Financial Security For Dummies

From the Publisher

What does financial security mean to you?

If saving money is a good habit, the more you save, the better, right? Well, no, not really, unless your sole goal is to amass as much money in various accounts as possible. But what if you’re not spending enough to eat a healthy diet? How about some time and money so that you can regularly rest and enjoy some recreation? What about some spending for the special people in your life?

Think about all the big decisions in your life: choosing and finding a job, a place to live, a spouse, and so on. For most people, there’s a financial component to all of these. When thinking about personal goals, nearly all of them take money to accomplish. Money is inextricably linked to the rest of your life. Making the best financial decisions starts with the big picture and the rest of your life in mind — in other words, holistically.

Suppose like many people, you are working and earning money. You’d like to save and invest some of that and not have to continue working full-time for the rest of your life. But you probably have some other competing uses for your money. These may include things like saving to buy a home or start a business, expenses for your family, a future vacation, and so forth.

Money shares some similarities with food. If you don’t have enough, you likely notice the insufficiency of your resources. Having more than enough with some reserves and extras usually provides most people with some peace of mind. Different people, though, have different views of how much extra they may want to have.

The virtue of a capitalistic economy is that within reason, if you’re willing to work hard and seek to improve yourself and your work, over time you should be able to see your money grow. The progress and advancement of technology and society generally increase the purchasing power of your money over time.

Some folks lose sight of the differences between necessities and luxuries, especially in affluent and upper-middle class communities and circles. We can always find people with bigger homes and more expensive cars who have taken more exotic vacations. The bar can continually be set higher and higher in terms of how much money we “need.”

How does the book help achieve your financial security?

Most people value financial security and stability, of course, unless they like danger, risk, and turmoil! Living within your means, saving and investing in wise, proven investments, and securing catastrophic insurance are all keys to sound personal financial management.

Unfortunately, your financial security can be undermined by things outside of your control. Upsetting events can include macro-events like the crisis of (2020) or financial crisis (2008) as well as individual life changes or personal crises, such as job loss, divorce, caring for elderly parents, and so on. Part 1 addresses these two major types of crisis or catalysts.

You may find that at some point, you need to access funds in the event of a crisis. It should give you peace of mind to know that there are ways to get help. Part 2 looks at all crises (economic and personal) and discusses safety nets that people can tap and emergency measures they can implement.

You may be looking to navigate the barrage of information coming at you while an economic crisis is in motion. Part 3 contains content that is central to the book and vital for you to understand as you deal with turbulent times.

To maintain financial stability, you need to keep your financial house in order. Part 4 identifies the key personal finance tasks and steps to take to maximize your future financial security and minimize problems when disruptions inevitably occur.

What does the future hold? No one knows for sure, but there are ways to be prepared. Part 5 delves into discerning what pundits may be telling you about current and future economic issues and finding out how to keep yourself and your finances on track when things look gloomy. It also touches on what future crises may be in store and how to keep your cool.

How would you define successful investing?

To me, a successful investor is someone who, with a minimal commitment of time, develops an investment plan to accomplish important financial and personal goals and earns returns comparable to the market averages. Some people have control issues with their investments. These folks have great difficulty turning over their money to someone else to manage, which is what you’re doing when you invest in a mutual fund. Such investors typically prefer investing in real estate and individual stocks of their own choosing.

If you consider investing to be your hobby, ask your loved ones and friends to honestly tell you if your perceived hobby has grown into something more problematic. If you’re afraid to raise the subject because of what you expect the answer to be, that should tell you something needs addressing.

Researchers have found a clear link between daily tracking of investments and poor mental health. A study published in the Journal of Social & Clinical Psychology reported that those who follow the stock market closely generally had the worst problems with pessimism and depression. Researchers believe that these results are due to the fact that such investors are closely monitoring a situation that they have no control over, and when things go against them, they feel demoralized.

Remember the saying, “Ignorance is bliss.” This is not suggesting that you stick your head in the sand and ignore your investments, but if you follow every little up and down, the down times will inevitably wear on you. The stock market goes through some extended down periods, and closely following things during such periods can be especially distressing and depressing.

What these studies didn’t highlight is the damage done beyond the investor’s poor mental health. Most of us don’t have much free time, and if so much time is being devoted to tracking investments, the investors’ personal relationships, family members, and friends are affected too. In their financial planning work, advisors sometimes hear about these broader problems. Typical is the following complaint one woman made: “Every day, my husband spends hours on the internet following his individual stocks. He says we have been doing well, but we never go anywhere or do anything together. This type of investing worries me.”

What is your #1 rule for retirement planning?

Honestly, it’s similar to good nutrition advice and about being “healthy” and “balanced” but not obsessive or extreme. Crunching some numbers and planning is wise so that you have some general ideas about how much you should be saving to accomplish a specific goal.

Of course, there are many unknowns such as how well your investments do over time, income tax rates, inflation in the general economy, your personal health and longevity, etc. That’s why you shouldn’t get too stressed about being super specific about needing to save a precise amount of money. You will have time to make future adjustments and we should all embrace the fact that there are many things beyond our personal control.

There’s no “right” answer here. Saving for the future is prudent and potentially financially advantageous but there’s something to be said for enjoying today. No one can know what the future will bring and how long we can enjoy our current lives.

When it comes to women investing, do you see anything different in terms of behavior or approaches?

I talk in the book about studies that show men tend to be more overconfident, trade more, and earn lower returns than women. Interestingly, these differences are more pronounced between single men and single women; single men trade 67 percent more than single women and earn annual risk-adjusted net returns that are 2.3 percent less than those earned by single women.”

And, when overconfident investors/traders start losing money, their judgment actually gets even worse. In a landmark study, researchers analyzed what happens when people make risky choices in gambling games and lose. Subjects who suffered such losses experienced heightened brain activity symptomatic of distress, which caused them to be more likely to make knee-jerk and irrational decisions to try and quickly recoup losses. Unfortunately, the internet, low-cost computers, and smartphones have aggravated the problem by enabling the worst offenders to continually track stock prices and news releases.

Eric Tyson, MBA

Eric Tyson is a best-selling personal finance book author and has penned five national best sellers. He is also the only author to have four of his books simultaneously on Business Week’s business book bestseller list.

His Personal Finance for Dummies, a Wall Street Journal best-seller, won the Benjamin Franklin Award for Best Business Book of the Year. Eric’s syndicated newspaper column is read by millions of readers weekly. He is a former columnist and award-winning journalist for the Sunday San Francisco Chronicle. His website, www.erictyson.com, rocketed into the top one percent of financial websites within its first year of operation.

Publisher ‏ : ‎ For Dummies; 1st edition (November 2, 2021)

Language ‏ : ‎ English

Paperback ‏ : ‎ 304 pages

ISBN-10 ‏ : ‎ 1119780780

ISBN-13 ‏ : ‎ 978-1119780786

Item Weight ‏ : ‎ 2.31 pounds

Dimensions ‏ : ‎ 7.4 x 0.8 x 9.2 inches

Best Sellers Rank: #3,493 in Budgeting & Money Management (Books)

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