One Tax Season Tip to Save $9,000

I spend a good deal of time preparing taxes this time of year.

My own, sure, but also lots of other people’s. I prepare taxes as a side hustle.

As far as side hustles go, it’s pretty good. The money is solid for a side gig. I can work as much or as little as I want. I get to work with numbers, which is something that I miss in my current day job.

And yes, I recognize that that last line may not be a selling point for most people.

I have learned a lot through this job, but there is one lesson in particular that I want to talk about today.

Nobody is putting enough money in their 401(k)! Continue reading “One Tax Season Tip to Save $9,000”

The Ostrich Effect

You may be familiar with the term “burying your head in the sand.”

The image comes from the myth that ostriches avoid danger by sticking their heads in the sand and pretending it doesn’t exist.

When we are accused of burying our heads in the sand, it means that we are ignoring bad things in the hopes that they will go away. This is usually not a useful strategy. Continue reading “The Ostrich Effect”

Why We Have Trouble Making a Change

When faced with a tough decision, most people choose to do nothing.

This is the basis of the Status Quo Bias, first proven in a series of experiments in 1988 out of Harvard. The general idea is that people are emotionally attached to the current state of affairs and are skeptical of any change from that baseline.

This means that we tend to need overwhelming proof to make a change, even when that change would be the better option. Continue reading “Why We Have Trouble Making a Change”

Your Emergency Fund

Everybody knows that they need an emergency fund (despite the fact that not enough people have them). Nobody wants the stress of being unable to handle a medical emergency, the loss of a job, or a car that needs repairs. But what priority level should your emergency fund be compared to paying off debt or saving for retirement? How much do you actually need to save? And should it be in all cash or invested? These are the issues we’ll be looking at today.

When to Start Saving

The loudest voice in personal finance is Dave Ramsey. Ramsey tells his readers and listeners to first save $1,000 in an emergency fund, then pay off all non-mortgage debt, then build the emergency fund to 3-6 months of expenses. And all of this before contributing anything to retirement savings.

If you’ve been around here for any length of time, you know from my framing of the last paragraph that I am about to disagree. Continue reading “Your Emergency Fund”

You Need to Be Investing!

Whatever bad things you want to say about them, Millennials are good at saving.

This is assumed to be due to being in their formative years when the 2008 recession happened. One expert noted that prior generations saw “plenty of boom times where the stock market was going up, home prices were going up, so they didn’t feel they had to save.”

Millennials saw that markets can go down and home prices can go down and placed more emphasis on emergency savings and a bit less on consumption.

That’s great news! The bad news is that Millennials aren’t investing the extra cash that they are stowing away. Continue reading “You Need to Be Investing!”

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”