Go Ahead and Miss Out Financially
I love the wild ones, but most of the people who come to hire a financial planner are actually pretty prudent. They want to know that they're doing the right thing. You might think my role is to help them optimize, but it's more a matter of cleaning up big issues that can really screw you up. You have my permission to opt-out of what is culturally prominent or numerically optimal.
“I should really be investing” A surprising amount of people who say this to me are already investing in the form of a retirement plan like a 401(k) or an Individual Retirement Account (IRA) but don’t realize that counts. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. It's a risk that investors assume instead of relying on its alternatives, like the FDIC-insured bank accounts whose rates have been hovering just above zero. There are many gradients of risk, though. To pursue long-term returns, you don't have to be picking hot stocks or sectors, now or ever. You do however need to save and invest once your savings (cash in savings) is above your emergency needs (usually 6 months of expenses) and short-term (<5 year) goals. Deeply diversified investing like using mutual funds and index funds counts as investing but reduces concentrated risk. If you want buy a stock here and there, have fun! But just be aware that picking stocks is super risky, especially if it’s a big part of your portfolio. By the way, just because your aunt got rich on crypto doesn’t mean that you will too. Do you really need to be investing now? If you are working aggressively towards a short-term savings goal or debt paydown, not investing for a couple of years probably won't make or break you. It's okay. Let’s just make sure you’re going in the right direction long-term.
How rewarding are those cards really? Just because a person with good credit *can* be getting 2% or more back on their spending doesn’t mean they have to. It can be hard to get a quick view of how much you really spend and how much you have when using credit cards. Debit spending is reflected in the current month but credit spending has a one-month delay that isn’t even typically synced up with a calendar month. Poor tracking of your expenses may lead you to spend more and be worse off despite the credit card rewards, or worse, go into debt. From a philosophical standpoint, I find it irritating that businesses have to pay sometimes as much as 3% interchange fees and that poor people who can’t or don’t pay their balance in full are being dragged down into debt, paying for perks of the rich. After years of juggling multiple credit card payments, I now mainly pay cash. Hands off my Centurion lounge though, I need that.
FOMO-wnership You know what the best part of owning a home is? Proudly proclaiming to all that you're now a homo-wner! Homeownership is not necessarily the best investment, even if it might appreciate on paper. You pay more in interest, taxes, insurance, fees, and repairs than you contribute toward your principal. You're also likely to buy nicer stuff for your home than you would for an investment property precisely because it's about enjoyment and not about investment. The value is highly concentrated as one single investment, in one sector, in one geographical location. The costs of home ownership (excluding the portion you'd walk away with, assuming you ever sell) versus the costs of renting may be a wash. A lot of the appreciation in value comes down to inflation, or is less than the return of the stock market anyways. Homeownership isn't bad--it provides a sense of stability and power over your life. It provides a million ways to become handy and develop your interior design skills. It provides options such as using it as collateral in a loan. And even though the repairs dent the return on investment, equity on hand today is valuable regardless. Many people dream of one day owning a home. If you don't, then don't buy one.
Passing on the Hothead Discount This week I went into an independent bookstore where a customer asked if they could get a 10% discount on a book because Amazon sells books cheaper. That person was glared out of the store, but shamelessly asking for discounts on everything works enough of the time to save you definite dollars. So does making a stink when things go wrong. And if you want to do that, more power to you. But in situations where you’re getting yourself all stressed out just to feel financially smart, remember it's your choice to pay the price that’s listed and save your emotional energy. Of course you should pay a little attention. But if you’re in an okay place financially, not optimizing is a luxury you can afford.