Every Thursday, I spend an hour taking reader questions live online, and I love the opportunity to see what’s concerning people. There are the typical questions about retirement or credit, but people also reveal the psychological issues that impact the way they think about money. Here are my answers to some questions left over from a recent chat.
Q: I do not like investing in the stock market. I have a new job and the opportunity to invest in a 401(k). Can you recommend any books or articles that explain why I should invest?
A: I don’t like investing because of the risk. However, the No. 1 reason to invest is to hedge against inflation. Your money has to grow to protect your purchasing power in the future. This means finding a way to make your money grow to at least keep pace with inflation. If your employer is offering to match a percentage of what you invest in the 401(k), that alone is a good reason to get into the plan. That’s free money!
For a book, I recommend “The One-Page Financial Plan: A Simple Way to Be Smart About Your Money” by Carl Richards. Also go to investor.gov, where you’ll find a lot of information about investing that might help alleviate some of your fears.
Q: My credit score went down several points, and the only thing I can tie it to was a large purchase I made in October that has since been paid off. I need to make another large purchase and will likely pay it off within two weeks. Do you think that will affect my credit score again? Should I use my savings instead?
A: Your score might dip when you charge a lot in any given billing cycle if you substantially increase your credit utilization — even temporarily. In the FICO scoring model, 30 percent is made up of how much you owe. But your score should bounce back fairly quickly when you pay the balance in full. However, if you’re planning to apply for a loan, a decrease in your score might negatively affect your application if your score hasn’t had a chance to rebound. In this case, pay for the purchase with cash.
Q: So many of the calculators ask your existing salary and then determine what percentage of that salary you’ll need in retirement, which makes me far from retiring, according to them. But I would be able to live on far less. Are there any good calculators that focus more on what you’ll actually need?
A: I like the “Ballpark Estimate” calculator at choosetosave.org.
Q: I grew up poor. When I turned 18, my parents stopped contributing to my support. Not out of meanness — the money just wasn’t there. So, I became responsible for all my expenses, from college to food and transportation to paying the dentist. I’ve done OK and have lived a modest, middle-class life. Because of where I live and work, most of my friends are much better off. I’ve been OK with that. Things are what they are. Except now, I’m middle-aged and my friends are starting to inherit, and I’m feeling envious. I guess I hadn’t really anticipated the generational wealth transfer and how it would feel to watch it pass me by. I feel jealous. It’s like spring break again and everyone is getting money from mom and dad to go to Europe or the beach while I pick up a zillion extra waitressing shifts. Help me get to the right frame of mind about this. P.S. I am very sorry my friends are losing their parents of course, as I lost mine. However, none of the deaths I’m referencing were untimely or tragic. Just the circle of life.
A: It’s hard not to look at what others have and wish you had it, too. The Joneses always seem to have it better. It’s why we want to keep up with them, and now their children.
“Over the next 30 to 40 years, $30 trillion in financial and non-financial assets is expected to pass from the Baby Boomers to their heirs,” according to a report by Accenture.
Somebody is going to have more.
So, in those moments when you’re feeling envious, think about the folks less privileged than you. Think of how much you have — a job, a roof over your head, the ability to go on vacation — even if you’ve got to pay for it yourself. Somebody could be looking at you and longing for your “modest,” middle-class life.
Perspective and gratitude can get you to the right frame of mind.
— Washington Post Writers Group