We have been brought up with the belief that goals and desires are beneficial. How else can we get things accomplished if we do not have desires or set goals? So, how can having desires be detrimental? It all depends on what happens if you do not attain your desires.
Having a desire is beneficial by focusing one’s energy from having many goals (wants) to a single focused direction (desire). For example, children wanting a lot of presents for their birthday may be disappointed if they do not get the one present that they really wanted. So the focus of a desire is beneficial in getting more of what you want in life.
However, what creates the desire is the key. When you have a desire to escape where you are (e.g., desire to become a millionaire in order to escape debt or poverty) or to have more money because you do not feel secure with what you have, then desire can be detrimental. So, should a poor person give up the desire to be rich? No. However, if a poor person is trying to escape where he is at instead of being at peace with where he is, then the desire can be detrimental. If he has a desire to get out of debt and he hits a bump in the road, the key is the reaction. If the person is not tied to the outcome, he will probably see it as a bump in the road and move to get back on track. If the person is tied to the outcome (need to do it or else), he will probably feel depressed about the setback. It is here that desire can be a detriment because the energy needed to get out of debt is focused on the reaction due to hitting a bump in the road instead of focus on getting back on track. So, the key is to not be tied to the outcome. The more energy focused on the task versus the outcome, the better.
Desire can also be detrimental because trying to escape from where we are can be an addiction. Many addictions are centered on a person having a false belief of himself. If you are trying to escape who you are because you define yourself by money, this can lead to greed which is an addiction (needing more and more money to feel good). Yet, you are not your money. If you define yourself by how little or much you have, it is a never ending cycle. This is because if you do not reach your goal, you are going to strengthen the belief that you are not a worthwhile person until you have money. And, if things could not get worse, even if you do reach your goal it will not be good enough. If your belief is that you are not a worthy person because you are broke then having more money is not going to change this because you will find that you need a little bit more to be good enough. It is an endless trap because our net worth does not define our self-worth. Thus, the desire creates a trap to keep our sense of self-worth low. Even having a desire to escape poverty to have a better life for your children is a trap because it is based on “I am a good (or better) parent if I give my child things that I did not have growing up”.
So how do we use the energy of desire without getting trapped into being attached to the outcome?
There are many approaches to securing your retirement. The common approach is to save, save, save. Being an actuary, the financial background part of me can not stress enough the need to save if you want to retire at 65. However, for many, the emphasis to save brings a lot of stress and worry. Parents worry how they can raise a family, save for their retirement and save their children’s education, all at the same time. When they retire, they worry if they will have enough money to last through their retirement. They worry if they will outlive their retirement savings or if the market should crash and take their retirement savings with it. They worry about price of prescriptions, insurance and Medicare premiums increasing. There is always something to worry about in retirement, if we want to worry.
A few months ago, I heard a statement from a prominent personal growth speaker/writer that we should not worry about saving for retirement. I was shocked about how someone could say not to worry about saving for retirement. It must be that he does not know what he is talking about, especially because he does not have a financial background. I was thinking that many are not saving enough, so do not tell them not to save. Yet, when I am shocked, it is usually an opportunity to discover something new and different. I then listened again to what he said. He did not say “not to save”, yet to take the worry and stress out of the equation. This is a very important message because when we spend time and energy worrying, we have less energy for life, including energy that can be used to increase our income to be able to make saving easier.
When we hear of a variable annuity, we may think of them as
• Not a good investment due to the high fees
• A good way to defer taxes
• A way to protect against inflation
• A way to receive a higher investment return compared to fixed annuities by directing your investment (e.g., in equities)
There is confusion whether or not variable annuities are a good investment depending on who you talk to. So, let’s look at some of the logic behind the different viewpoints.
• Annuities can defer taxation on investment gains until you receive the payment
• Investment gains for annuities are taxed as ordinary income, thus forgoing lower capital gains taxes
• Annuities usually have a high commission paid to the broker/agent that the policy holder indirectly pays for in higher management and withdrawal feess
How does this work mathematically for investing in equities?
When asked what many couples fight about, money is usually high on the list. Some even say that money is the number one cause of divorce. However, it is usually the issues around money that cause the problems, such as:
• Power & Control – One spouse controls most of the money decisions due to having a financial background or due to bring home most of the income
• Resentments – If one spouse blames the other for their financial condition, the other spouse will find a way to resist changing (rebel)
• Stress – When living paycheck to paycheck, the added strain may have an influence; however, stress is not caused by money rather our reaction to money
• Accountability – When one spouse hides purchases from the other or is not keeping track to a budget, this will create resentments down the road
• Emotions – Money is energy and anger, shame, guilt, fear and other emotions come up in discussions around money (for more see (for more see “Energy of Money” )
I have noticed when people on financial message boards talk about their problems it is usually one spouse is a big saver (wanting to get out of debt) while the other spouse is a big spender (got them into debt). When others hear this, the response is usually the financial pain is not worth it so it is best to get a divorce. For me, money is unjustly maligned. It is up to everyone to determine what their breaking point is for a marriage is. However, if money is listed as the cause of the divorce, my question is was there an attempt to isolate one of the above issues with money to work on it because even having more money will not solve the problem. For example, you may be stressing about money. Yet, even if you have more money, you will find something else to stress about (like keeping your job). Some people like stress due to the adrenaline rush. So if money becomes a non-stress item, they will find another issue to be stressed about.
So what can we do? For me a healthy marriage around money will entail:
There is always a debate whether an index fund is better than an active management mutual fund (or even a stock broker). For me, I am biased towards the low cost index funds and ETFs (exchange traded funds). Initially, I went with my parent’s stock broker. Yet, after a few years of disappointing returns, I finally took over the management of my stock portfolio myself and started to convert it slowly into index funds. Here is some of the math that I did to make my decision.
First, an index fund normally has a low expense fee ranging from 0.1% to 0.75% (lower for an S&P500 index fund and higher for an international index fund). While an active management fund can have a 1% to 2% or higher expense fee for their services. For my situation, the stock broker was going to charge me a 2% fee (a reduction from his normal 2.5% fee because he wanted my business). Thus, let’s assume on a $100,000 investment, a 0.5% expense fee on an index fund equates to a $500 cost per year versus $2,000 for a 2% fee for an active management fund/stock broker.
Thus, the manager in this scenario needs to earn 1.5% more than the market on a risk adjusted basis to break-even
Second, an active management fund usually has a higher turnover rate than an index fund. In order to get the higher return to justify his expenses, he (or she) needs to move in and out of the hot stocks of the week (or month). The issue with higher turnover is that for the return is taxed as ordinary income instead of capital gains if the stock is held for less than 1 year. Thus, even though their returns may be higher, so are taxes that you need to pay. For example, let’s assume a 3-year holding period with an 8% investment return and 28% tax rate & 15% capital gains rate:
The forth gift of tithing is allowing energy to move. It is about creating a world that we want. It is a continuation of Part II in how we give is just as important as what we give. As a refresher, the other Gifts of Tithing included:
• Part I – The basics premise of tithing is what we give is what we receive whether it is anger, money or love. Yet, the law of tithing goes further in that what we focus on (abundance or lack) is what we receive. Thus, we can be giving money, yet is the focus is on lack then lack is what we receive.
• Part II – How we give is just as important as what we give. If we give reluctantly, sparingly, expectantly, etc., the focus is on lack and that is what we receive. If the focus is on giving lovingly, joyfully, willingly and freely than we will receive what we give.
• Part III – Tithing showing us that we are already abundant while taking the focus off of lack.
This part of tithing is about creating the world that we want by giving to the world what we want. Many people have discussed the feeling of being nickel and dimed by companies and our economy (declining wages and increase gas and health care prices). Yet, at the same time we are gong out to Wal-Mart and eBay trying to find the best prices. Sounds like a paradox where we want to receive freely, yet at the same time we do not always give freely. This is where tithing comes in. Tithing is the instant where we give without the expectation of getting anything back. Wouldn’t it be great to get a bonus from your boss just because he is gracious and not because you had to break your back working 12 hour days for weeks on end?
When in debt, most people do one of three things
• Blame their employer or government for either not paying them enough or not helping them with enough benefits or assistance
• Kick themselves for getting into the situation (or blame their spouse for it)
• Pray to get out of debt (or to win the lottery)
Yet, to get out of debt, one of the most important factors is gratitude. It is easy to look at lack when in debt. Debt however makes it even more important to be grateful for what you have instead of being discouraged for what you do not. This is because what you focus on expands for (see we get what we have not what we want). So if the focus is on how you got in the problem or on what you do not have then lack will continue to expand.
I recently did an article on how fear holds us back from financial prosperity in particular how fear holds us back from tacking action. Yet, fear also is used in marketing. In marketing, fear is used to get people to take action by buying their (financial) product. The act of buying though is shifting responsibility and future action from the buyer to the seller. Thus, fear is still holding the person back from taking future action by transferring responsibility to the seller. The belief is that the financial expert can do a better job with your money than you can.
I am not saying that all financial products are sold by fear or are all financial products are bad. Yet, as consumers, we need to do a better job in investigating the products. It is o.k. to shift responsibility to a financial expert, yet do not shift your responsibility without doing your own due diligence.
I have seen a lot of discussions about how to payoff credit card debt. Some like DOLP (dead on last payment) while others like paying off the highest interest rate cards first. So which is the best for you? Unfortunately, there is not a clear answer or consensus. David Ramsey and David Bach like the DOLP method. Yet, most of the debt calculators on the internet are based on paying off the debt with the highest interest rate.
The premise of each one is:
• Highest Interest Rate, First – If you have a debt at 25% interest rate and another debt at 15% interest rate, then it makes sense mathematically to pay off the 25% interest rate first. For each $1,000 in debt, the extra 10% is $100 in additional interest paid each year.
• DOLP Method – If you have $10,000 credit card debt and a $1,000 with another credit card, per this method, it may make sense to pay off $1,000 first. Behind this is the logic is that by paying off the $1,000 credit card first, you will gain a psychological advantage of paying off of one of your credit card debts. Thus, you have more motivation to pay off the rest of you debt by having a quick win. If you pay off $10,000 debt first which may take years to do, you may lose motivation, get discouraged and may quit. In addition, if you miss a payment or make a payment late, the fees from having multiple credit cards will add up quickly. Thus, under this method, it is best to have a few cards (thus minimizing change of being late on your cards) by paying off the cards with the smallest balances, first.
So which one is right for you?
Many people stay stuck in fear and do not move forward towards their financial prosperity. Some may see fear as a useful emotion in that it motivates them to take action. They believe that fear stops them from walking down a dimly lighted street, or that fear may make them save for retirement. Yet, it is not fear but gut instinct that makes us choose a different street or choose to save for retirement while fear makes us stop at the corner waiting 10 minutes to make a decision. Fear can also makes us wait several years to save for retirement worried that we can not save 10% -15% of our salary to retire at 65 instead of deciding to save what we can now, even if it is 2% – 5%. Thus, fear holds us back while our intuition (gut instinct) guides us (if we do not let fear get in the way).
So how do we get rid of fear? We can not get rid of fear, yet we can stop it from controlling our lives. As a friend of mine says, “run towards the roar”. In other words, go towards what we fear. Lions hunt by sending the older and weaker lions in one direction and the younger lions in the other direction around the prey. The older lions’ only job is to roar as loud as they can to frighten the prey right into the younger lions. Thus, sometimes our biggest fears (the old lions who roar) may turn out to be not that big of deal.