Small Steps to Your Goals

One of my friends asked me what I’m doing this summer.  She is one who plans things for the entire coming year.  She makes lists, puts events on her calendar and always has something going. Next to her I always feel very behind and scattered.  But I have to stop and remind myself that her goals are not my goals.  And how I reach my goals is very different than how she reaches hers.

 

Often when you read about goals, you might read about short term, intermediate and long term goals.  Each of these may have time frames connected with them.  An example might be a short term goal could be 1-2 years; mid-term goal of 3-7 years or long term could be 10 years.  Unfortunately, these types of definitions do not take into consideration a person or family’s situation.

 

People and families who tend to plan and write down their goals are more likely to achieve those goals.  How people and families define their goals is very different.  Short term for me could be one week.  Short term for someone else might be one month or even one hour. Overall time frames should fit the needs of the person or family—not what some definition says.

 

A key to meeting goals is to make sure they are realistic and manageable.  One way to make them manageable is to create small steps to reach that goal.  Here is an activity you can do with your family or a group to help people visualize how small steps help you reach your goals.

 

Have everyone line up against a wall (with their backs against the wall). The goal is for everyone to get to the other side of the room.  How do you get there? Is it possible to leap across the room in one big step?  Probably not.  So have everyone go across the room and count their steps. 

 

Discuss the following:

·         Did everyone reach the goal?

·         How many steps did each person take?

·         Did everyone reach the other side at the same time?

·         Were there any obstacles (chairs, furniture, other)?  How did you decide to handle those obstacles?

·         Do you wish you would have taken a different path?

 

Then have a discussion as how this relates to setting and reaching goals in life.  We have to decide on a goal and break it down into manageable small steps or tasks.  Some people could accomplish a goal in 5 tasks, but another family member might need 8 tasks to finish the same goal.  If things get too challenging, people often quit.  It might be you need to rethink a goal and break it down into even smaller steps.  Or give yourself more time to reach that goal.

One way to break a goal down into manageable, smaller steps is to write the goal and then write the steps to accomplish that goal.  An example could look like this:

·         My goal is:

o   Today, I will:

o   Tomorrow, I will:

o   By the end of the week, I will:

 

Another could be breaking a large task into smaller tasks over a longer time frame. Two years ago I started a very long book.  After reading for a year and a half, I still had 379 pages left!  It struck me one day that if I read 1-2 pages every day, I could finish the book within a year.  And right then it felt manageable.  Reading 1-2 pages was do-able.  But when I sat and stared at 379 pages, I felt overwhelmed.

 

Maybe your goal is to save for a summer trip.  You figure out you will need $400 to cover expenses, and for your budget that is a huge amount to come up with all at once.  What if you break it down by days and months?  Could you set aside $3 a day for 3 ½ months?  Or $2 a day for 6-7 months?  That might be much more do-able than taking $400 out of the budget all at once.

 

Make things manageable for you and your family. Small steps make a big difference in helping you reach your goals!

 

University of Missouri Extension Building Strong Families—Go For It: Setting Goals module

http://extension.missouri.edu/bsf/goals/index.htm

 

Lucy Schrader
HES Associate State Specialist and
Building Strong Families Program Coordinator
University of Missouri Extension
162 Stanley Hall
Columbia, MO  65211
573-882-4071
SchraderL@missouri.edu

 

Popular Mythology

I was recently visiting my father-in-law and read an insightful article by Candice Choi in the Virginia Pilot (5.29.11) focused on financial life after college.  I agreed with so much of it, that I wanted to put my own spin on her ideas.  So, here goes….

 

Many young people are getting ready to start their work lives, having completed their education.  Congratulations, the practice of your personal financial life has begun.  The “more seasoned” among us can attest to the fact that learning personal finance will never stop.  Several young people have recently told me that they are scared of the economy, taking the wrong job, making major financial mistakes, and they don’t think they will either get sick or be able to retire.  They are wrong.

 

Myth 1: There are no jobs.

Yes, the news is not bright and our newscasters pull the shades down even tighter on our outlook toward our futures.  While unemployment remains stubbornly high, there are always jobs available, as there is always turnover at companies and other worksites.  The key for the young person is to be ready when those opportunities arise.  The worst thing is to sit at home wallow in self-created defeat.  Join professional organization, do volunteer work, take a job that you don’t want long-term but that will put you in front of people to help you build your network.   Making these connections and being an active member of your community will do more for your employment than posting your resume on every general job site….though that won’t hurt, either.

 

Myth 2: Saving for retirement is not your problem.

Yes, it is your problem.  You need to begin to save for your retirement as soon as you begin work.  Try to save 10% of your salary on an annual basis for this stage of your life that, admittedly, seems so far away that it shrinks in importance.  It is very important.  Ask yourself if you’d rather plan to live to retirement or die before then.  Most would rather live.  Hence, save your money.  Defined contribution retirement plans which allow you to save your money for your retirement, such as 401(k) plans, now dominate the private employment sector.  In fact, only 15% of private employers still maintain a defined benefit retirement plan, where benefits are provided.   Compound returns over time makes saving for retirement easier.  Yet, you have to save and you need to let time do the work for you, while diversification protects you from mistakes.

 

Myth 3: Don’t buy a home.

This could be the best chance for you to purchase a starter home, given prices and interest rates.  You will need a down payment but the Federal Housing Administration still has programs where you can purchase a home with only 3.5% down payment.  Locally, rates on a 30-year loan are 4.765% and 3.835% for a 15-year loan.  You won’t see interest rates this low many times in your life.  Before you purchase, however, make sure you will be able to live the home long enough to pay for the closing costs and to realize some appreciation.  If you don’t plan to live in an area very long or the area where you find yourself is in a continuing downward spiral, renting remains the best option.

 

Myth 4: Use debit cards, not credit cards.

Yes, using debit cards can keep you out of credit difficulties, by forcing you to live within your means.  While living within your means is mandatory for financial success, credit cards do provide fraud protection should your card be stolen or a purchase turns out to be a sham.  Moreover, judiciously using credit cards can help establish your credit history – a necessity for many of life’s purchases.

 

Myth 5: You are young and do not need health insurance.

Wrong.  You need health insurance, as well as disability income insurance.  Those in the 19 to 29 year age bracket are more likely to be uninsured than are other age categories, partly due to young people having jobs that do not offer insurance but it is often a result of choice – or laziness, or ignorance.  Current health care policy allows you to continue on your parents’ policy until you are 26 years old and this age limit is greater in some states.  Make sure you have health insurance, as you never know when you might need it.  I admit to letting this lapse in my life, when I was 27.   I was lucky.  I ended up on welfare, through California’s Medicaid plan, Medi-Cal, as a result of an automobile accident and a five week hospital stay for a fractured skull.  This was a hard way to learn about the benefit limits of the student health insurance I carried at the University of California-Davis.

 

Finally, take control of your financial life now, before your financial life takes control of you.  A bad start to your financial life can create a cruel master that will rule your decisions for quite some time.  On the other hand, a good start on the path toward financial success will be a welcomed partner with whom to share life.

 

(Please, post your stories from your financial lives – good and bad.  Your experiences will have a much larger impact if they are shared.)

 

 

Robert O. Weagley, Ph.D., CFP^(r)

Chair, Personal Financial Planning

241 Stanley Hall

University of Missouri

Columbia, MO  65211

573-882-9651 - o

573-884-8389 - f

 

Is An Adjustable Rate Mortgage Right For You?

Lately I have been hearing a lot of commercials that go something like this:

“Have you been thinking about buying or refinancing a home? If so, there has never been a better time to do so! Rates are at an all-time low and so are home prices! You can get a rate as low as 3.05%, fixed for the first 5 years! Call us today!”

A rate of 3.05% sounds tempting, doesn’t it? There is more to it than what it may seem at first, though, and before you jump and make that call, let’s look at some important terms and numbers.

TERMS

Adjustable Rate Mortgage, or ARM, is what is being advertised here. As the name implies, the interest rate changes according to market conditions.

Initial Interest Rate: The stated interest rate that the loan starts out with – in this case 3.05%

Fixed or Adjustment Period: The time period in which your rate cannot increase. In this case the 3.05% interest rate has an adjustment period of 5 years.

Yearly Adjustment Cap: This is the maximum your interest rate can increase annually.

Interest Rate Cap: The maximum your interest rate can increase to over the life of the loan.

3/1, 5/1, 7/1: With an ARM you will see two numbers – the first number represents the adjustment period, so 3, 5 and 7 years, and the second number represents how often the interest rate can increase after that, in most cases it is annually.

NUMBERS

If you run the numbers for an ARM it might look good at first. Let’s take a look at a scenario:

·         $165,000 mortgage

·         30 year fixed rate 4.49%[1]

·         5/1 ARM with an initial interest rate of 3.05%, a yearly adjustment cap of 2% and lifetime cap of 5% (which could take the rate as high as 8.05%)[2]

The payment under the fixed rate would be $835.05 while the ARM would be $700.10 (both are principal and interest only, so they do not include taxes and insurance). That is a big difference! With the ARM you save $135 a month, $1620 a year, or $8000 over the first 5 years.

But then the adjustment period ends. Under the terms of this ARM your rate can increase as high as 5.05% as soon as the fifth year ends, but let’s say it only increases 1% per year until it hits the cap, 8.05%, in year ten.  Here is how your payment changes:

·         Year Six: Interest rate 4.05%, payment $779.08

·         Year Seven: Interest rate 5.05%, payment $859.87

·         Year Eight: Interest rate 6.05%, payment $942.00

·         Year Nine: Interest rate 7.05%, payment $1025.04

·         Year Ten: Interest rate 8.05%, payment $1108.59

On year ten you are now paying $273 more than you would be paying on the fixed rate mortgage. Under a 30-year fixed rate mortgage you would pay a total of $300,618, while under the ARM you would pay back $364,639.

Of course, some assumptions are made above that may not actually happen. Maybe the rate will only go up .25%, or won’t increase at all, or may drop in year eight, or any number of other scenarios could happen. You need to look at the worst case scenario, though, and see if you are prepared for that. In fact, the worst case scenario (increase 2% per year until it hits the cap) would do this to your payment:

·         Year Six: Interest rate 5.05%, payment $862.63

·         Year Seven: Interest rate 7.05%, payment $1036.85

·         Year Eight: Interest rate 8.05%, payment $1126.88

Your total payoff is now $375,818.

There are arguments for ARMs, of course, the most common ones being:

·         I plan to move after a few years

·         I need a lower payment to get into a home – my salary will increase before the payments do

·         I can just refinance to a fixed rate if rates go up

All of these are valid points, but have some problems as well.

What happens if you don’t end up moving? Maybe you thought your job would take you elsewhere, but it doesn’t. Or even if you do move, what if you can’t sell your home? Can you afford two mortgage payments? Even if you find renters, what if rent doesn’t cover the full mortgage, or what if they move out and you can’t find new renters, etc. Of course, these things can all happen to someone with a fixed-rate mortgage, but you can’t assume that just because you currently think you are going to move in a few years that you are 100% guaranteed to move or that you will be able to sell it.

As far as needing a lower payment, what happens if your salary doesn’t increase as you thought it would and you can’t afford to pay $1126 a month? That’s a big increase from the original $700 payment. If this is the scenario, you should purchase a home with a lower mortgage with payments you can actually afford if they increase (or better yet, get a home with a lower mortgage and get a fixed rate with payments you can afford).

Finally, as far as refinancing if rates go up, you could do that, but rates have gone up. Instead of 4.49% for a fixed-rate mortgage the rate might be 6.49%, which would increase your payment to about $1041. Also, what if you can’t refinance? Perhaps lending standards are more stringent, or your employment has changed, or you have some credit problems and you can’t refinance anymore at the new rate?

ARMs are becoming more popular – in fact, an article on CNN Money[3] indicates that the number of people financing with an ARM has increased 75% since last year, but ARMs are laden with problems that you need to look at before you jump in.

As always, we welcome your comments and thoughts on our blog at http://MUFinancialTip.blogspot.com.

Ryan H. Law, M.S., AFC

Department of Personal Financial Planning
Office for Financial Success Director
University of Missouri Center on Economic Education Director

 239E Stanley Hall
University of Missouri
Columbia, MO 65211

 573.882.9211 (office)
573.884.8389 (fax)

 

[1] The average 30 year rate on 6/2/11, as indicated on http://www.bankrate.com/

2 Rate is the average 5/1 rate on 6/2/11, as indicated on http://www.bankrate.com, and the yearly adjustment and lifetime cap are from a company that is doing a lot of ARM advertising.
3 http://money.cnn.com/2011/06/02/real_estate/ARM_adjustable_rate_mortgage_tips.moneymag/index.htm?iid=HP_River

---

[1] The average 30 year rate on 6/2/11, as indicated on http://www.bankrate.com/

[2] Rate is the average 5/1 rate on 6/2/11, as indicated on http://www.bankrate.com, and the yearly adjustment and lifetime cap are from a company that is doing a lot of ARM advertising.

[3] http://money.cnn.com/2011/06/02/real_estate/ARM_adjustable_rate_mortgage_tips.moneymag/index.htm?iid=HP_River

Be Prepared

The Boy Scouts' motto is "Be Prepared". Once, Baden Powell, the founder of Boy Scouts, was asked the question, "Be prepared for what?"

He answered, "Be prepared for any old thing".

Tornados are not old things, though I am guilty of often treating them with the ho-hum attitude of a seasoned Midwesterner. Since Sunday's tornado in Joplin, MO, however, many of us have a new respect for these twisted natural events that can ruin a well-lived life in a matter of minutes. Indeed, I just returned to my office from the basement of our building – with several dozen University day-care children, from toddler to five-years old - where we waited out the latest in the series of storms that have menaced Missouri over the past few days.
With a focus on financial success, how do we financially prepare for cataclysmic events? With all due respect to the author of an educational guide sheet on the subject ( which can be found here<http://www.extension.org/pages/26397/money-management-in-times-of-disaster:-preparation>), a summary of ideas follows.

1) Household inventory – For insurance claims you must have proof of your loss. It is easy to take a digital recording of the contents of your house, while narrating descriptions about the contents. (Try to stay focused on the contents and not the life history of the items, though that might be interesting to your grandchildren.) Keep a list of what you own and keep it in a safety deposit box. If you have antiques, jewelry, or artwork, it is a good idea to have an appraisal of their actual value. Useful tools may be found at http://knowyourstuff.org<http://knowyourstuff.org/>.

2) Insurance - Make sure you have the right amount of insurance on your home and your personal possessions. (Step 1 will help with determining the value of your possessions.) Make sure you understand the difference between standard coverage and replacement coverage. The former values your items at their current, used value, while the latter values your items at what it would cost to replace the possession. When you remodel, review your insurance coverage. Consider earthquake and flood insurance if you find these to be necessary and cost effective. Flood insurance must be purchased from the Federal Emergency Management Administration, although your insurance agent can provide access to FEMA coverage.

3) Emergency fund - I don't want to be too redundant but make sure you have three to six months living expenses in your emergency fund. Cash is king during a disaster and electronic access to sources cash may not be available. Some people keep an open line of credit on a credit card, just in case of an emergency – if they cannot learn to save money!

4) Documents – If something is not able to be replaced, keep it in your safety deposit box – with your household inventory. All stocks, bonds, birth certificates, discharge papers, wills, deeds of trust, trusts documents, special photos, passports, marriage certificates, and whatever you deem to be irreplaceable should be kept secure. (My son was at the bank this afternoon, when the storm hit. They put the customers in the bank vault. That is what I call protecting my valuables!)

5) Of course, keep your smoke and carbon monoxide detectors in good working order. Keep dead limbs trimmed from your trees. Keep dried grasses from your home. Know where you are going to meet your family outside, in case of a fire, and where you need to take shelter, in case of a storm or earthquake. Practice these steps with your children. Do NOT just talk about it – do it with them. Then, when the siren blows or the earth shakes, you will all know what to do. Make sure your family knows how to turn off the gas line, water line, and electrical service.

6) Disaster Kit – At a minimum, your disaster kit should contain:

a. A supply of water that is less than six months old. Old, clean unbreakable containers can be recycled for this purpose.

b. Non-perishable food, such as canned goods or freeze-dried backcountry foods. If you use canned goods, please keep a non-electric can opener in your pantry.

c. Clothing, particularly rain gear and layers to keep warm.

d. Sleeping bags and blankets. If you camp, your tent could be quite handy, as well as cozy and warm.

e. A first aid kit with essential first aid items, mostly to prevent infections and treat mild sprains – including prescription medicines. Know enough first aid (e.g., Boy Scout training!) to be a resource to others.

f. A battery powered radio, flashlight with plenty of extra batteries.

g. Cash and credit cards.

h. Keys to your cars, house, garage, sheds, or other structures or vehicles.

i. Special items that might exist in your family for special people, such as mobility aids, feeding aids, and other items.
Finally, nothing can prepare us for the aftermath of a disaster the caliber of the tornado that hit Joplin, New Orleans and Katrina, or Japan's recent earthquake and tsunami. I, however, do know something about the human spirit. If we are faced with disaster, we will be challenged but we will prevail. It is what we do. We survive to grow and to love, yet again. Being prepared just makes it easier for that human spirit to blossom anew.

Seek and ye shall find

tl;dr: Memorization of facts is out; Know how to find it; Mastery is not going away

 

Intro

 

Today's Financial Tip diverges from purely financial topics to talk about knowledge. The idea is to spark conversation between readers. As always, I welcome comments to my email address, ZumwaltA@missouri.edu, but I would really welcome comments to the FTOTW blog: http://mufinancialtip.blogspot.com

 

Memorization of facts is out

 

Preparing taxes is more than just a mundane task filled with numbers and obscure laws. Tax preparation is actually a window on how government, households, and businesses interact to encourage or discourage certain behaviors, while also raising revenue to finance our government. During the past few years, I have noticed that politicians have been much more willing to make changes to the tax code. For example:

 

●     on your 2009 taxes, you could actually increase your standard deduction by the amount of your real estate taxes;

●     also, you could exclude the first $2,400 in unemployment income on your 2009 taxes.

●     the Making Work Pay credit involved lowering everyone's income tax withholding for 2009 and 2010, while also giving them a credit of $400 ($800 married filed joint).

 

With all these changes in the tax law, I have told students who volunteer to prepare taxes not to memorize the law, the complicated rules or specific amounts (annual exemptions). Not only does the law change, important amounts (standard deductions, exemptions, income limits, etc.) are often indexed to inflation and can change annually. By the time they have the rules memorized, someone will tweak them slightly. Congress is even tweaking them after the rules are published.

 

So if memorization of facts is out, how do we prepare tax returns or undertake most tasks requiring knowledge?

 

Know how to find it

 

Instead of memorizing facts, it is becoming increasingly more important to know how to find information. Through our computers - and our phones - we have access to a growing cache of information. However, this treasure trove is also full of junk. So we can't rid ourselves of the information. We need to know how to rifle through the information to find the treasure we want today.

 

Here are some simple ways to find information:

●     Dump your query into the search engine. Someone else has probably asked the same question or answered it somewhere on the web.

●     Know what the search engine can do: Google's search box is also a:

                                     ■dictionary

                                     ■calculator

                                     ■weather forecaster

                                     ■movie listing service

                                     ■comparison shopping tool

                                     ■recipe repository

                                     ■and more

●     Know the large repositories of free knowledge on the web:

○     MIT OpenCourseware

○     Khan Academy

○     Academic Earth

○     YouTube EDU

○     Wikipedia

●     Find the forums community that caters to what you want to learn

○     FatWallet Forum

○     Bogleheads Forum

 

These are only a sampling of the ways to find information on the Internet.

               

Mastery is not going away

 

With all this available knowledge on the web, will we ditch experts and do everything ourselves? The answer really depends on the subject matter. Although the information is available, there can be a large gap between theory and practice. For example, I recently successfully retiled a section of my bathroom by watching several videos on YouTube. There are also plenty of videos on open heart surgery, but I do not believe that I could successfully perform open heart surgery - nor would any patient want me to - after watching a few videos. Similarly, it would be difficult to prepare a tax return the first time based on Internet searching. Although the web provides plenty of information, the information may not be enough; in order to complete a task effectively, it may require time spent practicing -or it may be best to leave the task to an expert.

 

Conclusion

 

This post is not meant to start another form of the "calculator debate." Instead, I hope to start a conversation about information on the web - how we access it and how we use it. With the coming ubiquity of smartphones that offer an always-on connection to the Internet, what is important enough to memorize? Is it important to memorize the capitals of all 50 states? Or the first 36 elements in the periodic table? Or is it more important to know how to find both pieces of information on the web? How will this change testing standards? Will evaluations become harder or easier?

 

Please share your opinion online at the Financial Tip of the Week Blog.

 

 

-          Andrew Zumwalt

 

Workin' for a Livin'

Besides the title of an old song by Huey Lewis and the News, working for a living is something that most of us do and what many students seek to do every summer.   Let’s think about the benefits and costs of different approaches, as well as your goals.

 

Perhaps the first question is what are your goals from the experience?  Do you want career related experience, similar to what you can receive from an internship, or are you in the job market for the money?  There can be a huge difference.

 

Let’s talk about doing it for the money.  The benefits are obvious: wages, tips, commissions, and etc.  The larger the pay, the better, right?  With unemployment hovering around 8.8%, finding a job may be more daunting than usual.  There are huge differences in summer experiences and, if you need the money, the monetary rewards can drive your decision.  Being a waiter in a posh restaurant or club can lead to lots of tips, as could a job in a well-paying construction job – if you can find them.  Yet, the experience may carry the opportunity costs of not providing much in the area of career related personal development.   You need to consider the costs of every job, including opportunity costs.  Other costs include: transportation expenses, either a car or public transportation; living expenses if you need to rent a place; specialized clothing; taxes on your income, as some cities have their own income tax; as well as any benefits you might qualify to receive, even if only for the summer.  (Thinking of benefits, you are probably in as low of a tax bracket as you will ever be, so saving some money for your retirement in a Roth IRA might be good to add to your list of summer activities!)

 

Some students opt to seek internships for the summer.  In fact, many university degree programs have expectations for students to complete an internship and, yes, job experience(s) in your chosen line of work can help propel your career.  The bad news is that many internship opportunities are unpaid and some of these offer the best experiences, as well as references for your future “real job”.  Moreover, if you are not getting paid, you are often able to receive more varied experiences, as the “employer” is not expecting as much productivity from you.  That is the good news.  For some additional bad news, many of the best experiences are in Washington, DC, New York, NY, or other large metropolitan area.  Thus the costs of living may preclude this option.  Of course, you can limit your search for an internship to areas where you have lodging and transportation – your home town – or you can branch out.  If you move to a big city and the internship pays little, be prepared to take a second job, consider living in a dormitory for a local college or university, or limit your search to where you have relatives that welcome you for the summer.  (Of course, you can always search for a roommate on Craigslist!)

 

When do you begin searching for your summer job?  If you’re reading this in May, you may have waited too long.  I usually recommend to my students that they begin their search in Thanksgiving of the year before the summer they want to work.  Why not introduce yourself to employers and set yourself apart from others?  Call professionals who work in the area you’d like to work and ask them if you can interview them about their career, so you can learn more about the occupation.  Be prepared with a list of questions and be ready for them to say “yes”, as people like to talk about their life.  When you go to the interview, be ready to be interviewed – have your resume and transcript in your portfolio.  Importantly, do not be afraid of setting yourself outside of the crowd of peers.  Take steps to make yourself a part of the 20% that make things happen for them, as compared to being a part of the 80% that wonder what is happening to them.  Assume the best is going to happen in your life and financial success will be in your future.  Assuming the worst is going to happen in your life is likely to assure that you are correct.

 

Good luck.  Now, get to work!

 

Wellbeing Part II

Last week we explored the concept of Wellbeing as defined in Tom Rath and Jim Harter’s book Wellbeing – The Five Essential Elements (http://mufinancialtip.blogspot.com/2011/04/wellbeing-part-i.html). We looked at Career, Social, Physical and Community Wellbeing.

 

This week we are going to go into more detail about Financial Wellbeing.

 

Financial Wellbeing is about effectively managing your economic life. The authors note that it is difficult to be happy in any area of life if you cannot meet your basic needs (remember Maslow’s Hierarchy of Needs?), but that the amount of money we have, beyond a certain point, has less of an impact on our overall wellbeing than the concepts of “financial security” and effectively managing our finances (see “Happiness at What Price?” for more details: http://mufinancialtip.blogspot.com/2010/09/happiness-at-what-price.html). Of course, financial security is going to mean different things to different people. To one person having $1,000,000 at retirement would be financial security but another person might need much less or more than that to feel secure.

 

“People with high Financial Wellbeing manage their personal finances well and spend their money wisely. They buy experiences instead of just material possessions, and they give to others instead of always spending on themselves. At a basic level, they are satisfied with their overall standard of living.” (Rath & Harter, 2010, p 154).

 

There are several important concepts in that statement. People with high Financial Wellbeing:

 

·         Manage their personal finances well

·         Spend their money wisely

·         Buy experiences instead of just material possessions

·         Give to others

·         Are satisfied with their overall standard of living

Let’s discuss a few of those concepts.

 

Give to Others

 

The authors cite three studies that showed that spending money on yourself may temporarily make you feel good, but after time that good feeling fades. While spending money on yourself does not boost wellbeing, spending money on others does. When we help others out we feel good, even if it is just a little bit of money.

 

Buy Experiences

 

While spending on material goods doesn’t increase wellbeing long-term, spending on experiences does.  Think about some of the material items you purchased over the past year, and then think about some of the experiences you purchased in the last year. Experiences can include trips or something as simple as going out to a nice dinner or going to a movie. Do the material items or experiences give you the most happiness? Most people would agree that experiences give them the most happiness. Things that come to mind for me are date nights with my wife, going to a movie as a family, and taking a trip over Spring Break. With experiences we get to look forward to the event, enjoy the event and have fond memories of it. It is interesting to note that for those that earn less than $25,000 per year experiences and material purchases show similar gains in wellbeing, but after $25,000 experiences provide two to three times the levels of wellbeing when compared to material purchases.

 

Manage Personal Finances Well

 

This concept brings us back to many of the things we discuss with people; budgeting, protecting yourself from identity theft, having a basic estate plan in place, saving for emergencies, investing for the future, etc. The authors also suggest you establish default systems, such as direct deposit, automatic deduction for investments and enrolling in your 401(k) at work so savings is automatic.

 

 

It is important to remember that all areas of Wellbeing work together – you can’t just focus on one area and ignore the others.

 

The authors have a paragraph that puts everything into perspective:

 

“One of the best ways to create more good days is by setting positive defaults…You can intentionally choose to spend more time with people you enjoy most and engage your strengths as much as possible. You can structure your finances to minimize the worry caused by debt. You can make exercise a standard part of your routine. You can make healthier decisions in the supermarket so you don’t have to trust yourself when you have a craving a few days later. And you can make commitments to community, religious, or volunteer groups, knowing that you will follow through once you’ve signed up in advance. Through these daily choices, you create stronger friendships, families, workplaces, and communities” (Rath & Harter, 2010, p 112).

 

Ryan H. Law, M.S., AFC

Department of Personal Financial Planning

Office for Financial Success Director

University of Missouri Center on Economic Education Director

 

239E Stanley Hall

University of Missouri

Columbia, MO 65211

 

573.882.9211 (office)

573.884.8389 (fax)