The Little Book of Main Street Money: 21 Simple Truths that Help Real People Make Real Money

Chapter 1. Our Finances Are Bigger than a Brokerage Account

Pondering the Paycheck in the Mirror

Think big. Really big.

Ask folks about their financial lives and they might mention their 401(k) retirement savings plan, their bank accounts, and their mortgage. But in truth, our financial lives are far, far larger. How large? Wrap your brain around these four contentions:

1. The retired teachers around the corner shouldn't have nearly so much in bonds, and certainly far less than the retired lawyers who live next door.

2. Your penniless 22-year-old niece is a millionaire and she should diversify by investing heavily in stocks.

3. Your real estate agent may be super-savvy when it comes to the property market, but that doesn't mean she should buy rental real estate.

4. Your brother-in-law is betting on stocks with borrowed money and he doesn't even know it.

Puzzled? To understand what's at issue here, consider everything you own—and everything you owe.

Taking Stock

As you tote up your assets, your thoughts probably turn first to things like your savings account, individual stocks and bonds, mutual funds, and real estate. But don't stop there. You would also want to include your Social Security retirement benefit and any pension you're entitled to. When you and your spouse die, your Social Security and pension may cease to have any value. But while you're alive, these two assets are like enormous bonds, kicking off heaps of regular income. A fixed monthly pension is similar to a conventional fixed-interest ...