Do the Tools of Personal Finance Actually Work?

New visitors to Get Rich Slowly are sometimes skeptical. “Do the things you write about actually work?” they ask.

Absolutely they work.

They work financially, but many of them also work psychologically. That last bit may be the most important. I frequently say that money is “more about mind than it is about math”, and I mean it. We all know the basic arithmetic behind money management — it's the psychological stuff that gets in our way.

The techniques I write about are tools. Different tools are appropriate for different situations, for different jobs. And whereas I might use a hammer and a nail to hang a shelf, you might use a screwdriver and a screw. So it is with money. Each of us needs to assemble a toolbox appropriate for our own circumstances, for our own needs.

There are some important things to know when putting together your own personal-finance toolbox.

Not every tool works for every job
Just as it's important to select the proper tools for a home improvement project, you need to choose the correct methods for managing your money.

You would not use a hammer to cut a board. Similarly, your Roth IRA is not the right tool for saving an emergency fund. The “ask for a raise” tool isn't critical if you run your own business. You can't clip coupons to buy a house. (Well, not yet anyhow.)

If you work at minimum wage and have already cut your expenses to the bone, frugality tools are going to be less critical to your success than tools that help you raise your income. When you can no longer reduce your expenses, it's time to take a different approach.

Some tools become less useful over time
Now that my non-mortgage debt has been eliminated, I no longer need the debt-reduction tools I used to employ every day. They're still in my toolbox in case something breaks in the future, but for now I'm working on other projects.

Certain tools are almost always useful, however. Frugality and thrift generally reward those who know how to use them well. Everyone can profit from knowing how to save for the future.

You cannot be an expert with every tool
It's a mistake to believe that every piece of financial advice — every tool in the toolbox — will be applicable to you and to your situation. In fact, I've learned that most individual pieces of personal finance advice aren't useful for me at all! (Many of the techniques I share at GRS don't apply to my life, but I share them anyhow because they may be useful to others.)

Just as I cannot seem to use a real-life reciprocal saw correctly, for example, I'm not good at investing in individual stocks. Instead, I use a different tool: indexed mutual funds. I'm still building my financial future, but I'm doing so with tools I understand and feel comfortable using.

You become skilled with a tool by using it
You cannot strap on a tool belt and expect that you're ready to build a house. Everyone starts with the basics. You build a shelf for your wife. You repair the chair your husband shattered.

So, too, with personal finance. You don't make a million dollars overnight. It takes time to develop wealth-building skills, but you learn them by doing. As you learn, the changes are small and imperceptible, but they're very real.

I've seen the power of small changes in my own life, and I've read similar success stories from Get Rich Slowly readers. Your fantastic responses to yesterday's article about emergency funds are a perfect example. Over 100 commenters explained how emergency funds give them peace of mind or have helped in past times of crisis. An emergency fund is a small but important tool in your personal-finance toolbox. As you use it, you gain skill.

Building your financial future
Financial success takes work. For all but the lucky, wealth is built slowly, one smart choice after another.

Personal-finance knowledge is like a shop, filled with tools and plans and materials. Your aim is to use these things to build a solid financial future. To do so, you must use certain basic tools (saving, investing, etc.), but beyond that you have control over how the final product will look and feel. Do you like frugality? Make that the focus of your project. Hate frugality? Use only a little, but compensate with other tools and resources.

Don't expect perfect results right away. It takes time to build something lasting, and so does building wealth. Financial success requires patience and consistency. The techniques I share do work, but only if your aim is to get rich slowly.

Photo by Boolean Split. His photos are awesome!

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Eric J. Nisall
Eric J. Nisall
11 years ago

You’ve hit hte nail on the head, JD. Not everyone has the ability to understand every aspect of personal finance. I think the key is to try to learn as much as possible, and ask for help in the other areas. Practice makes perfect; if you do not persistently use the tools you have, you will become less proficient and the benefit will decrease. Many people tend to go gung-ho in the beginning, but as time passes they get a bit complacent and fall into their old habits. At least there are valueable resources like your blog (and hopefully mine… Read more »

Scott
Scott
11 years ago

I can say this to visitors- “Yes, these tips WORK!” I’ve been following GRS for just over a year. For most of my adult life I kept my head buried in the sand as far as money is concerned. Everything else in my life was under control, but I felt incredible anxiety about money-I couldn’t stand even looking at my bank balance. I just “guesstimated” every purchase, every check written. Every ATM swipe was a crap-shoot. Now, in large part thanks to JD and GRS, I have an ING savings account with a growing emergency fund and automatic deposit from… Read more »

Studenomics
Studenomics
11 years ago

I think all pf bloggers recieve the same degree of scepticism by readers who think the concepts are not applicable to their own life. The thing people do not realize is that you can apply any concept to your own life as long as you are willing to. Granted, some people are not able to but the majority of the readers are just not willing. Saving a couple dollars a day seems like nothing, but it is mid-Nov and when I look back to the start of the year where I started truly applying pf concepts, I realize I have… Read more »

Eric J. Nisall
Eric J. Nisall
11 years ago

@Studenomics: Not to sound argumentative, and I may be misinterpreting your comment, but a person cannot adopt just any concept into their own life/plan. That is the problem with all of the authors who spew their “advice” to the world, it just is not that simple. Even JD stated in this very post (1st bolded topic) and it is an issue I cover in my own blog Financial advice is not a one size fits all proposition that “not every tool works for every job”. Each person’s/family’s situation is different, requiring analysis and custom tools/advice that applies to that specific… Read more »

Steph
Steph
11 years ago

JD, you were reading my mind yesterday. I was reading the comments about the myriad ways people interpret “emergency fund” and the way its importance varies with income and options, and was wishing you’d write something about how our needs change with our financial stability. If I’m homeless and have no kitchen, as a poster pointed out last week, then cooking frugally means something different to me than to a family of five scraping by when one parent has lost a job or to a comfortable couple looking to save more for retirement. If I have no extra income to… Read more »

elisabeth
elisabeth
11 years ago

Very nicely written!

RDS @ Smart Financial Values
RDS @ Smart Financial Values
11 years ago

Great post. Financial advice, as you and other commenters have pointed out, is not one size fits all. However, the tools and the principles are universal.

Studenomics
Studenomics
11 years ago

@Eric J. Nisall

Sorry that you took the wrong message from my post. What I meant is that there is a clear difference between not able to apply pf advice and not willing to. Some people are in unique situations where they simply can apply only certain key theories. On the other hand there are others who focus more on excuses than actually getting serious about their finances.

Neil
Neil
11 years ago

Great article. I deal with clients day after day and they all have different financial needs. I have an aresenal of products and techniques both for debt reduction and investing available. My job is to interpret my clients needs and recommend a solution that fits their life. If you just read all the financial information available and try to make it work for you, you’ll actually be doing yourself a disservice. You need to determine your priorities and then develop a plan around them using a strategy that you understand. As JD says, there are a lot of tools, pick… Read more »

Brandon @ Car Insurance Guidebook
Brandon @ Car Insurance Guidebook
11 years ago

I love the mental image of the tools. The steady, persistent application of the right tools to the right job is the key to success in virtually every endeavor. A house isn’t built overnight (except on Extreme Home Makeover). In the real world, it takes time and the right tools. Just like you said…

“You don’t make a million dollars overnight. It takes time to develop wealth-building skills, but…as you learn, the changes are…very real.”

Smart, consistent, and continual use of proven tools would help us all. Thanks, JD.

RenaissanceTrophyWife
RenaissanceTrophyWife
11 years ago

Great post.

Tools can be useless unless they work for your particular situation and you can use them to your best advantage.

Caleb @ Blueprint Economics
Caleb @ Blueprint Economics
11 years ago

Joining the conversation late, I think that I’d like to point out, that us pf bloggers should realize that we can’t reach everyone. My blog isn’t made for everyone. I’m a young, professional, still taking baby-steps toward my financial freedom, so I feel that I’d be most valuable to an audience of the same cut. My tools are for beginners, and I couldn’t possibly expect to add much potency (for now) to a topic covering Roth IRAs, or complicated stock dividends. I’m still at the beginning of my journey, so those tools will be more useful to me (& my… Read more »

Khürt
Khürt
11 years ago

Thank you for the clarification.

Moneymonk
Moneymonk
11 years ago

I have to say certain tools that worked for me does not thrill me now.

I have graduated from live below your means, save and invest in your 401k mantra

I am more intrigue by earn more money, create more income streams and having a business

My hobby is personal finance for so long, now I feel like I need more of a challenge

Aya @ Thrive
Aya @ Thrive
11 years ago

I appreciate the honesty in this entry. I have become resistant to blog entries that go along the lines of “read this and I’ll guarantee you’ll be a millionaire!” I absolutely agree that it’s up to the reader and no blogger should make false promises when everyone’s financial situation is unique. There are universal ideas, like cut back on spending, but where and how is something that can’t be determined for everyone.

Dan Isaacs
Dan Isaacs
11 years ago

I found my biggest problem was not even knowing what I was spending. The most amazing tool I now have is Yodlee, helping me get a easy look at everything that goes out. Getting a hold on spending was crucial to my own financial turnaround.

It’s nice to know what to do with the money you save, but it’s often more trouble getting to the point where you *have* money to invest.

Charlotte
Charlotte
11 years ago

In large part because of GRS and its readers, I/we have learned to carve a path to financial freedom. Tools we are currently using: – ING (Small)Emergency Fund – Debt Snowball – Gardening! Yes, GRS even inspired me to get started. – Frugality – Wise use of resources available to us. Most of all, needing less and less as I focus on things that I value. Living below our means. – “Allowance” for discretionary spending. Ever since we started this, no more going over budget. (Not perfectly but for the most part) – Spreadsheet to track my spending. – Quicken… Read more »

Live for Improvement
Live for Improvement
11 years ago

Tools don’t fix things by themselves, you have to put in the work. Blogs like this are great because they show us how to better ourselves, but it is ultimately up to us to change.

-Dan Malone-

Eric J. Nisall
Eric J. Nisall
11 years ago

@Studenomics:

No worries, I had a feeling it was just the wording that threw me off.

But, you are correct. There is a big problem with people who make excuses for not doing what they need to. You know what they say about leading a horse to water….

Dana
Dana
11 years ago

#8: The problem with being so sure that someone who is complaining is able to do something about their situation is that you might just be wrong. Even if you can’t use a personal finance tool *right now,* meaning you could potentially use it later, it’s still true you can’t use it right now. And unless you’ve got closed-circuit TV installed in all your blog commenters’ homes, you really don’t know who’s who or which person is in what situation. It’s like when Minimum Wage went around last year commenting all over the PF blogosphere. Most PF bloggers, if not… Read more »

Peg
Peg
11 years ago

He [and my daughter] have been digging themselves into a hole that gets deeper every month, in spite of all my efforts to pass on some of the things that I have learned about handling money.

I have come to the conclusion that some people just can’t accept the reality of their situation. It’s too bad, because it’s the children that are suffering because their parents can’t seem to get their act together.

Peg
Peg
11 years ago

Oops, the first part of my message got cut off. Here’s what I was trying to say:

#8 Said On the other hand there are others who focus more on excuses than actually getting serious about their finances.

Do you know my son-in-law?

Great post, JD!

WeSeed Writer
WeSeed Writer
11 years ago

Totally agree about the “psychological stuff” when it comes to–not just money stuff–but anything at all. Losing weight is easy: just get on a treadmill for an hour every day and reduce your caloric intake. Simple right? Nope. Good luck DOING that.

The recipes are there, we know them, but enacting them is the tough part. Why? We’re human.

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