Top 10 Financial Don’ts

Thursday, February 21, 2013 at 12pm
By John Friedman

Here I am, doing Top 10 lists this week, and in my morning reading I come across this in the Washington Post:

Group releases list of 90 medical ‘don’ts’

Don’t use feeding tubes in patients with advanced dementia. Don’t use drugs to aggressively treat diabetes in those older than 65. Don’t automati­cally use imaging technology for minor head injuries in children and headaches in adults. And don’t give antacids to babies with reflux.

Those are among the 90 medical “don’ts” on a list being released Thursday by a coalition of doctor and consumer groups. They are trying to discourage the use of tests and treatments that have become common practice but may cause harm to patients or unnecessarily drive up the cost of health care.

 

This is verboten, is it not? A meta-don’t, if you will? First of all, aren’t we supposed to accentuate the positive? Aren’t we all s’posed to be Do-Be’s, and not Don’t-Be’s? And isn’t there all that Appreciative Inquiry stuff and all that The Secret stuff and all that Norman Vincent Peale stuff that says never think about negatives?

And second of all, has it not been proven that human beings can only attend to 10 items at a time? And that that is why, as Psych 101 teaches us, our phone numbers are 10 digits long rather than, say, 90? And that’s also why David Letterman has never pushed through to 11, right? And here these folks are going nine-fold on that. Maybe they need to talk to a marketing professional or some SEO folks.

At any rate, today’s list is Top 10 Financial Don’ts. And in hizzoner’s honor, today we start at 10.
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Top 10 Financial Decisions that Most People Take a Powder On — and Shouldn’t

Wednesday, February 20, 2013 at 1pm
By John Friedman

According to The Free Dictionary, to take a powder means, “To leave a place suddenly, especially in order to avoid an unpleasant situation, as in, He saw the police coming and took a powder.”

Lots of folks take lots of powders on lots of financial decisions. Doing so is never as effective as not taking a powder.

Today’s Top 10 list is all about financial decisions that lead many people to simply shine-it-on as well as to take a powder. My hope in presenting these powdery-yet-shiney problems is to help you, dear reader, avoid the powder-taking and the shining-it-on’ing.

Here, then, presented in no particular order (though Numbers 9 and 10 are the most Whole-Shebang’y, while the earlier items are the most one-off, single point-in-time sorts of decisions) are ten financial decisions you should do right by — and thereby do right by yourself.   …more ►

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Top 10 Determinants of Your Current Overall Numeric Financial Health

Tuesday, February 19, 2013 at 12pm
By John Friedman

Time and time again I read that the Internet loves Top 10 lists. So in the interests of having more lovable things in the world, here ya go:

 Top 10 Determinants of Your Current Overall Numeric Financial Health

1. Your Money-Out has always been considerably less than your Money-In.

2. A while ago you figured out an efficient and effective way to store and then maintain the excess of your Money-In over your Money-Out (this is a very neutral way of describing “investing”).

3. You were lucky enough to have not bought a house in the 2003 to 2006 time period.

4. You were lucky enough to have bought a house before 2000.

5. You’ve taken advantage of auto-pilot savings programs, such as employer-provided retirement plans.

6. You are (or were) part of an industry that has (or did have when it counted for you) pension plans.

7. You were lucky enough to go to post-high school (also known as post-secondary school to Financial Wonks and education geeks) at a time, or in a way, that allowed you to get outta dodge without having racked up huge student debt.

8. You were lucky enough to never have something terrible happen to you (in John Friedman Financial parlance, your Come What May has never dealt you a brutal hand).

9. You are boring enough on paper (i.e. not self-employed, and yes long-term employed, either at one place or at several places but with no gaps, etc.) or wealthy enough to have gotten a re-fi since 2009.

10. To the extent you ever had an FSP — a Financial Services Professional — in your life, that person’s heart was in the right place and s/he had the necessary skills to be of good service to you.

 

On this last point, shame on all of us FSPs: shame on all of us that so many folks go it alone, making their ways through their financial lives without our help, either because of our business models (which emphasize working with HNWs and UHNWs and not working with normal folks) or because we FSPs, as a group, are not great at helping those folks understand that taking care of one’s financial life with the assistance of a caring, smart, value-add-all-the-time FSP just about always feels great and, by definition, is always cost-effective.

And one overall point: this list is about numeric financial health only. That is, these determinants go to what the numbers inhabiting your life look like. The main determinant of non-numeric financial health — that is, the everything-other-than-the-numbs part of your financial life — is the extent to which your economic self peacefully cohabitates inside of your you with all your other selves. I’ll have more to say about this in the weeks ahead.

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Friedman’s Law of the First Thing: Macroeconomics and The Sequester

Monday, February 18, 2013 at 12pm
By John Friedman

Imagine that you live in a world with three people: a farmer, a tool builder, and a tailor. Got it? So the farmer grows the food all of ’em eat, the tool builder builds the tools all of ’em use, and the tailor makes the clothes all of ’em put on their backs.

Imagine also that, many years ago, this trio survived by gathering food and sheltering in a cave, but that, growing tired of that way of life, and figuring out that tools really were where it was at, they started working together to cultivate some food, build some tools and sew some clothes, and then imagine that, once all that was done, they figured they’d had it with that cold, dank cave, so they set about to build three houses, one for each of them, and then finally imagine that, once they moved into their respective houses, they also decided to divvy up all the work, with the farmer farming, the tool maker tool-making and the tailor tailoring.

And with that they had the basics covered. Between what the Earth gave unto them in terms of water and air and sunshine and stuff under their feet with which to make things, and their own endeavoring, they had what they needed.

Next imagine that, over time, they all became specialists, so they all grew better and better at their respective crafts and more and more daft at doing any of the other two crafts, and imagine also that, in tandem with becoming specialists, all of their dealings with one another — all of their food-for-tools exchanges, and all of their clothes-for-food exchanges, and all of their tools-for-clothes exchanges (yup, there are only three possible exchanges among ’em) became arm’s-length transactions in all ways, i.e., they were doing business with each other.

And let’s say that things went along like this for a good long while, with everything perfectly in sync. The farmer worked just enough to grow just enough food to feed all three of ’em. The tool builder worked just enough to en-tool all three of ’em. And the tailor worked just enough to en-clothe all three of ’em.

But now let’s say that all of a sudden the tool-maker has an accident and gets hurt, and that this sad state of affairs reduces the toolmaker’s output to only two-thirds of that just-right amount of tools the three of ’em need to do their work.

What happens?

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Putting Your Savings on Auto-Pilot Can Be a Great Idea (but Usually Not Via Complicated Life Insurance)

Friday, February 15, 2013 at 2pm
By John Friedman

I’ve often said that your savings rate is the primary numeric fact underlying your overall financial health. See here, here, here and here, to just link a few. In the next breath, though, I usually have to add that, quite unfortunately, many of us are quite rotten at saving money, while just about all of us are quite excellent at spending it.

So I often recommend to clients that they set up some sort of automated savings plan — something that takes the day-to-day decision-making out of the will-I-save/won’t I save daisy-petal-pulling conundrum.

This sort of plan siphons off, on a regular basis, some of your money and puts it out of spending’s reach. You can call these things auto-pilot savings plans or forced savings plans or auto-dings (as in, “please auto-ding my account and take the money you grab out of that account via auto-ding and put it into this other account over hyere) or auto-snags (as in, “please auto-snag some money out of my account and plop it in over hyere where I cannot get my little mitts on it”).

And in John Friedman Financial parlance, when we design a plan which auto-dings and auto-invests for the long run, we call it a Rip Van Winkle plan, and we call the method of investing embedded within that plan Rip Van Winkling.

Call it what you will. But please do consider setting up an auto-pilot savings plan.

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