Sleep research discusses sexy vs. rich

November 15 9 Comments latest by Money Tips Linking 18 Nov 2007 | KCLau's Money Tips

It’s amazing how many people think money has to be complicated. I always talk how the most ordinary things usually work quite well — deciding how much to consciously save, consistently growing your money in a diversified way, etc — instead of debating minutiae about the fanciest investments. Take a look at this new sleep research covered in the New York Times, which has lots of parallels to personal finance.

The “…American Journal of Psychiatry analysis of 21 studies showed that behavioral treatment helped people fall asleep nearly nine minutes sooner than sleep drugs. In other measures, sleep therapy worked just as well as drugs, but without any side effects.

The behavioral strategies for better sleep are deceptively simple, and that’s one reason why many people don’t believe they can make a difference [emphasis mine]. One of the most effective methods is stimulus control. This means not watching television, eating or reading in bed. Don’t go to bed until you are sleepy. Get up at the same time every day, and don’t nap during the day. If you are unable to sleep, get out of bed after 15 minutes and do something relaxing, but avoid stimulating activity and thoughts.

[…]

It may be hard to believe, but studies show these simple steps really do make a meaningful difference for people with sleep problems.”

Hmm, could managing your money be the same? If you have a friend who is paralyzed by inaction, maybe sending this to them will wake them up. (Note to new friend: Here’s the table of contents of all my past articles.)

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9 Comments latest by Money Tips Linking 18 Nov 2007 | KCLau's Money Tips

An annoying email I got

October 24 114 Comments latest by IUnderstand

Nathan writes:

This is nothing personal against you, because every personal finance author I’ve read says the same thing, but your advice is not for real people like me. The “spend less, save more” theory is great for singles or young married couples with no kids (and therefore, fewer attachments, expenses, etc.) I’m 30 years old, married, with two children. I make a very good wage for a 30-year old, but after a mortgage, two car payments, a wife who is a full-time student herself, daycare, and (many) other various utilities, activities, etc. there’s not much left for saving.

Granted, things will be better in a couple years when my wife is done with school and we’re back to being a dual income household. But all you personal finance gurus are people who have graduated from Stanford (or some other 1st tier school) and worked your way into a high paying, high end job. You represent about 0.01% of the population. Not that I hold that against you–I wish I had been that successful. But I need some other strategies to help me get my finances in order.

My response:

So what’s the alternative? Throw your hands up and say, ‘I give up — there’s nothing I can do’? Or are there small, systematic ways you can save more, invest more, earn more, and spend money in a conscious way?

I also pointed him to The Shrug Effect. He wrote back:

I think you miss my point. At no time did I resent your success and doubt that I ever could have done that. Had I had differing priorities in my younger days, I’m sure I would be in a much different position than I’m in now. But I chose to get married, have children, and support a wife’s dream of medical school, among other things.

[…]

My whole point, which you missed, was that most of the the personal finance articles available are not geared towards people in my situation.

Huh? I’m not the only personal-finance writer online — there are lots of other people who write about getting out of debt, frugality, etc. My response:

This is an interesting discussion so I’d like to continue on it for a minute, if it’s ok with you.

I understand your point, but I’ve seen thousands of articles about people in your situation. Few, very few articles, are geared towards young people who have everything together. Most of the articles are about how to get out of debt, how to spend less, etc.

I’m curious: Exactly what kind of advice are you looking for?

He didn’t respond, so I re-pinged him a couple days later. His final response:

After sitting on this a while, I realize that there isn’t really any advice I can be given. I want to–and do, for the most part–give my wife and kids whatever they want. Until I stop doing that, the whole saving more, spending less thing won’t work for me.

I think that’s very perceptive of him to realize that there isn’t really any advice he would listen to. Notice how at first he didn’t think any personal-finance advice was relevant for him (even though there are millions of articles online for every conceivable situation). Could the problem have been him, not the advice? Answer: Yes. So here are my thoughts.

1. If you don’t say no to things, your life is guided by external priorities, not your own.

• If you don’t say no at work, you’re going to be resentful of your workload
• If you don’t say no to going out all the time, it’s going to be tough to save money
• If you don’t say no to your family sometimes, you’re not going to be able to save, much less grow your money

2. Ordinary actions get ordinary results. Look around. Do you see many rich people around you? No, because they are behaving in predictably ordinary ways: Not knowing how much they spend, not being conscious about where their money goes, and not setting investing goals. Want an easy way to see this? Go ask your friends who just went on vacation (or bought a new handbag or iPhone or whatever) this: “Wow, that’s awesome. How long did you save to be able to buy that?” Their reaction will be priceless, as if the antagonist from Saw II is holding their head in a vise and ordering them to look at the moon while opening their mouth. Try it.

As always, there are no secrets to personal finance. Fundamentally, you can either cut costs or make more money. When I say that, people roll their eyes, but they fail to dig into each part. Cut costs? That means saying no. That means being merciless with budgeting and negotiating and making smart purchases for the long term. Make more money? That means entrepreneurship, working two jobs, or asking for a raise.

The whole point of this site is that getting rich doesn’t happen to you. You make it happen. Until you step up, nothing will change.

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114 Comments latest by IUnderstand

“Should I invest my student loans?”

September 5 28 Comments latest by kami

Zach emails about his student loan money:

Now for the most part all of that money will be used to do things like pay rent, and buy groceries, but when I’ve calculated it out, there’s around $1000 left per semester minimum, and more if I can be frugal about how I spend it.

My questions was, do you think it would be smart to turn around and pay off part of my loans with the extra cash, or could you recommend me a direction to maybe take this extra money that I have, and invest it to make a return? I know right now that I could either drop it in my ING savings account which is at 4.5% or put it into a money market account at my bank which is about 4.5% also. Other than that I wouldn’t know where to begin.

The problem with investing money in the short term is that it’s dumb. Sure, you could make a few percentage points — or you could lose most of it. Short-term volatility is very high, while time (and good investing choices with low fees) smooth out short-term volatility. As I’ve written before, time pressure=bad decisions. For example, I remember when I was a sophomore, we hosted this prospective freshman in our room for Admit Weekend. This guy left our room with a single decree: “Guys,” he said, “I’m not coming back until I hook up with a hot girl tonight.” My roommate and I looked at each other and laughed and laughed. Then we told him to just pack his stuff and take it with him — he wouldn’t be coming back, and it was nice to meet him. When he sheepishly came back around 3am, alone, I believe that moment of happiness will rival even the birth of my children. Setting a rapid timetable for getting ass, it turns out, is difficult.

Back to student loans. Do you want to invest your student-loan money for the possibility of making just $7.50/month (9% returns) but possibly losing some/most/all of it in the short-term? “But Ramit,” you might say, “I’ll just invest it in something safe so I can’t lose it.” Lower risk = lower rewards, so if you invest it in a safe government bond, you’ll earn about 5% — basically your savings rate. You need time and more capital to grow your money, not $1,000 and a few months. That’s the domain of get-rich-quick quacks, something I hate. Remember, the first thing I ask when someone wants to know about investing is, “When do you need this money?”

Ultimately, it comes down to risk and reward. This is why I find those 0% credit-card games so moronic. These are the ones where people get 0% interest money from their credit cards and transfer it around to earn interest on relatively large sums of money. Sure, you can make a hundred bucks a year, or maybe even a few hundred, but the risks of time, mismanaging the process, and screwing up your credit score just aren’t worth it to me. Plus, I’d rather do something useful and sustainable instead of spending a year getting $200 band-aid.

If it were a college student and I had some money left over from my student-loan account, I’d put it in a high-yield savings account like ING or HSBC and let it get about 4.5%. (Note that this would earn you about $4/month in interest, just about enough to buy Sisqo’s greatest hits on iTunes.) Separately, the most profitable thing I could do would be to learn about investing, asset allocation, and building an infrastructure to manage my personal finances.

The basic messages here are:
Risk and reward. Before you get overly excited about something, ask yourself if it’s worth it. You might make $200 in a year, with the possibility of messing up your credit for doing those stupid balance-transfer games? Not worth it.
Sexy vs. rich: Making it sustaintable. Are you building a long-term infrastructure or are you doing something short-term and dumb to distract yourself from the hard work of learning about real banking, budgeting, saving, and investing? Do you have a savings account? A Roth IRA? An investment account with proper asset allocation? Have you bought even one personal-finance book? (Here are 50 books I recommend.)

Learning and building a system may not seem as sexy as INVESTING IN DERIVATIVES AND SHORT-TERM SECURITIES!!!!11*#! but it’ll damn sure make you richer over the long term.

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