I like planning ahead (financial planning, you never would have guessed would you 😛 ). I like being prepared. So when my big vacuum insulated tea thermos was warm on the outside this morning, it messed with my planning. The vacuum seal had broken, and my “holds perfectly in my wonderful vacuum bottle up to 24 hours” favorite hot tea wasn’t going to be hot any more. Now I had to get through my 11 hour work day without hot tea.

I started immediately searching online to plan to purchase a replacement on the way home (unfortunately that didn’t work out because I couldn’t find one locally advertised), because I must have hot tea. And while paying ~$40 to be able to have hot tea at work again tomorrow seems somewhat excessive on the surface, that’s only the 3rd vacuum bottle that’s broken on me in 15.25 years. I figure less than $8/year is a great price for a daily decaffeinated, unsweetened, non-acidic, hot beverage exactly the way I love it. That’s how I choose to look at it, and I’m quite content dropping another $40 on a replacement as soon as I can get my hands on one.

Other than $40, what does supporting my daily tea habit have to do with money? It’s all about anchoring.

We’ve been planning ahead for costs and limiting risk with our series of posts on Open Enrollment for 2020. We have an idea of what our benefits have cost us in the past, and we feel it’s reasonable to expect something similar in the future.

We know the stock market is like a roller coaster that comes with a lot of up and down. If we forget that, we’ll jump off at the later and forgo the former.

Finally yesterday, the IRS released their numbers to help me plan ahead for my savings contribution limits for 2020. They usually release it sometime in October-November, and I’ve been anxiously awaiting this year’s documentation. I was anchored to the beginning of October, so every day after that was a stretch.

One of the most important basic anchors in personal finance is your savings plan. I don’t know about you, but my grandmother talked about always saving 10% for a rainy day, that was my anchor. So when I got out of college, got my first job, put away 10% in my 403b AND maxed out my Roth IRA, I thought I was doing great. It took me, a math person, way longer than I want to think about before I really dedicated some brain cycles to what a 10% savings rate means. It meant saving up a 6 month emergency fund would take 5 years!

Why did 10% work for our grandmas? Because health care costs, college costs, 2+ cars and 2+ insurance bills, and the cost of buying the family home weren’t all skyrocketing. Because they weren’t expecting to live so long. Because they had expectations of a solid, dependable, generous vs their needs, and inflation-adjusted pension. Because them and their entire surrounding cultural expectations were based around very simply meeting the basic necessities. None of those are true for most of us today. If we’re going to change the outputs on Grandma’s formula, then we need to change the inputs. (and because 10% wasn’t the only thing they were putting aside, emergency funds and sinking funds were separate but not usually mentioned)

With the IRS allowing for $19,500 in 403b/401k/457b contributions in 2020 (+$6500 if you will be 50 or over in 2020), and an additional $6000 for IRA contributions (+$1000 again if you are or will be over 50), consider anchoring to those numbers. Most of us don’t feel like it’s possible. Most of us feel like those are pie-in-the-sky numbers. But this isn’t goal setting for your performance appraisal where you’ll be denigrated for any failure to meet expectations. This is more a case of “shoot for the moon and if you miss you will at least land among the stars”. (If you can max out one or more of those accounts, so much the better.)

A lot of personal finance is all about anchoring. Do you anchor to being able to have your hot tea piping hot and tasting fresh all day? Do you plan for an adequate level of coverage election during Open Enrollment, at a cost you can budget for? And do you emotionally expect to put away a percentage of your income for retirement that is much more than Grandma’s rainy day 10%?