Financial Rules For A Simpler, Happier Life

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The Wall Street Journal shut down its Sunday edition with a couple very good financial lifestyle articles, one from Jonathan Clements and the other from Brett Arends. A lot of what is there are ideas we have covered here many times before and I am sure they have covered them many times before but they are worth repeating because they are important.

I had a conversation with a client the other day that was focused almost solely on financial lifestyle as opposed to anything to do with the market and that is very common type of conversation for an advisor to have and this makes sense. Having money for your goal (usually retirement) is far more important than your investment results in some random month, quarter or even year.

Highlights from Clements list included being humble, living in cheap housing and eliminating your commute. Being humble relates to accepting the low probability of beating the market. Over time there will be periods where you beat the market and periods where you don’t. What is important is sticking to a strategy that you can live with, gives you a decent chance of reaching your goal (provided you save adequately) and then avoid doing self-destructive things like selling after a large decline.

Living in cheap housing is obviously living below your means. It can’t be stated often enough the extent to which this sort of flexibility can spare you heartache and stress in the face of some form of financial adversity. Kind of related, Clements says to not work just for a paycheck. He makes two points with this one but I would tie it in to living below your means. He talks about maybe wanting a different career that happens to be lower paying and having the flexibility to make the change could spare heartache and stress. I have addressed this before by saying you don’t know what the future you will want to do.

Doing away with your commute would be great, I did it quite a while back but there is a big element of luck and planning to make it happen. It took me about eight years and there were several events that occurred, not all of them god but still lucky.

Arends’ list is longer and I don’t agree with all of it. He says to invest globally to get better diversification. This is exactly right but difficult to hold on to after several years of domestic outperformance but neither domestic nor foreign can always outperform  so holding both will smooth out the ride.

He says to save early and often. Your financial plan’s success or failure will likely be driven more from how much you save than your investment results unless you habitually panic sell after large declines. In that case your investment returns will matter more. Also having a higher savings rate will allow you to better weather anything expected that might come along and over the course of a lifetime there will be at least one or two things you don’t expect.

He says to “value your money” and frankly I am not sure what he is trying to convey with this one so I will tweak it to say respect what it took to accumulate your money. What ever you have saved right now is the sum of your lifetime’s saving and investing. It is a legacy to yourself. If it took you 30 years to accumulate X, don’t let half of it ride on a lottery ticket biotech stock in year 31.

You know all those articles that say people have more stress about money than anything else in their life? Well maybe it makes sense to seek out ways to eliminate or at the very least reduce the stress that financial issues cause. If a $3000 emergency comes up it would be nice to not have it turn into a financial catastrophe.

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