Instead of my usual “Dumb & Dumber” column detailing financial foolishness, I’m doing a different D&D for Financial Literacy Month — D&D, as in financial “Do’s and Don’ts.” (I know it should be “Dos and Don’ts,” without the apostrophe, but “dos” looks like “two” in Spanish, so sue me.)
Here are a dozen tips to make you a better investor, saver, parent, and human. They don’t require you to work harder; they require you to think differently.
Many years ago my husband and I went to a financial planner to map out an investment and savings plan that would ensure we’d have enough money to cover our living expenses until we die.
The financial planner asked a very simple question. “How long do you think you’ll live?”
Finally, I blurted out, “I plan to live to 100.” My husband’s answer was... “75.”
We stared at each other; it was an important moment. “Think big!” I told my husband. The financial planner agreed with me (natch).
Here’s the point. The Pew Research Center has estimated that there will be 3.7 million “centenarians” by the year 2050. You could be one of them. You need to plan your financial future as if you will live for decades after retirement — maybe a third of your life. And if you’re under 40, don’t count on Social Security.
CNBC’s personal finance expert Sharon Epperson makes her living trying to help the rest of us be smarter with our money. Sharon says that no matter what your goals are, “until you know where you are financially, you really can’t achieve those goals.”
Sharon says take some time and add up the value of everything you have — savings, investments, home equity, checking, car value, gold, Bitcoin, cash in the mattress. Then be honest with yourself and add up everything you owe — mortgage, credit cards, student loans. Subtract the second number from the first, and you have your net worth.
Yes, it could be a negative number, but join the club. Sharon advises that people direct any extra money they have toward paying down credit card debt instead of putting it into investments, ”because it’s far more likely that the interest that you’re paying on that credit card debt is going to exceed any growth that you would have in the stock market, particularly at this time.”
For example, during the pandemic, the head of retirement research at a major financial institution told her, “Focus on your liabilities.” So she refinanced her mortgage to bring down the cost. It’s a lesson she shares with everyone. “It’s actually very important that you bring down those liabilities just as much as it is building up your assets.”
You’ve done your job. You’ve raised your kids and did the best you could.
Now you need to let them fend for themselves, because you have to start thinking about your own financial security. You need to make sure there’s enough for you to live to 100 (see above).
“The best financial advice you can give your kids is the gift of failure,” Guy Adami tells me. Guy is an original member of CNBC’s long-running “Fast Money” program, and he’s a great guy (Guy!) who’s smart and who doesn’t take himself seriously. Plus, no one knows more about the history of Led Zeppelin than Guy does.
Anyhow. Back to kids. “Put them on [an] ice floe and let them go out into the Arctic Ocean and figure it out on their own,” Guy tells me. 💯
Your adult children need to learn the lesson you learned long ago: Life can be challenging. Time to tell 25-year-old Kyle and 24-year-old Kaylee, “Good luck! Let’s grab lunch soon. Love you!”
Warren Buffett is considered the greatest investor of all time. He buys a stock and holds it for years, sometimes decades. He’s 93 years old, and he’s still investing that way. It’s one reason he’s worth $125 billion.
Markets sometimes go down, and your investments will lose money. But as Warren Buffett says, downturns are temporary; the fear they cause creates great opportunities.
Back in 2007, I was getting a pedicure from a woman who told me about a house she bought in Bakersfield for no money down. She was going to rent it out for a year and then flip it. “Everybody’s doing it.”
I warned her not to put the house in her own name, that she should protect herself by creating a corporate entity. That way, if things went south, her personal assets would be protected.
She never took my advice, and things went south. She lost everything. So did everybody else in the pack she followed.
Look, it’s not like I’m some genius.
Case in point: Back in early 2000 I bought my first tech stock — Nokia — because I “needed” to own a tech stock. “Everybody’s doing it!” I told myself. Now, I didn’t know much about Nokia, except that I owned a Nokia phone, and that was good enough for me!
Then the Dotcom bubble burst and my investment cratered.
NFL wide receiver DeAndre Hopkins of the Arizona Cardinals is now a very hands-on investor, but he wasn’t always. He told me that he made a huge mistake early in his career when he invested in a product solely because other people told him to. “I didn’t go with my gut.”
DeAndre ended up losing a lot of money on the product, a home juicer. “I just allowed myself to go in [based on] big names investing in it, and not really doing my due diligence.”
FOMO is human nature. Don’t let it manipulate you.
If you feel like you have to buy Bitcoin or Tesla because “everybody’s doing it,” don’t. For one thing, it may be a sign that you’re late to the party. Do your own research, listen to your own gut, and then decide.
Most money managers will tell you that you need enough savings to cover a year’s worth of living expenses. But, let’s be serious. “Saying ‘a year’ is a bit daunting,” says Sharon. ”It’s overwhelming to people and may cause them to just do nothing.”
First, she says, know what you’re spending. "I think the reality is, most people do not know how much it costs to live their lives for just one month,” she says. Figure it out, then save up enough money to cover one month’s expenses, and “don't touch it.” Sharon says use it as a building block. “If you can get to three months, that’s great.”
“I make mistakes every single day,” jokes Guy Adami. He says there’s nothing wrong with being wrong, you just have to learn from it. And then he said this:
Guy adds that there’s no shame in admitting to mistakes. “Once you can come to grips with the fact that we’re all wrong, and it’s okay... it’s very liberating.”
Which leads to the next item…
But you, my little grasshopper, need to rise above. Stay cool. Think, don’t feel.
Guy says the biggest mistake traders make is “they cut their winners way too fast, because, ‘Oh my God, I can’t believe it, I’m up money on a trade!’” They also let their losing trades continue to lose money for way too long.
He says we need to try to rewire our brains. “Let those winning trades work for you a little bit longer, and get out of those bad ones quickly.”
It helps to decide ahead of time — not in the heat of battle — the price at which to sell at least some of your shares, either on the upside to take profits, or on the downside to cut losses (hard to do!). Stick to the plan, no matter how much your emotions scream for you to do something else.
You love your company, right? It’s a really successful company with great growth. I worked for a company like that once, and I had a very good friend and co-worker who decided he wanted to only have company shares in his 401k. All his eggs in one single basket.
What could go wrong? You know what went wrong — the company did! Shares plummeted, and my friend lost a lot of money in the very retirement account that was supposed to support him in his golden years.
Don’t be that guy. Diversify into a variety of stocks or stock funds because, even now, that’s where growth is. And Sharon says your company may already be putting its own stock in your 401k as a match.
Also: Take advantage of direct deposit. “Many companies will let you put money into multiple accounts,” Sharon tells me. This is a way to automatically build toward your financial goals before you get your paycheck.
You are not going to live forever. You may not even live until tomorrow (sorry, but it’s true).
Don’t be like Prince, who had no will. No matter the value of your net worth — I don’t care if you’re only 30 and newly married with a baby on the way — get a will or a trust now. I mean, like, right now (after you finish reading this).
If you truly love your family, don’t dump a big money mess in their laps upon your untimely death. Contact an estate planner today.
For everything else that you absolutely have to have right now, this very instant — besides an estate plan — sleep on it. Trust me, 99% of the time it’ll still be there tomorrow, and there’s a 30% chance you won’t want it anymore. I know, I know, this is hard (That car! That dress! That house!). It has taken me years to master the habit of saying, “Let me think about it,” but doing so has saved me money and heartache.
Sometimes I still fail. Fortunately, “I’m not buying this today,” is my husband’s favorite phrase.
There’s an old financial formula that always stuck with me: Live on 70% of your income, save 10%, invest 10%, and give 10% to charity. You really can’t go wrong with this formula, but the easiest part to skip is the last 10%.
Don’t skip it.
It seems counterintuitive, but once I reprioritized my spending and put charity first, not last, I unexpectedly starting making more money than ever. Coincidence? Maybe, and that certainly wasn’t my goal, but I challenge you to give 10% of your income away at the beginning of the month, and watch what happens. If nothing else, you’ve reduced your tax burden, possibly pushed yourself into a lower tax bracket, and done some good.
Also, have a giving plan. Figure out what organizations you want to support, because when you don’t have a plan, your charity is less disciplined. Added bonus: A plan gives you an “out” when someone comes at you, hat in hand. You can honestly tell them, “I already give.”
What sage financial advice has served you well? Please share in the discussion below, and feel free to let me know if you disagree with my 12 tips. I’m not Warren Buffett. Yet.
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