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5 fascinating perspectives on money

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1. It’s Coming: The $5 ATM fee
My thoughts: Who cares if you have a checking account that refunds 100% of ATM fees?

2. Awesome tips on dealing with contracts
My thoughts: From the article, the commenter writes: “This isn’t even a housing thing, this is just a global thing. I don’t think I’ve ever signed an employment contract without modifying it. I’ve never had my employer mention it afterwards.” I love him.

3. How to stash $1 million+ in savings
My thoughts: Predictable rage of people who complain that if THEY made that much money, they could “of course” save $1m+. Commenter Sid puts them in their place:

“For all those whiners out there who can’t save any money because you’re not radiologists exchange your “meager” salary with any one of a million starving people in Rwanda. They will happily show you how plentifully blessed you are. Do you have clean water, a peaceful neighborhood, a police force in your town, an income above 80% of the world’s population? If you can answer ‘yes’ to any one of these questions (if not all 4) then you are head and shoulders above most people alive today.

Now that you’ve gotten loose of your pity party you might start to think about what you do have to work with rather than griping about what you don’t have. Granted this man makes probably 4 times the average salary nationally, but he has also worked 4 times as hard with 4 times the discipline.”

4. Slow and steady still pays
My thoughts: Yet another article blowing apart the “Lost Decade” myth (00-10), this one showing a hypothetical example w/numbers

5. Lavish spending
My thoughts: Jesse writes AWESOME post on conscious spending. Calls out people who find it “ridiculous” that I spend $9/bag of chips. Compare this to “experts” who lecture you to save $2 on toilet paper and morning coffee. Denial of desire is not a strategy.

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30 Comments

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  1. Jeremy Freelove Link to this comment

    How does the fourth article “blow apart” the Lost Decade “myth”? It basically concludes that S&P only returned an annualized 1.3% but fear not, you still have more money than when you started. Compared to a typical decade in which the rate of return would be several times higher, 2000-2010 really does earn the nickname “Lost Decade”. To put things in comparison, the same investor with the same habits in the 1990-2000 range would have have made $69,000 in gains, while the 2000-2010 made $6,000 in gains.

    • The lost decade article also neatly starts at the bottom of the tech stock bubble. Picking the bottom and upcalculating from there is a fun way to see how well you would have done, but rarely does anyone buy at the bottom. Id be curious to see the calculations redone if you started in the middle of the tech boom.
      Personally I do believe in not trying to time to market, but putting in trailing stop orders on mutual funds so that you never get blown away if the market does enter a crash.

    • Vladimir Manjko Link to this comment

      Actually, that gain is loss. Comparing the prices now and than, but you have more money and that is factual
      .

  2. Had the example from #4 invested in something like GLD they would be doing fine. GLD has over doubled in the last 5 years. The 2008 crash hardly effected the price.

    • Missing the point. There’s any number of investments that either over or underperform the market at a given time. Gold lost money for all of the 1990s, for example, whereas the market did well.

  3. “Granted this man makes probably 4 times the average salary nationally, but he has also worked 4 times as hard with 4 times the discipline.”

    Read Malcolm Gladwell’s Outliers, in which he does a fine job of demonstrating that statements like the above are rarely totally true.

    More to the point, Dane Lacey had a lot of natural (read: lucky) advantages that many don’t. For example, he had parents who were “very good with money” and “instilled good financial sense” in him. Not to mention a presumably expensive education to have his first job pay $220K. Someone could have just as much discipline and work just as hard, but not get nearly the same rewards — where you end up still has a lot to do with where you start.

    • Just as a counterpoint, to be fair “Outliers” is about exactly what the title implies, examples which lie beyond a few standard deviations of a normalized distribution. They are ‘outliers’ and not part of the norm. His examples are meant to demonstrate that working 4 times as hard ‘may not’ get you 4 times the return. I never got the implication that the antithesis holds true; that working 4 times as hard ‘normally’ won’t get you 4 times the return.

    • I totally agree with you! Why save till your death? Instead, he should be focusing on ways to earn more in less time so that he can have a better quality of life!

    • So, it is essentially your parents fault that you did not save as much? Since they never instilled the good financial sense in you? How about instilling it in yourself and your kids.

    • @Fong: Perhaps you interpret the book differently than most? From the Amazon.com review: “he builds a convincing case for how successful people rise on a tide of advantages, “some deserved, some not, some earned, some just plain lucky.”” Each to their own. :-)

      @Gerard: In a way, yes. This is one major reason why the poor generally stay poor, even in developed nations with supposedly equal opportunity, and why the two strongest predictors of educational success are one’s parents’ levels of education as well as their income.

      Would this radiologist have been such a savvy saver if he was born in the ghetto to uneducated, low-income parents? Almost certainly not. While success is indeed possible from such beginnings, the odds are much lower, and the path is much more difficult.

      If not his parents, who, then, would teach the kid to save, invest, budget, etc? The crappy schools that he’d attend in his crappy neighborhood? Financial education isn’t even offered in never schools, and it is never required (and therefore is seldom taken) in any public school. And the hospitals, to my knowledge, do not hand out copies of I Will Teach You To Be Rich books or blogs when kids are born, to fill in the gaps that the parents my have in such matters. The media certainly doesn’t do a very good job, whether he’s watching whatever popular culture content, or even the news.

      There will be some point in the kid’s life when he has to be exposed to something better, but it will be much later in life (18? 25? who knows), and by then the path to achieve it will be a much rockier road. Possible, yes. But it would have been “easier” (and would have been achieved sooner) if he had had the family/culture advantages at a young age that individuals such as Mr. Lacey did.

      I realize it is comforting to think that this is just a willpower issue, from taking initiative to following through, but as has been proven repeatedly, willpower is finite, and much easier to exert when the path is laid out for you than when there are many distractions in your way.

    • 4 times as hard with 4 times as much discipline?

      First off, we’ll exclude the fact a great number of people aren’t going to be able to make it into med school based on a poor childhood schooling where some students are 12 years behind by the time they reach college (http://historytech.wordpress.com/2011/03/31/great-teachers-make-a-difference-so-do-bad-ones/).

      Assuming we are talking about the same kinds of candidates, PhD’s in the sciences make way less despite working just as long and hard (http://www.miller-mccune.com/science/the-real-science-gap-16191/).
      Lawyer’s ditto (http://www.aboutlawschools.org/law/jobs/salaries/)

      Pharmacist’s do well for 6 total post HS years of school (http://www.payscale.com/research/US/Job=Pharmacist/Salary)

      But in terms of pay, so much of the pay difference is not how much you work but legal mandates that could change in a heartbeat. If suddenly pharmacists weren’t required in each pharmacy, and secure computer system’s handled delivery, half of pharmacists would instantly lose their jobs and salaries would plummet. We decide to reform the US healthcare system to make reimbursement like Europe’s, that radiologist’s salary would drop by over half.

      I agree complaining on a thread isn’t improving your financial situation, but implying laziness is the only reason people don’t make more money seems insulting and misinformed

  4. In his book “The Upside of Irrationality”, Dan Ariely explores adaptation and why we get used to some things but not others. Among his discussion lies whether something is predictable. Traffic is unpredictable so it’s difficult to get used to a commute, especially if it’s farther away but a soothing massage feels less good the longer it goes on and the more frequently partaken. Much can be said about money matters. Even without automation (especially if you’re like me and OCD about every transaction), you can grow used to slow and steady saving habits and cutting down on lavish spending (however subjective that may be) by repeating the pattern until it no longer seems novel. Eventually, even dealing with minutae (despite how much Ramit hates talking about minutae but you know some people can’t get past it) becomes automatic and you can focus your attention on other things.

  5. #3 Love the rebuke to whiners. The thing that I find interesting to recognize is that there may be a whiner inside of all of us. It’s that person we become when we want to avoid the reality that we have the ability to change our situation. It’s much easier to sit back and play the victim card and say “Only if”. Think if we took every moment that we spend whining or scared or jealous and used that energy for forward action like learning offering help and producing. We’d be in a better spot and would have helped many others to likewise be in a better spot as well.

  6. “Denial of desire is not a strategy.” False, denial of desire is a strategy- a ridiculous strategy that too many people are enacting these days. We do not need to start saving all of our money because of the crash, economies go through upswings and downswings over time. Instead, we need to just be smart with our money.

    Instead of just stashing your money under your mattress, spend it on what you want (one way to put it back into the economy) or invest it in someone or something (why not yourself, there’s never been a better time to start your own business).

    Great post!

    http://www.manatworkblog.com

  7. I found #3 pretty annoying.

    One interesting way to break it down: if you had managed to save a little under 7x your first salary after fourteen years of work, would you feel like you were way ahead of the game? Because that’s how this article presents him.

    Also consider that as you make more, it becomes progressively easier to save. Some costs are fixed. (ie. If you need 30k just to survive, it’s easier to save 50% of 250k than 25% of 40k.)

    He doesn’t have a nice car, or nice house. He doesn’t mention a family. And the 500k he put away the last 2 years should have done quite well in the financial markets.

    Actually, I think he isn’t very good saver.

  8. …I care about my credit union refunding all my ATM fees?

    I don’t understand the question. Why wouldn’t I care? Because I want to pay an extra $2.50 a week for laundry, et cetera? Is it because most people don’t hit up ATMs that often?

    (My credit union is only based in San Francisco, a haul from my house, so they refund all ATM fees in order to let their customers have the same flexibility that, say, a Wells Fargo customer would have. So maybe it’s less of a big deal to other people!)

  9. love #5. that is the different between the tortoise’s way to wealth vs. an entrepreneur who side gigs outside work (and some eventually leading to a full time gig, except much higher paying)

  10. I don’t understand all the negativity towards the $1 million savings guy. Yeah, I get it, he earns a bajillion times more than me but the tips he had are still useful to other people in other income brackets. Anyone with enough money to invest can think about what he did with diversifying his financial managers, and further down the ladder people like me who earn a pittance (quite happily for now), can use something as simple yet effective as “save first and pay yourself later”. That tip alone made reading the interview worthwhile for me.

  11. ^I meant that in reply to the whiners, btw. I just don’t understand why they all chose to react that way and ignore all the useful bits.

  12. I really like your point #3 Ramit. I know young people who actually learn and care about money are the minority, but I just find it amazing the excuses people make.

    Oh, you don’t have an hour to learn what an index fund or mutual fund is, yet you spend all night watching TV or playing computer games?

    You don’t have any money to save at the end of the month, yet you make over $60K a year with no debt?

    What’s that- you’ve been working for 40 years and haven’t saved $25K yet? http://money.cnn.com/2011/03/15/retirement/retirement_confidence/index.htm

    Come on people. You can’t really blame the government for sucking with budgets if you suck with a MUCH smaller and easier budget yourself.

  13. Interesting discussion about the contracts. When I joined (super large company) I also modified the contract the same way with a strikethrough and initial because I wanted any work done on my own time to be owned by me. Tech guys in particular have to be very, very cautious about this kind of language in employment contracts. (Startup on your own time? Your day job could claim to own it.)

  14. It’s things like $9/bag of chips and other high margin products that makes it possible for those who want to make a living as an investor/rentier. So I think it’s great that these things actually sell. It’s a lot harder to make money on people who’re trying to save on toilet paper.

  15. I would rather spend more for something I actually want then spend less for something I don’t want. You say $9 for chips, but if those are the chips you actually want, then spending $3 for a bad you don’t want is actually a waste of that $3.

  16. I like the linked article about spending lavishly. I have been preaching this on my blog from day 1. I really don’t see anything wrong with spending a good amount of money on things you really enjoy.

    Here is a link to an article where I talk about why spending $500 bucks a month to join a country club was a great move for me:

    http://www.backninefinance.com/2011/01/best-financial-move-for-2010-spending-more/

    I really love playing golf, and I love it even more when I get to play on a super nice course that is private and not very crowded. Well worth the $500 per month to me.

  17. I liked the article on conscious spending.

    My two scents:

    1. Judging ANYONE on their spending is not a sign of maturity. Yes, judging others gives you a feeling of superiority, but where’s the need to feel superior coming from? Judging others often covers our own feelings which we don’t want to deal with, therefore we project them on others, e.g. when we feel guilty because of our own spending, we criticize others, when we feel ashamed because of our own sexuality, we attack expressions of sexuality in other people, etc. The next time you judge someone, have a courage to face the real reasons why are you so judgmental – your own personal issues which you want to avoid. Remember, judging people is a weakness disguised as strength, while compassion is a real strength. Which one you choose?

    2. What’s up with an obsession with numbers, like “OMG, 9$ chips, how dare you?!”? 9$, or any amount of money for that matter, is very relative. It’s better to think in terms of percentages instead of fixed sums of money. For example, 100$ is quite a lot for someone who is earning 1000$/month, therefore a shirt for 300$ would be a very expensive shirt. However, for someone who is earning 100 000$/month, 100$ is only 0,1% of their monthly income. That means that if someone is earning 100 000$/month and buys a 300$ shirt, it’s the same as person who is earning 1000$/month would buy 3$ shirt. Doesn’t seem that outrageous, when you think this way, right?

    ..I really hope that I did math correctly..Anyway, you got the point ;)

  18. Our society seems to think that the problem and solution with our spending is wrapped up in $3 lattes/$9 bags of chips. Sure, it can all add up, but I would suggest that the real problem has less to do with a $3-$9 decision and more to do with living in a house you can’t afford and driving a car you can’t afford. Make smarter decisions on the big items and you can afford to have some smaller indulgences.

  19. I write — and live — by the philosophy of spending lavishly on things you care about, and cutting mercilessly on things you don’t. It’s thanks to this philosophy that I have been able to afford some of the greatest, most extravagant experiences in my life: traveling to 30 countries, buying a century-old Victorian dream home walking distance to downtown Atlanta’s most beautiful park. Yet I’ve never paid for cable television, I drive a 1998 Camry, and half my closet is secondhand. Why? By ruthlessly deciding my priorities — and spending lavishly, or cutting mercilessly, according to those priorities — I’ve designed my ideal lifestyle.

  20. [...] a lot of great ideas, and many things that will make you think. I started reading his post 5 fascinating perspectives on money, and loved the different articles and links. But one really caught my eye – his link to an [...]

  21. #4 was a good article. A number of people today don’t want to invest because of the two big downturns in the past 10 years. Many threw in the towel and never got back in. The article points out the value of staying in, continuing to contribute and taking advantage of the company match. It does assume a good 401k which isn’t always the case. Check http://www.brightscope.com to see if your company has good investment choices.
    If not start an IRA on your own – maybe a Roth if in a low tax bracket.