It probably sounds impossible. It may even feel impossible. But increasing the percentage of your income that you put toward savings can pay off big time. Adding more money to your retirement can allow you to retire earlier or live a more lavish lifestyle in retirement. So before you set your long-term financial goals like the average person, consider setting aside more, maybe even half of your income for the future.
Create a New Budget
In order to save this much money, you will likely have to adjust your current spending habits and patterns. People tend to live and spend according to their salary, but it’s a good idea to create a budget that helps you live well below your means. This requires you to prioritize the future more than the present. We often hear of the 50/30/20 budget where you spend 50% of income on needs, 20% on financial goals like retirement or paying off debt and 30% on wants. So in the new breakdown, you will likely have to reduce both some needs and some wants.
One of the easiest ways to save more money is to make more money. By increasing your income, saving 50% won’t have as big an impact on your life. Consider asking for a raise, applying for a promotion or new job, getting a manageable part-time job or starting a side hustle where you earn money in your free time.
It can be a good idea to have separate accounts for different savings goals. For example, one for your emergency fund, one for your vacation fund and one for your home down payment. Whether you are planning to save 50% of your income for a short term to reach a specific goal or you plan to do this for the long term, forming a strategy can help.
Split Direct Deposit
If possible, you might want to talk to the payroll or human resources experts at your office to inquire about splitting your pay in half. Fifty percent of each paycheck can go where it does now (likely your checking account) and 50% can be assigned for your new savings account (an IRA, Roth IRA or savings account). Putting savings on autopilot can make it much easier to stick to your plan and be less tempted to break your own spending rules.
Even with the best intentions and a plan in place, sometimes things come up. Life happens. So it’s important to check your progress regularly — including any time you incur a financial change, like a raise, windfall or new mortgage. It’s a good idea to know your balance, and stay on top of how much you are paying in fees.
While it may not be easy, these tips can still motivate you to save more — whether that’s 50% of your income or another percentage that works for you.
A friend of mine, Gary Foreman from The Dollar Stretcher, pointed out a set of facts to me recently that made it painfully clear why new personal finance blogs are finding it difficult to find their audience. And also why it looks like it will get increasingly tough to do so if blogs don’t work together. Collaboration is the logical and obvious answer. But keep reading and see if you agree.
The numbers say there were about 66,430,000,000 fewer Google searches in 2014 than 2013. Yet the total number of page indexed by Google in the same time increased by 9,000,000,000. This is a function of more sites adding more pages and just new sites coming online.
Online competition with the addition of pages and sites is becoming tougher and small sites will continue to get lost in the deeper ocean of content.
When I first got online in 1994 it was easy to get noticed. I was even named the Microsoft site of the month back then. Today the new blogger would find that accolade tough to accomplish. Life is a much harder for new sites and that limits the opportunities for success.
Search traffic statistics show an ever more alarming decline and one reason may be people are getting more results from apps, Siri, or other options other than typing a question into a Google search box.
With such tough core changes between sites, searches, and visitors it leaves you wondering how trying to compete using traditional methods like SEO alone is going to be a good strategy. You don’t have to be a personal finance genius to see those numbers are not going to add up favorably.
My idea is the more that personal finance bloggers work together to share great content with readers from the Personal Finance Syndication Network then the more we can keep readers in our friendly arms than letting them go elsewhere.
By working together we can all do better. Alternatively, you can say I’m full of crap and you can try to radically alter the way the internet is fundamentally changing. Good luck with that approach.
To learn how the Personal Finance Syndication Network works and to participate, click here.
Nationwide mortgage servicing company Green Tree will pay $63 million to settle allegations that it mistreated mortgage holders, federal authorities revealed this week.
Green Tree was accused of misleading consumers about their monthly payments, harassing them if they were as little as one day late, forcing them to making payments using a pricey “Speedpay” system, stalling short sales and not honoring mortgage modifications. The firm will return $48 million to consumers and pay a $15 million civil penalty; it admitted no wrongdoing.
“Green Tree failed consumers who were struggling by prioritizing collecting payments over helping homeowners,” said CFPB Director Richard Cordray. “When homeowners in distress had their mortgages transferred to Green Tree, their previous foreclosure relief plans were not maintained. We are holding Green Tree accountable for its unlawful conduct.”
Green Tree, based in St. Paul, Minn., has rapidly expanded into the residential mortgage market and services loans for millions of homeowners, in part by buying the rights to service loans from other servicers. The firm was accused of failing to honor mortgage modifications that had been granted to homeowners after it acquired the loans from other financial institutions.
“It’s against the law for a loan servicer to lie about the debts people owe, or threaten and harass people about their debts,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Working together, the FTC and CFPB are holding Green Tree responsible for mistreating homeowners, including people in financial distress.”
Green Tree did not immediately respond to a request for comment from Credit.com. According to the Minneapolis Star Tribune, the firm said it is developing and deploying “best practices.”
“We believe this resolution is in the best interest of Green Tree, our consumers, our clients and our shareholders,” CEO Mark J. O’Brien of Walter Investment, Green Tree’s parent company, told the newspaper. “We … continue to be committed to properly serving homeowners and helping them remain in their homes.”
The CFPB and FTC alleged that:
In numerous instances, Green Tree took two to six months to respond to consumer requests for short sales. This could have cost consumers potential buyers, and it may also have cost them other loss mitigation alternatives while their short sale requests were pending.
If a consumer was two weeks or more past due, Green Tree consumers could receive seven to 20 phone calls a day, some starting as early as 5 a.m. or continuing until as late as 11 p.m. The collectors didn’t limit themselves to home phones, calling some people at work. Some Green Tree representatives also told consumers that nonpayment of their mortgage loan could result in arrest or imprisonment. Or, representatives threatened seizure or garnishment of the consumer’s wages when Green Tree had no intention to take such actions. Such threats are illegal.
Green Tree deceived consumers to get them to pay $12 for its pay-by-phone service, called Speedpay. Green Tree representatives would pressure consumers to use the service by telling consumers that Speedpay was the only available payment method to ensure the payment would be received on time. In fact, Green Tree accepted other payment methods that do not involve a fee, such as checks and ACH payments. Green Tree also made payments from consumers’ bank accounts without their authorization. For example, homeowners who gave Green Tree their account numbers to set up a one-time payment through Speedpay later discovered the company had used the information to arrange for additional payments without their consent.
Green Tree furnished consumers’ credit information to consumer reporting agencies when it knew, or had reasonable cause to believe, that the information was inaccurate, and failed to correct the information after determining that it was incomplete or inaccurate. (Consumers are entitled to free copies of their credit report every year from each of the major credit reporting agencies to ensure that they are accurate.)
Green Tree told consumers they owed fees they did not owe, or that they had to make higher monthly payments than their mortgage contracts required.
The order would also require Green Tree to end the alleged mortgage servicing violations, honor the prior loss mitigation agreements, take efforts to help homeowners preserve their home and provide quality customer service, according to the release.
What exactly does happen to your credit when you die? It’s certainly not an everyday question that comes up, but whether you’re dealing with the estate of a loved one, or you’re wondering for your own estate-planning purposes, it’s certainly an important one. It’s no minor detail to secure the credit details in the event of one’s death, as a person’s credit can still be vulnerable to identity theft and fraud.
When someone dies, all the creditors of the deceased need to be notified, as do the three major credit reporting agencies, Equifax, Experian and TransUnion. This responsibility falls to the executor of one’s estate. When contacting the credit reporting agencies, an executor of the estate should request that the credit file be flagged as “Deceased: Do not issue credit.”
The executor of the estate also must forward copies of the death certificate to creditors and credit reporting agencies. Be sure to send certified letters and keep copies of all correspondence regarding the deceased’s credit.
To check to whether there are any outstanding debts, the executor of the estate also may wish to request a copy of the deceased’s credit report.
Heirs & Debt
So what happens to your debt when you pass away? Well, if you jointly held debt with your spouse, for example, the joint account holder or co-signer on a credit account becomes solely responsible for the payment of the account.
When it comes to solo credit accounts, however, heirs are generally not responsible for them. However, there are exceptions.
In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and, if you choose it, Alaska) one spouse may be liable for the debts of another, even if they didn’t agree to them or even know about them.
So in a community property state, a surviving spouse may be held accountable for the credit card debt of a spouse after he or she dies.
Many community property states do offer exceptions for education debts, unless the surviving spouse co-signed for the loan.
According to the U.S. government, federal education loans will be canceled once the borrower dies and the school or lender is sent a copy of the deceased’s death certificate. But lenders of private student loans may have different policies.
So it’s all the more important to be on the same page with your spouse on an ongoing basis about all outstanding debts, and know which ones you might end up being responsible for. And, of course, have a plan to pay them off if and when you need to.
The vacation you’ve saved and planned for is finally here, and you’re ready to relax — which is why it’s especially bad that identity thieves are ready to go to work. They know that chances are your guard is down, at least a little, making it a perfect time for them to take advantage of that opportunity.
Here are some very real ways you might be putting your identity at risk when you’re on vacation:
1. Telling Too Many People
By this we mean — at the very least — Facebook. How many “friends” do you have? And how many do they have? Those check-ins from the airport? Pictures from the cruise? A potential identity thief knows you’re not at home. Identity thieves might even know when your plane lands and how long it will be before you come home if they happen to be friends with a friend of a friend of a friend.
2. Not Telling Enough People
While broadcasting your absence from home isn’t wise, neither is failing to alert the post office or your credit card issuers that you will be away. Some credit card issuers will view activity in another area or country or geographic area and shut down your card — and that’s the last thing you want on vacation. And preapproved credit card offers or card statements isn’t something you’d like for someone to be able to simply lift from your unattended mailbox.
3. Using Insecure Public Wi-Fi Networks
Whether you’re checking email or (we hope not) uploading photos for Facebook, it’s easy to let your excitement get the better of you and forget about basic precautions when using public Wi-Fi. Worse, as long as you’re connected, you may be tempted to check credit card activity or the balance in your checking account. If the network you’re on isn’t secure, you could be taking a big, big risk.
4. Losing Your Mobile Device
You probably just intended to put it down for a second. Your regular routines that keep things from disappearing have been abandoned and … maybe it’s in the pocket of a jacket that’s at your hotel, or do you think perhaps it slipped under the seat of the rental car you turned in yesterday? Losing a device is bad enough. Losing a device that contains an identity thief’s jackpot — email, social media, banking apps, contact lists, photos, etc. — is much worse. And the worst of all possible worlds? Losing a device that’s not password-protected and has your open email accounts available for perusal by anyone who picks it up.
5. Being Careless With Sensitive Information
You don’t have to have a security clearance to deal daily with sensitive information, and it’s easy to leave it lying around. Taking a cruise or staying in a hotel? You may think you don’t have sensitive information in your cabin or room if your credit card is with you, but your itineraries, rental car contracts and hotel bills all contain personal data. If someone calls you telling you that you need to pay a bill, don’t assume it’s legitimate. Either make the call to that company yourself or pay in person. And remember — just because a person is wearing a uniform doesn’t necessarily mean they are an employee. Exercise caution. If you are using your own car for vacation, be sure you remove registration paperwork and other personal data from the glovebox before valet parking. Overkill? Perhaps, but it’s simpler to do that than to untangle an identity theft mess.
6. Credit Card Missteps
Skimmers at gas stations continue to be a problem, and tourist spots are a favorite target. Carrying every credit card you have can be a mistake as well. There’s nothing wrong with matching rewards to spending to maximize what you can get, but be careful with those cards. Consider setting mobile alerts for every single card transaction while you are away. That password-protected phone you are not going to lose can be your friend. Finally, be sure that you have copies of credit cards you bring (front and back). You can take a picture and store that information in a (password protected) file, so in the event the physical card is stolen, you have all the information you need to contact your issuer. You could consider bringing a card you plan to use, along with a backup should anything happen to it. Keep these in different places so that if you lose one, you do not necessarily lose the other. Here’s what you really, really don’t want: for someone to snatch your wallet, which contains all your credit cards, plus the paper where you dutifully recorded all the card numbers and issuer phone numbers. Keep things separate.
7. Not Being Super-Careful With Your Debit Card
A debit card, particularly a prepaid one, can help you stick with a budget because you can’t spend more than is loaded on the card. It can ensure that you will resist the temptation to spend more than you planned and that you won’t receive a bigger-than-you-remembered bill after you return home. But debit cards take the money out almost instantaneously, and if a thief gets a hold of the number they can drain the balance. If you are counting on those funds to pay for your travel expenses you could find yourself in a bind. So if you anticipate being in a transaction situation in which the card will be out of your possession, you might want to consider using cash or a credit card. Of all the cards in your wallet, a debit card is one you need to monitor extra carefully.
Keep an eye on your accounts to look for unauthorized expenses. It’s also helpful to check your credit reports and credit scores regularly — if someone were to, say, max out a credit card without your knowledge — it could negatively impact your credit score. You can keep an eye on your credit by seeing your free credit report summary, which is updated every month on Credit.com. (Remember: Do all of this from a secure Internet connection.) With a little planning, you can minimize the risk that your vacation memories will be tainted by having to clean up a mess made by identity thieves.
This may or may not be a good thing for Uber-addicted credit card users: The ride-sharing service just announced a deal that gives Capital One Quicksilver or QuicksilverOne credit cardholders a 20% statement credit when they pay for rides with that card.
The good thing: If you have the card or can qualify for it, you’re essentially able to get 20% off every Uber ride you take through April 2016, according to the announcement. The bad thing: Even with a 20% statement credit, you could drop some serious money on Uber rides, and the discount may encourage you to use the service more often than you did before.
Of course, that’s probably the business strategy at play here. Here’s what consumers need to know about the deal:
It’s a Yearlong Offer
The Quicksilver/QuicksilverOne 20% Uber statement credit ends April 30, 2016. Only accounts in good standing (and open, obviously) qualify for the credit. If you use Uber, you’ll need to make sure that card is selected as your payment option, otherwise you’re not getting anything back.
It’s a Rebate, Not Instant Savings
The 20% statement credit will appear on your account within one to two billing cycles, according to the announcement. That means you have to pay for the full-price ride first, and you’ll get 20% of that ride’s cost knocked off a future payment.
It Could Cost You
Consumers with excellent credit may qualify for the Quicksilver card, and those with average credit may qualify for the QuicksilverOne. The first card has a 12.9% to 22.9% variable APR (after promotional financing ends), and the second has a 22.9% APR, so if you don’t pay your statement balance in full, you could end up paying a lot more than you think you’re paying for those rides.
If you don’t have either of these cards right now, consider these things: Applying for new credit results in a hard inquiry on your credit report and will negatively affect your credit score a bit for six months. The Quicksilver has a sign-up bonus of $100 if you spend $500 on the card within the first three months. Both cards have promotional 0% financing until January 2016, and both offer 1.5% cash back on every purchase. The QuicksilverOne has a $39 annual fee.
The Uber deal seems to be a nice reward, particularly if you already have one of these cards, but if you’re considering opening an account in wake of this announcement, make sure you carefully consider how applying for and possibly adding this account will affect your credit profile. Before you apply for any credit, it’s always a good idea to check your credit scores — you can get two for free on Credit.com — so you have an idea of whether you meet the issuer’s credit score requirements. (And obviously, it’s counter-productive to apply for a card for which you’re unlikely to be approved. The hard inquiry will cause a small, temporary drop in your score.)
Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.
Millions of Americans working with nonprofit credit counselors will have free access to their FICO credit scores as part of a new agreement between FICO and the three major credit reporting agencies, Equifax, Experian and TransUnion. The Consumer Financial Protection Bureau announced the agreement in an April 21 blog post, saying that this change will allow counselors and their clients have more informative, productive conversations about how to improve clients’ credit standings.
For many consumers, finding a way out of debt and repairing damaged credit isn’t a journey they can confidently navigate alone. Seeking the help of a credit counselor can be an affordable, efficient way to make progress on such goals, because the counselor’s knowledge can empower the consumer to make positive changes. A big part of empowering these consumers is helping them understand their financial situation, but counselors previously have been prohibited from sharing with consumers the credit scores and credit reports they purchase on consumers’ behalf.
“This no-sharing policy is common in contracts signed by business users of credit reports and scores,” the CFPB blog post reads. “But when applied to consumer counseling, it limits a client’s ability to review the credit history provided by the counselor on their own and may make the consumer more dependent on the counselor to take steps to manage or improve her credit standing.”
This is the latest in a series of moves FICO has made to make credit scores freely accessible to more consumers. For example, Discover and Barclaycard credit cardholders are among the consumers who can get their FICO scores for free, because of an agreement between FICO and the card issuers. This new agreement is a bit different, because it targets consumers who are actively trying to rebuild damaged credit — arguably, a group that most needs to access and understand their credit information.
The agreement only concerns FICO scores purchased by credit counselors on behalf of their clients — depending on the agreements in place, counselors are still unable to share with consumers their other scores and credit reports. The CFPB blog post notes that Experian is “updating its policy and nonprofit counselors that purchase credit reports on behalf of their consumer clients will soon be able to share that those reports, as well as the scores, with the consumer.”
If you’re struggling to make a plan to rebuild your credit and are curious about what nonprofit credit counselors have to offer, be sure to research your options. Ask credit counselors questions about their services and what they cost, and make sure they’re qualified to help you with the problems you’re encountering. Consumers are entitled to a free copy of their credit report every year from each of the three major credit reporting agencies through AnnualCreditReport.com. You can also get two of your credit scores for free, updated every month, on Credit.com.
It could happen to you or to your elderly parent. You’ve had an accident or a medical problem. For a few hours, a few days, maybe longer, you’re unable to take care of your financial affairs. Checks can’t be written. Decisions can’t be made. There’s an answer. It’s a document called a “power of attorney.” Let’s examine what retirees need to know about powers of attorney.
To help us understand how powers of attorney work and what they can do we asked Kimberly J. Howard, CFP of KJH Financial Services to help. Ms. Howard is a fee only financial planner. She answered a number of our questions about these important legal documents.
Q: In layman’s terms, what is a power of attorney?
Ms. Howard: Giving someone the power to act on your behalf.
Q: What’s the difference between a limited power and a general power of attorney?
Ms. Howard: Limited Power of Attorney is used when you want someone to act on your behalf in a certain circumstance. General Power of Attorney is the most powerful because you are giving someone else a broad range of powers.
Q: Is there a time limit for a power of attorney?
Ms. Howard: If you want the power of attorney is be for a limited time frame, then it must be spelled out in the document.
Q: Can a power of attorney be used after the granter dies?
Ms. Howard: The power of attorney dies, or is no longer valid, with the granter.
Q: Are there certain things that cannot be done using a power of attorney?
Ms. Howard: A power of attorney can be used for all legal and financial matters.
Q: Must you have a lawyer draw up the paper? Or can a layman write his or her own?
Ms. Howard: Anyone can draw up a power of attorney, but doing so could cause more harm than good.
There you have it. A power of attorney is a valuable tool to help you care for a loved one’s financial affairs. Used correctly it can save you both time and money.
Have you found a house online you’re just dying to see? Don’t pull into the driveway until you’ve talked to a mortgage broker first.
There’s nothing worse than putting in an offer on your dream home, only to find out you don’t actually qualify to purchase it. That’s unnecessary frustration not only for you, but for the sellers and realtors as well.
As a former mortgage broker, it was so hard for me to tell someone they didn’t qualify to purchase the listing they had just laid on my desk, but sometimes I had no choice. I felt like a dream killer more than once.
Your credit score in particular is important because only two things determine the interest rate you get on your mortgage: the amount of your down payment and your credit score.
There’s nothing that will kill a sales contract faster than finding out you can’t qualify to buy a home. If you find out your credit isn’t up to par to buy a home, work on fixing it first, and put your house shopping on hold for a while.
Don’t panic — there will be plenty of homes available once you’re able to start your search again.
2. Make a Budget
You should decide ahead of time what amount you’re comfortable with paying per month for your mortgage. Then go to your bank for your pre-qualification letter.
Hopefully you already have a budget and know what will work for you and what won’t, but if you don’t, now is the perfect time to start one. It’s important to do before you have a mortgage payment.
A budget is important because by using one, you’ll always be aware of where your money is going. If you currently use one, then you’ll already have a good idea of how much you can comfortably afford.
A budget will also help you determine how much you can afford to pay for utilities, furnishings, and decorations for your new home. It’s easy to get carried away with buying new items for your home, but a budget will help you manage these expenses.
3. Find a Diligent Realtor
The next step is finding a realtor who will work for you. You want someone who will stand up for you in the final walk-through or at the closing table if something doesn’t go right.
A good realtor can point out problems with potential homes before you get too attached to them. I appreciated having a realtor who pointed out disadvantages to specific properties, especially as a first-time home buyer without good knowledge of basic home repairs.
The best way to find someone who will work hard for you is to ask for recommendations from friends and family members. (The same rule applies to finding a reputable mortgage broker.) They’re making a lot of money off of you, so they should be in your corner at all times.
I’ve seen many bad realtors and many great realtors, so if your realtor isn’t working for you, find a new one. There’s not a shortage of realtors these days, so make sure you are happy with yours.
4. Make a List of Needs, Must-Haves, and Wants
You may end up seeing so many properties your head will be left spinning. You might forget some of the things you were looking for in the first place.
Before you look at any houses, make a list of your needs, must-haves, and wants. This way, if you get overwhelmed after seeing too many homes, you can simply refer back to your list and remember what it is you’re looking for.
This will also be helpful for your realtor to reference as well.
So many people say that when you walk into the right home, you’ll just know. That certainly isn’t true for everyone, and it wasn’t true for me.
When I first looked at my current home, I appreciated it, but I didn’t get an overwhelming feeling about it.
It actually wasn’t until I slept on it that I realized it would make the perfect house for us. It had everything we needed for our family at a ridiculously affordable price. I didn’t fall head over heels for it at first glance, but now I’m so happy with my choice.
Don’t let anyone tell you it will be love at first sight, because that doesn’t always happen, especially if you’re in the market for a fixer-upper or a foreclosure.
5. Choose Your Location
It’s going to be really hard for your realtor to show you the best housing options for you if you don’t know the area you want to reside in. You’ll end up all over the place if you don’t.
If you aren’t sure about your specific location, spend some time in the areas you’re interested in at different times of the day to get a feel for the area. Good times to visit are rush hour times and nighttime.
Afterward, ask yourself these questions:
Do I feel safe there?
Is there an abundance of traffic at rush hour?
Is it on a busy road?
Does the neighborhood look clean and well-kept?
Choosing a set location ahead of time will help narrow down the list of properties you see. It will also help you avoid seeing tons of houses that are in a less than desirable location.
6. Save an Emergency Fund
If you don’t have an emergency fund saved yet, buying a house isn’t a wise option.
Houses mean constant maintenance, even if you buy new. You don’t want to be caught without heat in the dead of winter just because you can’t afford to fix your furnace.
You also don’t want to be forced to pay for it on a credit card when you realize you really can’t live without heat.
Buying a house is an emotional process, but do your best to keep your emotions out of it before you make a hasty and unwise decision about a house that’s financially out of your reach.
Buying a house is a business transaction, so play it cool and keep your emotions in check. You’ll be thanking yourself later.
When I bought my first house, I was so set on finding a charming, vintage bungalow, that I let everything else about the house blind me.
I finally found what I thought I wanted, for about $20,000 more than my original budget. The house was a dream, but it was on a really busy main road, and in a less than desirable school district.
It barely had a yard, and our neighbors were practically on top of us on all sides.
I bought the house anyway, and for the next two years, I never went in my front yard. I constantly worried about our privacy, and I kept my blinds closed at all times.
It wasn’t exactly what I had envisioned when I was signing the closing papers on my house.
Luckily, I was able to sell the property two years later, basically breaking even on what I paid for it. I sense the buyers who bought it from me did exactly what I did. They got starry-eyed.
I was lucky to be able to get out from under that house, but many people aren’t so lucky. It was with that house I learned a great lesson the hard way — buying real estate is a business transaction.
Even though it’s hard to keep emotions out of it, you need to in order to keep yourself from making a bad decision that could end up affecting you for years, and cost you a ton of money.
No matter what you do, try to make house hunting a fun process, because it should be. It’s not every day that you get to run around shopping for houses, so try to enjoy it! If you follow this checklist, then your house hunting process will be easy and painless.
Recently, my sister called to ask my advice. She needs a new computer. (And when I say she needs a new computer, that means the Smithsonian is on the phone with her daily begging her to donate her current one to the museum. Tracie gets her full use out of computers.)
When she told me she needed advice about buying a computer, my first impulse to was squeak out a small animal noise of fear, because I know nothing about computers. Asking for my advice when looking to buy a new computer would be similar to asking my advice for buying a horse. I could take stab at helping, but you’d probably be better off asking the horse. (In either case.)
Then she told me she wanted to know what I would tell someone who was having trouble making a decision.
Oh. Well, that’s something I do know about. It’s called analysis paralysis, and boy howdy is it annoying.
We humans have a tendency to shut down in the face of a too-complex decision. According to economist David Laibson, before auto-enrollment in employee retirement programs became the norm (about 7 or 8 years ago), “it [would take] a new employee a median time of two to three years to enroll.”
Those foot-dragging employees were not being lazy or stupid. They were simply overwhelmed with the pressure to make the “right” decision in the face of so many options. Without the time or ability to maximize their decision, they made none, which is objectively the worst possible outcome.
Which brings me back to Tracie. She told me that she badly needs a new computer, since hers is in danger of being flung through a window due to its slowness (or not, because not everyone is like me in their inability to handle minor frustrations). But she is not sure if she needs a certain brand/style/color* of computer to be able to handle Photoshop and other programs her budding art career may need in the future.
First, I told her to limit her research to one hour. Whatever information she needs to know to get to a “good enough” decision can be uncovered in an hour. Yes, there may be a platonic ideal of computers out there, but it’s not worth the time it would take to find it.
Similarly, if you are paralyzed trying to make some sort of investment decision, give yourself a set and limited time period to learn more about it. I generally think an hour is sufficient for most purposes. It’s long enough that you can be satisfied that you have done something approximating your due diligence, but short enough that you don’t put it off. In most cases, any information that takes more than one hour of research to unearth is going to be more complex than you need to make a decision.
Tracie then told me she had already spent a little more than an hour researching her new computer options, and explained that she kept running up against the Photoshop issue. She wants to continue using an Apple computer, and the model she was thinking about seems to be compatible with Photoshop, but the conventional wisdom is that Macs are not good for Photoshop.
I stopped her there. “Do you have any immediate need for Photoshop?” I asked.
“No. I just might need to use it in the future depending on where I go with my art.”
I told her to let future-Tracie worry about the Photoshop problem. She might need it in a year, she might not need it at all within the lifetime of the new computer. So there’s no need to include it in the current equation. Even if she does need Photoshop within a year, the money she might have to spend then to upgrade and/or improve her computer will not be wasted because she will much better understand her specific needs and can make an intelligent decision based upon those real needs, rather than assumptions.
We are all very loss averse when we think about the possiblity of wasting our money or our time if we find we need something in the future that we either neglected to get or actively got rid of in the present. But worrying about the possiblity of needing something in a future that is uncertain is the way madness lies.
If you are having trouble making an investment decision because you don’t know if it will fit with a hypothetical situation in the future, simply take the hypothetical off the table. Unless you know for a fact that you will need something in the future, make your best decisions based on current needs, one of which is the need to make a durn decision already.
Any movement forward, no matter how slow or ridiculous, is almost always better than standing still.