September 22, 2019

Bucks: The Struggle to Define What We Truly Need

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site,

There seems to be a constant battle between what we have, what we need and what we think we want.

About a year after my wife and I had our first child, we moved into a neighborhood with homes built decades earlier. Each had two or three bedrooms. We soon noticed that when people had a third or fourth child they moved from the neighborhood in search of more space. One day I mentioned this to my next-door neighbor, who was 70 at the time, and he expressed surprise.

He and his wife had raised their five kids in one of the smallest homes on the block.

One of the most challenging personal finance issues we all face is the ever-expanding definition of “need.” Things we once considered clear luxuries have somehow becomes necessities, often without any consideration of how the change in status happened.

Cars that seemed just fine now seem old fashioned. Then there are children and their cellphones. Only a few years ago it would’ve seemed outlandish for 14-year-olds to need one at all, let alone the latest iPhone.

Achieving clarity about the difference between our needs and wants remains one of the biggest challenges in personal finance and a tremendous source of potential conflict within families. While simple in theory, the calculation is much more complex in practice.

One of the most discouraging parts of modern life seems to be this never-ending sense that we should want more. While this may not be true for everyone, it does seem like it’s become more difficult to be content with what we have. Whether it’s the media, our friends or even our family, it can be a challenge to separate real needs from wants. So here are a few of things to think about:

  • What if financial happiness is not about getting more but about wanting less?
  • What if things start out as wants and become needs not because the thing itself has changed but because our feelings about it have changed?
  • What if you can never really get enough of something that you don’t need?

From personal experience, I know that the shiny new toy I just had to have often ends up in a pile of things that I eventually need to sell on eBay. I’m not the only one that’s fighting this battle. It’s yet another example of why personal finance can be so complex. Because there’s no definitive list of the 100 things that every family must have, these end up being very personal decisions

I’ve talked about some of the ways I’ve seen people look for balance between wants and needs. They include things like sleeping on a decision overnight. My personal rule is that before I buy a book, it has to sit in my Amazon shopping cart for five days.

What have you done to help better define the difference between a want and need? And how have you focused more on being content with what you have instead of always striving for what you think you want?

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Bucks: To the People Who Haven’t Saved Anything Yet

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site,

We often hear about the importance of starting to save early. Usually the examples are focused on saving whatever you can when you’re in your 20s to take advantage of the power of compound interest.

But what if you were too busy trying to pay a student loan and other bills in your 20s, or like many of us, had to use all the savings you built up to get through the last few years? Now you find yourself closing in on 40 and feeling like you missed the boat.

I’ve thought about this problem ever since I read about the recent study that found that nearly half of Americans wouldn’t be able to come up with $2,000 in 30 days if they needed it. This reality hits home every time I have a conversation with people 35 to 45 who feel so far behind the savings game that they aren’t sure what to do.

For that group the advice is no longer start early, but simply start now. The only thing that matters at this point is that the longer you wait, the more painful it will be. Compound interest can still work, but not until you start saving.

When we get behind on our savings goals, we start to feel more pressure to make up for lost time. That pressure can often lead to spending hours looking for that home-run investment. It’s a bit like a gambler doubling down to dig out of a hole.

I’ve also noticed that as we get “smarter” we start to overthink things and ignore the simple advice about spending less than you earn, saving for a rainy day and avoiding larger losses. The basics seem like kids’ stuff. So we spend hours talking about saving and investing, but we never get started.

If you’ve found yourself in a financial situation that was less flush than what you planned, it’s time to make some changes. Here are few ideas to help you get started:

Review: Don’t spend too much time dwelling on the past, but it can be really helpful to take a step back and look for patterns that have been harmful. This has to be done in a “no shame, no blame” sort of way. Give yourself permission to use the past as a springboard, not a bully club.

Give up on finding the home-run investment: Maybe it’s un-American, but finding the next Apple is highly unlikely no matter how hard you work at it. Not impossible, just highly improbable. So instead just start saving! Certificates of deposit are fine. Broadly diversified mutual funds work as well. The point is to start.

Make a plan: It‘s eye opening to put a number on all your financial goals. Have you looked at how much it will cost to put a child through college, for example? Any good plan will start with a clear understanding of where you are today and end with a where you want to go. Now you need to calculate the cost of getting there.

Remember that your plan is worthless unless you make the ongoing course corrections required when you’re either off course or the destination changes. Plans are full of guesses, but when done correctly, the ongoing process of planning can provide the context for you to make decisions in the future. It’s a lot easier to say no to the new car, if you are saying yes to a more important goal.

Maybe you have other ideas, but the point is to stop beating yourself up over what you didn’t do in your 20s and start focusing on making today count.

So what have you done to get over the hump and make a plan for your future?

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Bucks: Why You Avoid Your Most Important Financial Task

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site,

I’m not sure how it happened, but budgeting became a topic (along with life insurance) that people will do almost anything to avoid talking about.

I’ve had my own issues with budgeting, viewing it as something people do when they are overly focused on money or for people who have a difficult time being disciplined. For me, being put on a budget felt like a punishment, comparable to being grounded when I was little. So budgeting always seemed to land way down on my list of financial priorities.

But I was wrong.

I recently spent time with J.J. Sessions, a really good financial planner in Maple Grove, Minn., who changed my perspective on this issue. During our conversations, I asked him what excited him most about his work. For him, it’s having a massive impact on the cash flow of his clients, regardless of their income or net worth. He pointed out that managing cash flow (budgeting) is the key to his clients’ goals (and mine, too).

Financial goals get funded with dollars. Dollars tend to slip through our hands unless we have a system for plugging those holes. We can only plug those holes if we know they exist. So managing cash flow is not something that gets in the way of reaching financial goals; it’s the key to reaching them.

Successful companies understand that managing their cash flow is key. It’s not really any different for individuals. And no matter how stable your financial situation, I doubt there’s ever a time that it’s no longer helpful to manage cash flow.

So why does budgeting get pushed to the bottom of our financial priorities?

  • Budgeting requires being disciplined by setting and tracking spending goals. But being disciplined is hard, and we tend to avoid hard things.
  • Budgeting is not complex. Remember how we say that we want the simple, but still choose the complex? But it is not easy, so we keep looking for other solutions that only appear to be easier.
  • Budgeting is revealing. We talked about this last week. When we start to examine how we spend our money, we learn things about ourselves, and sometimes those things surprise us. Why did we buy that new television instead of adding money to our children’s college fund? Why did we take the trip when we knew it would take months to pay off the credit card bills? When we set a budget we have to take questions like these into account.

If you’re wondering how to get started, there’s been plenty written about ways to make budgeting easier, but here are a few of the ideas that Mr. Sessions shared with me:

Automate your fixed expenses

Automate your long-term savings goals

Track and review your discretionary spending

In the end, I’ve learned that while cash flow management might be hard no matter how much I do to make it easier, the outcome is worth it. The key to accomplishing the goals I really care about (and the goals you really care about) is to spend the time and make the effort to create a real budget. The hard work will be worth it in the end.

If you’ve had success creating and sticking to a budget, what’s worked for you? And what benefits have you experienced from committing to a budget?

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Bucks: Why Most Investors Don’t Measure Returns Correctly

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site,

At least four things make up what I like to call our personal human capital: money, time, skill and energy. But when it comes to investing, we almost always focus on money and ignore the other three.

Last week I saw what can happen when I don’t allocate my own human capital wisely.

I had been spending a lot of time on Twitter, where I was having great conversations that were very helpful for my work. It represented an investment of time that had indeed paid off.

But when I caught myself interrupting a conversation with my 9-year-old son to check if someone had responded to my Twitter message about Wal-Mart, I was reminded that all investments represent a tradeoff. And in this case, the cost of using Twitter to advance my work was clearly too great for me personally.

There’s an old saying that you should take a look at your checkbook and your calendar to see what you really value as opposed to what you say you value, because the calendar and the checkbook never lie.

Dollars and cents are easy to count in the checkbook. Happiness, on the other hand, isn’t a line item in the ledger. It’s much more difficult to say we’re happier today than yesterday because we coached our children’s sports team instead of staying at the office an extra hour. But what about 10 years from now when our children talk about that great summer when you coached their team? Will we regret that lost hour at the office?

It may help to think of life in units—units of time, units of energy and so on. Each day, you take some of your units and exchange them for units of money. You then take those units of money and spend them on something. But every time you exchange a unit, there’s a tradeoff, and we often fail to look past the immediate return to the potential long-term consequences.

Going back to my Twitter dilemma, I still really like using it and believe it’s valuable. But every time I spend time on Twitter, it means I can’t invest those units, my human capital, somewhere else. So I find myself asking much more often, “What do I value more? A random discussion with a stranger or a conversation about the sunset with my 9 year old?”

You can substitute anything for my Twitter example. But the point remains that when it comes to our human capital, we’re not very good at judging the value of the tradeoff or even considering it in the first place.

Last week, on Harvard Business Review’s Web site, Umair Haque pointed out that “The ‘best’ investment you can make isn’t gold. It’s the people you love, the dreams you have, and living a life that matters.”

We live in a world where some ugly things can happen, but amazing things can happen, too. And it’s usually because of people investing something other than money. When tornadoes hit the country earlier this year, the stories that stood out were neighbors helping neighbors.

I didn’t hear one story of a stock portfolio digging someone out of a destroyed house.

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Bucks: How Rising Stock Prices Can Fool You

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site,

Missed in the heated debate last week over my post about gold was a narrow but crucial point: As the market value of an asset class increases, so does the risk.

While this may not apply to specific, individual stocks in all cases, it certainly applies to the market as a whole. I know this might appear obvious, but we don’t always act as if it is.

Think about this for a minute: Was the SP 500 more risky on March 6, 2009, when it was under 700, or is it more risky today, with the index over 1,300?

Now I realize, for example, that small-cap stocks are more risky than large-cap stocks. But when you consider small-cap stocks as an asset class individually, as the market value goes up, the risk of investing in that particular asset class increases.

The same thing applies to commodities, like gold. You’d be hard-pressed to convince a rational person that gold at $1,500 per ounce is less risky than gold at $500 per ounce.

It’s also fair to say that if we measure risk based on how we feel, almost all of us felt like the market was far more risky in early 2009 than we do today. As prices go up, the news seems better, people start to feel more comfortable and we equate that feeling of comfort with less risk. But that makes no sense when we think about it rationally, which is why investing based on our initial gut feelings can be so dangerous.

No one wanted to touch stocks in early 2009. There was no appetite for initial public offerings. Now money is flowing back into the equity markets and we’re all clamoring for shares of LinkedIn. And this, after a historic 100 percent plus rise in stock prices in a little over two years!

Please don’t misunderstand me. I’m not saying that the stock market is going to crash. I’m not saying that social media stocks represent a bubble (though others are suggesting it). I am trying to point out that as the market value of an asset increases, so the does the risk, and that it makes sense to at least think about that as you make important decisions about what you’re going to do with your life savings.

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