Money Management

Money Can Buy Happiness

March 16, 2018 By Twila Van Leer

Contrary to the common adage that says you can’t buy happiness, a massive research project conducted by Purdue University and the University of Virginia indicates that there is a certain amount of happiness that is related to satisfaction with life that comes from a certain income.

The two universities analyzed World Gallup Poll data that was gathered from 1.7 million people in 164 countries and cross-referenced earnings with life satisfaction. The results of the study were published in the journal Nature Human Behavior.

The study acknowledged that costs and standards of living varied among the countries included in the study and factored that into their conclusions.

The upshot for Americans was that an ideal income for individuals is $95,000 per year to obtain life satisfaction. Emotional well-being, the study showed, is achievable at $60,000 to $75,000 per year. Families with children, of course, will need more.

The researchers defined life satisfaction as an overall assessment of how one is doing financially. Emotional well-being related to day-to-day feelings such as happiness, sadness, excitement, anger, etc.

The extensive survey also indicated that once a threshold was reached, additional increases in income actually were associated with reduced happiness, indicating that the more people have, the more they want. They tend to compare themselves with others more often.

There is a happiness “tipping point,” the researchers concluded., related to how well an individual feels about money. A small decline in earnings causes one to relate with others who make slightly lower incomes, perhaps because of the costs that come with higher incomes, said Andrew Jebb, lead author of the study and a doctoral student at Purdue.

He noted that the findings of the large study raise issues about money and happiness across cultures. “Money is only part of what really makes us happy and we’re learning more about the limits of money.“

Value Of Money Changes

February 26, 2018 By Twila Van Leer

Do You Know The Time Value Of Money?

Wimpy, of the old cartoon show, Popeye, loves hamburgers, a passion that leads to his signature line, “I’ll gladly pay you Tuesday for a hamburger today.” This line leads us to our topic of discussion today. Will the dollar you have today be worth more tomorrow?

A dollar this year may be worth much more next year. The opposite of what Wimpy was suggesting. This variation in the value of our dollars is one of the fundamental principles of finance and you need to firmly establish it in your mind as you contemplate investing. Your $1 today invested wisely can be worth much more next year. The best advice you can take is to remember this forward -looking growth statement. You need to realize the value of every dollar that comes into your possession.

Using your money wisely can offset such factors as inflation. If you can invest and earn a dividend or capital gains on your dollar, you stay ahead of the decline in value related to inflation. Realizing the full potential of every dollar you have is key to building wealth. Think of dollars as seeds. You can eat them (spend) or sow them (invest.)

Think in terms of the future value of your dollar, not what it is worth at the moment.

Assume you are 30 years old and 35 years from retirement at age 65. That means that an investment you make now has 35 years to compound. If you invest at a good rate of return, you’ll have a good nest egg when you retire. The historic rate of return on the stock market is 12 percent. The return on bonds is slightly lower. A combination of both could predictably give you a return of 10 percent.

Using these variables and estimates, you could assume that failing to invest $20 today could cost you approximately $562 over 35 years. Adjusting for inflation, the cost could be closer to $140. Even so, your purchasing power would have increased some seven-fold.

Multiply $20 by whatever amount you are able to invest, and you can see that failing to invest now has significant impact on what you can expect to have in the future.

Seen in this context, you may reassess how much a seemingly small luxury you indulge in today can add up to a significant loss in the future. Think ahead.

Beginners’ Guide To Saving Money

February 24, 2018 By Twila Van Leer

Saving money is the keystone principle to financial success. It’s what makes it possible for you to take advantage of opportunities, such as going back to school, starting a business or buying shares of stock when the market crashes.

The logical questions are: How much should I be saving? What is the difference between saving and investing? What are the safest methods for saving?

There is a huge difference between saving and investing. Both should have a place in your financial planning, but they have different roles. It can make a difference in whether you experience a bare-knuckle survival through a recession or depression or sleep soundly knowing you have spare liquidity on hand. Knowing the difference is vital to building wealth and finding financial independence.

Many individuals have lost everything in an economic downturn despite having wonderful portfolios because they failed to appreciate the role of cash in their calculations.

Making money for you is not always the first role of cash.

Knowing the basic differences between saving and investing may help. Saving involves putting cold, hard cash away where it is safe and liquid. Some successful money managers suggest keeping a lot of cash hidden on hand to be a source of quick availability. Savings should be in FDIC-insured accounts, including U.S. treasury bills. Money market accounts are good, but money market funds require a careful look at the holdings and structure. Savings should be immediately accessible so you can deploy them with minimal delay according to circumstances.

During the 2008-09 economic meltdown, some hedge fund managers actually had their spouses getting as much cash as they could from ATMs because it appeared that the entire economy was going to collapse. Not widely publicized, such activity nevertheless showed the depth of the concerns.

The objective in saving is to keep ahead of inflation.

Now, about investing. That’s a process of using your money to earn a return. There is more volatility in the process than in saving, but it is the basis for building wealth. Learning the tricks of investing is a process and many helps are available, including the book, “How to Start Investing.” Professional help is available if you are a real novice. The trick is to start. Learn as you go.

Stocks, bonds and real estate are the most popular avenues for investing.

So, given the differences, how much of your income should you dedicate to each of these money-management techniques? Obviously, the answer is individual, but the bottom line should be: “As much as you can,” even to the extent of sacrificing some of your immediate desires to maximize your savings and investment options.

Put savings before investments (unless you receive a sudden windfall such as an inheritance, etc.) A good savings cushion will fund your investments. The two primary purposes for savings are as a hedge against the loss of income, through a layoff, downturn, illness or for special purposes such as a house down payment, car or other big-tab item. Ideally, you should have six months of coverage for essential living costs. That will give you a sense of security that you can’t get from the market, which can be extremely volatile in the short-run.

You shouldn’t consider investing until your savings program will give you the assurance of being able to take care of emergencies and/or saving for the items that will take more than five years to pay for. Having health insurance should take precedence over investing as well. Without it, a single health incidence could wipe you out.

Savings and investing. Make both a matter for long-term personal financial health. But start with the savings.

Retirement Sneaks Up On You

February 13, 2018 By Twila Van Leer

When you are young and just starting down the employment path, it’s easy to ignore the fact that you’ll face retirement some day. But some day is not as far away as you think. If it arrives and you haven’t prepared, you may face some tight living in your “golden” years.

How much you need to save to be prepared is a personal question. How well do you want to live in retirement and how much do you earn? A rule of thumb is to estimate what you will be earning the year you retire. Subtract your retirement income, such as Social Security, pension, trust accounts, etc.) and then multiply it by the number of years you expect to live after retirement. Not exact, but at least a figure to shoot for.

The answer to how much you should be saving, simply put, is “as much as you can, but not more.” The earning years should not be miserable in order to finance the retirement years. But retirement savings must be high up on your priority list.

You can’t get a loan to finance your retirement. To make the figures more real, make a pie chart with five “slices.” Label them “bills,” “debt,” “spending,” “short-term savings” and “long-term savings.” If the long-term savings (i.e., retirement) is too small, look at the other categories and see where it is possible to make a shift. Possibly you need to trim short-term savings a bit in favor of long-term. Be wise, don’t decimate your emergency funds to make the difference. Be willing to sacrifice a few things, like lunching out, being too free with entertainment expenses, making unnecessary clothing purchases. Focus first on the necessities.

What kind of retirement account should you consider? How long do you have before retirement and how much do you make? Taxes should be a large part of your consideration. Some programs, such as an employee-sponsored 401(k), allows you to defer payment. Optimize your contribution to a company plan, especially if your employer offers a match.

Speak with a professional if you need help understanding your options, how to invest to maximize your returns. He or she can guide you through the maze of possibilities and help you adopt the best plan for your circumstances.

Yes, there are many questions. But the one that can be easily answered is: When do I start? The answer: Now.

Can Millionaires Cure Health Care Crisis

February 11, 2018 By Twila Van Leer

Does a record for amassing money and running successful businesses automatically qualify a trio of multi-millionaires to come up with successful solutions to the medical mess America has fallen into?

Jeff Bezos, Warren Buffet and Jamie Dimon think they can. They have announced that they are creating a new company to address health care costs for their U.S. employees. They think their solutions might work for other companies as well.

Their announcement recently sent shivers through people who are heavily invested in established health insurers and triggered a sell-off in their stocks.

Their particulars haven’t been published, but there are clues to what they might suggest based on their handling of their own businesses.

Buffett has Buffett’s Berkshire Hathaway; Bezos runs one of the country’s biggest retailers in Amazon; and Dimon heads JP Morgan Chase. Together, the three have a market worth of $1.62 trillion. They have used unique and daring methods to put themselves at the top of the earnings heap and are noted for inventive ways to meet challenges.

Buffet may have the most experience in the insurance world. Berkshire Hathaway owns several insurers, including GEICO. While that may not translate immediately into health insurance, Buffet at least knows how the market works. He is as long-time critic of America’s health care costs, calling them a “tapeworm” that harms the growth of the economy.

Dimon, as head of the largest U.S. bank in terms of both assets and deposits, also has an understanding of how money works. JP Morgan Chase got a big tax cut under the new national tax plan.

Bezos has cut a wide swath with his innovative approaches to online marketing. Now the richest man in the world, he has used some imaginative approaches to marketing, being willing to cut prices a little to attract customers. Amazon has built itself on that sort of thinking,

The trio said their project will focus on technology to provide simple, transparent care, avoiding the morass that complicates current health care and multiplies costs.

Though only time will tell if they are onto something good, some analysts who are familiar with their past performances say there is a good chance they can pull it off. Jeffries & Co. analyst Brian Tanquilut predicts that the new company will do such things as negotiating directly with health care providers such as hospitals and health care providers, bypassing the companies that act as middleman between patient and provider. That would reduce costs in medical and pharmaceutical chains, he said.

If nothing else the millionaire consortium on health care will shake up the industry and possibly induce new approaches in the market.