I'm a big Jodie Foster fan and in several interviews that she's done, she talked about how when she was younger and working as a child actress, people would say to her, "Jodie, you'll be completely washed out by the time you're 40 and you won't ever work again after that."
Well, Jodie did keep working after age 40, but she was smart and did the following: she started to produce and direct movies, and she was smart about saving and investing her money early on!! She DIVERSIFIED her life portfolio. I just read this absolutely fascinating NYMag post where an anonymous entertainment accountant talks about her super famous clients and how surprisingly clueless they are about money. Lesson of the post: As an entertainer, you might hit it big, but it won't last forever. Stock away your money because the hits will stop one day. And when they do, you won't be struggling because you were smart early on and have enough money to live on for the rest of your life! "My clients are actors, musicians, writers, newscasters, directors, models, and producers, many of them Grammy and Academy Award winners ... It’s insane, because they don’t live in the real world. They don’t understand anything about how normal, everyday stuff works. Why do you not understand that because you made 1 million, 5 million, 10 million this year doesn’t mean you’re going to make it next year, and the year after! For god’s sake! You can enjoy yourself, but take a percentage of it and put a little bit of money away! And if you have a mortgage, pay down the principal. Try to build up some actual equity in your home. If you have children, create a small trust fund for them. I think in all these years, I’ve had a total of two clients who have retirement funds. Only two. Some of them have investment accounts, but they’ll set them up in the “up” years, then, as soon as the bookings drop or they don’t work or the show they’re on is cancelled, they go through that money like water because they refuse to scale back their life style. We will say, “Guys! You need to cut back.” “Oh, I can’t cut back.” Yes, you can. “You want me to stay at Motel 6 and shop at Target?” No. But real people live on the amount of money they have coming in. They live within their means. I’m sorry, but I think most people could live comfortably on a million dollars! But for some reason, they can’t. They think they’re going to be famous and rich forever. You try help them onto the right path. It’s a weird the satisfaction you get when you can help someone else get financially set up and secure for life. Most of them are surrounded by people who tell them they can do no wrong so it takes a strong person to come through all that and be levelheaded and down-to-earth."
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The following interview is conducted with a young woman in her early 30s who works in finance. Below are her thoughts about her parents' divorce and how it affected the way she views life.
1) How did your parents' divorce in your teens affect how you think about money? My parents' divorce was perhaps the biggest influence in shaping my perspectives about money, and subsequently my career. Seeing the chaos at home while my parents were together, and later as my mother returned to the workforce as a single parent, instilled in me a profound fear of repeating these same patterns. The financial stress (real or perceived) was pervasive and touched each purchase, making even family vacations guilt-inducing rather than truly relaxing or bonding. I remember growing up with an arbitrary sense of scarcity, and the notion that every single purchase, ranging from grocery store shopping to clothing to dinners out, came with immense guilt. There was no line between spending with freedom and purpose, and buying things "we couldn't afford". Post-divorce, this mentality continued and was compounded by my mom's reliance on alimony after an acrimonious split. She was not independent, free, or self-sufficient, and was instead tethered to an ex-husband who resented her. She had to fight for each payment, and struggle to maintain employment in a competitive workforce that she had left years ago. Besides illustrating the vulnerability of non-earners in single-income households, the divorce also refined my perception of gender roles and brought the disparity into focus. My mom was a devoted caretaker and manager of the household: we had freshly laundered towels every single day, homemade french toast for breakfast, and were routinely and punctually driven to school, appointments, and activities by my mom. She was involved in the PTA and served as a dutiful biographer of the family, always with a camera in hand to snap photos for the yearly scrapbooks documenting our lives. These were the activities that filled her time in place of the full-time job she had before choosing to stay at home and raise the children. In the divorce, my mom received alimony and child support, calculated on variables such as duration of the marriage, age of the children, and earning capacity. Quality of care-taking was not a factor in determining a fair settlement for my mom, and it was disheartening to see how little value is tangibly ascribed to "home production" activities. As the sole earner, my dad held most of the power. While divorce is not predictable, I saw these financial challenges as issues that could have been avoided with preparation and foresight. I decided that I did not want to live the way my mom did, and I would do everything I could to prevent that. Independence became a virtue and a mindset - if I wanted a house someday, it would be wise to expect to pay for it myself - and I decided that I was responsible for crafting the life I wanted. No one else could necessarily be relied upon to deliver that permanently. Sentiments and life circumstances change, and I can envision myriad outcomes and ways to be prepared. My perspective is not bleak or antithetical to romance, however; I see a potential partner providing emotional fulfillment and companionship, and am not expecting my material needs to necessarily be provided for. This is the privilege of self-sufficient individuals - we can search for partners we want, not partners we need. 2) How did that impact what you ultimately decided to do, career-wise, post-college? My parents' relationship with money influenced how I thought about careers even before they technically separated (when I was 15). I saw them argue about finances and purchases frequently, and there was an overall attitude of "never being able to afford anything", except when my parents chose to spend. It was a confusing, contradictory, and seemingly arbitrary approach to spending the created tension in the household and became a main focal point of daily life. Observing the consistent stress, attention, and energy my parents spent on finances, I decided at around age 13 that I never wanted to feel so constricted by money in my own adult life. I wanted the freedom to spend without crippling guilt or devoting overwrought attention to budgeting, so a career in business or law seemed like a good path. I started college with the intention of being a lawyer, and planned to major in economics and business and minor in rhetoric. I loved the material, and particularly took to analytical courses in economics and statistics. When I learned about the field of investment banking in sophomore year, the nature of the job (analytical, rigorous, quantitative) and the pay made it seem like a good post-undergrad career. I wanted to be financially independent as soon as possible, and entering investment banking allowed me to do that right away. I feel lucky that I enjoyed the field enough to want to stay in finance. While I enjoy my job, earning the type of income where I do not have to stress about finances the way my parents did certainly makes me appreciate the job even more. Earning that level of income is not sufficient for devoting oneself to a career (for me), and it's perhaps not really absolutely crucial compared to having passion for my career, but it is something I greatly appreciate. 3) When you look back at the divorce, how do you think that shaped you as a person? The divorce definitely reinforced the value I place on independence and self-sufficiency, and also probably contributed to my ambition. Seeing that a marriage does not necessarily provide security shattered an illusion that many young people hold, I think. That experience adds dimension to how I imagine the downside, and it allows me to prepare accordingly. For example, I would like to have a relationship and family, but I also plan to stay in the workforce throughout that. I can vividly imagine a scenario where my partner changes in ways I could not foresee and decides he does not want the life we built together anymore, perhaps when the kids are in junior high or high school. If that were to happen, and I had to rely solely on alimony and child support, that would add a layer of stress to an already challenging life event. This scenario played out in my family, and I saw my mom leave her job to raise my brother and me as children, and then be forced to re-enter the workforce much later and compete in a different employment landscape. Her struggle and the tension arising from spousal support disputes were acutely painful, and I hope that remaining in the workforce helps mitigate any risk that I face those financial challenges in the future. I am currently 28 years old and one of the things I often ask myself is - "If my 38 year old self came to visit me, would I be happy and/or impressed with what she has done with her life?" Pretty much every single major life prediction I've made in the past has been incorrect so I don't bother making predictions anymore. But, there is something I'm sure of - the more financially secure you are, the better off you'll be.
Thus, I'm going to ask the following: Think about where you'd like to see yourself in 5 to 10 years, and think about what action steps you can take NOW to achieve your goals. Your plans will almost certainly change and unexpected things will pop up. But if have enough money, you will always land on your feet. What are some examples of how being diligent and smart with saving and investing TODAY help you in the FUTURE? 1) If you lose a job because the robots have taken over, you'll have a safety cushion. 2) If a relationship ends, you'll have a safety cushion. 3) If an unexpected emergency pops up, you'll be able to attend to it without suffering any financial setback. 4) If you suddenly decide that you want to film a documentary about plant life in the Amazon jungle, you'll have the financial resources to do so. 5) You can spend money on your family and best friends. That is a major plus for me! Saving and investing now is relatively simple - have a portion of your income be automatically deducted and distributed into a savings / investments money bucket. Ignore any previous excuse you've used to not save and invest. After a while, you won't even notice the change in your lifestyle. And you'll certainly be in for a nice surprise in the future when you realize how much your money has grown thanks to the intelligent actions you took today and thanks to compound interest. Okay, I'm done sounding like your mom. Go forth and invest! I just discovered something really cool. Did you know that you can contribute up to $53K to your 401K every year, $35K of which can be transferred to your ROTH IRA? The $5.5K limit doesn't necessarily have to apply after all! Here's how it works: 1) You contribute up to $18K to your 401K (pre tax money) 2) Your employer kicks in the company match (pre tax money) 3) Depending on your employer, you can then contribute a certain percentage of your annual salary to your 401K after tax money bucket. Once a year, (if your employer allows), you then do an in-service withdrawal by transferring your 401K after tax money to your ROTH IRA. You may not receive a tax break with Roth IRAs (since contributions are made with after tax money), but earnings and withdrawals are generally tax-free. This is called the Mega Backdoor ROTH IRA. The College Investor has a more detailed explanation. FYI, this is different from the Backdoor ROTH IRA, which allows you to contribute $5.5K to your ROTH IRA even if you earn above the income limit. I'll let you know if I ever learn of a MEGA STUPENDOUS SUPER TOTALLY AWESOME BACKDOOR ROTH IRA. Apparently, only 10% of US companies allow employees to do both steps in #3 so this isn't something that everyone can do. But you should check! My investment accounts now look like the following: 1) Managed investment account with a robo-advisor 2) ROTH IRA account with a robo-advisor - this should look turbocharged from now on! 3) 401K account (with both pre tax and post tax money) 4) Health Savings Account ($3,400 max now but if the new Republican American Health Care Act passes, this could be increased to at least $6,550 for individuals). Being financially responsible feels pretty great. And if anything happens, I'll just remember that there's always money in the banana stand! Behavioral finance has grown as a field of study in the last few decades. There are tricks and tips on how we can change our behaviors to save and invest money. Some are pretty useful.
One thing has always worked for me, however. And that thing is fear. I often imagine the most horrible scenarios that can happen if I don't save and invest and once I'm sufficiently scared, I go and save some more. I seem to have an extreme long view of my life, much more so than other people. When I was in fifth grade, DARE used to come to my class and show us pictures of black lungs - "Kids, this is what happens if you smoke!" Or they would show us a picture of a wrecked car - "Kids, this is what happens if you drink and drive!" DARE was highly effective and their words have been stamped into my brain forever. Fear works for me but I'm not sure it works for other people. Generally speaking, you should be nice in your approach when giving advice. Having said that, I do wonder if people might take you more seriously if you say, "Here's what might happen if you don't save." (But of course, you say it super nicely). There are several interesting articles that talk about what may happen on Forbes, Huffington Post, and Reddit. Some key highlights on what happens if you don't save for retirement: 1) You will have to work until you die (hopefully, no bad health issues get in the way). 2) You give up your house and move in with your kids or other family members (hopefully, they are okay with this). 3) You will not be able to live a lifestyle that you may want to have (engaging in expensive hobbies, travel, fine dining, etc). Think about all this. And if you haven't given much thought to your financial situation, perhaps it's time to start. |
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An anthropological look at how people think about money. Created and edited by Star Li. Archives
December 2022
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