Book Review: “The Dumb Things Smart People Do with Their Money” – Part 3

Over the past few weeks, I shared the first eight points from Jill Schlesinger’s book, “The Dumb Things Smart People Do with Their Money: Thirteen Ways to Right Your Financial Wrongs.”  To recap, here were the first eight points:

  1. Buying Products They Don’t Understand
  2. Taking Financial Advice from the Wrong People
  3. Making Money More Important than It Is
  4. Taking On Too Much College Debt
  5. You Buy a House When You Should Rent
  6. You Take on Too Much Risk
  7. You Fail to Protect Your Identity
  8. You Indulge Yourself Too Much During Your Early Retirement Years

Let’s move on to the final five points:

9. You Saddle Your Kids with Your Own Money Issues – Depending on your view of money and how you were raised to treat it, this could go one of two ways.  If you are normally a highly frugal person who is nervous about money, you may deny your children all luxuries so they overcompensate with their children and overspend.  Or, if you were one of those kids who were denied luxuries, you may do the opposite and overcompensate with your children.  If that happens, kids will likely become overly dependent on their parents for every expense.  Regardless of which side of the spectrum you tend to be on, it is important to have a balanced approach when it comes to finances.  You don’t need to project the anxiety and worry of money problems onto your children, but you also want them to be independent, responsible consumers who will hopefully learn from your mistakes.

10. You Don’t Plan for the Care of Your Aging Parents – Jill provides three pitfalls about aging parents that may result in unanticipated expenses – the parents live too far away, siblings argue and/or don’t help one another, or parents retire too early.   Healthcare is expensive, especially in retirement.  Many people do not account for increased costs during retirement.  One may think they will have more disposable income if they downsize into a smaller home, but if their travel expenses or gifts for children and grandchildren increase, that may not be the case and they may have insufficient funds to last them for the duration of retirement.  My mother is definitely retiring too early.  She is single and does not have a pension or any kind of retirement savings, just Social Security (which she has already filed for and will begin collecting as soon as she turns 62 later this year).  I really need to start factoring this into my savings goals.  I believe financial security is very much a personal responsibility, but bottom line, she is my mother and I’m going to ensure she is properly cared for as she ages.  Fortunately/unfortunately, I don’t have a relationship with my dad, so that’s one less person to worry about (I don’t mean to sound heartless, but it’s the reality of the situation).

11. You Buy the Wrong Kinds of Insurance, or None at All – Quite frankly, insurance is boring and hard to understand.  It is not a desirable, fun topic in our lives, but it can be incredibly important.  One type of insurance Jill mentioned is flood insurance.  This is a topic I am familiar with because the program manager for our state’s National Flood Insurance Program is on my staff.  If you own your home outright (i.e. do not have a mortgage), you are not required to have flood insurance, regardless of where you live.  This means that the ocean could be in your backyard but you may not need to carry flood insurance.  As you can imagine, that could be a recipe for disaster.  You should shop around every few years and revisit all insurance policies after major life changes, such as marriage, the birth of a child, or the death of a close family member.

12. You Don’t Have a Will – Not having a will results in unnecessary stress, anxiety, and hassle for your loved ones.  People closest to you might not receive any money while less deserving ones do, or minor children may be improperly cared for.  If you have a pulse, you should have a will.  A huge misconception regarding wills is that if you don’t have much for assets, you don’t need to worry about a will.  Wrong.  This chapter in the book has inspired me to make an appointment with an estate planner so I can develop a will.  I could write one on my own using a template from the internet, but I would be more comfortable having one properly developed by an attorney.

13. You Try to Time the Market – People who follow every move of their investments and become too actively involved in them risk potentially making emotional investment decisions colored by individual biases and blind spots.  You may sell in a panic when your investment drops without giving it time to bounce back, or you may buy stocks when they are high and then end up dropping in value.  Choose index funds over actively managed funds, and don’t log in daily to check up on them.  This will place the odds on your side and allow your investments to average positive returns over time.

How do you feel about these final five points?  Do you tend to agree or disagree with them?

Talk to you next week!

~Autumn

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