We keep using this phrase because it is so true. Overspending, taking unreasonable risks, money conflicts that strain marriages, failing to learn from money mistakes, and a host of other problematic money patterns are not about money. They are about emotions. And since brain researchers tell us that 90% of all decisions are made emotionally, it literally “pays” to pay attention to your emotions.
“I’m not sure what’s wrong or what kind of surgery you need, but we have to operate right now.”
If you heard this from your doctor, you’d jump off the examination table and run for the door. Yet that’s essentially the approach the President and Congress used three years ago to pass a bill, optimistically called the Affordable Care Act, that was the largest transformation of the U.S. health care system in our lifetime.
During the frenzied debate our elected leaders made many promises as to the amazing benefits this legislation would bestow on Americans. After listening to speeches from President Obama, Speaker of the House Nancy Pelosi, and President of the Senate Harry Reid, I recounted those promises in this blog on March 21, 2010.
Let’s revisit those promises.
It’s impossible for a financial columnist to please all of the readers all of the time. My recent column criticizing the Be Your Own Banker scheme drew the ire of several fans of whole life insurance. Two of them in particular, in a letter to the editor and a guest editorial published in the Rapid City Journal, disparaged my integrity, my professional qualifications, and my math skills.
Part of the problem is that these readers interpreted my warning about BYOB, which I called “one step from being a scam,” as an attack on whole life insurance in general. That was not the case.
Admittedly, I’m not a fan of whole life as an investment. The purpose of life insurance, in my view, is not to provide retirement income or cash value, but to replace income when someone dies. For most people, the best and cheapest way to do this is through term life insurance. Obviously, someone who sells insurance will have a different opinion.
People who successfully build wealth have one trait in common: they understand the art of frugality.
These unassuming millionaires know how to live on much less than they make, and they know how to save money. But those behaviors alone aren’t enough. Not spending money today does not always result in having more money tomorrow.
Frugality for its own sake can result in doing without things that matter to you, failing to take care of basic needs like your health, and living with a sense of deprivation. It can also lead to spending more money, not less, in the long run.
Frugality for the sake of enhancing your life, on the other hand, features an eye for value. Most people who build wealth are masters at the art of getting value.
Anyone who sent a check to the IRS this month certainly doesn’t need to be convinced that there is a relationship between money and feelings. I can personally attest that paying a hefty tax brings up a great deal of painful emotion.
The case for the union of money and psychology is overwhelming. Almost everyone experiences fear, sadness, grief, anger, or happiness around money events. Large life events like divorce, death, bankruptcy, losing a job, and selling a home clearly involve money and evoke emotions.
We may be less likely to notice the psychological aspects of smaller money events. Yet even acts like paying monthly bills, buying birthday gifts, or shopping for groceries have an emotional component.
“Max out your retirement plans every year” has long been standard advice I’ve given to working adults who want to secure a reliable income when they retire. Individual Retirement Accounts (IRAs), along with 401(k), 403(b), and profit sharing plans offered by some employers, are among the most accessible ways for middle-class workers to provide for retirement and build wealth.
If a proposal in President Obama’s budget plan is approved by Congress, however, retirement plans may no longer be the first and best stop along the road to financial independence.
The proposal would limit a person’s total balance in all tax-advantaged retirement plans to the amount it would cost to purchase an immediate annuity paying $205,000 a year This appears to not be indexed for inflation. The articles I’ve read and my own calculations suggest this would mean capping retirement accounts at around $3 million.
I’m not inviting you to a “bring your own beverage” party. I’m warning you away from a get-rich scheme called “Be Your Own Banker.”
This idea has floated around the Internet and late-night television for a while now. One of the latest versions is touted on a website that I’m not going to name because I don’t want anyone getting sucked into what is essentially one step from being a scam.
Once you drill down past the initial layers of ambiguity, the basic concept seems simple enough. You buy a large whole-life insurance policy. After you pay into it for several years, it will accumulate a cash value. Then, any time you make a major purchase like a new car, you can borrow against your insurance policy instead of going to a bank.
According to the people selling this concept, you are the big winner here because you’re paying interest to yourself, not the bank.