Thursdays are when we hear from the Other Guy (OG). Sit back and enjoy:
I recently stumbled across two interesting sites on longevity. Both www.livingto100.com and gosset.wharton.upenn.edu/mortality accomplish the same task – they pose a litany of questions about your health, wealth, mental and spiritual well-being and use your inputs to predict how long you’ll live.
For the record, I’m planning on living until 135.
The questions these sites ask fall into two different categories: things you shouldn’t do to your body and things you should.
My unscientific analysis surmises that it’s generally a bad idea to:
a) smoke
b) drink
c) avoid seat belts
d) have random sex with strangers (I know you think I’m kidding – but seriously, according to these two sites, it’s not a good idea. I can’t seem to imagine why…)
All this “research” started me thinking about financial longevity – what are the 4 stupidest things you can do with money that will kill your chances of a healthy financial life, no matter how well you try and recover in other areas? Can we draw some parallels? If we’re smart enough to show you the Top 7 Financial Hacks to Avoid, we can surely pull together the four worst ways to train wreck your financial life.
Here’s my list:
1) Borrow money from your 401(k) or other retirement plan. Why? This is financially like smoking 3 packs a day. Stop doing this. “But, O.G., I’m paying myself back with interest!!” Right. You’re paying yourself back these pre-tax dollars with after-tax money. Don’t get me started on the arithmatic of how much you’ll pay.
2) Rack up credit cards and roll the balances into your mortgage. Obviously this isn’t as common as it used to be, but it’s still happening. Paying 2.99% for a J Crew sweater for the next 30 years is freaking dumb. This is like having six Jack and Cokes a day. Your liver isn’t going to quit tomorrow, but it’s not there to crank through your whiskey addiction at 6 ounces a night either.
3) Not paying attention to your lifestyle costs relative to portfolio value. This has come up in my practice a number of times recently. I don’t care how much money you have – you simply cannot withdrawal $100,000 per year from a $1,000,000 portfolio forever, even if David Copperfield is your buddy. It’s simple mathematics. It won’t last forever. Be conservative. Wear a seatbelt – and go slow.
4) Scattering money with no clear and coherent plan or direction. You guessed it – this is like putting your…well you get the idea. You’re not in college anymore. It’s time to settle down and put all your stuff in one place.
That’s my fantastic four, or fabulous four, or fashionable four, or…well you get the idea. What are yours? I’m curious: what’s the top financial mistake you’ve seen that will submarine an entire financial plan?
Your title alone made me want to read the whole article. I love this quote, “Paying 2.99% for a J Crew sweater for the next 30 years is freaking dumb”
The biggest issue that people face now that most are living longer lives is that they don;t even start thinking about retirement until they are already in their 30’s or 40’s.
Totally agree with you on this one Sean. So many of my co-workers don’t think about retirement. I’m talking guys in their late 40’s too. The ones that do think about it have 3-4 401k loans on the books. It’s sad. Although I did recommend to one of my co-workers to take a small 401k loan out so that way he could put it down on his mortgage in order to refinance. He ended up going from a 30 year loan at 6% to a 15 year a little under 3%. He is saving a crapton of money and should have the 401k loan paid back in less than a year.
Man, Other Guy, I thought Joe was the funny man in your organization. Turns out, he’s just one of the funnies over here! I heard a study on the radio this morning that says that if you’re a broke woman and you have kids, then you’re definitely going to stay broke, and also stay unmarried. So, in addition to (I’d written “on top of” and that was too much, even though the pun was unintended!) sex with random strangers, having unprotected sex with your good-for-nothing no-job boyfriend isn’t a good idea either.
Kathleen, try not to leave comments like that because OG’s ego is already big enough “as is.”
I would say divorce is pretty bad… especially if you get hit with alimony! The gift that keeps on giving…
Haha, no kidding. And interestingly enough, it often comes about by having random sex with strangers. So there we go – we’ve tied right back in to the original post inspiration!
Garrett, I think you just created one of those sci-fi continuums….
Shoot. Divorce is bad but is certainly recoverable. It’s better to get a divorce and pay what you rightfully owe a person than for both of you to spend your whole lives together miserably.
I would advise against starting the divorce process via random sex with strangers, though. I’m with you guys on that one. 🙂
OG—love your no holds barre attitude!
I knew a guy who asked me, “Why is divorce so expensive?” I told him I didn’t know, and he said, “BECAUSE IT’S WORTH IT!”
Wow! I think marrying someone who doesn’t agree with you financially is a bad plan and will lead to divorce. Money is #1 reason for divorce because it exposes the different values you both have.
I don’t get this one;I mean the longevity stuff. If one doesn’tdo this things it is like in Carch 22 – it is not that one lives longer; it is just that life becomes so boring that it seems long. I intend to live to be 110 and time will fly :). Agree with the financial disasters, though – all are dumb!
I’m with you, Maria. No matter what OG says, at least some “drinking” is staying on my list. Quality, not quantity…. 😉
I was going to say being married to someone you cannot agree with financially but I see that others already beat me to it. The marriage itself will be financially disastrous and the resulting aftermath of divorce can be even more financially distressing.
Leasing a huge luxury SUV every three or four years is a great way to throw away money. However, if you don’t wear your seatbelt, it’s tanklike qualities might protect you, and when you get your house foreclosed on, you can live in it.
Other guy, That’s a good start. How about don’t spend more than you earn?
OG,
*Any* loan gets paid back with after-tax dollars, whether the source is from your own 401(k), the local credit union, or Vinny the Fist.
Sure. It’s not exclusive to pretax money. BUT that money loses opportunity cost, cuts compounding interest and is an invasion of your retirement dollars. I’m not a fan of repaying my pretax 401k loan with aftertax money. I’m also not a fan of repaying Vinny the Fist.
I would advocate borrowing against your 401k if you are renting and want to purchase a home because the long-term benefits of getting into the housing market right now outweighs any gains your 401k would accumulate. The interest rates are artificially low (I think everyone knows that) and housing prices aren’t going to sink much more.
Love your opinion, DC, but I can’t tell you how absolutely against that strategy I am. I understand your reasoning (I think) and follow the opportunity (and agree that there is an opportunity), but this misses the long view. When I look at the time value of money, taking an ASSET to sink into a home (especially a first home, which is barely an asset at all due to the carrying costs), I think you’re asking for trouble. The rule of 72 tells me to leave my 401k alone. Plus, in this environment, sure you’re “paying yourself back interest,” but what did you miss? You missed a market that ran up 11% since June 1. No thanks.
“Man, Other Guy, I thought Joe was the funny man in your organization. Turns out, he’s just one of the funnies over here”
My sentiments exactly!
I took the longevity questionnaire. It said I would live to 101!!!
It also said I could add 0.25 years by stopping my coffee intake.
Sorry Charley, sometimes you have to ignore the advice of others….
I don’t think you’ll regret missing those three months!
Provocative title and great financial advice on what not to do. Sticking anything in places where they don’t belong usually ends badly. Finger into electric outlet? Financially speaking, how about not being over leveraged while stock trading or in real estate!
I actually did the finger in electric outlet thing when I was about 8 years old, Buck. It was a hair-raising experience.
I like your David Copperfield analogy. You are very creative when it comes to catchy titles, Joe!
That’s a great list. #4 is my favorite.. people tend to attached debt like a shotgun instead of a pistol.. waste so much time and money.
I am planning on living to at least 100 years old! I don’t do these things anyway so it won’t impact my long life.
Uh oh. Better take back that J Crew sweater…
I think the biggest mistake I’ve seen is someone blow their entire inheritance rather than invest it. I don’t expect any inheritance, but should I happen to receive a stick of gum, I’m investing it.
Good post OG. I must say as an STD nurse, I heartily agree with ‘that part.’ But before you get the big head as AJ is so worried about, the comments were at least as good as the post. So what’s with the people who only commented on the boring stupid money part?