An economical hobby

Depending on what you choose, hobbies can be expensive. If your hobby requires a great deal of expensive equipment and travel (such as skiing or sailing), it’s going to take some careful scrutiny to fit that into a budget. It’s all going to have to come out of your discretionary budget, and only after savings have been fully funded.

I might contend that sometimes the collecting of materials for a hobby is actually a hobby in itself. Some people (ahem) can hardly resist the beauty of materials like yarn, fabric, embroidery floss, art materials…whether or not we’ll ever have time to make something out of them. In fact, making something, which means choosing one concrete creation instead of all the possible dreams, may act to spoil the fun.

However, the internet and maybe even the pandemic  have taught us there are cheaper ways of acquiring knowledge—YouTube and even subscription sites are far cheaper than live lessons with an individual, or the cost of a three day conference seminar. I’m definitely not discounting the value of a live instructor, but if we’re sampling a possible new skill or trying to reactivate something we already know a bit about, it can be very economical to begin online. Online also gives you a community, no matter your location, job, previous experience, age…really, it’s opened up the world for pursuits where it can be hard to find enough people and information in one place.

I’ve seen some discouraging posts  lately on some music sites. You have to be very careful to scrutinize marketing—anyone that promulgates they are the “only way to learn” while charging a hefty fee should be suspect.  My strong advice is to look for a money back guarantee in case you don’t like what you’ve paid for. For example, I recently subscribed to a guitar program that I adored—for the first 30 days. Then, for some reason, the owner decided to update his well-functioning website. For one week (which I was paying for), the site was down entirely—with no extensions offered. Then, for the next 3 weeks it mal-functioned, crashed, and offered significantly less material than previously. As far as I can tell, all the “improvement” consisted of a change in theme colors. I exercised my money-back guarantee on the 59th day, after hoping against hope that it would be fixed. Two months after, I hear it still isn’t.  I feel a lot like what I felt when you have a great first date and never hear from the person again.

Having been rejected by a potential guitar teacher as pretty much too old to bother with, I’ve thought a lot about why an adult might want to take up or return to a hobby. Are you ever too old to learn something? Should teachers only be interested in young students with conservatory potential? Obviously, I believe this is defeatist, aging self-talk. After all, when possible, you should use your money on things which enhance your life. Here’s what I came up with while mind-mapping. While it’s mostly focused on guitar, perhaps it will apply to a pursuit you are considering.

  • Now you can recapture something you loved as a young person, but life intervened.
  • Now you can enjoy the sheer joy of playing an instrument without the pressure of getting into a university program. No more tryouts!
  • Now you have the luxury of time to perfect a piece. The process can be more important and more satisfying than any result.
  • You can learn to play an instrument where even the simplest pieces sound wonderful (unlike, say, violin). N.B. but if violin or French horn is your interest, you’ll put up with the sounds, as has every other learner before you.
  • You can get a decent instrument for far cheaper than many others (such as piano, harp).
  • It’s easily portable. You can play with a group or other instruments.
  • As an adult, your knowledge of the world of music is much larger—you’ve simply heard more than kids. If not, playing guitar can introduce a whole new world.
  • The instrument itself is beautiful and a pleasure to pick up every day.
  • You can take up a challenge to learn something uniquely beautiful and relatively uncommon that many people wouldn’t have the courage to do.

When I become disgruntled with my “lack of progress” (to where?), I plan to review this. It’s a good use of time and money to improve your life. And it doesn’t have to cost a fortune.

 

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Are your finances your fault?

Many of us tend to blame every disaster on ourselves. Except for the few who think everything is the other guy’s fault. Even in this pandemic, I hear a lot of people blaming themselves for losing their job, or making bad investment choices, or not seeing it coming.

If you’re making a financial plan, it’s very important to be realistic about what you can control and what you can’t.  For example, you can certainly take advantage of all the job training offered you, put together a crackerjack resume, keep up your networking contacts, and try to do the best job possible, all things you can control. Yes, you’re allowed to feel a tiny bit guilty for these things, because you can control them, but you aren’t perfect.

You can’t control getting an unreasonable or sadistic boss (yes, some people are unreasonable or sick), have a change in supervisors and the new one wants their own team. You may have attained an age or pay level where the company concludes it makes sense to get rid of you and get someone cheaper. Your employer may be taken over, lose business, the university may not be able to re-open, or you’re in an industry that suffers in a pandemic. None of these events have anything to do with you, personally, and there’s little or nothing you can do about them.

Let’s look at it another way. Things you can generally control:

  1. How much you spend.
  2. Where you choose to live.
  3. How much you save.
  4. Whether you contribute to savings.
  5. Whether you have an emergency fund.
  6. Whether you continue to develop your job skills.
  7. Whether you maintain your home well enough to prevent little problems from becoming big ones.
  8. Whether you’ve established realistic goals and made a financial plan to address them.
  9. What investments you choose.
  10. Whether you have enough insurance to prevent catastrophe.
  11. Whether you have an estate plan that preserves wealth and takes care of your loved ones.

Things you can’t control alone:

  1. Whether unemployment benefits are adequate.
  2. Accidents and illnesses (except for doing what you can to lead a healthy lifestyle)
  3. Whether Social Security will be there for you.
  4. Whether your employer operates fairly.
  5. What “the market” will do in the future.
  6. Whether you will have the perfect kid.
  7. What college will cost.
  8. What taxes will be.
  9. What your home will be worth.
  10. Whether you can depend on adequate care if you are disabled or elderly.

I’m sure either of these two categories could be expanded for many more points, but I want to make the point that the first group is things you can make individual, hopefully good, choices about—or your own individual mistakes. The second group is societal, and can only be addressed by groups of people banded together: parent/teacher associations, unions, consumer-group pressure and regulations, and political action.

You Star Trek fans will understand what I’m after. In Star Trek, individuals can still make poor choices, or rise to their highest capabilities, or be kind or cruel. But that society has organized itself economically so that no one goes hungry, everyone has access to education and housing and leisure time (and there still seems to be plenty of scope for personal expression). Perhaps most startling is the issue of disability. Technology has developed system-wide responses to most handicaps, whether blindness, injury, personality volatility, or mobility issues. Thus, although people may have handicaps, they are not disabled from fully functioning in society.

So, when difficulties arise, try to distinguish whether it’s an individual decision (or error) you’ve made—because those are often in your power to control and correct. Or is this an issue with the society you live in, and is the only solution group action or policy change?

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Should you pay off your loan or save?

Yes.

Oh, but you wanted to know, which first? It’s a question that virtually every client asks me, but the answer is (as with so many things) it depends. So, I’m going to suggest you work through this checklist.

You should always pay off the minimum required payment on your loan. If you don’t do that, you’re in a world of hurt and that’s a topic for another time. But I’m going to assume that you can scrape up at least a little more than that and you’re wondering where you should put it. BTW, I’m going to be thinking mostly of education loans, but this advice also applies to credit cards and home mortgages.

  • Do you have an emergency fund?

Without an emergency fund, you’ll never get out of debt. We don’t know what the emergency will be, but we know that they come up fairly regularly. See my post here for more discussion. No emergency fund, no extra loan payoff.

While I like to see an emergency fund of 3-6 months necessary expenses (including loan payments!), it can take people just starting out a couple of years to build to that level. A $1,000 emergency fund is barely survival (one vet bill or car accident deductible can easily wipe that out.) Once you have at least $3-$5,000 in your emergency fund, you can begin to consider other possibilities, but I can’t advise going whole hog until the fund equals at least your health insurance deductible + out of pocket max + rent, utilities, and loan payment for however long it might take you to find a new job.

  • Are you contributing enough to your employer’s retirement fund to get the match?

If your employer matches your contribution, that’s a 100% return on your money up to the amount of the match, e.g., if you contribute 1.5% and they match it at 1.5%. If you contribute 3% and they match 1.5%, that’s a 50% return. (We could keep going—you contribute my recommended minimum of 10%, they match at 3%–30% return). No legit credit card or high interest loan is going to charge you 30% interest. Plus, you get an additional return on this investment and maybe a tax deduction, although I recommend you go with a Roth option if you have it.

Before paying extra on any loans, you should contribute anything you can scrape up until you at least get the full match.

  • Are you saving enough for retirement?

This is actually a different question than the one above. You need to be saving 10% of your income toward retirement, and more if you didn’t start until your mid-30s or later. Until you can put away at least 10%, in most cases I recommend you focus on retirement savings rather than early loan payment.

  • What’s the interest rate on the loan compared to your investment return?

As a rule of thumb, I use 5% as a basic cut point. If you’re a dummy and keep all your money in a savings account, you’re earning .5%-2%, so take it and pay off the loan. But let’s say you have a pretty good investment (maybe, quality mutual funds) and you’re earning an annualized rate of 6-8%.

What’s the interest rate on your loans? Credit cards at 22%? Pay them off as soon as you can. I still recommend that you contribute to the retirement plan first, but maybe only for the minimum match until you get rid of the high interest payments.

Student loans at 6-7.75%? As soon as you’re contributing at least 10% to retirement savings, start attacking these loans. They’re as high or higher than you’re going to earn from investments. Even if your employer only matches at 1.5% and you’re contributing 10%, you’re making 15% immediately + investment gain. However, I can wrap my mind around going after these once you’ve secured the minimum match. It’s not a numbers answer, it’s what will make you feel better.

Student loans at 3.25-4%? I wouldn’t rush to pay these off before term. You’d be better off saving more, even if it isn’t in a retirement account—a quality balanced or target date fund should produce better returns. However, if you have managed to accrue an emergency fund of 6 months fixed expenses, a “goals” fund for whatever your goals are (kid’s college, house down payment, etc.) and you just really want to be debt free, then you should do what will make you feel better. These are pretty far down the totem pole, however.

Mortgage? Mortgage interest rates are really low right now, so in most cases there’s no financial reason to pay them off rather than investing any excess money. There are a couple of exceptions: let’s say you have a big bonus or sudden inheritance, and your family might qualify for college financial aid. You might be better off paying off or paying down the mortgage since the value of the house isn’t counted on the FAFSA (it is on the CSS-Profile), whereas an investment account will be counted as available for paying.  The second situation is retirement: most people I talk to feel better when they own their home outright at retirement, since it’s probably the biggest monthly outlay. Just be sure you  have enough for unexpected repairs before you clean out cash to pay off the mortgage. You don’t want to be back borrowing on a line of credit at a higher rate.

As with all things financial, your mileage may vary. There are a lot of moving parts to consider when contemplating loans, and achieving the right balance isn’t the same for everyone. But that’s why people talk to a financial advisor, no?