Category Archives: Guest Posts

Gold Investing: At Best, a Hedge – At Worst, Completely Silly

This post on gold investing is from Chelsea, the founder of Mama Fish Saves. It provides an in-depth look at the realities of investing in gold.

Gold investing was always a topic of heated debate in my house. My grandfather was a total gold bug. He was convinced that the dollar was essentially worthless since Nixon brought an end to the gold standard in 1971. No matter how often we sparred with him on the total doomsday scenario he created in his mind where we would wake up to a completely devalued US dollar, he was convinced. Gold was the only way to protect your wealth.

My grandfather passed when I was 16, but there is a vocal minority of people who still agree with him. And with markets at all-time highs, political uncertainty abounding, and low-interest rates the debate is arising yet again. So today, I wanted to share why gold should be, at most, a very small percentage of your portfolio. And why it’s 0% of mine.

Gold investing was once recommended by investment pros. But is it still wise in today's market? Stocks and bonds are a far better choice for your portfolio. Gold is artificially propped up by investors, useless in the event of a world-wide disaster, and does not generate high enough returns to warrant a place in your portfolio.

Why some people invest in gold

Overall, I think gold investing is silly and I don’t do it myself. But for fairness, let’s start with the valid reasons some people might invest in gold. Because, arguably, there actually are some. Today, gold is primarily an investment vehicle. Gold is discussed alongside interest rates and currency values, not end user demand like other commodities. But people have valued it for generations and it still could have a small spot in your investment portfolio.

Gold can be good for diversification.

When we face a recession, the US dollar weakens, or any kind of broader crisis occurs, stocks usually decline while gold rises. The point of diversification is to have different assets that don’t move in lockstep. The way gold moves opposite the market is a positive for smoothing returns.

Gold is good when you’re worried about inflation.

The core reason many investors purchase gold is because it holds its value. Gold investors like my grandfather don’t like that the Federal Reserve can “just print money whenever they want” and value gold for its scarcity. And over the past 50 years, they have largely been right. Since 1802, the value of gold has increased about 0.6% a year, on average, while the value of a dollar has declined 1.4%, according to AAII.

Over the very long term, gold has shown much weaker returns than the stock market, which we will discuss below. That has not been the case over the last 17 years, with gold up 348% since 2000. However, that is more indicative of an investment bubble than a strong track record. If you really want to invest in gold or are particularly worried about geopolitical issues, I would recommend viewing it as an alternative investment in your asset allocation. Cap your gold investments to 5% (maybe 10%) of your total investment portfolio and buy ETFs instead of gold bars and coins.

Related Reading:

Why gold investing is silly

Winston Churchill once said, “If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.” This is true on almost every economic issue with the exception of the gold standard.

In 2012 at the Initiative on Global Markets at the University of Chicago, a panel of economic experts were asked if they agreed that a return to the gold standard would improve life for the average American. Results were unanimous with 100% of economists disagreeing with the proposition. Chicago’s Richard Thaler went so far as to say, “Why tie to gold? Why not 1982 Bordeaux?”

It has been over a decade since I debated with my grandfather about the merits of the gold standard and investing in gold. But if anything, I think his arguments are more ridiculous today than I did then. Here’s why.

You’re giving up returns to “invest” in gold

Choosing to put your money in gold is one step above not investing at all. Stocks pay dividends, public companies grow over the long term and increase their stock value, bonds pay interest. Gold does, well, none of those things. While gold might not suffer the inflation risk of simply leaving your cash in a savings account, there is still an opportunity cost of holding it. Over the long-term you are giving up significant returns for perceived security. Below I included a publicly available chart from AAII, a nonprofit investment educator, to show the difference in historical returns adjusted for inflation. Since 1802, stocks have returned an average of 6.7% a year while gold has returned 0.6%.

Source link – http://www.aaii.com/files/images/articles/9298-figure-1.jpg

Gold pricing is propped up by investors

To me, the craziest part of gold investing is retail (personal) investors who say it is beneficial because it has intrinsic value that can be passed down through generations, unlike that ridiculous paper dollar. But gold doesn’t have intrinsic value. We don’t need it for almost anything outside of jewelry. We don’t consume it; the world wouldn’t stop without it.

Since 2000, gold prices have risen 348%. In that same time period, real demand for gold for jewelry and some other small industrial, dental and technology uses has fallen over 35% according to the World Gold Council. Demand fell and prices rose. Oops, we broke economics.

What happened was that investors stepped in. Gold ETFs (exchange traded funds) were created in the early 2000s which allowed individuals to purchase gold without having to actually bury gold bars in their backyard. Investment demand grew from 160 tons in 2000 to 1,574 tons in 2016. An increase of almost 10x! This meant that investment demand went from being 4% of total demand to 36%.

What do we think would happen to gold prices if investors suddenly decided they didn’t want to be invested in gold anymore? Or if the decline in popularity of gold jewelry continues and people start taking advantage of the high gold prices to sell old jewelry for cash? The price will plummet closer to real demand and kill any potential returns.

Gold has value because we say it has value. The same complaint gold bugs make about the US dollar and other floating currencies. The difference is, it is far easier to imagine the music stopping for gold than for the dollar.

The supply of gold is constantly increasing

When you use 15 gallons of gasoline in your car, it is gone. The world no longer has those 15 gallons and it will take the planet thousands and thousands of years to produce 15 new gallons. With gold, almost all of the gold mined in the history of the world still exists today. Whether in jewelry, gold bars, or dental fillings, the gold got processed but not consumed. Every year we mine more gold and the absolute supply grows.

We have way more gold than we actually need, which is almost ironic. The exact commodity prized for its scarcity is really quite abundant.

The doomsday preppers don’t need gold

I saved the silliest for last because it is a debate I actually had with my grandfather more than once. He would explain to me this dystopian scenario where the economy or U.S. government would collapse, the U.S. dollar would be worth nothing, and we would need gold. It is actually a relatively common argument among conspiracy theorists. They have a deep seeded distrust of the government and authorities so they hide in gold.

But in a collapse of the world as we know it, what would you possibly do with gold? If your neighbor had fresh water, and you had none, he isn’t going to give you any for all the gold bars in your basement. It would be useless to him! If some kind of global crisis is what you are preparing for, you probably aren’t reading this blog. You wouldn’t trust me. I’ve been told I don’t understand. However, if you are here, I’ve got some tips. I’m not going to try to convince you the world will be fine. I don’t know that and you wouldn’t believe me. But if you really want to prep, maybe focus on food, water, and fuel. And invest in the market, just in case everything turns out alright.

Gold investing is an inflation hedge, not a path to real returns

Overall, choosing to invest in gold is accepting that over the long-term you’re giving up returns. Gold is a hedge against inflation, and performs better than cash, but you shouldn’t have a lot of cash sitting around anyway. If you can invest through the cycle, with discipline, and for the long-term, you are almost always better off buying stocks and bonds over gold bars. But good luck convincing Grandpa.

Mama Fish Saves | Gold InvestingChelsea is a mother, wife, investment professional, and personal finance nerd.

She founded Mama Fish Saves, a personal finance blog for families to provide simple answers to all the money questions we didn’t get answered in school.

She hopes to help parents feel empowered about their finances so they can achieve their dreams and raise financially smart kids!

Subscribe to her blog and follow along here.

 


What is your take on gold investing? What percentage of your portfolio is in gold or precious metals?

gold investing | should I invest in gold? | gold

41 Tips to Save Money


Today’s post, “41 Tips to Save Money,” was contributed by Tina Roth. Tina is passionate about helping people to make solid financial decisions, which motivated her to start her own personal finance blog,where she writes about money management tips and frugality. She is also the community manager at the finance guest post community.

How can I save money?

This is one of the most common questions asked by a lot of people.

Developing a habit of overspending can disrupt your whole plan of saving some money. And it can be very hard to change long-rooted bad habits. However, in order to escape from this trap of unnecessary spending, we need to find some effective ways to save money. Check out the list below and find a few new ways to save money this month!

41 Effective and Easy Ways to Save Money

Undoubtedly, there are many ways to save money. The choice to pursue any of these avenues will be dependent upon your lifestyle and preferences. Just go through this amazing list to discover some effective money saving tips.

1. Turn off your Television:

This is one of the best ways to cut down a regular expense. Paying a lower electricity bill along with staying away from those provoking commercials can actually be the outcome of your decision of cutting the cable connection or switching off the TV.

2. Keep Track of Your Spending:

Think about keeping track of your spending habits, at least for a month or two. This will help you to handle your financial issues more efficiently.

Related: How to Develop a Budget

3. Switch your Bank Accounts:

If you are being charged wrongly for your bank accounts then, think about switching your account to a different bank. You can also go for a high interest online savings account.

4. Get rid of your Debt:

Get rid of the headache of paying interest by clearing all your debts. Once you have cleared all your debts then, you can save the money for your future.

5. Plan for Having Group Dinners:

If dining out is the best refreshment for you, consider going for a group dinner. It’s an amazing way to have an access to your favorite dishes at a reasonable price.

Related: Dining Out on a Dime – 10 Money Saving Tips

6. Improve Your Credit Score:

Improve your credit score for staying benefited. Once you have a clear conception of your position, you can think about saving some money by following the above mentioned technique.

7. Build a Habit of Cooking:

Try to build the habit of cooking at home more often. This is a unique way of staying healthy as well as saving money. For the micro family, both husband and wife should take the responsibility of cooking.

8. Cancel the Gym Membership:

Think about canceling your annual gym membership if you are not going there frequently. This is a simple way to save money with minimal effort.

9. Buy in Bulk:

Buying in bulk might cost you some more money at a time, but soon you will notice the difference in the method of your savings. Opt for buying non-perishable goods in bulk.

10. Drop all the Bad Habits:

We all have bad habits. Try to get rid of those which negatively impact your health and your wallet. Stop consuming alcohol or moderate your consumption to save some money. If you smoke, stop as soon as possible.

11. Borrow a Dress:

Instead of buying an expensive dress, consider borrowing it from a friend. If you are not planning to wear a particular dress several times, it would be better for you to not waste money on it.

12. Install a Water Meter:

Install a water meter for keeping a track of your regular usage of water. Paying an excessive amount on water bills can easily be controlled by following this unique method.

13. Be Smart with your Car:

Avoid driving aggressively to stay away from accidents. Harsh driving can also cost you extra fuel, which will affect your monthly budget planning.

14. Find a Roommate:

One of the most effective ways to save money is finding a roommate to share all your expenses. The dream of living in a separate place will easily fit within your budget by getting a roommate.

Related: Would you live in an adult dorm?

15. Start Selling your Unwanted Goods:

Stop collecting items without resale value. On the other hand, opt for selling those unused items to get some money before they lose their value completely.

16. Get a Grip on your Impulses:

Don’t forget to think twice before investing in any expensive item. This will definitely save you from indulging in any kind of impulsive purchase.

17. Use Leftovers:

Utilize your fridge-clearing days by using all the leftovers of the previous day. This is an amazing way to save some money on your meal of the day.

18. Plan your Vacations Wisely:

Instead of wasting a lot of money on your overseas trips, try to find out some incredible locations near your house to visit. The money you will save from these trips can actually be utilized later.

Related: How to Save Money on Vacations

19. Transportation:

Avail public transport system instead of owning a car. If you are not comfortable traveling by bus, you can also think about getting a bicycle.

20. Conduct Purchases from Online Sites:

It may seem a critical job for you, but do consider availing the service of online shopping forums. The yearlong discount they offer on different items can help you a lot to stick with your budget.

21. Make a List Before Shopping:

Make a list before you go out shopping. This will make you think twice before getting anything that is not on the list.

22. Use Discount Websites:

You can also think about visiting the discount websites for scoring some amazing discounts on traveling or events. In this way you would be able to save a lot of money.

23. Become a Vegetarian:

If you are really willing to drastically impact your budget and health, then think about becoming a vegetarian. You can also implement meatless meals.

24. Avoid Using Candles:

Instead of buying costly room fresheners and candles, opt for using baking soda for reducing the odor. A small container of cinnamon can also work fine.

25. Clean your House Yourself:

Avoid the luxury of employing housecleaning staffs. Try to clean your house by yourself to saving at least $100 a month.

26. Get a Grip on your Phone Bills:

If you are the one who spends a lot of time outside the home, it would be useless for you to maintain a home telephone and its bill. Also review plans for mobile phones and reduce expenses as you are able.

27. Set a Budget for Gifting:

As the season of festivity is knocking at the door, you should come up with some amazing gifting ideas. Don’t forget to set a budget before getting anything.

28. Unplug Electronic Devices:

Unplug electronic devices before leaving your home. This is an effective way to save money as those devices can consume power if you let the plugs in.

29. Repair your Clothes:

Don’t throw away your favorite shirt because of a broken button. Instead of getting a new shirt, think about repairing it.

30. Brew Your Own Coffee:

Replace your habit of drinking that daily caramel mocha and brew your own coffee. This will save you approximately $4 per day!

31. Car Pool:

Sharing a ride with your fellow worker can be a huge savings. The money you save from a car pool can definitely help you in achieving something big in the future.

32. Create a Separate Bank Account:

Think about having a separate bank account other than your savings account. It can help you in reducing the chances of borrowing money from the savings account.

33. Visit Libraries:

If you are a student or live in an area with an adequate public library, you should definitely think about borrowing books from libraries instead of buying them. This is indeed an awesome way to save money to plan your future properly.

34. Read Magazines Online:

If buying magazines is the habit you cannot escape, read them online.

35. Buy Generic Products:

Brand names are catchy, but sometimes you can find similar quality goods by shopping generic.

36. Gardening:

In order to save some money, grow your  own vegetables to save on the cost of buying vegetables from the market.

37. Learn the Basics of House Maintenance:

It is very essential for you to know the basic art of maintaining a house. Try to acquire a bit of knowledge in this area, such as fixing lights, repairing walls, and painting.

38. Enjoy the Beauty of Nature:

Plan your weekend outings in beautiful parks instead of spending the evenings in fancy clubs or restaurants.

39. Buy a Water Filter:

Buying bottled water is one of the most common ways for the people to waste a lot of money. A water filter eliminates this need and helps you save money.

40. Use your Talent for Earning Extra Cash:

Maximize your skills! Starting a side business can help you earn more money, therefore increasing your ability to save.

Related: Launch Your Own Small Business

41. Opt for Leading a Healthy Life:

Leading a healthy life without any trace of bad habits like drinking or smoking is very much essential. A healthy lifestyle will save you money in the long run.

Parting Thoughts

Many times we end up spending large sums of money to fulfill our whims. The solution lies in curbing our impulsive buying nature. Just follow the above mentioned techniques to cut waste and save money today!

 

Should I Go to Grad School? Start by Asking the Right Questions

Today’s post – Should I Go to Grad School? – is contributed by Paul Andrews over at The Code to Riches, a website dedicated to making personal finance as interesting/funny as possible.

Should I go to grad school? The answer to this question may be more complex than you think, as it involves a number of factors.

Your 20’s are/will be littered with an insufferable amount of annoying questions that society will rain down upon you like a storm of toads.  “When are you going to settle down?”, “Why haven’t you found a nice guy/girl?”, “Why haven’t you proposed yet?”, “You’re going to take a year off and do WHAT?!”, “You really should do X because I know of someone who did that and apparently a singular anecdote is enough to constitute valid advice…” and the list goes on.  And of those societal pressures, there’s one that actually has some merit.  You will, at some point, ask yourself the question, “Should I go to grad school?”

After all, you’ve heard all about the statistics about how much more money you’ll make.  You’re still a relatively young grasshopper, and should be able to reap the benefits for another 30 years during your career.  And you’re not ashamed to admit that you’d feel like a cool ass muthuh fuckin’ baller with a J.D., MBA, or PhD at the end of your name.  But with the tons of different degrees you can get at the literally THOUSANDS of schools around this country, how exactly do you go about answering, “Should I go to grad school?”

That’s where I come in, my darlings.

Today is all about giving you a solid framework so you know exactly how to evaluate your options when it comes to grad school.  By the end of this epic anthology article you will be able to answer

  • What degrees make sense financially?
  • Is now a good time for me to pursue another degree?
  • Will this degree help give me what I want out of life?

The Basic Framework

via GIPHY

Let’s figure this out…

In light of the fact that I’m a personal finance blogger, I’m going to make this framework very similar to any other investment that I would make.  Here are the three things we need to make sure that our educational investment is sound?

  • What resources are being put in? – You need to be 110% aware of ALL the resources you’re putting into getting your degree. Like you should obsess over this more than a troop of 16 year-old girls obsessing over pumpkin-spiced anything’s, more than the gym-douchebag who’s more focused on looking at himself than actually working out, more than Quagmire about… well, I think you get the point.
  • What resources will be put out? – What exactly will you get out of your degree? Will you attend Yale and become part of the Skull and Bones Society?  Will you attend your local state school in order to not dive into an Olympic-sized swimming pool of debt?
  • Soft Factors – We can all sit here and pretend like this shit doesn’t matter, but I don’t write for robots; I write for peeps. Will job you get with your degree make you happy? Will you be fulfilled by the track your degree sets you on? Will it allow you to jettison all over the world and be a veritable mac-daddy?  Will it give you the “wow” factors from others you’ve so desperately craved ever since your parents didn’t attend your 6th grade graduation…

Should I go to grad school? The answer to this question may be more complex than you think, as it involves a number of factors.

Sorry, that was a little harsh.

Passive-aggressive comments aside, these are the overarching themes we’ll be using to evaluate whether you should move on in your academic life…

Resources Put In

Half of the profitability of any investment is made when you buy.  Or in our case, apply for loans or write a check to the university.  But there is lot more that goes into obtaining a graduate degree than just “money”:

  • TIME – This bad boy is first because it is, without a doubt, the most important resource you will put into your degree. Before attending grad school, the first question you need to ask yourself is, “Am I really willing to give up 1-4 years of my life to do this?” Bear in mind, these are not just some random years out of your life.  These are the years when you can run up and down Las Vegas Blvd half-naked and have it almost be acceptable.  The years that you can sleep around, drink, travel, get terrible tattoos in terrible places, and submit yourself to general debauchery and generally have it written off as “youthful exuberance”.  Are you willing to give up a solid chunk of that time for grad school?
    1. Remember, you’re not only giving up those years of fun while you toil away at papers/labs/case studies, but you’re also giving up a TON of salary while you’re in school. That $50,000 you give up per year while in law school? That counts as $150,000 that you DON’T have.
    2. If you’re answer is anything but an over-enthusiastic YES, then you have no right cutting out some of the best years of your life because mom/dad/family/friends/society says you HAVE to go grad school.  Fuck the haters, y’all.
  • TUITION – This one is pretty obvious. You have to know how much the tuition is going to be for each year that you’re going to be attending.  If you don’t know how much tuition is going to increase, look at the last five years of tuition.  Take the average percent increase, and forecast that into the future.  This could easily be $5,000-$20,000, so it’s an important number to know.
  • LIVING EXPENSES – Again, somewhat obvious, as you’re going to have to know how much it costs to live wherever your school is. And most schools will post an estimate of how much it costs to live in their given city.  My suggestion is to do your own research.  Why? Because the school’s website’s job is to convince you to apply.  But if you’re going to be dropping a few extra thousand a year just to live/eat somewhere, that’s information that you need to be specific, not just an estimate.
  • UNFORESEEN EXPENSES – There are TONS of expenses that you might not even see coming while you’re in grad school, but here are a few that come to mind:
    1. Engagement/wedding – This is a tough one, because most marriages occur around the same age as when most people are in grad school. Guys, what if you need to buy a ring while in grad school?  Money can dry up real quick when it comes to getting married.
    2. Pregnancy – I think the only thing scarier than dropping $60k on business school, or law school, is dropping that amount for a year or two and not finishing… might be worth keeping your promiscuity on the DL while in grad school…
    3. Failing a class – What if you fail a class and need to retake it? What if you don’t pass the bar, or your qualifying exams while doing a PhD? This needs to be budgeted/planned for, just in case.
    4. Tech failure – Drop your phone? Computer gets stolen? Get rear-ended by a stupid, albeit cute and charming, driver? Have you budgeted for these unforeseen instances?  If you didn’t, you’ll wish you did when they hit you out of nowhere like your 5th grade bully.

via GIPHY

It might start to feel like this…

Ok, so now we have some idea as to what’s going to go into your degree.  Obviously, it’s going to take a little bit more than your blood, sweat, and tears.  But that’s the not fun part.  Let’s look at what’s going to happen once you graduate…

 

For the other half of the article, head on over to TheCodeToRiches !

Want to Treat Yourself? Use This Guilt-Free Financial Method

Greetings from sunny Las Vegas, Nevada! This guest post, “Want to Treat Yourself? Use This Guilt-Free Financial Method,” was contributed by Dave at FinancialJiuJitsu. At FJJ, trainers Dave and Don are constantly learning new things about finance and want to share their stories with you to help you out! They realize that a lot of people interested in getting ahead do not have a huge amount of money just sitting around, nor would they need a huge amount of money to be happy.

When it comes to your finances, the temptation to treat yourself can be fierce. If you want something new, follow this advice and remain guilt-free.

Want to Treat Yourself? Use This Guilt-Free Financial Method

So a few months ago I’m browsing Craigslist looking at classic cars. Or junk cars if you prefer. In California we have a smog system which only allows cars of pre-1975 vintage to be exempt. Reading between the lines here that means that if you like hot-rodding engines or working on anything that you ever want to be fast, it has to be pre-1975. Hence my search criterion. The 200$ minimum eliminates the dealers and people who list their 12,000$ cars for 12$. There should be a law against that type of abusive false advertising but I digress. . .

When it comes to your finances, the temptation to treat yourself can be fierce. If you want something new, follow this advice and remain guilt-free.
My typical search when bored

Long story short I find some killer deals, like I always do. And again like I always do I ask myself the question:

“Do I really need another hot rod project?”

Of course I do! But last time I checked, remember this was from a few months ago, I still had a 1973 Lincoln Continental Mark IV with a 460 in the driveway. Having another vehicle whose function is even slightly similar to the weekend cruiser/ engine build project in my driveway would be unnecessary end even cumbersome. The amount of time and effort it takes to keep a classic vehicle ready to enjoy and drive is not trivial. So doubling that even if one of them is “complete” at the moment is absurd. And then there is this quote from Jonny Depp which is relevant:

When it comes to your finances, the temptation to treat yourself can be fierce. If you want something new, follow this advice and remain guilt-free.

Of course we car guys know that we are capable of so much love when it comes to cars. We could leave one in the woods to turn into a rust bucket after 20 years and if someone asked us if we loved that car, we would say yes. We will also say we love cars that we see passing in the street or cars that we only just met. Ah the heart is a fickle thing but I digress…

The solution to this dilemma is, of course, coming to terms with your inner desires and understanding yourself in a deeper fashion and blah blah blah whatever leave this site and try to find some more click bait

Here I will stop and say that at Financial Jiu Jitsu (FJJ) we have promised to give you insightful ways on how to actually handle your affairs, and we will not always spout trite garbage in your direction. This isn’t Facebook or Twitter where everybody has advice, but it is rarely unique or even slightly insightful. So let me mansplain this for you in a conclusive fashion:

  1. You want something cool

  2. You already have something cool

  3. What do you do? Go to our site and do some soul searching.

We say: If you want to avoid guilt, get on with your life, and buy something totally savage all at the same time, just sell something first.

In this instance I Immediately posted the following:

When it comes to your finances, the temptation to treat yourself can be fierce. If you want something new, follow this advice and remain guilt-free.

And within a month it was sold. The article is here and it was not a very profitable flip but it was a very educational build for me.

Now – you know what the kicker is? I still haven’t bought another car and that sale happened about a month ago. In my 20’s I would have not had the patience to even wait until this car was sold to buy another and get started all over again. And in the interim my driveway would have been clogged, I would have been fixing 2 cars at the same time (inevitably with the classics,) and I would, of course, have been tempted to lower the price of the car I had for sale to attract more buyers. In this case I avoided all of those problems and more by following some simple advice:

If you want something, sell something first.

When it comes to your finances, the temptation to treat yourself can be fierce. If you want something new, follow this advice and remain guilt-free.

 

 

 

Jiujitsu Financial


Readers, how do you treat yourself within reason? Do you sell something before buying something new? Save and pay cash or leverage credit? What’s your method?

Self-Control and the Stanford Marshmallow Experiment

Today’s piece, “Self-Control and the Stanford Marshmallow Experiment,” is a guest post written by Ryan, the creator of Frugal Familia. Ryan’s site is dedicated to bringing families closer together while also teaching positive financial behaviors. Frugal Familia attempts to confront the shortcomings of personal finance in our educational system by shifting the responsibility to the family and by making concepts both easy and fun to learn!

Follow Frugral Familia on Twitter.

There are two types of people in this world: those who practice self-control and those who seek instant gratification. Which type of person are you?

Self-Control and the Stanford Marshmallow Experiment

In my younger years I would have failed the marshmallow test miserably. I was all about the got to have it right now mentality. Fast forward to today and my mentality has changed dramatically. Now, I say bring on the marshmallow test, the Portillo’s chocolate cake test, or any other test for that matter! You may be wondering what has brought about such a change, and the answer is actually very simple. I’ve taught myself the importance of self-control and delayed gratification.

The Stanford Marshmallow Experiment

The Stanford Marshmallow Experiment was a study conducted by Professor Walter Mischel at Stanford University in 1960’s. In these studies, a child was offered a choice of being able to eat a single marshmallow now, or if they were able to wait fifteen minutes, they would then receive two marshmallows. Some of the children were able to resist the temptation while others were not. The researchers continued to follow up with the children for the next several decades. The results found that those children who were able to wait the fifteen minutes for the additional reward tended to have better life outcomes. Here are a few of the unexpected correlations.

  • higher rates of educational attainment
  • higher SAT scores
  • lower body mass index
  • lower divorce rates
  • lower rates of drug/alcohol addiction
  • better social skills

The marshmallow test over the years has become synonymous with temptation and willpower. This, however, gives way to an entirely different discussion:

Can self-control and delayed gratification be learned, or are they genetic? 

One of the oldest arguments in history is the nature versus nurture debate. To address this concern, there was a follow up study done at the University of Rochester in which the marshmallow test was duplicated, this time with a twist. Before offering the children the marshmallow, the children were split into two groups.

The first group was exposed to a series of unreliable experiences. For example, the researcher gave the children a small box of crayons and promised to bring a bigger one, but never did. Then the researcher gave the children a small sticker and promised to bring better stickers, but never did.

The second group had very reliable experiences. They were promised better crayons and got them. They were told about the better stickers and they received them.

And the results…

In this study, it was found that the second group of children waited an average of four times longer than the first group. This shows that the child’s ability to delay gratification and display self-control was not genetically predisposed but rather a result of their individual experiences and environments. I do believe this assumption holds water. As I mentioned at the beginning of this post, I myself have also been able to learn these critical abilities over time.

Self-control
Frugal Familia says, “Bring on the Portillo’s chocolate cake challenge!” (Credit: ChooseChicago.com)

Self-Control and Delayed Gratification In Our Everyday Lives

As Madonna so keenly observed in 1984, we live in a material world. Life is constantly tempting us to indulge in our guilty pleasures which are so readily available. It is up to us as strong minded individuals to resist those urges and exhibit delayed self-control and gratification behavior.

We can choose to have something now, or we can choose to have something bigger and better at a later time. We can have a single minion today, or we can build an army of minions in the future. Every day we are faced with multiple decisions which test our ability to either receive instant gratification or delay gratification. Here are just a few examples;

If you delay the gratification of relaxing and watching television, then you will be more productive.

If you delay the gratification of ending your workout sooner, then you will be stronger.

If you delay the gratification of eating dessert or unhealthy foods, then you will be healthier.

If you delay the gratification of making an expensive purchase, then you will be wealthier.

Delaying gratification improves our willpower and ultimately helps us reach our long-term goals faster. For some people this behavior comes easier than for others; however, fear not – these are behaviors that anyone can learn.

Techniques To Improve Delaying Gratification

With consistent effort and practice, anyone can implement the following techniques to improve self-control and and embrace delayed gratification.

Avoidance

If you cannot resist temptation avoid it! As the age old proverb says, out of sight, out of mind. If you like to spend money shopping, don’t go to the mall. If you tend to crave fast foods, bring your lunch to work.

Distraction

The children who were able to resist temptation in the marshmallow experiment distracted themselves from eating the marshmallow by singing, playing with their fingers, closing their eyes and other techniques. If you are unable to avoid a particular situation, then it helps to find a distraction. One way of doing so is by focusing on another pleasure which is not currently available. The more you can take your focus away from the temptation, the better.

Visualization

Visualize the end goal. If you’re saving for a down payment on a home, print out a picture and keep it somewhere to serve as a constant reminder. If you find yourself tempted by dessert, visualize those calories going straight to your hips.

Conclusion

I’m sure most have heard the saying “good things come to those who wait.” Yet it seems so very few of us actually heed this advice. I imagine that with a little hard work and by employing some of the techniques above that anyone can develop better self-control and delayed gratification.

It’s important that we constantly remind ourselves that every decision in life comes with a trade-off. Every time we seek immediate pleasure we are stealing from our future selves, robbing ourselves blind of our future happiness, health, and wealth. I don’t steal from others, so why the heck would I steal from myself?

When we get down to it, there are two types of people in this world. There are those who seek instant gratification and those who are willing to resist their impulses in order to obtain greater pleasure in the future. Which type of person are you?


Do you think you would pass the marshmallow test? Do you naturally practice self-control or seek instant gratification?

How to Get 100% More For Free

Today’s article, How to Get 100% More For Free, is a guest post by FL at FinanciaLibre. As FL explains on his site, FinanciaLibre is here to help you bridge the gap between the wealth you have and the wealth you need to for optimal freedom and maximum life awesomeness. An economist by training with an MBA from a top-5 business school, FL has written several economics research papers, had his work presented before the Supreme Court (Note: an earlier version incorrectly indicated that FL has testified before the Supreme Court), and advised Fortune 100 companies. Prior to reaching age 35, FL achieved and financial independence; he will never again have to participate in mandatory work.

Note from FinanceSuperhero: I wrote the introduction above; it is not a self-congratulatory bio from FL.

How to Get 100% More For Free


To get 100% more of something, you usually have to pay twice as much.

Yeah, you can sometimes grab a bulk discount, but that only gets you a little more for “free.” Say, 15%. And it mostly applies to stuff like toilet paper and peanuts.

Which is great but not exactly life changing.

It turns out, though, that really, truly valuable stuff – things like personalized help getting a better job, or even tax-free cash – are available at discounts that make cheap TP and legumes look downright caro.

By which I mean the good stuff’s free.

You just gotta mind your pints and quarts to get it.

Twofer Tuesday

Someone out there’s saying, “Shucks, FL, I got me six tacos for the price of three last week. Ain’t hard to do.”

Ok. It’s agreed that tacos are nice and can be had for half-off. But they pale in comparison with career growth or cash. They’re more like peanuts. And getting fat at the Taco Hut doesn’t tell us much about how to score 100% more good stuff in life.

So, instead of chowing down on Tex-Mex, let’s listen to a story about two dudes we’ll call Rico 1 and Rico 2. Despite their names, they aren’t rich. And they aren’t real smart.

The Ricos can’t nail down the finer points of an effective cover letter. So each emails a rough draft letter to a bunch of different contacts and asks for their help. A few people respond to their respective Rico with redline comments and vague encouragement.

To this point in the story, Rico 1 and Rico 2 are identical. But now they diverge just ever so slightly.

Both Ricos reply to those who provided assistance, and both ask for yet more help on yet another cover letter. (Like I said, not real smart.) But Rico 1 is expressly grateful for the assistance provided on the first letter. And Rico 2 is expressly neutral about the help.

So how does each fare going forward?

Well, neutral Rico 2 gets about 32% of the initial respondents to help him again. Which ain’t bad for a dunce.

Grateful Rico 1, on the other hand, gets 66% of the original helpers to help some more.

A 100%+ better result for Rico 1…simply by saying “thanks, bro.” Which is free.

The study summarized here exposes a super-profitable truth. Saying “thank you” can work for us wily Luchadores big time.

Exhibiting gratitude is an incredibly powerful motivator that causes people to do the things you want them to do. And in many cases to do those things eagerly.

Unlike so many other levers we can pull to get better personal or professional results, saying “thank you” is costless and, even without an external payoff, makes the thank-er (e.g., Rico 1) happier and healthier.

Which makes “thanks” pretty good stuff.

Sunday Brunch

“I’d rather get me some free tacos than a durn’d redline cover letter,” you say.

All right, so it’s hard to put a dollar figure on career help, and some might prefer lunch to life coaching. But depending on the people you’re emailing, cover letter revisions are probably a lot more valuable than chicken wrapped in fried cornmeal.

Nevertheless, to sate your need for numbers, the power of “thanks” has been subjected to other, more economically geared studies that sketch out a rough financial value for gratitude.

These more quantitative studies also reveal additional insight into how we can turn tiny gestures of gratefulness into a whole lot of rich and creamy goodness in our everyday lives.

Maybe the best series of economic inquiry into the value of “thanks” investigates servers’ tips at restaurants.

Ever wonder why your waiter writes “Thanks!!!” along with seven smiley-face drawings on the check at Sunday brunch? It’s not just to torment your last bits of hangover with unbridled enthusiasm.

It’s because that scribble is worth around 18% in additional tips.

More personalized gestures of thanks (that are also essentially costless) are associated with even higher incremental tipping rates.

Which is not only free money. It’s also tax-free free money. Which is even better than picking a winning Powerball number or striking it rich with pink sheet stocks. Neither of which is riskless or cost-free like throwing out a gracias. And neither of which is worth trying unless you’re a masochist with a burning desire to be broke.

From one of the studies, this quote nicely summarizes the economic power of “thanks” when it’s scaled up to industrial levels:

“Inexpensive and personalized gestures of gratitude…could mean millions of dollars in extra income annually…”

Boom.

Monday Morning

By now you’re probably furiously scrawling out thank you notes onto stray Post-Its and shouting your appreciation at random passersby.

That’s not the worst possible way to go about your business. But it’s not the best, either.

The research on “thanks” implies a handful of practices for putting gratefulness to use for maximum Luchadorian profit and life awesomeness:

1. Be Honest

As a species, we’ve developed highly attuned bull-dars and crap-ometers. If we get a whiff of BS or saccharine-sweet-overkill, or if we suspect someone’s being less than 100% genuine with us, we aren’t going to do anything to help. We might even try to punish the bad behavior.

So don’t bother thanking people with a less-than-earnest emotion behind the gesture. They’ll see through you faster than chicken tacos give you indigestion.

As illustration, recall Office Space character Bill Lumbergh, Peter’s passive-aggressive boss. He thanked the crap out of people. But he was less-than-earnest. So they smashed his Porsche and burned down his office.

Be honest. You’re thanking somebody for something you genuinely believe they deserve thanks for.

By being honest, you light up the part of the thank-ee’s brain that makes them feel needed and socially valuable. Which they like. And which they like you for doing. It doesn’t work if you’re a phony like Lumbergh. Or if you drive a Porsche (probably).

2. Be Timely

Before I retired I used to do a fair amount of interviewing – I’d chat with candidates for jobs or placement into b-school.

Most of the time (but not all… really?!), people sent follow-up thank you notes. And most of the time they were very nice. And they more or less hit all the right notes.

But a handful of times I got an email and honestly wondered who the hell the sender was: Do I know this person, or is this some souped-up version 2.0 Nigerian inheritance scam?

I’d eventually figure it out: Oh, I interviewed this sloth two weeks ago. For the position we filled last Thursday.

Get on it. If the “thanks” isn’t there at the right time, the window for profit’s already closed. Can you be too eager beaver? Well, sure. But early is almost always better than late.

3. Be Specific

To get the most out of people around you and make your “thank you” currency buy as much as possible, you’ve gotta be specific about the thanks.

This is different from being honest. “Specific” means you’re detailing why the person you’re thanking is valuable and appreciated.

If Rico 1 says, “Thanks for being great!” that’s way less powerful than saying, “Thank you for the thoughtful revisions to my boneheaded cover letter.”

By being specific, you link the “thanks” reward with a specific behavior that’s valuable to you. And which might benefit you again in the future.

For example, staff shown gratitude for their work efforts by The Man are more engaged, work harder and are way less likely to jump ship than employees who aren’t shown appreciation.

That kind of gratitude works well for The Man because it’s tied with specific actions that benefit The Man.

4. Make It Actionable

Something that makes advertising ineffective is the absence of a call to action. You have to tell your audience what you want them to do. Or else you’ll have gotten everybody hot and bothered for nothing.

Same thing with “thanks.” To be really effective at parlaying a thank-you into a return, it has to be obvious what you’d like that return to look like. And the return has to be manageable and realistic; asking for a pair of Ferraris won’t get you far.

For waiters, it’s implicit and doable: “Here’s the bill. That line next to the word ‘Gratuity’ is vacant. Please fill it with a large integer.”

For Rico 1, it was explicit and more or less reasonable: “I’m a colossal dunce. Please help me with another cover letter.”

If you do this, you’re more likely to get what you want. In some cases, 100% more likely.

Thank You

All of which can be tough to do artfully. So let me summarize here:

Thank you, excellent reader, for enjoying this beautifully crafted piece of artisan econ-awesomeness.

I’m super-pumped you enjoyed the ride, and I hope our time together has left you wiser, happier and one-step closer to financial independence.

If you wouldn’t mind, I’d really appreciate your help with something: Could you work regular stops at FinanciaLibre and Finance Superhero into your daily routine for making your every waking moment the absolute best ever?

That’d be rad.

Thanks much!

Your bud,

FL


How have intentional-yet-unexpected gestures of gratitude impacted you? Do you strive to exhibit thanks to others on a regular basis?

Also, check back here on Sunday for a delayed version of The Legion of Super-Posts.

From Zero to Hero: Skills to Advance Your Life

Happy Friday, readers! The fact that you are reading this post means I have survived the first few days of school. The first few weeks are always a whirlwind of excitement and chaos for students and teachers, but they are fun, as well.

While I ease back into the school year and keep a pretty full slate with my side hustles, I am happy to host yet another excellent guest post.  Today’s piece comes from the one and only Mr. AE at Apathy Ends. If you haven’t checked out his site, I recommend you do so today. You can also follow Apathy Ends on Twitter and Pinterest.

The ApathyEnds logo
The Apathy Ends logo

Take it away, Mr. AE!


As you wade through life you move from the bottom of the ladder to the top. The kicker is, you are only on top long enough to enjoy the move for a brief spell before tumbling back to earth and starting from the bottom again.

The typical cycle looks something like this:

Freshman -> Senior ->Freshman -> Senior -> Entry Level Job -> Senior -> New Title -> Senior New Title

Rinse. Repeat.

The last two iterations can go on for 40-45 years; that sounds exhausting.

We have decided to break the above cycle and are pushing our way to the top of ladder, but plan on staying there for the majority of our adult life. Putting job titles, income, awards and acknowledgments in a bin labeled “crap I don’t care about” is the dream.

I don’t plan on looking back and saying “I was the Senior Master VP of Made Up Job at POS Corporation for 15 years.” I want to say “From this day forward, we will make our own decisions.”

To do this effectively, we need to be Financially Independent. Those words may mean different things to every one, but to me, they mean – Money does not dictate our decisions, we are not dependent on work to fund our lifestyle.

The irony is to accomplish this feat you need to be on your A game in many different areas, and unfortunately a traditional job is the vehicle of choice for most of us. Even though I do not enjoy my job, making more money is the fastest way for us to accomplish our goals. I am going to outline some skills that have increased our salary, cut our spending and paved the way for happiness.

Some Skills to Help you on Your Path

Solve problems

Be a problem solver, not a problem avoider, or worse a problem creator.

Remember that the easiest solution/method might be the right one. Organizations tend to overthink simple procedures and processes and make them way more difficult than they need to be. Install simplicity whenever possible.

Bring a solution to every problem you identify. I can’t emphasize enough how huge this is for your career and personal relationships. Employers don’t promote people that point out issues and don’t think about potential solutions. Effort will not got unnoticed and it is OK to be dead wrong occasionally.

Think Critically

The majority of my peers are Millennials, and critical thinking is not a widely used skill in our generation. Its not that we don’t posses the intelligence, it’s that we want to be told the answer now. This is a downside of the information age, we don’t take time to set out our options and weigh them against each other or potential outcomes.

Use fact or probability based evidence to support your outcomes whenever possible.

Learn To Live With Less

I know first hand how much “stuff” can start to clutter up a home. We went through a Decluttering Challenge and got rid of over 231 items that we simply did not need.

  • Hobby Equipment – Is there a pile of sports equipment in the garage going unused?
  • Square Footage – Have 3 of your 5 bedrooms turned into a glorified storage container?

An interesting thing happens when you rid your house of a bunch of stuff that cost money at one time. Whenever you go to buy something, your brain visualizes everything you got rid of and you second guess your purchases.

Seek Happiness – Destroy Stress

Money is a contributor to stress, the longer it goes unmanaged the deeper the hole you have to eventually dig out of.

One of the most ironic things I have observed is people will spend money on things that don’t make them happy and compound money stress by having less of it.

Try flipping the equation to only spending money on things that TRULY make you happy. It can be anything, I like craft beer, good food and a day on the lake. That means I cut out fast food lunches at work to eat 2-3 good meals at a new restaurant and a 12 pack of craft beer in the fridge at all times.

Don’t Care What Other People Think

Excluding your significant other and family/friends (I go back and forth on them some days) don’t waste time caring what other people think of your decisions. It is not a productive use of your time, energy or brain power.

Do what makes sense for your family and your goals. Don’t feel pressure to spend time or money on anything you are not interested in.

Take Away

There are a lot of things working against you and you may be working against yourself just as hard. You need to manage your money, time and resources effectively to get on top of the ladder for the long haul.

Take some time to separate what brings you joy and strategically cut out the rest. I don’t like Big Bang events, avoid cutting everything in one day. Spread it out over a few months and make sure your changes take hold.

Thanks for hosting today Mr. Superhero!

Thanks again to Mr. AE for his willingness to share a guest post, and be sure to check out Apathy Ends!

The Media Will Destroy Your Finances

Today’s guest post is by Stefan over at The Millennial Budget. Stefan recently graduated from college with his MBA and is sharing his journey towards financial freedom. If you are interested in investing and personal finance make sure to check out his blog!

Note from FinanceSuperhero: Special thanks to Stefan for not only his willingness to share a guest post, but also for doing so during my first week back in the classroom!


The media is one of the most powerful forces of the modern era. It has the ability to influence the way we perceive certain items, made celebrities the “gold standard,” and shapes the way we spend our money.  If we listened to everything the media says I could almost guarantee that you will never retire and live the paycheck to paycheck lifestyle for the rest of your life. That is a hard pill to swallow but sadly it is the truth.

In my opinion, the media worries only about the short term. Personal finance on the other hand has a very long term focus.

To drive home this point let’s explore three different ways the media can potentially destroy your finances.

Today's media is a far cry from the days of Walter Cronkite.
Today’s media is a far cry from the days of Walter Cronkite.

Psychological Influence

The media has mastered the art of psychological influence. Many people turn their TV on and skew their perception of wants into needs.   We are bombarded with a seemingly endless stream of advertisements these days that it sometimes becomes hard to figure out what we want in life versus what we need.

When watching a car advertisement, we distort the purpose of a car. Cars are meant to get us from point A to point B. However, this is far too simple of a task. Rather than focusing on what we really need a car for we want to have a high end brand, reverse sensor (I must admit this is very handy), radio satellite, and so much more. But do we really need all of these added accessories, not to mention higher payments, if we choose to go with a lavish brand?

Let’s be honest, television is focused on one thing, their ratings. When we turn the TV on and see everybody driving fancy cars, living in a big house, and going on vacation a couple times a year, we perceive this as the way we should live. Rather than recognizing that these are all wants rather than needs we attempt to mimic this lifestyle as we associate it with success. While many people do attain this lifestyle, far too many attain it through debt and the paycheck to paycheck lifestyle rather than improving their quality of life slowly over time based on their current financial situation.

The Celebrity Lifestyle

The Olympics is the greatest sporting event in the world. Elite athletes gather every four years to show off their talents in a true spectacle. At least, this is what it should be. In recent years this sporting event has become an advertiser’s dream.

I am not sure if anybody saw the gear Michael Phelps wore during his races but he wore a cap with his brand MP on it. This subtle advertising has a major impact on the swimming community and those trying to emulate the greatest Olympian of all time. Being a former competitive swimmer, I can tell you that his cap will have little to no impact on the average swimmer’s times but it will cost them a few dollars more. So why do people buy it? Simple, the psychological influence added with the face of celebrity as a brand ambassador turns a want into a “need.”

Olympics aside, think about some of your favorite shows or celebrities. I was watching Chopped two nights ago and a contestant said that if he won the prize money he would spend it on purchasing clothing similar to the judge’s since he associates the judge’s style with his success. People often try to emulate celebrities “television lifestyle” that it leads to the paycheck to paycheck lifestyle.

Short-Term Mindset

Last but not least is something that irks me as an investor. If you do not understand investing properly I highly recommend that you invest in index funds or in a service such as Betterment that offers low-cost diversification. However, if you are willing to take on more risk, like I am, then I strongly urge you to take nothing the media says seriously.

Brokers and the media have one goal in mind: Generate commissions and ad revenue. One month they may say that Stock X is a great hold for the future and should be in everybody’s portfolio. A few months later you will hear the analyst talking about the grim prospects for stock X and that they are selling their position in the company.

Here is the problem with this. If you are using a broker such as Motif, a personal favorite of mine as they have low trading fees of $4.95 a trade, then you will pay $4.95 when you buy the stock and another $4.95 when you sell the stock. On top of this you will have to pay any capital gains at your regular tax rate as you held the stock for less than a year. These can be costly mistakes that add up over time and put a significant dent in your retirement savings.

Here is my suggestion if you are going to invest in individual stocks. You need to have a long term mindset and ensure that the company is in an industry that will be growing in the future. They should have a competitive advantage and management that can execute their vision. Do not focus on the day to day events in the market but rather the future prospects of each individual company. If the market crashes stay calm and find some extra money to invest as history shows that the market has positive returns over an extended period of time.

Final Thoughts

The media has it pros and cons but if you take it too seriously it can destroy your finances. If we focus on our personal lifestyle and goals rather than other people’s own we stand a much greater chance of breaking free from the financial shackles. Start by stripping down your spending to the bare necessities and build your budget around this. I am a big believer that living life at all stages is important for our happiness so I like to include an account in my budget for travel and other luxuries. Be responsible with your money and your financial goals will be achieved.


Readers, how has the media influenced your spending? How do you block all the advertising we see today? What advice would you give to people easily influenced?   

Tracking Your Net Worth

Super Millennial LogoToday’s guest post is from a fellow superhero. Michael is the creator of Super Millennial. He teaches people how to evaluate their financial situation, simplify money management & automate their investments to reach their financial goals. Subscribe for his personal finance “Keys To Success” and blog updates here. Make sure to follow him on Twitter as well.

Note from FinanceSuperhero: This post greatly influenced me to begin tracking my own net worth in earnest. Ironically, when I started tracking my net worth for the first time in earnest rather than simply maintaining awareness of a ballpark figure, I was pleasantly surprised to find out that it was much higher than I had previously thought.

 

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Everyone wants to be a millionaire or billionaire, but to most people it’s just a dream and will stay that way forever…UNLESS you decide to make your dream a GOAL & work hard to achieve it.

If you’ve read “Think & Grow Rich” or Millionaire Next Door it should be evident how important goal setting is in all aspects of life, including finances. Wanting something is one thing, planning & going after it is another…one way to start focusing on becoming a millionaire (so you can ball out like DJ Khaled in any of his 80 music videos) is tracking your net worth. Even though I don’t think he has mentioned/screamed it yet, it’s a major key to financial success (trust me).

Do you know or track your net worth? I’d be pretty surprised/impressed if you are. Whenever I ask someone if they are I tend to hear the same few excuses:

  • “Why should I track it? Seems time consuming & doubt it’ll matter ”
  • “But I don’t have that much money…”
  • “What’s the point of tracking a few thousand dollars?”
  • “I’m way too in debt to want to see exactly how much”


It doesn’t matter if you have $1,000 or $1 million dollars, it’s amazing how helpful it is to track your overall net worth…and it takes five minutes a month!

I started tracking my net worth after reading J Money’s “Budgets Are Sexy” …. over the past eight years he’s been able to go from 50K to now 500K and shows exactly how. Needless to say I was very inspired to start…

I REALLY wish I would have started this earlier in life, I’ll be honest and admit I just started in late 2015 (around 9 months now) and within a few pay periods I was amazed at how much it factors into my financial decisions (& how good I was at saving). Don’t worry I’m not asking you to track every single penny you spend, because I know you won’t (nor would I), let Mint automatically do that for you.

I’m only asking that you do this once a month, not daily or weekly to really see your progression and how easy it become to get “richer” by paying attention to your finances.

Here are the top benefits of tracking:

Main Benefits:

  • Financial Progress: We all want to evolve & progress in anything in life, its human nature. It’s even better when you grow your $$$ & can look back to the month or year previous and see how far you’ve come. Progress is impossible without change! 
  • Confidence Builder: For example if you saved an extra $1,000 in your emergency fund or watch your 401K increase due to a bigger contribution. It will make you feel proud of what you’ve been able to accomplish (and want to do more)…..do you think millionaires just got there by luck? No they made a conscious effort to earn, save & repeat! 
  • Avoids focusing on just assets: If you have 200K in assets but 100K in debt you’re just lying to yourself, it’s important to factor both into the calculation.
  • Loans: Your net worth can be a factor if you plan on applying for a loan in the near future (i.e. banks feel more comfortable giving you a loan when you have good credit & money in the bank).


How should you track it? There isn’t one specific way but here’s how I do it and takes up 5-10 minutes each month. I pull up my Personal Capital account for most of my accounts and then add to a google doc (not all of my accounts sync w/PC). 

It doesn’t matter if you use it or a different version, it’s just important to get in the habit of tracking your progress. Make sure to include all accounts and a comments section so you can notate when there are major +/- changes (i.e. 401K increase, stock market drop 5%, tax refund, inheritance, etc).

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You’ll spend 5-10 minutes a month entering the information for assets & liabilities and it will caclulate your net worth.
Here’s what you should include:Assets

  • 401K – You have a 401K and contribute AT LEAST to your employer match right?
  • IRA – Roth IRA’s are amazing, if you need to learn more check this out.
  • Checking Account:  I personally use Chase, but where’ve you bank make sure you don’t have a monthly “convenience” fee and low ATM fees if you bank at another ATM. 
  • Savings Account: I love Ally bank – no fees & 1% interest is better than nothing
  • Brokerage Account: If you have one…
  • Additional Accounts: Any other investment, CD, money market, etc….

 

Liabilities

  • Auto Loans: This is an asset and a liability, if your car is valued at 25K and you have 15K left on the loan add the 25K to assets & 15K to liabilities.
  • Student Debt: Yes they suck but you gotta include them too…..
  • House: Same as the car example…this is an asset and a liability, if your house is valued at 250K and you have 150K left on the loan add the 250K to assets & 150K to liabilities.


Regardless of where you are financially, knowing your net worth can help you evaluate where you are and plan for your financial future. Once you understand your situation you become more aware of your spending/budgeting and can achieve both your short and long term goals.  

On top of planning and reaching goals it will also help you stay motivated and can be a huge confidence booster. It can also make you aware of your current investments and how they are fit for different market conditions. For example in February the stock market dropped but my net worth barely moved, I had such good asset allocation that the loss was minor in comparison to the market.

If you are not watching your personal net worth on a regular basis, you are skipping an important step in preparing for retirement (or EARLY retirement if you do it right). As always save early so you can thank yourself later. Once you have your tracking system setup hold yourself accountable to spend five to ten minutes to update monthly (use a calendar reminder or choose a specific day of the month).


Readers, don’t forget to head over to SuperMillennial to check out more of Michael’s superhero advice and follow him on Twitter.

Do you track your net worth? Have you found a better way? Let us know in the comments section below.

The Get Rich Quick Fallacy

Readers, today’s guest post is written by Elsie Brown at GundoMoney. GundoMoneyElsie is a student, blogger, and all around cheapskate (Edit: Elsie is a cheapskate, not a cheapstake. Who else loves getting used to a new keyboard?) who writes about how we can all live better on less. She hails from the Los Angeles area, and you can find her on Twitter.

Some of her recent posts include:

The Financial Surrender

Balancing Frugality and Enjoying Your Life

The Money Truth Behind Apple Products

How to Marry Someone’s Money in 3 Easy Steps

Onward to today’s post!


The Fallacy of Get Rich Quick

We’ve all seen those infomercials that come on tv around 4am that say just buy my book or learn real estate investing and you could get rich too!

I don’t think that logic really fools us but there is an inherent bias in our culture that implies rich is better. If you’re rich you’ll have a better life. If you’re rich you’ll be happy. If you’re rich you’ll be more accepted, more loved, and more at peace. I could keep going but I think you already see the faulty logic.

The get rich quick scheme is pretty sleazy but is there something about it we like? Is there some part of getting rich that we want?

Well, you’re reading a personal finance blog so some part of you wants more money. “That’s a dumb question Elsie everyone wants to be rich.” I can hear my readers lamenting already. Still, I think we know on some level that wanting to be rich is shallow.

Money as a Destination

I see evidence constantly of the fact that when we get money we always want more. Imagine a multi-millionaire getting that most recent bonus check and saying, “ok I’m good now.” That never happens and the reason is we’re never really satisfied with any amount of money. When money itself is the destination we are always two steps behind the goal.

Rich is no more a destination than perfect health or complete knowledge. Embarking on the path to riches is a relinquishment of your own personal power in favor of the idea that status and wealth will make you a better person.

David Walters at Esquire wrote an article this year in which he interviewed different people at vastly different income levels. He asked each one the same questions about their money. Among the questions was “what’s one thing your family needs but can’t afford?” The top earners answered that there was nothing they couldn’t afford. But when Walters asked “how much money do you need to live the life you want?” Those same people said they needed more money.

The pursuit of money for money’s sake is a never ending process; a path shaped like an infinity sign. It just goes around and around and around.

carrot gundo

Money and Freedom

This is all starting to sound like a bit of personal finance blasphemy! No, I don’t want you to sell all your possessions or take a vow of poverty. It’s ok to want more money. But hear this: money will not make you feel better. I write about this all the time but I’ll go ahead and say it again, money won’t give you belonging, happiness, love, peace, or any of the other emotions we associate with being a fulfilled human.

The purpose of money is not to give you happiness, it is to give you the freedom to be happy.

Here in the personal finance blogosphere you’ll hear us talk about money in a very different way than you will in, say, The Wall Street Journal or The Economist. The mainstream personal finance world hasn’t quite caught up with the underbelly of wisdom you’ll find on smaller, more personal saving communities.

Our purpose is to get out of debt, learn to live without the ridiculous conveniences and luxuries afforded to us, and thus save most of the money we make. In whatever capacity you do this in, be it riding a bike to work instead of driving the SUV, or making meals for yourself at home, you’re way ahead of your fellows.

I read the other day that the average American household has $15,000 in consumer debt. They all seem so happy and fulfilled, don’t they? Right.

Rich Living vs. Living Richly

If you just do these five things you will be rich and have an awesome life like me! Sound familiar?

I can’t stand the taglines I see around the web that perpetuate the idea of getting rich. It especially irks me when I see those lines on websites that position themselves as helping people get out of debt and save money. They’ll say things like you don’t have to give up your extravagant lifestyle to save money, just do everything I say and you’ll get rich like me. Rich living is certainly very convenient and comfortable but it follows the same logic that got us into debt. Namely, buying stuff, living above our means, and not paying attention to money at all.

On the contrary, getting on track with finances is all about how you live, think, and feel.

If you live below your means you’ll always have more than you need. If you harbor a mindset of less is more, you will always be provided for. If you feel ok without a lot of wealth or material things money will only enhance your life.

If Gundomoney had an infomercial it would say “get money and live richly.” Not as catchy, I know.

Hard working people, including myself, tend to come at well-being from the wrong angle. We think that once all the outside stuff is ok (the job, the appearance, the money) that the inside will feel better. Living richly is realizing that the insides need to be ok before money will fix anything.

I personally hate the word rich. It’s a word of separation. It implies that some people are worth more than others. Without realizing it, we attach more personal value to those with high net worths.

I think the personal finance community needs to invent a word to describe the kind of rich we’re searching for. It’s the kind of rich that builds up slowly over years, through careful planning and hard work. Our kind of rich sets us free, allows us to work doing what we love or quit working altogether. So try to live your life as richly as possible. Pay attention to finances but don’t make money God. Enjoy possessions but don’t make your joy about having them. One day you may wake up to find your financial life has changed.

If I had $1 million I wouldn’t buy a helicopter for easier commuting to work. I’d get those I love out of debt and spend my time teaching people about money for free. What would you do with it?


Readers, what does “rich” mean to you? Do we need a new word to describe the free act of choosing to do work that we love?

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