I finished Chris Farrell’s “The New Frugality” a few days ago, and there are things I liked about the book and things I definitely did not like.
I like that there’s an emphasis on frugality, living simply, and examining choices vs. common wisdom. I like that he advocates comparing the cost of renting vs. owning a home and says that it’s not throwing away money to rent–something I’ve felt for a long time but didn’t know how to put into financial terms. I really like that he emphasizes a margin of safety in all money decisions.
I’m leery of his advice to only invest in index funds that track the major indices like the S&P 500. Looking at the return rate of funds like these over the last 10 or more years is not comforting. If I were to be invested in a fund like this, I’d be barely keeping ahead of inflation, if that. I don’t think his comments on actively managed funds are true; there are mutual funds with returns greater than 8% over 10+ years, many with returns around 12%. I think if you understand what you’re investing in, you don’t need to be as basic as Farrell advises.
I’m also critical of anyone who writes a financial advice book but isn’t wealthy. I know that sounds a bit crass, but I am reminded of Dave Ramsey’s saying about not taking advice from broke people. If you aren’t at least doing fairly well financially, why should I listen to you?
I think the perspective on the Great Recession was helpful. The lingering message is that this too shall pass, and to avoid losing your shirt by keeping a portion of money safe in proportion to your age and need.
It’s November, and that means open enrollment system. I lost count of how many hours I spent pouring over my husband’s and my packets from work. I wound up making two new spreadsheets for the purposes of determining which medical insurance to use, and what our actual take-home pay will be after pre-tax benefits, taxes, and post-tax benefits are taken out. It was annoying, but I enjoyed the challenge.
Unfortunately, the rising cost of health care has been somewhat imaginary in our world this year, as we had great, traditional PPO coverage through my husband’s employer. However, due to some major illnesses within his organization, they now only qualify for high risk insurance, which is both worse for coverage and far more expensive. Ultimately, I’m thankful that we have the choice between our employers’ coverage plans, but our coverage was much cheaper when we were on the open market and bought coverage through ehealthinsurance.com.
At least in 2011 we will go back to having an HSA (health savings account) instead of our HRAs (health reimbursement accounts) because HSAs can earn interest or become investments, which is a nice option both to avoid some taxes and save for health care costs in retirement.
The most exciting thing about this change in coverage is that I think our actual take home pay (net income) will be more in 2011 than it is in 2010. This is for a couple reasons: right now, I’m using my benefits money at work for a 457b (deferred compensation) account, and if my husband doesn’t take his employer’s medical coverage, he gets a ‘waive off credit’ in the form of cash. We’re also going to lower his 401k contributions for 2011 since we’ve decided that slowing our retirement savings for one year will mean freedom from debt much sooner–about a year sooner, in fact.