Why You Don’t Want to Make the Big Bucks

Sure, these guys make a lot of money. But they have to take enormous risks and literally mortgage their health, both physical and mental, for the remainder of their lives to do it. And those are just some of the obvious costs.

I don’t want to send the wrong message. I’ve chosen the path I’m on, I take full responsibility for it, and knowing what I know now, there is a good chance I would still do it again. But if you’re frustrated with your income, I want to pull back the curtain and give you a taste of what it really costs to make six figures and up. I don’t want to trivialize your situation. I spent years of my life in circumstances of scarcity to the point where I still struggle with strange personality quirks that are probably rooted in those experiences. I don’t want to go back there. So in the interest of presenting both sides as fairly as I can, I’m going to write a second post to follow this one called “Why You Want to Make the Big Bucks.” But today, we’re looking at why you wouldn’t want to. Here are my reasons, in no particular order.

  • You will have very few friends at work.

Sure, people might act friendly to your face. But nothing happens in a vacuum these days. They may not know the exact amount you make, but they know it’s a lot more than they do. And jealousy can definitely make people treat you differently. You may even have people trying to take you out in an attempt to get what you have for themselves. Additionally, in order to survive in a very high income position, you have to do unpopular things. If you’re in management, you will have to fire people, you will have to tell people NO all the time, and you will have to choose between options that seem terrible to everyone below you while ignoring the options they prefer because they simply aren’t feasible. If you’re in sales, you will have to fight for your deals. Hard. You can do all you want to try to maintain a relationship with an office employee. But when he is standing between you and payday, you’re going to roll over him or go over his head. If you don’t, you not only won’t make money, but you’ll eventually be fired for lack of production. Having more power may appear to give you more options. But once you have it, you realize that those options are limited by factors people on the outside rarely see.

  • You will have a difficult time knowing if you have friends at all.

I have some wealthy friends who you would never think have more money than anyone else. If you were to meet one of them in a day to day situation, you’d see someone driving a normal car, wearing normal clothes, living in a normal house, etc. This isn’t just an effort to save money, or even to live modestly out of personal preference. It’s also an effort to hide. Lottery winners and sports heroes often don’t have that option and that is one reason so many of them wind up broke. They’re human beings just like anyone else, and they want to have normal relationships in their lives. But bad actors know that and they work their way in, taking advantage of any trust that is placed in them. Of course, there is a big difference between Adrian Peterson, who everyone knows has (or had) tens of millions to his name, and someone who has a mere one or two million in the bank. But the concept works similarly for both. Is that new girlfriend with you because she likes you and enjoys spending time with you, or is it because she can smell a payday if she can only get herself married, pregnant, etc? You want to trust her. But it is very difficult to know if you should. Often you won’t find out for sure until it’s too late.  

  • You will have a huge target on your back.

Like most companies in our industry, my employer has been under serious financial stress recently. Cost cutting has become necessary. And guess what? Firing highly compensated employees is a much quicker method of accomplishing that than firing low or average paid ones. I’m not saying people in the latter group will never lose their jobs. But if you make a lot of money and you’re not an elite level performer, you’re definitely the low hanging fruit. Even some of our most successful sales people are feeling the heat now.

  • You will be in high demand…until you’re not.

I wrote about how a lot fewer people than you think make big money just last week. That means that especially within a particular industry, most people near the top will at least be aware of each other. If you’re fired, word will get out quickly along with all sorts of rumors and theories about why it happened. If you want to move to a different company, you will probably wind up working with people you know from the past. This can be either a good thing or a bad thing. But in a world where even the nicest people have to do some pretty ugly things to get to the top, it is bad more often than it’s good. And if you lose your job as a result of your industry tanking, it’s going to be very difficult to find another one because the other companies that could best utilize your skillset probably aren’t hiring. There are plenty of those people in my life right now, whether they’ve been fired or are just at the point where they feel a switch is their best option.

  • You will be expected to give absolutely everything you have and it will never be enough.

There is no clocking out when you make six figures. You can’t really even go on vacation. You would basically just be working from home, except from a different place. If you have a family, friends, or other personal commitments, they will come second more often than not. The other option is to find another job. And remember, you’re a highly compensated employee. So when you succeed, well, of course you did. That’s what we pay you for and frankly, you still should have somehow done better. And when you don’t, you’re crucified – whether it was a result of factors under your control or not. Simply put, you’re paid to win, that’s expected, and anything less is a failure even if you did the best job you possibly could have.

  • You will make a lot less money than you think.

Political pandering aside, the reality is that unless you’re part of a small fraction of the top 1% of income earners, you don’t have access to most of the accounting tricks that allow the truly rich to avoid some of their tax liability. And even if you are, the numbers don’t lie. In 2016, the top 1% of income earners made just shy of 20% of income in the US, but paid nearly 40% of the taxes. For the top 10% of earners, those numbers were about 50% and 70%, respectively. Meanwhile, the bottom 50% made almost 12% of the income, but paid only 3% of the taxes. Keep in mind that these statistics are just for federal income taxes. Making a lot of money is very expensive just about anywhere the government is involved. Long story short, the more you make on paper, the less of your income is actually yours.

When people talk about money, they tend to focus on the benefits and ignore most of the costs. The grass is always greener on the other side of the fence, as they say, but things are never quite as easy or wonderful when you make the effort to put yourself in someone else’s shoes and view them objectively. Like I said at the beginning of the post, my personal verdict is that I’ll take the money – at least for now. But everything has its cost. Plenty of people would be capable of making very high incomes, but they choose not to make the sacrifices required. And that’s fine – perhaps even admirable. There are definitely more important things in life than money and the higher you go on the income ladder, the less of any of them you tend to have. The most effective decisions in life are made when all costs and benefits are factored in. If I’ve given you a window into the costs of something very few people actually get to personally experience, then I accomplished my goal with this post. And it isn’t all bad by any means. Stay tuned…

The Truth About All the Coffee Talk in the Personal Finance World

My simple, but wonderful at home coffee making setup – a burr grinder and a french press

“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” – Wilkins Micawber in David Copperfield, by Charles Dickens

Lately I’ve noticed a new trend in the media that I would like to address. In most areas of life, it is generally accepted that you have to walk before you can run. You don’t just walk into the gym one day, throw four plates on each side of the bar, and start deadlifting it repeatedly. You have to start with a much more manageable amount of weight and train your body to handle more and more through sustained effort over time. And 405 is more than many people will ever deadlift in their lives so there is the crucial element of being realistic as well.

But with personal finance, there seems to be a backlash against that concept. If anyone dares to repeat the totally valid, if tired, advice that people replace $5 coffee drinks with $.10 ones they can make at home and enjoy just as much, they’re met with ridicule or even the vicious personal attacks that have sadly become commonplace in a world where so many people seem to in an ongoing competition to be more outraged by seemingly innocuous things than anyone else. Chase Bank, a bank I have mixed feelings about at best, was crucified for posting simple, actionable advice of that sort – advice that could help a lot of struggling people. And its CEO, again, a man I have very mixed feelings about, has become a political punching bag for some people who appear to have made it to adulthood without learning basic economics at any point along the way.

The theme of these attacks seems to be that people in general don’t make enough money, so giving them any financial advice that doesn’t involve being paid more money (by someone else) is condescending and insulting. In other words, it’s all someone else’s fault. It’s time for a reality check. No one on this earth is entitled to anything. And no, this is not political. I have to say that because the word “entitled” has been infused with bullshit political implications to such an extent that its mere utterance has become almost a war cry. In most of the world, people live in a reality where if they themselves don’t make something happen, it won’t. The fact that we live in the relative comfort of an incredibly prosperous place where life is incredibly easy does not change this reality. We’re all adults here. The days of someone else being responsible for us should have ended long ago.

If you want something, you have to earn it. If you want someone to pay you a lot of money, you have to give them a reason to do so. This typically involves using the infrastructure and resources of their existing business to make them more money, some of which can subsequently be paid to you. And outside of some very lucky folks, no one is exempt from this. If the board of directors didn’t think Jamie Dimon was creating more value than what he is being paid, I can assure you they would not be paying it to him.

If you don’t accept that concept, it’s going to be very difficult for you to have a successful career. Even if you start your own business, which is very difficult to do without experience, capital, or both, I can’t see a path to prosperity for you if you don’t believe everything has to be earned. It is imperative that many of us stop blaming our problems on others and start taking an honest look in the mirror and changing the things that are holding us back. It’s the only way anything is going to improve.

To that end, no, if you’re living paycheck to paycheck, you can’t afford a $5 cup of coffee. Even a few of those per week could cause you to pay a bill late and fall into a cycle of paying interest, late fees, etc, that could become very difficult to get out of. And it doesn’t stop with the paycheck to paycheck crowd. I very rarely buy a $5 cup of coffee. It is simply too easy to enjoy not just drinking great coffee, but making it, at home – and at quite literally 2% of the cost. This isn’t to say I never get coffee from a coffee shop, because I occasionally do. But usually I’m meeting with a customer, a friend, a date, etc, and the coffee itself isn’t the real reason I’m there. Buying the coffee is just an expense I have to incur in order to spend time in a particular place for a particular purpose. I’m already wealthier than most people and I’m only in my early thirties, but I didn’t get here by ignoring reality. In fact, I doubt almost anyone who is highly successful got there by enjoying luxuries before they could afford them. The only way to change reality is by first accepting it.

This is so much more than just coffee. No one is literally saying that cutting out a coffee shop habit is going to make you a millionaire. It is just an example of a very important concept that can be applied to many different areas. The same applies to a restaurant meal, which if made even a once a week routine, could easily turn into a $100 per month premium over equivalent food that could be made and eaten at home. I’ve seen people using Uber when they could drive to the same places and turning $10 worth of parking and gas into a $50 round trip in the process. Again, even at once a week, this costs over $100 a month over and above what it would cost to get the exact same thing done. It all adds up – and usually pretty quickly.

I think most of the outcry over this very valid and legitimate advice amounts to some bad actors trying to score points by telling people they don’t actually have to deal with reality. It’s easy to make people feel good telling them things like that. But it does them absolutely no favors. Some people see a $5 cup of coffee, a $15 restaurant bill, etc, and don’t realize what they represent. These are examples of doing things in wildly inefficient ways and especially when you’re first starting out, expenses like these can be the inches that make up the difference between winning and losing.

How important are the inches? Just look at the quote I opened the post with. If you spend less than you earn over a sustained period of time, even by just a little, you will build assets and life will get easier. If you spend more than you earn, you’re doing the exact opposite. The average person in this country has roughly $10k of credit card debt. Most of them didn’t rack that up overnight. It usually happens when someone is living at or close to the edge and gets hit with the inevitable unexpected expenses. If they can’t cover them with either excess income or savings, then the only option is to borrow. Too many people turn to credit cards, one of the worst forms of borrowing. It’s so easy. Almost anyone who can fog a mirror can get a credit card. And if you just pay a little bit each month towards the ever increasing balance, you can have pretty much whatever you want.

But there is always a cost. In this case, it is that as the interest grows, it becomes an expense of its own that does nothing for you and increases each month unless you pay down the principal. Instead of living on the edge, you’re now beyond it and gradually burying yourself deeper and deeper. It doesn’t seem like a big deal at first. But over time, the situation will not only get more and more difficult to dig out of; it will deprive you of opportunities you won’t even know you’re missing out on. Those opportunities come in many different forms, but the theme is the same. If you have money, you can use it to make more. The more you have, the easier life gets. That, in essence, is the American Dream – work, save, invest, prosper. What a tragedy that marketing departments, and another kind of enablers with political motivations, successfully turn so many people away from it before they even know what they’re passing on by taking the path of least resistance.

But those people don’t control you. Only one person on this earth does. You get to choose where you get your information, how you process it, and how to proceed from there. This is both a privilege and a responsibility, so take it seriously. The quality of your life depends on it. If anyone is trying to feed you sugar – something that tastes sweet in the short term but seems just a little too good to be true, ignore them. The sweetness is gone as soon as you swallow; but the fat ass you’ll develop over time is going to be with you much longer than that. Whether we’re talking about food or finance, you want to be taking advice from the same people: the ones who give you the tough love that doesn’t feel so good in the moment, but keeps you on the path of true progress. They’re usually the same people who are succeeding in their own lives – and these days, sometimes being demonized for that very success. They can help you get there as well. In fact, paying it forward is something many of them enjoy doing very much. But in order to benefit, you have to ignore the yes men (and women) who peddle easy answers that never deliver results. And then you have to listen to the proper advice and work your ass off carrying it out.

At the end of the day, it’s about who you want to be. Mr Micawber was a tragic character in David Copperfield. He realized his folly, but not until it was too late. Don’t let that happen to you. You can join the masses of lazy people telling lies, pointing fingers, and bitching because they haven’t been handed the results they want in life. Or, you can admit you don’t know what you don’t know (there is power in that, NOT shame), learn what it takes to actually succeed, and then get to work. The latter will get you results. The former will keep you from getting any further than you already have. Reject that. Learn, grow, and live a better life. It all starts with taking responsibility for yourself.

Happy Fantastic Friday (I Wanted to Up the Ante From Last Week)!

I was looking for a picture of destruction. I found this picture of hurricane damage. It will do. Image courtesy of Jean-Marc Buytaert

Holy cow are we in some suddenly dark days! I’m seeing some genuinely good people and businesses getting hurt and some being taken down altogether and it is all happening so quickly. And this, of course, only intensifies my problems. I’ve seen this recession coming on paper (or at least screens, the 2019 equivalent) for a couple of years now and while I may have made some early calls, I would much rather have been early than late. And more importantly, I believe we are now almost definitely in it. I see more real world signs of it every day and I hear similar reports from my contacts all over the country. If you haven’t started preparing yet, I strongly recommend doing so right now because you won’t get a better opportunity. Anyway, mercifully, another Friday is upon us and here are some random observations and anecdotes from the week.

Don’t Let Car Dealerships Take Advantage of You Because You’re Lazy

In spite of what I wrote above, I have been quietly watching the market for my next vehicle for a while. I’m not saying I will pull the trigger any time soon, but as I believe I’ve mentioned before, I typically watch the market for months before I so much as set foot on a dealer’s lot. I don’t just want to take the internet’s word for it; I want to know for a fact whether a price is good or not. Plus, I predict some amazing recession discounts on cars this time around. Plus, I enjoy the research. Yes, because I’m weird like that.

Anyway, I’ve noticed that these “no haggle” dealerships have gotten very popular. I’ve also noticed something else; their prices are absurdly high! I’m talking 10-15% higher than average in most cases! After doing a little googling and perusing some forum posts, I’ve confirmed that this is exactly what it appears to be – another example on the long and growing list of times American companies have had the balls to fairly openly exploit laziness for profit – and succeeded at it. Two quick notes on this.

One – and I know this doesn’t apply to all of them, but only some of the very most millennial-ly ones that may as well be throwing in a year’s supply of avocado toast with their overpriced cars – but any dealership that will not let you inspect a car in person first at a minimum, needs to be avoided at all costs. Cars, particularly used ones, are not commodity items. If you aren’t going to test drive one before you buy it, you deserve whatever you get. And if you’re not willing to spend a hundred bucks or so to have a qualified mechanic check a used car out, you’re taking an awfully huge risk. Sure, you may get lucky. But you could also wind up out thousands and thousands of dollars. And sure, some of these “dealerships” allow returns. But do you really want to stake that kind of money on these policies being honored? Better you than me if you do. But then, I’m just a car freak who has done extremely well with car purchases over the years. Not only have I had to do almost zero repairs beyond preventative maintenance, I have even pulled off the seemingly impossible feat of selling one car for a profit after driving it over a year and another for exactly what I paid after driving it for several months. But then, I don’t like to toot my own horn…

Two, these dealers literally believe they can overcharge people by thousands of dollars because the average person either doesn’t even have the courage to sit and talk to a salesman (or woman), or is too lazy to do so. Are you really willing to validate that theory for them? For the sake of all of us, I hope not. But based on the fact that some of these companies appear to be extraordinarily successful, it would appear the mob has already spoken. In any case, at the risk of sounding like your parents, do you want to get ripped off just because a million other people have been?

Aldi Now Accepts Credit Cards

This could be old news, I don’t know. I stopped going to these stores years ago because I didn’t like playing roulette with the possibility of getting stuck waiting in line for fifteen minutes because there was one employee in the entire store. Also because I don’t do business with anyone who doesn’t accept credit cards outside of incredibly rare, possibly life threatening circumstances. Anyway, I stopped in to an Aldi for the hell of it recently and was pleasantly surprised to learn that the company has joined the rest of the civilized world in accepting credit cards. Someone must have had a eureka moment and realized that not accepting by far the most popular payment method on earth to save a few nickels per order, which could easily be accounted for in the pricing of everything (again, like the rest of the civilized world does it), might not be quite the brilliant business tactic they had once thought it was. No, no sarcasm here at all. And by the way, speaking of spare change, I genuinely believe the quarter deposit thing they do with their carts is brilliant. I don’t know if I’ve ever seen one freely roaming a parking lot en route to damaging someone’s several thousand dollar vehicle because someone else is a lazy, entitled asshole. My goodness, I’m in an interesting mood today. But I promise this is happy, if cynical. Remember, Friday.

Anyway, the line thing still happened. As it turned out, the only employee in the store was in the bathroom. There was a line about half the length of the building when he came out. I probably won’t repeat this experiment anytime soon. But if you’re looking for absolute bottom line grocery prices, this store may be worth a visit for you – especially now that you don’t lose out on 3% of the purchase price (it’s actually 5% until the end of June with Chase Freedom) because management doesn’t believe in pricing its products according to the costs of doing business with the vast majority of all possible customers. Seriously, charging credit card users extra is basically like installing pay toilets in the bathrooms since a few people may have a phobia of using public bathrooms or something. Or in the case of shady gas stations, who tend to discount their cash prices by several times anything approaching a possible credit card merchant rate, putting up a giant “IRS, please audit me!” sign outside one’s place of business. And not accepting them at all? Well, it’s their business, not mine. Yes, as old fashioned as I can be, I get incredibly irritated when people fail to adapt to the overwhelming convention of the times in this particular area. We are all hypocrites; the only difference is that some of us are at least willing to admit it. Anyway…

Time to Make a Dietary Change

Sugar is the devil. We all know it deep within our sad little souls and just in case we’re intentionally ignorant anyway, there are about forty million studies rightly screaming it. Recently, I finally accepted that I’m weaker than I need to be at standing up to its cocaine-esque charms. So I’m cutting it out. No, not all of it. We all have to find a balance that works for us in life. In this case, I need to be somewhere between excessive, gluttonous consumption at will, where I have been for much of my life, and eating only what I grow on my isolated, non GMO (if that is even possible given the selective breeding that has gone on with just about all crops for hundreds, if not thousands of years – but I digress), 100% organic farm in the middle of some God forsaken backwater town no one ever visited, let alone lived in, on purpose.

The logical choice seems simple. I’m not going to try to police every gram of sugar out of my life. Cutting out only the stuff that is primarily sugar (cookies, my beloved Nutella, my even more beloved Freddy’s chocolate custard concrete mixers with various mix ins, etc) will amount to a major improvement for me. I recall reading somewhere that habits take seven weeks to form so I’m going to do two months for good measure. I started on Tuesday so that means I’m going until July 28. I’m hoping that by then I won’t even want the stuff anymore. But we’ll see how it goes.

Happy Friday, Everyone! Have a wonderful weekend!

Why I’m Not Afraid of the Health Insurance Boogeyman

These probably won’t help…then again, you only live once! – Image courtesy of Jean-Marc Buytaert

I occasionally hang out with early retirement minded people. Some of them have already taken the plunge, some are thinking about it more and more as I am, and some are much earlier in their financial journeys but are intrigued by an alternative to the “work till you’re either dead or wish you were” program that has been the standard for far too long. Easily the most common question I hear being asked of the people who have already retired ten, twenty, or even thirty years before the traditional age, is “what about health insurance?”

And I admit that was one of my first questions as well. Most people I’ve met answer this question in one of a few disappointing ways. Some were able to negotiate some sort of arrangement with their final employers, some have a spouse that is still working, and many are structuring their incomes in such a way as to be eligible for subsidies on individual coverage under the Affordable Care Act. None of these is workable for me. My current employer will likely be neither willing, nor able, to make any deal with me, I don’t have a spouse who can keep working so I can “retire,” and I can’t stomach exploiting badly written legislation for personal gain – particularly not when I’m currently paying a substantial share of the associated bill.

After I recently learned of some significant challenges my current employer is facing, which threaten not just my job and those of many of my colleagues, but the company itself as a going concern, I’ve been thinking a lot about my options. I could find a similar job at another company. Since I started my latest job search, there have certainly been some encouraging signs that this will be a viable option – although nothing has come to fruition just yet. But aside from maintaining the status quo as an employee/entrepreneur hybrid, I’ve been looking at other, more adventurous options. One common thread among many of them would be stepping out from under the umbrella of having an employer at all. And this has brought the health insurance question back to the forefront.

But as I’ve begun to explore the issue, I’ve actually been very pleasantly surprised by what I’ve learned. It turns out individual health insurance is both fairly straightforward and less expensive than I had anticipated. I acknowledge that things would likely be different if I had dependents. But at roughly $15k per child, per year, for as long as one is willing to keep the financial umbilical cord intact, having children is one of the most expensive financial decisions a person can make. That is one of several reasons I’ve personally opted out.

Anyway, I searched around and Blue Cross Blue Shield appears to be king of individual health insurance in my neck of the woods. By simply entering my birth date, non-smoker status, and zip code, I was presented with a menu of options ranging from the most minimalist plan at roughly $320 per month to something approaching the top of the line plan I have now at nearly $700. I didn’t see an annual payment option but if one is offered with a decent discount, it would amount to an awesome churning opportunity. One nice thing that I believe came out of the ACA is that it appears all plans now cover the one annual preventative appointment we should all be going to. Of course, that is priced into the premiums. But I digress. Beyond that, as a relatively healthy young adult, I’m almost certain to spend somewhere in the $0-1500 range per year on health care expenses, meaning paying an extra $400 a month for a high end plan that would cover most of that doesn’t make sense. I will note that there are subsidies offered for people with surprisingly high income limits. Sadly, I’m in the group that pays handsomely for those subsidies to be offered, and don’t anticipate that changing, so I’m paying full freight for my own coverage no matter what. But your results may be different – particularly if you have kids. And as the birth rate continues to decline, it is very likely that we will all see the government using more mechanisms like this to force people like me to subsidize your procreation efforts. For what it’s worth, that will likely offset at least a portion of the additional costs you would face in areas like this.

Ultimately, my choice would be a plan that costs $332 per month because it is the cheapest HSA eligible option. With a deductible of $6k, an out of pocket limit of $6650, and no prescription coverage until the deductible is met, I would almost definitely be paying all of my costs beyond the annual preventative appointment. In most cases, I would probably not even use the insurance, instead opting to negotiate directly with doctors since my insurance would effectively cover nothing anyway. I’ve heard there is often significant room on the pricing if you aren’t forcing the provider to deal with an insurance company.

But this is where it becomes important to calculate things out for yourself. If you tend to spend a lot in health care costs, it may make sense for you to go with a plan with higher premiums but more coverage. One thing to consider is that it’s not necessarily the end of the world if a plan doesn’t offer prescription coverage (it can’t if it is HSA eligible). Thanks to a wonderful website called Good RX, anyone can pay much less than retail prices for prescriptions whether or not they have insurance. Don’t ask me what kind of sorcery makes it possible, but this can be an absolute godsend if you don’t have prescription coverage and yes, I did use it back when I worked for an employer that offered a very minimalist coverage option.

I’ve mentioned “HSA eligible” twice now. Why? HSA stands for health savings account and it’s a hidden financial gem. Unlike an FSA, which is garbage unless you have health care costs you can forecast very reliably, an HSA is a tax advantaged account that can be built into quite an asset. To put it simply, it is a miniature Roth IRA for health related expenses only. This year, an individual can contribute $3500 into one. The money can be invested in whatever you want, provided you’ve chosen a good provider, and as long as you don’t spend it, it will grow tax free just like a Roth IRA. It does ultimately have to be spent on health care expenses, but given the state of the industry, I don’t believe any of us will have too much trouble accomplishing that. In fact, remember that quarter million dollars the media is always screaming about you having to pay for your health care expenses during your traditional retirement years? Well, if you contribute the max to a Roth IRA for twenty or thirty years and don’t use any until you retire, that is more or less covered – without dipping into your other assets. As usual, a little knowledge can go a long way towards putting out the fires of mainstream ignorance. The important thing to keep in mind with HSAs is that only certain more minimalist health insurance plans are eligible for them. If you have a lot of health care expenses now, you may be better off with a “Cadillac” plan paired with an FSA. No one can tell you definitively without specific information; I recommend that you run your specific numbers yourself to figure it out.

But in my case, a disaster only health insurance plan and an HSA are a home run combination. The only problem is that pesky “Cadillac” plan I have now. But given that I’m kicking in well under $100 a month for it, and that’s tax deductible by the way, it’s obviously the best option available to me as long as I’m with my current employer. However, once that relationship runs its course, likely by the end of this year, it’s nice to know I will have some great options available to me and that they won’t be nearly the financial disaster the media would have folks believing they are.

Living Intentionally: A Much Better Alternative to Both Financial Ruin AND Frugality

These are shrimp boats, but any boat would be more effective than a car in Houston right now! – Image courtesy of Jean-Marc Buytaert

I wasn’t always where I am now with money. As a newly minted adult with a full time income that seemed substantial at the time, I thought the world was my oyster. I had zero respect for the value of the dollars in my possession. If I saw something I wanted, even a little bit, I bought first and asked questions later. If my friends and I were bored, dinner and/or drinks would solve the problem – maybe with a movie or a round of golf thrown in for good measure. And if I had a bad day, setting some money on fire for any reason, or even no reason at all, seemed to ease the pain. I probably wasted tens of thousands of dollars on almost literally nothing productive in just a year or two. Had I continued along that path, my financial life would be an unmitigated disaster today and I would have been part of the multitude of people who are woefully unprepared to retire in spite of living in the richest country in the history of the world.

Of course, this wasn’t healthy behavior and after I realized I had been working for a few years and had virtually nothing to show for it aside from some stuff that was mostly worth pennies on the dollar I had paid for it, I wised up pretty quickly. But as a relatively wealthy, still young adult, I’ve noticed that most people seem to have either missed that lesson or skipped it intentionally. Maybe they weren’t blessed (seriously) with the harsh reality of financial scarcity when they were kids like I was. Maybe they simply can’t bear to admit the truth about what they’re doing to themselves. Or maybe they simply prefer the bird in the hand of doing what is easy today to a much more prosperous future that isn’t 100% guaranteed, even if it is extremely likely. I really like the way my new Houston real estate mogul friend explained the concept in this post.

Whatever the reason, I see people driving their financial cars with the e-brake on almost everywhere I look. I’ve long since learned not to be “that guy” so I neither give unsolicited advice, nor ask any questions that might lead anyone to the unpleasant experience of looking in the figurative mirror. In my experience, if people want help, they ask for it and if they don’t ask for it, they don’t want it. But I often have to stifle a strong urge to try to help people anyway when I see them destroying their financial futures because I know how much pain it will cause them in the long run.

Don’t get me wrong; I don’t consider myself even remotely frugal and I hate everything about the term. There are very few aspects of my life where I’ve chosen to spend the absolute minimum possible, or even close. I live in a luxury apartment that costs more than double what a bare bones living arrangement would. My car has leather seats, almost 300 horsepower, more electronics than the spacecraft that took the first astronauts to the moon, flashy 18 inch rims, and so much more; and I’m probably going to make a huge upgrade from that in the next year or two. I eat and drink what I want, when I want, where I want. If I wanted to take a vacation, there would be no practical limits to where I could go or what I could do and given how difficult it is to find the time, I wouldn’t be likely to waste the opportunity by going cheap. I could go on and on but the point is that I’m in no way deprived of anything I could imagine wanting in life.

So how am I different than my young adult self in the way I handle my money then? Aside from having tons more at my disposal, everything I do is intentional. Spending money is a means of accomplishing some specific purpose – not a pastime or a figurative drug I use to tamp down unpleasant emotions. If I get the notion to spend money, I think about it first. Is it necessary? If not, it’s a want, not a need. If it’s a want, is it something that will truly contribute to my life in a positive and meaningful way? If so, what, exactly, is my goal in spending this money? What is the best way to accomplish it? What is the most cost effective way? Where does it make sense to be on that spectrum in this particular context (between maximum utility and maximum cost efficiency)? Sometimes, I buy the best. Other times, I go with the cheapest option that accomplishes everything I want it to. On very, very rare occasions, I go with the absolute cheapest option. The important thing is that if I’m spending money, I know why I’m doing it and why I’m making the specific choices I am about it. And the good news is that while it may have seemed tedious when I was starting out, over time, this thought process has become almost automatic for me.

This may sound pretty obvious and to some of you, it probably is. But there are tons of people out there who seem to have no clue why they’re making the financial decisions they are. And there are tons of people who are totally broke. And both groups are large enough that there is almost definitely substantial overlap between the two. For anyone who resides in both, you need to make some dramatic changes if you want to improve the situation. Being intentional with your financial decisions, both large and small, will almost definitely help. Not only will your finances improve, but you will probably find yourself feeling calmer and happier. Have a wonderful weekend, everyone! And if you’re in Houston, hopefully you either have a boat or know someone who does – because that’s what it’s going to take to get very far down the road pretty soon if this rain doesn’t let up.

The Real Reason the Media is Flipping Out About Tax Refunds This Year

You’ve probably seen some of the articles talking about people screaming and stomping their feet because their tax refunds are smaller this year. There have been plenty of them. Unfortunately, a lot of people simply don’t understand how the federal tax system works and the mainstream media, which makes its money by fanning up any potential controversy into a firestorm, is all too happy to spread the ignorance around as usual rather than doing the responsible thing and explaining the reality of the situation. So I guess it falls on my shoulders to put out their fire by spraying it with facts. This is not a political post. My goal is not to change anyone’s opinion about the tax reform package that took effect in 2018. I just want to do my part to combat the apparently widespread ignorance.

Let’s say you go to the store and buy a candy bar for $.75. You pay with a $1 bill and the cashier hands you a quarter. Did you just gain 25 cents? No, you simply overpaid and got the change you had coming to you. That is exactly what happens when you file your tax return. In the case of most people, your employer has been withholding a portion of your pay all year. The tax return is a reconciliation. It determines how much you were legally obligated to pay, compares that to the amount you actually did pay, and either gives you your “change” in the form of a refund if you paid too much, or demands that you pay more if you paid too little. You are not gaining or losing anything except cash flow. And if you’re getting a refund, it’s technically bad news since it means you gave the government an interest free loan for an entire year. If you don’t know why that is a bad thing, google “time value of money” and get ready for the most important lesson you’ve learned in a while. Simply put, it’s how people like me use our money to create more money. It is also how people who don’t understand the principle fall further and further behind. Ignorance does not exempt anyone.

In 2018, most people actually paid less in taxes than in previous years, assuming important factors like income, dependents, etc didn’t change. The main category of people who paid more are people who itemized previously. Roughly 30% did so for the 2017 tax year and that number is expected to drop by about half for 2018. This is because the standard deduction, the alternative mechanism to itemizing, was increased at the same time as certain deductions were limited. But the important point here is that most people paid less.

However, most payroll software (and most employers use the same handful of payroll vendors) updated to account for the changes in 2018. Almost everyone who was getting a tax cut got it spread out over every paycheck – just as they would have if they had gotten a pay raise. It wasn’t a lot; for most people, it was $500 or less over the course of the year. If you’re high income, then it was probably more but also a proportionally small amount. A lot of people probably didn’t even notice their paychecks were $10 or $20 higher. Unfortunately, some of the payroll software was a little more optimistic than it had been in previous years and as a result, many people’s 2018 refunds got smaller. However, this simply means that instead of getting their interest free loans back a few months into the following year, they simply never made them in the first place or made smaller ones. In actual financial terms, that’s a gain.

So why all the howling if the majority of people are paying less in taxes? First off, as I already mentioned, there are a lot of people who don’t understand the situation. And it doesn’t help when the media has no interest in doing anything but amplifying that effect. But aside from ignorance, most people are negligent with their finances. They save little or nothing throughout the year and as a result, their tax refunds are found money in their eyes – and usually found money they’re mentally counting on. This is why car dealerships, furniture stores, and tons of other businesses tend to have tax refund themed sales around this time of year; it is the only time a lot of people will have any money in hand. If you’re in this group, it’s time for some tough love. You’re put yourself in a difficult position and I encourage you to take a good, honest look at what you’re doing with your money. If you don’t know how to do that, ask a wealthy person you know to do it for you and give you some tips. Or email me at admin@healthwealthpower.com. Everyone has to start somewhere and I will be happy to help anyone who is serious about improving.

There are people who legitimately paid higher taxes in 2018 but a lot of the people who are complaining about their refunds are not in this camp. For anyone a tax refund is a big deal to, I encourage you to use this as a wake up call. Keep reading this blog and others like it. Evaluate the way you handle your money and make changes. Even little ones will make a big difference if you’re in rough shape, just like how people who don’t exercise regularly will typically get huge results from just getting started in the gym. Turn a negative into a positive. I’m here willing to help and there are a lot of others like me. But at the end of the day, all the information and advice in the world won’t do an ounce of good if you aren’t honest with yourself and/or don’t make the necessary changes. But regardless of what you do, please stop complaining, particularly when the thing you’re complaining about actually benefited you. It’s not a good look.