Hedonistic Adaptation and Your Finances

happy hobbits

Be happy. Like the hobbits.

Humans are unusual creatures.  Unlike hobbits, who are perfectly content with their lives of eating, drinking, smoking and just plain chilling, we humans keep wanting more and more.  From those in poverty to those who have had everything served to them on a silver platter, we all just want more.  And we think having more will make us more happy.  “If I just made $1,000 more per month, all my problems would be solved.”  “If only I had gotten that promotion, my life would be perfect.”  We all say these things to ourselves from time to time.  And we are lying to ourselves all the way.

I recently read about a term called hedonistic adaptation.  According to all-knowing Wikipedia, hedonistic adaptation is “the supposed tendency of humans to quickly return to a relatively stable level of happiness despite major positive or negative events or life changes.”  Meaning that no matter how high or low we get, we tend to end up at a happy medium at some point.  There are many examples of this in all of our lives, but the one that jumps out to me the most is a death of a family member or friend.  When you first found out that someone close to you has passed away, there is this feeling of crushing sadness.  Usually accompanied by lots and lots of tears.  You don’t want to eat, sleep or work because you are just so down about your loss.  But eventually, some people taking a longer time than others, you get over it.  You’re able to get on with your life and not let the loss completely debilitate you.

Everyone has lost or will lose a loved one at some point, but we move on.  No one lives the rest of their life in the same fashion as they did when they first found out about the death.  We had an incredible low, but we get back to our medium more or less.  The same goes for happy events.  A celebration for getting a job doesn’t last forever.  We eventually get back to a steady state.  This is an important thing to remember and a good reminder for us not to get too high or too low on ourselves, because we’ll eventually get back to normal.  Celebrate and grieve within limits, and then move on.  While this seems like a somewhat callous and objective way to think of things, it is so very true.

The idea of hedonistic adaptation can also be applied to our financial lives.  We all want more money because we think it will solve all of our problems and make us happy.  But most likely it won’t.  Think back to your time as a kid.  More than likely, you had a lot less money in your pocket when you were 10 years old (though probably a bigger net worth if you’re a broke professional).  Many people probably remember being a bit happier when they were younger.  We were used to the simpler things in life as kids, but as we get older and get more money, our expectations change as well.  As the good old saying goes, mo’ money mo’ problems.

If most of us remember being happier when we had less money as kids, how can we possibly think that having more money will guarantee happiness?  Well it’s easy to say that Hollywood is the cause of the world’s problems, but in this case it certainly is.  Specifically, marketers making us believe that having more money will bring real happiness.  This idea has turned this age into the age of consumption, spawning a whole new set of problems (such as Keeping up with the Joneses).  This goes against our nature of returning back to our happy medium no matter how high or low we get.  And this is a problem.

But how can knowing this help us?  Should we make it a point not to worry about money?  Should we turn down that raise or not increase our prices because it won’t make us happier?  Absolutely not.  What we can do with this knowledge is become smarter with our money.  The two things that many people, including myself, worry about when it comes to money is reducing debt and ensuring my family and I are financially secure for the future.  Notice this doesn’t include worrying about what type of TV or phone I will get years from now.  Most people innately worry about having enough for the future, and this is where debt and retirement savings come into play.

If you get a raise that nets you an extra $200 per month, don’t just let it sit in your account and eventually spend it on something frivolous.  Automatically transfer that extra $200 into your debt repayment amount.  This will get you out of debt sooner and decrease the amount of interest you pay.  Got some more money?  Increase your retirement plan contribution and don’t even give yourself the chance to miss that money.  Your heart will want that extra money to buy things or go on an unplanned trip to temporarily increase your happiness.  But knowing what we know about hedonistic adaptation, that happiness will not last.  Increase your piece of mind by getting rid of debt and saving for the future.

This obviously doesn’t mean living like a hermit and having a too large retirement account (yes there’s such a thing).  Spend money on yourself and your family on things that you will remember and that will bring lasting happiness and memories.  But focus on securing your future selves financially.  This is what brings people most happiness in the end.


The Best Way to Save Money on Groceries

Everyone’s gotta eat.  Even people who undergo hunger strikes have to eat at some point (or face an alternate end to the strike).  Along with shelter, transportation and cell phones, food and drink are the necessities of life.  So we should naturally find the least expensive way to do it.  Some people scoff at the idea of saving money on food, but finding ways to minimize your money spent on food, without sacrificing nutrition or flavor, will lead to a lifetime of money saved.

There are two main ways to get food nowadays:  eat out and have someone else cook for you or cook at home with stuff bought at the grocery store.  You can also make lots of friends and attend lots of dinner parties, but that sounds exhausting.  Gone are the days of hunting, gathering and foraging for our food.  No longer do we have to be the strongest or fastest to get the best food.  We are definitely blessed to live in a period where good food and clean water are plentiful and relatively cheap.  But it CAN get expensive if you’re not careful.

Eating out is almost always more expensive than making your meals at home.  But eating out once in a while can be fun, so if it is a regular thing for you, try to minimize it.  This will have two main benefits.  One, you will definitely save money.  When you eat out you not only pay for the food, but also the salaries of the people who cook it and then some so the place can turn a profit.  You are almost always going to save money by staying home (unless you only eat from the dollar menu.  Then you might save a little but your food will suck.)  The second benefit to eating out less?  It will actually make the experience more memorable.  Once you do something regularly, no matter how awesome it seems at first, it will become routine and not as exciting anymore (think first week of driving a car and driving a car for years).  Save it for really special occasions and it will definitely become more memorable.

Now that we’ve determined that eating at home is cheaper and better, what’s the best way to save money on groceries?  Some people love coupons.  Others will swear by a certain grocery store.  The truth is, all these little strategies can be right because being an efficient grocery shopper requires experimenting.  Find out when the best time to shop is one example.  A lot of people shop after work, but a lot of people are tired after work so they might just pick the more expensive thing because they have trouble finding the cheaper one.  Some people are very organized and love keeping folders of coupons.  Others throw coupons right into the trash.  It will take some time, but doing experiments and finding what works for you is the only way to really save money shopping for groceries.

Drum roll please…

But there is one thing that EVERYBODY can benefit from to save money on groceries.  From the fabulous couponistas to the broke grad school student just stocking up for the week, all shoppers can benefit from making a shopping list.  Something as simple as looking in your fridge and seeing what you need for the upcoming week or so and typing it into your phone will save you a lot of time and money at the grocery store.  Making a list will guide you on which aisles you should be in, rather than just wandering from aisle to aisle in a snakelike fashion.  You will get what you need and get out of there, without picking up those colorful donuts that were on sale (and are probably stale).

Another benefit of consistently making a list when going grocery shopping is that you will start noticing what staples you really need and will start finding the best places to shop for them.  Some stores tend to have better prices (or quality) when it comes to produce or dairy etc.  Finding those things you consistently use at the lowest prices will do wonders for your budget.  So if there’s one single thing you can do to consistently save money on groceries, making a list is definitely it.  And what do we do with our newfound saved money?  Apply it to our debt repayment plan or increase our savings/investment.  That sounds pretty appetizing.


Quick and Easy Ways to Pay Less Taxes

homer check

Tax season 2014 has come and gone.  The best thing about it being over?  No more seeing those unfortunate Liberty Tax employees dancing on the corner.  Way to make paying taxes even less dignifying.  Since you filed your taxes, are waiting for your refund (here are some things to do with your refund by the way), or have to send a payment in, it may be time to finally relax.

WRONG!  There is never a time to relax when it comes to taxes, because what you do this year will affect you next filing season.  Being mindful early on in the year, however, can make tax time 2015 a lot easier and hopefully more lucrative.  Here are some easy things you can do now in order to reduce your tax bill if you’re employed:

Contribute to (or increase) your 401k:  Can’t think of a quicker and easier way to reduce your taxes than this.  Though it is technically a tax deferral since you will be paying taxes on it when you eventually withdraw between age 59 and a half and 70, the earnings have time to compound.  And if you don’t think your income, and thus your tax liability, will be lower when you’re retired than in your prime working years, you have some priorities that need to be shifted.

Another thing to remember is that money contributed to a 401k is done so before taxes, so a $100 contribution doesn’t take $100 away from your next paycheck.  Having less money is the main reason that people don’t want to increase their 401k contribution, so this fact should be kept in mind.  Besides, just find one monthly expense to cut or reduce and voila!  You have successfully invested in your future and increased your net worth.

Open a Health Savings Account:  Regular readers on this blog know that I’m a big fan of the HSA (here and here).  Irregular readers should know that I’m a big fan of the HSA.  You can set aside pre-tax money for an expense you will need now and in the future: health care.  Everybody has to go to the doctor or dentist at some point, so why not save money on taxes and open an HSA?  The contribution limit for families in 2014 is $6,550.  That’s a lot less money to pay taxes on.  The best part is that when you eventually use your HSA money, you are not taxed on it.  Any earnings are not taxed either.

This is such a great deal but you have to have a high deductible health plan (HDHP) to participate.  Some people, especially those who see doctors a lot, are wary of these because you pretty much pay any emergency visits in full until you meet the deductible amount.  The advantage is that their premiums are much less and the plan still pays for routine annual visits.  If you run the numbers and find that even with the tax savings and lower monthly premiums you would be saving more money by having a traditional health plan, then signing up for a high deductible one wouldn’t be the best idea.  But if you’re not in that minority of the population, fully contributing to your HSA is an amazing way to reduce your taxes.

Open a 529 plan (some states):  If you would like to give your kid a little financial head start for college, you can open a 529 plan.  Each state has their own plan with different administrators, investments, fees etc.  Some states allow you to deduct some or all of your 529 contribution from your state taxes.  Currently, Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming don’t offer this because they don’t have any state income tax (this is also a list of good states to retire in).  California, Delaware, Hawaii, Kentucky, Massachusetts, Minnesota, New Hampshire, New Jersey and Tennessee have a state income tax but don’t allow for a 529 tax deduction.  I guess they don’t care about education.

All other states have some type of deduction from state taxes.  It’s also worth pointing out that 401k contributions should have priority over 529’s.  Not only do you get a federal tax break, you also probably get matching funds when contributing early on.  And if you don’t make sure you’re taken care of during retirement, your kids (if they’re good) will have to pick up the slack anyway.

Work less:  Not a popular piece of advice on personal finance blogs, but if you make less money then you pay less in taxes right?  While this is true, it’s probably not recommended in most cases, especially if you need money to pay off debt or save for retirement.  But if you are in that enviable position where you make more than enough money and want to spend some more time with family or just relaxing, work a few less hours per week and you’ll be paying less taxes.  Not a bad trade off.

These are just a few very quick ways to reduce your taxes and help your future self at the same time.  There are many other ways to reduce taxes, which is why there are books and CPA’s available.  The US tax code is complex but it is definitely worth learning since you will most likely be paying taxes until you’re in the grave, and even beyond.


A Twist on the HSA

The Health Savings Account is the relatively new kid on the block in the healthcare world (check out my intro post to the HSA here).  The HSA has the distinct advantage of staying with you at the end of every year rather than expiring on December 31 like Flexible Spending Accounts.  Depending on which bank you open your HSA with, that money can be invested or gain a small amount of interest.  If you’re eligible for it, it is a nice account to have because contributions, earnings, and qualified distributions are all tax free.

There is one condition of the HSA that actually gives it a while new dimension.  It can act as an IRA.  My eyes were opened to this idea from a post by the Mad Fientist.  It took me a few days to kind of wrap my head around it but ever since I did, I’m all in.  And it’s all because of one rule regarding HSA’s:  any distributions made from the account after the age of 65 can be used for ANYTHING.  Meaning that after you turn 65, you can use the money for healthcare expenses, paying the mortgage, going on a vacation or just letting it sit in the account and grow.  The one caveat is that if you withdraw HSA money after 65 for anything other than healthcare expenses, you will have to pay taxes on it. This makes it similar to a traditional IRA.

The key to making this happen is that you don’t have to DIRECTLY pay for healthcare expenses because the funds don’t expire.  Let me explain.  With an FSA, the money expires at the end of the year so you better use that money on any and all healthcare expenses.  Or scramble to get glasses in December like I did because I had too much money left over.  You either use the debit card they give you or pay for it yourself and make sure to submit the receipt by the end of the year.  With an HSA, you can just pay for a $100 doctor’s visit out of your own pocket (ideally with a rewards credit card), hang on to the receipt and know that you have two choices.  The first choice is to now move $100 from your HSA to your checking account to cover the $100 charge you made.  This is fine if you know you won’t have enough money in your checking or savings to cover the bill.  This is also similar to what you would do with an FSA.

The second choice, and the better one, is to not touch your HSA money and simply file the receipt away for future use.  This will allow that $100 to grow in the account and still give you the ability to withdraw that $100 at some time in the future if you really need it.  Or, ideally, just let it sit in the account until you’re 65 and withdraw it without penalty or taxes.

There are certainly some things to keep in mind when using the HSA as a modified IRA.  If you have a genuine healthcare emergency that you will definitely not be able to cover out of pocket, use the HSA money.  That’s what it’s there for.  Hopefully the emergency will happen after you have had a few years to build up some money in the account (the 2014 IRS limit for HSA contributions for a family is $6,550).  So saving the max amount even after a few years will give you a nice cushion in case of a high hospital bill.  So if you haven’t opened an HSA or are not contributing the max amount, find a way to do so.

For its intended use, the HSA is a great account as it allows you to set aside money tax free, lets the money grow in the account tax free and lets you withdraw it tax free for qualified healthcare expenses, which we all need to spend money on at some point.  No other account allows you to do this.  But if you can keep your healthcare expenses low and cover them out of pocket, this money can grow and grow until 65 and if you need it before then, it will certainly be there for you.  Just be sure to hang on to your receipts.


It Might be Time to Cut the Cord

I admit, I am slow to change.  A big reason is that I take a long time to decide when comparison shopping anything.  Not one of my best qualities but it has saved me a few dollars along the way.  I didn’t get my first smartphone until about 2 years ago.  I was obsessing over two particular phones, so much that my tech loving brother didn’t want to be around me anymore because of my persistent questioning (I made the right choice though since the other phone was found to be buggy and became obsolete quickly).  But eventually I can make the plunge, and I think the time may be coming when it comes to cable television.

Cable TV has been a staple all my life.  I had it growing up as a child and throughout college.  Even when I was in graduate school, my roommate and I found a way to get cable TV without paying for it (I think the last tenant never cancelled theirs).  Watching the latest highlights on ESPN has always been a habit of mine.  Being exposed to cable TV all of your life is not necessarily a good thing, but it’s what I’ve had all of my life.  Given my tendency to over think any type of change, it would take some time for me make plunge into a cable-less world.  There are a few reasons that are pushing me to make the inevitable switch sometime soon:

The wide availability of streaming.  Netflix is awesome.  There’s just no two ways about it.  The current price of $7.99 a month will most certainly increase as time goes on, but it beats the pants off of the $70 per month for cable TV.  And after doing some unofficial analysis of my family’s TV watching habits, the vast majority of the shows we enjoy are on Netflix.  There are only a couple of shows that we watch on cable TV, but that’s hardly a reason to keep it around.  With a little bit of searching on the internet (or by using another streaming service), pretty much any show can be watched online.

One thing I recently came across really shows the staying power of streaming TV.  Amazon is in it now.  They have had their streaming service for a while, but they now have a device called Amazon Fire TV that is an all in one streaming device.  You can watch Netflix, Hulu, Amazon Instant Video and a bunch of other apps all on this one device.  We currently use a Playstation 3 for streaming purposes, but the fact that Amazon has fully committed to the world of streaming video shows that it is here to stay.

Not difficult to get HD local channels.  I’m a huge NBA and NFL fan.  And this is probably the biggest reason I hesitate to get rid of cable.  It would be tough to miss the big playoff games.  But reading reviews about the HD antennas out there, it looks like I should be able to watch most of the big games on the local channels.  Gone are the days of the bunny ears and fiddling around with them to get good reception.  Reviews for these products have been great, so it’s exciting to know that I shouldn’t have to give up TOO much sports watching.  Besides, having a toddler has greatly reduced my sports watching capability as it is.

Saves money.  Getting rid of cable and relying on streaming TV should free up around $70 per month.  That’s not a tremendous amount, but if this experiment sticks, that’s money that we will be saving every month for the rest of our lives.  It is definitely more important for me to pay off  my student loans faster than it is to watch a few TV shows, so I can use that savings to do just that.  Or to pad our emergency fund.  Whatever I choose to do, it will only be a financial net positive which is great to know.

These are just a few of the reasons to ditch the cable.  If this experiment doesn’t work and our lives are miserable because of it (which sounds really selfish), I can always come back to cable.  All the cable companies in the area run good deals from time to time, so I can just sign on when I see one.  It’s always good to find a way to cut down monthly costs and help yourself in the process, and cutting cable seems like just the thing.  I will report back about my life without cable after a few weeks.

If anyone would like to share something about their cable-less life or let us know about any tips or ideas, please feel free to comment below.


The Infinite Monthly Payment Loop


This is how monthly payments look in space.

I’ve been told there was once a time where people actually paid for things up front and in full.  Cars, houses, education and such were paid for with cash and then utilized to the best of the person’s ability.  A person or persons simply saved up the money required for a car, for example, paid for it in cash and drove it off the lot, knowing that it is now theirs to take care of with no extra payments to speak of.  I don’t know if such a time ever existed or will ever exist again, but it does sound nice.

If there is one phenomenon that can be pinpointed as the sole reason of financial hardship for so many people nowadays, it is the ability to get whatever you want by paying for it monthly.  This is the prime reason that people are getting poorer and the banks are getting richer.  It seems there is always a monthly payment due for so many things, and new ones seem to crop up every few years.

Let’s take the ultimate never ending monthly payment as an example, the home mortgage.  Playing with some mortgage calculators, I wanted to find how much would be spent on a $200,000 home if the buyer had a 20% down payment and took out a 30 year loan at 4%.  A 20% down payment is the industry standard for a “recommended” down payment amount and a 4% rate on a 30 year loan is considered great in any time period.  This savvy home buyer thinks he got a deal, and in some respects he certainly did.  But according to the calculations, if he makes his minimum mortgage payments on time every month, he will end up having paid $349,991.21 at the end of the 30 year loan.  So he will end up having paid almost $150K extra for a 200K house.  Doesn’t sound like a great deal to me.

Now there are things to take into consideration such as the mortgage interest deduction and appreciation of the home, but those are very variable as not everyone always qualifies for the interest deduction and the market can go up and down.  Many people don’t even save enough for a 20% down payment and buy more house than they need, so the amount of money paid at the end of the loan can be much higher.  The bottom line is, it is in the bank’s best interest to get us caught in the seemingly infinite loop of monthly payments.  They get a steady stream of income from the home owner, while getting much richer in the process because of interest payments.  The buyer gets a house to live in, which is nice, and may or may not make some money in the process depending on market conditions.

This is not only limited to houses anymore.  Cars loans are a MAJOR profit center for banks.  They provide a continuous stream of income for loans that are 3-5 years long, which is the amount of time that many Americans trade in their cards anyway.  And since most Americans have multiple cars, you can see why the banks and the auto industry love car loans.  The other thing they love about car loans:  the buyer isn’t going to be making any money off of the car.  Houses can and usually do appreciate somewhat.  Cars almost always depreciate in value.  If there is a more one sided transaction out there that everybody does other than the car loan, I would love to hear it.

The monthly payment loop is not only firmly entrenched in the home and auto industry, but in consumer products as well.  How often do you see appliances, another guaranteed depreciating product, being advertised as affordable because of no or low interest payments for the first year?  You can get pretty much any type of appliance or electronic on a monthly payment plan, especially at those God awful places like Rent a Center, where everything is advertised only in monthly payments.  These products provide no long term financial benefit for the buyer, who usually trades them in for the latest model after a few years anyway.

And the ultimate monthly payment cycle?  Credit card debt.  If the store is not offering a product on a monthly payment plan, thank goodness Visa is giving you the option.  Just charge the amount of the appliance in full, and make monthly payments on it until it’s paid off.  Most credit cards have very high interest rates, some in the area of 20%.  Can’t think of a worse deal.  I write about how I love using credit cards and getting rewards, but this is NOT the way to be using them.  This is a way to get into financial trouble in a hurry.

Thanks to savvy marketing and unending greed, most people in our society are wired to think about money in terms of monthly payments.  If you can swing the monthly payment on the house, two cars and the new dishwasher, that means you can afford it, right?  Maybe.  But you are doing your current and future self a huge disservice by having your money tied up in products like these.  Imagine not having a $300 car payment and instead investing that money in your company’s 401k or using it to pay off debt?  That is the way to financial freedom.  It’s tough to get out of the infinite monthly payment loop, but doing so will get your finances back on track.


Why you need to collect Points and Miles

I’ve talked before about some great rewards you can get from credit card spending.  I’ve also talked about the importance of having a great credit score and the benefits one can reap over a lifetime just by having a great score.  With these two things in mind, the next step is to maximize your credit card rewards.  And I mean MAXIMIZE.  As in sign up for a few cards every 3-4 months , also known as a churn.  Contrary to popular belief, this does not hurt your credit score much, and actually will make it more solid in the long run as you will have higher and higher credit limits and lower and lower credit utilization ratios.  So there should be no fear of getting the most credit card rewards possible.

But if you are the type who racks up credit card purchases like there’s no tomorrow, forgets to pay on time here and there or is okay with carrying interest month to month, don’t even think about getting credit card rewards.  Actually, you should re-think your life and your use of credit cards at all.  They are a tool, but only in the hands of those who know how to wield it.  Willingly and knowingly carrying a credit card balance is one of the most foolhardy things one can do financially.  If you are one of those people, maximizing rewards is not for you.  If you try it, the only thing you will be maximizing will be your pain.

Now that we got THOSE people out of the way, let me show you a few reasons why getting lots of credit card rewards is awesome.  The first thing that comes to mind is that miles and points are TAX FREE.  There apparently is no way for the IRS to quantify how much a “point” is worth, especially since they can be worth different amounts in different programs.  And let’s hope it stays this way.  We work hard for our money, and being citizens of a country, we have to pay taxes.  This is reasonable and necessary as taxes allow the maintenance of the roads we drive on and the libraries we frequent.  But if there is a legal way to avoid taxes, I’m all for it.  Miles used effectively, for example, can turn a first class ticket normally costing $5,000 into a $50 out of your pocket expense to cover the taxes.  That’s $4,500 saved.  Tax free.  Now granted, most people don’t buy $5,000 plane tickets, but money saved is money saved.  You can compare that $50 out of pocket expense to a $300 coach ticket you’d probably buy.  That’s still a $250 savings.  But in a lot more style sitting in first class.

A common complaint about collecting miles is that people say they don’t travel much and there’s no need to collect so many miles.  In my experience, everyone has to travel somewhere at some point in their lives.  Be it for a wedding, funeral, visiting family or for business, everyone gets on a plane at some point in their lives.  And having miles ready for that day can be very lucrative.  From a single credit card sign up, a person can easily get a round trip domestic ticket to anywhere in the country along with no checked bag fees.  That is incredible piece of mind.  Also, some of the more flexible programs such as Chase Ultimate Rewards and AMEX Membership Rewards allow you to redeem points for cash or gift cards.  So if you know you’re not going to be flying anywhere soon, just trade those points for some cold hard (tax free) cash which you can use to pay down your debt or bolster your savings.  Did I mention it’s tax free?

Another reason to get into the world of credit card reward maximization?  It will help you spend less.  Yes, you heard that right.  The common refrain from credit card haters is that they make you spend more that if you use cash.  In my experience, that’s only if you are not conscious of your spending.  As long as you have a budget or  some type of spending plan and realize that getting 5% cash back is peanuts compared to not buying the thing at all, you will not spend more with a credit card.  On the contrary, I have found times where I want to spend less, just to maximize rewards.  If I see something that catches my eye in the mall, I don’t buy it right away because I know i won’t get maximum cash back like that.  I can use an online shopping portal like the Ultimate Rewards Mall or Bigcrumbs.  I’ll probably forget to check it when I get home, or I’ll realize it’s not worth the effort so I just won’t buy it.  If you look at every purchase you make in the frame of maximizing credit card rewards, you will want to buy less things.

And finally, if those reasons didn’t sway you, here’s the real reason you should get in on the credit card rewards game:  it’s fun.  It’s fun finding an awesome credit card sign up bonus, being approved for the card, and knowing it will cover a fun trip for you and your family.  It’s fun to find ways to maximize your cash back, such as buying gift cards at grocery stores, to take full advantage of the many great grocery cash back cards out there.  And it’s fun to kind of stick it to the big credit card companies, using their rewards to produce things of value for you which you might not have gotten otherwise.  It’s not exactly Fight Club, but it feels good to use their money to enrich ourselves for a change.

What maximizing rewards will eventually cause...I think

What maximizing rewards will eventually cause…I think


What Baseball can Teach you about your Finances


There is nothing like the start of the baseball season.  Even thought the season seems interminably long, there is something about the anticipation of the Opening Day of baseball games.  It means spring is right around the corner.  Green grass will soon be visible under the dark gray mounds of snow.  And the smell of fresh hot dogs will permeate the ballparks (I’m not sure how “fresh” a hot dog can be, but let’s go with it.)  I’m much more partial to following NFL and NBA games, but with football over and basketball being really boring until the playoffs start, baseball will have to do.

And if there’s one thing I love about sports besides watching them, it’s sports analogies.  I really think any philosophy of life can be explained through sports analogies.  The importance of teamwork in winning games and getting things done successfully in life.  Doing the hard work behind the scenes will usually lead to a good performance on the field and in your career.  The analogies are endless.  There is probably no sport more amenable to analogies than baseball.  After doing some thinking, there are a good number of analogies that can apply to personal finance.  Here are some of the better ones I thought of.

(A fair warning for those who don’t like baseball or don’t get sports analogies.  Just turn back now.  This could get ugly.  Read a Financial Commandment and call it a day.)

Good pitching is essential, but you need to score runs to win

Increasing your personal cash flow is a simple proposition.  Increase the amount of money coming in and decrease the amount of money going out.  Make more money and spend less of it.  In baseball terms, that means score more runs and don’t let the other team score runs.  Having a good set of pitchers and sound defensive play from your fielders will keep the opponents runs to a minimum.  But this alone is not going to win you the championship (That’s why we’re playing the game isn’t it??!!).  You need to be able to put runs up on the board in order to make up for any small inevitable mistakes from the defense.

This means that having a budget and watching where your money goes is not enough in itself.  Sometimes we spend too much on food in a month.  A car repair is needed.  An impromptu vacation is booked.  Things fall through the cracks sometimes so it’s important we put a lot of effort into making more money as well.  It can make up for any small mistakes we make and keep our cash flow going higher and higher.  You can save only so much money.  But the ability to make more money is endless.

Want proof?  The Boston Red Sox scored 853 runs last season, more than any other team in the league.  They also ended up winning the World Series.

As far as allowing the least runs by opponents?  The best 3 teams were Atlanta, Pittsburgh and the LA Dodgers.  All had pretty good regular seasons, but couldn’t quite go all the way.  Shows you that having a good spending plan is necessary and puts you in a great position, but it is consistently increasing your net worth that will get you to the promised land.

You’re eventually going to swing and miss.  You just have to learn from it

Legendary Boston Red Sox player Ted Williams famously said, “Baseball is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.”  A 30% hit rate is awesome in the baseball world, but is terrible in everything else.  Something useful can be gleaned from these words though.  Which is that failure is inevitable.  You can literally plan for it.  There is no one who has never made a mistake at some point when it comes to their finances.  Be it a poor mutual fund selection, higher than expected credit card bills, or a home improvement project that just won’t stay under budget, mistakes will be made. 

The important thing is to, of course, learn from them.  But it is also important to read blogs just like this one to read about others financial blunders and try our best to avoid them.

Put your pitcher in the best position possible to win the matchup

A common predicament for baseball managers is when their starting pitcher is getting tired and has just let up a couple of hits.  The opponent is threatening and it’s clear your pitcher is gassed.  It’s time to go to the bullpen and choose the best relief pitcher for the situation.  Who to choose can be a tricky choice.  Some pitchers pitch better at home.  Some are better at night.  Some are terrible against certain hitters.  All these variables must be considered before choosing the pitcher that will give you the best chance to win.

Personal finance is no different.  Someone who has a lot of credit card debt and someone who has none should not be doing the same thing with their money.  The person with a lot of debt should try to get by with a smaller emergency fund while paying down their debt, while the person with no debt can save up for a more comfortable emergency fund and invest some money as well.  An professional looking to pay less taxes could opt to put more money in their 401k and HSA accounts.  Everyone has a different situation, and there is no one answer to solve everyone’s issue.  The best action is to analyze where you are and where you want to be, and find the most efficient way to get there.  Simply running the numbers will tell you what you should be doing in many cases.

The season is a marathon, not a sprint

A Major League Baseball team has to play 162 games in the regular season.  That’s a whole lot of games.  Players can get worn down and team morale can take a hit.  The important thing to do is to keep the goal in sight.  If your goal is to win the World Series, brooding over that fluke loss you suffered 2 months ago will not help you get there.  Conversely, reveling in a win against a hated opponent can be your undoing if you lose 3 games in a row right after.

Baseball teams are in it for the long haul, and so are your finances.  For example, if you make an awesome plan to repay your student loan debt, focus on paying off that debt going forward rather than looking at the past few years where you didn’t get around to it.  If you are able to make the extra payments for a whole year, be proud of that but make sure to do it against next year.  Not making your monthly payments a couple of times can derail your plan and your confidence.  As the most overused cliche in the world tells us:  Slow and steady wins the race.

All right well I’m all analogied out for now.  Hopefully those of you who enjoy sports analogies got something from this post.  And those that don’t like them hopefully read this far somehow.  Until next Opening Day.


Put your Taxes to Work

It has been a pretty miserable winter so far on the East Coast.  There have been many many cold and windy days (which means high heating bills).  We have also had our fair share of snowy days (which means more shoveling and wondering when the heck our street is going to be plowed).  It hasn’t been as bad as the “Snowmageddon” winter of 2010 when we had what felt like 6 feet of snow in the DC area, but it has not been fun.  Thankfully, we have had a little reprieve as of late with temperatures in the 50’s and a decent amount of sunshine.  Starting with a great idea from my wife and a little scrambling to get some food and supplies ready, we decided to take advantage of the weather and have a nice Sunday morning brunch at the park.  This was my inspiration for today’s post.

It was a great day to be at the park.  We went early enough to there wasn’t a huge crowd, but there were plenty of others who had the same idea as us to enjoy the park with their kids.  It was great seeing my son’s smile of glee as he went down the slide at the jungle gym.  He is a really curious boy, so being in a brand new environment like the park was awesome for him.  He wanted to explore every nook and cranny before he started getting tired from the sun I assume.  It was nice just to walk and talk in the great weather, treading on the carefully plowed walkways in between the manicured grass and flower beds.  The park also has some great running trails, paddle boats and basketball courts.  This got me thinking how awesome it is to have all of this and not pay anything.  This is world class entertainment and enjoyment all for free!

But of course, it’s not free.  My family and our fellow families pay for it with our tax dollars.  After baseball, the next national pastime of this country is to gripe about taxes.  About how there is too much taken out of our paycheck.  How our taxes seem to increase every year.  About how the American tax system is the worst ever and also the best in the world.  Despite all of these arguments, the federal and state governments need to levy taxes on its citizens.  They do have a society to run after all.  The majority of state taxes go towards education and health care, but taxes are also needed to maintain our roads and parks.  They allow us to experience a great Sunday morning brunch like my family recently did.  We plan to visit our local parks more often now that the weather will slowly be getting better and our son is more mobile than ever.  Those will be some fun filled days for sure.

Another thing paying taxes allows us to have is the local library system.  I’ve been a huge fan of the library for the past few years, and I regret not taking advantage of it the years before that.  When I was in high school the library was just a place to meet to meet for school projects and check out relevant books.  But there is so much more they have to offer.  Along with having almost every book ever made, many libraries also have a pretty robust selection of movies and TV shows for rent.  And with the internet making everything easier nowadays, reserving a movie/book is as easy as checking online to see if it’s available, clicking “Reserve” and then going to the library at some point to pick it up.  Most people want the latest and greatest NY Times bestseller, and they will go to Amazon or the bookstore to buy it.  But there are plenty of older bestsellers at the library to be had.

So to summarize: take advantage of your parks and libraries.  Not only do they have regular services that are extremely useful, they also have special events like movie viewings and book signings every so often.  Just take a look at their calendar online.  We pay for these services, so why not take advantage of them?


Keep Up to Date with Eye Exams

Many of us are very proactive when it comes to our medical needs.  We get yearly physicals, go to the dentist twice a year, and some of us even make sure to get our monthly massage.  One area, however, where many people wait until a problem arises to see a professional is their eyes.  I can say this because as an eye doctor it is a daily occurrence to see patients who haven’t had their eyes checked in 5 or more years.  Our eye are one of those we take for granted.  We will not fully appreciate them unless we lose them.  And while blindness as a whole is pretty rare, there is no reason to get the eyes checked regularly to screen for any conditions that could affect your vision in the future.

As mentioned before, a lot of us are very proactive with our health nowadays.  Medicine is starting to realize that prevention is better than treatment so preventative exams are highly recommended.  Yet this is generally not practice in regards to eye care.  In a survey by the American Optometric Association, 35% of Americans have never been to an eye doctor in over five years.  That is a staggering number considering that in the same survey close to 60% of people said that vision is the sense they would least like to lose.  Whether this is because of a misinformed public, a poor job of education by practitioners, or lack of insurance coverage, the fact remains that people are not getting their eyes examined as often as they should.  A NY Times survey even found that a whopping 86% of people with diagnosed eye disease do not get yearly exams.  If public health is such a big concern to this country, the eyes seem like a good place to start.

Another problem lies in the public perception about eye health.  Many people feel they do not need to go to the eye doctor if they can see fine.  This is a dangerous notion because there are many conditions such as glaucoma, diabetes, high blood pressure, multiple sclerosis, brain tumors and macular degeneration, just to name a few, which can be detected by an eye doctor at an early stage and possibly be prevented.  When the symptoms occur, such as blurry or dark vision, this can represent the end stage of the condition in which it becomes very difficult to treat.  And this does not just apply for older people.  Many eye conditions are genetic and if a family member has a condition, it would be a good idea to get yourself checked out.  Finally, even if there is not any eye disease, many people who say they can see well in reality could see much better, because they never knew what clear, crisp vision was in the first place!

Nutrition and lifestyle can also play a big role in eye health.  It is a commonly held belief that eating carrots is good for your vision.  While it certainly doesn’t cause any harm, beta carotene has not been found to have much of an effect on vision or any of the structures on the eye.  It has been found that spinach is packed with antioxidants and vitamins that are very good for the eye, especially for certain eye conditions.  In general, a healthy balanced diet is all the eye needs to function properly, and the lack of one can cause problems down the road.  As if smoking wasn’t bad enough, it was found that it can also increase the chance of glaucoma, cataracts, and macular degeneration.  It can also cause irritation and dry eyes, especially for those who wear contact lenses.  So just as nutrition and lifestyle can affect our general health, they can also affect our eyes too.

Here’s an example of why getting regular eye exams can not only help your vision, but your finances as well.  I recently had a patient who I saw for her last exam about 4 years ago.  At that time I noted that she had some early signs of macular degeneration, which can lead to central blindness.  I had advised her to see a specialist for a consult and get her eyes checked at least once a year.  Long story short, she never saw a specialist or anyone in the past 4 years and she came in complaining of blurry vision.  Looking inside her eye it was obvious that her condition had worsened, and she definitely needed to see a specialist for treatment.  She know needs to get monthly injections in the eye which her insurance doesn’t cover.  If she had gotten her eyes checked every year, there are certain preventative measures that could have been taken to slow down the condition.  She was grateful to me for finding the condition, but really regretted not following up on it.   Now her vision and her wallet are taking a hit.

So my recommendation is for everyone who hasn’t gotten their eyes checked in a while, to go make an appointment, if you are doing it regularly, keep it up.  Most people should be getting their eyes checked at least every 2 years if not sooner depending on your doctor’s recommendation.  Prevention is better than cure so let’s all be proactive with this most important sense of ours.  If there are any questions, please leave them in the comments and I will answer them to the best of my knowledge.