JUST PLAIN TALK: People, money, and mistakes

Buz Livingston
Buz Livingston

Before delving into this list, I've made my share, and in full disclosure, some more than once. Take solace; even geniuses struggle with money. Nikola Tesla designed the alternating-current system, which keeps the lights on today, and died broke. Sir Isaac Newton could calculate logarithms to 50 decimal points by hand. Still, he lost a fortune, $3 million in today's dollars, because he invested with emotions and not his mind. Here are some missteps people make with their money.

It doesn't matter what your income is, track your spending. Not knowing what you spend and where makes setting goals nigh impossible. Except for inflation, more on that latter, basic living expenses won't change in retirement. Absent these figures; you're winging in retirement. Like the Cat in Alice in Wonderland noted, "If you don't know where you are going, any path will do."   

Christine Benz is Morningstar's director of personal finance and one of the most brilliant people on the planet. She believes people rely on "investment alchemy/selections" too much while ignoring the boring. Failing to save regularly and take advantage of an employer's 401K match are prime examples.  

In a corollary to Ms. Benz, focusing on investment magic while ignoring inflation could be the path to ruin. For example, your costs will double over a 30-year retirement assuming 2.5% inflation. From January 2000 to January 2020, the S&P 500 rose a modest 3.8% annualized. It has been worse. From 1965 to 1985, the S&P's real return, was 1.4%.  

Most annuities are bad ideas, but people flock to them. Here's the deal, you are buying the sizzle, not the steak. Pay attention to fees; you pay them regardless of market performance. You will earn the market return less the fees you pay and more or less the risk you take. Complex annuities charge over 2% annually and come from your pocket, and even though you don't get billed, it still costs you. 

Credit card debt is a sign you spend too much. Avoid credit card debt with a passion. Pay off credit cards monthly.  

Often people focus on insurance premiums and not the coverage. Have sufficient and appropriate insurance. Don't skimp on homeowner's insurance. After a hurricane, costs will be higher than you expect.  

Market timing is a fool's errand, but people persist. You may be right once or twice, but sooner or later, you will get burned. It's also tempting to let your political preferences color your financial decisions; money is green, not blue or red. If you check your investments daily, stop. 

People often don't realize a mortgage can be financially crippling during retirement. Sure, investment returns may be higher than a mortgage rate, but only when you ignore risk. Instead, paying off a 3%-4% mortgage is like having a risk-free money market fund earning 3%-4%, after-tax. 

These are just a few but let me save the worst for last, envy and overconfidence. 

You can't always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 West County Highway 30A, M1 Suite 230.