Denali Northern Expenditure

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Problems with Pareto Principle and Outsourcing

Problems with the Pareto Principle and Outsourcing

If you’ve read enough about how to become rich, you’ve probably encountered two concepts:

  1. Pareto Principle – 20% of the input is responsible for 80% of the output. In personal finance, people tout focusing on only doing that 20% responsible for the most return. That leads to principle number 2:
  2. Outsourcing – For the parts of the 80% of the job that are still necessary, you outsource them.

Let me start by stating that I agree that the Pareto Principle is real and outsourcing can be useful in some regards. Let me also state that I agree that while frugality has limits, income potential does not. I agree that everyone is capable of earning more and the amount is potentially limitless.

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Status quo coin flip

Status Quo Bias and the Coin Flip

I have had the same haircut forever (a simple, A-line bob if you really wanted to know). When I go to cut my hair, I think: “I’m going to do something different!” but then I go do the exact same thing. This is an example of status quo bias. We like things to be the same and any deviation from that point is considered a loss. What if I hate my hair? What if the guy who is running against the incumbent is going to be worse than that guy? What if I quit my job and regret it? It’s easier to stay the same. 

Flashback 12 years ago: I’m on a study abroad in London and the Vidal Sassoon Salon is offering free haircuts if you’re willing to get anything. YES! This is my chance to be crazy! I walk in. Every single person has crazy hair. My own guy has a tight Afro with ringlets hanging off of it like a disco ball. It was amazing. I wonder what I’ll get!

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Entrepreneurs

The Study of Entrepreneurs

The first dream of Mr. T and I is to be self-employed in projects of our choosing. By definition, this means we want to be entrepreneurs. As a research geek, I spend my free time reading studies (you do, too, right?!). Recently, I’ve focused my efforts on studies about entrepreneurs. If I can learn about them, maybe I’ll be successful in becoming one. Here are four things I’ve learned:

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Our brains think brand names taste better than generics

The Brand Name Deception

You should avoid most name brands and go straight for the generic.

There, I said it. Post over.  …If only it were that easy. The fact is, we all know that we are deceived by a name brand. We know we shouldn’t get addicted to the brand, but we do anyway!

Penny’s annual science fair was this month. As I was perusing the other boards, I came across this one:

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money and death

Breaking Research: Live Rich or Die Young

You’ve probably already seen the news about this study, but as a behavioral economics researcher by day and a personal finance blogger by night, I can’t ignore it here. Published on Monday in the Journal of the American Medical Association was the paper titled The Association Between Income and Life Expectancy in the United States, 2001-2014. First off, let me address the large scale of this study. It’s amazing. I mean, how does one go about getting “tax records for every individual [with a social security number] for every year from 1999 through 2014”?! That’s crazy! The sample size: 1, 408, 287, 218 person-year observations – no that’s not a typo! They also looked at specific geographic areas and if someone moved after 63, they counted their area as the place they were living at age 61 while working (they’ve seemingly thought of everything!). So let’s get to the findings:

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How Parents and Significant Others Impact Student Finances

On Monday, we discussed how people are sometimes dumb with money and love, but it’s not all bad news. Today, we highlight research that shows love can positively influence our finances. The first study, published in December 2015, followed 693 University of Arizona students. The (mostly white, female) students were extensively surveyed toward the beginning of college (ages 18-21) and then again toward the end (ages 21-24). The 693 study participants were all included because they reported being in a serious, committed relationship at the second survey. The study was trying to figure out the impact parents and romantic partners have on the financial behaviors and attitudes of college students.

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Inflation, Market Return, and Safe Withdrawal

Today we’re going to take a good look at the three numbers most retirement calculators make you just guess. All three are very arbitrary and are based on future market and economic performance.

Inflation and Market Return

For ease of use, I like to combine inflation and market return. Often, when the market is high, so is inflation. But that’s not always true. So, luckily, some very nice people have combined the two metrics for us in an overview of historic market performance. All charts we discuss below are adjusted for inflation.

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Gratitude: An Antidote for Temporal Discounting?

GRATITUDE AND TEMPORAL DISCOUNTING

Everybody is impatient to some degree. When it comes to money, we want money now. We want to spend money now. This economic impatience is called temporal discounting. In short, temporal discounting means that we value $50 today over $50 tomorrow and it’s one of the main reasons most people don’t have enough money to retire. The ability to overcome temporal discounting would be considered an economic super power! You would be the world’s greatest saver! Unfortunately, there isn’t a way to overcome temporal discounting entirely, but there are ways to lessen its impacts.

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The Two Things Keeping You From Retirement

The biggest financial finish line in the majority of people’s lives is retirement. Researchers have poured years into studying how to get people to actually take the steps to prepare for retirement because not enough people are doing so. The definition of retirement is to leave one’s job and cease working. Quitting work is the easy part of retirement. The hard part is being financially prepared to no longer have paychecks coming. Everyone is looking for a magic bullet to retirement—the as-seen-on-TV pill for becoming rich. People want to win the lottery or inherit large amounts of unexpected money because otherwise, they just don’t know how they will ever have enough money to retire.

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Research Says: Be Grateful!

English writer G. K. Chesterton penned: “I would maintain that thanks are the highest form of thought; and that gratitude is happiness doubled by wonder.” 

If you are capable of thankful thoughts, you are elevating your thinking to its highest possible form. And “happiness doubled by wonder” sounds like a pretty great state to achieve. There are no downsides to being grateful. It helps you keep perspective of what you have already and stop wanting more. Gratitude fills the void of want.

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