That sounds about right to me – women feed their vanity, guys feed their hobbies. (Yes, this is a generalization but I challenge you to take a walk around the mall and observe who’s doing the shopping and where.)

I finally learned over 33 years of marriage that your spouse needs to be able to buy whatever stuff she wants but not secretly and therefore within spending or allowance boundaries set jointly by the couple. That’s not what the morons in this article have done. The serial shoe buyers in the article admit to their “over-shopping” problem but apparently see no need to curb it. One of them even involves her mother in the scheming. That momma needs her own space in “I’m an enabler” hell.

I would be interested in statistics that relate chronic secret-spending to the long term survival rates of the affected marriages. I’m speculating that there is a negative correlation.

Here is a link to the article: Im a secret spender

Your thoughts?

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A recent newspaper article represents this hypocrisy. A 49-year old father is instructing his 12-year old daughter in the wisdom of saving her money. While these words were coming from Dad’s mouth, old Dad is burdened by $25k in credit card debt, first and second mortgages, plus a $12k personal loan for a “travel trailer.” Mr. Willpower he was not.

It makes one wonder whether Dad admitted to his daughter that he was a financial moron. Or did he pretend that he had walked the talk?

The article also highlights the dilemma of many wannabee savers:  They have nothing to save. They are living paycheck-to-paycheck.

For parents in this category, are they telling their children that cutbacks in spending are needed? Or are they afraid of creating doubt in the kids’ minds as to Mom and Dad’s financial competence?

My suggestion is that the sooner you come clean with your children about your own money missteps, the better for the children. Otherwise, the mistakes of the parents are likely to imprint on the the children and start them off in the wrong direction. Incurring student loan debt is often a first sign that the kids have come to accept high-risk debt as a fact of life. “Good debt”, they say. B.S. I say.

Let’s hope the next generation of parents makes an effective transition to “do as I do” when it comes to personal finance.

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Baby boomers have been receiving a lot of criticism in recent months for their collective contributions to our country’s economic problems.

Instead of wasting energy hurtling insults at financially irresponsible baby boomers, why don’t we make a list of all of the money mistakes that were made by the boomer generation.  The younger folks can read the list then pledge “never again.”   I hereby volunteer to start the list of boomer mistakes.  Here we go:

Assuming that what goes up, will continue to go up

This seems like one of those “duh” lessons that should not need to be taught.  Apparently not, because boomers bought homes – upsized McMansions even – during the go-go years, often using highly leveraged, unconventional loan products.  The premise was that this was a low risk activity because equity would be built from continued real estate appreciation.  Not.

The times of continuously increasing real asset values, stock markets, and even bond yields are likely over, perhaps for years or decades.  Boomers didn’t figure this out in time.  Your investment and retirement planning should be adjusted accordingly.

Using home equity as a primary retirement nest egg

For many boomers who used home equity as a retirement plan – Californians in particular – that nest “egg” is now an egg shell, empty and cracked.  Homes are not investments except to the extent they are paid for and providing you tax-free shelter services.

Failing to diversify

This is related to mistake No. 2 but further includes being inattentive to proper allocation of investments into non-correlated asset classes.  This takes study and thought, two financial planning characteristics in short supply among my fellow baby boomers.  We have been oblivious to risk or were busy chasing yields from the hottest funds, or both.

Ignoring life expectancy

Yes, it’s hard to believe that a generation of mostly overweight and out of shape Americans can be guilty of forgetting how long they will live, but it’s true.  Perhaps the best evidence is how abruptly and massively boomers pulled money out of the markets in response to negative conditions.  ”Sell low” we cried, forgetting that our investment horizon still spanned 20-30 years.  A lot of us think those stable value funds and CD’s will sustain us until the end.  Maybe so, if we plan on living in a van down by the river.

Sacrificing retirement for our children

So often I have read about boomer parents maxing out a HELOC or borrowing from retirement accounts to pay college tuition or to send adult children extra living money.  (“Gee Mom and Dad, I just have to live in Manhattan.  Don’t make me move just because I have negative cash flow.”)   You didn’t sign up for that obligation.  If you can afford to help the spoiled little darlings, go ahead.  Just don’t get guilted into it.  If you do, make sure you are prepared to turn the tables on your kids when you are old and broke.

Addiction to stuff

Take a poll of baby boomers you know.  I will bet that most will tell you that one of their immediate goals is to simplify their lives, including shedding themselves of a lot of the “stuff” they accumulated over the years.  Wouldn’t it be nice if we could figure out that “stuff” is more trouble than it’s worth before we acquire it all?  Now that you know how you will feel about it later (because I told you), you can implement stuff-avoidance strategies now.

Working for money

Don’t start making faces at me.  I know we need money and work is what generally provides it.  But there is that old work-life balance thing that baby boomers still haven’t figured out.  The trick is to maintain control of the outgo ledger so that you have choices on the income ledger.  Once you become accustomed to car payments and such, you are at risk of being stuck in a work life of quiet desperation, waiting for weekends and vacations that come and go but never satisfy.

Marriage recycling

I will be the first to acknowledge that Mr. ToughMoneyLove is not a relationship expert.  In fact, just the opposite is probably true.  I have to credit Mrs. ToughMoneyLove for keeping me around for 31 years.  But money experts will tell you that one of the worst financial disasters a person can experience is a divorce.  The older you are, the worse it is.  So do what so many boomers have not.  First, choose wisely.  (As I used to tell our sons, when evaluating a woman as a life partner, be sure you are thinking with the correct body part.)  Then work hard to maintain that marriage.  Your spouse and your net worth will love you for it.

I think these eight baby boomer money mistakes are a good start.  What can you add to the list?

Photo credit:  Rob Pym

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Second, this post is not about New Year’s resolutions.  Mr. ToughMoneyLove sort of abandoned that whole concept a while back.  Why?  Because like so many others, I used it as an excuse to delay doing something that needed to be done now, not later.  How many times did I say to myself “I will start my exercise (or diet, or savings, or love thy neighbor) plan at the beginning of the year!”  Fortunately for my self-commitment credibility, I never actually specified which year.  So technically I’m still in compliance.

No, this post is about simplifying a financial life.  I suppose I am writing it now because I just completed yet another last minute flurry of Christmas shopping and have a trunk-full of gifts to wrap.  I actually enjoy shopping for Mrs. ToughMoneyLove and the ToughMoneyLove offspring because it makes me think about what they like and what they need.  It gives me a genuine feeling of satisfaction to still know enough about their lives that maybe a gift I select will give them a little boost.  This feeling became the catalyst for this post.  Maybe there is a non-sequitur in there but what can I say, it happened.

Baby boomers – of which Mr. ToughMoneyLove is one – are prone to thoughts of simplification in all aspects of living.  All of the years and experiences behind us have hopefully prepared us to better focus on those matters of greater importance in our remaining years.  Honestly, we think a lot about those remaining years as we realize that compared to what’s already happened, what remains is in the minority.  (That’s some hard truth right there.)  That focus and those thoughts usually coalesce into a “I need to simplify my life” mindset.

So here are some random thoughts and ideas about simplifying a financial life.  Some of them are practical.  Some of them are more philosophical.  Some of them (maybe even most of them) are probably obvious to you but I’m going to put them down anyway, just in case.  It’s my blog and my life after all.

A first overriding principle in my plan (and I suggest in any plan) for simplifying a financial life is to identify those services and activities that I really enjoy.  Then I direct my discretionary spending at those.  Most people understand the concept of prioritizing their spending based on what they need and what they don’t need.  Everything they don’t need is sort of lumped together into a discretionary category.  At my age, that’s not good enough.  What we spend our discretionary funds on is reflective of what we spend time on.  For a baby boomer, time is a much more precious commodity than money.  I will vigorously resist spending $200 to upgrade the vacuum cleaner because I’m thinking that $200 can be a plane ticket to visit family or friends.  That’s time and money better spent.

Similarly, Mrs. ToughMoneyLove will gladly sacrifice the latest in human clothing fashion to buy a warmer blanket for her horse.  She loves her horse very much.  (I think I’m still ahead in the “love” race but it’s close.)  I admire her for making that choice.  Horses aren’t cheap but the pleasures they bring their owners are simple and pure.

So linking your spending to your true passions actually helps simplify finances, particularly when incomes are relatively fixed as ours will be before too long.

A second overriding principle for me in the finance simplification process is trading time for money.  This applies both on the income side and the expense side.  I want to use my money to buy time.  I don’t want to use my time to buy money.  I’ll give you one little example.   I used to do a lot of work on our cars, starting with things such as changing the oil.  Frugalists would say that I could save money changing my own oil.  They would be correct.  But that’s not simple enough for me.  If I can buy an hour doing something I really enjoy, that’s what I will do with discretionary money.   Changing my own oil costs me an hour. 

I will confess that I cut my own lawn.  I dislike lawn work.  So am I being a hypocrite about the time vs. money thing?  I think not.  I cut my lawn for the ancillary cost-benefit trade-off:  exercise.  (No, I do not use a riding mower.)  The combination of saving money (at least $50/week) and getting exercise is simple enough for me.

As a contrasting example, I have a small sailboat.  I actually enjoy working on that boat.  Why?  Because the boat is simple in its operation and construction.  It is not used for commuting to work.  It is used only to bring me enjoyment.  So I will pay someone to work on my car but not my boat.  Simple as that.

I want to stop paying so many confusing bills.  This is a difficult one because many of the bills we pay we have no control over:  utilities, insurance, and the like.  On the other hand, do you ever try actually understanding your phone bill, cable bill or satellite TV bill?  I think they load it up with complex language to make you think that you are really getting something valuable for your money.  Then they throw in a long list of itemized taxes and fees in hopes that you will direct your payment anger at the government, not the vendor.  So must of us just search for the bottom line number and write the check or push the “send” button just to get it over with.

Our plan is to get rid of the land line phone bill altogether.  That way I can concentrate my bill studies on the even more detailed cell plan!  Also, that cable bill will definitely have fewer premium features on it.  I never watch 50% of the channels anyway.  Mrs. ToughMoneyLove and I are still negotiating that one.  Offers and counter-offers are flying back and forth.  We will close the deal soon.

I want to stop sending money to so many places I don’t like.  Let’s start with the mortgage.  We are paying it off next month.   By doing that we get a secondary simplification benefit in our financial lives:  no more itemizing deductions on our tax return.  Just check that $10,900 standard deduction box and be done with it.  I am so much looking forward to completing that simplification step.

I want to put our investments on autopilot.  Most of this has already happened.  It is too risky for a baby boomer in this period to leave the investment portfolio on full autopilot.  What we have done is implement an asset allocation that needs only to be rebalanced, not adjusted with age.  We have added some inflation protection.  We are building a “weather the storm” retirement emergency fund to see us through down markets.  With only one exception, we own index funds instead of managed funds.  We will let all of that work together and hope that it does what it is designed to do.  Part of leading a simple financial life is not having to spend too much precious time worrying about your investments.

Now that I’ve reached this point in my random thoughts on financial simplification, I realize that there must be a lot more I can do.  So I will continue to ponder it but I don’t want to fret over it.  That would defeat the purpose of it being simple. 

Maybe some of you can help me out?

Image credit:  Sigurd Decroos

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The Jones couple have a combined income of $250,000, an expensive house in Silicon Valley and $100,000 in credit card debt.  They are upside-down on their mortgage because each time they ran their credit card balances up, they did a cash out refinance to pay off the credit cards.  Then they started over.  So they thought they were “living within their means” because their “means” included anticipated appreciation in home value.  When homes in California started depreciating instead, this couple’s “means” collapsed, they had to find a Plan B, and their story became of interest to the media.  As predicted, the standard of living bubble has popped for lots of people.

It’s too bad no one had earlier explained to the Jones that “living within your means” is a function of income and outgo, not asset appreciation and outgo.  It’s also too bad that financial writers in the Times and other media outlets didn’t jump on this issue two or more years ago, when the real estate bubble was still growing instead of blowing up.

So Plan B for this clueless couple called for a substantial cutback in expenses.  Duh.  But Mr. ToughMoneyLove is not exactly sure that the Jones are feeling a lot of pain.  According to the story, they are “reining in expenses” by sticking to a monthly allowance of $600.  Each.  My interpretation of this is that husband and wife Jones are each being forced to survive on a monthly marital allowance of $600, to cover their respective personal discretionary expenses.  Gosh, that must really hurt.

Mr. and Mrs. ToughMoneyLove have had completely combined finances since very early in our 31 year marriage.  At various points over those 31 years, we have used a marital allowance strategy to avoid sniping at each other about one of us spending on stuff that that other thinks is kind of dumb.  In other words, we each got to spend some dumb money without being concerned about looking dumb to our spouse.  The last time we used that strategy, I think our marital allowance was $100/month.  That covered a wide variety of expenditures, including workday lunches.  (Talk about creating incentives for packing your lunch.)

When I saw that the Jones couple had voted themselves a $600 marital allowance (for combined discretionary personal expenses of $1200/month), I blinked two or three times and thought what the …….?   

Yeah, they make a lot of money.  But let’s not forget that they have $100k in credit card debt.  With their house having dropped substantially in value, I’m quite certain that they also have a negative net worth.  Under those circumstances, how can you say that the Jones are really living within their means, when that “living” includes $600 each in monthly personal expenses? 

I suppose I am really making a couple of related points.  First, a marital allowance is an appropriate tool for controlling spending in a marriage in a way that reduces conflict.  Second, when you have not been living within your means for so long, you need to be a lot more aggressive in your debt repayment schedule and less generous in your marital allowance.  In other words, the “living” part of the equation needs to have more emphasis on debt payments and less emphasis on accommodating the well-established spendthrift tendencies of the marital partners.  Even in California, I don’t think that a marital allowance of $600/month gets it done.  It’s like trying to cure a smoking-related lung disease by cutting back from two packs to one pack per day.  The Jones need more standard of living pain to experience net worth gain.

Honestly, even though we have no non-mortgage debt, I don’t think I could bring myself to spend $600 each month in “dumb” money.   But then, if I had $100k in credit card debt, I wouldn’t be buying a turkey fryer at Costco, period.  (Yeah, Mrs. Jones had to have one of those.)

When I reached the end of the Times article, I was kind of hoping but not expecting that the writer would make some cynical remark about the magnitude of the Jones’ marital allowance.  Alas, it was not too be.  But I know who that writer is, from reading some of the stuff she has written on MSN Money about her own personal finances.  She has her own money issues, so she is probably hesitant to jump on someone like the Jones whereas Mr. ToughMoneyLove has no such qualms.  It’s my self-appointed mission to speak the hard truth about personal finance.

What do you think about the size of the Jones’ marital allowance in this situation?  Do you have a marital allowance in your budget?  How much?

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The research targeted how men and women in a relationship reacted to the gifts they received from each other.   What I gather from the results is that as guys giving gifts to our ladies, we are in a very precarious if not impossible position. 

You can read the article for yourself, but as I understand it, if a man gives his wife or girlfriend a gift she likes, it reinforces the perception that they are “kindred spirits” and therefore meant to be together.  That’s logical.  However, the research also established that if the woman thought that the gift was “bad”, her short term reaction was the same as for a “good” gift.  Apparently, women in a relationship are inclined to create self-defense mechanisms for that relationship, subconsciously pretending that the relationship is better than it actually is.  This defense mechanism initially produces a quite genuine “that’s nice” response to even the lamest stuff we guys give our ladies.

So how does this put the guys in an impossible situation?   Apparently, there is lots of other research showing that repeated episodes of “bad” gift-giving can wear down a relationship in small chunks.  So, if a clueless man makes a habit of giving gifts that his lady doesn’t like, her short term reaction will remain outwardly positive but her long term reaction will be inwardly and subconsciously negative.  Eventually, it may all blow up in the guy’s face and he won’t even know what he did wrong.  (We guys are quite skillful at not knowing what we did wrong to our women.)

Mr. ToughMoneyLove has made plenty of gift-giving mistakes with Mrs. ToughMoneyLove.  ( I distinctly remember the Christmas of 1979 when genius me gave her a pot hanger for the kitchen topped off with fuzzy cover-all pajamas.  A bad gift double-whammy.)  Apparently, I mixed in enough good gifts to help keep the marriage going for 31 years.  I can’t be 100% sure which gifts were winners and which were losers because my wife has been nice about all of them.  (Thanks babe!)  But as a “duh” tip for you other guys out there, jewelry seems to work OK.  My bonus tip is to be sure to let her know that she can return what you selected for something sparkly that she likes better, then go with her when she shops for the replacement.  That way, you get credit for the good gift to balance out the subconscious blame for the bad gift.  Based on the cited research, you need to keep that gift ledger well-balanced or kaboom!

I suppose that another takeaway from the psychology of money and gift-giving research is that if you want to end a relationship quickly without having to actually say anything, giving just one intentionally lousy gift probably won’t get it done.  Better find a less expensive strategy.

Good luck at the mall guys!  

Ladies – what do you think about this research?  Any advice as to how the guys should be allocating their gift money this year?

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This week, the “Ms. Cheap” columnist in our local paper wrote about the Moores.   Apparently, the couple – who are in their 60′s – decided nine months ago that to save money, they would not leave the house except to go to work or to church.  That’s right, nine months of being self-imposed hermits.  Why are they doing this?  Because, according to them, there is too much “excess” in our country, people need to “get over their stuffitis” and “the days of splurging are over.”  (OK, I think I get that part.)   So, any shopping or visiting the Moores do must be done either returning from work or returning from church on Sunday.  (I don’t get that part.)  I think Steve has the worst of it because he is already retired and therefore doesn’t have a workplace to drive to.  I’m guessing that this craziness was his idea and somehow he has imposed it on his wife.

What kind of life can it be to take frugalism to this degree?  Not much of one.  The fact that it started nine months ago is also a head scratcher because they can’t blame it on post-traumatic stress disorder brought on by recent events. 

The other troublesome aspect of this is that the Moores do not seem to have established a particular financial goal that their hermit behavior is intended to achieve.  That’s contrary to my idea of being a money strategist.

What is somewhat ironic and funny is that on the same page of the paper, right above the Ms. Cheap column, is an article about the increasing number of baby boomers who are joining and serving in the Peace Corps.  They are not only leaving the house, they are leaving the country.   Wouldn’t it be better for everyone if Steve and Diane Moore chose that lifestyle rather than the un-lifestyle they now have?  Yep, it would.  Someone – maybe a family member –  needs to find the Moores a good therapist and send them in a different direction, after first getting them to leave the house.

Now I am really curious.  I read a lot of stuff on other blogs about extreme things that frugal people can do to save money.  Are people actually doing those extreme things, like the Moore’s have?  Is it contagious? 

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