A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

“Passion Saving Seems to Advise
That You Can Never Have Enough”

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The Richer by the Day blog recently posted a review of my book Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work.

It’s good stuff. It’s clear that the blog author spent a good bit of time going though the entire book and thinking through a number of the issues raised.

Juicy Excerpt: While both Passion Saving and Your Money or Your Life advocate finding meaning in life and focusing energy on those activities, a major philosophical difference between the two books remains.  In my review of Your Money or Your Life, I mentioned how the concept of “enough” was personally liberating and something that I could really relate to.  Passion Saving seems to advise that you can never have enough…. Past a very low basic threshold, spending more doesn’t bring me joy.  The claim that “spending adds to life” is true, but only until you reach the peak on the fulfillment curve.  After that, additional spending takes away from life.

Juicy Excerpt: Passion Saving seemed to be contradictory at times and focused not on taking the right actions, but taking the right actions for the right reasons.  On this last point I got the sense that saving 20% “blindly” by paying yourself first would be seen as an inferior method to saving 15% in ways that you were passionate about.  To me, the result is much more important than the method even if it doesn’t have a catchy title or start a movement.  The self proclaimed bumper sticker summary of Passion Saving, “Save the Way You Spend” goes to the main reason I had a hard time connecting with this book.  I hardly spend any money, so should I also hardly save any?  While I seem to have many common goals as the author, we seem to have different methods and motivations to achieve those goals.

Rob’s Comment: The author of this review does a great job at hitting on some important ways in which the Passion Saving approach differs from the Your Money or Your Life approach. He’s right to say that I believe that one can always add to one’s enjoyment of life through additional spending. I can think of many things that I would spend more money on if I had more money available to me. And, if I reached a point where there was nothing else I wanted to spend money on for my personal enjoyment, I could finance start-up businesses or give to charities. I don’t possess an anti-spending mindset and I think it is fair to say that the authors of Your Money or Your Life do. The review describes the differing positions effectively. The author of the review doesn’t share my take but he is fair in his presentation of the differences. I am grateful for the considerable effort he put into this review.

“Money Management Isn’t Just About Knowing the Math — It’s About Knowing Yourself”

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A recent blog entry at the Get Rich Slowly blog examined the article in the “Upsizing” section of the site entitled Ten Unconventional Money Saving Tips.

Juicy Excerpt: Money management isn’t just about knowing the math. It’s mostly about knowing yourself. It’s…about learning to see money in new ways…. These tips are excellent examples. While some of them do include some arithmetic, they all address psychology.

Lots of good comments on my advice to Pay Yourself Last (some pro, some con) follow J.D.’s blog entry.

Juicy Excerpt (Con): It’s not about fun, it’s about doing the needful. If saving was fun, there wouldn’t be so many blogs and advisers writing articles about how to save! People would do it simply because it felt good.

Juicy Excerpt (Pro): Joe, you make saving sound so dreary! It may be for most but it doesn’t have to be so, which is the point that the author of this article makes. Personally I do find saving fun and immediately rewarding (just watching those numbers rise and expand). However despite it being exciting, I find that impulse buys do gnaw at my goals, so adequate planning is definitely prescribed to overcome that.

Saving 10 Percent Is Death

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I recently wrote a guest blog for the plonkee money blog entitled Saving 10 Percent Is Death.

Juicy Excerpt: It is a bad idea to consult a rule of thumb when deciding how much to save. Effective saving plans are customized saving plans, not prefab saving plans. What you need to determine is, what percentage of income should someone pursuing your particular Life Goals and faced with your particular financial circumstances be saving?

Today’s Passion: Saving Too Much Is a Big Problem. Or so I say.

“If You Can Change Your Mindset
to See Saving as Buying You a Little Bit of Freedom…”

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The Tight-Fisted Miser blog has posted a review of my book Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work.

Juicy Excerpt: This book is more about motivation than nuts and bolts. He distinguishes between what he calls Sacrifice Saving and Passion Saving. If you can change your mindset to see saving as buying you a little bit of freedom rather than something you have to do that you won’t be able to enjoy for many years, then saving will become much easier….. If you have read Your Money or Your Life, you really shouldn’t need this book. If after reading Your Money or Your Life you still need motivation, then this book might work for you.

I am grateful to Andy for writing the review.

He is certainly right that the book is more about motivation than it is about the nuts and bolts of saving. It is for the best if readers know this going in. My belief is that getting motivated to save is pretty much the entire deal. Those who become motivated always are able to handle the nuts and bolts, but those who do not never even care to learn about the nuts and bolts. It’s my belief that there is lots of material available on the nuts and bolts but not too much in-depth material on how those who have never been motivated to save can become strongly motivated.

Andy is also right to see that Your Money or Your Life was a big influence. I don’t agree that those who have read Your Money or Your Life don’t need to read Passion Saving (but then I wouldn’t, would I?). My goal was to take the principles set forth in Your Money or Your Life and show how they can apply to the many types of people who need help saving who are not interested in pursuing the not-for-profit endeavors that are the motivational goal of many of those who used Your Money or Your Life to motivate their saving efforts.

Today’s Passion: My favorite review of Passion Saving is the one done by Audrey at WritersHelper.com.

Thinking Like an Employee

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I’ve written an article for the www.writershelper.com site entitled “Book Marketing and the Proposal Doctor.”

Juicy Excerpt: “She strongly urged me to write a more conventional money management book, one that would focus on tips for reducing spending. (My book is more of a “why to” than a “how to” as it argues that the motivation behind the saving effort determines its success or failure and rejects the goal of saving for an old-age retirement as generally ineffective)…. It was her comments that made me decide not to even submit my book to publishers but instead to publish it myself.”

Most first-time authors very much want a contract from a big publisher. It gives them credibility in the eyes of potential readers. I had dreams about the day that I would receive a letter making me an offer to publish Passion Saving. From that day forward, I would have a good answer to the question “What do you do?” The response “Random House is coming out with my book in January” sounds a whole bunch better than the response “I’m trying to sell books from my website.” For obvious reasons.

It sounds better. But I’m not at all sure that it is better.

The reality is that a first-time author usually obtains an advance of perhaps $20,000 or $30,000. If you spent years generating the ideas that drive your book (as I did and as many other authors do), that’s a very small payment on a per-hour basis.

The instant credibility you get from going with a big publisher is worth a lot. That’s for sure. That’s the best argument for going the big publisher route.

The problem is that credibility alone does not sell books. Most books sell few copies. Publishers don’t expect most books they publish to make money. Publishing a book to them is something akin to buying a lottery ticket. They’re looking for the one big one that makes them a million. They know that they need to publish hundreds of others to discover the one that clicks. So they do.

If you end up being one of the hundreds of others, you end up on the remainder table. What does that do for your credibility?

And the credibility you get from going with a big publisher does not come cheap. You give up control over the book. They decide on the cover. They decide on the title. They decide how to promote the book. The author is a hired-hand, and a poorly paid hired-hand at that.

After talking things over with the proposal doctor, I came to have doubts about the idea of trying to entice a big publisher to buy my book. The book argues that saving is the path to freedom, to getting to a point in life at which you begin to call the shots about your future. But here I was, the guy putting forward this argument, begging for crumbs from “the big boys.” Something didn’t fit.

I was thinking like an employee.

By seeking a publisher’s approval of my book, I was giving them power over what would be said in the book in exchange for money. There’s nothing wrong with doing that in the right circumstances. But it should not be the automatic choice.

I decided that the circumstances were not right in the case of Passion Saving. If the book is as good as I think it is, the big publishers will someday come to me. If they come to me, I’ll get a whole bunch more money. And I’ll be able to retain some control over how the book is sold.

You’re not selling books. But you are doing some sort of work in exchange for money. How many of the shots do you call?

As you gain experience and build contacts in your field, you should be becoming more independent, you should be gaining more control over how the work you do is completed. If that’s not happening, you need to be thinking about what you need to do to make it happen.

The point of the Passion Saving approach is that we don’t save money to have our expenses covered when we get old. We save to be free.

It makes sense for us to give up our freedom when we are young because it’s by working for others that we learn what we need to know to do important and profitable work. It’s a mistake to let those years of working for others cause us to think that we always need a sign-off from some higher-up to know which way is the best way to proceed with the work we do.

Sometimes we enslave ourselves. There’s a time for thinking like an employee and there’s a time for going beyond thinking like an employee.

It’s Not (Entirely) Our Fault That We Don’t Save

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The Wall Street Journal insulted us last Saturday.

It was not an intentional or direct insult. It was an implicit insult put forward by quoting with approval the words of two experts. Still, I believe that the Wall Street Journal insulted middle-class workers seeking financial freedom early in life in an article from the edition published last Saturday entitled “Money Advice, by the Book.”

The article reports that the personal finance category is the third fastest growing category in the book publishing field. I find that encouraging news both for myself in particular as the publisher of a personal finance book and for the Retire Early movement in general, as it suggests that there are more middle-class workers all the time seeking out fresh ideas on how to manage their money.

I liked the article. But there was one argument put forward in it that I did not like. The article cited two experts in support of the proposition that personal finance is “basic stuff” and suggested that advice that is out of the norm should be viewed as suspect. The idea being advanced was that, once you know the cliches of personal finance, you know all that you really need to know.

The implication was that we don’t need to see too many more personal finance books published.

I don’t doubt that many of the recently published books in the field repeat the conventional wisdom and I agree that we don’t need more books doing that. However, I reject the idea that we don’t need fresh ideas on how to manage our money effectively. I can’t think of too many things that we need more of than fresh ideas on how to save.

We earn more money than did our parents and grandparents. We save less. Our inability to save is causing us stress and limiting our life options. We need books that teach us how to save effectively.

The conventional personal finance books do not do this. Like Linda Ronstadt did, I’m gonna say it again. The conventional personal finance books do not do this.

If the conventional advice worked, we wouldn’t have a saving problem. Right? The point of the existing books is to help us save. We don’t. So the books aren’t getting the job done. Right?

This is an important point. People are reluctant to call a spade a spade re this one. Most middle-class workers who do not save blame themselves rather than conclude that the conventional advice failed them. I think that the time has come to begin pointing the finger at the people who parrot the cliches without stopping to realize that these tired ideas have not been doing the job for years and years now.

It is time to try out some new ideas. The first step to doing that is acknowledging that the old ones have failed us.

The insult is in the suggestion that it is the middle-class workers who are failing to save who are failing to do the job rather than the money management approach they are using. If it were a small percentage of the population not saving, I could buy into the idea that it is the poor savers who are to blame. I have a hard time accepting the idea that 80 or 90 percent of us are so lacking in willpower that we cannot follow simple rules that would work if only we shaped up.

How many people do you know who save effectively? Do those people lack willpower in all areas of life? Or is it only in the saving area that they seem unable to behave responsibly?

When there are so many people who are successful in so many fields of endeavor who cannot get to first base in the saving game, does not that suggest that we need to make some changes in the saving game?

We don’t save enough. That’s clear. I don’t think it is entirely our fault. I think that a big part of the problem is that the conventional advice just does not make sense to most workers trying to plan for their financial futures in today’s economy.

The old money rules do not work. The Financial Freedom Community’s mission is to find out what does (we have made great progress in the first six years of our discussions, of course). The first step is to stop blaming ourselves for something that in most cases is to a large extent not our fault.

Our Employers Should Encourage Us to Move On

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Wall Street Journal Columnist Ron Lieber made an important real-world observation in the column discussed in yesterday’s blog entry. In a discussion of my argument that the best way to convince young workers to save is to point out to them that they will remain under the thumb of their employers until they accumulate some Freedom Dollars, he noted that: “If you are an employer, you might not put it quite like that.”

He’s pointing to something real with those words. It’s something that I find troubling. Employers don’t like to acknowledge that the most important sort of freedom that young workers should be seeking to obtain by saving is freedom from them. Still, it’s true. And I think it would be good if employers came to see that it really is in their long-term interest to communicate this truth to their young workers.

I am not anti-employer. All of my employers provided me learning experiences that were of value greater than the in-dollar-form compensation that I earned by working for them. The in-dollar-form stuff was nice too, of course. So I have no big beef with any of the companies that I worked for in the years before my Passion Saving plan permitted me to venture down a different path.

Here’s the thing. It was when I stopped looking to my employers to take care of me that I got serious about saving. Like Linda Rondstadt did, I’m gonna say it again. It was when I stopped looking to my employers to take care of me that I got serious about saving.

Many of today’s workers still think of their employers as part of the family. It’s not because they are too dumb to know better. Employers have long encouraged this sort of take on things.

And it has not been just words from employers that have caused many of us to think of our employers as our friends. Employers have paid our hospital bills when we got sick. Employers have provided us with recognition of our growth through pay raises and promotions and positive evaluations. Employers have provided us pensions when we got old.

These are the sorts of things that family members and friends ordinarily do. It is not so hard to understand why many workers have come to think of their employers as more than just employers.

There’s been a change in the nature of the relationship in recent years. Employers are saying that they can’t handle financing our old-age retirements anymore. They are saying that we need to contribute to our health insurance coverage. Employers are pulling back.

There are sound economic reasons for them doing so. The world is changing. To remain competitive, our employers need to be more businesslike in their relationship with us and that means being less friendly or family-like in their dealings with us.

When our employers become more businesslike in their dealings with us, we need to become more businesslike in our dealings with them. If we don’t, we are going to pay a big price somewhere down the road for failing to do so.

Employers should encourage us to assert a measure of independence from them. I don’t mean that they should become heartless. I don’t favor that at all. But employers should encourage us to focus on our own long-term self-interest in all our dealings with them. It’s not healthy for employers to encourage us to think of them as family when they know that they will need to become very unfamily-like in the next recession.

Employers need to shoot straight with us. That means making clear that, while they value our contributions, they are not family and they are not friends and we need always to keep the distinction in mind.

Workers should not abuse their employers. We should not expect them to provide us things that they are no longer able to provide us. We should work hard at the work we have agreed to take on for our employers. We should speak well of our employers when they do things that justify our praise. We should appreciate our employers. We should like our employers. We should be grateful for the opportunities offered to us by our employers.

We need to stop looking to our employers to protect our long-term interests. We need to accumulate our own Freedom Dollars to provide not only for our old age, but also for taking advantage of work opportunities that we want to create for ourselves long before we reach old age.

My six-year-old is well on the way to learning how to read. It makes me sad in a way because he will soon be far less dependent on daddy to tell him about the world than he is today. It makes me more happy than sad, of course, because it excites me to see him learning how to take on the world on his own without help from daddy.

That’s how employers need to think about their workers. Employers should be warning us that there may come a day when we outgrow them and they should be encouraging us to save the Freedom Dollars that will help us move to better paths when the time comes for doing so. Things need to move in that direction if the employer-employee relationship of the future is to be a healthy one.

Young workers really should be saving in part to escape their current employers. Employers need to get over feeling threatened by that new reality of the modern-day workplace.

Money Advice from the
Leering, Slurring, Satanic-Influenced One

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It is my usual practice to draw inspiration for the money-management advice I offer from early-period and mid-period Beatles songs. There are times, however, when it cannot be denied that there is a darker side to the personal finance story that also very much needs to be told.
It was that darker side that was on my mind during my recent conversations with Ron Lieber, the journalist who writes the “Green Thumb” column for the Wall Street Journal. It was the most evil of songs that was playing in my head as he asked me what it is that we need to do to get young people to contribute to Section 401(k) plans.

The song is “Under My Thumb.” The singer is Mick Jagger. The theme is possession. The mood is sinister. The key lyric is: “The change has come.”

It wasn’t in Mick Jagger’s nature to put forward the comforting observation that: “There’s nothing you can do that can’t be done.” His aim was to shake us up with imaginings of how it feels for the one on top when the change has come. It doesn’t require too big a leap of imagination to figure out how it feels for the one not on top.

You do not want the change that our satanic-influenced friend Mick was making reference to becoming a part of your future. If the bright-colored picture of The Good Life painted by the Beatles doesn’t do the trick for you, please consider how it would feel to be the one being sung about when your boss (perhaps not the one you have today, but one who enters your life at some later date) has the lyrics “the change has come” playing in his head while he is thinking about you and your humble request for vacation time or a pay increase or office space that provides enough quiet for you to get some serious work done.

There’s a reason why you often hear those who spend all of what they earn referred to as “wage slaves.” Think it over.

In the end, a positive approach to saving works best. But if it takes a scare story to give you the push you need to get your feet planted on the Financial Freedom Path, then use that. If you don’t save, you’ll always have a boss and never be a boss.

The Wall Street Journal article is entitled “Forcing 20-Somethings to Save: How to Make the Case to the Newest Members of the Labor Pool.” Here is the text of the section of the article that quotes my views:

“Rob Bennett, the author of a book called Passion Saving, thinks the saving problem is partly one of packaging. So he prefers to couch it in the language of freedom: ‘What works with young people is, ‘How do you feel about the fact that you’ll be under the thumb of an employer for the rest of your life?’ ‘ he says.

“If you are an employer, you might not put it quite like that. But it is as good a reason as any for young people to start saving today.”

It was Mick Jagger’s idea. I just quoted the guy. Regardless of what you think of the leering, slurring, satanic-influenced one generally, I think it is fair to say that he has this one nailed. He really does offer one of the more persuasive arguments for why young people need to participate in Section 401(k) plans, in my assessment.

The Saving Penalty

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What if we weren’t so private about our personal financial lives? That’s the provocative question asked in a recent entry to the It’s Just Money blog.

The author of the blog notes that, “after finishing school, we go from all being poor college students to varying levels of economic means.” We naturally develop an interest in seeing how our friends are doing financially, and in comparing their level of success with our own.

The trouble is–we make these determinations by looking at what stuff they have bought. We conclude that the guy with the expensive car is doing well, and that the girl going on the expensive vacation is doing well. We conclude that the guy living in the inexpensive apartment and the girl wearing inexpensive clothing are not doing so hot.

It might be that our conclusions are entirely wrong.

In our minds, we are penalizing people for saving. We are subtracting social status points from those who follow effective money management practices.

What a mess!

To really know who is a success and who isn’t, we need to see how much people have in their investment accounts. But nobody talks about that sort of thing.

It might be that that is starting to change, according to the blog entry. It notes that bloggers share all sorts of personal financial jizz-jazz with their readers. Perhaps that will put the idea in the heads of a lot of others that it is not so terrible a thing to share details of their personal financial circumstances.

Bloggers learn from putting their financial lives on public display, in my view. They learn about themselves by discovering what sorts of facts they feel comfortable sharing and what sorts of facts they feel a desire to hide. They learn about others by seeing what sorts of facts about their personal financial circumstances elicit surprise.

There’s a reason why people talk so much with their friends and neighbors and co-workers. We learn by sharing information and obtaining feedback. We have cut ourselves off from a big part of the learning process in the area of personal finance by being so secretive.

I understand why it is taboo to disclose details of our financial lives to people outside of our immediate families. I am beginning to wonder, though, whether the taboo might hurt us more than it helps us.

The Naked Budget

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My wife and I (and our two boys) visited friends on Saturday afternoon. They’ve read my book and at one point the observation was put forward that it must feel strange to have the details of our financial lives on public display (I list the amounts assigned to each of our spending categories in the last chapter).

My wife said that she was concerned about this when she first saw the book, but that she no longer sees it as being that big a deal. Our friends commented that they have often found it disappointing that personal finance books do not provide line-by-line budgets that show in concrete form how the ideas discussed in the books influence one’s spending choices in the real world.

Honest and detailed money discussions are taboo.

A recent thread at the Early Retirement Forum discusses the taboo. A poster notes that co-workers and friends become uncomfortable when he brings up money questions if he shows an intent to explore them in any depth. We talk about television shows. We talk about sports. We talk about movies. We are reluctant to go too deep on money stuff even though the decisions we make about money affect how our lives work out in a hundred different ways.

If you want to learn how to manage your money well, you need to talk about your goals and your strategies for achieving them. You need to hash out the details. We learn by talking, by bouncing ideas off of others, by reformulating our ideas in response to the feedback obtained.

There are no one-size-fits-all money solutions. The particulars always matter. So it is not good enough to discuss general theories. We need to engage in back-and-forth on the specifics of our particular circumstances.

People are uncomfortable going down deep on money questions because money discussions are power discussions. Does he have more power than me? Am I going to have more power in days to come than I possess today? Have I squandered my power in days past?

We ban what we fear. Money discussions are taboo because we fear what we will find out from engaging in them. But it is only by breaking through the fear that we get to the other side, the place where we feel confident that our money choices make sense.