Maybe I'm the only dinosaur left, but I remember when my paycheck was delivered to me in person. I then had to make sure to get it to the bank before it closed, all the while worrying about whether I would forget it, lose it, or get stuck in a meeting. Most other income came in the same form, with the same hassles.
Saving or investing was no better. Your broker called and recommended an investment. You had to research it and make a decision, then try to call him back and execute the order. Then, just to get the money to the brokerage or bank meant a trip or a search for addresses and stamps, and paperwork to fill out.
Spending, same story. Trips to the bank for cash. Gathering the bills and finding addresses, envelopes and stamps. Probably a trip to the post office. I used to spend a few hours a couple of times a month just to make sure the bills got paid, meanwhile enriching the post office and taking my money out of investments early to make sure the money was available.
Thank goodness the good old days are gone. These days, payments are automatically deposited, on time, no hassles, no paperwork. Buying a stock or mutual fund is just a few clicks away on line, any time of day at my convenience. Got a little extra cash? Compare on-line banks for the highest rate and move money to the best place effortlessly. And most the investing is even easier...deducted from my pay and automatically invested or reinvested in accordance with my allocation. No research, no decisions, no real need for any effort once it has been set up.
Spending? Even easier. I haven't been to the bank or post office in months. I put everything on my credit card, from the electric bill to the quick lunch, from the airline flight to the magazine subscription. Then, once a month I download the bill, take a glance and pay all the charges with a few clicks of the mouse, perhaps from my hotel room on my way to the mountains. On the rare occasion that I have to pay cash or send/deliver a check I first get agitated, then take the opportunity to remember how much improved things are today.
For such service, you'd expect to pay a fortune, right? Not so. Payers and collectors alike are glad to avoid the postal expense and paperwork. You can keep your money invested for a month or more, and they'll pay you between 1-5% of your expenses for the privilege, plus often a bonus when you sign up. Unsafe, you say? If you have incorrect charges (which hasn't happened to me in several years), you just dispute the charges and don't need to pay unless the charges turn out to be justified.
I'm led to believe there are still dinosaurs out there who make regular trips to the bank and post office. Who generally pay by cash or check, in person or by mail. You probably refuse to use the cruise control on your car too, right? If that is you, I invite you, step on in to the 21st century, where the living is easy. Put your finances on cruise control. It's cheaper, it's easier, it's more profitable. If you don't believe that last one, check out my post on dollar cost averaging on steroids.
Subscribe to:
Post Comments (Atom)
2 comments:
Hello Max,
I enjoy your blog, I only came upon it in June. After reading all your past posts, It is clear your a person of great personal discipline. This post and others about using credit cards for all expenses rings true to my analytical side. However being 20+ years behind you in the wealth building journey and technically savvy. The wake up call my family received several years ago regarding truly building wealth led us to "live below our means", how we did this was using cash. It was a hard adjustment at first, but combined with a budget, the using of cold hard cash has helped us create personal discipline. There are studies out there that infer that people spend 12%-18% more when using credit verses cash. Maybe after a 5-10 years of proving we can maintain this level of personal discipline we can "USE the credit card companies" as you can.
Sorry for rambling, I'm glad you mentioned your "Dollar Cost Averaging on Steroids", I really wanted to ask a couple of questions about it, but I was uncertain you tracked post that far back.
Preface:
This is referring to ROTH IRA accounts for Man/Wife filing Jointly, maxing out the 8k this year and the 10k next year, and the balance going to a traditional 401(k) for a goal of 15% gross retirement savings, maximizing company match but not including it or supplemental retirement contributions in the 15% calculations.
1) I have been tracking this 4 different ways in my brokerage account. It seem (only after a couple of months) that this only better while preserving wealth while drawing it down (cash withdrawals for living expenses). The historical monthly averages relative to the amount I can inject per month (333.33 this year, 416.16 next year)/per account are so small I can't cover large drops or sell on strength for fear of short holding transaction fees.
2) Would this work better for someone not in retirement if used quarterly? This would avoid the less than 90 day holding fees if a sell was warranted and increase the available cash for adjustments.
3) I was to young to learn from the '87 crash or 17% interest under President Carter, but I just can't believe I need to put money in Bonds right now, It feels like I'm throwing money out the window.
Thanks for your time,
Carl
Bill/Carl,
Thanks for your comments. You are right that I don't do a good job of keeping up with comments on older posts. In fact, I just now noticed this comment. Sorry for the delay in replying.
You make a good point that my ideas are largely built on an assumption of personal discipline. If that is an issue, using cash or other methods makes sense to eliminate the temptation to overspend.
As for Dollar Cost Averaging, I admit that I am lucky to have no short holding fees on the index funds I use except for international funds, which are only 30 days. For your situation, rebalancing quarterly should work about as well while avoiding fees.
I have not started withdrawing yet (due to other sources of cash), so my experience is primarily with the accumulation phase, but you are right that the system really starts to blossom when you have a fairly large accumulation. When I do start withdrawing, I plan to reduce the expected return within the spreadsheet so that it generates more cash, which I can use for living expenses. I believe this will continue the benefits of cost averaging rather than expose myself to the negatives of reverse cost averaging that would otherwise apply.
As for bonds, I understand and agree with your concerns. I'm on record that I don't think bonds are a good investment right now and that I keep a lower allocation to bonds than normally recommended for someone my age. At the same time, bonds often are negatively correlated to stocks and are therefore a good tool for increasing the benefits of rebalancing. Bonds often outperform stocks on a monthly basis and even for periods of several years. As a result, I recommend some bonds so that you can take advantage of these benefits. I justify a reduced holding in bonds by the fact that my system often has you in significant cash (MMF) when markets are high, accomplishing some of the same goals as bonds.
Post a Comment