Category Archives: Uncategorized

Buying Happiness Roundup: Does Money Buy Happiness?

- (No) Budgets , Spending , Uncategorized

You’ve probably heard it said that money doesn’t buy happiness. Is this true? Actually, there is a connection between money and happiness—but it’s not what you might think. Today’s blog is a roundup summary of my previous blogs on money and happiness. Take a look. Maybe you’ll find ways your income can boost your happiness level.

Connecting Money and Happiness

Although conventional wisdom says money can’t buy happiness, there actually is a connection between the two. If you’re unhappy because you don’t have money to buy food, pay bills or pay for healthcare, money sure helps! Nobel laureate Daniel Kahneman and his research team discovered that increases in income can bring increased happiness—but only to a certain point.

According to Kahneman, a psychologist and pioneer of behavioral economics, that point is $75,000 in yearly income for Americans. Apparently, as household income approaches the $75,000 threshold, making additional money seems to make us happier. Beyond that amount it doesn’t. If this concept of diminishing returns intrigues you, see my blog Does Money Buy Happiness? Sometimes.

Anyone with even a little money would want to get the most out of it. Perhaps the secret for buying happiness lies in whether or not you’re spending your money right.

Using Money to Increase Your Happiness

We can spend money in certain ways to increase our satisfaction and our happiness. Here are some proven spending tactics that just might put a smile on your face:

  • Small pleasures: Don’t miss out by spending lots of money on what you think will make you happy but won’t. Because our brains quickly adapt to them, big-ticket items can be taken for granted. Often a series of smaller purchase is better for boosting your mood. My blog Buying Happiness: It’s the Little Things helps you distribute your happiness over time. Unusual, small, frequent and even surprising purchases can reset your “happy meter” for enjoyment.
  • Meaningful experiences: Experiences trump objects and possessions when you’re on the market for happiness. You’ll reminisce about a vacation or a trip to an amusement park with a child more than the widescreen TV that quickly goes unnoticed. Experiences Are a Better Way to Buy Happiness encourages you to focus on building memories instead of adding to your material possessions.
  • Assistance for others in need: Here’s a great happiness booster: Use your money to benefit someone else. This can increase positive feelings even more than buying something for yourself. Any skeptics out there should try the easy experiment in my blog Spending on Others is Buying Happiness for Yourself. Science supports the fact that humans are wired for social connections. We gain pleasure from helping each other—and there are plenty of needs to be met today.
  • Delayed purchases: Studies have shown that looking forward to a happy event can even bring more pleasure than the event itself. Your imagination could be a deal sweetener. In my blog Buying Happiness: Anticipation Enhances Reality, I explain that “buy now, pay later” offers detract from your overall happiness. Saving for a purchase with the delight of anticipation gives you more for your money. It also helps you avoid added debt.
  • Gratitude: Do you have a tendency to see others’ possessions or financial situations and feel like a “have-not”? It’s time to count your blessings by looking at the big picture. Many people cannot read, don’t know what the Internet is and can’t even access clean water. One of my daughters inspired this blog: What Are You Thankful For? Gratitude involves a conscious choice. Without increasing your wealth one bit you can feel ten times better!

Getting a Better Perspective

More money might make you happier, but only to a certain point. Obviously, what matters is how you spend it.

None of the happiness-building ideas in this roundup are off-the-charts expensive. You don’t have to be financially independent to use money in rewarding ways. In fact, the difference between a rich person and one who enjoys his or her wealth is the motive for making money and how it’s spent.

Ask Moneymentals: Retirement Options

- Retirement , Uncategorized

Are SEPs, IRAs, 401ks, and other acronyms making you feel stupid?
Michael Goldman, CFP® and creator of Moneymentals helps us figure out why there are so many options and what questions to ask as we get set up.

Managing Your Money and Your Life: Spend Wisely

- (No) Budgets , Saving , Spending , Uncategorized

Imagine buying that new laptop you saw advertised. At the register, the associate doesn’t ask for money. Instead, she sends you to the back of the building to work 35 hours to cover the cost of your purchase. Immediately you wonder, “Is it worth it?”

For every buy, we’re actually trading the hours of work it took to earn the money, plus a lot more besides. Money is simply a way to store the life energy we put into working so we can use those dollars later for what we want.

In their book Your Money or Your Life, Joe Dominguez and Vickie Robbins expand on the concept of “money = life energy.” This idea has had a number of voices over the years. When you’re looking for financial freedom, it helps to think about money and personal finance this way.

Life Energy and Time

If saving money lets us store life energy, what’s life energy? The U.S. Bureau of Labor Statistics’ American Time Use Survey tells us we spend about 13 hours per day on basic needs like sleeping, eating, personal care, household chores and getting around. This leaves just 11 hours per day—only about 4,000 hours per year—for pursuing meaningful goals and wealth building. Our precious 24 hours each day plus the vitality (or lack of vitality!) we use to live them can be called life energy.

So the process of earning money converts life energy—taken from those 4,000 hours per year—into currency. It takes more than we think to trade life energy for money. For instance, the typical professional likely spends 8 to 11 hours each weekday working, getting to and from work, preparing for work and recovering from it. That means about 70% to 80% of our useful life energy gets converted to money. The sanity of that trade is for another post…

Real Earnings

Since spending money is really spending life energy, our money management efforts should include getting maximum happiness out of every dollar. But a dollar earned isn’t really a dollar! Just for kicks, let’s look at your real hourly wage, because there are work-related costs we don’t always think about.

Take your weekly after-tax take-home pay, subtract work-related expenses (like special clothing, dry cleaning and commuting costs) and divide by the number of hours a day you’re working or doing job-related activities. Here’s an example:
$1500 weekly take home pay – $100 gas – $25 dry cleaning = $1,375
40 hours working + 3 hours preparing for work + 5 hours commuting + 3 hours recovering + 4 hours checking e-mail at home = 55 hours
$1375 / 55 hours = $25 per hour (real hourly wage)

Scary, huh? Obviously the money we earn comes only at the high cost of life energy, which has great value. That brings me to the question of whether time is money or if money is time. Saying, “Time is money,” implies that money is the more valuable of the two, so we shouldn’t waste time because we’re wasting money. The truth is the opposite: Money is time, which implies that time is most valuable. We don’t want to waste our earnings because that wastes time.

Our most valuable non-renewable resource is time. We won’t get more years, days or minutes, and none of us knows how much time we have left. Time is wasted if we don’t do what we want in life. Managing money means we store it and consume it later to achieve our goals, have meaningful experiences and perhaps pass a little along to others who are special to us.

Something New to Try

That really cool iPad® costs not $500, but 20 hours ($500 / $25) of life energy! Are we handcuffed resentfully to our jobs because of what we’re buying? Or is it worth it?

Try this: Before making your next purchase, consider how many hours of scarce life energy you’re exchanging for the item. Then ask yourself if you’ll get enough pleasure from it to justify all those working hours. No matter the answer, you’ll be making a conscious choice that contributes to your happiness—and the value of what you have will increase in your eyes!

 

Ask Moneymentals: Using Credit Cards To Save Money

- Saving , Uncategorized

We’ve all heard of people doing crazy things with credit cards to earn cash back or airline miles but do really successful people do this?
We ask Michael Goldman CFP® and creator of Moneymentals about credit cards and using them for getting richer.

Ask Moneymentals: Building Wealth On A Cash Income

- (No) Budgets , Saving , Uncategorized

Let’s say you earn a lot of cash in tips as a bartender: how do you minimize your taxes and invest this cash?

How do you manage an irregular income?

Michael Goldman, CFP® and creator of Moneymentals helps us figure our some strategies to make that cash work for you.

How to Make Money: Find it

- Saving , Uncategorized

Ever look at your bank account or wallet and wonder where the money went? If you were the U.S. Treasury, maybe you could make money—literally—and replenish it right away! Many people balk at the idea of drawing up a budget and watching every penny as they attempt to follow a plan. At Wealth Gathering, we don’t believe in budgets—but we do believe in spending less. That’s how to make money, because you end up with more of it.

Money has the uncanny ability to disappear. The title of this blog says, “Find it.” Does that mean loose change in the dryer or a five in your jeans pocket? You’re close, because part of our secret of how to make money involves what you have already.

Understand any Mindless Spending Habits

We emphasize behavioral economics, which includes the study of how we as humans sometimes act irrationally with our money. For example, we usually have habitual patterns of making mindless purchases—sometimes beyond our means. These buys add up fast. Maybe we toss things we don’t really need into the shopping cart, purchase an excess of toys or video games for the kids, buy extra calorie-laden goodies or dine out at expensive restaurants too often. Then there’s remodeling the kitchen, taking that expensive vacation or getting the big entertainment set we know we can’t pay off this year. The list goes on.

We really don’t have to tell you how to make money. Most people are already doing that. The secret is finding and keeping those dollars before they’re gone! Think about purchases you’ve made that led to apathy, disappointment or back-of-the-closet items. How much money could you have saved?

Save Mindlessly and Spend Consciously

Mindless spending might have you in its clutches, but there’s hope! Try these helpful tactics that take into account how people tick:

  • Make saving the default option: Most people won’t transfer money deposited from their paychecks to a savings account immediately, so there’s an illusion of plenty and a license to spend! You need to make better choices with your money. You can start by having your pay deposited to savings rather than checking.
  • Use our no-budget method to decrease spending: My blog The No-Budget Way to Spend Less and Save More gives you a detailed plan for finding money by lowering the amount you spend each month little by little. You’ll hardly notice!
  • Pay attention to the extras: Do you always buy lunch instead of packing it? There are lots of ways to find money by avoiding those small expenditures that add up. Interestingly, when the extras you buy are less expensive and less frequent, the small pleasures mean more.
  • Don’t rely on willpower:  Structure your life so spending decisions don’t come down to willpower when your resolve is weakest. By steering clear of temptation, you end up with more money and less stress.
  • Label your savings categories: Find ways to trick yourself into keeping the money you find by defining categories you’re saving for. Using mental accounting, decide on labels for each category, such as “next year’s vacation,” “new skis,” “retirement account” and “kids’ camp.”

Learning better ways of spending and saving keeps old habits from robbing you of money you already have. Most of us don’t need to learn how to make money. The good news is that it’s waiting to be found—and put in the right places so it adds meaning to our lives!

Ask Moneymentals: Splitting Money As A Couple

- (No) Budgets , Saving , Spending , Uncategorized

Know a cohabitating couple trying to make it work in love and finances?

Michael Goldman, CFP® and creator of Moneymentals helps couples figure out how to split their finances fairly.

Ask Moneymentals: Dealing With Grown Children Moving Home

- Retirement , Uncategorized

Michael answers your questions!

In today’s world more and more adult children are moving home. So how do parents handle this?

 

Simple Saving: Organizing Your Accounts

- Saving , Uncategorized

My financial spring cleaning happens early in the year as I prepare to file taxes. I usually go through my folder containing various documents I’ve accumulated for tax time. If you’re like me, you’re not perfectly organized either. In fact, after reading about the various accounts you need for financial fitness, you might think, “You talk about all these different accounts… What’s the simplest version I can assemble of that?” Today’s blog brings everything together so you can keep your financials in order.

Now is the time to organize and simplify. Why be bogged down in old paperwork and dormant accounts? You might have accounts you opened for a special purpose and forgot about or accounts you used before moving to a different city. You could have old 401(k) accounts from previous employers and investment accounts with various brokers. Let’s look at the easiest way to get organized!

Two Types of Accounts

You can categorize your accounts as either cash-flow accounts or saving and investing accounts. Cash-flow accounts are needed either for frequent access or as a 911 emergency fund. Saving and investing accounts involve money you won’t be touching for a long period of time.

Your needs are different with each type of account. When opening cash-flow accounts, look for convenience and low fees. Because the money isn’t parked for a long time, interest rates aren’t top priority. You can try squeezing out that extra .5% interest, but it’s not worth sacrificing convenience. A local bank or credit union where you can go in person is ideal, and online access helps.

Saving and investing accounts are different. You need good investment options—including index mutual funds and ETFs—and minimal expenses. Service is more important than convenience, because you don’t need a local branch. Look for high returns combined with low fees. Every percentage point of interest is significant.

Cash-Flow Accounts

Here’s a list of cash-flow accounts that help you reach and maintain financial fitness. Though credit card accounts represent cash flow, they’ll be covered in a later blog, and you only need one—or none!

  • Spending account: You use this checking account to pay bills and expenses each month.
  • Income account: This is a savings account where you deposit your paychecks. Automatically transfer your monthly “allowance” to your spending account as I’ve described in my uneven cash-flow blog.
  • Purpose-goal account: Use a savings account for accumulating money toward your short-term purpose goal.
  • A 911 Fund account: This is your emergency fund containing three to six months of expenses. Use an FDIC-insured savings account with a good interest rate, and remember quick access is of primary importance.

Saving and Investing Accounts

If possible, choose a single investment company for the saving and investing accounts listed here. The exception is a 401(k) or 403(b) account, because your employer picks the custodian.

  • A 401(k) or 403(b) account: This should be your current employer’s retirement plan. Contribute enough to get the employer match if one is offered.
  • Roth IRA: If you qualify, this is usually your first choice for easy investing for financial freedom. That’s after getting any 401(k) employer match.
  • IRA rollover account: If you have a 401(k) with a previous employer, roll it over immediately. You only need one IRA rollover account for all plans you’re rolling over.
  • Educational investment account: If you’re saving for your child’s college education, open a 529 education account. You only need one regardless of the number of children you have, and it’s a great place for cash gifts from the grandparents.
  • Other investments: To save for additional long-term goals, you may need a regular investment account, sometimes called a brokerage account. You need just one of these. If your goal is less than five years away, save the money instead of investing it.

Simple but Practical Financials

My simple saving blog helps you decide where to put your money first. It would be nice to simplify everything to the point of having only one or two accounts. However, to take advantage of tax savings and the mental accounting that comes with separating money according to its purpose, you’re best off with categories like I’ve outlined here. This strategy balances simplicity with sensibility.

 

How to Make Money: Save It

- Retirement , Saving , Uncategorized

There’s plenty of advice out there about how to make money in the financial markets. Many people think investing is the key to wealth-building, and investment strategies abound. There are also people who, strategy or no strategy, dream about picking that magic stock that will put them on Easy Street. Sure, investing’s important—but if you really want to know how to make money, you’ve got to go back to square one: saving.

Something as mundane as saving doesn’t get much press. However, you’ll make more money by saving it than by intently focusing on earning from the gyrations of the market. Even a better-paying job won’t help if you don’t know how to make money the boring way. If your saving habits remain the same and you’re spending the rest, the net effect of a pay increase is zero.

Go for the Greatest Money-Making Impact

The leading and most important factor for wealth building is saving.

Obviously, even a phenomenal investment strategy is useless without money. Although saving ranks number one for how to make money, few have learned to be savers! Not even Warren Buffett could invest what the average American household has saved and turn it into an adequate retirement nest egg. You must contribute to your nest egg by saving, because the market will not do it for you. To earn a dollar in interest, you need to save twenty of those dollars first –  that’s assuming a 5% rate of return!

Learn how to Make Money Using the Gardening Concept

 Your earning ability is like the garden plot where you can plant. The more you earn and the more years you’re working, the bigger your plot is. That gives you more potential for wealth. Saving is planting the seeds. However, even a huge garden plot (large income) won’t yield a decent crop if you don’t plant (save) much. Investing is the crop diversity and fertilizer. Being smart about fertilizing can add to the yield of your crop, but it doesn’t replace having a plot or sowing seeds.

Those with great big plots who don’t plant many seeds won’t have much to show for it. People who have tiny gardens but plant and fertilize diligently can eat well and have quite a bounty!

Put Saving Strategies Before Investing Strategies

Lots of people get tied up in knots trying to figure out how to make money through investing. Don’t fall prey to this confusion! The gardening concept described above is the best perspective you can have. For most of your earning years, how much and how consistently you save has more impact on your long-term wealth than the return you get on your investments.

Improving your rate of return only has a significant impact after you’ve accumulated a large investment portfolio. Getting 1% more in interest on a $1 million portfolio is significant. Struggling to eke out a 1% interest increase on $10k portfolio won’t make much difference. What’s really powerful is saving and adding to the plants in your garden so there’s more for that higher interest rate—the fertilizer—to work on. While you’re saving, don’t forget to examine your finances as a whole to be sure you’re ready for the investing step.