Monthly Investment Message: November 2018

Personal Finance December 04, 2018 Print Friendly and PDF

Barbara O’Neill, Extension Specialist in Financial Resource Management

Rutgers Cooperative Extension

oneill@aesop.rutgers.edu

November 2018

How to Make Your Health and Finances Age Proof

The book Age Proof by Jean Chatzky and Dr. Michael Roizen discusses a crucial intersection in people’s lives: their bodies and their bank accounts (i.e., health and wealth). The term “age proof” relates to longevity and was defined as “living strong and secure for your whole life.”

 

The book, which has many good insights for investors, begins by noting similarities between health and personal finances:

 

  • People count both calories and pennies and tracking current behaviors in both areas of life is useful

  • Periodic diagnostic check-ups are recommended (e.g., cholesterol screenings and net worth statements)

  • People often seek “quick fixes” for health and financial “issues” (e.g., miracle diets and credit repair)

  • People often avoid doing what they know is the right thing to do (e.g., recommended practices)

 

Part health book and part personal finance, Age Proof includes the following financial management take-aways:

 

  • Increase Savings- With higher life expectancies, people need good health and more savings to avoid running out of money. The longer people live, the longer they will live. One in ten 65 year olds will pass age 95. People who live for three decades after they leave the workforce need a substantial amount of savings.

 

  • Perform Financial Check-Ups- Seven financial diagnostic tests were recommended by Jean Chatzky: income level, expenses, net worth, emergency savings, retirement savings, credit score, and “the mirror test” (i.e., personal changes in lifestyle, goals, and relationships).

 

  • Develop Good Habits- 40% of what people do every day is governed by daily habits- not decisions. Establishing positive financial habits (e.g., saving loose change in a jar and automating retirement savings plan deposits) is key to achieving financial goals.

 

  • Practice the “Top Five” Financial Priorities- 1. Earn a decent living, 2. “Pay yourself first” with savings (aim to be part of the 1 in 7 people who save more than 15% of their income), 3. Spend less than what you earn, 4. Protect your financial life (i.e., adequate insurance), and 5. Give back in a meaningful way.

 

  • Appreciate Metaphors that Teach Personal Finance- An example is that overspending on credit cards is like “stretchy pants.” If you stretch too much, the waistband will be under tension “until something pops.”

 

  • Understand Financial Stressors- Financial stress can damage both physical and mental health. Stressors include: insufficient retirement savings, too much debt, out-of-pocket health care expenses, family fights about money, job instability, and lack of college education savings.

 

  • Follow Recommended Spending Tips- Advice given by Chatzky included: 1. Embrace the “B Word” (budget), 2. Choose your spending cuts (e.g., eating out, regular monthly bills), 3. Employ spending savvy, and 4. Reframe expenses to match a meaningful goal (e.g., ten $4 coffees to pay for a concert ticket).

 

  • Shop Around for Credit- Key factors in determining the interest paid on debt are the interest rate and length of a loan. The authors note that a 1% drop in the interest rate on a $200,000, 30-year mortgage can save $120 a month, $1,440 a year, and $43,200 over the life of the loan.

 

  • Aim for a Debt-Free Retirement- A paid-off mortgage is “a pressure-free way to enter retirement.” In addition, trading down to a smaller home can add significantly to a retirement savings nest egg, A $150,000 profit, with a 4% withdrawal rate, translates into an extra $6,000 of annual income ($150,000 x .04).

 

Chatzky and Roizen stress repeatedly that it is never too late to change bad habits, save money, learn from mistakes, and create automatic systems. Readers are encouraged to be their own CWO (Chief Wellness Officer) and CFO (Chief Financial Officer) and to build a team of professionals, family, and friends to assist them.

 

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This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.