One of the most interesting facets of the new “culture of thrift” is that the cheap-o things I already like to do have become popular with a much wider group of people.

I’ve spent years thinking about and implementing ways to spend money efficiently - that is, to get the results I want for the least amount of cash. I routinely calculate the cost per serving of the meals I make, and I have long used Amy Dacyczyn’s “cost per wow” factor in making spending decisions (things that give me a big WOW for the cost are worth it!).

It isn’t that I count every penny – I don’t – but I get a lot of enjoyment, strange as this may sound, in experimenting with and plotting out paths to get what I want and need without spending a lot of dough. (I am the Wealthy Baker, after all! Always need to conserve my dough.)

Last week, I was invited to participate in a clothing swap. A couple of women, only one of whom I had ever met in person, got together at a house in my neighbourhood. We brought unloved or unworkable items from our clothes closets in hopes of finding new homes for them.

Over a glass of wine, we staged an impromptu fashion show, each of us modeling various items of available clothing to find the best fit, literally, for the things we were ready to move on out. And later this week, I’m co-hosting another swap, at a vintage store in the west end of Toronto.

In my experience, swapping for clothing provides a way to scratch your new-threads itch without spending a dime. (In fact, lots of the items at last week’s swap were either new or very close to it: we heard a lot of, “the tags are still one this one!” or “I only wore this one time!”) So it’s not surprising, given the current mood of the country, that it isn’t difficult for me to stumble across clothing swaps in my social circles.

And, as much as we are hearing that women make better investors, women are also the ones who say they are most affected by current economic conditions – meaning the pool of women participating in clothing swaps may be poised to grow. In particular, the Consumerology data I explored last week showed that women give quite different answers than men about their expected consumption habits in recent past and the months to come.

Of those surveyed, women were more likely than men to say they were doing worse economically. Far more women than men said they were:

• Thinking differently about “needs” versus “wants” (63% of women versus 48% of men),
• “More of a bargain shopper” now than they have been in the past (59% versus 46%),
• “Care less about owning big name brands” (59% versus 47%), and
• Are more likely to buy no-name and generic products (51% versus 43%).

Also, while the total number of men and women saying they had reduced their spending over the last few months was very similar, more women than men said they had “significantly” reduced their spending (while men’s responses were more concentrated in the “slightly” reduced spending category). Clothes swapping, for sure, is a way to significantly reduce your clothing budget while still adding pieces to your wardrobe.

I’m really looking forward to this week’s swap. As Chaya mentioned, I have a lot of great stuff to pass on. But more than that – I’m looking forward to connecting with like-minded women, having what I think is the best kind of evening – frugal fun!

]]> http://monkeysjumping.com/wealthy-baker/?feed=rss2&p=231 http://monkeysjumping.com/wealthy-baker/?p=218 http://monkeysjumping.com/wealthy-baker/?p=218#comments Sat, 16 May 2009 01:42:14 +0000 admin http://monkeysjumping.com/wealthy-baker/?p=218

New survey data, just released in the US, finds that it is a good time to be over 65 or younger than 30 – but not such a great time to be somewhere in the middle.

The New York Times today reported data from the Pew Research Center which finds that senior citizens have generally been protected from the effects of the recession in the US, as have younger adults.

“The most vivid finding to emerge from this survey is that older Americans — most of whom have already retired and downsized their lifestyles — have been far better insulated from the current storm than those who need to worry about keeping their jobs and building up diminished retirement accounts,” write Rich Morin and Paul Taylor of Pew Research in their report “Not your Grandfather’s Recession – Literally.”

This finding holds true in Canada, as well. Recently-released consumer data from ad agency Bensimon Byrne (in their quarterly Consumerology report) show that while a national “culture of thrift” has emerged for Canadians, the effects of the recession actually vary markedly for different groups. In particular, the young, the affluent and seniors say they relate to current economic conditions more like a “bump in the road” than a lasting interruption of their standards of living.

In contrast, the Canadians who say they have been most severely affected by the recession include women, residents of British Columbia, and Canadians over age 35. Women and people between the ages of 25 and 44 have some of the largest debt loads – these are the people that are most likely to say they now need to change their spending and saving behaviour for the foreseeable future.

The New York Times article notes that if today’s workers who are 10 – 15 years away from retirement end up working longer, people now in their 30s and 40s could find themselves facing more competition for jobs and promotions - meaning the negative effects of this recession may trickle down to younger groups. The article concludes that “even if the recession does end this year, as the more optimistic economists forecast, the effects of it could be felt for years to come.”

Over here, one of the results from this latest downturn is that our sense of the relative well-being of different groups in Canadian society may shift. The image of the “wealthy Boomer” may need to be retired – no pun intended.

]]> http://monkeysjumping.com/wealthy-baker/?feed=rss2&p=218 http://monkeysjumping.com/wealthy-baker/?p=202 http://monkeysjumping.com/wealthy-baker/?p=202#comments Fri, 08 May 2009 13:20:38 +0000 admin http://monkeysjumping.com/wealthy-baker/?p=202

There’s a discussion going on at the Canadian Money Forum about the cornerstones of good financial planning, and the topic of life insurance has come up.

One contributor suggested the purchase of life insurance may increase your risk of death, because there are now financial gains to be made. Another community member responded that the purchase of insurance, by itself, will not increase the chance of your death.

It seems obvious that the chance of dying is not influenced by buying life insurance. Right?

Except it might be.

There are a couple of interesting phenomena from the world of medical science known as the healthy user bias and the compliance effect – both of which provide surprising evidence about what keeps us alive and healthy, paying life insurance premiums instead of collecting the payout.

What am I talking about?

First, let’s take a look at these two findings from medical research.

Put simply, the healthy user bias holds that “people who faithfully engage in activities that are good for them — taking a drug as prescribed, for instance, or eating what they believe is a healthy diet — are fundamentally different from those who don’t.”

The compliance effect is a component of the healthy user bias. It finds that people who comply with health recommendations “are different and healthier than people who don’t.”

These two effects have been confirmed in large-scale clinical studies of various health conditions. Over and over, researchers have found that people who take what they are prescribed for a health condition – even if it is a placebo – fare better, health-wise, than those who do not.

And the positive effects for the compliant population spill over beyond whatever condition is being treated – compliant users are less likely to suffer not only from the studied condition or disease, but experience reduced rates of death from homicide, suicide, and accidents, as well.

How might these two findings be related to life insurance?

To be sure, life insurance salespeople are not doctors, and I’m not sure you could “prescribe” the purchase of life insurance for those who need it.

However, there is expert consensus that appropriate risk management, which includes the purchase of life insurance when required, is a foundation of good personal financial planning.

So if the “healthy user” and compliance effects hold true outside the world of medical science, perhaps people who purchase life insurance as a risk management strategy actually experience decreased risk of death from all causes. Perhaps, like in medical science, healthy and compliant users fare better than others.

Now, the world of economics has a particular way of thinking about insurance, which includes the concept of moral hazard. This concept holds that if someone is protected against the risk of loss associated with some behaviour, they may be more likely to engage in that behaviour. Insurance analysis is particularly attuned to this concept, as it is thought to increase the incidence of losses, and thus insurance payouts, for the insured population.

So, If the idea of moral hazard holds true in this case, people who purchase life insurance may be more likely to die than people who do not, because the presence of the insurance coverage is there to compensate the purchaser for their loss. (The idea of moral hazard is much more complex than this brief treatment.) And this is the outcome which the participant on the Canadian Money Forum may have been pointing to.

Except – what if the healthy user bias and the compliance effect extend not just to our physical health, but more broadly to our financial well-being?

Here’s the paradox: if you buy life insurance only because you hope it might reduce your chances of death, and not as a component of an overall set of choices which pay attention to risk management, it probably won’t have that effect.

But if you buy life insurance as part of an overall healthy lifestyle – not for any potential financial gain, but because appropriately managing risk is how you live your life - you may just recoup the benefits of that choice with a longer, healthier life. You may have an increased life expectancy, because you have put yourself into that group of people who are “different and healthier” than people who don’t make those kinds of choices.

What say you?

Photo credit:  by anarchosyn via Flickr

]]> http://monkeysjumping.com/wealthy-baker/?feed=rss2&p=202 http://monkeysjumping.com/wealthy-baker/?p=130 http://monkeysjumping.com/wealthy-baker/?p=130#comments Thu, 07 May 2009 23:03:37 +0000 admin http://monkeysjumping.com/wealthy-baker/?p=130

Here’s the last principle in our series on how your finances are like your lingerie. BIG HINT: it’s the most important one! Read on for the goods.

Principle 4: You deserve a personalized fit.

You really do. Maybe you picked out that first “grown-up” bra on your own, peeked over your shoulder in the fitting room, decided it was a “good enough” fit, then plunked it down on the counter and paid. But every woman I have ever known who has been through the professional bra-fitting experience comes out a changed woman. Their clothes fit better. They stand up straighter. Their…assets are optimized.

How well your investments fit your life and how well they perform for you deserves at least the same level of care and attention as the fit and feel of your bra. And here is secret number four: getting that fit right can make a whole heckuva difference in how well you are set up to handle what life throws at you.

If you aren’t confident about how to judge how well your investments fit, consider working with someone who knows - someone who can cast a professional eye over your assets, help you understand your options, and suggest alternatives to empower you in achieving your own individual goals.

In future posts, we will explore how to find and work with a financial advisor, how various kinds of investments work, and more. But for now, pull up a chair, grab your glass of wine, and breathe: you’ve got four new secrets to share.

A version of this article was originally published at The Best Kept Secret: Toronto’s Resource for Women 40+.

We are looking together at how your finances are like your lingerie. Here is the third principle for understanding how these two, seemingly-unrelated parts of your life fit together:

Principle 3: Like your bra size, your financial needs change over time.
How many of us figured out our bra size at some point in the past and have continued, year over year, to blithely buy that same 34B that fit us before kids and before, erm, gravity made its effects known on our bodies?

Same thing with your finances: the mix of approaches, strategies and investments that fit you at 20 is not the same as the right mix at 30, or when your first child arrives, or when that same child hits post-secondary education, or when you approach retirement.

You need to review how you handle your money at each new stage in life, making changes that reflect your new realities.

Secret number three: there is no fix-it-and-forget-it strategy that works either for buying bras or for handling your approach to investing over time.

Follow along as we consider how your finances…are like your lingerie.

We already explored how your finances, like your lingerie, are intimate. But how else are they similar? Here’s principle two for understanding how these two elements of your life fit together (or not!):

Principle 2: You probably have a portfolio that doesn’t fit.

You likely know by now that most of us are wearing the wrong bra size. Oprah did a whole hour on this!

Here’s the comparison with money, gleaned from my work as an advisor: most people have investments that are a poor match for their circumstances. To the extent that they have a “financial plan,” it isn’t one that fits with their lives.

For example: there are couples who say they are “conservative” investors who cannot emotionally handle a lot of volatility but whose investment portfolios contain only individual stocks (gulp!), with no cash or fixed income to buffer stock market swings.

Then there are others who say they are expecting an annual return of over six per cent (or more!) but who are invested mostly in bonds producing returns that top out at four per cent or so.

Just like Oprah’s bra-fitting tips, you may benefit from some portfolio-fitting tips - but instead of cup and band size, you want to look at whether you are saving appropriately to your expected future needs, whether you are investing tax-efficiently, and whether the proportion of stocks or
mutual funds you have is balanced against the allocation to fixed income, and so on.

That’s secret number two - you need to take some time to consider how well your investments fit your life.

A version of this article was originally published at The Best Kept Secret: Toronto’s Resource for Women 40+.

Here’s a secret: your finances are like your lingerie. How so?

In the next four posts, I’m going to give you four principles for understanding how your approach to lingerie and your approach to your finances are related.

I’ve also thrown in four secrets of financial planning designed to, well, uplift and support you in this area of life.

Principle 1: Just like your lingerie, your finances are intimate.

Our current environment is one in which almost anything is fair game for public display and comment. But even in an era of persistent, pervasive TMI (”too much information” - when everyone knows Britney Spears’…um, personal grooming preferences, if you follow me), talking openly about money is one of the last great taboos.

When’s the last time you sat with a friend over a glass of wine and answered each others’ questions about whether you are saving money and how much, how your money is invested and how your investments are performing, or how much household debt you are carrying and how you feel about it? (I mean, if you even know the answers to some of those questions in the first place.)

The thing is, your finances are intensely personal. But if you want support in getting or keeping your financial world on track, you need to be able to discuss those intimate details with other people, whether it is your friends, your partner, or a financial advisor.

Part of what it takes to be powerful in the area of money is a willingness to be vulnerable in this area of our lives - to be able to talk about our financial “unmentionables:” that’s our first best-kept secret.

A version of this article was originally published at The Best Kept Secret: Toronto’s Resource for Women 40+.

You probably already know that the shelf at your local bookstore has a whole section on retirement, and most of the books have titles like “The Retirement Time Bomb” and “Smart Women Finish Rich“.

Those titles are meant to be motivational, but they might only motivate you to avert your eyes when you walk past that section of the bookstore, thinking if you aren’t among the “smart women” who “finish rich,” you will…get blown up by a Retirement Time Bomb?

Now there is another entrant on the bookstore shelf, a book designed specifically to consider retirement planning from the perspective of Canadian women. “Redefining Retirement: New Realities for Boomer Women” (Second Story Press, 2007) was written to support boomer women in creating their own vision of retirement. The authors, psychologist Dr. Margret Hovanec and lawyer Elizabeth Shilton, do so by “peeling back the old definitions and understanding of retirement and examining what retirement will really mean for baby boomer women.”

Shilton and Hovanec say the purpose of the book is to provide an alternative to the plethora of retirement planning books that are “still stuck in the old ‘male breadwinner’ ways of thinking about work, retirement, and family life” by creating a “woman-centered, integrated approach…to prepare us for the next stage of our lives.”

So how do they do this? And how well do they succeed at the task they have set for themselves?

The first chapter of the book creates a context for discussing retirement planning from a Canadian woman’s perspective, by describing the challenges we face in the new world of retirement from our increased life expectancy to the length of time we expect to live after we “retire”, however we define retirement; to the decrease in pension coverage for retiring workers and our generation’s changing expectations of how we will spend our time in retirement.

Building from that broad context, the book gives a brief overview of many of the major areas we should consider when looking at life after work. The authors don’t shy away from confronting our “fears of becoming a bag lady,” as one section is titled. “As women,” they note, “our chances of ending up old and poor in Canada are statistically significant.” But they admonish us to not let those fears stop us “You have choices: let’s get down to the business of considering them.”

The sections of the book which deal with the economics of retirement planning guide the reader through creating an estimate of her likely sources of income in retirement and the amounts; projecting expenses in retirement; and sections on spending effectively and sustainably (including a chapter on housing). There are also sections on health, relationships, and work in retirement, including a chapter on self-employment.

After the reader has worked through her expected income in retirement and her projected expenses, the authors acknowledge that most readers will be “shocked and appalled” by the mismatch between their resources and their needs. If your projected income and expenses don’t balance, “you’ve got some work ahead of you,” they say.

Shilton and Hovanec acknowledge that it can be difficult to know where to start when discussing the topic of saving money to boomer women. “Many of us were raised by Depression-era mothers who taught us the basics in our cradles,” they note, adding, “but we are constantly surprised to run into otherwise savvy women who don’t know the ABCs of low-cost living.” The rest of the chapter continues with suggestions for reducing overall expenditures, framed as “living sustainably.”

This book is pitched at women who are on the cusp of retirement, those who have more limited opportunities to change their course than women who are ten years or more away from the retirement horizon. For the most part, it is assumed that the major savings efforts on the part of the reading audience have already taken place, and what there is to do now is trim expenditures, not put more money aside to fund them.

It is at this point that I think the book loses some of its sure footing. Although the tips the authors provide are useful and valid, my concern is that they may not go far enough - or they are coming too late to make a sufficient difference for the book’s readers.

There’s a paradox about retirement planning which the authors are faced with head-on: by the time the notion of “retirement planning” hits most people’s decision horizons, the opportunity to make a really significant difference in our financial situations has likely already passed.

The statistics about retirement savings in Canada are very clear: as a group, we are not saving sufficiently for retirement. The Canadian Institute of Actuaries, in their special report “Planning for Retirement: are Canadians saving enough?” (published in June 2007) estimate that fully two-thirds of us will not be able to meet our household expenses in retirement if we continue to save at the rates we are saving now.

But this book doesn’t take an unblinking look at that gap. Instead, there are general statements about the need to close it, but no clear, hard and fast bottom line about how to make radical change if it is required - for the women who have worked through the exercises in the book and adopted the savings strategies outlined and are still faced with a gap. (Or how to accept the reality that the need to earn income from employment may be essentially a never-ending part of some retirees’ lives.)

To be clear - I don’t know what the best approach to discussing this issue is, either. I just wonder if the authors’ relatively soft-pedaled approach best serves Canadian women as we prepare for the journey to retirement. And I acknowledge the difficulty the authors face in designing a framework to support all of us in getting a firm grasp on the reality of our situations, while our individual scenarios will differ significantly.

In addition, there is almost no technical information about the mechanics of how to invest wisely in this book, and the concept of working with a financial advisor or financial planner is given relatively short shrift, with less than two pages devoted to this topic.

Do the authors succeed at creating a path for boomer women to follow in planning for retirement? My assessment is yes, with the caveat that because our demographic is tremendously varied, it may be difficult for any one individual to find herself in its pages. But if you want a general guide to start you thinking about these issues, this is the best resource I’ve found to date. And if you read through this book when you still have opportunities to make significant course corrections to your existing retirement savings strategies, you’ll be ahead of the game!

A version of this post was originally published on The Best Kept Secret: Toronto’s Resource for Women 40+.

What is the exact number of dollars they need to have socked away in retirement savings accounts to fund a post-work life that works?

A life that includes some luxuries, some long-hoped-for travel or the freedom to immerse themselves in a favourite hobby, while ensuring the kids (if there are kids) are fed and educated and set up well for their own lives; the needs of the partner (if there is a partner) are handled; and some money is set aside for emergencies, caring for aging parents, and their own health and housing and basic other needs: what is the number of dollars that can fund all that?

Sometimes people underscore how much they want to know just that one thing, and nothing else. “Only when we know the answer to that primary question does it make sense to discuss anything else,” said one prospect who knocked on my office door.

There’s even a book about this question: The Number, by Lee Eisenberg. (He used to edit Esquire magazine and then he worked for Lands’ End, the casual clothing retailer. As a result, I think, this book reads kind of like an upscale catalogue of retirement planning — very genteel and corduroyed –  but I digress.)

Everyone’s Number is different, Eisenberg says, though his book is not designed as a financial guide. Instead, it provides an glimpse into our generation’s retirement worries.

But the question “What’s my number?” is, in my opinion, not a very helpful way to approach the issue of planning for retirement. Here’s why: there is no good and quick answer to the Number Question. (Maybe that’s why Eisenberg’s book focusses on the question, and not on the answer.)

Even if there was one identifiable number for you, it would be based on a pyramid of assumptions. Any of those assumptions change sufficiently and the number at the top comes tumbling down, like when your kid pulls the bottom orange out of the neat stack at the supermarket. And, of course, your number changes yearly, as you get one year closer to retirement.

I suspect that the prominence of the Number Question goes some way to explaining why so many Canadians don’t adequately prepare financially for their own retirement: we are looking for speedy and simple answers that don’t exist.

So, if the answer to the question, “what’s my number?” won’t empower you, what will?

Here’s what I think: what will make a difference for you in planning for the rest of your life after work is a realistic, grounded, viable and robust retirement plan.

Not a single number conjured up like a magic bullet, and not a rationale for why you should buy more of Mutual Fund X. A plan constructed from individual pieces that you can take apart, and get a look at, and learn about, and replace if necessary.

A viable retirement plan will include factors that are personal to you, and assumptions that are more technical and universal. Personal factors should include:

• your life expectancy - for how many years will income be required in retirement?

• your current savings, and how they are invested

• your anticipated retirement income from public and private pensions

• your expected savings from now to retirement

• your expected spending in retirement

Together with more universal assumptions such as the expected rate of inflation and tax rates, the answers to those questions can be used to generate a plan to get you from here (wherever you are now) to there (a life in retirement that works for you).

You may need to adjust some of your expectations or your behaviour in order to balance your current lifestyle with your lifestyle in retirement, but having a plan in place allows you to make choices now that empower you later. Which is a good thing, I think.

Does everyone need a retirement plan? Maybe not. But the financial world we face is not the ones our parents operated in. We, as a group, are grappling with a world of shrinking pensions and more personal responsibility for funding our own retirement; increased life expectancy coupled with less savings and more debt; and much more complicated financial products than
even 20 or 30 years ago.

So: if you are one of those people who tells me they can’t sleep at night because they are worried about their Number; if you are someone who feels like she has this part of her life handled (”My spouse has a good pension, and I have some savings”) but deals with creeping doubts about whether her plans are workable; if you find yourself thinking “I’ll deal with that
later!” but know that delaying may be foreclosing on some of your planning opportunities - if you see yourself in one of those groups, pull up a chair.

Book some time with yourself, your spouse, or your financial advisor to start the conversation. The Big Secret of retirement planning is that you can do this. You’ve handled everything else you’ve encountered so far in life, and you can master this too! And we’ll help you along the way.

A version of this article was originally publised at The Best Kept Secret: Toronto’s Resource for Women 40+.

“The belief that bear markets strongly favour active investing is a myth,” says Srikant Dash, global head of research and design at Standard & Poor’s, in the latest Standard & Poor’s “Index versus Active” report.

Do I think this style of investing is right for everyone? Maybe not. (But I’m not everyone!) Am I giving up alpha? Probably.

But here’s the main reason I invest this way: it beats most of the readily-available alternatives, most of the time. And the reality is that I only have a limited amount of time to spend thinking about investing.

I’d way rather research recipes and contemplate my garden than track stocks or pay an advisor to pick mutual funds for me. For me, and arguably for most people like me, passive investing using index funds is the most appropriate solution.

But the whole mutual funds industry is pretty much set up to provide anything but index funds, meaning that most index investors are DIYers. I’ll be coming back to the theme of index investing, including lots of info on DIY investing, as the days roll by. Stay tuned!