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| Friday, October 17, 2008 |
| Still True: Live Within Your Means |
M.P. Dunleavey's latest New York Times article: Still True: Live Within Your Means has her singing the praises of fiscal restraint. IT’S strange that during a time of such emotional and fiscal chaos, some of the golden rules of personal finance — save more, spend less, invest for the long haul — may seem undervalued.
John Hoina, a podiatrist in Bethpage, N.Y., said he couldn’t see any reason to save. “You wish you had more in reserves. But I look at my investments and think, my God, all that savings — lost.”
Although he would like to take his money out of the market, that seems even more pointless. “If I take it out, I get hit with a loss and I’m penalized on top of it. So you have to sit with it.”
I sympathize. I feel as frozen (and cynical) as anyone else right now — and I’ve battled some unholy impulses to cash out my Roth I.R.A. and open a line of credit on my house while I can still get one. But I’m worried about the apparent decline of those basic guidelines.
If there is one thing I have learned, it is that when any sort of fiscal-emotional fog descends, you may be your own worst enemy.
There is far too much evidence, behaviorally and even neurologically, that we humans are the most irrational of economic agents, a fact that is not helping anyone right now.
So if you’re sitting on the sidelines enduring the Big Wait, as a friend calls this market limbo, do yourself and your money a favor. Ignore fear; it doesn’t help. Re-examine the financial basics; there’s a reason “Live within your means” has lasted.
Become a better steward of your money. It is still yours, isn’t it? As I love to do, I will point out a couple of issues I have with MP's work. The podiatrist who is moaning about his losses? That is not savings that he lost - those are investments. You need both - investments for the L O N G term and savings for the nearer term. If you can continue to save and beef up your cash balances to see you through a period of unemployment, etc. that is a very smart thing to do. If however, you are discouraged by your investment losses and don't see any value in continuing to invest right now... That is a different issue.
The other issue I have with the article is MP's comment about opening a line of credit on her house "while I can still get one". Just because you have an open line of credit does not mean you will be able to still use it when you really need it. Funny thing about lines of credit - they can be closed and generally banks close those things when they fear that people can't pay them back. Like when the customer is unemployed or otherwise having trouble paying bills. It is folly to even for a second rely on lines of credit as emergency savings in this current financial environment. You need cash savings and only cash as your near term emergency fund.Labels: MP |
| posted by Boston Gal @ 9:52 PM *
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| 6 Comments: |
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Regarding the concept of "living within your means", my sister-in-law has a slightly different idea....Live below your means and save the excess to provide security and serenity. Many of us buy toys, clothes, and gadgets we really don't need. Ray
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True true. I have enough in savings for 1 year of living expenses and I'm not worried because it hasn't gone down in value the way my retirement investments have. I'm actually considering moving some of into stocks to make out on this down market.
It's interesting that she mentioned that her friend was a podiatrist. What does it matter what he does, is she trying point out that he's educated and should be making a decent salary???
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First, a general question: why aren't more of the financial bloggers talking about the Democrats' eagerness to get rid of the tax benefits of the 401k? (And, I say this as someone voting for them very soon. I'm horrified by this plan.)
They're eagerly exploring this right now to help pay for the $750 billion plan they finally passed--they'd like to rescind the tax benefits & REQUIRE every worker involuntarily commit 5% annually in gov't bonds that give 3% annually in their 401K. I've only seen this mentioned on a few investment sites.....Hello? Bloggers? Anyone? Congress is out until next year, but this will be one of their first issues. Yep, it's really true--they really want to do this. This is one of the worst ideas I've ever heard of in my 30 years on this planet.
Regarding MP...what can I say...she just can't be satisfied with what she's got. Also...what's up with everyone thinking the market OWES them something just because you put money into it. It's not a person, it's a financial system full of RISK & reward. It doesn't owe you anything personally. Do investors not realize you actually may not increase your money? Hello? JMYHO.
Can you tell I'm frustrated by all this recent b.s. LOL!
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Honestly, I would not care if they got rid of standard 401(k)'s. I only contribute to a ROTH 401(k). That's a much better deal for me.
Since they are looking for current revenue they just might get rid of standard 401k's and leave ROTH 401(k)'s out there.
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Wes,
Obviously that defeats the purpose of foricably making people who only have 401Ks, and not ROTH 401Ks, contribute to gov't bonds that barely or do not keep up w/ inflation.
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Living within your means includes..
No credit cards
No variable monthly expenses
Keeping a tight lid on all expenses
Great Blog, Boston Gal
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Regarding the concept of "living within your means", my sister-in-law has a slightly different idea....Live below your means and save the excess to provide security and serenity. Many of us buy toys, clothes, and gadgets we really don't need. Ray