Hello from Portugal!
Last Thursday, I returned to Europe for the fourth time in the past ten months. This time, I'm here for work. I'm speaking at yet-another chautauqua about financial independence and early retirement. As always, it's fascinating -- and the people attending the event are amazing.
For this trip, I decided to experiment with ultra-light packing. I am not a minimalist, but I like minimalist travel. I wanted to see if I could carry everything I needed for 20 days of travel in a single small backpack.
When I discuss American spending habits, I try to cite specific numbers. Sometimes people write to ask where I get my info. Simple. Whenever I cite figures about American earning, saving, and spending, I get them from the U.S. government. In particular, I use the Consumer Expenditure Survey (or CEX) from the U.S. Bureau of Labor Statistics.
Here's how the BLS website describes the Consumer Expenditure Survey:
The Consumer Expenditure Survey program consists of two surveys, the Quarterly Interview Survey and the Diary Survey, that provide information on the buying habits of American consumers, including data on their expenditures, income, and consumer unit (families and single consumers) characteristics. The survey data are collected for the Bureau of Labor Statistics by the U.S. Census Bureau. The CEX is important because it is the only Federal survey to provide information on the complete range of consumers' expenditures and incomes, as well as the characteristics of those consumers.
The Consumer Expenditure Survey is the only reliable source I've found about actual spending habits. Most similar projects have much smaller sample sizes and/or provide theoretical numbers. The CEX is a great way to develop a descriptive budget (one that deals with real behavior) instead of a prescriptive budget (one that pushes an agenda).
Naturally, the CEX has its drawbacks. As always, averages (and medians) only provide a limited view of a dataset. Plus, what might be true for an entire population (a country, in this case), probably isn't true for a small subsection (your state or city, for instance). Still, for looking at the Big Picture, nothing I've found beats the Consumer Expenditure Survey.
Because I'm a money nerd, I get very excited when the new Consumer Expenditure Survey numbers are released each year. And guess what! The 2018 data was released two weeks ago. I spent some time yesterday sitting in the hot tub and geeking out over U.S. spending stats on my iPad. Then I updated my personal CEX spreadsheet. (What? You don't have one of your own?)
Let's take a closer look at the Consumer Expenditure Survey -- and what we can learn from it.
Hello, friends! I have four money articles in progress, plus I'm editing several guest posts for future publication. But today I want to give a brief update on my mental health. My depression and anxiety have been tough this year but it feels like I've turned a corner, and I want to share what's helped.
Each week when I go to therapy, I complete a survey regarding my recent mood and attitude. It's about what you'd expect. There's a list of maybe a dozen statements, and for each I fill in a bubble indicating how strongly I agree (or disagree) based on my experience during the previous seven days.
From memory, sample statements include:
- I feel nervous and/or my heart races.
- I feel anxious in social situations.
- I have friends and family I can ask for support.
- I have trouble finding motivation to get things done.
- I'm able to complete everything I want to do.
- And so on.
At my first therapy session in April, my score on this assessment was awful. I felt anxious all of the time. I was having trouble with increased heart rates. (Thanks, Apple Watch, for constantly flagging that.) And by far my biggest problem was getting done everything I wanted to get done. I wasn't doing anything. I was too deep in my anxiety and depression.
Last week, I visited my therapist for the first time in a month. As always, I completed the mental health inventory before our appointment started.
"Whoa!" my counselor said when she saw the results. She pulled up my past scores on her computer. "This is the best you've been since we started working together. You marked that everything's fine except for your ability to get work done. That's great. What happened?"
"What happened is that I got out of my routine," I said. "I've been on vacation. Plus, I've been doing a lot of the things you and I have talked about. They've helped. Right now, the reason I can't get done everything I want to do has nothing to do with depression and anxiety. It's just that I have so much on my plate that I can't figure out how to prioritize it!"
During our time together, my therapist and I have explored a variety of steps I can take to improve my mental health. When I actually implement these things, life is great. (I have a tendency to talk about making changes without actually doing so. This was especially true early on.)
Here are three changes that have helped me cope with my depression and anxiety.
Note: I've added a short addendum to this piece in an attempt to clarify some things. This may or may not have helped.
Earlier this week at The Washington Post, Helaine Olen wrote that the world of personal finance needs more politics.
Olen specifically calls out FinCon, the financial media conference I attended last week. I love FinCon. She doesn't. She's disappointed that so many members of our community emphasize personal action and responsibility instead of directing our efforts toward changing the systemic and societal issues that make it difficult for some people to succeed.
Spending a few days at FinCon 2019 shows the limits of the nonpolitical approach to improving your financial life...Over and over again, the systemic problems facing Americans are simply accepted as a given and unfixable, and tossed back onto the individual for him or her to solve.
Rarely mentioned are the political system’s many contributions to common economic troubles.
Olen is concerned that there are larger societal and systemic issues that hold some people back and prevent them from achieving financial success. I agree.
I disagree, however, that FinCon is the place to address these issues. And I disagree that we, the financial media, should turn our attention from the personal to the political.
Personal finance is personal. It's right there on the label.
After twenty-four days on the road, I'm back home in Portland. It feels good.
In mid-August, Kim and I flew to Italy. For the first week, we visited Florence and Rome on our own. We rode trains, drank wine, toured museums, ate gelato, and explored ancient Roman ruins. We also got sunburned. And we sweated from dawn to dusk.
When I was a boy, we lived in the country. That is, we lived five miles from the nearest town (Canby) and 25 miles from the nearest city (Portland). We were surrounded by farmland. Life was quiet. Pastoral. Bucolic.
The road we lived on was especially quiet, with very little traffic. Even from a young age -- five or six, I think -- I was allowed to walk the quarter-mile to visit my grandparents. (My father's parents lived "next door" to us, but next door was across a large field.)
Visiting grandma and grandpa was fun. As quiet as life in the country was, life at their house was even quieter. There was a stillness in their place unlike anything I've experienced since. Their home seemed stuck in time.
Part of this stuckness stemmed from the things they owned.
They lived in a little white farmhouse built in 1920. My grandparents moved there in 1943 -- two years before my father was born -- then remodeled the place. Sort of. (Like all Roths, they left the job undone — for more than forty years!)
During the 1970s, when I was young, they still owned and used many of the things they'd purchased when they moved in.
- They still had a big, white Kelvinator refrigerator, for instance, with a moving door handle and hardly any space inside. They called it the "icebox".
- They listened to hymns (sometimes) and radio sermons (daily) on an imposing wooden console "hi-fi" system as big as a couch.
- They owned a long pink-ish, purple-ish "davenport" with scratchy, well-worn fabric on which grandpa would nap every afternoon after "dinner" (which was lunch).
- They used a black bakelite rotary telephone on a party line.
My grandparents themselves were very much like the things they owned. They were old. (They were in their seventies when I knew them.) They were calm. They moved slowly during the day, and even more slowly at night. One of my fondest memories is sitting with them in the evening, watching as they sipped "sanka" and played Scrabble while a fire roared in the nearby woodstove.
For children, time always moves more slowly, but it seemed to me that nothing every changed in my grandparents' world. Their home was frozen in time. It was stuck. It was still. It was silent.
It was comforting, and I liked it.
While reading an obscure book about retiring early to a life at sea -- Voyaging on a Small Income by Annie Hill (1993) -- I discovered a short story from a man named Joseph Weston-Martyr.
First published in 1932, The £200 Millionaire reads like "Mr. Money Mustache at Sea". It's fascinating. Because today I start a ten-day Mediterranean cruise, I thought it'd be fun to share this story at Get Rich Slowly.
This is a long story. It contains 8001 words, which is 32 printed pages. I've formatted it for web-based reading (I don't think you want to read a 500-word paragraph on your phone!), plus added images and hyperlinks. Please enjoy it as weekend reading!
Some images are obviously meant to illustrate the text. Others are from Michelle at Making Sense of Cents, who graciously agreed to let me use her photos here. She's been living on a sailboat since May 2018.
The £200 Millionaire
My wife and I were sailing a hireling yacht through the waterways of Zeeland last summer, when one day a westerly gale drove us into the harbour of Dintelsas for shelter.
It was blowing hard, and the little yacht ran down the harbour at speed, but when abreast of us she luffed head to wind, her violently flapping sails were lowered with a run, and she brought up alongside us so gently that she would not have crushed an egg.
We took her lines and made them fast, while her owner hung cork fenders over the side and proceeded to stow his sails. Urged by a look from my wife which said, "He is old and all alone. Help him," I offered to lend the lone mariner a hand. But he refused to be helped.
Said he, "Thank you, but please don't trouble. I like to do everything myself; it's part of the fun. But do come aboard if you will, and look round. You'll see there's nothing here that one man can't tackle easily."
We went aboard and found the green sloop to be one of the cleverest little ships imaginable.
Aboard the Green Sloop
It is difficult to describe her gear on deck and aloft without being technical; suffice it to say, therefore, that everything was very efficient and simple, and so designed that all sail could be set or lowered by the man at the helm without leaving the cockpit.
The boat was 30 feet long by 9 feet wide, and my short wife, at any rate, could stand upright in her cabin.
Her fore end was a storeroom, full of convenient lockers, shelves and a small but adequate water-closet. Abaft this came the cabin, an apartment 12 feet long, with a broad bunk along one side of it and a comfortable settee along the other. A table with hinged flaps stood in the middle, while in the four corners were a wardrobe, a desk, a pantry and a galley.
Abaft all this was a motor, hidden beneath the cockpit floor. A clock ticked on one bulkhead, a rack full of books ran along the other, a tray of pipes lay on the table, and a copper kettle sang softly to itself on the little stove.
"What do you think of her?" said our host, descending the companion.
"Before you tell me, though, I must warn you I'm very house-proud. I've owned this boat for ten years, and I've been doing little things to her all the time. Improving her, I call it. It's great fun.
"For instance, I made this matchbox-holder for the galley last week. It sounds a trivial thing; but I wish I'd thought of it ten years ago, because during all that time I've had to use both hands whenever I struck a match.
"Now I have only to use one hand, and you know all that implies in a small boat, especially if she's dancing about and you're trying to hold on and cook and light the Primus at one and the same moment. Then there was the fun of carving the holder out of a bit of wood I picked up, to say nothing of the pleasure it gives me to look at a useful thing I've made with my own hands. The carving brought out the grain of the wood nicely, don't you think?
"Now I'm going to make tea, and you must stay and have some with me."
Commenting on a recent article, Carmine Red asked an excellent question:
How do you evaluate the financial advice you get from other sources? Specifically, how do you decide if some piece of advice is for you, or if you should discard some adjacent advice. Is there an amount of pick-and-choose?
GRS definitely doesn’t seem like a dogmatic 100% one-way-of-doing things site, so I’d love to hear about the critical thinking you employ, and that I’m sure we can all use a little of since we’re getting bombarded by financial “do this!” or “don’t do this” instructions from so many different dimensions.
Carmine is right: GRS is not dogmatic. From the start, my top admonition has been "do what works for you". By this I mean that you should test financial advice to see if it works for you and your situation. There's little (if any) advice that applies to 100% of people in 100% of cases. Life is messy. Money is messy.
So, how can you decide whom to trust? How can you evaluate a piece of financial advice to decide whether it has merit? And if the financial advice does have merit, how can you tell if it's right for yor life?
Today, let's take a deep dive into this question. Let's explore how to evaluate all of the financial advice you get -- from the internet, from television, and in real life.
How to Evaluate Financial Advice
Before I answer Carmine's question directly, I want to approach it obliquely. If you find this section boring, please skip to the next one. I won't hold it against you!
In 1940, Mortimer J. Adler published How to Read a Book, which contained 400 pages of advice on doing something that most people would argue needs no instruction. In 1967, he revised the book and turned it into a little masterpiece.
In the revised edition, Adler argues that there are four levels of reading:
- Elementary Reading. At this basic level, the reader is able to answer the question, "What does the sentence say?" But reading at this stage is a mechanical act.
- Inspectional Reading. At this level, a reader's aim is to get the most from a book (or article) in a minimum of time. "Inspectional reading is the art of skimming systematically," Adler writes. Your aim is to get a surface understanding of the book, to answer the question, "What is this book about?"
- Analytical Reading. At this level, you're doing the best, most complete and thorough reading of a book that you can do. Inspectional reading is done quickly. Analytical reading is done without a time limit. Its aim is understanding. This is the sort of reading that most of us do most of the time.
- Synoptical reading. At the fourth (and highest) level of reading, we read comparatively. "When reading synoptically," Adler says, "the reader reads many books, not just one, and places them in relation to one another." My ongoing project to read about the history of retirement? That's synoptic reading.
What has this to do with evaluating financial advice? Well, I think similar principles apply. When you receive a piece of financial advice from somebody, or you read a recommendation online, there are four levels of evaluation.
- Elementary evaluation. When you pick up a piece of financial advice, start by asking yourself "What does this advice say?" You're not trying to judge its merits. You're merely trying to parse the recommendation. Believe it or not, you can throw some stuff out at this level because it doesn't say anything. Or what it says is nonsensical. (I don't mean nonsensical as in "I disagree with it". I mean nonsensical as in it literally makes no sense.)
- Inspectional evaluation. Next ask, "What is this advice about? What is the overall message? What is its core argument?" You're not trying to understand nuance here. You're trying to get the main point. For instance, in Mr. Money Mustache's popular article "The Shockingly Simple Math Behind Early Retirement", the core argument is "the more you save, the sooner you can retire". The main point of the article you're reading right now is: "There are smart ways to evaluate financial advice. Here are a few."
- Analytical evaluation. The biggest part of evaluating financial advice is taking time to analyze it, to examine the advice in detail, to really understand it. This usually means asking "why?" Why is the person giving this advice? What's their motivation and what does this advice aim to accomplish? (The rest of this article offers some tips for applying this step.)
- Synoptical evaluation. Lastly, if you're evaluating important advice (such as how much to spend on a house), you should make time to do some comparative evaluation. What do other people have to say? Why do they agree? Why do they disagree? How does this advice fit in to what you already know and what you're already doing?
Here at Get Rich Slowly, one of my primary aims is to "evaluate synoptically". I don't want this site to be one-dimensional. When I write my articles, I try my best to draw from a variety of disciplines and sources. I look for differing opinions. Does that mean I stray from strict personal finance sometimes? Yes, absolutely. But it makes the writing more interesting for me and, I hope, for you.
Okay, that's some semi-helpful, high-level philosophical stuff about evaluating financial advice. Now let's look at how to put this into practice. How do you actually analyze financial advice to decide whether it's good or not?
I think it helps to ask four questions.
Saturday night, Kim and I joined 25,216 other soccer fans to watch the Portland Timbers defeat the Vancouver Whitecaps 3-1 during a crazy rare August rainstorm. (Portland gets a lot of rain...but not in early August.) The match was a lot of fun, with three terrific goals. Here. I'll share highlights with you...
I've owned Timbers season tickets since 2010, the year before they made the leap to the top league in the U.S. — but I've been a fan since 1975, when I was six years old. My earliest sports memories are listening to Timbers games on a transistor radio, cheering for the likes of Clive Charles, John Bain, and (especially) goalkeeper Mick Poole. I wanted to be Mick Poole.
Each year in August, I get my Timbers renewal letter. If I want season tickets again, it's time to purchase them.
For the first few years, this was an easy decision. Tickets were cheap. In 2011, they cost me $41.91 per seat per game. Even in 2016, the cost seemed reasonable at $54.00 per ticket per game. Over the past few years, though, ticket prices have skyrocketed. If I want to renew for 2020, I have to be willing to pay $79.12 per ticket per game.
As much as I love the Portland Timbers, they might have found my limit. This price point tests my patience and my pocketbook. I'm not alone.
The High Price of Fun
I own two seats near the top of section 118, which straddles the midfield line in the old part of our stadium. (As a frame of reference, if you watch the highlight video at the start of this article, that view is basically from our seats. We sit six feet in front of the television camera.)
I was very deliberate when I chose these seats. I don't need to sit in the new section; I'd rather look at it. Our seats are never in the sun, and they're sheltered from the prevailing weather pattern, which is important when you get as much rain as we do here in Portland. (Saturday, for instance, we were completely dry. The folks across the way in the expensive seats got drenched. Many retreated to watch from other parts of the stadium.)
If I renew for 2020, each season ticket will cost me $1325. That's a total of $2650 — plus a bullshit $40 service charge.
Now, $2690 isn't the end of the world. Sure, it'd be expensive if I were still deep in debt and struggling to get by. But I'm not. Today, I'm financially independent. I can afford some indulgences.
But here's the thing. Games cost more than just the ticket price. It costs money to get downtown. If costs money to park. It costs money to eat and drink, whether we do it at the stadium or at a nearby restaurant. It costs money for Timbers gear. Sure, many of these expenses are completely optional. But for us -- and for most sports fans I know -- the ticket price is just part of the expense of going to games.
I'm sure we spend an additional $50 per match. And it might be closer to $100!
Let's consider Saturday as typical. We paid $8 for parking in a "secret" garage an eight-minute walk from the stadium. At the game, Kim and I each had two $10.50 beers (for a total of $42) and a $6 slice of pizza (for a total of $12). So, we spent $62 (plus gas) in addition to two $69 tickets. Our grand total for the evening? Exactly $200.
And that's for one of seventeen home games!
I calculate that our annual expenses for the Portland Timbers are at least $3500 — and they're probably closer to $4000.
I'm sure you'll agree that $4000 is a lot of money. That's a nice trip to Europe, for instance, like the one I made in May with my cousin Duane. That's a substantial portion of a new Mini Cooper. It'd fund an entire year of HelloFresh for two people, four nights a week.
I love the Portland Timbers. But do I love them this much?
Last month, the Society of Actuaries (a group I was born to belong to!) published a mammoth (84-page) report entitled "Viability of the Spend Safely in Retirement Strategy". Despite its opaque title, this report (written by Steve Vernon, Joe Tomlinson, and the estimable Wade Pfau) contains some interesting info about planning for retirement income.
On the surface, this report's advice seems stupid simple: To optimize retirement income, delay Social Security and make the most of required minimum distributions from tax-advantaged accounts. Isn't this pretty much what most of us plan to do? Maybe so, but I doubt that anyone else has crunched the numbers like this.
Plus, this strategy provides a specific plan for folks who haven't considered how to approach retirement income. As the authors note, most retirees fall into two camps.
- There are the people who are scared to spend their savings, so they sacrifice current lifestyle.
- There are those who "wing it", spending without a plan.
The Spend Safely in Retirement Strategy is useful for both groups. It shows the specific steps needed to maximize retirement income. Those steps might seem obvious to those of us who read and write about personal finance every day, but they are not obvious to our family and friends.
Here's a quick overview of the Spend Safely in Retirement Strategy (or SSiRS).
The Spend Safely in Retirement Strategy
Vernon, Tomlinson, and Pfau introduced the concept of the SSiRS in their 2017 report through the Stanford Center on Longevity: "Optimizing Retirement Income by Integrating Retirement Plans, IRAs, and Home Equity". (You can download a PDF of the paper from Stanford.)
"This strategy has a significant advantage," they wrote. "It can be readily implemented from virtually any IRA or 401(k) plan without purchasing an annuity."
That 2017 publication was mostly theoretical. There wasn't a lot of info on how to approach their strategy from a practical perspective. This new project is more about actual implementation.
The SSiRS includes two key steps:
1. Optimize expected Social Security benefits through a careful delay strategy; in this case, many middle-income retirees may have all the guaranteed lifetime income they need.
2. Generate retirement income from savings using the IRS required minimum distribution (RMD) rules, coupled with a low-cost index fund, target date fund, or balanced fund.
The authors stress that the SSiRS is meant to be a baseline strategy, a starting point from which retirees (and/or their financial advisors) can build a more customized plan. It's like a basic bread recipe that yields good results every time. If you want to make fancier bread, you're free to do so. But you don't have to.
Let's look at these two key steps in more detail.