Money Magazine – October 2007

MoneyThis issue actually happens to be Money Magazine’s 35th anniversary issue (incidentally, I happen to have the first issue as well), which means that (a) it’s thicker than normal and (b) there are some anniversary-themed articles inside along with the usual Money Magazine content. As usual, I’ll yank out the ten tidbits from the issue that really tweaked my interest.

Want to save money? Associate with people who don’t spend like crazy. Your friends are a constant guide for how much money you should be spending. If you find friends that are wisely frugal, your own spending will slow down – and you’ll wind up financially ahead. (p. 28)

If you plan on moving in three years or less, rent instead of buying. The costs associated with buying will eat up any potential equity gain you might get in three years, so you’re way better off renting in the short term. (p. 36)

Don’t rely on a life insurance policy through your workplace. This makes a lot of sense, but didn’t occur to me at first. If you switch jobs, suddenly you have no insurance and you’re older, which means a term policy will cost more. (p. 38)

If your mortgage company fails, don’t worry about it. Someone will buy your mortgage and chances are the servicing company (the place you send the checks to) won’t change. Even if it does, they’ll inform you by mail and you just change the address on the envelope (or on the online bill pay service). (p. 52)

The best time to buy financial stocks is right about now. Most financial companies are in good shape, but the subprime panic has led to a mass exodus and thus lower prices – in other words, bargains. (p. 59)

Unless you really know what you’re doing or you’re requiring them for income, you should always reinvest your dividends. A solid rule of thumb to follow for a long-term investor – I’m reinvesting every cent of my dividends. (p. 77)

Spend 30 minutes and make a video of your home. Make a clear video of all of your stuff and zoom in on the valuables so it’s clear what they are. Then take that tape and put it somewhere safe. Why? Insurance. In case of disaster, that tape becomes gold. (p. 81)

Americans aren’t better off now than they were 35 years ago. There have been advances, sure, but the losses are far worse than the gains. They seemed to try really hard to make it seem more even than it actually is. (p. 110)

Don’t judge your financial status by comparing yourself to your neighbor. There’s a good chance that what their financial situation appears to be is far different than what it actually is. (p. 126)

Unless you’re an art dealer, don’t buy art as an investment. Instead, choose items for their aesthetics and don’t worry about profit at all. (p. 137)

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  1. Laura says:

    Thanks for posting the Money Magazine reviews! There’s usually something that catches my interest. This month’s on video taping your home is helpful as we’re looking into different renter’s insurance companies and we were only going to take pictures of our possessions.

  2. mgroves says:

    I’m not buying “Americans aren’t better off now than they were 35 years ago”. Can you explain more about it?

  3. Carlos says:

    I’d be curious to see how these tidbits change year to year. I wanted to get a subscription to Money Magazine but realized that usually it’s the same, basic (good) advice repeated over and over for the people that just don’t seem to want to hear sensible money advice.

    Is this just me?

  4. Louise says:

    I’m curious about the 35 years ago as well. Better off in what regard? Financial? Health-wise? Educational? Civil rights? General satisfaction with life?

  5. Jim Kane says:

    The curious can read the “35 years” article at Money’s website.

  6. Mrs. Micah says:

    The life insurance one is something I hadn’t thought of either. Then again, I planned to buy term in a few years so that if I die, Mr. Micah will be able to pay off the debt and replace my income for a few years. My company doesn’t offer enough.

  7. kitty says:

    A variation on “Don’t rely on a life insurance policy through your workplace. “. Don’t buy a life insurance if you are single.

    It always amazes me how insurance companies try to sell life insurance to single people.

  8. Andrew Stevens says:

    Hmm, not sure that article says what Trent thinks it does. It concludes that materially, Americans are in fact better off than they were 35 years ago, as everyone with a passing familiarity with the economic statistics could have already told you. The single exception, by the way, is white men without a college degree. Their incomes have been stagnant. Even they haven’t lost anything, though; they just haven’t made the gains that women, minorities, and college graduates have made. (By the way, allow me to freely grant one of the article’s points. It’s absolutely true that the annualized real income gains have not been as high since 1973, especially for the middle class, as they were between 1946 and 1973. But that’s a much, much different statement from claiming that we have actually seen real losses since then. We haven’t.)

    However, this hasn’t translated to greater happiness. Part of this is just the “creative destruction” of capitalism and that we’re all just a bit more bloodless than we used to be. A lot of it, I think, is the skyrocketing divorce rate (some of which is, no doubt, a good thing since it’s a result of women no longer being dependent on their husbands). Moreover, while we have more real income, rampant consumerism means that people’s lives probably haven’t become any more stable than they used to be. (E.g., I worked with a woman who just job-hopped to another job. In the couple of weeks before she told us she was going to leave, I had heard her complain about half a dozen times that she wasn’t making enough money. Her salary? $180,000 a year, not including bonus and with a husband who also works. Don’t know what he makes.)

    I’m hardly surprised that financial gains haven’t resulted in happiness gains. As long as your basic needs are satisfied, material things rarely bring happiness. In 1973, America had already reached the point where basic needs were satisfied for just about everyone, so we can’t gain much more happiness from merely greater financial success. I suspect you could poll people 2000 years in the future (assuming things continue to improve, which I grant is a questionable assumption) and you’d find that they still aren’t any happier.

  9. infix says:

    One way we were better off 35 years ago was that a household with one breadwinner back then could fairly easily buy a home. Now in most parts of the US both spouses need to be working.

  10. sophie says:

    Re: “Don’t buy a life insurance if you are single.”

    Many, many single people need life insurance (and disability insurance) even more than married people – these are single people who have minor children or elderly parents or disabled siblings or partners to provide for – without the benefit of a second income to help build savings or offset the loss of the primary wage earner. A clearer rule would be: “Don’t buy a life insurance policy if no one is dependent on you.”

  11. Andrew Stevens says:

    Infix, that’s not actually true. Some parts of the U.S., perhaps, but certainly not most. (I know a great many single mothers who own their own homes, in addition to a large number of college-educated men with non-working spouses.) A lot of the reason for this is because two-income families bid up the price of homes in very good school districts, making it difficult for one-income families to compete. And homes are quite a bit bigger on average than they used to be. In rural areas, homes are still astonishingly cheap.

    By the way, a lot of the reason people think this sort of thing is because of viewing the past through rose-colored glasses. Home ownership is at the highest rate it has ever been in this country. The word “easily,” when applied to the past, is simply not true. For example, my grandfather owned a house with a non-working spouse, but it was a small house which he inherited when his parents died.

  12. Louise says:

    I like the idea of making a video of your valuables. One option for storing that video “off site” would be to use an on-line video service like YouTube or BlipTV. Just remove your identifying information so that potential thieves don’t have a slide show of your goodies.

    In fact, a slide show instead of a video is a good idea. Google allows you to have a private area for photos that you have control over who has access.

  13. Debbie M says:

    Even if you weren’t relying on your employer for your insurance and were buying your own term insurance, than later when you get laid off, you will still be older.

    Those houses that seem harder to buy today are quite a bit larger and have more amenities. The wiring is safer and there’s more of it. I’m guessing that houses built in 1970 averaged 1300 square feet, versus 2000 (or more?) today. Were walk-in closets big yet? Separate laundry rooms? Extra bathrooms? Dishwashers? Privacy fences? (My house was built in 1955 and is a 2/1 with 1,000 square feet, a washer in the kitchen, laundry lines out back, chain-link fence, no garage or carport, and a one-car-wide driveway. This house was still quite possible for a single female to buy in 1996. And I could also buy it today.)

    Cars are safer and pollute less, we have way better electronics though they are still horrifyingly unreliable. CDs last better than records and DVDs last better than tapes. Cell phones make things easier, especially emergencies and other surprises. Medical care is much better, even for simple things. (For just one example, ibuprofen was invented in 1969 and was not approved for over-the-counter use until 1984.) Clothing and sheets can be so much softer now!

    But then illegal drugs are scarier, sex is scarier (AIDS), and weapons are scarier. Also, air travel is much suckier. And movies tend to be about special effects instead of about good stories or characters.

  14. Andrew Stevens says:

    Air travel is worse, but also much, much less expensive. When I was growing up (before Carter deregulated the airlines), flying was strictly for the rich. My mother never got on a plane until she was in her fifties.

  15. Rand says:

    I’m sure this was written a bit ago, but the investment in the financial sector is the worst medium-term investment one can make right now. The “Subprime Mess” is much deeper than what people think.

    The bottom end always impacts and sets the other ranges of a market. If the bottom goes up, the rest goes up. Areas like Cali are way off of the fundamentals of the housing market. Then you have student loans. New bankruptcy laws disallow the absolvement of student loans, but that doesn’t mean that as people loose their houses that they will be able to pay on these. Let them drop more, because they will, and then buy when things flatten.

    And we are worse off than the previous generations. Unlike our parents, it now requires large amounts of debt and a much longer period of time to aquire the same lifestyle that our parents enjoyed. Yes, we have more access to material items, more access to advanced medicine, but as far as being able to support a family, gain middle-class status, own a home, ect; that stuff is much harder, takes more time, and requires more debt than older generations.

  16. Andrew Stevens says:

    Rand, your debt argument is a serious argument and I must admit you’re probably right about that. At first, I thought you were referring to mortgages, which wouldn’t be true, or credit cards which are clearly optional debt, having nothing to do with the goals you mention. However, it occurred to me that you’re probably talking about student loans. According to the 1970 census, 10.7% of the population had a bachelor’s degree or more. In 2000, it was 24.4%. Moreover, the figure for “some college” is 51.8% which must simply tromp 1970, though they didn’t seem to have 1970 data on that. So the increasing consumption of college and spiraling college costs (especially post-2000) probably does lend weight to your argument. On the other hand, while student loans means things might take a bit longer, it’s still the case that if you’ve got a bachelor’s degree, you’re likely headed for the upper middle class eventually.

    Moreover, the increasing use of college sets people back in other ways, besides debt. For those four years that you were in college, you were taking on debt while your (presumably) non college-educated father was earning money. This is a significant difference in how long it will take to reach middle-class status, support a family, own a home, etc. In the end, the younger generation who goes to college will blow away their parents, but it will take longer for them to be successful than it did for their parents (perhaps as much as six to seven years longer).

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