What better way to start off the New Year than in New York with the TODAY Show? Despite the 18 below windchill whipping through the city streets, I had a blast with Sheinelle Jones and Craig Melvin discussing the most damaging forms of debt, the top two budgeting apps, the best kinds of checking accounts, how you should respond to market highs–and lows–and how best to stay motivated to turn those financial resolutions into long-term habits!
Click HERE or on the box above to watch the segment.
While on vacation recently in the Abaco Islands, on the outer rim of the Bahamas, I found myself on an important mission: taking the golf cart to the local market to restock our dwindling supply of the necessary ingredients for piña coladas.
I was stopped in my tracks en route by a welcome sign announcing a new resident’s beachside home. It read: “Someday Came.”
The obvious implication is that these folks decided to act on their “Yeah, I’m gonna do that someday” daydreams.
But it raises many questions, right?
Who are these people? What’s their story, financial and otherwise? Did they hammer this sign into the sand after scrimping and saving, finally realizing their retirement dream following a lifetime of toil? Or are they the professionally mobile couple with young kids you see on HGTV’s “Caribbean Life,” who decided they’d just had enough of the rat race?
I’m glad I don’t have the answers, because the big question for the rest of us is worthy of consideration:
How do we define our “someday”? How do you define yours?
American retirees are screwed. The 401(k) experiment has failed. Social Security’s going bust. Savers haven’t saved nearly enough and don’t have the means to improve the situation.
However hyperbolic, this is the message that has been sent and, for many, is indeed the way it feels. But how do the facts feel?
- Many companies have abdicated the role they once played in helping support employees’ retirements through defined benefit pension plans by promoting and then under-supporting defined contribution plans, like the 401(k).
- Most pensions that remain — even those run by states and municipalities — are “upside down,” lacking sufficient funds to pay what they’ve promised. The entity conceived to insure underfunded pension plans is also underfunded.
- Some large financial firms have filled many of the 401(k) plans they manage with overpriced, underperforming funds, and offered little in the form of substantive education for the masses now left to their own devices.
- After a six-year effort to ensure that financial advisors who manage retirement assets would be required to act in the best interests of their clients, there’s a corporate and political movement afoot for firms to reclaim potential lost profits if they were forced to do right by their clients.
- Even some of the individuals who initially conceived the 401(k) concept and lobbied for it have recanted their support, regretting it ever started.
Social Security Facts:
- The program intended only to be a safety net has become the primary financial resource in retirement for too many.
- The surplus funds received when the huge baby boomer generation paid in — which are now being used to help replace the inherent shortfall of smaller generations — are projected to run out in 2034, thereby reducing the system’s ability to pay benefits by 25 percent.
There — how does that feel, now?
Big bank fees are at an all-time high while the interest they pay is at an all-time low. Worse yet, evidence recently has come to light of the criminal abuse of a practice common among large banks since the fall of Glass-Steagall: cross-selling.
Cross-selling is rooted in consumer research that large financial institutions tend to salivate over. It shows that customers are more profitable for longer when they own more products. How else could they get us to settle for deposit products for which we pay them? Does this absurdity leave you wanting to bolt the big banks?
Fortunately, you have alternatives. Here are the top four:
1) A good option for most is to flee the big brick-and-mortar bank for its younger virtual sibling: the online bank. Online banks, which lack the overhead of their more traditional rivals, can offer higher interest rates, lower fees, free ATM withdrawals and low or no minimum balance requirements. And they do.
I’ve been using an online bank for several years now and haven’t paid a single ATM fee for that entire time—and I can go to any ATM in the known universe (seriously). In the past year alone, I’ve received more than $200 in ATM fee rebates!
I recommend that you choose an online bank that best serves your needs and lifestyle. Mine, for example, offers unlimited ATM reimbursement, but others will cap the reimbursement amount or restrict you to a (typically large) number of “free” ATMs. Those banks, however, may pay a higher level of interest than my bank. Nerdwallet did an excellent job summarizing the best online checking accounts of 2016.
“Hope deferred makes the heart sick, but a longing fulfilled is a tree of life.” So reads a Solomonic proverb penned in the 10th century B.C. Consider with me, however, a contemporary application of this ancient wisdom, especially in the realm of personal finance.
“We’ve got to apologize, Tim,” said a financial planning client with whom I had a great relationship.
“Whatever for?” I asked.
“You know that new Lexus? The one that backs itself into a parallel parking spot?”
“Yes, I’ve seen the commercials.”
“We bought one,” the client said, with his head bowed in apparent shame.
I’d never communicated that these folks—or anyone, for that matter, who has sufficient means—shouldn’t use said means to purchase a vehicle of their choosing. But the general impression the public has toward financial advisors and educators seems to be that we all think the best use of money is in storing it up and avoiding its deployment. Defer, defer, defer.
The movement of markets is so incredibly complicated that even the world’s most skilled portfolio managers struggle mightily to “beat the market” over the long-term. Building a strong portfolio, therefore, must be similarly (and singularly) complex, right? Wrong. While portfolio architecture and management is not easy, here is a seven-step process that makes it surprisingly simple:
Step 1: Know thyself.
This ancient Greek wisdom is where we must begin, because personal finance is more personal than it is finance. Investing is complex because we are complex. Therefore, we must understand ourselves before we try to understand the markets. This means honestly gauging your time horizon and the returns necessary to meet your goals, but it’s especially important that you understand your willingness to take risk in the markets. You must take the gut-check test.
Step 2: Understand investing.
Unfortunately, personal finance has been reduced to a short list of “Dos” and a long (long) list of “Don’ts” typically based on someone else’s priorities in life, not yours.
But personal finance is actually more personal than it is finance.
Learn More and Get Your Copy of Simple Money
That’s why what works great for someone else may not work as well for you. Money management is complex because we are complex. Therefore, it is in better understanding ourselves—our history with money and what we value most—that we are able to bring clarity to even the most confounding decisions in money and life. As an advisor, speaker and author, I’ve made a career out of demystifying complex financial concepts into understandable, doable actions. In this practical book, I’ll show you how to
- find contentment by redefining “wealth”
- establish your priorities, articulate your goals, and find your calling
- design a personal budgeting system you can (almost) enjoy
- create a simple, world-class investment portfolio that has beaten the pros
- manage risk—with and without insurance
- ditch the traditional concept of retirement and plan for financial independence
- cheat death and build a legacy
- and more
Learn More About The Author
The problem with so much personal finance advice is that it’s unnecessarily complicated, often with the goal of selling you things you don’t need. Tim Maurer never plays that game. His straightforward, candid and yes — simple — prescriptions are always right on target. Jean Chatzky
financial editor of NBC's 'Today Show'
Here’s what others are saying about Simple Money:
“Reading this book is like having your own personal financial advisor.”—Kimberly Palmer, senior money editor at US News & World Report; author of The Economy of You
“You can’t manage your money without thinking about your life—and the system that Tim proposes can make a radical difference in both.”—Chris Guillebeau, New York Times bestselling author of The $100 Startup and The Happiness of Pursuit
“Maurer teaches us how to literally redefine wealth in a way that will both honor your life values and priorities while simultaneously reducing your stress.”—Manisha Thakor, CFA, director of wealth strategies for women for the BAM Alliance; writer for The Wall Street Journal
“Amen! Amen! Amen! Simplicity is a gift . . . and this book offers it by the truckload!”—Carl Richards, New York Times columnist; author of The One-Page Financial Plan
Read more praise for ‘Simple Money’
Has the market’s recent volatility worried you? Me too. It’s inevitable. Apparently, it’s how we’re wired. But better understanding that wiring can give us a clear decision-making framework to help us know if and when to get out of the market.
The field of behavioral finance has demonstrated that the pain we derive from market losses impacts us twice as much as the pleasure we feel from market gains. For this reason, investors are well served to name and address these emotions instead of setting them aside as they (unfortunately) have been taught.
We’ve all heard of the cost/benefit decision-making model, but “cost” and “benefit” are intellectual constructs too distant from the actual emotions that drive our decision-making. We need to address the gut—the “pain” and the “pleasure” associated with a tough decision. The following four-step model seeks to merge the head and the gut. And while it’s applicable in virtually any either/or scenario, let’s specifically address the decision to stay invested in the market or to move to cash:
1) The pain of staying invested is that I could lose even more.
In a new CNBC series on which I’ll be a regular contributor, I offered some “Straight Talk” on Social Security retirement benefit strategies that, while simple, are all too often missed.
It should be no surprise, because Social Security is an incredibly complex animal. Did you know that each U.S. married household represents potentially thousands of different Social Security options? It’s likely that you’ll need to confer with a financial advisor specializing in Social Security distributions in order to determine how you can get your maximum benefit.
I’m a speaker, author, wealth advisor and director of personal finance for Buckingham and the BAM Alliance. Connect with me on Twitter, Google+, and click HERE to receive my weekly post via email.