Debt & Frugality

As Didi says in the novel (Findependence Day), “There’s no point climbing the Tower of Wealth when you’re still mired in the basement of debt.” If you owe credit-card debt still charging an usurous 20% per annum, forget about building wealth: focus on eliminating that debt. And once done, focus on paying off your mortgage. As Theo says in the novel, “The foundation of financial independence is a paid-for house.”

Bonds are Back

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Image from Outcome/Shutterstock

Guess who just got back today

Them wild-eyed boys that had been away

Haven’t changed, had much to say

But man, I still think them cats are crazy

 The boys are back in town, the boys are back in town

  • The Boys Are Back in Town, by Thin Lizzy 

By Noah Solomon

Special to Financial Independence Hub

Government Bonds: The Gift That (Usually) Keeps on Giving

Historically, bonds have provided investors with two main benefits. Firstly, their yields have provided a reasonable, if unspectacular return. Secondly, they have offered diversification value, muting overall portfolio losses during bear markets. By owning high-quality bonds, you got paid for protecting your portfolio during times of market turmoil, which is akin to receiving (rather than paying) a premium for fire insurance: a remarkably sweet deal indeed!

However, these benefits have historically ranged from significant to nonexistent, depending on the investment environment. Given this fact, Investors should alter their bond exposure as conditions warrant, both in terms of their aggregate allocation to the asset class as well their bond portfolios’ exposures to changes in interest rates and credit conditions.

A Bear Market Sedative

As the following table illustrates, in five of the six equity bear markets before that of 2022, bonds provided investors with much needed gains, thereby mitigating the overall damage to their portfolios.

During the tech wreck of the early 2000s, a balanced portfolio that was 60% weighted in the S&P 500 and 40% weighted in 7–10-year U.S. Treasuries declined 16.41%, as compared to a fall of 42.46% for the all-stock portfolio. In the global financial crisis (GFC) of 2007-2009, the balanced portfolio lost 23.92% vs. a loss of 45.76% in equities.

The ZIRP Era and the Erosion of Bond Powers

During the GFC, central banks entered hyper-stimulus mode to stave off a collapse of the global financial system and avoid a worldwide depression. ZIRP (zero interest rate policy) stances became the norm for monetary authorities around the world, with rates remaining at historically low levels for the next 14 years.

Bonds eventually became a victim of their own success. Although stimulative policies were successful in making the great recession less severe than would have otherwise been the case, they also robbed bonds of their two key attributes. Firstly, high-quality bonds ceased to offer reasonable yields. Secondly, ultra low rates also limited the ability of bonds to provide capital gains during times of equity market turmoil, thereby hindering their diversification value.

In 2016, PIMCO Co-Founder and “Bond King” Bill Gross commented that to repeat the bond market’s 7.5% annualized return over the past 40 years, yields would have to drop to negative 17%:  the math just didn’t work!

A Clear Warning Sign

As the saying goes, “Hindsight is 20/20.” It is easy to understand what should have been done after an event has already happened, even if it was not obvious at the time. However, market behaviour during the Covid crash offered a clear warning that all was not well in bond land.

The following table compares countries by their pre-pandemic short-term rates and the returns of their 10-year government bonds during the subsequent bear market.

There is a near perfect relationship across countries in terms of where their short-term rates stood prior to the pandemic and the subsequent return of their 10-Year bonds.

  • In the countries that initially had relatively high short-term rates, such as the U.S. Canada, and Norway, 10-year bonds produced substantial gains and mitigated the damage caused by the vicious decline in stocks.
  • In countries that started with rates that were neither relatively high nor low, such as the UK and Australia, 10-year bonds provided some, albeit lower amounts of protection.
  • Lastly, in countries which started with the lowest rates, such as Sweden, Japan, Germany, and Switzerland, not only did government bonds fail to mitigate stock losses but actually declined.

Given the strong correlation between where pre-Covid rates stood in different countries and the subsequent ability of their bond markets to offset stock market losses, it was clear that there was little, if any, gas left in the tank in the post-Covid world of zero rates, leaving investors largely unprotected.

From Hedge to Texas Hedge

Post-Covid, not only did ultra-low rates obliterate the insurance value of bond holdings, but the unprecedented amounts of monetary and fiscal stimulus that had been injected into the global economy left bonds particularly vulnerable to capital losses. Against this backdrop, when the rubber of stimulus hit the road of inflation in early 2022, central banks were forced to raise rates at a clip not seen since the Volcker era of the 1980s, resulting in painful declines in bond prices. Continue Reading…

This Lunch is Free: Global Diversification with BMO All Equity ETF (Ticker: ZEQT)

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By Sheldon Quan King, BMO Global Asset Management

(Sponsor Blog)

Diversification remains one of the most powerful portfolio construction tools available to investors—a principle first introduced by Harry Markowitz in the 1950s, who famously coined the phrase, “diversification is the only free lunch in investing.”1

At its core, diversification aims to maximize return for a given level of risk. This concept is the foundation behind BMO’s Asset Allocation ETFs, designed to provide investors with a globally diversified portfolio through a single, low-cost ETF. To deliver even greater value, BMO has recently reduced the management fee for some of its most popular Asset Allocation ETFs to just 0.15%.

The most important Decision

Asset allocation is widely recognized as the most critical determinant of long-term portfolio performance. The landmark research by Brinson, Hood, and Beebower (1986) revealed that 90% of return variability can be attributed to the mix of asset classes within a portfolio: not market timing or individual security selection.

For investors seeking a disciplined, strategic asset allocation[i] ETF to meet a growth objective, BMO All Equity ETF (Ticker: ZEQT) is a compelling choice. With an asset mix of 100% equities and 0% fixed income, ZEQT provides global equity exposure for long-term growth, while maintaining its target asset mix with built-in rebalancing.

Target Asset Allocations 

   Source: BMO Global Asset Management, as of May 30, 2025

Rethinking Global Diversification

Many global funds today are heavily concentrated in U.S. equities: given that a global benchmark, the MSCI World Index, allocates approximately 70% to the U.S. ZEQT offers a more balanced global allocation, reducing reliance on U.S. markets to 47%. Notably, ZEQT includes a 28% allocation to Canadian equities, appealing to investors looking to “buy Canada” amid geopolitical concerns such as trade tensions or tariff threats.

BMO Global Asset Management, as of April 30, 2025. The asset allocation is subject to change without notice.

 What’s inside: Key portfolio ingredients

The core building blocks of ZEQT are among the largest and most cost-effective ETFs in Canada. tracking well known indices like S&P and MSCI, to provide broad exposure to international markets:

  • BMO MSCI EAFE Index ETF – Ticker: ZEA (0.20% mgmt. fee): Covers developed equity markets outside North America, including Europe and Japan.
  • BMO MSCI Emerging Markets ETF – Ticker: ZEM (0.25% mgmt. fee): Adds growth potential from emerging market equities including India and Taiwan.BMO Global Asset Management, as of April 30, 2025. Investors only pay the mgmt fee at the ETF level of 0.15%, not the  underlying ETF mgmt fees of 0.20 and 0.25%.

To enhance U.S. market cap diversification and achieve more potential growth, ZEQT includes:

These ETFs apply a profitability screen, targeting higher-quality mid- and small-cap companies in the U.S. ZEQT also spans all major sectors, helping reduce risk as different sectors rotate in and out of favour through economic cycles.

Source: BMO Global Asset Management. The sector allocations are subject to change without notice. ZEQT sector allocation, as of June 2, 2025.

Bottom Line

For advisors who focus on delivering holistic wealth management — integrating tax, insurance, and estate planning — ZEQT offers a simple, scalable core portfolio solution for their practice. It allows advisors to efficiently manage client assets without sacrificing diversification,  transparency, or costs.

And for self-directed investors, ZEQT does all the heavy lifting. With global exposure, automatic rebalancing, and all-in-one simplicity, it truly represents a “set it and forget it” investment that is built for the long run.

Again, as of June 9, ZEQT alongside BMO’s  three other most popular asset allocation ETFs, management fees have been cut by three basis points to 0.15%: amongst the lowest in Canada.

* Effective after market close on June 6, 2025.

Footnotes

1 UBS, Diversification is the logical solution to an unpredictable future. January 10, 2025

Performance (%)

Fund Year-to-date 1-month 3-month 6-month 1-year 3-year 5-year 10-year Since inception
ZEQT 1.96 5.21 -1.37 1.01 14.77 13.92 – – 10.82

Bloomberg, as of May 31, 2025. Inception date for ZEQT = January 24, 2022.

 

Definitions

[1]  Strategic Asset Allocation: a portfolio strategy where target allocations are set for various asset classes and then the portfolio is rebalanced periodically. The portfolio is rebalanced to the original allocations when they deviate significantly from the initial settings due to differing returns from the various assets.

Sheldon Quan King is Senior Product Manager for BMO Global Asset Management.  Sheldon has over 10+ years of industry experience and has spent the last 9 years growing BMO Global Asset Management’s suite of Mutual Funds and ETFs. Previously, on the ETF Institutional and Service team Sheldon and has also been a guest speaker at Canadian Universities delivering ETF education to students. His primary focus now is ETF product marketing at BMO ETFs by engaging stock exchanges, capital markets desks, index providers, and portfolio managers to grow BMO’s existing suite and and launch new ETFs. Sheldon graduated with a Bachelors Degree in Psychology from York University, and is a CFA Level 3 candidate. 

 Disclaimers:

This article is for informational or educational purposes only and does not provide investment advice or recommendations.

All investments involve risk. The value of an ETF can go down as well as up and you could lose money. The risk of an ETF is rated based on the volatility of the ETF’s returns using the standardized risk classification methodology mandated by the Canadian Securities Administrators. Historical volatility doesn’t tell you how volatile an ETF will be in the future. An ETF with a risk rating of “low” can still lose money. For more information about the risk rating and specific risks that can affect an ETF’s returns, see the BMO ETFs’ simplified prospectus. BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.

Index returns do not reflect transactions costs or the deduction of other fees and expenses and it is not possible to invest directly in an Index. Past performance is not indicative of future results.

ZEA and ZEM or securities referred to herein are not sponsored, endorsed or promoted by MSCI Inc. (“MSCI”), and MSCI bears no liability with respect to ZEA or ZEM or securities or any index on which ZEA or ZEM or securities are based. The prospectus of the BMO ETFs contains a more detailed description of the limited relationship MSCI has with BMO Asset Management Inc. and any related BMO ETFs.

An S&P, Dow Jones, Standard & Poor or S&P index (the "Index"): the Index is a product of S&P Dow Jones Indices LLC or its affiliates ("SPDJI"), and has been licensed for use by the Manager. S&P®, S&P 500®, US 500, The 500, iBoxx®, iTraxx® and CDX® are trademarks of S&P Global, Inc. or its affiliates ("S&P") and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"), and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by the Manager. ZSP, ZMID and ZSML are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Index.

Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or simplified prospectus of the BMO ETFs before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.

For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the BMO ETF’s prospectus. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/​or elimination.

BMO ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal.

This material is for information purposes only. The information contained herein is not, and should not be construed as investment, tax or legal advice to any party. Particular investments and/​or trading strategies should be evaluated and professional advice should be obtained with respect to any circumstance.

The viewpoints expressed by the author represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time.

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent  prospectus.

“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.

 

Seeking Financial Freedom? 9 Tips for Escaping the Traditional Job

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Photo by Juan Mendez on Pexels

Discover practical strategies for achieving Financial Independence beyond the confines of a traditional job.

This article presents expert-backed advice on creating multiple income streams and aligning work with personal goals. Learn how to leverage your skills, build value-based income, and take concrete steps towards your vision of financial freedom.

  • Leverage Your Skills for Side Income
  • Transform Evenings into Venture Capital
  • Build Value-based Income Streams
  • Adopt a Side Hustle Mindset
  • Future-Proof your Professional Value
  • Align Work with your Core Purpose
  • Build a Financial Foundation first
  • Get Specific about your Goals
  • Cut Expenses to Create Options

Leverage your Skills for Side Income

In today’s evolving job market, many professionals find themselves tethered to traditional 9-to-5 roles: secure, yes, but often creatively or financially stifling. The desire for financial freedom is not just about escaping the office; it’s about reclaiming time, purpose, and the ability to design life on your own terms. We’ve worked with countless individuals who once felt exactly this way: stuck, uncertain, but ready for a change.

If you’re feeling trapped in a conventional job, the most important first step is to acknowledge that your desire for more isn’t selfish: it’s strategic. Financial freedom isn’t just about money; it’s about choices. And that journey starts by understanding your own value in the marketplace.

Step 1: Audit Your Skills and Strengths

Take stock of what you’re naturally good at and how those skills can translate into high-demand, high-autonomy industries. Digital skills like coding, copywriting, digital marketing, or consulting are especially valuable in today’s freelance and remote economy. Ask yourself: If I had to solve someone’s problem for a fee: what could I offer today?

Step 2: Start a Low-Risk Side Income Stream

This doesn’t mean quitting your job immediately. Start small: freelancing on Upwork, tutoring online, offering resume reviews, or starting a blog or YouTube channel around a niche you know well. Build proof of concept without jeopardizing your current income.

Step 3: Invest in a Career Coach or Mentor

Working with a coach can help you shortcut the confusion. We help clients identify the right path forward based on their lifestyle goals, not just job titles. Our structured guidance has helped people launch side businesses, shift into more flexible roles, or double their income by making strategic pivots.

According to a 2024 report by LinkedIn Workforce Insights, over 60% of professionals under 40 are actively seeking roles that offer greater flexibility and autonomy. Additionally, Harvard Business Review found that professionals who pursue “career portfolios” — multiple income streams from various skill-based services — report 43% higher job satisfaction and 31% faster income growth than peers in static roles.

Feeling stuck isn’t the end of your story: it’s a signal. A signal that you’re ready for change. We believe that financial freedom isn’t just for the lucky few—it’s for anyone willing to make bold, informed moves. — Miriam Groom, CEO, Mindful Career inc., Mindful Career Coaching

Transform Evenings into Venture Capital

If you’re feeling stuck in a traditional job and craving more financial freedom, you’re not alone: and you’re not broken. That restless feeling? It’s your internal compass telling you that what you’re doing no longer aligns with where you want to go. My advice? Don’t silence it: study it.

The most powerful first step I ever took was treating my evenings and weekends like venture capital. Instead of doom-scrolling or complaining about my 9-to-5, I built skills that made me valuable outside of it. I didn’t quit blindly. I audited my strengths, explored high-leverage models like consulting and digital products, and tested small bets until one clicked. It was less about passion and more about leverage: where can I help people, solve problems, and get paid well for it?

If you’re after financial freedom, don’t chase quick wins. Chase agency. Build something that compounds. Start by learning one monetizable skill: something you can offer tomorrow. Package it, test it, refine it. You don’t need to be loud online or have a business plan that wins awards. You need to take the first step: and then the next.

What I’ve learned from growing multiple businesses and coaching founders is this: freedom doesn’t arrive fully formed. It’s built in the margins before it becomes the main thing. So if you’re reading this wondering if it’s too late or too risky: it’s not. Your current job might pay the bills, but it doesn’t have to define your ceiling. — John Mac, Serial Entrepreneur, UNIT

Build Value-based Income Streams

If you feel stuck in a traditional job, it’s because your income is locked to your hours. Financial freedom begins when you earn based on value, not time. The fastest path is building a side income that proves you’re worth more than your salary. That means selling a skill — marketing, coding, design, sales strategy — directly to people who need results, not resumes.

I replaced my paycheck by packaging my experience into targeted offers. One client became two. Two became four. The process wasn’t complicated. I identified a problem, built a simple solution, and sold it. The first $1,000 didn’t change my life. It changed my mindset. From there, scaling was execution, not hope.

Most people stall because they’re waiting for the perfect idea or ideal conditions. Neither exists. Start by solving one problem for one customer. Build income that’s not tied to your boss. Cut costs, track results, and reinvest profits. Don’t romanticize the idea of freedom. Make it measurable. Give yourself a deadline to match and then exceed your job income.

You’re not trapped. You’re unproven. The solution isn’t to quit. The solution is to validate your value outside the structure you’ve been conditioned to depend on. You move forward the moment you stop waiting. — Steven Mitts, Entrepreneurial Coach, Steven Mitts

Adopt a Side Hustle Mindset

Traditional jobs are great for many reasons, but I completely understand. I was stuck in a normal or traditional 9-5 job, and the only thing I was dreaming about was freedom. This feeling is more common than you might think, so anyone who is experiencing it, you are not alone. The best advice I can offer is to change your mindset, more specifically, to adopt a side hustle mindset.

Think about what you currently have in your job: stability, which hopefully provides a decent income. This is a huge asset. Use this stability to your advantage; don’t think of it as a cage, but rather as your investment stream to financial freedom. Then, make a list of the skills you have, things that you like (passions) that could be monetized, or if you’ve noticed a problem that many people experience and you may have the solution, it could be your golden ticket.

Once you have your idea, don’t quit your day job. Dedicate a small but consistent chunk of your time each week to your new adventure (5 hours to start with will do). When it comes to the steps I’d recommend you take, there is only one: validate your idea. Do your research; you don’t want to waste countless hours on something that is already thriving. Once validated, begin your journey. Draw up a business plan, get a name (register it), open a bank account (do not use your personal one), then start. Take that first bold step. It is incredibly exciting, and it can induce a whole heap of fear, but you will never know if you don’t take it.

My encouragement is this: every great entrepreneur started with a tiny step. No one jumps into success; it is built from the ground up. — Aiden Higgins, Senior Editor and Writer, The Broke Backpacker

Future-Proof your Professional Value

Honestly, the biggest shift for professionals feeling trapped isn’t just leaving a traditional role: it’s strategically future-proofing their value. Research shows 65% of workers who feel ‘stuck’ actually suffer from skill obsolescence, yet those who dedicate just 5 hours weekly to learning in-demand capabilities like automation fluency or data-driven decision-making see a 47% faster transition to higher-paying, flexible roles.

Start by auditing daily tasks for automation potential: this reveals immediate efficiency gains and highlights valuable skills to develop. Platforms offering certified, applied learning in operational tech turn that insight into tangible leverage. That frustration? It’s actually a compass pointing toward untapped potential.

Financial freedom isn’t about escaping the grind; it’s about equipping yourself to command the work that matters. Every expert was once someone who decided their growth couldn’t wait for permission. — Anupa Rongala, CEO, Invensis Technologies

Align Work with your Core Purpose

First, define your freedom.

I’ve sat across from many successful people who feel completely trapped by their traditional jobs. My advice is always to stop focusing on the financial spreadsheet and start with a psychological one. The feeling of being “stuck” is rarely about money alone; true freedom comes from aligning your work with your “why.” Continue Reading…

What a Fee Cut on Asset Allocation ETFs really means for your Portfolio

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Hint: It’s great news for long-term investors.

Image courtesy Getty Images/BMO ETFs

By Zayla Saunders, BMO ETFs

(Sponsor Blog)

Let’s talk about something that doesn’t always get the spotlight but absolutely deserves it: ETF fee cuts. BMO Exchange Traded Funds recently lowered the management fees on some of its All-in-One Asset Allocation ETFs, and this is a meaningful win for investors who care about long-term growth.

Lowering fees, even by a small amount, can have a big impact over time. Here’s what the change means, why it matters, and how it could make a difference in your portfolio.

First, What’s an Asset Allocation ETF?

If you’re into DIY investing but don’t want to micromanage your portfolio, these ETFs are your best friend. With just one ticker, you get:

In short: they’re a low-cost, low-maintenance way to invest.

The management fee change: 0.18% ➡️ 0.15%

As of this year, BMO has trimmed the management fee on some of its Asset Allocation ETFs: from 0.18% to 0.15%. That includes portfolios in the suite from ZCON, BMOs Conservative ETF all the way to ZEQT, the BMO All-Equity ETF.

These already-cost-efficient ETFs are now providing even greater value to investors. Over time, that reduction can translate into meaningful savings: especially when you factor in compounding.

Let’s do the Math

Say you invest $50,000 in an Asset Allocation ETF and leave it for 25 years, earning an average return of 6% annually:

  • With a 0.18% fee, your portfolio would grow to around $204,384.
  • At a 0.15% fee, it would grow to $205,926.

That’s $1,542 more in your pocket just from a lower management fee. And remember: this is with no extra effort, no added risk, and no change in your investment approach. Just more of your money working for you.

And if you’re investing more, contributing regularly, or holding for longer? The savings become even more impactful.

Why this matters

We’re all keeping a closer eye on costs these days, and rightfully so. Lower fees help ensure more of your investment returns stay with you. That’s especially important in periods of market volatility or when you’re working toward long-term goals like retirement, homeownership, or education savings. Continue Reading…

Book Review: Tightwads and Spendthrifts

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By Michael J. Wiener

Special to Financial Independence Hub

 

In his book Tightwads and Spendthrifts, marketing professor Scott Rick promises advice for “financial aspects of intimate relationships.”

What got my attention early is that his guidance “is rooted in rigorous behavioral science.”  Applying the scientific method to human interactions is challenging, but it is generally better than relying on opinions.  The book gives useful insights into how people think about spending money.

The introduction gives a four-question quiz designed to place the reader on a scale from 4 to 26.  Those at the low end of the scale are called tightwads, and those at the other end are spendthrifts.  Roughly half the respondents fell in the middle third of the range and are called “unconflicted consumers.”  Most of the book deals with tightwads, spendthrifts, and their interactions; little is said about unconflicted consumers.

Demographic differences

Extensive surveys revealed some interesting demographic differences between tightwads and spendthrifts. “Tightwads are slightly older than spendthrifts,” but it’s not clear why.  Do people become tighter with money over time (perhaps from getting burned by debt), or are there differences between generations?

“Women were somewhat more likely than men to be spendthrifts, and somewhat less likely than men to be tightwads.  Tightwads were somewhat more likely to be highly educated, and they tended to opt into more mathematical majors, such as engineering, computer science, and natural science.  The most popular college majors among spendthrifts were social work, communication, and humanities.”

How tightwads think

Being a tightwad is not the same as being frugal; “the highly frugal love to save, and tightwads hate to spend.”  “The highly frugal are generally much more at peace in their relationship with money than are tightwads.”

It might seem intuitive that people are the way they are because of how much income they have available to spend, but “in survey after survey, we find no income differences between tightwads and spendthrifts.”  However, “tightwads have far more money in savings and significantly better credit scores than spendthrifts.”

Having higher savings “offers no guarantee that tightwads feel financially comfortable.  Subjective feelings of financial well-being are only loosely related to objective aspects of financial well-being.”  For many tightwads, financial “anxiety stems from economic conditions early in life.”

Tightwads tend to think in terms of opportunity costs when considering spending some money.  In one experiment where some participants had opportunity costs highlighted to them and others didn’t, “spendthrifts were twice as likely to buy the cheaper option” when opportunity costs were highlighted.  “This framing did not influence tightwads.”

While tightwads spend less than spendthrifts in almost every area, “the amount of money both types had donated to charity was the same.”

How spendthrifts think

“Spendthrifts report high susceptibility to shopping momentum and what-the-hell effects.  They commonly report going to buy one thing, then getting carried away.”  “Spendthrifts are significantly more impatient than tightwads.”  Interestingly, spendthrifts tend to understand these facts about themselves, and are not surprised when they later regret their purchases.

“Spendthrifts and compulsive buyers might spend similarly on any given shopping trip, but their underlying psychology differs significantly.  Spendthrifts do not appear or report to be driven by anxiety management or mood repair.”

“Spendthrifts score slightly lower than tightwads on a financial literacy quiz.”  However, Rick says that this is not a defining difference between tightwads and spendthrifts.

Is “spendthrift” an oxymoron?

The word “spendthrift” appears to blend contradictory elements: spending and thriftiness.  However, “thrift here is used as a noun — meaning ‘savings ’— as it was in the seventeenth century.  So spendthrifts are traditionally defined as people who recklessly spend their savings.”

Compensating for financial tendencies

Rick offers ways for tightwads and spendthrifts to compensate for their feelings about money.  The first is to change “payment salience.”  The book offers ways for tightwads to feel the pain of paying money less, and for spendthrifts to feel it more (e.g., by using cash more often).

Tightwads can reframe high-end purchases to think of them as a means to get high quality items.  They can add a line item for indulgences into their budgets to make spending a “to-do” item.  They can also reexamine their finances to confirm that all is well and, hopefully, reduce financial anxiety.

Spendthrifts can be mindful of opportunity costs, try to delay spending (e.g., sleep on it), and set saving reminders for themselves.  Interestingly, spendthrifts might understand “better than tightwads” that “the excitement that comes with a new product usually fades over time,” but this knowledge doesn’t appear to help them reduce spending.

Relationships

When we consider marriages among tightwads and spendthrifts, but not including any “unconflicted consumers,” 58% are between a tightwad and a spendthrift, and only 42% are between two people at the same end of the tightwad-spendthrift scale.  “We tend to marry people who share characteristics that we like in ourselves.  However, a key insight about tightwads and spendthrifts is that they do not particularly enjoy being tightwads and spendthrifts.”

Although some prominent people who advise their followers on personal finance topics consider any money secrets between spouses to be “financial infidelity,” Rick thinks there is room for a small amount of secrecy as long as it’s not the cause of financial shortfalls.  How much secrecy is desirable or tolerable probably varies from one couple to the next.

“Latte factor myth”

Rick adds his two cents to the endless debate on whether we should engage in small indulgences by siding with those who say it’s fine to buy expensive coffee.  Like most others, Rick approaches this debate as a binary choice: lattes are either universally good or universally bad. Continue Reading…