Psychology of Money

Challenges and CoastFire: My Story

My story: The following is an updated excerpt from the introduction to my book, The Mindful Money Mentality: How To Find Balance in Your Financial Future (Porchview Publishing, $20). As a behavioral economist (in a field that studies the psychology of personal economic decisions), I have a keen interest in our relationships with money. I care about maximizing its usefulness as a tool rather than elevating its status as an end. But for much of my life, I had those two reversed. I did my own financial planning backwards. I put the pursuit of money first, life second, and myself last. In other words, I floated in a fog about my attachment to money, swept along by society’s encouragement and my own beliefs. My money mentality was not aware, awake, or intentional. It was unconscious. It was anything but mindful.  Ironically, I was one of those successful savers. Starting when I was a teenager, I kept track of every penny I spent. I could not wait until my 21st birthday so I could start contributing to the 401(k) at work.  Money as the Main Goal In my 20s and 30s, I focused on money as an end, determined to define my success as a person by the amount of money I made. As a result, I made some choices that caused me, and those around me, to suffer unnecessarily. I fretted over how much essential things cost. It hurt me to spend on myself for anything nice, much less on anybody else. I now realize that having money was a way to feel good about myself. In my mind, my earnings defined my success as a person. This is the area where I was most imbalanced, and I regret some of the decisions I made then.  After college, I joined a Miami bank training program. I saw that most of the trainees chose to live in a new suburban complex requiring a Metro commute. I chose to live in cheaper North Miami, only ten minutes from downtown, proud that I was saving on rent, gas, and Metro fares. The building was newly renovated but occupied mostly by taxi drivers who kept odd hours, and the crime rate was higher in my neighborhood. My car was broken into in the parking garage. I did not get much exercise because, as a 5-foot-3-inch 20-year-old, I didn’t feel safe going outside.  Further, while my coworkers were discussing the fun evenings they had had at south Miami neighborhood restaurants, I thought, “Bah, humbug!” I was proud not to “waste” my money on frivolities. I ate mostly sauteed vegetables and microwave popcorn in my apartment. Over the seven-month training program, I not only did not exercise enough, I unconsciously distanced myself from the camaraderie of the other trainees. While I eventually fixed the exercise deficiency later in life, the friendships I might have made and enjoyed today are absent.  A Vicious Cycle It was not easy for me to accept that what you have is…

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How To Make Worry Melt

How to make worry melt: As an expert worrier, I often wonder why I worry, even when I know the answer: Worry gives me a (false) sense that I will be prepared and in control. It's my fallback when I feel out of my league. Take this example. One of my biggest worrying times happens before I head to the airport. What am I so worried about? Unlike many, it's not the actual flight. It's about missing the plane. It feels silly to even write this. And yet, Butterflies in my stomach. Little waves of nausea. Tight chest. It happens nearly every time. And I have coping mechanisms: I tell myself things like, "Breathe.“ "Calm down.” “It’s going to be ok.” I even have a special spirit animal - a deer - that I think about to help me feel better. Additionally, as a result of this predictable worry, I have an irrational need to leave home at least two hours ahead, get to the gate an hour before the flight, and, when I get there, to sit where I can see the gate agent and the boarding door. Then there is this acute physical transformation. Once I can see the gate and hear the agent, my entire nervous system relaxes. It feels like the worry just melts. Expected and Unexpected Worries How silly this feels. And yet, it seems I am not the only one to worry about expected and routine things like a departing plane. It's expected and routine, yet a source of great worry, that teenage children will start driving, and that 90-year-old parents should probably stop. In working with money, it's a source of great worry, yet expected and routine, that stockmarkets, interest rates, and gas prices will rise and fall repeatedly. Upcoming retirement is expected and routine, yet a source of great worry (and excitement). Understandably, it's a big step into an unknown future. That can especially bring on the jitters. Adding to everyday events are unexpected random ones, like pandemics. Further, sudden market meltdowns, tsunamis, cancer, dementia, layoffs, election surprises, terrorists, and hacker attacks are all things we know aren't probable, but are possible. Just checking in - how's your heart rate now? Butterflies? Tight chest? Although we might prepare as best we can, worry on top of preparation helps some feel as though we are doing something about the problem. But what toll does worry take? Does it help us to prepare that much better? As a result of worry, I'm quite sure I have shortened telomeres and life expectancy. That's a pretty high cost. How To Melt the Worry Away When I get to the gate and see the agent, I feel the worry melt away. But it's strange - I don't think too many airline employees worry about the same thing I worry about. There's something about having exposure every day to systems and knowledge that produces confidence. Aviation is now one of the safest modes of travel in the world.…

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What’s Your Closet Type? Thrifty Penny, Generous J-Lo, Savvy Suze or Imelda Galore

What's your closet type? Thrifty Penny, Generous J-Lo, Savvy Suze or Imelda Galore On a 2004 visit to Ghana, a west African country, I noticed lots of people wearing second-hand Western clothes. While others donned beautiful traditional garments of their country, it was equally common to see second-hand t-shirts, khakis and jeans. The second hand clothes were sold in nearly every street market. My hosts told me these were commonly called obruni waawu, which literally means, “dead white people’s clothes.” I understood that the clothes looked like those of white Westerners, but “Why dead?” I wondered. Before long, an answer dawned on me. Maybe to Ghanians, many of whom don’t have closets, the only reason a white Westerner would give away perfectly wearable clothes would be because they are dead. To them, clothes might be something you use up until the day they are no longer needed at all. I don't know if this is the actual reason, but it led me to compare and wonder how often we buy new clothes and get rid of old ones. For some, it's quite frequent, and not so much for others. Having seen over 400 budgets in my lifetime, I've noticed spending on new clothes that ranged from $2,000 to $50,000 a year. But what I have not asked and do not know is, how often are the old clothes being thrown out or given away? Money Velocity and Money Supply: Closet Velocity and Clothing Supply There are two concepts in economics that come to mind - money velocity and money supply. Money velocity refers to how many times a dollar changes hands in an economy. There is also money supply, which is the amount of money available in an economy to be spent at any time. Taking this to the closet analogy, what would closet velocity and clothing supply be? Let's say closet velocity refers to how often the clothes on hand are changing. This would mean not only how often new ones are bought, but how often old ones are discarded or donated. Correspondingly, the amount of clothes we have on hand at any point in time would be our clothing supply. Taking four combinations from these two concepts and having some fun with the names, what's your closet type? Closet Type: Thrifty Penny, Generous J-Lo, Savvy Suze or Imelda Galore If you have a low clothing supply and low closet velocity, you might be a Thrifty Penny closet type. This means: you have a small number of clothes that you wear until they have holes, stains, or are otherwise unusable before you replace them you feel ok not being trendy there aren't a lot of choices of what to wear, and you don't require a large closet. Conversely, if you have a high clothing supply and high closet velocity, you started with lots of clothes, are buying lots of new clothes, and are also giving or throwing away old or never-worn ones fairly frequently. This would be the Generous…

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Read more about the article Using A Retirement Income Buckets Approach

Using A Retirement Income Buckets Approach

Using a retirement income buckets approach: One of the most common questions financial planners receive from soon-to-be-retirees is, "What's the safest way to give myself a paycheck once I quit working?" The question often stems from the knowledge that needing to withdraw funds in a down market can be both ill-advised and scary. Those who have been around long enough probably know someone who retired close to a particularly bad market year, like 2001, 2007, 2008, or now 2022. Because that someone had to, or chose to, sell some investments at that terrible time, they ended up living off of much less than they originally thought. This can be a scary thing to watch. It makes one wonder, "How do I make sure that doesn't happen to me?" A Buckets Approach Enter a buckets approach to retirement income. Below is a link to a video excerpt from the online course, "Retirement Readiness," outlining the approach in more detail. (A link to the course can be found at the bottom of this article and here.) A description for each of the buckets follows below. https://youtu.be/mkeqzgJfeFc Bucket 1 - Cash and Money Market Accounts The first bucket will provide your paycheck. Here is how it works. Calculate any retirement income you will have (pension, Social Security, dividends, interest, rental property, for examples); Figure your annual recurring expenses (do not include one-time expenses such as replacing a car, roof, or paying for a special trip or wedding); Subtract 2 from 1 to come up with the difference; and Keep 1 to 2 years of that difference in Bucket 1. For example, Justine retires at 65. She expects to live past age 82 so she is waiting until 70 to claim Social Security. She has a pension of $800/month ($9600/year). Her recurring expenses are $70,000 annually. The annual difference is $70,000 - $9,600 = $60,400. To start retirement, she decides to keep 1.5 years of the difference in Bucket 1 so $60,400 x 1.5 = $90,600. She puts that in a high-yield money market account and sets up an automatic transfer of $5833.33 monthly to her checking account. Voila - she has a new paycheck. When she turns 70, she will collect $45,000 in Social Security. At that time the annual difference will fall to $70,000 - ($9,600 + $45,000) = $15,400. She decides to keep 2 years of the new difference in Bucket 1, so $15,400 x 2 = $30,800. She reduces the monthly transfer from the money market to $1283.33 per month. Bucket 2 - Bonds, CDs, and Bond Funds The second bucket replenishes Bucket 1. As the paychecks come out, the principal in the money market account will naturally decrease. Eventually it will decrease to a level that makes you say, "Yikes! I only have xx in my checking and money market." Everyone has a different level of "Yikes." When the balance approaches your unique Yikes level, a transfer is made from Bucket 2 into Bucket 1. Bucket 2 is comprised…

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Read more about the article 3 Myths About Ideal Retirement: More Than Money at Stake

3 Myths About Ideal Retirement: More Than Money at Stake

The best retirement plans start with a plan for a fulfilling life first, then match up the plan with money decisions. That's why good planners ask, what's the money for? For most, it's not to support boredom, stagnation and decline. If you define what an ideal retirement means first for you, then your retirement plan and your retirement life have far better chances of success.

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Florida’s Sales Tax Holidays

Florida's sales tax holidays. Florida sales tax runs anywhere from 6% to 8%, depending upon the county where you are making the purchase. Several years ago the Florida legislature started sales tax "holidays," beginning with the back-to-school season. Flush with a budget surplus again this year, the legislature passed several more holidays which begin in May. Some of them last a week, while others last up to 2 years. For a major purchase you might be considering, it pays to know the timetables. Disaster Preparedness: June 1 - 14 and August 24 - September 6 There has been an annual sales tax holiday for disaster preparedness for a few years now. If you are in or near Florida, and getting low on batteries, bungee cords, coolers, tarps, portable generator(s?), or several other items listed in the link below, you can save the sales tax by waiting until the week of the holiday to stock up. The second sales tax holiday in late August occurs right before the busiest part of hurricane season. Of note, the holiday includes all kinds of pet provisions - pet food, pet kennels, pet beds, leashes, and even pet waste disposal bags. Also new last yaer, consumable household goods like paper goods, soap, hand sanitizer, and trash bags. Here is the link to the list of exempted disaster preparedness items: https://floridarevenue.com/taxes/tips/Documents/TIP_24A01-04.pdf Big Deal - Home Hardening Disaster Preparedness: July 1, 2022 - June 30, 2024 This one is a bigger deal and can save major bucks. Impact-resistant windows, doors, and garage doors will be fully exempt from sales tax through the end of June. So if you are planning a major home improvement, talk to your contractor about placing the order. On a $5,000 order, in a 7% sales tax county, that's a $350 savings. Unlike most of the other holidays, this exemption also applies to commercial orders. More detail on home hardening exemptions here: https://floridarevenue.com/taxes/tips/Documents/TIP_22A01-07.pdf Fun Events, Outdoor Supplies and Annual Passes: The whole month of July This sales tax holiday began during the pandemic. Event tickets, camping supplies, paddle boards, kayaks, binoculars, grills, and bicycles are some of the larger ticket items included in the holiday. Of note also - annual or season passes for museums, theater series, ballet, and state parks. The complete list for events and supplies during "Freedom Month" is here: https://floridarevenue.com/FreedomMonth/Documents/2024/FM%20poster%2011x17.pdf Back-to-School: July 29 - August 11 The list of back-to-school items has a few surprises in it. Items you would assume are included are not, and others you assume are not, are. (Example: snowsuits included, swimsuits not). More information on the strange list of exemptions here: What Does Qualify for Florida’s Back to School Sales Tax Holiday? Also, see the back-to-school flyer (complete list not available yet as of publication): https://floridarevenue.com/backtoschool/Documents/2024/BTS_poster11x17.pdf Labor Day/Tool Time Tax Savings: September 1- September 7 Larger-ticket items on the "Tool Time" holiday include power tools under $300, power tool batteries, toolboxes, and work boots. It also includes shop lights, plumbing tools, and duffle bags.…

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Financial Anorexia? Stuck like Scrooge

Financial anorexia: Stuck like Scrooge. What is financial anorexia? Financial anorexia is a type of spending disorder. People who suffer from the eating disorder of anorexia may obsess about food and the number on the scale. People who suffer from the financial disorder may obsess about money and the number on their bank statement. For those suffering from financial anorexia, they never believe they have enough to enjoy what they’ve got. According to Ken Donaldson, LMHC, a licensed mental health counselor in Seminole, Florida, “Anorexia is characterized by a distortion of perception.” Someone suffering from the eating disorder believes they still need to lose extra pounds, when to everyone else it’s clear they are harming themselves. Someone suffering from the financial one believes they still need more money, when it’s clear they are depriving themselves. While the eating disorder of anorexia is deadly serious and can be fatal, financial anorexia can be dangerous in other ways - to mental health, friendships, and family relationships. Financial anorexics can seem to be more engaged in extreme deprivation than in enjoying life's simple pleasures. Family members are most often affected by the wealthy relative whose reluctance, reclusiveness or reticence are, at a minimum, puzzling, but more often, hurtful. Where Does Financial Anorexia Come From? According to Donaldson, anorexia is fueled by isolation - the more the sufferer depends upon their own distorted perception, the worse their condition becomes. Ebenezer Scrooge (in the beginning of Dickens’ tale) is an isolated penny-pincher and money hoarder. He is the stereotype of the financial anorexic. Another root cause can be fear. What are anorexics often afraid of? Stated fears might include: a catastrophic world event; a very expensive health issue; hyper-inflation; or “spoiling” family members or friends. Certainly some of these things can and do happen. Yet our societal messages, and brains wired to look out for danger, emphasize catastrophic scenarios like these past the point of their actual probability. Yet, other fears might be at work that aren't as overt. Unstated fears might include loss of self-worth or security. Anorexia is also fueled by our cultural norms. Western society still worships conspicuous wealth and Twiggy-like figures. “You can’t be too rich or too thin,” sums it up. Most people understand the “too thin” part, but “too rich”? Is it possible to be "too rich"? Financial anorexics, like Scrooge, typically amass abundant resources. However, their wealth does not come from a healthy relationship with money. They might be "too rich" for their actual needs. Further, the more they have, the more they have to fear losing. The hoarding-like behavior only gets worse the more successful they are at it. What Can Be Done About It? At some point in life, many financial anorexics realize, to their immense regret, that they worried more about what might happen, and didn't, than enjoyed what they actually had. Exposure to new information sources is one method of help. According to Donaldson, “New information will disrupt the pattern.” Support groups, a counselor, and…

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As a Child-Free Elder, Who Will Be On Your Team?

“Who will take care of you when you’re old?” someone once asked me when I told her I had no children. It seemed like an old-fashioned kind of question. Nevertheless, it caused a mini panic attack. Knowing the statistics, I had made the vague assumption that I would need to make arrangements for care, but something about her question made that statistical probability more real. About 14 percent of 40- to 44-year-old women had no children in 2018 – up from about 10 percent in 1980, U.S. Census data shows. This is and will be an issue for millions of Americans. As anyone who has served as a caregiver knows, there are four main questions to ask from the beginning. Answering these can lead to the formation of an elder care support team. The team members may come from two areas - friends and family, professionals, or both. Where will I live? Who will make medical decisions for me? Who will handle my finances? How will I get transportation? Team Member 1: Where will I live? The first part of figuring out the team is to know where you will be living. The vast majority of Americans want to age in their homes. For some people that home might be the place they have lived for several decades. If so, then the team member will likely be a home health care company. For others, home might be a place they move to - with a supportive community, but not a facility (perhaps at first). If that's you, building a network of friends and professionals in the community can be one of the best ways to reinforce your support team. Although it's not in many people's plans, sometimes aging at home isn't an option. For people aging without children, it's more important to get to know assisted living and continuing care facilities, and figure out how you would pay for them. (For myself, I purchased a traditional long-term care policy. But that doesn't mean that is the right solution for everyone.) Team Member 2: Who will make medical decisions for me if I can’t? Preferably someone close by. Ideally this person could be available at a moment's notice and will not have to travel far to attend appointments with you. Having a strong primary care physician relationship is also highly beneficial. Some doctors, especially those who specialize in concierge medicine, can and will serve as your legal health care surrogate. Team Member 3: Who will handle my financial affairs? Many attorneys recommend having a different person named for financial matters than for health care decisions. As aging progresses, it's a lot to ask of one person to handle bill paying, money management, and doctor appointments (as anyone who has served as a sole caregiver can attest). Money management involves several duties. To name a few, Paying bills and making renewal decisions (such as memberships, subscriptions, and/or insurance policies) Making gifts Making transfers between accounts, such as taking IRA withdrawals Managing investments…

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How To Let Go of Money Self-Doubt

How to let go of money self-doubt: What is money self-doubt Money self-doubt is an inner belief that one cannot trust themselves with a decision about money. Sometimes these beliefs operate in the background, quietly driving decisions when we don't realize it. Other times they're front and center. What does money self-doubt sound like? Money self-doubt beliefs often sound like critical messages: "I knew I'd screw it up." "I'll never be good with money." "If I can't manage my own finances, I'm a failure."   "Why am I so stupid with money?" Money Self-Doubt Origins Where does money self-doubt come from?  It could be a single traumatic event or a repetition of harmful moments that lead to flawed beliefs about our financial capabilities. One time being taken by a scammer, or many times being told by an abuser we aren't capable. Without counterbalancing mantras like, "You're still OK." "You just made a mistake." "You can do this." the self-doubt can take hold. Society and media also don't help, offering a choice of money self-image as either, "good with money," or not. Individual instruction is rarely given in school, or in families, much to our society's detriment. While financial professionals are often proficient in finance, many are not good educators. A few even try to make money more complex than it is, to keep clients feeling less than sure about themselves. Case Study: Sondra (not her real name) is a highly educated and accomplished professional. Her parents came from Depression-era families where money was tight in their younger years. Money was never talked about in Sondra's home, although she was given everything she needed. She grew up with the belief that her parents didn't discuss it with her because they believed money was something she was not capable of handling. When she went to talk with a financial advisor, he threw so much jargon at her that she was too uncomfortable to admit she didn't understand what he was talking about. Money Self-Doubt Results Without realizing these beliefs exist, we can allow them to influence what actions we take or fail to take. Self-doubt can affect who we allow into our lives, and who we don't. It can affect our choice of career. Or how we spend, or choose not to, on our own needs, wants, and wishes. Ironically, money self-doubt can lead to overspending with some people, and over-deprivation with others. Sondra chose a career where she was assured a salary and the chance of a bonus if she worked hard enough. She worked longer hours than she wanted to. She lived minimally, foregoing many comforts and rewards of her hard work. Her dreams of having more work-life balance were put on hold because she never felt financially secure. In her personal life, she chose friends and partners who also didn't talk about money, leaving a gap in her closest relationships. How To Let Go of Money Self-Doubt If you've been operating under flawed assumptions, and now you know it,…

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A CFP® Who Bounced Her IRS Check

A CFP® who bounced her IRS check. That would be me. Yes, I wrote a bad check to the IRS. Accidentally, of course, but still. Behind my name are the initials "CFP," for CERTIFIED FINANCIAL PLANNER™, so supposedly I'm some kind of financial expert. And yet, I did a very un-expert thing that even most financial un-experts do not do. Brain Fog The bad check was written in April 2014. The tax year in question was 2013, which was the same year I got an unexpected biopsy (which came out clean after several weeks), an unexpected audit by state regulators (which came out clean after several weeks), and an unexpected divorce (which came out after several weeks and much of it wasn't clean). All of these - the biopsy, the audit, and the unexpected divorce - happened between August and November. If you've ever been through one or more of the above, perhaps you can relate to the feeling of going through the rollercoaster of life, trying to act like a rational person, but getting hijacked by emotions. Wishing you could concentrate better, focus like you used to, but the brain just won't cooperate. I wasn't aware I was in that much of a fog. I thought I was keeping it all together pretty well, considering. Until the IRS notice showed up. "Check Payment Not Accepted By Bank: The bank did not accept the enclosed check for the following reason: INSUFFICIENT FUNDS. Please return the bottom portion of this form with a certified check...The PENALTY amount is...The current Interest Charge is..." Shock and Shame "Wut?" I thought. My first reaction was to get mad at the bank. It only took a few minutes, though, to research there was no mistake. Shock, embarrassment, humiliation, shame. My jaw and knees dropped to the floor simultaneously. I bounced a check to the IRS?!? That's when it dawned on me that the events of 2013 were still affecting me or I wouldn't have written a check on one of my new post-divorce checking accounts without putting any money in it first. So, the next paragraph caught my eye. "You can request penalty relief by explaining why you believed the bank would accept the Check and by providing any supporting evidence." My backbone straightened up. Although it was not the bank's error, I needed to plead my case to keep my sanity. Making the Case for Penalty Relief It turns out the IRS will seriously consider applications for relief, although that doesn't mean they will blanketly grant them. First, I immediately deposited more money in the account and had the cashier's check, including the penalty and interest, sent. Then, I sat down to write to the human being who would be reading my request. I crossed my fingers that it would be a 40- or 50-something who had been jilted in a 20+ year marriage. There are quite a few of us out there, and maybe even a few who work for the IRS. I…

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