Money Obedience

A few months ago it looked like the stock market would go to zero. Investors were pretty scared because then it seemed like there was nothing out there that would stop the decline of the market. One of my friends panicked during this period and sold all his stock holdings close to the recent lows in March. He then moved some money back into the market after the market had bounced some 20-25% off the lows. Now he is back “in the market” albeit with less of his savings invested in stocks than before he sold out. He obviously lost out on much of the rise, and this is the core problem.

I was reminded of my friend’s unfortunate timing by an interesting statistic in the Charles Schwab summer newsletter. It calculates that you would have $29,382 now, if you had invested $10,000 20 years ago. It then goes on to calculate how much money you would have if you had been out of the market on the best 10 days of these 20 years. You would have only $15,123, or about half as much. Imagine that! You stay out of the market for only the 10 best days in 20 years and your savings would have grown so much less. Your gains would amount to only $5,123 versus $19,382 if you had stayed invested the entire time. How about this one? If you had stayed out of the best 30 days in the last 20 years, you would have actually lost money overall: your $10,000 investment would be worth only $6,531!

What conclusion can we draw from these numbers? If you make the decision to have some of your savings in the stock market, just stay with this decision, and ride the ups and downs. Your initial decision to invest is based on your risk attitude, and that should not really change with the whims of the market. We all know that stocks go up and down. That is why it is important to stay invested even when the markets go down. (The last couple years have taught us that there is no such thing as a free ride when it comes down to investing whether you put your money into stocks or real estate.)

You don’t just want to be in the stock market when it goes down. You want to make sure that you benefit from the few days a year that make investing a worthwhile savings strategy in the long run. My friend learned the hard way that you have to make sure you invest a portion of your savings in the stock market that allows you to sleep peacefully. Luckily, he now has invested an amount of money that will not lead him to panic should the market decline again. That level of comfort about what our money is doing is what we should all be feeling.

Do you have a TV fantasy? I have a few, but one that’s been really tugging at me is the one about wishing I could be on TLC’s “What Not To Wear.” If only someone would come to my home, take away from my closets everything ugly, ill-fitting, or unappealing, and give me $5000 plus good advice on how to replace it all.

That, apparently, is not in the cards for me. First, I don’t think my friends would turn me in for flagrant dress violations. I’m not quite bad enough to make the cut. Second, my closet’s now rather empty. And, as far as I know, Stacey London and Clinton Kelly don’t ring doorbells in answer to prayers.

I have a new body. It’s the same “size” as it was before I gave birth to two non-twin boys, and even roughly the same weight, but it is not the same shape. And I don’t know how to dress this new body. I don’t have clothing in my wardrobe to go with it, either. Nor do I have a budget that’ll let me get myself a new wardrobe.

So, here’s my two year plan to a new wardrobe. I started last year, so I’m halfway there. First, I did the thing the experts say you should: clean out your closet of everything you’ve not worn in a year. I had to make it two years, because otherwise the closet would be empty. That was a you-know-what-load of stuff. I gave away what I knew fit friends/family in size and style, and the rest was donated to Goodwill. Bags and bags of it. I was amazed. Taking stuff there makes for a great tax deduction, in case you didn’t know. (Be sure to get a receipt!) This was so cleansing – literally and figuratively. I had less trouble figuring out what to wear because there was so much less to sift through.

Then, I did another trick: turn around all the hangers backwards (so you push rather than pull the hanger off the rack). When I wear it, I put it in the easier way. At the end of another year (which is now), I know what I’m really not ever wearing. I have to tell you that I cheated a bit. Both times, I also kept a lot of pre-childbearing clothing just too cute to get rid of. That’s what’s going right now. Here’s where the personal finance stuff comes in again: I’m taking all these gorgeous silky dresses and wool suits straight to the nearest consignment shop, where I hope to get a few bucks for having made these difficult cuts to my clothing “assets.” Those are the bucks that I’ll use for my wardrobe makeover. (I want to dress like a combination of Katherine Hepburn/Audrey Hepburn/Kim Myles. I think Kim Myles herself has “Myles of Style”, and she’s a fabulous fashion maven as well as interior designer. Anyway, in the meantime, I’m fantasizing that Clinton’s new endeavor with Macy’s (the “Makeover America” campaign) will call me up and say they’ll give me a $500 outfit, if not the $5000 wardrobe grand prize!

Stay tuned for more steps to a new wardrobe, in my next post. Just know that I vow not to buy ANYTHING that doesn’t fit or isn’t quite right, just because it’s on discount/sale. I will certainly save money then, and (eventually) no longer feel like a schlump because (eventually) I’ll no longer have junk in my closet. I thought I was saving money buying only on sale, but having a full closet of nothing to wear is the biggest waste ever. Once I have my wasteful wardrobe habits under control, never more will you hear me say, “I have nothing to wear!”

One of the supermarkets in our area sells produce at steep discounts when the produce has reached its shelf life as defined by the supermarket. We usually don't shop at that supermarket since it is one of the more expensive ones in the area, but when we drive by we pop in to see what produce is on super discount. The funny thing is that these sale fruits and veggies are actually ripe, and strangely enough, we like ripe produce rather than "cardboard"-like produce. So, why would we want to pass up 3 ripe avocados for $1 (guacamole anyone?), 5 peeled ears of corn for 89 cents, or 7 ripe bananas for 75 cents (banana bread anyone?)?

On Friday my husband came home with a bag of limes - 12 limes for 89 cents! Nice, big juicy limes. And what a great price. (You should see that man. He is beaming when he finds offers like that!) What do we do with all these limes? Very simple. We love Mexican food (and almost any other ethnic cuisine). There is no better way to spruce up Mexican food than to put a lot of fresh lime juice on top of it. Since we had the limes, we also had a good excuse to enjoy delicious Mexican food. So, we had dinner on the porch Saturday night - a very nice evening to sit outside and to share a good, relaxing time with each other.

Come Sunday night we found another great use for some more limes. After hearing a lot of toddler crying during my stressful day, I was in the mood to have a drink after the kids went to bed. Normally we would open a bottle of wine - usually a crisp white or rose on a warm summer day, but my husband suggested that we should make mojitos! We have lots of mint growing like weeds in the garden and even after the Mexican dinner we still had lots of limes in the fruit basket. What a great idea it was. Sure, I had to do a little bit of work to make the mojitos. (My husband did not even do as much as get the mint from the garden! ;-) He sure switched into relaxed mode way before I could even get the mojitos on the table.) But I found a great mojito recipe online mojito recipe - the secret is making simple syrup first, I'd say - and I really enjoyed making the drinks. I enjoyed sharing the drink with my husband even more. What a nice ending to the weekend!

See, how much unplanned pleasure a cheap bag of limes gave us during the weekend? And the additional cost? - 89 cents!!!

Donald Cole, an historian, talks about his life experiences in an interview entitled “The Power of Adaptation.” At the end of this interview it says, "Money makes a difference to a point, and after that there are very diminishing returns. People in abject poverty are less happy than people who are modestly well-off, but people who are modestly well-off are not less happy than very rich people."

What conclusions can we draw for our own personal finance from his statement? I think it is pretty clear that we need to focus on, first, avoiding dire poverty, and second, our meeting our basic needs. But the conclusion is that as long as we can keep ourselves and our loved ones warm and fed, it should not be so far a stretch from there to be able to lead a fairly happy life. So, for example, when we employ a retirement planning calculator or a net worth calculator, we should really make sure that we are setting ourselves up in a position that allows us to cover our basic needs. This in turn allows us to lead a happy life, if that is what we really want to pursue. The point is not to seek out a lot of money for luxuries, for having it in our retirement account or in our net worth will not add a great deal to our happiness.

Did you hear the one about the two boys who received gifts in their Christmas stockings? One got an expensive gold watch, and the other, horsecrap. On Christmas morning, the one with the watch was anxious - how could he be responsible for such a valuable and delicate thing? He vowed never to touch it just in case he'd break it. The other boy was ecstatic, and shouted "Santa gave me a pony! Now, all I have to do is find it!" In a way, this joke expresses what I'm driving at here. First, riches do not bring happiness, and second, gaining access to life's joys can be a matter of perspective.

Which brings me to another thought: Sometimes we may be too focused on money issues which can actually become the source of unhappiness. This can happen even if our economic well-being is not necessarily in jeopardy. Money and the luxuries money can buy can become another excuse to feel unhappy about yet another thing.

Don't get me wrong: money can also be the excuse to feel good, as long as you have sufficient amounts of it. I have known many happy people who were not that well off economically, and I have known at least as many people who have a bunch of money but who don't appear that happy to me. I know from my own life during which my income has fluctuated a bit that these fluctuations in income have never had a severe impact on my happiness. Sure, I did not feel so good when I made a bit less money after having made a lot the year before, but I never got to the point that my economic well-being was in danger. Besides, whenever I had a good year, I knew that it might not last and that I should not base my life style on such a higher income. When a worse year rolled around, I was not caught off guard. I still felt blessed that I had a great income the year before. This attitude has allowed me to adapt easily to new circumstances, especially a lower income. And the ability to adapt seems to contribute to my happiness much more so than a few thousand dollars extra in my bank account.

Let me ask you now. How well do you think you can adapt to new circumstances? And more importantly, what actually contributes to your well-being? What is important to you?