The last word on money. Your money
YOUR TWO CENTS: (Psst!) Dealing with money isn't as complicated as you think. MEG RICHARDS has the last word on your personal finances.
Associated Press writer Meg Richards. (AP Photo/Stephan Savoia)
Mystified by money? How to get it, keep it, make it grow?
It's no surprise if you are -- an entire industry stands to profit from your confusion. A gaggle of broker-planner-manager-adviser-gurus is delighted to sell you their newsletters, books, funds, formulas, securities and services. The glut of financial reading and viewing material may not make things any clearer, either.
On top of everything else, the sheer proliferation of financial products -- stocks, bonds, mutual funds, exchange-traded funds, annuities, IRAs, 401(k)s, 529s, etc. -- can exasperate you to the point of paralysis. Don't feel bad about this. Marketers will tell you otherwise, but academic studies ( http://www.columbia.edu/ 7/8ss957/whenchoiceabstract.htm ) consistently have found that an abundance of choices doesn't necessarily give us more freedom, and can actually lead to frustration and indecision.
Getting your money life on track is hard because it's easy to get distracted. The certain satisfactions of today will always be more seductive than the uncertain rewards of saving for the future. A new car is way more fun than a bigger contribution to your 401(k). Furthermore, it's a tangible symbol of your success and prosperity. Short of announcing it on a stylish T-shirt ( http://www.cafepress.com/pdrebel/2649270 ), nobody but you will know you're contributing the max to your retirement account.
If you're the kind of person who likes to have a to-do list, Dilbert creator Scott Adams' nine-step investment plan is a great place to start ( http://dilbertblog.typepad.com/the_dilbert_blog/2007/03/happiness_formu.html ). If you're a typical red-blooded credit-card wielding American, however, you might get hung up on step two, "Pay off your credit cards." Unless you have a plan for staying out of debt and are willing to take the requisite ding to your lifestyle, you'll never make it through the rest of the list.
The formula for getting rich -- spend less, save more -- is a lot like the one for losing weight. Every heavy person knows they should eat less and exercise more. That doesn't make it easy to do.
Some people spend too much. Some people save too much. Some people are obsessed with their investments while others ignore them completely. What's missing in our zeal to tackle, or avoid, this problem is balance, said Eric Tyson, whose latest book, "Let's Get Real About Money," hits stores this month.
"Balance is important, and it's not easy for people to achieve," Tyson said. Further complicating matters, he added, "most of the purveyors of financial products and services don't want you to understand everything because they're trying to sell things to you. The whole financial planning industry is structured around extracting fees from people."
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Don't get taken. Get savvy. Four tips for finally getting a grip:
1. INVEST IN LOW-COST INDEX FUNDS
Open discount brokerage account. Select broad-market index fund. Invest. Repeat, repeat, repeat.
You could spend hours poring over stock reports and studying the performance of actively managed funds, watch the market like a hawk and spend a lot more in trading costs. Or you could make automatic contributions to an index fund on a regular basis and never think about your investments again.
The most important thing you can for yourself when it comes to money is to keep it simple. Investing in no-load index funds gives you broad market exposure at bargain-basement prices. No-load fund shops like Vanguard, Fidelity and T. Rowe Price make it easy and cheap.
2. KNOW WHAT MOTIVATES THE PEOPLE WHO ADVISE YOU
If you hire someone to help you buy investments, insurance or anything else, find out up front exactly how they will be compensated. The financial services industry is a sales business, and most people work on commission. Obviously this has an impact on which products they'll steer you toward.
You can avoid this by working with a fee-only financial planner, preferably one whose bill isn't based on a percentage of your assets. A growing number of planners charge by the hour, including those with the Garrett Planning Network. http://www.garrettplanningnetwork.com
If you do hire a planner, do your homework before your meeting. It will help you evaluate their advice and could save you money. If you are paying someone by the hour, you don't want them to spend precious minutes filling you in on basic stuff you could have learned on your own for free.
"When you consider the decades of your life you'll spend earning money, it's worth investing the time to figure this stuff out," Tyson said. "You need a foundation of knowledge. And then you can start to sift through what's out there.
3. CONSIDER THE ONES YOU LOVE
Nobody plans to die young. And the alternative -- growing really, really old -- isn't something we like to think about either. But unless you've made some deal with an unearthly power, you're going to die. Be considerate of the people you'll leave behind and prepare a will. And if you've got a family who depends on your income, buy term life insurance. But be warned: This is an area where it pays to be a smart shopper.
"The life insurance industry is one of the most screwed up aspects of the personal finance business," Tyson said. "Agents don't make much money selling term policies. It's not worth their time."
4. THINK HARD ABOUT WHAT YOU NEED AND WHY
Shopping is fun and accumulating things is easy, but having a ton of stuff probably won't make you feel happy or rich. If a clutter-strewn garage or packed-to-the-ceiling closet is stressing you out, bringing more things home is not the answer.
Question yourself before you acquire new things, and figure out what void you're trying to fill. If you are surrounded by stuff even though you are in debt, haven't started saving for retirement and don't have an emergency fund, it's time to get real. You deserve it.
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asap columnist Meg Richards is an AP business writer based in Washington, D.C.
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