When to replace your car
Over the holidays, we said good-bye to an old family member. It was definitely her time to go. She leaked, she conked out at odd times, and she stank. Of course, I'm talking about our old vehicle: a minivan with 182,000 miles on it. I didn't let go of her easily; after all, we didn't get rid of our previous car until it had 264,000 miles on it. I figured we could get the minivan to at least 200,000.
But while visiting relatives in Florida, we had the opportunity to buy a used minivan from my sister's meticulous neighbor for a great price. So we took it. I have to admit, it's been a huge upgrade. It has all kinds of luxury features that our old minivan didn't have, such as:
- When you turn it on, it stays on until you turn it off.
- When it rains, the water stays out of the vehicle.
- There's an electrical device in the cigarette lighter that I can use to charge my cell phone, rather than just an empty hole where an electrical device used to be.
- The speedometer is an accurate reflection of the speed I'm traveling, rather than a number to which I have to add five to 15 mph.
- The brake light comes on only when the emergency brake is actually engaged.
- It has this thing called “air conditioning.”
- It doesn't stink. (The smell in the old car came from water coming in and getting the carpets all moldy.)
- It has a “keyless remote,” which is a device on the key ring with buttons that, when pushed, cause the side doors to slide open.
(Regarding that last feature, here's a trick you can play on the uninitiated: I put the keyless remote in my pocket, and told my mom and my aunt that the doors were voice activated, but you had to use the secret word. In this van's case, I told them, the secret word was “monkey _____.” Since this is a family website, I can't print the actual word, but use your imagination and you'll be close. So I got my 70-something mom and aunt to yell, “Monkey ____!” at the van, pressed the button in my pocket, and — voila! — the doors opened. They just couldn't get over it. “I have to get me one of those!” my aunt exclaimed. I let them yell, “Monkey ___!” at the van for another 15 minutes, closing and opening the doors, until I told them the truth. If I had videotaped it, we'd all be YouTube heroes by now.)
Drive a Lemon, Save
Women and Retirement
I don't know about Get Rich Slowly readers, but I can tell you that the majority of Motley Fool readers are guys, and that's true of most financial publications.
That men are more likely to be consumers of investment information could explain the gender gap in financial literacy — especially among older Americans — that some studies have uncovered. I don't mean to demean the better-smelling sex; in fact, some studies have found women deliver better investment returns than men do. But the deficit in financial literacy is especially troubling given the other challenges women face in retirement planning. Some of these challenges are faced by all women, while others pose particular problems for women who are or were married, especially if they put their careers on hold to raise a family.
The Troubling Statistics
Here are some stats to put it in perspective:
Invest in Your Most Important Income-Producing Asset
Your net worth is based not only on how much moolah you have in the bank, but also on your human capital — that is, your ability to earn income. "We can think of human capital as assets specific to each person, such as intelligence, education, specialized skills, work ethic, and social skills in the workplace,” wrote Motley Fool contributor Doug Short (who has turned his own human capital into an investing website that's popped up as far away as an Australian business TV show — it's amazing what smart, retired people can do in their spare time).
These days, jobs are few and far between — and unemployment is poised to rise and stay high for a very long time. At a town hall meeting last year, Federal Reserve Chairman Ben Bernanke said gross domestic product growth would have to exceed 2.5% for the unemployment rate to fall. Unfortunately, consulting firm McKinsey says that newly-thrifty baby boomers, who are now saving at rates not seen in decades, will reduce GDP growth to just 2.4% annually for the next 30 years.
So to survive in a world of long-term high unemployment, we can't take our jobs — or our human capital — for granted. Ask yourself these ten questions to make sure you're investing in your most important money-making asset: You!
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Where’s your financial comfort level?
I must confess to a new habit: I collect discarded ATM receipts. It all started when I walked by the bank in the building next to Motley Fool Intergalactic Headquarters, and found one such receipt blowing in the wind. I was shocked by how little the person had in her/his bank account, and how much she/he paid to get what cash was available.
To see what I mean, check out the stats on seven receipts I've recently picked up:
| Withdrawal | ATM Fee | Account Balance |
|---|---|---|
| $60.00 | $3.00 | $72.79 |
| $40.00 | $0.00 | $709.02 |
| $100.00 | $3.00 | $8,973.53 |
| $400.00 | $0.00 | $431.31 |
| $20.00 | $0.00 | $301.73 |
| $20.00 | $0.00 | $54.92 |
| $20.00 | $3.00 | $48.04 |
What comes to your mind when you look at those numbers? Here's what comes to my mind:
Furniture and scambags: Adventures on Craigslist
I've already told you how the wife and I weed out our closets every summer and have a yard sale with the results. Last weekend, we did some big off-season pruning because — in a little more than a month — we're moving to a smaller house (though it's way cooler, closer to work, and in a better school district). Consequently, we have to get rid of a good bit of furniture.
Here's the evolution of my furniture-buying history:
| Stage of Life | Type of Furniture |
|---|---|
| College student | Dorm fare, boxes |
| Single college grad | Goodwill castoffs, sturdier boxes |
| Newlywed | Wedding gifts, furniture relatives no longer use |
| Up-and-coming professional | Begin to buy "nice" furniture because we'll keep it forever |
| Family man moving to a different house | Sell "nice" furniture on Craigslist |
Okay, so we have bought furniture that we're likely keep for a very, very long time. But we're also selling items that we thought we'd keep for much longer than we did — and getting a fraction of the price we paid. One example: I always wanted a roll-top desk, but I thought I didn't deserve one until I became a real writer. So when I wrote my first book for The Motley Fool, I rewarded myself by using part of the money I earned to buy a swell-looking cherry roll-top desk, designed specifically to be used with computers. And I loved it...for a while.
<Master Your Money with a Financial Health Day
Howdy, folks. I'm writing you from a hotel room in Charlottesville, Virginia. All alone. My wife kicked me out of the house.
But it's a good thing.
You see, for reasons too boring to enumerate, it's been a topsy-turvy few months in the Brokamp household, and my “to do” pile has really piled up. It was beginning to affect stress level, and threatening my remaining hair follicles (which are already an endangered species). So my wife found a hotel for me, reserved it for two nights, and kicked me and my “to do” pile out of the house.
The Regrets of Christmas Past
Every summer, my wife and I cull our closets for stuff we and our kids no longer use. This is followed by a yard sale (complete with the obligatory lemonade stand from our kids), and the items that aren't sold get donated to a local thrift store that uses the proceeds for charity. In the end, we have more closet space, some extra cash, an entrepreneurial opportunity for our kids, and a tax deduction.
And a little bit of regret.
Many of the items that get sold or donated were gifts we purchased for our kids or each other. They were enjoyed for a short time — or, sometimes, not at all — then relegated to the Pile of Misfit Stuff. It's like that Marla Singer line from the movie Fight Club:
What is portfolio diversification and how can it reduce risk?
In general, the movements of stocks and bonds and commodities and real estate are not strongly correlated. Just because the stock market is down doesn't mean the real estate market will be down. In general, the returns on these investment classes are independent of each other. By putting some money into each class, you're able to reduce your risk while theoretically maintaining your return on investment.
This might sound complicated, but it's not. Think of it this way: If I ask you to bet $100 on the flip of a coin, and promise to give you $220 if you make the right call, but I get to keep the $100 if you lose, you would probably refuse. The risk is too high. But if I asked you to agree to stake $100 on each of ten similar coin tosses, would you do it? I suspect you might. Your expected rate of return is still the same (10%), but your risk is significantly reduced.
That is the power of diversification. Each coin flip is like owning an individual stock. Buy owning more stocks, you can maintain a similar rate of return while decreasing your risk. (Note that you also reduce your potential gains, however.)
The Best Ways to Boost Your Retirement
With the S&P 500 still down more than a third from its 2007 high, we're all a little unsure about our retirement plans these days. So it's time for some good old-fashioned elbow grease. A little effort now should make for a lifetime of security and peace of mind. And the first step is to run your numbers through financial calculators to estimate whether you'll have enough saved to kiss the boss goodbye. (Metaphorically, of course.)
The calculators' answers are important information. But what's even more useful is changing the variables to see what most improves your chances for success. A retirement plan has a lot of moving parts — how much you save, where you live, when you start taking Social Security benefits — and some decisions will have a bigger effect on your nest egg than others.
The factors that have the biggest impact on a retirement plan vary from person to person. But to demonstrate how you can fiddle with your factors to analyze your own plan, let's examine the retirement prospects of a hypothetical worker — whom we'll call Hilda, as I'm a sucker for good German names — and see how dialing her numbers one way or the other changes her projected retirement income. Here are Hilda's particulars:
How much is your 401(k) costing you?
I don't want to dump on your boss. She/he/it gives you a job (assuming you still have one). Besides a paycheck, you also get some benefits. One perk might be a retirement plan such as a 401(k). Your boss doesn't have to do that; in fact, it would be easier on her/him/it if there were no plan, since such things cost money, take up time, and expose the company to lawsuits.
So I want to start by commending your company for sponsoring a plan.
That said, there's been a disturbing trend over the past several years: Companies are shifting more of the cost of the plan onto their employees, and not necessarily being up front about it. One of the brave souls exposing this practice is David Loeper, a certified investment management analyst and the author of Stop the 401(k) Rip-Off.
