Pay Yourself First

Sometimes I will read the same piece of advice across a dozen personal finance books and a host of personal finance blogs. My brain will automatically start pushing that to the back of my mind as common knowledge.

And then, sometime later, I will be interacting with someone in the real world and remember that it is not common knowledge. I will remember that I am a weirdo and normal people don’t spend their time reading personal finance books for fun.

One such piece of advice is to pay yourself first. Continue reading “Pay Yourself First”

The IKEA Effect

I like to spend a lot of time exploring cognitive biases. I firmly believe that if we spend the time to get familiar with the natural flaws in our thinking we can avoid those flaws, make better decisions, and live a richer and happier life.

Previously we have explored confirmation bias and the sunk cost fallacy. Today I want to talk about the cognitive bias with my favorite name. Continue reading “The IKEA Effect”

Understanding the 4% Rule

As we’ve already discovered, to retire comfortably you need around 25 times your annual expenses. This number comes from the 4% rule, which I briefly touched on (and which got a lot of attention in the comments because you all are apparently as nerdy as I am). Today we’re going to explore the 4% rule and determine whether it is still a viable retirement guideline. Continue reading “Understanding the 4% Rule”

Saving Time and Money – Avoiding the Sunk Cost Fallacy

Let me pose to you a scenario posed to subjects of a 1985 University of Ohio study:

Imagine that you spent $100 to book a ski trip to Michigan that seemed like it would be a lot of fun. You later spent $50 on a ski trip to Wisconsin that seemed like it would be even more fun. After spending your money on both (and finding out that they cannot be refunded or resold) you realize that the trips are for the same weekend. Which one do you go on? Continue reading “Saving Time and Money – Avoiding the Sunk Cost Fallacy”

Buying vs. Renting (Your House is a Really Bad Investment)

As an older Millennial (I liked it better when they briefly called us Digital Natives, but unfortunately I don’t control the generation-naming zeitgeist) I grew up with all of the Boomer authority figures drilling into my head that buying a house is a great investment.

Renting is just throwing money away. Nobody is going to be making any new land any time soon, so home prices can only go up!

And then 2008 happened. Continue reading “Buying vs. Renting (Your House is a Really Bad Investment)”

The Importance of Opportunity Cost in a Happy and Wealthy Life

One of the central concepts in decision-making is the concept of opportunity cost. Every decision we make on a daily basis, whether it is an involuntary part of our routine or an active choice, can be evaluated using this overarching concept.  Essentially, the idea behind opportunity cost is that oftentimes a choice that we make will close the door on other choices. If I go to the beach this weekend, I can’t also go to the mountains this weekend. If I spend $300,000 on a Ferrari 458 Speciale, I can’t invest that $300,000 in the stock market (or ever retire). Continue reading “The Importance of Opportunity Cost in a Happy and Wealthy Life”

Get Smarter, Richer, and Happier. Go to the Library.

I tend to focus on three distinct categories here: building wealth, becoming happier, and thinking smarter. Usually there is some overlap between these subjects. Even if there is not a direct overlap, there is always at least some connection behind the scenes. Correcting cognitive biases can make you wealthier. Well-spent money can make you happier. Being happier can lead you to better performance at your job.

But today I want to talk about a tool that allows you to hit all three of these subjects directly. The library. Continue reading “Get Smarter, Richer, and Happier. Go to the Library.”

Buffett’s Bet

There is a dispute over how you should be investing your money and Warren Buffett has lined himself up as the antagonist of hedge fund managers.

Before jumping into the fight, a quick primer on active and passive investing: Active funds are actively managed (and clearly creatively named) funds in which the fund manager tries to pick investments that will perform better than the market. Passive funds (or index funds) are funds that simply try to match an index rather than beat it. For example, instead of trying to pick the companies that will outperform the market, a passive S&P 500 index fund will purchase every company in the S&P 500.

Warren Buffett, the third richest man in the world, is a big believer in passive investing for the average investor. While he takes an active role in managing the investments of his company, Berkshire Hathaway, he believes that the vast majority of people are better off placing their money in low fee index funds and investing passively. Continue reading “Buffett’s Bet”