The Index Card is an idea that needs to catch on. Helaine Olen and Harold Pollack believe that personal finance should be simple enough to explain on an index card. The same could or should be true about other things, like parenting, nutrition, fitness, or staying married. Why? Because when these things seem complicated and difficult to understand, they set us up for pain and heartbreak. When they seem simple and approachable, we’re able to handle them well, and life is so much easier. Let’s see how we can use this index card method to simplify our finances.
The authors of The Index Card are highly skeptical of the finance industry. They lead with the example of a man who asked how to invest a chunk of money, and every professional he spoke to gave him completely different advice. (Would that have been true of a series of car mechanics or construction contractors?) How is an average person supposed to make sense out of that?
The authors met because Helaine wrote a book about the finance industry, and Harold asked to interview her for his blog. His family had serious financial issues to overcome after his wife’s disabled brother came to live with them. Thus, The Index Card is based on both industry knowledge and practical personal experience.
According to the book, and validating our suspicions, most people have money problems. A third of households have a bill turned over to collections every year. Almost half of Americans keep a balance on their credit cards. The majority of retirees leave the workforce earlier than they planned. Most people aren’t set up to handle an emergency. Certainly a bit more financial knowledge would be helpful in this area that so many find stressful, confusing, and disappointing.
The Index Card points out that older generations may have claimed to have stronger values about frugality and money management, when in reality they had virtually no access to credit. The financial industry of their time bore almost no resemblance to what exists today. We’re able to get into all new kinds of financial trouble. This book has straightforward advice on navigating investment products and interviewing financial advisors. It also has some basic advice on saving money on food and various other services.
Personally, I follow some of the advice on this legendary index card, but not all of it. For instance, it says to save 20% of your income, and my husband and I save 40%. There are people in the FIRE community who save significantly more; a lot of couples both work full-time and bank one entire income plus part of the other. I’ll admit as well that I own several individual securities, that it has worked quite well for me so far, that I have occasionally beat the market, and that I broke even in 2008. Listen to Olen and Pollack, though; most people don’t have the time or inclination to do the amount of research that I did. Also, the game ain’t over yet. I may be crying in my tea by the time I officially retire.
We feel as if we are falling behind because, frankly, we are, often through no fault of our own.
If we all need to be wary of the financial services industry, and yet we also need to be proactive about our finances, what do we do?
Don’t count on working forever.
Information is not motivation, and common knowledge is not common action. Basically this means that we know everything we need to know in order to get started, but it isn’t enough. No matter what it is that we’d like to do, for some reason, we aren’t doing it. Maybe we just aren’t juiced up enough about the benefits of change. Maybe we’re unsure about how getting the goal will change our relationships. Probably it’s different for every person and every situation. One thing that seems to be working for me is the contrary approach of imagining the worst version of something. How is what I’m doing as bad as it could be, and how could it be worse?
Let’s say I’m thinking about my car. I don’t actually own a car right now, so this is purely a figment of my imagination. The worst version of “my car” would be: unsafe, unreliable, smelly, dirty, filled with trash, and expensive. I’m picturing something that’s burning oil, with a black smoky cloud pouring out from behind me. The brakes are failing! The “check engine” light constantly flickers on and off. The body is rusting out, I have a broken tail light, one of the side windows is broken and replaced with cardboard and tape, and the passenger door lock doesn’t work. The interior smells like spoiled milk, the floors are covered with wrappers and food crumbs of every color, and there’s a suspicious stain on the seat. It gets 16 miles to the gallon and I’m still making payments. The glove compartment is so full of unpaid parking tickets that it won’t close.
Want me to swing by and pick you up?
Honestly, thinking about this “worst version” of a car makes me feel really smug about walking everywhere. I pulled that description from actual vehicles in which I have ridden. I could make this worst version slightly worse, although less realistic, by adding more broken windows or engine problems. At the point at which it is no longer operational, it stops being a “vehicle” and transitions to “junk.” Perhaps junk that is more valuable than other junk, like a broken and obsolete washing machine, but junk it still is.
This worst version method can be applied to other things.
Worst job: Underpaid, no benefits, unethical business practices, mean and domineering boss, unsafe working conditions, long commute, rude customers, no path to advancement, no social contribution
Worst relationship: Dishonest, dysfunctional; partner is contemptuous, hypercritical, and unpredictably disappears or cuts communication for no obvious reason. Can I say that if it’s violent then it isn’t a relationship, it’s a slow-motion crime?
Worst desk: Can’t work there, just looking at it stresses me out, covered with clutter, uncomfortable to sit there, poor lighting, not enough power outlets, other people dump their stuff on it
Worst shoes: Give me blisters, wearing them for more than an hour makes me walk with a limp, only match one outfit (or zero)
Worst lunch: Diet Coke and a bag of microwave popcorn
Worst cat: Actually an opossum
There are two benefits to using the worst version method. First, when things are bad, it can help to get at least a weak chuckle by imagining how they could be worse. Second, it can draw attention to ways we’ve been tolerating the intolerable. That perspective can be the jolt that we need to get moving, to take action and set limits.
Worst neighbor: Accidentally shot out our living room window, their dog got loose and attacked our dog
Worst landlord: Lived next door, had chronic domestic disputes
What do we do with this information? OKAY, TIME TO MOVE
Complaining is of very limited use. Its purpose should be to clarify our true desires. If not this, then what?
I had a silverware sorter in chrome. I thought it looked great. Then one day, one of the wires came loose and I managed to ram it under my fingernail. Bled everywhere. TIME TO GO! We shouldn’t be assaulted by our own stuff.
When we’re clear and certain about what we find unacceptable, we can rule it out. Nothing that makes us bleed, et cetera. It’s that response of OH HECK NO that abruptly puts a stop to ruts and habitual behavior that doesn’t serve us.
If not this, then what?
Ask that again and again.
If not this job, or one just like it, then what? How would we define a “good” boss or a “reasonable” commute?
If not this relationship, then what? Taking some time to be alone for a while, that might be good. What does “good communication” sound like? What does “functional” feel like?
If not this financial problem, then what? What will it take to reach a place of peace and clarity here?
If not this persistent physical annoyance, then what? What do we want for our bodies? Agility, symmetry, high energy, supple muscles, speed, power, strength, clear skin, a strong immune system? What specifically?
If not this room, then where? What would a dream office/bedroom/kitchen/living room look like? How would it feel to inhabit this space?
Most of all, what is the worst version of myself? When am I at my lowest? Selfish, inconsiderate, bored, envious, whiny, unproductive, not contributing or doing anything interesting, too much unstructured time, out of physical balance, no direction or purpose, making life difficult for other people, stuck and unhappy. What else?
Let’s not be our worst selves. Let’s not live the worst version of our lives, okay? If we’re ever going to make the world a better place, we’ll do it by always looking up to at least a slightly higher standard.
Scarcity mindset actively blocks financial security in a lot of ways. This is something I have worked on with all of my clients, without fail, although they are all over the map when it comes to actual income, career, wealth, education, age, gender, and family background. It makes perfect sense to me. Chronic disorganization exists in a feedback loop with stress and financial problems. This is part of how and why financial anxiety feeds on itself.
When I start a job with a new client, especially during home visits, I explain what to expect. I lay out the rules, which are that I’m there to sort and help make decisions, but that I’ll never throw anything away, not even the tiniest scrap of paper. That’s the client’s job. I also say that a couple of the side benefits are finding unexpected money, and weight loss. They react to the latter with surprise and curiosity, but to the former with firm conviction. Will I lose weight? Neat! Will I find money? HA, not likely. I know it will happen, though, because it always happens. The more insistent the client is that if they had any missing money, they would certainly have found it by now, the more likely there is to be some.
A root cause of this problem is learned helplessness. In response to stress, my people resort to pessimism and hopeless certainty. OH WELL, they think, HERE WE GO AGAIN. They also think THIS ALWAYS HAPPENS. They tend to retreat and isolate themselves, rather than reach out to anyone, ask for advice or help, do research, brainstorm multiple new approaches, find innovative ways to get around the problem or raise money, or especially to take any kind of action. This is why they can get hit with an unexpected expense and somehow forget that they have uncashed checks sitting on their desk, or nice green cash dollars in a pocket.
More obviously, my people will receive cash, checks, refunds, and gift cards... and set them down somewhere. They will go on to stack random stuff on top of that money, burying it under junk mail, flyers, and newspapers. (What the more frantic type of broke person will do is clutch that check or cash as tightly as possible and sprint directly to the bank, beating on the window if that branch is closed).
One of the most visible indicators of my people is that they leave coins strewn all over the place. There will be coins on the dashboard and floor of their vehicle. There will be coins shaking loose in the bottom of their numerous plastic grocery bags. There will be coins on the kitchen counter, on the bathroom sink, on the nightstand and dresser, on bookshelves, on the desk and on top of the microwave and TV. There will be coins in the windowsill. Usually there will be coins on the carpet as well. Coins, coins, coins. One penny at a time, it doesn’t seem like much, but I have a one-cup jar with over ninety dollars in it, all from pennies and other coins I’ve found in the street since 2005. Coins are cash, too.
There are other indicators of lack of focus and awareness around money. It’s not just common, it is UNIVERSAL that my people will find uncashed checks after they have expired. Sometimes I am able to convince them to contact the sender to have the check reissued. (Sometimes it doesn’t work, but usually it does). More commonly, they dig their heels in and refuse, feeling actively affronted that someone might suggest they are entitled to their own earnings.
The links between chronic disorganization, stress, anxiety, and financial problems become more clearly defined and easily recognizable.
My people, as a rule, do NOT trust electronic banking. They may sometimes accept direct deposit, if it’s required by Social Security or if someone very nice helped them to set it up. Usually, though, they’ll hold out until their dying breath because they are afraid of fraud and bank errors. Automatic payments are another story. If receiving money in an instant is scary, then having it withdrawn is among their worst nightmares. From my perspective, my people’s insistence on paper-based, snail-mail banking makes their organization problems an order of magnitude more difficult.
Snowdrifts of papers, sealed envelopes, unopened bank statements, and a total lack of filing system contribute to the impossible conundrum of finding all those lost checks and gift cards. Nobody, but nobody, can find anything if there are more than about ten sheets of paper on a surface.
Distrust of electronic banking is one thing. My people also resist setting up automatic transfers or payments because they have a justifiable fear of being overdrawn. Banks are not helpful here, as they have been known to deliberately process deposits and payments in a way to generate the maximum fees. Being one day or one dollar off in your calculations can potentially result in hundreds of dollars of overdraft or over-limit fees. Been there, done that, sold the t-shirt at the consignment shop to try to pay my overdraft.
Behind this same fear is tolerance of a system in which every payment is due on a different date. This is what broke people do when we’re afraid we’ll have to pay several bills on the same day, a day when our accounts are empty. At least having stuff due on different dates means we have more time to come up with the money? Here we are seeing the way that financial anxiety shortens our timeframe and erodes our ability to plan into the future. We don’t even notice that we’re, say, 10% over limit every month, or that our income and expenses are really pretty predictable. We just build up a sense of dread and learn to sputter along that way.
Looking back at my own broke days, back before e-banking and before we could withdraw cash at the grocery store without an ATM fee, I was maybe $25 from peace of mind. I needed only a very small buffer at the bottom of my bank account. It could have been quite literally the identical $25 from one year to the next. If I’d understood that, I would easily have raised that money and left it there, and it would be there today (which, now, it is). At the time, I constantly felt the danger of being overdrawn, of having to put groceries back, of having insufficient funds or having my card declined. It was real, yet also an illusion, realistic, yet also unnecessary.
I can identify my people on sight, or even from part of a photo. Papers everywhere, unopened shopping bags, lots and lots of STUFF of every description, coins here and there, and a general lack of ease or prosperity. I recognize it because I work with it and because I also used to live that life.
On the other side, it really is easy. I’ve had all my payments automatically deposited for, what? Fifteen or twenty years now? I’ve never once had a problem with a deposit. Not once. My husband and I also pay all our bills electronically. If the service provider doesn’t have automatic billing, then we set it up with our bank. We get our statements electronically. It takes about one minute to pay the few bills that require our attention. The result is that we’re never late, we never pay extra fees, and we both have credit scores over 800. This makes us eligible for lower interest rates, reward programs, upgrades, and the ability to set up new accounts without paying a deposit. In other words, the more you have, the more you get. Unfair it may be, but games have rules, and I was broke long enough that I’m not exactly going to fight off free goodies.
Financial anxiety feeds on itself. Disorganization leads to more disorganization, as entropy takes over. Anxiety and disorganization eat away at mental bandwidth, replacing focus and concentration with stress and emotional flooding. It goes from bad to worse. The same person with the same finances, though, can use mental clarity to create order from chaos. It’s possible to dig out, find those lost checks and cash and gift cards, sell off extra stuff, lower your expenses, renegotiate contracts, increase your income, and one day, look back at what has become just one sad chapter in a longer, more interesting story.
Halloween is the best time to talk about our mortality. In the past, I’ve talked about becoming a whole-body donor and about the importance of the advance care directive. This year I’m going to talk about what happens if you die without a will. Two-thirds of people do. It’s very high on the list of most commonly procrastinated tasks. Who wants to think about dying? Who cares what happens afterward? Rather than let that type of passivity run your life, take a day and make the arrangements properly. Then you can move forward and never think about it again.
Most people probably don’t need a will, not really. If you don’t own a house and/or you don’t have any kids, go in peace. Both of those conditions apply to me. I have an adult stepdaughter, sure, but she’s responsible for herself. If I go before my husband does, then all of my money and property become his. That’s how I’d want it. I don’t have life insurance because there would be no need to replace my income. I also don’t really own anything, not a car, not real estate, not expensive jewelry or furs or whatever. The only things I care about after I go are who would take care of my little parrot Noelle, and what happens to my blog when my domain name expires.
People don’t think about that kind of thing often enough. Who takes your kitties? What if you’re just in the hospital for four days, does someone water your plants?
When you die, everything becomes someone else’s problem. What exactly happens, though?
Your mail continues to show up at your mailing address until someone notifies the post office and/or the senders that you are deceased.
Your bills continue to accrue in your name. Someone has to call all of your utility providers and banks, one by one, and let them know you have passed on. They will wait a certain amount of time and then start calling again, wanting the estate to pay off all the account balances. This process will be ongoing long before the courts have made things official on their end.
The hospital has to issue a death certificate. This can take weeks or months and is subject to mystifying delays.
Then, if there is no will, someone has to be appointed as executor or personal representative. This is another process that takes an unfathomable amount of time. None of the bills of the estate can be settled until this is done.
If there is a spouse, the estate goes to that person, even if you’ve separated and you hate each other, unless divorce papers were filed. EVEN THEN! If you had any insurance policies or old accounts with that person recorded as beneficiary, even from decades ago, that person gets your money.
If there is no spouse but there are kids, they stand equal as next of kin. This can be complicated, because most likely they will start squabbling over who gets to make which decisions, what you supposedly said you wanted, and who gets what goodies. Your procrastinating on writing a will may be the single reason that all your kids stop being on speaking terms for the rest of their lives.
If you have a house, and you also have unpaid bills, and not enough money in your accounts to pay them all, then the house must be sold. No matter who lives in it. In the meantime, if the mortgage doesn’t get paid, then the bank can move along toward foreclosure. Probate is not protective against foreclosure.
What happens to your stuff? Someone has to go through it all and throw it away, donate it, sort it out to make sure it’s given to the “correct” recipient, sell it, or, most likely, pay for a storage unit and keep it all in boxes forever and ever. Precisely zero of my clutter clients have ever gotten rid of any of their grief boxes. They’ll save your old potholders, your jigsaw puzzles missing a piece, your dentures, all of it. I’ve seen hairbrushes saved for several years with the hair still in them.
The more complicated your affairs, the more likely that at least one of your loved ones will never get past it. They’ll never move on. Your passing will be the wound that never heals.
The more I work with clutter, the more of it I expel from my life. Every time I do a home visit, I come home and get rid of another bag of stuff. I’ve sworn off home visits entirely, but it seems impossible to quit for my inner circle. For myself, I can’t have it. We are given neither the day nor the hour, and I might leave this world this very afternoon. That’s why I’ve already put most of my affairs in order. I burned my old diaries, I scanned my photos, I filled out an advance care directive and had it witnessed, I made arrangements to be a whole body donor and I am constantly showing the card to people. It’s the orange thing in my wallet in front of my driver’s license. The toll-free number is on the emergency alert section of my phone. I don’t even have any house plants.
One day, there will be the sad task of scraping away my few personal effects. I may pay someone to do it in advance. Throw away my toothpaste and my leftovers from the fridge and my socks and underwear. Hopefully the stuff I’ve left behind is the least of me.
What we’re called upon to do in this world and this lifetime is to love one another. Love each other, that’s all. Mostly we should do this in the present moment, today, and today, and today again, because today is all we really have. Another way to love our loved ones is to straighten out our affairs as well as possible. The legacy we leave behind should be one of love, of unforgettable words of kindness, of great stories, of friendships that stood the test of time. Let what we leave behind be impossible to ever put in a box.
‘Refinance’ means different things depending on whom you talk to. There are two very different philosophies of home ownership and debt structuring. One leads in a surprising direction toward financial independence, and the other down the primrose path to, well, the primrose path never leads anywhere good. If you think you might ever refinance your home loan, take a moment to consider these two different strategies.
As a disclaimer, I’ve never refinanced a mortgage because I don’t own a house, never have, and possibly never will. That’s because I’m highly skeptical of conventional wisdom around these matters. Home ownership only makes sense if you know you’re going to own the house for at least five years, and that hasn’t been a viable option for me during my entire adult life. Not due to financial means, no, but rather to sound career strategy. My husband and I have done far better financially by being willing and able to change cities for job opportunities than we would have through appreciating real estate. This is why my opinion is interesting, because I don’t really have a dog in the fight. I look at real estate as a bystander.
I first learned the term ‘refi’ at age eighteen, working my first legit office job in a mortgage bank. The way it was explained to me, people would refinance to get a better interest rate, and that would mean they could save thousands of dollars in interest over the life of the loan. Whoa, good idea, I thought. My parents had only bought a house three years earlier, and I didn’t know much about that sort of thing. I assumed that refinancing meant you either made the same monthly payment and paid your mortgage off a little early, or that you paid a little less each month.
It never occurred to me that people would refinance their home loan as a way of dealing with their credit card debt, that they’d actually be willing to sign papers that made their house more expensive or extended their loan. Who would do that?? That didn’t even make sense. I didn’t have credit cards at that time, and wouldn’t for several years. My parents had only taken out a credit card to build credit history so they could qualify for a home loan. I had no idea that people - any people at all - were using consumer debt to finance lifestyle upgrades they couldn’t afford.
It turns out that’s the standard way to do it. Use your home equity as a cash machine. Roll your credit card debt into this new loan every so often. Maybe even take out a HELOC (home equity line of credit) so you can borrow against your security, your most important asset, the most expensive thing you’ve ever bought.
I’ve seen this happen several times. Someone starts out with an enviably low home loan and then refinances a couple-few times over the years. Suddenly the mortgage is double, triple, even quadruple where it was when it started.
There’s another way to do it. It’s almost completely opposite the standard approach. That is to refinance for a lower interest rate, maybe even with HIGHER monthly payments, to shorten the length of the loan and pay it off as fast as possible. Race to the finish line.
In the first, most common scenario, people are expanding their baseline lifestyles and expectations along with the supposed market value of their house. They progressively owe more and more while being less and less able to stomach even temporary cuts to what they have begun to see as necessities. On the hedonic treadmill, forever and always.
In the second scenario, the rare few are looking ahead to what Future Self would like. They’re pacing themselves, occasionally making short-term sacrifices for long-term stability and comfort. They progressively owe LESS AND LESS. They place more value in the feeling of being free, of one day owing nothing to anyone. They can look ahead to a specific year when they’ll own their home free and clear. They know when they’ll reach the crossover point, when the income from their investments equals their current expenses.
The “refinance to cover our debt” model has the Old Version of someone making higher mortgage payments to pay off the spending of the Young Version. Old Me has to work and work to pay extra because Young Me wanted to have more fun than I could afford.
The “maybe retire early” model has Young Me working hard to make things cheaper for Old Me. In this version, Old Me doesn’t have to worry quite as much about being crushed by medical expenses just as I’m too old and ill to keep working. It’s also possible that a hale and hearty Old Me can use the extra money as a windfall for travel, a home remodel, or whatever.
One major difference between the two is that the debt-rollercoaster version is default. It’s what happens with a lack of planning and foresight, and it’s also what happens when a couple has trouble negotiating with one another about money. The retire-early model absolutely requires both partners to come to terms with each other, to make agreements and keep them. You can only be that careful with large quantities of money over a decades-long time span if you have open channels of communication. In other words, it’s not for amateurs.
This is part of why my husband and I are living in a studio apartment, why we own neither a house nor a car. We both agree that it’s worthwhile to downsize temporarily. We both have very specific financial goals on a specific timeline. We figured that we could handle living in a confined space for a year or two, and that later in life it would make a good story. Shared adversity can make your relationship stronger. It’s something to laugh about later.
If we do ever buy a house, there are only a few circumstances in which I would think it was a good idea. 1. A ten-year or fifteen-year mortgage. 2. Buying a house with a granny unit, renting out the house, and living in the granny unit while our tenants pay off our mortgage. 3. Buying the house with cash and not carrying a mortgage at all. There are lots of ways to become home owners, and the standard-issue perpetual debt model is not the only way.
I don’t invest in gold. This seems like such an obvious stance that it doesn’t bear mentioning, at least to me. I’ve started to realize, though, that it’s pretty heavily marketed, and that the marketing actually works on people. Might as well toss my opinion out there. All I wonder is whether it makes me contrarian or not.
Now, I don’t dislike gold as an element or anything. I’ve been wearing a(n ethically sourced) gold wedding ring on my hand for nine years and I’ve never taken it off. In that sense, I have more of a personal relationship with gold than with any other metal. I can also see the point of having my own personal gold brick, keeping it in my safe and occasionally opening the door to simply look at it. I mean, I wouldn’t turn one down. It’s more that I wouldn’t regard it as an “investment,” in that form or any other.
I think there are smart, rich people out there making fat wads of cash off convincing other people to invest in gold. The same can be said about other things, like penny stocks or real estate, but those are targeted to, I think, different demographics.
What’s the rationale behind this? There’s more than one, but let’s just go straight to the EOTWAWKI argument, shall we? (End Of The World As We Know It, which, one day maybe we’ll go deeper on this but technically it could indicate... an improvement!).
It’s the Walking Dead future as opposed to the Star Trek future. “The grid” goes down, permanently, and we’re quickly plunged into an apocalyptic nightmare of anarchy and chaos, kind of like Black Friday but with more cannibalism.
In this grim, nihilistic vision, people quit trusting currency, and suddenly gold becomes a more viable means of trade.
Okay, so here is where I flag the operator and climb out of the roller coaster. I know too much about history and material culture to buy into this.
I don’t disbelieve in the premise of a failed state, with anarchy, bread lines, and riots. That’s a fairly constant thesis topic in my field, after all. My posture is based on the idea that gold ain’t going to help in that scenario.
What’s really going to be valuable in a state of total technological collapse? Trade, of course, will continue on forever, because it’s an innate part of how we understand the world. Even animals like crows and apes understand concepts of trade and fairness to an extent. The deal is that we want what is scarce, and in this dark version of the world, gold wouldn’t be all that scarce. It isn’t now, so why would it be in a world of fewer people and less or no law enforcement?
What people would actually want: Coffee. Chocolate. Insulin. Tylenol. Antibiotics. Birth control. Batteries. Nicotine. Any other mind-altering drug that can’t be grown locally or produced in a camp kitchen.
What’s gold going to do in a scenario where everyone has a pounding caffeine-withdrawal headache and there’s no coffee to be had?
Gold is for trade, right? Why use anything at all for trade, unless there’s a trade good that you want but don’t have and can’t get unless you trade for it?
Does that sound dumb? Hold on.
We’re at Peak Stuff as a society, or at least we are here in the great old U. S. of A. Name me an article of clothing, camping gear, construction materials, medical supplies, or anything else you can’t find by the container-shipload. We have more of these material goods right now than we know what to do with, and that would be even more the case if there were some massive apocalyptic die-off. There’s an idea that comes up all the time in post-apocalyptic novels that people would quickly run out of clothes, and that has always seemed comical to me, because I’ve been in a lot of Goodwills. I don’t think we’d even really have to worry about food supplies for quite a long time, barring climate change effects, which only ever seem to bother us in our scary fiction.
Anyway, let’s say we survive TEOTWAWKI and we need... a thing. A necessary object. Are we going to trade for it, are we going to loot it, do we probably already have five of them out in the garage, or do we understand that we need to learn a sustainable, long-term means of manufacture? Where does gold factor into this? Why would I use gold to buy something like, say, a pair of boots or a first aid kit, when I know where to find and scavenge them on my own?
I don’t scoff at preparedness, not in the slightest. It seems to me that any pragmatic person would dedicate serious time and effort to building health and physical stamina, prioritizing dentistry, staying off medication, and learning first aid skills, tool skills, leadership and communication and negotiation skills, and of course self-defense skills. I was practicing guard escapes all last week. “All we’re missing is gravel!” Gold isn’t going to buy me the ability to get out of a chokehold, not in today’s society nor in one with zombies in it.
Gold as a... market investment? Like, buying it and keeping it in your portfolio? Don’t make me laugh. If this vision of the world ever came to pass, how on earth would I mobilize and get anything out of my accounts? The preparedness mindset that imagines life-or-death fisticuffs with one’s next door neighbor surely has to adjust to the concept that one’s portfolio, home, job, status, and worldly goods have just become expendable or irrelevant.
“If you would have bought gold in the Seventies, it would have barely kept up with inflation.” - My husband.
The world is changing, and changing quickly. It’s changing in atrocious ways in some areas, and in fantastic, exciting ways in others. Undeniably, at least parts of it will be barely recognizable twenty years from now. In what way, though? Is total transformation always scary? Or how much of it is fiction, like most marketing materials? Let me get back to you after I finish gazing at my nice gold brick.
What do you do when you get diametrically opposed advice from two sources you respect? In this case, I’m examining an ongoing debate between Suze Orman and the FIRE (Financial Independence, Retire Early) community.
Think for yourself, I say, although it’s also good to know when you lack the relevant credentials or expertise. Ultimately you’re responsible for your own actions. You can find mutually exclusive advice in any area. What workout should you do? Is chocolate/wine/coffee good for you or not? Should you use Comic Sans on your resume? How should you allocate your investments?
Dithering can be an excuse for maintaining the status quo, for neglecting to take any action. Being confused is not a good reason to abdicate responsibility for your life. Keep reading, keep asking questions, keep checking sources.
The main tenet of the FIRE community is that by living frugally and investing carefully, an average family can become financially independent. The basic numbers that we toss around are a 4% annual withdrawal on a nest egg of $2 million, resulting in an annual income of $80,000.
Suze Orman says that this is disastrous advice, that it will cause young families to quit working decades too soon and leave them defenseless against inflation, disability, caretaking responsibilities, taxes, and other unforeseen cataclysmic expenses. Keep going, she says, and if you want to quit when you have $5 or $10 million, then maybe.
Where am I on this? I think both sides are right, both are wrong, both are leaning at least a little on the arts of rhetoric, and that exposure to more of both sides should be motivational and supportive for most readers.
Suze Orman saved me from poverty. I’ve read all her books, paid to see her on tour, and met her in person. Her message that “if a waitress like me can become wealthy after growing up in poverty, then anyone can” was completely unique in my experience. She personally, she herself, is the reason I’m debt-free, the reason I paid cash for my wedding. I can’t say enough good things about how gracious and brilliant she is and how much I value her legacy. One hundred million, why not? If you say so, Suze. Save a seat for me, I’m going as fast as I can.
On the other hand, it was Mr. Money Mustache who caught my husband’s attention. We’d talked quite a bit about money and frugality and Your Money or Your Life. It wasn’t until he heard MMM speak and saw THE SPREADSHEET that the real possibility of financial independence clicked into place for him. He caught FIRE. We radically changed our lifestyle almost overnight. Two years and a couple pay raises later, we had paid off my student loan and were saving 40% of our income.
Most people probably start out in a similar mindset. We “know” but we don’t ACT because common knowledge is not common action. Information is not motivation. We hear “oh, save money save money” and we grunt and move on, the same as we do when we think about drinking more water or going to bed earlier. It takes the lightning bolt of a clear and personal visualization to make it feel real.
I read Suze and thought, “if a waitress, then an office temp.”
My husband heard Mr. Money Mustache and thought, “if one engineer and a spreadsheet, then another engineer.”
Suze Orman became who she is one step at a time. She seized initiative and took charge of her own life. The further she went, the stronger she became, and the more agency she developed, the richer she got. That approach works.
The young families in the FIRE community who have retired early did it one step, one conversation at a time. They learned basic personal finance and frugality techniques one at a time. They talked it out and tugged each other forward. That process doesn’t stop.
The more you learn about money, the more you build your financial base. The more stable you feel about your finances, the more curious you become about how much more you could do if you try. The more you focus on financial independence, the more opportunities and possibilities you see.
It’s also true that most people are, well, kinda delusional about how much they’re saving, how much their earning power will increase, and how long they’ll stay healthy. Likewise, it’s true that people in the financial services industry have a responsibility to make people nervous so they’ll be more likely to prepare themselves for disaster. That’s why everyone in the conversation is both right and wrong.
My personal plan is based on the assumption that I’ll live to be quite, quite old and that for the last several years, I’ll also be frail and isolated. If I imagine Old Me at 85, childless, perhaps widowed, and reliant on others who only come over for pay, I must think, “Old Me sure would appreciate more money. Let me send her a check.” If I imagine Old Me at 85, a wealthy spitfire with tons of friends of all ages, I grin and start shopping for lavender wigs.
I don’t see the point of “retiring early” at all, actually. Retiring implies a withdrawal from life. My desire is to open a gym when I turn sixty, so I can stay active and inspire young women in their twenties to do the same. I see a vision of Old Me teaching classes and workshops, writing books and traveling around the world to give talks. Maybe it will never happen, but it gives me a good reason to keep stretching and trying to do the splits.
Likewise, my husband is an aerospace engineer. One of the major perks of his job is that he’s called upon to mentor students, interns, and new engineers. He loves it. He’s doing what he’s wanted to do all his life, and he’s good at it, so why would he ever quit? There are “retired” engineers at his work in their eighties who still come into the office because they can’t stay away.
We have a shared vision of contributing to the world far into old age, not because we’re afraid and broke, but because we still have something important and valuable to offer. We save 40% of our income because financial security is so compelling in its own right. There are no good reasons to live on the financial razor’s edge.
What’s the answer? Save two million or five million? Retire early or retire late? Who do you listen to? I say to save the first two million and then check back in. Saving even one thousand dollars is more than most Americans have done. Don’t let an internet argument distract from the core goal. Everyone agrees that financial stability is worth your focused attention.
Change is in the air. Can’t you feel it? I sure can. More than a mystical sense of unseen forces, what I have is rock-solid trend analysis based on tangible physical evidence. Something is about to happen in the Southern California real estate market.
I noticed the first signs at the beginning of summer. I currently live in a beach resort community, close enough to downtown Los Angeles that quite a few people have homes here and commute there. Most days of the week, I ride my bike along a row of million-dollar-and-up beachfront homes. Much to my surprise, I spotted a For Sale sign. Gossip has it that most sales and rentals in our community go through a subscription-only property listing service, and since I’d never seen a For Sale sign anywhere in town before, this caught my attention.
Over the summer, I started noticing more For Sale signs. A couple of these high-end homes are starkly empty, and one is being gutted and remodeled. (That might mean something else entirely).
About a year ago, my husband and I priced out a few of these beachfront homes, just to be funny. The first three in a row went: one million, four million, eight million. These are not special or extravagant homes. They’re... small, for one thing. Anywhere other than on the beach in a destination city, they would look quite ordinary. They also have zero in the way of a back, front, or side yard. Just yellow sand and the Pacific Ocean. Along the same row, though, there are a few large houses that could charitably be described as “mansion-like.”
I have really strong opinions about architecture and interior design, which is part of why I can’t bring myself to take out a mortgage. I can’t commit to a house and I’m just not ready to put the key-ring on it.
Okay, a few empty upscale beachfront properties during a particularly beautiful summer? When unemployment is low and the stock market is high? The economy is booming! What gives?
Eh, what do I know, right? I’m not an economist, nor a financier, nor a Realtor, nor any other profession that starts with a capital letter. I’m just an historian.
Our home is a wee little studio apartment on the other side of the marina from all this splendor. We noticed back in January that the unit next to ours stood empty. We noticed because we wanted that one, and they told us the cabinets weren’t ready or some such nonsense. Now it’s October and still, nobody has rented that unit. Maybe it’s haunted? As each studio gradually emptied of near neighbors, we noticed more and more. We’d been counting: “They must have lost ten thousand dollars on that unit alone this year.” Obviously the rent is too dang high.
We got a survey from a third party contracted by the property management company. How did we feel about our apartment, the management, the maintenance; would we be renewing our lease? I wrote a very detailed series of notes about the design issues that could be fixed, such as our distinct lack of air conditioning, washer, dryer, and dishwasher. I gave the maintenance guys five stars.
Two months later, a crew came in and started gutting the empty studio units. It’s hard not to notice, because they keep running an air compressor outside our apartment, and because the blinds are left open, so we can spy inside. They tore out all the carpet and put down either Pergo or, possibly but doubtfully, actual wood floors. They redid the countertops and the cabinets. They put in new appliances. Earlier this year, they repainted the entire complex, and despite this, went back and began replacing all the wooden balconies. Now they’re completely remodeling the gym. Interesting, we thought, they must be upgrading so they can attract tenants at their desired rent.
Then the real dirt came in. We always make a point of befriending the staff and crew of any place we hang out, not because we are pretentious but because they tend to be nicer than our neighbors. My husband was chatting with the night security guard, who says there are at least fifty empty units in our complex right now!
There are 332 units total.
When we moved to this place, a year and a half ago, rental listings were skimpy and scant. There were only three houses for rent anywhere within our price range, and two were not available for a full twelve-month contract. As far as we could tell, there were about four empty apartments for rent in the entire city. That seemed weird, since it was wintertime and the summer-only rental market wasn’t in play. Today, well, it looks like we can pretty much have our pick.
We also noticed an empty house for rent up the street from our place. A house! A house with a yard! It’s a 2/1 and it has a detached garage. It’s going for a few hundred a month less than the two-bedroom townhouse units in our complex. Hmm. If it weren’t for the $7300 fee for breaking our lease, we might consider it... which makes us wonder how many of our neighbors are also simply counting the months until they can escape and get either lower rent or a nicer place somewhere else. In town, in Nevada, in...?
We’ve been planning to move when our lease is up. We’ve been planning that since before we actually moved in to this studio; it’s just a temporary part of our long-term financial strategy. Now we’re starting to wonder if we can negotiate a significantly lower rent on one of the two-bedroom units with a sea view. We’re even starting to wonder if the real estate market crash is on its way, in which case maybe we’ll hover like vultures and wait to buy our own place.
Real estate is like any other market. Sometimes values drop and never return, because the neighborhood declines. A house is not a smart investment for everyone, and it can in fact cause financial ruin and devastation (like marriage) if made at the wrong time for the wrong reasons. If I owned a house right now, I’d operate under the assumption that we are just over market peak, and if I weren’t selling it like, this week, I wouldn’t plan to sell for the next three-four years. If I planned to buy a house (which, maybe) then I would also hang out and watch for an opportunity sometime within the next year or two.
“Are you an underearner?” The opening sentence of Earn What You Deserve should give you a strong hint as to whether you need this book. The rest of the first page should confirm it. For the right person, it could be galvanizing.
Jerrold Mundis is relatable, at least to broke people. He describes digging through his couch cushions for enough change to buy food for himself and his son. After years of recovery, and even years of being completely debt-free, Mundis keeps finding himself on the financial brink. He describes his condition as self-created lack.
Underearning, in this formulation, is something you do, rather than something that happens to you. It can apply to people from every field, every socioeconomic level, every educational level. It comes in three types: Compulsive, Problematic, and Minor. It can also be active or passive. The key is understanding that money alone can’t solve the problem of underearning. Pattern recognition comes first. What is it that we do that is different from what other people do?
Earn What You Deserve has enough practical financial advice in it to help even a complete novice figure out where to start. How do you set up accounts, categorize your expenses, pay off debt, negotiate a higher income? There are also some really excellent and even quirky ideas for negotiating with a partner. Apparently one of the chief signs of underearning is that we blame it on our mate rather than taking responsibility for our own end.
There’s no harm in exploring a book like this, even out of curiosity and skepticism. As Mundis explains, you don’t have to do anything or change anything. You can always go back. Why, though, go back to underearning? If you earn “too much” you could always slough it off and give it away, right?
No matter who you are or what your living conditions, this is precisely how difficult your own situation is—more difficult than some, less difficult than others.
Money is a highly charged subject. And most of the emotions people feel around it are negative: fear, shame, embarrassment, anger.
Worry and fret never swayed a single decision in your favor, paid off a penny of your debt, or brought in a dollar’s worth of income.
One percent? One percent of what? How can one percent possibly make a difference?
What we’re talking about is the simplest way to start getting a handle on your finances when you feel like everything is impossible. Hopeless! It’s hopeless!
It’s not hopeless.
The way I started running in my thirties was that I visualized adding one sidewalk square per day. I was sure that no matter how tired I felt, I could always make myself trudge along another couple of feet. One sidewalk square was a measurement I could visualize and understand. It worked; I never realized on that first day that I’d wind up running a marathon four years later. In fact, if I’d thought of that kind of distance, I would have quit before I began, because it just sounded like too much.
That’s why we’re starting with one percent, because it’s small. That’s one penny out of a dollar. A dime out of ten dollars.
Little by little, though, it adds up. Also, it teaches us to think of large amounts in small, manageable chunks.
When my husband and I first met, we bonded over our finances. I was fresh out of college, and my student loans literally got bigger every time I made a payment. He had only been divorced for a year, and he wasn’t very far into the alimony and child support process. We were both broke. We also both enjoyed talking about the intricacies of finance.
That’s why it surprised me so much when he shared that he wasn’t contributing to his retirement.
“WHAAAAAAT?!?” I squawked.
He vented a bit about the alimony, child support, basically paying for two households.
I wasn’t about to hear it. I reminded him that I earned barely over a quarter what he did, but I was maxing out my retirement contributions. After paying my rent, student loan, and car payment, I barely had enough left for groceries. “You can’t even save one percent? I don’t buy it.”
He retorted that I had “small money problems” while he had “big money problems.”
Later, he confessed that he’d thought about what I said, and he went into HR and filled out the forms to start saving toward his retirement again.
I feel pretty smart about this now, considering that we eventually got married! We weren’t even dating at that time, but the tens of thousands of extra dollars he saved because of my rude lecture are now growing nicely. That conversation is also part of why we got married. Frugality that comes naturally to me is highly attractive to my spouse as well.
At that time in my life, I picked up coins in the street (still do) and I would deposit them into my checking account along with my paycheck every week. Maybe thirteen cents here and forty cents there. This paid off several months later, when I got hired permanently and had to wait three weeks between checks. I overdrew my account by eleven cents, and because of my habit of going into the bank in person every week, I talked my favorite teller into waiving a $22 overdraft fee. If that overdraft were a few dollars more, maybe that negotiation wouldn’t have gone in my favor. Too bad I didn’t find an extra quarter one day.
I kept a spreadsheet in those days. It was the only thing that helped me feel like I had any control over my situation. I would have roughly thirty dollars left at the end of the MONTH. I was using credit cards just to buy food, and just as I’d pay off the balance on one card, I’d run it up on the other. The best I felt that I could do was to get the total balance a few dollars lower every month. I set my sights on getting hired permanently from my temp assignment, on promotions and raises.
In the meantime, I made a little here and there. I sold a few things on eBay, my roommate and I had a yard sale, I joined her when she got a table at the flea market. I cleaned houses and babysat just like I always had. I beat down those credit cards little by little.
I didn’t buy things. When I say that I didn’t buy things, I mean that I didn’t buy things! I wore the same outfits over and over and over again. I had two casual sweaters to wear on winter weekends. They drove me crazy, and I felt like burning them in the parking lot by the time I could finally afford to replace them. I went to the public library and brought home books and DVDs. Sometimes I just went to bed early. I worked overtime, sometimes clocking in early and staying late on the same day because it was that kind of job.
The thing about starting with one percent is that it forces you to get out a calculator if you want to do it right. You have to start getting more specific about real quantities and real dollar amounts. It’s just a way of being honest with yourself and the world. It’s a way of making sure you don’t make any commitments you can’t keep. It’s a way of protecting Future You from having a worse situation than you do today. At least when you’re treading water, you’re not going under.
Starting with one percent means you’ve made a decision. It means you’re going to get more serious about your finances. It means you’re going to pay attention to your income and your expenses. It means you’re willing to adjust how you spend your time and energy to free up more cash flow toward your savings and debt repayment. It means you’re not allowing any more blind spots in your behavior.
Starting with one percent is a start. Maybe it’s only one penny out of every dollar. That’s okay. It’s also one dollar out of every hundred! When you’re used to it, you can stretch a little and make that one percent into two percent. That sense of manageable amounts is what you can use to go as far as you like.
I've been working with chronic disorganization, squalor, and hoarding for over 20 years. I'm also a marathon runner who was diagnosed with fibromyalgia and thyroid disease 17 years ago.