die broke: what it really means

So in last week’s post I introduced you to the concepts introduced by Stephen Pollan’s “Die Broke”: quit today, pay cash, never retire, and the titular “die broke”. But what does that all mean? Once you get past the shock value, what’s he actually saying?

To my thinking, what he’s doing more than anything is making you take a hard look at what you want your relationship with money to look like. The general advice financial advisors give is to save as much as you can, and invest as aggressively as you can (up to your risk tolerance, anyway). By positing that we should die broke, Pollan is asking us why we want to do this. What are we saving for? What will all this net worth give us? Without asking these questions, we fall into the trap of mindlessly hoarding, building up our wealth simply because we intuit that bigger numbers are better, because “all the cool kids are doing it”, because it’s easier than building our own dream, blazing our own trail.

And that’s what Pollan wants us to do: be an adventurer. Be Ulyssean, as he says. Quit today; never retire. Don’t tie your life and your identity to your job, and don’t ever stop pursuing your passions; rather, go from adventure to adventure, as the wind takes you. Yes, this takes more effort than simply walking in the well-worn rut that you’ve been in all this time. So? Isn’t it worth it? What — exactly — are you afraid of? That you’ll die broke? Well, in the end, don’t we all die effectively broke anyway? It’s not like we can take it with us.

Of course, that doesn’t mean walking the tightrope without a net. As we get older, the reality is that it the time between jobs may become longer, and we will eventually reach the point when we simply don’t want to put in 50 hours a week anymore. So Pollan does advocate continually building your wealth — but with an eye towards turning it into supplemental income to replace what’s currently coming from your job. Financial geeks among you may see where he’s heading: financial products like annuities and reverse mortgages, where you put up large sums of money or even the deed of your house for a guaranteed monthly check. Speaking as a financial advisor, I instinctively recoiled at this at first — annuities and reverse mortgages are generally quite expensive, compared to investing on your own — but I gradually came to understand that this sort of safety net could be worth the price. For example, your kids likely have no interest in owning your house when you pass on; wouldn’t you rather use your home equity to go on vacations with them, pay off their student loans, help them buy their first house, etc. while you’re still alive?

The bottom line: before you decide what to do with your money long-term, stop to think — really think — about your financial goals. Talk to a friend who’s a financial geek. Drop me a line. Draw a rough map, and then blaze your own trail.

What do you think? Is he crazy? Or are some of you out there already going down this path?

(FYI: replies to comments may be somewhat delayed this week.)

die broke

No, seriously.

photo by patrizio martorana

“Die broke.” This is the central idea behind a book of the same name written several years ago by Stephen Pollan — and it’s a good one. In fact, the four pillars of the book — “quit today”, “pay cash”, “don’t retire”, and “die broke” — form quite a solid personal finance system, when you get past the shock value and dig into what he’s actually advocating. I’ll go over the basics in this post, and then next week we’ll take a look at implementing the system.

Quit today. Pollan doesn’t mean that in the literal sense. Rather (and here he’s speaking more to baby boomers than to later generations), he’s admonishing the reader not to try and find ultimate fulfillment at work. Work is “just a job” — ultimately, it’s there to pay the bills, not to answer the questions of Life, the Universe, and Everything. Your employer is mercenary, and while you should do your job well, you should be mercenary, too. (I have a slightly different take on the subject, but I’ll save that for another time.)

Pay cash. Again speaking more to boomers — many of whom came of age during the 70’s, when rampant inflation encouraged consumer debt — he points out that debt is a nasty trap for the unwary, while avoiding it allows you to stay financially flexible, which is more important than you might think. And using literal cash makes it painful and difficult to spend money, such that you’re more likely to make sure that what you buy is worth it. (Agreed!)

Don’t retire. Pollan is fond of the metaphor of the Ulyssean adult: the person who forges their own destiny, moving from one adventure to another. As he says, “the only finish line is death”. Now, he strongly encourages socking money away in tax-sheltered retirement plans — but he advocates using that money to allow you to make your own rules, to work your own hours. And yes, he really means don’t ever retire; Pollan is firm in his belief that leisure cannot be more fulfilling than work. (While I personally agree, I met several retirees at a recent “Boglehead” meeting that would argue otherwise!)

Die broke. Pollan presents several arguments for the idea that hoarding for a legacy is a bad idea: it damages your present quality of life, hurts society by locking up your assets, strains families by inserting economic self-interest into emotional decisions, and even erodes your own character by killing your motivation and drive to work. Rather, he says, “your last check should be to the undertaker — and it should bounce.” Want to help your children, or charities? Do so while you’re still alive. Both you and they will appreciate it more!

So now that we see what exactly he’s saying, next week we’ll dig more into What It All Means.

what to do with those annoying prepaid credit cards

If you’re anything like me, you pine for the days when rebates and gifts came in the form of simple checks. Nowadays, however, it’s all the rage to give out prepaid Visas or Mastercards. Which is all well and good, except that most vendors only accept one credit card at a time, not allowing you to split your payment across multiple cards. So what to do? The answer: amazon.com gift cards to the rescue, in three easy steps!

  1. Purchase an amazon gift card in the amount of your prepaid card, using the prepaid card. Edit: You may have to register the card online before the transaction will go through, e.g. for “Vanilla Visa” cards. It’s generally as simple as entering a ZIP code.
  2. Send the gift card to your e-mail address.
  3. Apply the card’s code to your amazon.com account.

It’s completely free, and from that point on, the amount of your prepaid card can be applied against any purchase you make from amazon — from which you can buy just about anything (and the shipping is free).

Problem solved!

Financial Geekery Monthly Reminders: keeping you on track, a little at a time

Remember all that financial stuff you’ve been thinking about doing? You know, like updating your credit report, figuring out when the best time would be to buy a new PC, or backing up your financial information? Yeah, it sits in the back of your head, but it flies out the moment you sit down to your computer (and open up facebook). Well, what if you had an e-mail that popped into your inbox at the beginning of every month, reminding you of just a few of those things. “Next month’s items can wait,” it would say — “just do these things, this month.” After a year, you’d be doing pretty well, wouldn’t you?

As it so happens, such a thing exists: the Financial Geekery Monthly Reminder. No trick, no gimmicks, just a pretty little e-mail in your inbox to give you that little push to get your finances in line. Sound great? Click here — and click on the Facebook icon below, to clue your friends in.