5 Keys to Financial Happiness

I saw some feature clips from a 60 Minutes episode on the topic of happiness this past week. They interviewed a professor at Harvard named Tal Ben-Shahar who has studied happiness for years. What I found so compelling about the story was that so many biblical themes were present although they were never credited to the Bible or Christian beliefs.

Denmark was given the honor as the happiest country. Why? Humility, contentment, low expectations. I found that interesting and extremely consistent with what the Bible teaches.

Ben-Shahar gave 5 keys to happiness that included the following:

1. Simplify life
2. Exercise regularly
3. Embrace the gamut of emotional experience
4. Be grateful daily for what you have
5. Continual growth- the good you see appreciates as you practice appreciation

The topic inspired me to come up with my own happiness list from my 15 years of experience as a financial advisor to many families. These are my own personal observations as to what makes people truly happy in this life.

1. Simplify

I wholeheartedly agree with Ben-Shahar here. One of my favorite verses in Scripture is: "God has made us simple, yet we seek out our own complexities"- Ecclesiastes 7:29. Walden was wise when he urged, "Simplify, simplify, simplify."

I don't believe in radical simplicity that makes life more difficult- like the Amish for example. I respect their choices to do what they do. But give me computers, electricity, air conditioning, etc... any day. But I think we need to constantly evaluate what makes us truly happy and be in a continual process of uprooting the weeds that choke our devotion to God and our general happiness.

My wife- Amy- has been a huge help to me in learning to say "no" to good things. Too many "good things" in your life will lead to the inability to be great in anything. So we need to prioritize, simplify and get rid of unnecessary stuff.

Financially, this is huge. You ask yourself what brings me the most fulfillment in life? Are there things I own that I am not using that I can get rid of?

I remember talking with a college friend of mine Eric after he and his wife sold or gave away most of their possessions to spend 3 years as missionaries to Russia. Eric commented that there was something liberating about owning so little. He could feel the stress decreasing. Most of us have experienced this after giving away or selling some possession- it is a good feeling to have less to care for.

2. Reinvent Retirement

My observation is that people who are happiest in their "retirement" years have some or all of these traits in common:

• Ability to limit withdrawals of investment income to 4% of principal base.
• Working part-time as long as the mind and body allows productive work.
• Finding purpose in the 2nd half of life. Using time and abilities towards helping others- whether it is family or community.
• Lower stress because they keep expectations modest.

They make sure their houses are built on rock and not sand. So when the storms of life come, they have a firm foundation.

Retirement is undergoing a big makeover due to baby boom generation. I think most of the changes are healthy. Thirty years ago, people retired at age 65 and then died in their 70's on average. Today, people are living into their 90's routinely. More money is needed to sustain longer life spans. Rising costs to social security and medicare put these programs at risk in the future.

A person who retires at 60 and never works again is in danger of running out of money unless he/she has saved a lot of money. The road to less stress is to work as long as you are able to in a job that brings great fulfillment. Very few people can work in jobs for 50-60 years that they don't enjoy. But as Mark Twain said, "The secret to life is to make your vocation, your vacation." When you find that kind of satisfacation and joy, you can work until you die.

So you see lots of new ways of doing "retirement". Many people take 5 years off from the workforce and then launch a new career. Some incorporate new educational training after 50. The goal should be financial freedom and not traditional retirement. Traditional retirement is a very unbiblical notion. The Bible encourages us to do productive work until the day we die- John 9:4.

3. Yale Model of Investment Allocation

I am surprised that more investors don't implement this type of investment strategy. Traditionally, we are told about investing in stocks, bonds and cash. The Yale Model (or multi-asset class model) encourages a broader amount of diversification. The idea is that if you mix different types of asset classes into your investment portfolio, it is possible to achieve greater returns with less risk.

How is that possible? David Swensen- the portfolio overseer for Yale University's huge endowment fund- explains his methodology in several books. You can read a recent Smart Money article about this investment philosophy here.

The Yale Model proposes that you spread out your investment risk among many categories of investments: fixed income; domestic (US) stocks; foreign stocks; absolute return investments; private equity; real estate; commodities; cash.

Five years ago, the opportunity to invest in many of these areas was only available to millionaires. Now, there are a multitude of options available that are attractive to small investors. Diversification is important because no one really knows what the future holds- Ecclesiastes 11:2. It is wise to devise a plan that balances inflation risk and principal risk.

4. Capture the Sweet Spot of Insurance

I see many people that are terribly underinsured. If disaster strikes, they will be in trouble financially. I also see others who rely on insurance as if it takes the place of God. They spend a fortune on insurance to attempt to eliminate many risks.

Life is full of risks. You simply cannot insure every risk. But you can manage these risks by having the sweet spot of insurance. What do I mean by this?

Here is my brief philosophy about certain types of insurances- obviously these are all generalizations so you should speak to a competent professional about your personal needs:

• Health: I believe most people should consider a policy that covers expenses over $5000 per year. Anything under $5000 per year should be paid for out of pocket or through a health savings account.
• Life: the most critical need for life insurance is for the 20 years when families are raising children. Term insurance is a cheap way to protect the family from financial catastrophe if a spouse were to die during this time.
• Disability and long-term care: the sweet spot of disability/long term care insurance is a policy that covers a percentage of your income/expenses for 5 years. The odds that you would need help past 5 years are low. If you are disabled during your working years, you would have access to social security payments.
• Home/Auto: As I feel about health insurance, I believe that you should insure some worse case scenarios: a wreck that totals your car; fire destroys your home; flood; etc... High deductibles will likely save you money over the years because these disasters usually don't happen to you over the course of a life with great frequency.

5. Have an ongoing organization plan

The Lord told Hezekiah to set his house in order for he was going to die- 2 Kings 20:1. We will all die. If we are unorganized, we are leaving a burden to our family to settle things. I urge all my clients to keep a list of important phone numbers on one sheet of paper so that a family can handle affairs quickly if there is a sudden death.

I recently went through a full line-by-line random IRS audit on my 2006 tax return. I keep pretty good records. But I promise you that this audit process was painful enough to encourage me to keep better records going forward. I have now systemized everything that has anything to do with my expenses and taxes. The audit was a blessing in that regard. It has led me on a path of greater accuracy and organization.

Life is so busy. Organization takes time. But the rewards are worth the effort. I have read that lack of organization leads to an average of 30 minutes per day searching for items that should be easy to find.

Greater organization leads to a happiness circle. Because the more you simplify, the more organized you will become. The more organized you become, the more you will resist adding more crap to your life.

I firmly believe that happiness is attainable. There are some fundamentals that we need to practice daily whether it is dealing with our finances or our lives in general. The answers can be found in God's Word. If you practice these principles, you will have greater peace and live a happier life.

For God's Glory,

Ashley Hodge

Recession? What Recession?

I am no trained economist. But I enjoy reading economic reports and attempting to make sense of the dismal science that is economics. It is a difficult profession because there are so many moving parts. Just when you think you have something figured out, along comes some information to re-adjust your view.

If you read the news and listen to the media, you would believe that the economy is heading off a cliff. Massive unemployment; foreclosures; bankruptcies and layoffs are just around the corner we are being told. But the eye test is telling me something different. In the last 30 days, I hosted three client dinners at fine dining restaurants- two in the Dallas/Fort Worth area and one in Atlanta.

I was surprised by what I witnessed. Three restaurants on weeknights absolutely packed. My clients' businesses seem to be moving along well and some of those are construction related. Maybe it is different in Atlanta and Dallas than in other parts of the country. But it definitely doesn't feel like a recession to me.

This brings me to the point of this blog. Economists tend to have loads of book smarts. But sometimes that becomes a hindrance to seeing the good things that are taking place daily. I believe that the more degreed a person becomes, the more pessimistic they become. I have no scientific studies to back this up. It is just an observation.

A lot of the opinions about the economy coming out of the top academic institutions have been pessimistic for the last 20 years. And more often than not, they have been wrong. I was attending an investment conference in the Spring of 2007 and one of the money managers made this comment, "You sound a lot smarter when your pessimistic. But history usually rewards those who lean on the side of optimism." I believe this quote has a lot of wisdom behind it.

You protect yourself from being a wild-eyed fool by being overly cautious. When you predict the sky is falling, one day you will be right (at least to a small degree). But history tells a different story. Progress, innovation, rising standards of living, wealth creation carry on despite the walls of worry that they have to overcome.

Optimism is not a foolish philosophy. Especially, if your hope is planted in the promises of God. He created this world good- Genesis 1:31. The Fall (sin) has seriously marred His perfect creation- Genesis 3. God has promised to redeem mankind and this world from the effects of sin by initiating a new Kingdom through His Son- Christ- Isaiah 65; Revelation 20.

The story of God is that He has given mankind a stewardship responsibility to not only care for the earth but to improve it- Genesis 1:28. This should give us great hope that tomorrow will be better than today. Recessions tend to be mostly mental. They snowball into significant economic downturns if people start living out of fear versus continuing to go about their daily responsibilities. If everyone takes the responsibility of stewardship seriously, we will work hard each day to make this world more like our eternal home.

For God's Glory,

Ashley Hodge