Sunday, July 1, 2012

YMOYL Book Club: Managing Your Finances (Step 9)

This is the ninth and final week of the Your Money or Your Life Online Book Club, where we are tackling the nine steps of the YMOYL program. Get more background info. and a complete list of the steps here.

We made it people! This is the ninth and final week of YMOYL. Well, more accurately, some of you made it, not me so much.

Step Nine

Step nine is about becoming knowledgeable about long-term, income-producing investments. It's also about learning how to manage your finances in order to create a consistent income sufficient to cover your needs over the long term.

The final chapter of Your Money or Your Life is intended to provide advice for those who arrive at the crossover point. Since I'm using the updated version of the book, the advice given in this chapter is different than Joe Dominguez's original advice to invest just in US Treasury bonds. The updated chapter includes the very basics of other investment vehicles including mutual and index funds.


For me, step nine raises more questions than it provides answers. Investing is the area of finances where I'm the weakest. I know how to save money. I know how to evaluate my wants and needs and find a good deal, but investing? There I'm pretty lost. So I have more questions than answers for those of you who are still with me.
Do you have a long-term investment strategy that you're confident about? If so, care to share the basics? (e.g. do you invest in stocks, index funds, bonds, etc.)

Overall, do you feel the YMOYL program has helped you financially?

What are your favorite and least favorite pieces of advice in the book?
Thanks to the handful of regulars who stuck with me throughout this online book club, and especially those who stuck around even after the long hiatus between chapters 6 and 7. Ya'll rock!


  1. Since I'm asking so many questions, I'll chime in first. The only investments I have are retirement related. One is in an employer sponsored plan, and I also have an additional Roth Ira which is invested in index funds. I also have a large (some would say too large) cushion/emergency fund that is barely earning any interest. It's time for me to take the next step for investing for my non-retirement funds, but I'm not confident enough in my knowledge to take that step. Time to study up!

    Since I've always been a saver, I don't feel like I received the amazing benefits from YMOYL that others seem to. It did definitely outline some areas where I could do better, however.

  2. To be honest, this is my least favorite part of the book. I think that living off of the interest on treasuries was a plan that made sense when Joe originally came up with it, but I don't really think that it does now, and for me at least, there's just WAY more risk involved in other sorts of investments than I am comfortable with.

    I've known people who had rental properties and the nightmare stories they've told me are horrific to say the least. I also shy away from the stock market because even though I have tried my hand at very conservative investments, I've still lost money. I still have some retirement money in the market, but it really isn't an area that I'm very comfortable with.

    For me, the solution was to find non-employment ways to make money. Some people may argue that this means I still "have to work" but trust me, managing investments is work too! My system is web pages with advertisements on them, and it's a great fit for me because I can invest time upfront in setting up a site and creating content, but then it just keeps earning money without me having to do much more than a bit of server maintenance.

    But there are other non-job ways to make money... some people publish their writing, or their music... some people sell their services, or home-made goods... there are lots of ways as I blathered about in a post a while back.

    So even though I didn't find this part useful, I still found the system to be an incredible benefit because it really taught me that I needed far less income than I thought I did in order to be happy. I have a post brewing on this topic, so I won't write an epic comment here, but being able to sort out which things were really worth spending money on was huge for me.

    At the moment I live quite comfortably on $15-$20K annually, but in 2014, when I'll have the mortgage paid off and the new health care law takes effect, that number should drop by about $8K annually - which means that even if I had to live entirely off of savings, I'd be set for the foreseeable future... and that's WAY worth it for me!

    1. I absolutely agree. If you look on, you will see that 7-year Treasury Bonds are currently offering a whopping 1 percent interest. That's not even enough to keep pace with inflation. So for me, the advice in this part of the book was almost entirely useless.

      Query: EcoCatLady, how do you anticipate the new health care law will affect your expenses? My state has yet to set up its health exchange, so I really don't know how to predict what health care costs will look like come 2014.

  3. This is an area in which the new edition of the book varies dramatically from the first edition of the book. The first edition says: you want a sure investment, use treasuries (it might even say TIPS, which are inflation adjusted treasuries, but I'm not sure if those had even been invented yet). The current edition gets on the low cost high diversification bandwagon for long-term investing. And they're right. I think they also talk about dividend investing-- that's an area in which it might be worth learning more about for early retirement (rather than standard retirement).

    Low fee index funds are the way to go. You'll match the market, which brings higher returns than treasury bonds on average, and matching brings higher returns than the average active investor gets (since they both pay higher fees and are more likely to make psychological mistakes).

    Other investments that may be good for early retirees include other government bonds, such as city bonds, these carry higher risk than federal treasury bonds, but are tax advantaged and have higher return than treasuries. Also included are dividend stocks, which are regular stocks that provide more regular and predictable dividends. Some stocks are more likely to reinvest money in the company than to produce dividends, which has benefits for long-term investors, but dividends are great if you're trying to live off your income without drawing down money.

    For short term, CDs are giving lousy rates, but they're still the best option. If you have a large emergency fund, you may want to consider setting up a CD ladder such that every month or every few months you have some emergency money maturing and automatically reinvesting if you don't stop it.

  4. I second Nicole and Maggie.

    I'm lucky and have a pension. But I've also been maxing out my Roth IRA ever since these were invented. Most of my money is split evenly into low-cost index funds concentrating in these areas:
    US large cap growth
    US large cap value
    US small cap growth
    US small cap value
    US REITS (real estate)
    US bonds
    European stocks
    Pacific stocks
    Emerging markets

    You could just put some percentage in an all-world stock fund and the rest in a bond fund and probably do just as well, but with more funds you can earn a little extra by rebalancing (selling high to buy low). I would have preferred to rebalance between different industries (like manufacturing, consumer goods, etc.), but those funds have much higher costs, so forget it (except for REITs which act differently enough from other investments to be really handy for rebalancing).

    In addition I have some money in dividend growth stocks, which I am learning about from people like this:

    Those are in both growth and value stocks, all large-cap, so I include this in my total and reduce the amount in my US large-cap funds. I kind of love the idea of spending just the dividends and leaving the rest, and I also like that in horrible recessions, although dividend payments do fall, they don't tend to fall as far as stock prices. But I just started adding these recently. I would like at least half my large-cap money to be in these hand-chosen dividend stocks, but I also like that most of my money is in index funds.

    I also have some money in Tesla, just because it's exciting.

    Then in addition, I invest in I-bonds (and am interested in TIPS) and want to have enough of those to equal the amount in the other funds, but just can't make myself buy them right now with the crappy interest rates.

    I feel quite confident in my investment strategy, but mostly it's because the pension part will cover all my needs now that my house is paid off. So I might not need any of the other money at all.

    Still, when I first started investing, I invested only the money I could completely lose. I now feel that I am only at a real risk of losing half my investments, not 100% (except for the Tesla stocks). I remember people freaking out when their high-tech stocks lost 50 or 70%, but they had already doubled four times by then, so they were still ahead!

    I like to graph my investments along with a line that shows a steady 8% growth rate (one estimate of the historic average). So if the amount I have is way above that line, I try to think as if it's likely to fall back to that value at some time, so I make my calculations based on that line. However, if my stocks are below that line, and I do the calculation with my actual numbers.

    For short term, I use a "high" interest online bank (only 0.8% these days) for most of the money and I got a couple of I-bonds for a very small percentage of the money (you cannot cash them the first year, but after that, they are okay for short-term use).

  5. As for your other questions, my favorite parts of the book are the crossover point and the general notion that you can achieve financial independence before retirement age. And you don't have to do what everyone else is doing or put all your decision making on automatic but can continually keep checking that you are spending in line with your real priorities.

    But has this book actually helped my finances? Hmm, let me look over all my comments.

    Oh, that was a lot of blathering.

    I went back to putting my charts on the computer only. I never actually looked at the paper ones except when I was updating them, and on the computer they can have pretty colors and still be updatable when I realize I forgot something. I still look at them whenever I'm Jonesing for financial independence. But I don't think these charts are helping me except possibly as an antidote for any excess spending I want to do. Actually, last weekend, I decided not to walk over to the thrift store after reviewing my charts.

    Well, I think I am going to have to admit that they are showing me that I am not living quite as cheaply as I had predicted. So I am going to have to do some recalculating.

    I don't recall finding any alternatives to any forms of spending I've been wanting to do lately, though I have been fairly good at reminding myself to do so.

    The book probably is helping to motivate me to stick it out at, and request more, consulting jobs since they pay so much better than the fun-sounding jobs I have been able to find.

    Actually, by trying to get to FI as quickly as possible, I have learned about several priorities that I don't seem willing to give up. For example, I joined a gym again with my boyfriend, and helped pay for the gym membership for my other exercise partner (because it was still much cheaper than re-joining her gym) because our walks were turning into strolls and then turning into window shopping as the heat became oppressive, and we all need real exercise. Also, I'm developing some foot problem, so I'm trying better shoes (even though my old ones don't have holes in the toes yet). Also I read that grass-fed beef is not only better for the cows but for the environment in general, so I'm going that direction when I buy beef.

    I think re-reading this book and going through the exercises has given me a nice framework for dealing with the issues I'm facing now, even though I can't think of any spectacular helps it has given me.


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