Are You Afraid of Missing Out On Something?

Losing something valuable is bad, but missing out on something we could have had is even worse. We can often replace a valuable, and even if it can’t be replaced, we had the opportunity to enjoy it, but we cannot retrieve a missed opportunity. Regrets, that’s what it is. Oh, what could have been if only we hadn’t missed out.

Marketers use fear of missing out to manipulate us

Marketers know how strongly we abhor regrets, how we hate to miss out on something. That is why sales events are of a limited duration. That is why there are limited editions, sneak previews, and the like. Marketers want to create a sense of scarcity to trigger the fear of missing out in order to motivate us to take the action they want us to take.

Fear of missing out used by the financial services industry

The financial services industry is no different. You have probably been hearing that most Americans are not or have not saved enough for retirement, and those that are on track to reach their saving goals have investment portfolios that are either too conservative or too risky. Those that have already retired are in danger of not having enough income to last until they die.

Now we have the CEO of a financial services company speculating that some retirees are not spending enough in retirement. Retirees are cutting back on spending because their investment portfolios are too conservative. They are afraid of running out of money and this fear is causing them to miss out on a higher standard of living in retirement.

Then there are the financial experts claiming that some people are saving too much for retirement too early in their lives. They are missing out on the opportunity to live a higher standard of living while they are young.

It appears that everybody is in danger of missing out on the retirement they had planned or a higher standard of living, and by inference, you are in danger of missing out, too. Are you sure you are saving enough for the retirement you desire? Will your investment portfolio deliver the growth you need to reach your goals and provide adequate income for the length of your retirement without taking on too much risk? Financial planners have the answers, or at least that is what they want you to believe. And if you are afraid of missing out on your retirement, or missing out on a higher standard of living, or if you are afraid of running out of money before you run out of time, you will believe them.

Missing out is part of life

It seems we just can’t avoid missing out on something, and we can’t. No matter what we do, we will miss out on something; actually, we will miss out on a lot of somethings. When we make a decision to take one course of action, we miss out on all of the other options under consideration. Missing out is part of life, so don’t let the marketers get into your head. Use common sense instead.

Saving aggressively for retirement early in your work life is not a mistake

Saving as much as you can for retirement as early as you can makes perfect sense. You cannot save too much unless you are sacrificing your health and well-being to do so. Money saved early has more time to compound. In the long run, saving a lot early means you will have to save less overall due to this added compounding.

In our world of rapid change, you do not know what the future holds. You cannot assume you will be able to save aggressively for retirement later in life. You cannot assume your wages will increase year over year into your late fifties or early sixties. Your early years might be the only time you have to aggressively save for retirement.

Living frugally in retirement is just good common sense

The same reasoning holds for living frugally in retirement. Nobody knows how much money you will need over the course of your retirement because nobody knows how long you will live or what the circumstances of your death will be. The day you die is the only time you will know how much income and wealth you needed for retirement. Medical expenses, in-home custodial care, and nursing home costs can decimate an otherwise adequate income and wipe out a substantial nest egg in a short time. And these expenses usually occur at the very end of a person’s life.

Wealth gives us choices. The more wealth we have, the more choices that are available to us. Having choices is freedom. If you run out of money before you run out of time, you won’t be left on the street to die. Your family or the government will take care of you, but you will not have any choices or much say in the matter. It will be their way.

Living and dying with dignity means having choices. Most people value freedom over a higher standard of living if they understand the choice. As we grow older, we come to understand that having more or better things is not that important to us. The lure of an increased standard of living is less attractive. So it is no wonder that retirees want to protect what income and wealth they have by living frugally.

Financial planners offer information and opinion, not guarantees

Use a financial planner if you feel you can benefit from their expertise, but don’t go to them in a panic out of fear that you will miss out on something. Financial planners can estimate life expectancy, average medical costs in retirement, the effect of inflation on the cost of living, and the costs of an average length of stay in a nursing home. They can come up with investment strategies that are expected to produce a certain amount of income and growth. They can give you information and opinion based on statistics and mathematical formulas. But realize, none of it is about your life and your money. They know no more about how the future will treat you or your money than you do. They do not give you a guarantee. If things don’t work out, they will suggest other strategies. They will do their best, but they are not God.

Life is about trade-offs

Financial planner or no financial planner, you are going to miss out on something: you will either accept more risk in hopes of a higher rate of return, or you will settle for a lower rate of return in exchange for taking less risk. The former could mean you lose some of your savings and have to replace it. The latter could mean either a lower standard of living now so you can save more for the future or a lower standard of living in the future.

Let your values drive your decisions, not fear of missing out

Missing out isn’t so bad if you know what is important to you. For example, which is more important, the security of your savings or a higher rate of return on your investments? If a higher rate of return is more important, you will not mind putting your savings at a greater risk of loss because you will have what is important to you.

Fear of missing out is for those who do not know what they want, so they want everything. Know what you want, and more importantly, what you need. You can afford to miss out on the other stuff.

K. C. Knouse is the author of True Prosperity: Your Guide to a Cash-Based Lifestyle, Double-Dome Publications, 224 pages

American Households Take On Record Debt

It took nearly ten years, but with $ 12.73 trillion in total outstanding debt, American households have finally exceeded the record amount of debt they held prior to the financial crisis of 2008, which was triggered by a mountain of loans of dubious quality, mostly home mortgages. We are told by the experts not to worry about this record household debt; it is different this time.

The mix of outstanding debt is different

Mortgage debt is less as a percentage of total debt than it was at its peak: 68% vs 73%. However, student loans and auto loans have made up the difference. Student loan debt as a share of total outstanding debt has more than doubled to 10.6%, and auto loans as a share have increased from 6.4% to 9.2% compared to 2008.

Households are in a better position to service debt

Delinquency rates are relatively low, 4.8% overall, but credit card debt along with student loan and auto loan debt are experiencing increasing delinquency rates. Nearly 1 in 10 persons with outstanding student loan debt are behind on their payments.

Despite worrisome delinquency rates for some types of loans, the experts assure us that this is not a sign of an imminent economic crisis. The economy is in a period of expansion and loan payments as a percentage of income are less than at the height of the financial crisis, so households are better able to service the debt than they were 10 years ago.

We have heard this song before

But wasn’t the economy expanding prior to the Great Recession that began in 2007? Weren’t we assured at that time that although debt was at record levels it did not present a problem? It was manageable. Yes, they said, mortgage debt is at record highs but real estate values nationwide always go up. Sure there might be some markets where real estate values temporarily decline, but overall the prices of houses always go up. There would be no nationwide crash in real estate values. Didn’t households manage to service their debt until the housing bubble burst, credit seized up, and the economy went down the tubes?

The truth is, no one knows if this record household debt is a sign of consumer confidence or a desperate attempt by households to maintain or increase living standards in the face of stagnant income and limited employment opportunities.

All household debt is a gamble that income and employment will remain the same or improve over the term of the loan. Debt, after all, is spending money that has not yet been earned. It is literally borrowing from future earnings with the expectation that there will be sufficient future earnings to service the debt and pay current living expenses. If income is reduced, interrupted, or lost altogether, there is trouble. A majority of households do not have enough assets to cover their outstanding debts; some do not have enough savings to make payments on outstanding debt if their income is interrupted or lost. A majority of American households are just a paycheck or two from financial ruin, despite the appearances of prosperity financed with debt.

People who buy now and pay later are always playing catch up. That is why they find it so difficult to get ahead. Economists and policymakers love credit and those who exercise it; it gives the illusion of prosperity until credit runs out and debts have to be repaid.

Do not follow the crowd; save rather than borrow

An expanding economy is a time to build savings, not increase debt. The financial crisis of 2008 and the Great Recession should have taught us something about saving and debt. For a time, it appeared as if we had learned our lesson, but here we are again at record levels of outstanding household debt.

Those who save during good times are reviled by economists and policymakers because savers don’t buy into the illusion. Savers live in the real world. Their standards of living are supported by accumulated wealth, not debt. They prefer financial security and sustainability to an imaginary prosperity. They represent the real economy. They get ahead. Slowly but surely, through good times and bad, their wealth grows. When the borrowers are tapped out, it is the savers that continue to spend at sustainable levels during the darkest hours of a recession. They are the ones who can afford to retire early and open up a job for someone else. They are the life support of a depressed economy until economists and policymakers figure out some new way to expand credit and breathe life into the illusion of prosperity once again.

Do not follow the crowd; take a different path. Review your spending with an eye to reducing or eliminating low-priority expenditures. Use the money freed up by reduced spending to increase your rate of saving. Pay down current debt and avoid new debt. Tailor your standard of living to reflect the amount of savings that underwrites it. You will soon be living in the real world, and you will find that you can enjoy financial security and prosperity in both good times and bad.

K. C. Knouse is the author of True Prosperity: Your Guide to a Cash-Based Lifestyle, Double-Dome Publications, 224 pages

Automated Finances: Proceed With Caution

Technology has made it possible to automate many financial tasks, and most personal finance experts will suggest that you automate as much of your finances as possible to take you out of the process. You set it and forget it with forget it being the key phrase.

By taking you out of the process, negative factors such as ego, procrastination, disorganization, and emotion cannot sabotage progress toward your financial goals. Automation replaces self-discipline.

While automating some tasks such as contributions to retirement and saving accounts makes sense, automation is not a silver bullet for those who are unorganized or who lack self-discipline. Effective management of personal finances still requires the conscious attention of the one who is responsible.

Automated contributions to retirement and other saving accounts

Where automation shines is in the area of saving. Automating contributions for retirement saving and other saving accounts works because the decisions whether to save and how much to save are only made once. In addition, with automated contributions to saving accounts, the saver never has an opportunity to spend the money because it is deposited into saving accounts before the saver even knows it exists: out of sight, out of mind. Automation makes saving painless.

However, do not set it and forget it. Automated contributions to saving accounts should be reviewed and updated once a year with an eye toward increasing the rate of saving by a percentage point or two each year.

Automated bill payment

Having all your bills paid automatically is convenient but also a bad idea. Bills for products and/or services whose monthly balances fluctuate with usage such as utility bills and credit card statements should not be automated. You need to review those bills and statements for accuracy and to keep abreast of usage trends.

It is much easier to dispute a charge or amount of usage before the bill is paid rather than after. When you dispute a bill before you pay it, you hold all of the cards. The organization that issues the bill will give your dispute immediate attention because they want to get paid. With automated payment, there is little chance that you will catch an error or question a charge, and if you do, the bill will have already been paid. With payment in hand, there will be little incentive for the billing organization to take your complaint seriously.

Reviewing utility bills and credit card statements prior to payment is a good way to discover opportunities for cost cutting. Automated bill payment gives you no reason to even look at the bill or statement; they have already been paid. You lose out on potentially valuable information about your finances.

Think twice before you automate the payment of semi-annual and annual bills such as premiums for homeowner’s insurance, premiums for automobile insurance, subscriptions for software licenses or services, memberships, and so forth. Automatic payment or renewal opens you up to price increases that may go unnoticed. You will be less inclined to consider shopping for a better deal or to evaluate the continued use of a software or service when renewal is automatic because you have been taken out of the process. You probably won’t even notice a price increase.

Monthly billing for products or services with a set amount such as car payments, mortgage payments, and other loan payments, rent, life insurance premiums, services such as Netflix, internet ISP fees (provided you are not subject to data usage charges), cell phone fees (provided you are not subject to data usage charges), and so forth do make good candidates for automated payment. Many of these bills have to be paid, so it is best to make payment automatic. If you decide to cancel a service, you only risk one monthly payment.

Forced automatic renewal for annual fees

What about software licenses or services that require automatic renewal for yearly fees or annual membership? Forcing customers to accept automatic renewal indicates to me that the company behind the software or service is not confident in the value of its product offering. Most of these businesses offer steep discounts to entice new users to enroll. From my experience, the discounted price is what the software or service is actually worth. Annual renewals are charged at the full price, and most often, with no advance notice and no opportunity to cancel and receive a refund. This is where the automatic renewal comes into play. These companies hope you will forget about the automatic renewal so they can overcharge you for the next year’s subscription or membership.

The best thing to do to avoid being surprised by automatic renewal is to mark a date on your calendar that is a couple of months before your subscription or membership renews, then cancel your subscription or membership at that time. Do not worry; the balance of your subscription or membership will still be in effect until it expires, but you will be off the automatic renewal hook. Don’t wait until the last minute to cancel. If there is a glitch in the cancellation process (website is down, error message), you may not have time to correct it before your account automatically renews. Also be aware that there may be a discount for automatic renewal and by canceling you may lose out on this discount if you decide to continue with the software or service for another year.

Remember that you are ultimately responsible for timely payment. If your automated bill paying service makes a mistake, you are on the hook. Do not assume your automated payments are processed correctly each month. Pay attention to confirmation emails and reports that document automated payment. You can set it but do not forget it.

K. C. Knouse is the author of True Prosperity: Your Guide to a Cash-Based Lifestyle, Double-Dome Publications, 224 pages