« Death of the Coupon | Main | Another Question of the Day – How Will You Spend Your Rebate Check? »
Question(s) of the Day – Personal Finance
By JLP | April 17, 2008
Here’s today’s questions of the day:
In your opinion, what’s the most confusing aspect of personal finance? What area gives you the most trouble?
I’m interested to hear your thoughts on this one. If it’s a topic I’m comfortable covering, I’ll try to explain it in terms we can all understand. I’m not making any promises but I will do what I can.
Topics: Question of the Day | 27 Comments »
April 17th, 2008 at 2:13 pm
I think the most confusing is the advertising. It never seems to really tell the truth and always seems to convey the message that whatever you are doing now, no matter what it is, is most obviously the wrong choice.
April 17th, 2008 at 2:16 pm
PIcking funds/stocks. Most blogs say something like, go to Google Finance look up the ticker symbol, look at the performance and judge for yourself. Really? Is that all? I look at those numbers and I see nothing.
How do you read it? How do you judge expenses?
I am not asking for someone to pick my funds. Its just most bloggers stop at the do your research phases. And never walk you through doing the research.
April 17th, 2008 at 2:33 pm
Figuring out what I want out of life. The ebb n’ flow of enthusiasm, interests, and priorities are the most difficult IMHO. It’s something that you just have to pay attention to, learn your personal trends, and plan accordingly.
April 17th, 2008 at 2:40 pm
I think that these problems are bigger than personal finance…but since you asked.
Knowing how much is enough to retire, what kind of “retirement” I want to have? What do I want my career path to look like? How high up the corporate ladder do I really want to get? Will I want to be teaching or consulting when I am 70, or will I want to sit in a lounge chair with a pina colada in my hand?
April 17th, 2008 at 2:46 pm
It is not confusing but more like hard to do for me. I have my target allocation between stock (domestic and international) and bond, but trying to balance it within taxable and tax-deferred account is challenging. I know the best thing is to put bonds and REIT to tax-deferred account and stock equity funds to taxable account, but the amount of money between those two are not necessarily according to your target allocation between stocks and bonds. Add into it the fact that my 401k only have 7 investment options and all from American Funds, and the rest of investment is with Vanguard.
I ended up treating my 401k separately from the rest. My assets allocation and location consideration only include Roth IRA accounts (my wife and mine as I contributed to my wife’s Roth since she is now a stay at home mom) and my taxable accounts. Even that is challenging enough, especially during the time of our annual rebalancing. I would be interested to hear from you how to handle the investment issue in trying to manage or reduce your taxes.
April 17th, 2008 at 2:52 pm
Knowing when to sell stocks. I hold on to loser stocks far too long.
April 17th, 2008 at 2:58 pm
I have many of the same kinds of questions as Heidi. Imagining the next phase is really really tough. I cannot imagine not coming to an office to work. I simply can’t. I don’t know what I’d do with my time. I have interests, and I’d like to write, but I don’t know if that would be enough. Maybe… maybe not. I need structure. Would I drive my wife nuts or would it open up a whole new chapter in our relationship?
I would greatly benefit from reading examples of people who have wrestled with the same questions and made the transition. I want to hear about people with complicated fin’l issues and family concerns – warts and all.
Also, from a financial planning perspective, I wouldn’t mind hearing examples of people who have retired or semi-retired, who do not have traditional pensions to rely on. I will probably not have a pension and will be entirely self-reliant on invmt proceeds, which carries with it a the risk of how much is enough, as well as lots of tax issues. I’ll also probably live in or near a major urban area – i.e. not a cheap place.
Learning by example works well for me.
April 17th, 2008 at 2:59 pm
You should most likely not be picking stocks on your own, unless you have the financial training and knowledge to know what to look for. That’s just my opinion…and I’m not a trained professional.
I’d say the hardest thing is figuring out how much I can save and still have a good time, go out with friends and enjoy life. Of course, I could always save more, but that would mean sacrificing some fun things, and I don’t know if saving is necessarily worth the sacrifice. It’s sometimes hard to balance saving vs. spending to enjoy life.
April 17th, 2008 at 3:19 pm
Probably the dread that decisions you make at one stage of your life will turn out to be dreadful. When my wife and I were in grad school back in the 60s, I took out a life insurance policy at a time in our lives when we owned virtually nothing but a stack of books, a cat and a motorcycle that was our sole means of transportation. The expenses associated with the premiums denied us a bit more food on the table; and while the 60s were not a time of high fashion, we could have certainly used a clothing allowance.
April 17th, 2008 at 3:42 pm
I work in the personal finance field, and I think the most confusing aspect of personal finance for many people is inflation. They know what inflation is, but they still have trouble comprehending that a gallon of milk may cost $20, forty years from now.
April 17th, 2008 at 3:49 pm
Investing.
I agree with Jason, and I’m not trying to pick my own stocks. However, I’m struggling to pick a decent mutual fund. It took me forever to redistribute my 401(k) into a targeted mutual fund, which I was told is not the best option because of fees. ?
April 17th, 2008 at 4:20 pm
I agree with a lot of the above. I’ve learned a lot in the last couple of years and I have no CC debt, save, have a ROTH that gets fully funded each year and contribute to the 401k, but I still don’t get the language of stocks, picking stocks, understanding the fees, etc. I’m afraid I’ll be living in a box at 80 because of something I totally overlooked here at the age of 39.
April 17th, 2008 at 5:36 pm
The mortgage process. Specifically, Yield Spread Premium(YSP) and how to manage the issue when selecting a loan. It’s a major kickback scheme which was initially intended to help people with paying for closing cost in exchange for a slightly higher interest rate. Now it’s used to help the bank get people into higher interest rate loan than they otherwise qualify for while paying the broker money. You see the YSP on the HUD disclosure form and it conveniently says the borrower is not paying the cost. It should say the borrower is financing the cost/kick back to the broker.
April 17th, 2008 at 6:39 pm
Most confusing is asset allocation and re-balancing of one’s own portfolio
April 17th, 2008 at 6:49 pm
personal finance is easy in fundamentals but yet still hard to accomplish for most, simply because everyone has a different and unique situation.
It maybe good advice for a schoolteacher to save 3 months of income,(because of the stability) suppose to someone as a salesman that may need to save 6+ months of income. What is good for one, may not be good advice for another person.
And most people try and do what experts say, and ignore what is best for them
April 17th, 2008 at 7:58 pm
Figuring out what do after the basics (eliminate debt, fund IRAs and 401Ks, etc.) are covered is giving me trouble at the moment.
April 18th, 2008 at 9:17 am
To me its having a vague goal. The goal is to live and retire comfortably. But that is so vague. I’m comfortable now and I feel I’m on the track to retiring comfortably, but I couldn’t give you a dollar amount of what I’ll need.
It used to be stocks/funds investing. I’m not saying I’ve figured it out, but the waters have cleared somewhat. My advice is to read, read, read, read, read. And not everyone’s advice is good – you’ll begin to recognize the schiesters. Some people, like Jim Cramer, are a lot of hype, but if you listen to what he is teaching you (not picking stocks per se) then he has some good advice. I’d recommend his books over his show. But read books by most everyone out there. (Bogle, Bogelheads, etc). I’m not sure TV watching is all that good – those folks are all over the place on CNBC and other channels. Listen for eceonomic news, but not their picks.
And watch the market to learn how it moves and how one thing effects another. That’s what I do and I’m by no means a day trader – but I like to see how everything (like the Fed) effects the market). Interesting stuff – its been at least a decade long project for me.
April 18th, 2008 at 10:06 am
Figuring out if we will run out of money, and asset allocation.
I just finished a pretty good read called Winning Investment Strategy” by Larry Swedroe and he has some good advice asd to balancing risk vs reward. He is big on TIPS (treasury inflation protected securities).
My particular case is that I am retired at 68 whereas my wife is still working and she is 52.
So I get the benefit of being covered under her medical plan.
The burning issue for us is when can she retire ?
Two planning packages say we have enough right now, whereas one other says not enough.
I have been retired for about 2 years and have yet to run out of things to be interested in.
April 18th, 2008 at 5:50 pm
The hardest thing about personal finance – Knowing how much to save for retirement and am I saving enough? No financial calculator I have ever seen gives me an answer I really like. The hardest part is trying to determine how much I will need.
So I save as much as I can but sometimes I think I am saving too much, sometimes I think I am not saving enough.
April 19th, 2008 at 2:26 am
my biggest hurdle is that I have been inflicted with “Stuffitis” I love stuff.. Having said that buying a little “stuff” now and then aint evil, my problem is my internal red faced grocery store kid starts screaming for this new toy or that new toy and I am having to constantly tell him to NO you cant buy it right now, you’re broke and to SHUT UP!!!… That is the hardest part..
The rest I have been able to grasp pretty easily..
Personal Finance isnt Complicated but it can be difficult…
April 19th, 2008 at 7:07 am
I think the hardest thing to understand is risk. How much risk should I take with money saved to upgrade to a bigger house in the next couple years? How much risk is sufficient to fully fund my retirement with my current savings rate?
Also deciding whether to put money in a Roth IRA or a trad. IRA after fully funding my 401k. How am I supposed to know what will happen with tax rates in the future?
April 19th, 2008 at 12:14 pm
Figuring out how much I need from retirement and if I am doing reasonably well on track.
All my 401k accounts seem to have some tool to help with this, but
1) I need to guess what inflation will be like
2) Mutual fund companies have a vested interest in us investing more so I am not sure if there is some bias built into their tools.
For me the bigger issue is I am a (legal) immigrant and plan to move back to my country at some point. Just making sure the falling dollar does not eat into my savings is another big concern. Could you cover anything specific immigrants should be concerned about specifically macro issues, if they plan to move back at some point?
April 19th, 2008 at 1:47 pm
Figuring out the tax implications when I need to sell certain mutual funds to rebalance my portfolio. I’m always afraid I’ll push us into the next tax bracket.
Also figuring out the future implications of taxable and tax-deferred investments.
April 19th, 2008 at 4:08 pm
The most common problem that I face is managing my personal budget….Haven’t found anything that would tell me how I should manage my money. Heard a lot about mint.com. Has anyone used it…? Can anyone share their opinions on it…
April 19th, 2008 at 8:33 pm
For me, it’s _realistic_ advice about how much to save for retirement. There’s a whole lot of “rule of thumb” advice, but it varies enormously. Also, much of it is truly silly, such as the “80% rule”: “you gotta have 80% of your income to keep your lifestyle”.
What if you save half your current income?
Also, for me, good tax planning is helpful.
In general, the problem is that net worth-wise, I’m in a troublesome area where I’m too rich and too knowledgeable to want “advice” from some kid with a computer, a sales quota, and a two-week course in finance, but am not quite rich enough to interest “wealth manager” types.
April 19th, 2008 at 9:04 pm
For me it is understanding and creating an allocation strategy across multiple accounts (401ks, IRAs, brokerage account, etc.) The research is the hardest part, based on what is offered for each account and then trying to creat an excel model that shows where everything sits and then helps me drive it to the desired allocation with recognition of the securities/funds/etc. avaiable in each account. Ad the layering of understanding the fees and how dividends affect you in tax-sheltered vs non-tax sheltered accounts.
Uggh… Been working on it for a month, and I think I have it worked out. Just to update the numbers and let it chug…
April 21st, 2008 at 2:39 pm
All great topics but my number one is evaluating Long Term Care Insurance!!!