to act as a fiduciary. The incoming Trump administration has hit the pause button on that rule, a move that many feel is merely a precursor to the rule’s demise.
Why? Because a vocal constituency of the new administration has lobbied for it—hard. They stand to lose billions—with a “b”—so they’re protecting their profitable turf with every means necessary, even twisted logic.
The good news is that informed investors need not rely on any legislation to ensure they are receiving a fiduciary level of service. Follow these three steps to receive the level of service you deserve:
The Trump administration’s move to delay implementation of the Department of Labor’s fiduciary rule has inspired me to delay implementation of my commitment to remain silent on matters of public policy and politics. It’s that important.
It seems pretty obvious that those in the financial establishment who oppose the rule do so primarily out of self-interest. After all, it’s estimated that they will lose billions in profits if the final rule goes into effect. I get it.
But I was fascinated recently when a member of the media wondered aloud if my advocacy for a wider fiduciary standard was also simply an outgrowth of my own bias.
Indeed, who’s to say I’m not just grinding my own axe on this issue? Maybe I’m in favor of all financial advisors being held to a fiduciary standard because I’m a fiduciary financial advisor and part of a national community of financial advisors that supports the fiduciary standard.
That would be a convenient rebuttal from the anti-fiduciary community, but here’s the (huge) problem with that rationale:
Much—too much—has been said and written about the relative superiority of Roth IRAs versus Traditional IRAs. The debate over which is better too often involves the technical numerical merits. In truth, the Roth wins in almost every situation because of its massive behavioral advantage: a dollar in a Roth IRA is (almost) always worth more than a dollar in a Traditional IRA. This is true regardless of one’s age, but the Roth IRA is even more advantageous for Millennials.
I must first disclaim that you can disregard any discussion of Roth or Traditional IRA if you’re not taking full advantage of a corporate match in your employer’s 401(k)—free money is still better than tax-free money. But after you’ve “maxed out” the match in your corporate retirement account, here are the top three reasons Millennials should consider putting their next dollar of savings in a Roth IRA:
1) Life is liquid, but most retirement savings isn’t.
Yes, of course, in a perfect, linear world, every dollar we put in a retirement account would forevermore remain earmarked for our financial futures. But hyperbolic discounting—and the penalties and tax punishments associated with early withdrawal from most retirement savings vehicles—can scare us away from saving today for the distant future. The further the future, the more we fear.
The Roth IRA, however, allows you to remove whatever contributions you’ve made—your principal—without any taxes or penalties at any time for any reason. Therefore, even though I’d prefer you to generally employ a set-it-and-forget-it rule with your Roth and not touch it, if the privilege of liquidity in a Roth helps you save for retirement, I’m all for it.
In a recent Forbes post, I offered five reasons for why analog task management can be more productive than a digital alternative. But in addition to the WHY, I pledged to offer specifics on exactly WHAT and HOW I’ve applied the Bullet Journal system in my own pursuit of productivity.
For fans of my online productivity system hack using Trello, please know that it still works just fine! You will see the familiar blend of Steven Covey as well as David Allen’s GTD principles in my analog system, with just a few modifications and some new Bullet-friendly verbiage.
Before you jump in, I do recommend that you watch a short video in which Bullet Journal founder Ryder Carroll explains the system in his own words. Then, here is precisely how I’ve adapted the concept for my own purposes as a financial advisor, writer, speaker and productivity seeker:
As technological innovation marches forward in so many aspects of life, there is a movement gaining momentum to return to the past in search of something important that progress may have left behind.
No, you can’t beat the convenience of streaming and digitized music, but the listening experience still falls short of dropping the needle on a vinyl record. Similarly, while the ubiquity of tech-driven tools may make the process of managing our time easier than ever, we may actually end up increasing our productivity by decreasing efficiency through an analog, manual, pen-and-paper system.
Personally, I’d been successfully employing a time-management system for years—a simplified, customized amalgamation of David Allen and Steven Covey’s wisdom—designed using the online tool Trello. As someone who believes our most valuable investment is time, however, I was still curious when a friend I respect told me about a new system that he’d been using effectively. But when I invited him to show me, he didn’t pull out his phone or tablet, but a simple journal—a Bullet Journal.
The Bullet Journal is a product, but it’s also more than that. It’s really a modifiable productivity method that has grown into a community. The system, interestingly, was created by a digital product designer, Ryder Carroll, as a way to bring the discipline of task management under the practice of mindfulness. After testing out the system for a few months—and becoming an adherent in the process—I discussed the inspiration for the Bullet Journal with Mr. Carroll.
While how, exactly, I’ve adapted the Bullet system in my work as a financial advisor, writer and speaker—including the specific journal and writing tools I use—does make for an interesting story, today I’d like to address the bigger question:
Michael Brundage had everything working for him: a great marriage, healthy children and a successful career in commercial real estate. But something—something big, but invisible—was missing, and the result was a depressive streak that led my friend and colleague to pursue therapy.
Then, in the middle of an early session, his therapist discerned the problem, which she immediately shared with Michael: “You hate your job. That’s the problem.”
Initially, Michael protested, somewhat confused. He was good at his job—very good—and it paid well, ensuring a more than comfortable lifestyle for his family. Wasn’t that what a job was supposed to be about? Indeed, several generations of Americans have bought into the notion that our work is primarily—if not solely—a means, not an end in itself.
“As a culture, we’ve collectively bought into the lie that work has to be miserable,” writes career expert Jon Acuff in his newest book, Do Over.
Michael had learned, in his words, “what a long shadow not liking your job can cast over the rest of your life.” So he decided to do something about it.
He read voraciously, including Do Over, in which Acuff offers a method to career management regardless of where you stand on the love/hate job continuum.
Acuff’s counsel applies to four different types of career transitions that everyone faces: