psychology of money

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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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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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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Read more about the article 6 Top Books For Booklovers – 2022 Edition

6 Top Books For Booklovers – 2022 Edition

6 top books for booklovers: What books made an impact on you in 2022? Every March this blog publishes a few selections from the prior year's reading. For 2022, below are 6 favorites from finance, fiction, and self-help. (For past recommended books, check the Resources page or enter "books" in the blog search.) Psychology of Money The top book recommendation this year is The Secret Meaning of Money: How To Prevent Financial Problems from Destroying Our Most Intimate Relationships, by Cloé Madanes. Ms. Madanes is a family therapist, not a financial adviser. But she gets to the heart of what ails so many couples and families - money behaviors and beliefs. Although published in 1994, there's nothing outdated about her observations and advice. She covers common money mistakes in the lifecycle of a couple, from younger years, through children, divorce, second marriages and stepchildren, long-time marriages, and end of life. Understanding the impact of one's upbringing on behaviors and beliefs goes a long way toward beginning to break patterns that no longer serve us. Poverty, eviction, and even great wealth all have childhood impacts that can be seen in adult relationships. The book concludes with chapters on using money in positive ways, and a list of common irrational behaviors rooted in money and power family dynamics. Fiction On the fun side, here were my 2 picks for fiction, out of about 20 total. First is The Storied Life of AJ Fikry, by Gabrielle Zevin. In one word, it's sweet. AJ Fikry is a recently-widowed, lonely, angry, snobbish owner of a bookstore on Block Island, Rhode Island. He gets entangled in a community problem. There are financial issues at stake. A new young book wholesaler from Boston enters and things get more complicated. Of course it's heartwarming to read about love emerging between two people, but even moreso to read about a bigger sort of love emerging within a community that found itself divided. I also appreciated that finances, so often left out of both fiction and non-fiction, were a front-and-center concern. How will AJ manage to keep the mortgage payments going when no one is coming to his store? How could his love interest possibly afford to leave her job in Boston and move to Block Island? Zevin tied everything up at the end with a slight twist that left me smiling. The second novel, Bring Me Back, by B.A. Paris, is a psychological thriller. It kept me guessing the. whole. time. The constant twists and turns reminded me of an old movie, "Death Trap," with Christopher Reeve. You're never sure who's the good guy, who's the bad guy, or perhaps they're both playing bad-guy cat and mouse with each other? What do you mean they're not dead after all? The appearance of creepy emails felt like a new tool for psychological suspense. This one had a resolution that was both surprising and satisfying. Life Improvement: (also known as "self-help") Two psychology books made the list this year: The Illustrated…

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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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Honey, Ain’t Money Funny? 4 Conversation Ideas

Honey, ain't money funny? Sometimes, not so much. As Valentine’s Day came and went, a couple struggled with questions about consumerism, the meaning behind gifts, and how money affected their relationship. Whether it was financial inequality, overspending, or miserliness (a la Scrooge), humor was hard to find at a time when they were surrounded by hearts-and-happiness messages. What can couples do to have a better relationship with money? Following are 4 ideas. As you try each one, it's a good idea to plan a special fun reward or celebration at the end. The more you practice at these, the easier the conversations will get. You may find your differences become predictable, manageable, and even laughable. Idea 1: Monthly Money Date For monthly money dates, quickies are best. These are for checking the dashboard indicators in your household finances. Agree to limit the conversations to about 15 minutes. Build in fun and humor by focusing on your progress, positive wins, and gratitude for what you've got so far. For big ideas and thorny issues, make a separate date to discuss those using one of the following 3 formats. Then move on to the "real" date part! A 2 1/2 minute video on 3-Part Money Dates can be found here: https://www.youtube.com/watch?v=7TWFKfF0vRQ. Idea 2: 48-Hour Relationship Conference No you don't have to talk about money for 2 days. What a buzzkill! Instead, in a Relationship Conference, each partner takes a turn being a pure listener to the other partner’s issues. Being the listener in a relationship conference means saying nothing while your partner talks. You can decide on the timeframe, but make it somewhere between 15 and 45 minutes. You can take notes. After the first partner shares, take a break from anything money-related for 24 to 48 hours. Allow thoughts and feelings to arise to reflect on what you heard. Then reverse roles. This is the first partner's turn to simply listen. Then wait again for whatever timeframe you decide - 24 to 48 hours. Finally, take turns to summarize what feelings and issues came up. Make sure you give space for listening to each partner's perspective, checking in to make sure you heard them well. Remember to have an activity planned in advance to celebrate your ability to tackle tough stuff. Idea 3: Take Turns Active Listening Another option is to take turns all in one setting being the active listener. Active listening means being fully present to your partner’s issues and emotions without bringing up your own responses or emotions. (Tip: This is really hard for most people who have never done it before.) You do this by repeating back what you heard, checking in to make sure you got it all ("Did I get it all?"), and asking to hear more about the emotions underlying each statement ("You said you felt excluded. Tell me more about that.") Once your partner agrees they feel completely heard and understood, then it's your turn. Again, remember to have something planned in advance…

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Holiday Spending Hangovers

Holiday spending hangovers: What do holiday overdrinking, overeating, and overspending have in common? We can get stuffed in over our heads before we know it, leading to regret later. The holidays can test our temptation to overcelebrate. While holiday alcohol- or food-induced hangovers are commonly discussed, spending hangovers can bring about equal regret. Thinking Ahead To avoid regret, it helps to think ahead. You might call it an "awareness strategy." What events are coming up that might bring about a temptation to overspend? Nowadays, that strategy might start in October. Halloween is now the second biggest holiday for consumer spending after Christmas. What used to be a couple hours of candy collection with a homemade costume and a paper grocery bag is now practically a national holiday. Multi day trunk-or-treating. Elaborate costumes. Yard decorations needing extensions upon extension cords. On November 1, where does all the Halloween stuff go? In the attic, the garage, the storage unit, or the garbage? And what about the candy? Halloween often leads to sugar, spending, and stuff hangovers. Next comes Thanksgiving, where we stuff ourselves with, literally, stuffing. Some then stuff our brains with football and TV. Some families stuff all the important conversations for the past year into a few hours at the table. The air is stuffed with emotions. And spending can often be a coping mechanism for difficult emotions. It seems all the Thanksgiving hangovers - food, football, TV, and feelings - start with stuffing. And finally if you celebrate it, Christmas, the king of holiday hangover potential. Must-have new decorations, the tallest tree, fancy food, family gatherings, parties, gotta-get gifts, candy, cake, and alcohol all stuffed into a few short weeks. Moderation choices might start out strong. But decision fatigue can quickly take over. Come January, depleted bank statements and depleted emotions can bring on the same headaches as too much cookies and eggnog. Thinking ahead to all of the opportunities to spend gives you a head start on avoiding regret later. Ask What is coming up where I will want or need to spend on a holiday? What does the spending event entail? What are alternative ways to achieve my goal for the spending event? Imagine it's January. When you look at your bank and/or credit card balances, what's a reasonable figure for you to be at then? Start with that as your goal. Release Self-Judgment Before launching into ways to criticize decisions before you have even made them, remember that it's ok to splurge. It just takes a little thinking ahead, strategy, self-care and balance. Deprivation generally doesn't work. Mindful Spending Strategies For some people, simply having a January bank balance goal is enough to help them stay focused throughout the season. Others need more concrete ideas. Here are a couple: Plan most or all of your shopping at one or two stores. Buy yourself a gift card for that store with the total amount you can spend that allows you to make your January goal. Ask for…

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Free Financial Mentoring: Savvy Ladies

Free financial mentoring from Savvy Ladies Savvy Ladies is a not-for-profit organization formed to provide free financial mentoring to women. How does it do this? An army of volunteers, to start. Any woman can sign up for a pro bono 1 hour mentoring consultation with a CERTIFIED FINANCIAL PLANNER™ on a wide variety of topics. Volunteers have also written blog posts and recorded webinars on specialized topics. All are available on the organization's website, https://www.savvyladies.org. What kind of topics? Cash flow, investing, divorce, widowhood, caregiving, budgeting, debt, college, careers and more. Who does Savvy Ladies serve? Any woman of any background who has a question about money. Founder Stacy Francis recognized that, as women, we are more often in-the-dark about money issues than men. Many women have no one to talk to about it. Savvy Ladies creates a safe place where those questions can be asked and answered. What is its goal? More self-reliant, financially educated women. In psychological terms, "financial self-efficacy." Having self-efficacy means feeling confident and resourceful enough to handle a problem or question. Note this does not mean having or knowing all the answers. It means having the confidence to know where you might find the answers, and that you will be successful. Who are the volunteers? The website features several of the many volunteer professionals. Recently as a volunteer I have spoken with women as far away as Colorado and as close as my home state of Florida. What's the catch? No catch. Volunteer professionals do not solicit for business. After the one hour consultation, the recipient fills out a survey asking how well their question was answered. The volunteer also fills out a survey asking how well they thought the consultation went. Importantly, Savvy Ladies has received the GuideStar Seal of Transparency. Not all charities are what they appear. For more information on checking up on charities, see: https://www.hollydonaldsonfinancialplanner.com/charities-and-giving/. Want to see more ladies get financially savvy? If so, here are a few ways you can help. Donate or Sponsor. Savvy Ladies relies on donations and sponsorships to keep the website, small staff, and operation running smoothly. Refer. Refer a woman you know to the free financial helpline for a consultation. Or, refer a financial professional you know to volunteer. Volunteer. If you are a financial professional, apply to be a Savvy Ladies volunteer. It's up to you how much time you spend. Of course, men are welcome, too!

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What Is Retired Husband Syndrome?

What is retired husband syndrome? I first heard of Retired Husband Syndrome (RHS) at a book signing in 2013. From across the book section in the exhibit hall, I saw a young man with jet black hair staring at the back of my newly-published book, The Mindful Money Mentality: How to Find Balance in Your Financial Future. He turned it over, opened to the table of contents, flipped a few pages, and turned it over again. Until that point, he acted like other book-browsers – look at back, flip to front, open to table of contents, flip to back, flip again. Some would then take the book to the register. Others set it back on the shelf. The whole decision took less than 2 minutes. But this young man took so long reading, I wondered if he might consume the whole book right there. Then I quit watching, distracted by conversation with another attendee. When I turned back to look for him, he was gone. Figuring he had decided against it, I was surprised a couple of hours later to see he was the first in line at the book signing. Retired Husband Syndrome – in South Korea Approaching with an enthusiastic smile, he said “Hello” in a heavy Asian accent. He was from Seoul, South Korea, and said that he thought my book would be helpful to his male clients. Unsure why he was excluding the female ones, I readied my pen to sign, but asked him to tell me more. “In Asia, we have Retired Husband Syndrome (RHS),” he said. “I’ve never heard of that. What is it?” I asked, putting the pen down. “Some husbands spend their whole lives working for a company, and when they retire, they are at home, and it is not good for the marriage. The husband loses his identity because he is not in his job anymore, and he wants to be home with his wife. The wife has been at home her whole life, but she doesn’t like the husband being there, doing nothing.” “So sometimes the retired husbands do…nothing? They don’t have hobbies or hang out with their friends?” “Yes, that’s right.” “Wow. So you must see a lot of marriage problems in your practice?” “Yes! And it is too bad. They have a pension, but the couples never spend time planning what they will do.” He explained more about the strain on the marriage; the sadness he sees at a time when there could be great joy and celebration; and the effect on their children and the families. "This makes me sad. Sometimes I am going to be the only person outside of the family who might see it. All of the financial advisors in Seoul could help people with this. This is preventable.” Retirement Planning Is About More Than Money I once heard a conference speaker say, “We spend more time planning what we’re going to eat for lunch than how we will spend a 30-year period of…

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