Laura Vanderkam has developed a bit of a specialty in convincing people they have more than they think they do. In her last book, 168 Hours, she did it with time. In her latest, All the Money in the World, she focuses on money.
Vanderkam’s book is an important read no matter your age or life stage. And it’s a fitting book for these times when so many of us are being forced to rethink our relationship with money. She begins with a tale about a couple who scrapped the idea of spending thousands on an engagement ring and instead used the money to travel the world. That’s an example of trading possessions for experiences.
Throughout the book Vanderkam challenges other long-held views about money, suggesting for example that you may want to hold onto small but pricey treats like the daily latte and instead focus your saving on big ticket items, such as where you choose to live. Her chapter on rejecting retirement in favor of meaningful work will particularly resonate with those considering encore careers, as will her findings on the psychological benefits of giving.
It’s impossible not to read this book and question your own relationship and habits around money. I know I did. Below is a condensed summary of a series of conversations I had with Vanderkam:
Q: Rather than focusing on making small changes you encourage people to think about making more fundamental changes around their money habits, leading to a lot more freedom to choose what they want to do with their lives. Can you elaborate?
A: Most personal finance literature gets caught up in small stuff because it’s easy to change. You can easily stop buying your daily latte, or going out to lunch with friends. It’s harder to sell your house. But the problem is that small, repeated and pleasurable experiences – like grabbing coffee with a friend – have an outsized effect on happiness. In the grand scheme of things, cutting out that latte doesn’t free up as much cash as sweating the big stuff does. If you choose to spend 25 percent of your income on housing, versus 33 percent, you can put 8 percent to other things. That’s enough to blow $100 a month on coffee and save more at the same time. The more money you have in the bank, the more freedom you have.
Q: What do you say to people who feel trapped because of their financial situations (say because they have no value left in their homes)? Maybe they can’t easily identify their passions, or they don’t feel like they have marketable skills.
A: Feeling trapped is a horrible way to go through life. The good news is that even small steps can generate movement. Join groups where you can meet new people – and expand your network. Volunteer in organizations that will help you learn new skills. Take low-cost classes offered at a library or as part of your community’s adult education program. None of this will help you find the perfect job overnight, but it can’t hurt. Having an underwater house is a tricky situation. There are financial advisers who can help you work through your options, but you can also think about jobs you could do virtually (so you wouldn’t have to move) or, long term, you could make it a goal to get enough equity in your home so that you can move. Think long term, and celebrate small victories in the meantime.
Q: You dedicate a chapter to rethinking retirement. You lay out a stark view of why 401(k)s have not provided the security so many had planned for. You recommend scrapping the vision of a leisure-based retirement and focusing on planning an encore career. Can you explain?
A: Long-term, real returns in the market have been closer to 6 to 7 percent, (as opposed to) the 10 to 12 percent many people claim you can get. With 6-percent returns, you need to save more aggressively. Most people have not. But the good news is that people are living longer and can have many years of good health. If you rethink work, there’s no need to stop working completely at age 65. A part-time gig could leave you plenty of time to volunteer or visit family, and still provide enough income (when coupled with Social Security and savings) to make sure you’re not watching every penny.
Q: Many people pursuing encore careers for the greater good say there’s something inherently selfish about doing work that helps others. In your experience, is that burst of feeling good about doing good enough to compensate for the fact that many people take a significant drop in pay to move into work in the so-called social sector?
A: Everyone has to determine his or her own balance between wages and psychic benefits in a gig. But helping other people is one of the clearest ways to buy happiness that we have. Humans are social creatures and doing something for someone else strengthens social ties. Giving money away, in particular, helps you feel powerful – like you can change the world – in a way that few other things in life do. As long as you have enough money to be comfortable, having a job that makes you happy is a major plus in life.