It all comes down to this.
I wrote for the first edition of The Wall Street Journal Sunday. It seems fitting I should help bring down the curtain with this column that will appear in its final edition.
Parting thoughts? With my final words, here are five notions that—I believe—are indispensable to a happier financial life.
Biggest time waster: Commuting
I don’t look back at my career with many regrets—except commuting. NJ Transit, the commuter rail system that runs trains into New York City, stole countless hours that I would love to have back.
I have come to view the classic trade-off—accepting a long commute as the price of a big house in the ’burbs—as a pact with the devil. Indeed, research suggests commuting is terrible for happiness. One example: A study in Sweden found that a long commute increases the risk that a couple will separate by 40%.
Best investment attribute: Humility
Wall Street wants you to believe you can beat the market, because market-beating efforts are a big moneymaker—for financial firms. But it hasn’t worked out so well for investors.
Yes, Warren Buffett has beaten the market over a lifetime of investing. But there aren’t many others.
The math of investing is brutal. Before costs, we collectively earn the market’s return. After costs, investors—as a group—must inevitably lag behind.
Trading stocks may offer an adrenaline rush and buying actively managed funds can allow us to dream of riches, just like lottery tickets. But managing money should be about making money, not entertainment. If you want to notch decent returns, put your ego aside and put your money in broadly diversified index funds with rock-bottom annual expenses.
Key to financial success: Cheap housing
A third of the money spent by the typical household goes toward housing. Add car payments and other transportation costs, and you’re at more than half. My advice: Try to keep those two costs well below 50% of your income, especially in your early adult years.
The less you spend each month on housing, cars, utilities and other fixed costs, the less financial stress you’ll suffer. You’ll also have more money for discretionary “fun” spending, be in better shape if you lose your job, and need less income to sustain your standard of living once retired.
Most important, low fixed costs make it easier to save a hefty sum every month—and that, more than anything, will drive your financial success. I’ve met thousands of ordinary Americans who have amassed seven-figure portfolios. The vast majority share one attribute: They’re great savers.
Best way to spend money: Experiences
I believe money can buy happiness, but you have to spend with care. My advice: Use your spare cash for experiences, not possessions. Pay for the family vacation. Go to a concert. Head out to dinner with friends. This will strike many as counterintuitive. Possessions seem appealing, because they have lasting value, while experiences leave us with nothing tangible.
But this is also the reason experiences can bring more happiness: We have not only the event itself, but also the anticipation before and the fond memories after—and those memories aren’t soiled by the messy reality of some object that gets dirty, breaks down and is eventually discarded.
Top financial goal: Not working for money
Unless you have enough saved for retirement, you need an income. But if possible, never work just for a paycheck. I believe the keys to a fulfilling life are spending our days doing what we’re passionate about and our evenings with friends and family.
Problem is, the career that makes us happy in our 20s may not be satisfying in our 40s—and the new career we want to pursue may not be as lucrative. What to do?
Avoid the acquisition treadmill of bigger homes and better cars, and instead save like crazy in your 20s and 30s. Do that, and you could buy yourself the freedom to spend the rest of your life on your terms, rather than one dictated by car leases, credit-card bills and mortgage payments.
Many readers of this column have become my regular correspondents—and I hope that’ll continue. From now on, I will be writing for Saturday’s Wall Street Journal, while also updating my book, the “Jonathan Clements Money Guide,” every year.
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