Tag: finance

Posted on

Financial order of operations

A friend of mine shared this link with me, and I’m really appreciating it right now.

The Financial Order of Operations: 10 Great Money Choices for Every Stage of Life

I’m always looking for new ways of thinking about money, and this post highlights one of my own weaknesses: I always tend to go for a mathematical solution, rather than looking at the root emotional causes of what I’m doing. So thinking about what it is I want to be able to do with my money is an important thing for me to step back and contemplate.

Along with that, though, her second point about creating a Descriptive Budget first is something I already love. The first step (or, in her list here, the second step) to taking control of your money is knowing where it all is going.

Steps 3 and 4, emergency fund and employer matching, are also good; though from the title I had expected 4 to be about Lifecycle funds. But I guess that comes later!

Step 5 is interesting. She calls it “pay off then highest interest rates first,” but also talks about the snowball method (pay off lowest balances first). Fortunately, those two things often run together – a credit card balance is likely to be smaller than a car, house, or student loan, and it’s likely to have the lowest rate. So that makes sense.

Steps 6 and 7 are emergency fund and retirement, again. I approve. Then step 9 is about aggressively paying off debts. I like that this comes after establishing baseline financial security first; debt is not a great thing to have, especially if it has high interest, but it’s not evil.

Steps 8 and 10 relate back to Step 1: thinking about what you want again, and then making it happen. Most things in the world come with a concrete price that you can look at and save up for, even if that price is not immediately visible. And prioritizing your dreams and placing them within the context of what you want to do is a great way to make them much more accessible.

In short: I like this financial writer!

Posted on

Your reminder: end of life planning

Saw this tweet today, and thought I’d write a post about it.

https://twitter.com/AngryBlackLady/status/1609183979399438336?s=20&t=jb0ZW25N7l_Y44zkvimTwg

If you have any care for the people who come after you, you need to write a will.

It’s okay (not great, of course, but life is what it is) if you can’t afford the whole lawyer shebang at this stage of your life. Not everyone can afford to do the (important) legal part of their will. But all of us can do the emotional/mental labor of listing all our assets and debts, and writing down who you want to receive them when you die.

This goes beyond just bank accounts and cars and so forth. Do you have a collection of old Magic cards? A dear friend lost their brother this year, and he made sure to account for his collection in his last wishes. (I don’t know if he had a will or not. He was relatively young.) Anything you own will have to be disposed of when you pass, and your next of kin will be grateful to have some idea, any idea, of what you would like done with it. Even if the answer is “Sell it all to an estate sale company.” That’s still an answer.

If you have minor children, it becomes especially important to make sure they are cared for in the event of your passing. Do they have a Designated Guardian listed in your will? This isn’t a legally binding thing, but a court will take your wishes strongly into consideration when choosing a guardian for your child in the event of your death. Do you have life insurance? Who’s the beneficiary? Make sure it’s not an estranged parent, or anything like that.

Look, nobody likes to think about this stuff. But it’s important. A lot of what we call “adulting” is just the boring, painful parts of life that we do because not doing it makes things worse for the people we love. And since this is the time of year when everyone is being pensive and making resolutions, consider “making end of life plans” as an idea.

A friend of mine made a spreadsheet of Things To Do When You Are The Executor, when his father passed away. Here’s the folder for that. Note that none of us are lawyers, none of us are YOUR lawyer, and this is just a starting point for you to use in conjunction with your actual professional who has your back. But everyone needs a starting point, so if this helps you, I’m glad.

Posted on

Airborne swine and financial planning

Today I saw a screencapped post that said something along the lines of “If you give up your daily Starbucks habit, by the end of the year you’ll have $2000, which is nowhere near the $60,000 you’ll need to put a down payment on a house!”

It made me think about how we, as a society, often frame discussions about finance. Generally speaking, the Internet and TV scolds are not, themselves, financially literate. The thing that every Fox News Uncle seems to forget, come Thanksgiving, is that order of magnitude matters. Different target audiences have different financial goals, and the attainability of those goals varies wildly.

Like lots of things, the advice is only useful for folks in the middle. If you’re poor, then you’re likely not going to be able to save up for a down payment, no matter what you do (though your municipality may have other programs to help you buy a house, etc.). And if you’re poor, you are already not buying daily Starbucks. You’re probably not buying any Starbucks, unless it is as a treat.

The advice of “If you have a daily Starbucks habit, you can reduce it in order to save money” is Technically Correct. (The best kind of correct!) And I am confident saying that for the people who buy daily coffee, reducing it to “weekly Starbucks and cheap office K-cups or brew the rest of the time” is, in fact, a great way to save up an Emergency Fund: a thousand dollars in a disused savings account to help you through an unexpected household expense. This would catch a slice of America that lives at the intersection of “can’t afford an unexpected household expense” and “buys treats.” But I’m not actually sure how large that slice is. (And I am curious.)

On the other end of the savings scale, you have Big Expenses. Putting away your pennies won’t be enough to save a whole down payment, even with the miracle of compound interest. This part is where real choices about lifestyle need to be made, if (again) those choices are even available to you.

I think the availability of that kind of choice during my childhood is what shapes my somewhat blinkered expectations of financial capability. My parents explicitly told me, as a teenager, that they made the conscious decision to only buy new cars every ten or so years in order to save the equivalent of the car payment in the other years. They told me that they chose not to fly to Europe every year, not because they couldn’t afford to but because they didn’t want to spend that much money. They prioritized being able to pay for my college over their own lifestyle. And I think, to some extent, I have a little bit of survivor’s guilt over that. It’s not too much; they’re doing okay in retirement. But I feel acutely aware of the need to not squander their gifts to me.

I think, when pigs learn to fly and the TV scolds decide to actually offer reality based advice, they should focus on the correct Order of Magnitude: reducing $1000-level expenses (like airplane vacations) in order to save for $10,000-level goals (like a house down payment).

Or they could offer the other end of the advice: reduce your $5-level expenses to save for $100-level goals (like an unexpected car repair). That would actually be useful, modest advice that some (not zero) people can actually use.

But modest advice doesn’t feed the rage machine. And that’s why I titled my post the way I did. I don’t think they will be doing that anytime soon. But it would sure be nice if they did. 🐖 💸

Posted on

Saving for your children

Today I saw this Tweet, and wanted to highlight it here:

There are a lot of responses to her (some in good faith, some not). I’m glad that she is also prioritizing her own retirement accounts! I’m guessing the account she mentions is a custodial (UTMA/UGMA) account; that’s a good way to save a relatively small (couple thousands?) amount of money for a child, but if you have Lots Of Money ™, you should really consider other vehicles, such as a trust. I suspect that as this woman’s nest egg for her daughter grows, she will take stock of the situation and adjust her investments accordingly.

Most 18-year-olds would not be able to handle a sudden influx of cash like that. However, if you do a good job of explaining money and savings and delayed gratification to your child, then this sort of savings can be a gift, rather than a burden or a source of regret and pain. While I’m hesitant about the idea of “here, have money!” upon turning 18, my guess is that someone like this Internet person would have done all the legwork to make sure that her kid would have the skills to handle that money, not just have the money itself.

Posted on

Budgeting isn’t dieting

Mandatory disclaimer: I am writing this post from the perspective of a middle-class person addressing other middle-class people. I do not wish to imply that Anyone Can Do These Things; only people with a certain ration of Income to Needs can solve problems like this by budgeting. If your reaction to this post is “but I can’t budget my way out of poverty,” then do not fret: this post is not at or about you. If your reaction to this post is “but not EVERYONE can budget their way out of poverty,” then I will reiterate the intended audience for this post: Middle-class people. Not Everyone. Thank you for understanding!

A few weeks ago, I read a secondary source (Reddit post about an article, haha!) that discussed the question of “Is budget culture as harmful as diet culture?”

Seeing this concerned me, because I’m well aware of (and pretty vocal about!) how damaging diet culture is, and how the whole weight loss scheme system is destroying generations of people’s bodies and minds. And at the same time, I’m a huge proponent of being conscious of your budget, making sure you’re spending carefully, and things of that nature. So my immediate concern was: am I perpetuating a harmful shame culture by being so enthusiastic about budgeting?

But today, I had a small analogy-epiphany about it. In my view, budgeting isn’t the idea of dieting that says consuming is sinful, taking up space is sinful, your natural inclinations are evil and must be punished, good things must be “earned” and aren’t there to simply be enjoyed.

Rather, I think that budgeting is much closer to the idea that I subscribe to re: bodies and food and exercise. Namely: you exist and you do things. Eating food lets you do things, food is fuel, you need food in order to let your body do all this amazing stuff. It’s not a perfect philosophy; for example, it doesn’t address the frequent moralizing about disability or the ableism that can permeate even fat-positive spaces. But in general, I’ve found it the best way for me to conceptualize food and exercise and weight. Having A Body is the thing that lets me Do Stuff. That’s awesome.

In a similar fashion, having a budget (knowing what you are spending money on, and making sure that you are spending money on what you want to spend money on) is Having A Finance that lets you Do Stuff.

In your life, you undoubtedly have goals. Are you hoping to purchase a house? Send your children to college without the crippling burden of student debt? Pay off your own debts? Save for your retirement? Having a budget lets you actively choose those long-term goals in addition to living your day-to-day life now. (And unlike calories, dollars really are a zero sum game: dollars in, dollars out. Finance is binary like that in a way that Bodies are not.)

My personal view is that the best first step is to look at your Descriptive Budget: what am I currently spending money on? How do those expenses stack up against my total household income? How many of those expenses are recurring (mortgage) or periodic (car insurance)? And is my income biweekly, monthly, quarterly, or irregular (e.g. book advance)? Taking all of those things into account for the Descriptive Budget will help you formulate a Prescriptive Budget if you find you are over-spending on some things (like travel, or cute enamel pins on Etsy, or whatever).

To bring the analogy back around full circle: The actual, harmful, diet-culture-equivalent thing for Finance would be something akin to the Prosperity Gospel: the idea that you are only worthy if your income, or net worth, or whatever is above a certain level. That is the unhealthy thinking, in the world of personal finance.

But the healthy thing – the thing I’m advocating for, in all of my “being the finance nerd” in my social circles, is this: We should focus on the Stuff We Want To Do (save for future? go on trips to broaden our horizons?), and then take actions so that we can accomplish that Stuff.

Don’t look at the number on the scale. Don’t look at the total net worth in your spreadsheet. Look at what you’re able to do, look at what you want to do, and remember those long-term goals when you are making short-term spending decisions!