Do what works for you
This article is the seventh of a fourteen-part series that explores the core tenets of Get Rich Slowly.
Everything I’d read gave the same advice for debt reduction: Start by paying off your highest-interest rate debt. I understood the logic behind this, but I couldn’t make it work.
The trouble was that my highest-interest rate debt was also my debt with the biggest balance (a fully-maxed $12,000 credit card at 19.8% interest). I’d plug away at this for several months at a time, but then give up because it felt like I was never getting anywhere.
Then I read about the debt snowball approach in Dave Ramsey’s The Total Money Makeover. It blew my mind. Here was somebody saying that it was okay (good even) to do something different, to start by paying low balances first. I tried it, and 39 months later I had eliminated over $35,000 in consumer debt.
In the process, I learned a valuable lesson. In order to succeed with money, sometimes you have to ignore the conventional wisdom. Sometimes you simply have to do what works for you.
The Perils of Dogmatism
There’s too much dogmatism in our culture. People are convinced that their way is the right way to do things. I don’t begrudge those who are certain they’re right. When something works for you, you have a tendency to believe it’s the right choice for everyone else, so you preach it with passionate zeal. I understand that.
The problem, of course, is that we’re all different. Your religion and your politics and your financial tips work for you, but won’t necessarily mesh with my situation and experiences. And mine won’t fit with yours. There are few one-size-fits-all solutions in personal finance — or anywhere else.
For example:
- As I hinted earlier, there’s no right way to pay off debt. Yes, you’ll save a little if you tackle the high-interest stuff first, but you may have better chances of success by starting with low balances instead.
- There’s no right way to invest. I like index funds, but you might prefer individual stocks.
- There’s no right way to tackle your mortgage. Some experts recommend paying it off quickly; others recommend stretching it out as long as possible to take advantage of the low interest. The best choice is the one that best matches your goals for the future.
- There’s no right way to be frugal. Some folks are unwilling to sacrifice organic groceries, and others are unwilling to take the bus. That’s fine. Find ways to practice thrift that fit your lifestyle.
- Joint or separate finances? There’s no right answer. Just because you can’t conceive that a couple can have a strong relationship with separate finances doesn’t mean that it’s impossible. Millions of people do it with no problems.
- There’s no right way to budget. Some people use a loose framework to guide their spending. Others need detailed line items. The best budget is one that you’ll actually use.
- There’s no single best savings account or checking account or credit card. There are plenty of great choices. Don’t listen to anyone who says you’re wrong for choosing a good option that works the way you do. (I don’t feel bad about using ING Direct, even if they don’t offer the highest rates.)
When you get trapped by the belief that there’s just one right way to do something, you set yourself up for failure: If this “right” method doesn’t work for you, you have no other options. You have to keep using it, even if you keep failing.
But if you allow yourself to consider other options, you give yourself multiple paths to success. Yes, you could use the “right” method — or you could take a different path to reach the same goal.
No Right Way To Do Things
It’s been a long time since I last wrote about this subject. In fact, it was exactly two years ago today that we last discussed it. That’s too long. Because it’s the core idea of Get Rich Slowly, I feel like we should touch on this theme fairly often. Especially after days like last Tuesday, when a lot of people were upset by our discussion about the differences between the rich and the poor.
There’s no need to get upset about any discussion of money, at least not at Get Rich Slowly. When I present ideas, I’m not trying to argue they’re right, that they’re the only way to look at money. They’re not. When I present ideas, I’m trying to share alternatives, to present ideas for discussion. I never believe that my way is the right way or the only way.
I actually believe the opposite is true. I believe there are many approaches to personal finance, and that there are many paths to success. (Whenever I think about this topic, I’m reminded of the Vulcan credo from Star Trek: Infinite diversity in infinite combinations, which celebrates the vast array of variables in the universe. But then I’m a geek of the first order.)
I’ve been thinking about this topic for the past week — ever since the contentious discussion about wealth and poverty — and I’ve decided that there are three specific ways in which of can put the “do what works for you” philosophy into practice.
Set Your Own Goals
First, it’s important to choose your own destination in life, especially with your finances.
It’s easy to find yourself working toward the same goals as those around you. If your family and friends all drive nice cars, it’s natural to want a nice car yourself. If your favorite finance blogger loves to travel, you might be tempted to travel too. But this is no way to set financial goals.
Instead, base your goals on the things you want, on the life you dream about. Do you want to get out of debt? Buy a boat? Send your daughter to Harvard? Do you want to build your own home? Start a charitable foundation? Each of these is a fine goal. So is owning a big-screen TV or the latest laptop. But the key is to make your goals personal. Make them your goals, not anyone else’s.
Choose Your Own Path
The next step is where it’s most important to do what works for you. In fact, this is what led me to this philosophy in the first place. I discovered that the traditional road out of debt just wasn’t effective for me. I needed to try something else.
The standard advice for debt reduction is to eliminate your high-interest debt first. Doing this makes the most financial sense because you pay less in the long run. But money management is more than math — it’s also mental. Psychologically, I wasn’t able to make the the standard path to financial freedom work for me. It wasn’t until I tried an alternate path — the debt snowball — that I was able to become debt-free.
This same principle holds true for other aspects of money management.
- For some people, credit cards are a curse. For others, they’re a convenient tool.
- For some people, credit unions are a great place to keep their cash. Other people prefer banks.
- Some people need $20,000 in their savings account to feel safe. They want a large emergency fund. Others prefer to get by with a $1000 safety net.
- There are those who believe that carrying a long mortgage at a low interest rate is the most effective way to leverage their money. Others prefer to get rid of their mortgage as soon as possible.
- For some, being self-employed is important. They want to have complete control over their destiny, even if the risk of failure is greater. (That’s me!) For others, like my wife, a stable job is more fulfilling and offers more security.
In most of these cases, there are indeed choices that make more financial sense than others. At least mathematically. But this doesn’t mean they’re the right choices or the only choices. You need to make decisions that reflect your values and your goals. You need to do what works for you.
Note: This is a good time to stress the importance of the word “works” in this context. When I say “do what works for you”, I’m not saying that you should do whatever you want. I mean that you should experiment until you find a method that meshes with your life, that proves most effective for your situation. Once you find this method, use it.
Define Your Own Success
The final aspect of doing what works for you is tied closely to the first. It’s important to set goals based on your own strengths and values, and it’s also important to set your own standards for success.
For instance, now that I’m out of debt and building wealth, my goals are to travel and to save for retirement. I define success as being able to fully fund my retirement savings every year (by which I mean up to the limit the law allows) and by being able to travel to new countries. (If I want to travel more — to be more successful with this goal — I need to learn how to do so cost effectively. Six weeks in South America for less than three weeks in Africa seems like success to me.)
When you set your own goals, choose your own path, and define your own success, you’re able to find a financial framework that best suits your needs — and not someone else.
It’s All Relative
It probably comes as no surprise that I’m something of a relativist. I don’t believe in absolute rights and wrongs. I don’t think the world is black and white, but filled with shades of grey. (And the more I travel, the stronger this belief becomes.)
You can see this in my financial philosophy. I think it’s crazy to argue that there’s only one right way to pay off debt or to save for a house. I don’t believe there are a one-size-fits-all answers in the world of wealth. Instead, I believe there are many roads to many fine financial futures. And I believe it’s possible for all of us to be successful with money — even you.
The key, my friends, is to set goals that help you reach your dreams, to use methods that draw on your strengths, and to define success in a way that reflects your values.
In other words, the way to wealth is to do what works for you.
Doing What Works
I’m not saying that it’s okay to do anything you feel. It’s not okay to keep on spending just because dealing with your debt is difficult or uncomfortable. But it is okay to try something new when what you’re doing doesn’t work. And it’s okay to ignore the naysayers who complain that you’re “not doing it right”. Your want to find what works for you, not for somebody else.
Don’t listen to anyone who tells you there’s just one right way to do something. Each person is different. What works for one person may not work for another. Be willing to experiment until you find methods that are suited to your life.
Make informed choices, understand the consequences, and focus on your goals.
This is the seventh of a fourteen-part series that explores my financial philosophy. These are the core tenets of Get Rich Slowly. Other parts include:
- Tenet #1: Money is more about mind than it is about math
- Tenet #2: The road to wealth is paved with goals
- Tenet #3: To build wealth, you must spend less than you earn
- Tenet #4: Pay yourself first
- Tenet #5: Small amounts matter
- Tenet #6: Large amounts matter, too
- Tenet #7: Do what works for you
- Tenet #8: Slow and steady wins the race
- Tenet #9: The perfect is the enemy of the good
- Tenet #10: Failure is okay
- Tenet #11: Financial balance lets you enjoy tomorrow and today
- Tenet #12: Nobody cares more about your money than you do
- Tenet #13: Action beats inaction
- Tenet #14: It’s more important to be happy than to be rich
Look for a new installment in this series every Monday through the end of the year.
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There are 104 comments to "Do what works for you".
Indeed!
But do something, yes it is great to do research and try to figure out the best plan for paying off debt, the best savings plan, etc. But having a plan and getting started is better than researching the best plan month after month.
We ended up working the Dave Ramsey total money makeover baby step plan, debt snowball (modified to work for us) because I was researching how to buy a new and/or nused car without having a car payment and I came across Ramsey’s drive free plan.
Mr. Sam thought I was crazy since we had $50,000+ in unsecured debt and I proposed to pay it all off in 1 year and with his mind for numbers he also thought it was crazy to pay off the smallest debt first (vs. the highest interest rate). But even though he thought I was crazy, he got on the crazy train with me and in 6 months we had 6 of our 7 debts paid off. Whoo-hoo.
Yes, do what works for you, but do it! Start small if you feel like the project is too big, break it down into small chunks, start off with balancing your check book, start off with saving $10 a week, start off with tracking your spending, start off with putting the credit cards away. Once you get going you get excited to do more.
I definately think this is the best advice of all when it comes to finances – heck, anything. There’s so much advice out there about so many different things. It can’t all be right for all of us, all the time, when we are such different people. So listen to the advice, by all means adopt some, but pick and choose the best bits for you, personally, at whatever stage of life you’re currently at.
I have to remind myself of this every single day, especially right now, when I see my friends seemingly so much more successful (and wealthier!) than me…
great entry for a great series, thanks JD!
Wow! I love this article! Just like Rachel said above, it’s probably the best advice that you can give anyone in financial trouble. It’s also true what Sam says. You need to DO SOMETHING ABOUT IT! You can read about things all day and not do a darn thing about it!
This is your most original advice so far: I wish your book was structured like that: with alternate solutions! Excellent!
Agreed with Sam above… the most important part of your slogan is “DO”. Without action, none of it matters.
I agree! As some comments mention, do something even if it’s a baby step. My husband and I paid off the smaller balance credit cards first, even before I knew who Dave Ramsey was. It made sense for us, and we could see real progress. That progress motivated us to pay down our higher interest loan, which we are still paying off. However, we have more money to apply towards it since all of our other credit cards are paid in full.
Debt snowball good.
Obsessive recording of debt balances . . . good? We did the debt snowball, and it worked wonders. I took the additional step of writing out the details about every one of our debts, principal amounts, interest rate, interest paid, total amount paid to date, anticipated payoff date and amount required to pay off today. I re-did the whole list by hand every month, even though the numbers really didn’t change for many of the debts from month to month. And going through the process of calculating and writing out the details did stress me out some. But it also motivated me to see the numbers going down, bit by bit, and it drove us to figure out ways to make things happen faster, by saving more or taking windfalls and applying them judiciously to make the greatest impact.
Now that we’ve paid all the debts off, I don’t write down anything about our finances from month to month – and our “next stage” financial efforts have stalled. Time for more obsession!
Yeah, I did the “pay-off high interest cards first”, thanks to my wife’s financial wisdom. But my balances were not, from what I gather in this article, as high as what you’ve had. My initial logic was the same as yours, pay off the smaller ones to free up the cash to pay for the big one. But my wife (we were still dating back then) made me stick to paying off the high interest because when she did the math, paying minimums on the high interest in the meantime would’ve hurt me more because I was losing more money on interest on one card than the rest of the smaller ones combined. So each situation is different and I agree that one should use whatever method that works.
As soon as we paid all my cards off, we cut up the ones that have high interest and low credit limits.
Now I am debt free and I even managed to start a savings plan. We now have one rule on credit card use… make sure you have the cash to pay for it… by that I mean, treat it like a check book. You can’t issue a check if the money isn’t in the bank. My credit card (I’m only using one now but I do have others safely tucked away) is always paid in full every month. So basically we only use credit cards because of the points, which is free money. I get $50 back for every 5000 points.
I agree whoileheartedly. Personal finance is just that. Personal. Each person at the end of the day has to do what they are comfortable doing. If it ends up not working it will be the experience that teaches them, not what someone else says to do. Good post!
I keep reminding myself that this debt I’ve accumulated these last 10 yrs(I was debt free until I married, gave birth, divorced) will eventually be done and gone. But something keeps coming up, car repairs & a son who refused to get a job when he was in high school, to circumvent my budget. I’m supporting the 2 of us now that he’s graduated from high school. I’ve given him no option but to go back to school. He’s received a Pell Grant. I’m getting by, and it seems like a long road to recovery, and frustrating as well. But my budget works for me on 27k salary.
My long time friend has issues with handling money matters. She requested some insight and help. However, when I explained that this works for me and that she may have to adjust to what works for her, she would call every day and exclaim that she “can’t do it.” That she has this and that to pay. That she’s “forgot” to pay a bill, etc.
Because she asked for my help and then rejected a budget on her 75k salary, she now calls and is happy that she’s working all this overtime to make ends meet.
Needless to say, I’m focused on myself and just nod and listen in agreement with my friend. I know I’ll be debt free, eventually.
Now if only my adult son would get a job…..
Great advice as always. 🙂 I used to have a spending problem as well, but somehow, there’s been a complete turnaround. Now, I wait to buy things I’m not sure I need, and I often end up realizing I don’t need them. I also discover ways to get things free and/or discounted, which I wrote briefly about here: http://haloblu.blogspot.com/2009/06/free-stuff.html.
I think my turnaround started with hearing Dave Ramsey talk about how we buy things we don’t need with money we don’t have to impress people we don’t like. An a-ha moment, for sure. He also helped me realize that, even though I wasn’t living above my means, I was living at my means like a little mouse on a wheel, getting exercise but never getting anywhere.
Yes–it’s hard to listen to some of the financial advice out there and not feel discouraged. For example, when people talk about credit-card rewards, it makes me feel like I’m being silly for not using credit cards anymore and missing out on free cash back/airline points/etc.
But, I just keep in mind that I have to do what works for me. I’ve had trouble with credit cards in the past, and I’ll though I’m sure I have enough self-discipline now that I’d be fine with them, psychologically I feel freer by not using them.
J.D.
I’m happy to see this side of your self — “the philosopher J.D.” — emerging in your writing!
You did not say this explicitly (and I know you still have a fear of scaring off readers with hyphenated words like self-knowledge and self-awareness) but self-knowledge is everything.
People generally like to be given the answers but there is more value in discovering the answers within one’s self.
True success in personal finance begins with self-knowledge. Arguably, one can become more “successful” financially by acquiring and applying self-knowledge than by acquiring and applying financial knowledge.
Thanks J.D. I’m looking forward to more philosophy and behavioral finance from you!
Kent @ The Financial Philosopher
Dear J.D.:
I have to say I am becoming a fan of your blog and your writing. Rarely will you find a person admitting that they do not know everything and that what works for them might not work for others.
It is a humbling experience. It is hard to admit that what works for you might not work for others.For some reason, it is rooted in us to think that our way is the only way.
On the other hand, most people are too lazy to think for themselves. I have seen hundreds of self-help books, personal finance books. All of them have their own take on a certain issue.
Some of them even say that certain methods might not work for everybody. However, people just conveniently skip over that advice and then go on buying more and more books about self-help or finances.
They do not take the time to think about their own situation and take the time to think for themselves. People do not realize that those books are just guides.
Just like you said everybody is different, we all lead unique lives with our own unique financial situations and therefore it is crucial to maintain skepticism in everything that we do.
Thank you for sharing.
Best,
Tomas
This is one example of when the old saying “time flies” actually helps you. I agree with the do something approach.
We decided to do auto paycheck withdrawl to purchase savings bonds for our emergency fund. We tried other methods, but all our previous savings vehicles were just too easy to tap. At the time, it felt like “forever” before a) we’d had 6 mo saved and b) we’d hit the 5 year mark to cash without penalty. It seems like we blinked and now it’s done.
Same with the house. We’ve been paying extra on a 15 year mortgage. Our method was ad hock. Most months we at least rounded to the nearest $100. Some months we paid more (like after a tax return came back). Poof, 10 years went by like a flash and now we’ve got less than a year of payments left.
Time Goes by Really Fast which means you’ll reach your goals faster than you ever thought possible. But you have to have the goals in the first place to see it happen.
Hey J.D.,
You’re unique – so your approach to life should be as well.
There’s no such thing as a blanket approach for the essentials: your life, relationships, personal finances, work, etc. You find what works best for you–what you’re most passionate about and fits into your lifestyle–and do that.
There’s a reason so many people are unhappy with their 9-5 jobs. Those are blanket approaches to a career, and it’s not the best fit. Either the work isn’t fulfilling, or the schedule doesn’t work for them. The point is, they’re not finding their unique approach to their work.
The same goes for personal finance. There’s no one right budget or whatnot for people. If you move around constantly, than a house mortgage doesn’t make sense. Depending on what you’re investing during some part of your life, you change the percentage you allocate to pay off debt. You fuel your passions while cutting out spending on things that aren’t important to you. And that’s different for everyone.
Live for yourself. Do what works best for you, and you’re on your way to living your life to the fullest.
Nice reminder that oftentimes the “rules” aren’t what’s best for us. We need to find that ourselves, but then our life becomes so much more fulfilling for it.
Great stuff as always,
Oleg
Another possibility is to transfer the higher interest balances to the lower interest cards. Or to open a new account with an introductory rate and free transfers, transfer the balances, then pay off that card.
Once crimp in these financial advisors advice (Dave Ramsey especially) is that, while they are effective motivators to get out of debt, some make it seem like the world will open up to you once you’re out of debt. It doesn’t. There’s that little issue of savings and retirement to deal with too. Dave’s plan sets people up like a diet plan does – once the dieter hits their goal weight, most will gain it all back. Be careful of this trap with finances – it’s easy to ‘celebrate’ being debt free, and basically diving right back in to debt again.
I agree that dogmatism is a big problem in the money field. I think it is because those who push certain strategies feel a need from a marketing perspective to be viewed as having gotten it right. So there are huge dollar amounts put into the promotion of certain ideas. When people see certain ideas being promoted again and again and again, they come to believe that there must be something to them. And then dogmatism sets in even among those most harmed by it.
I believe you are guilty of dogmatism yourself on the investing side, J.D. You may not see it. Few of us see our own weaknesses. But you rarely explore the weaknesses of the Buy-and-Hold Investing model. I have heard from several financial planners that their clients are losing confidence in the conventional investing advice. So I think it would be wonderful for influential blogs like this one to be active in exploring new ideas (I of course would not expect you to personally endorse new ideas until you personally became convinced of their merit — but permitting exploration of new ideas in Guest Blog Entries is a very different matter and I have seen you do this on the saving side on numerous occasions).
The problem with dogmatism is that those practicing it rarely see themselves as being dogmatic — they just think they are right. I hope you will take this comment in the spirit in which it is intended and give some thought to opening up your blog to criticisms of the Buy-and-Hold approach (which a good number of experts believe has been entirely discredited in recent years) in future days.
Rob
Rob, that’s a funny comment coming from you.
JD this is a great article. It’s absolutely true. I’m finding out things that work for me – automatic savings, using credit but not carrying a balance, pretending the savings money isn’t there – and slowly building up the e-fund, slowly beginning to invest, etc. I’m really enjoying this series; it’s a great refresher, and the articles are really well-written, clear and plain. Thank You!
@ Rob:
You make a great point that supports J.D’s resistance to dogmatism; however, your final point seems to be more dogmatic than not:
Criticizing “buy & hold” is a dogmatic path. Investing strategies come in and out of favor. Also, depending upon how one defines “buy & hold,” there are just as many arguments against it as there are arguments for it.
We then arrive back to the point that “what is good for some might not be good for others.”
Also, the true problem with “buy & hold” is largely semantic. The meaning of the word is so broad and liquid that it borders on abstract.
Who actually buys an S&P Index fund and holds it for 10 years without dollar-cost averaging? Is this “buy & hold?” I don’t think so.
Would you call Warren Buffett “buy & hold?” If so, what criticisms do you have of his investment strategy? Isn’t “buy & hold” simply a value-investing strategy?
We are then back to the original point: What works for some might not work for others. Where people fail is not in strategy but in lack of self-knowledge.
Criticizing a particular strategy is too easy, especially when it is out of favor or when certain definitions and meanings are cherry-picked to support one’s own biases.
J.D., in my humble opinion, need not change a thing about his direction or approach. He is simply admitting he does not know everything and is wisely admitting that his path is not necessarily the path that others should follow.
Humility derives from self-knowledge.
Kent @ The Financial Philosopher
Criticizing “buy & hold” is a dogmatic path.
I think some are confusing “feeling strongly about your beliefs” with “being intolerant of other beliefs.” I view only the latter as constituting dogmatism.
There is no one on Planet Earth who is more critical of Buy-and-Hold Investing than Rob Bennett. I certainly don’t say different. I view Buy-and-Hold as being the primary cause of our financial crisis. I view the promotion of Buy-and-Hold as the worst mistake ever made in the history of personal finance.
But I do not feel that I can properly be characterized as “dogmatic” re investing questions. The reason is that I always show respect and affection for those who offer arguments in support of Buy-and-Hold Investing. I have learned many important things from these people and am grateful for what I have learned. And I of course acknowledge that I could be wrong about things that I believe today (just as I believe today that I was wrong about Buy-and-Hold in the days when I believed in Buy-and-Hold).
I think of dogmatism as a process matter. So long as you are open to other points of view you are not dogmatic even if you have great confidence in your own views. I am intensely critical of Buy-and-Hold. But I enjoy hearing the other side. Hearing the other side helps me sharpen my own thinking and there is of course always that possibility that it will cause me to change my thinking (this has in fact happened on a number of occasions).
I believe what I believe strongly. I do not view it as fair to characterize me as believing what I believe dogmatically. I’m open to hearing the other side. I enjoy hearing the other side. I respect the people who present the other side. That’s not dogmatism, according to my understanding of the concept.
Can most of those who “believe” in Buy-and-Hold say the same? My experience is that it is a rare Buy-and-Hold advocate who can show enough tolerance of those who hold different views to engage in warm and friendly conversations about investing with those people. I take that as an exceedingly bad sign for what this investing “idea” does to the humanity of the people who come to believe in it.
Rob
Rob, you haven’t said what you mean by “buy and hold” so it’s entirely possible we agree with you.
However, whatever you mean, it’s dogmatic because you believe that everyone should do things your way and all other ways lead to failure. We KNOW you feel strongly about it, no need to keep saying it. But I’ve read your stuff on here before and I can’t follow it. Ergo, it doesn’t work for ME, and I’m not going to do it. I do what works for me. If it doesn’t turn out, oh well. But that’s a pretty big if, and in the meantime it’s better than doing nothing.
I’ve been a fan of that method for quite some time now… that is, not trying to make the same fix for somebody else work for you, but rather adjusting it to your unique needs. It’s a lot like dieting and personal fitness in my opinion; taking the advice of others into account, but ultimately acknowledging that each person is going to require a unique playbook.
Oddly enough, what I find most interesting about this topic (which in general, I agree with J.D. on) is the definition of “what works”.
If you were to explicitly state the criteria for “working”, then you could try any number of approaches to meeting that goal, and any of them that met those criteria would work. The goal isn’t to pick the best methodology, as there is no best — only a pass/fail approach. You’re free to choose your favorite from any of the ones that manage to pass.
A lot of people don’t seem to like my budgeting system, which is essentially “save $X, pay the bills, have a positive checking account balance at the end of the month” because it allows me to spend arbitrarily in any category. But that’s OK, because it meets my definition of “what works”, namely, that $X is saved every month. Beyond that, I don’t need to worry about it. I like the system and it works. Saving $1.1X or $1.25X would also work, but isn’t something I require or even necessarily prefer.
Well said. It isn’t a one size fits all world. I have in fact started a special series on my blog addressing just that thought. Well timed!
The debt snowball works because debt elimination is purely psychological. Financial planners say to pay your debt with the highest interest rate first because that saves the most money. The problem with this solution is that it is the hardest to complete psychologically. When you need to see progress to stay motivated, the debt snowball works wonders!
Good post, JD.
JD, thank you so much for posting this. There are so many supposed pundits out there who seem to have the answer for everybody. But the reality is that each person is unique and needs a unique answer. Very often, dogmatic answers to common problems start out as short cuts (in thought, emotion, or time). They can become dangerous when applied to everybody.
We need more options, financial and otherwise, that allow us to customize the right solution for us. If we can do it without adding cost and requiring a steep learning curve, we will need fewer short cuts to make our life easier.
And this is what it’s all about!!
I love pointing out this sort of thing when the naysayers want to point out how “destructive” my car hobby is… First off, I can afford the spending, and secondly, the amount of happiness my cars bring me for the money spent is unparalleled.
Financial issues are hardly ever about the money, it’s all about psychology. If it were so cut and dry, nobody would ever have trouble with it. (I’m so glad I can see it rationally instead of being overly involved emotionally speaking.)
Re Kathy B (post #10) – maybe it’s time to tell your adult son-who-doesn’t-have-a-job that it’s time for him to get one, and start contributing to the monthly coffers or he needs to find another place to live. Some friends went through that with their daugher – she had actually quit school and was at home, without a job. They both said to her – either get a job and start paying us board or find a new home – life isn’t free. For them, the tough approach worked. She’s actually got two jobs, pays her board to them, makes her car and insurance payments and boards a horse…and she’s realized that there’s nothing cheaper than living at home! The offer is always open for her to live there for nothing (no job required) if she goes to school, and her parents will pay for school (that would be “her job” in their minds…go to school and get some good marks). Food for thought?
Well said. Too many “gurus” ignore basic human behaviors in their advice and that’s why it never works. See: Suze Orman.
Thanks for the reminder that this method of thinking works within personal finance, but also universally.
JD, I like the thought but I think you need to flip this article around before you publish it. I was shaking my head toward the middle because, as Tyler said, you didn’t really define “working” and I pictured people going along overspending because it *works* for them. But then at the end you say you aren’t giving people permission to do whatever they want, but that there are various methods that work. I think that caveat should be at the top. People who are regular readers here know what you mean, but people reading you for the first time may get lost before they get to that point.
So many people reject principles as not working because they aren’t committed. I hope in your book you throw out some ideas of what *works* for people.
I have never seen a PF/personality style book, guiding people toward what WILL work for them based on their personality. But if you aren’t putting forth a book outlining your *plan*, then what’s your point?
Shara and Tyler, you have excellent points. The whole key to “do what works for you” is in the definition of the word “works”. I mean “do what’s effective for you”, so if something isn’t effective, you shouldn’t do it. But saying “works” instead brings in other connotations that I don’t intend.
This is something that goes in the intro to the book, which I won’t write until January. But I’ll be sure I keep this conversation in mind. It’s important to be very clear on this.
Thanks.
Great post JD.
Couple of small points.
Regarding paying off debt, be it installment, revolving or a mortgage, I have noticed the arguments usually asume a payment plan along with some type of relationship to wintery precipitation.
Actually, the best (and only) way to pay off a debt is to…pay it off. Now. With one big check. Today. otherwise you are paying it DOWN, not OFF
That is the best way. The payment plans, be it based on interest rate, balance, payment amount, alphabetical, rhyming, number of vowels in the creditor, age of account or age at which you acquired the debt are all debatable, and clearly at best second on the list.
Oh, and the best way to to pay DOWN debt is to rank it by RISK. Assess the risk of each debt (rate, balance, payment fluctuation, family memeber, IRS, uncomfortableness, whatever) and pay it off based on that. Then you are ranking based on…what works for you.
Agree, it’s great to have advice from friends family, others, but in the end you have to develop your own system that works for you and stick to it.
“Regarding paying off debt, be it installment, revolving or a mortgage, I have noticed the arguments usually asume a payment plan along with some type of relationship to wintery precipitation.
Actually, the best (and only) way to pay off a debt is to…pay it off. Now. With one big check. Today. otherwise you are paying it DOWN, not OFF”
Unnecessary pedantry.
The problem with the “do what works for you” motto is that you don’t know until hindsight what actually works for you! When you were two months into your “pay the highest interest first” method, you would probably have said it was working for you. Whereas, if you have blindly followed Ramsey zealots you would have paid off your debt much sooner.
Maybe your relationship with your wife is stronger because you have separate finances, but MAYBE after a couple years of trying joint finances you would find that it is even better.
I’m not advocating Ramsey or joint finances per se, but many people use the “this is what works for me” motto to really say “I don’t want to change or admit I’m wrong.”
I think the concept of “do your own thing” is really warm and fuzzy, but is ignoring legitimate financial advice really the best way to “get rich slowly”?
@T
“unnecessary pedantry”
Since all personal finance boils down to simple addition and subtraction, clarification of the basics is prudent and therefore quite necessary to some.
Excellent article.
The problem is that there is a plethora of information on any and every financial topic. Whether it be paying down debt, budgeting, investing, etc. There is a hundred ways to do everything. How is anyone able to determine what is right? Or even worse, what is the best?
I think you hit it on the head. The best way and the right way are what works for you. Committing to what works for you. If you’re not sure quite what that is yet commit to what you think it is and then tweak it as you go. Great advice.
I agree totally with “do what works for you.” I could never understand the premise behind the “debt snowball” and I think it wastes money unnecessarily. However, to each his own!
Great article, JD. Personal finance is such a subjective, psychology-driven field. The mathematically correct approach only works if people can actually implement it succesfuly.
It’s good to read your thoughts on the subject.
Anna #29 – I did, I even drove him to places to apply etc., but we live in the Las Vegas area and the unemployment is currently @ 10.9%. He’s in school after I said that his way didn’t work for 13 months and now he’s going to do it my way. He now contributes for “food money” every month from his school money. I don’t mind as long as he’s in school and continues to get good grades.
Personal finance management is a better deal. there in no need to panic in this situation. Just think and decide that do you really need to plan your finance.
Des brings up a great point that we often don’t know what really works best for us until we have the luxury of looking back. That’s why we need to develop a way to test and measure, test and measure.
Agile businesses do this all the time. When we work with our own personal finances, we need to be equally flexible and open to find what really works for us. In that way, perhaps “do what works for you” is not an excuse to keep doing things as you are (and be more dogmatic) but encourages us to explore more ideas and get out of our prescribed circle of thought.
@ Rob #18
I appreciate your enthusiasm. For the record, and for the sake of friendly conversation, I never accused you of dogmatism; I simply stated that criticism against opposing views is a dogmatic path.
Reflecting on my own previous comment (#13), I probably vented on you some of my own discontent with the recent media noise chanting that “buy & hold is dead.” Much of this noise was aimed at the passive, indexing, value-oriented investment advisers and financial planners, such as myself. By the generalized media definition, “buy & hold” never was alive in the first place. Their argument is the only thing that is “dead.”
But how does one define “buy & hold?”
This was (and still is) my point: If one is to be critical of something, especially something as broad in meaning as the “buy & hold” investing strategy, then define what it is that you mean by “buy & hold,” then proceed to criticize.
I could easily make an intelligent argument against “timing the market” as well, but my argument is weak without defining terms and stating the premise of the argument.
Once again, we find ourselves back at J.D’s point: Do what works for you! I’m sure he’s learned over the years of blogging (and reading comments) that there are many different paths to financial success and trying to force opinions on others is a misguided attempt, no matter how altruistic the intent may be.
The only “wrong path” is someone else’s path; therefore, most attempts to hyper-intentionally convince others to follow a certain path or to discontinue the path they are on now is simply an empty display of knowledge, even if the intent is altruistic.
Teaching self-knowledge, which is J.D’s underlying point here, is greater than teaching one particular view or strategy, whether it is “buy & hold” or any other strategy.
Thanks to all for provoking thought…
“There is no conversation more boring than the one where everybody agrees.” ~ Michel de Montaigne
Kent @ The Financial Philosopher
If one is to be critical of something, especially something as broad in meaning as the “buy & hold” investing strategy, then define what it is that you mean by “buy & hold,” then proceed to criticize.
Thanks for the helpful feedback, Kent. You are absolutely right re the point made in the words quoted above. But this thread is not the place for us to define our terms and then proceed to a discussion on the merits or lack thereof of Buy-and-Hold Investing.
If you would be willing to engage in some e-mail discussion of these questions with me, I would be thrilled. Or you could put up some comments at my blog and we could engage that way. Or we could have a back-and-forth discussions at your blog. Anything that works for you works for me.
My goal is just to get this conversation started. I think that J.D. could help a lot because his blog is so widely read. But I certainly don’t mean to suggest that he is the sole cause of the hold-up in getting this conversation going. He is one guy writing one blog. I would like to see all personal finance blogs exploring these questions in some depth.
We have suffered an economic crisis and we need to figure out how to get out of it. This is not a question where there are winners and losers. We all benefit from having the conversation. If it turns out that Buy-and-Hold works, then we will have more confidence in it as a result of having had the conversation. If it turns out that Buy-and-Hold does not work, we can all get about the business of learning what does work.
My goal for seven years now has been the most modest goal imaginable — to get those who today believe in Buy-and-Hold to accept at least the possibility that they might be wrong so that we can get a healthy conversation started. I think that those people who are criticizing your investing advice are right, Kent. I don’t think that you wake up in the morning with the idea of giving bad advice. But I think you need to open up enough to the possibility that you are wrong to let in what those criticizing your advice are trying to tell you.
Human beings have made mistakes about all sorts of things through the history of time. It’s not at all my intent to find fault with people for having made mistakes. I of course have made mistakes myself and I believe strongly that the mistakes that were made here were made by smart people with good intent. So I wish that people could just let that aspect of things go.
I do believe that big mistakes were made and that it is imperative that these matters be explored by all interested in keeping our economic and political system from going over a cliff (and that of course should be all of us). It’s not my intent to over-dramatize when I put it that way. I believe that that is a fair statement of the stakes that apply here.
I strongly believe that we need to get this conversation started (but this particular thread is not the place to discuss aspects of the question other than the dogmatism issue, which is the question put on the table by this particular thread).
Rob
@ Tyler #24, that’s kind of my budgeting system! I never considered that I HAD a budgeting system, but like you say, if that works there’s nothing wrong with it. I put X in savings, pay bills, and spend what’s left, leaving a small cushion.
@ Des #37, I’m a satisficer. Once I find something that works, I stick with it; I’m not going to try every single method looking for the “best.”
😉
Adam, this post offers great advice!
People go from website to weblog, and buy books and CDs or attend programs to help them with budgeting money, saving, investing, etc, but never finding what works. Why?
Because we can’t be successful playing someone elses game, not long term at least.
It’s always good to seek advice and what ever information we can, but ultimately we have to settle on a course that works for each of us, with the unique circumstances we each face.
Just because a coworker is cleaning up in the stock market because of a program he attended doesn’t mean we can duplicate that success. Seemingly small points can be the difference between success and failure and make all the difference.
Can someone please tell me what & as in “buy & hold,” means? I see & frequently and cannot figure out from the context what it stands for.
@Rob #47
“Thanks for the helpful feedback, Kent. You are absolutely right re the point made in the words quoted above. But this thread is not the place for us to define our terms and then proceed to a discussion on the merits or lack thereof of Buy-and-Hold Investing.
If you would be willing to engage in some e-mail discussion of these questions with me, I would be thrilled. Or you could put up some comments at my blog and we could engage that way. Or we could have a back-and-forth discussions at your blog. Anything that works for you works for me.
My goal is just to get this conversation started. I think that J.D. could help a lot because his blog is so widely read. But I certainly don’t mean to suggest that he is the sole cause of the hold-up in getting this conversation going. He is one guy writing one blog. I would like to see all personal finance blogs exploring these questions in some depth.”
Rob, build a better mousetrap and the world will beat a path to your door. Your PE10 strategy is just another mousetrap, not necessarily a better one. There are any number of buy-hold-rebalance investment strategies which will prove good enough for individuals to attain their financial goals. One would have done just fine in the past by investing in Vanguard’s Wellington or Wellesley Income Funds. Or in the Coffeehouse Portfolio. The point of the article is that there are many approaches that will work for any given individual. Your Lucky 7 strategy might work as well, but it is but one strategy among many. Perhaps you could allow an open discussion of that strategy at your own blog if it holds the most interest for you.
You say your goal is to get the conversation started. You are quite correct in pointing out that this thread is not the place for a discussion of your Lucky 7 approach versus buy-and-hold. Neither is it an appropriate place for you to recruit visitors to your own blog. If you can’t get a conversation started at your own blog regarding your investment beliefs, it seems rather unbecoming of you to proselytize at this and other blogs in your quest to “see all personal finance blogs exploring these questions [i.e. your beliefs] in some depth.”
If you can’t get a conversation started at your own blog regarding your investment beliefs, it seems rather unbecoming of you to proselytize at this and other blogs in your quest
It is perfectly appropriate to bring up the point at this blog that dogmatism hurts us in the investing area as well as in all other areas, Carlyle.
In all other areas, personal finance blogs discuss a wide range of options. When it comes to investing, the vast majority push Buy-and-Hold relentlessly and have continued to do so even after it caused the greatest loss of middle-class wealth in the history of the United States. The Stock-Selling Industry has invested hundreds of millions into promoting this strategy and there are many investors who are not even aware of the grave flaws (flaws revealed in the academic research 28 years ago). We have a lot of work to do just in pointing out the flaws of the conventional advice to the extent needed so that people can come to a clear understanding of the ABCs of stock investing.
Buy-and-Hold has one huge advantage over more realistic strategies — it’s appeal to the Get Rich Quick impulse within all of us. The problem is that it always causes an economic crisis in the long run. I think we all need to work together to overcome the problem we have created for ourselves by the dogmatic take that many of us have adopted re this question.
The materials made available at my site were developed with the help of hundreds of my fellow community members in the Retire Early and Indexing discussion-board communities. The discussion of realistic strategies has been banned in those communities at the insistence of Passive Investing dogmatics. I think that the many community members who expressed a desire to be able to hear about the realities should be permitted to do so anywhere on the internet they care to engage in such discussions. The fact that a good number of Passive Investing dogmatics objects to this idea reveals their intense defensiveness.
How would you suggest that we work together to spread the word about the dangers of Buy-and-Hold if we do not talk about them at blogs like this? I think it would be fair to say that The Stock-Selling Industry is not going to direct any of its considerable resources to the task of helping us out. All of our retirements are at stake, Carlyle. This is a serious matter.
Rob
“How would you suggest that we work together to spread the word about the dangers of Buy-and-Hold if we do not talk about them at blogs like this?”
I think it’s fair to say your strongly held beliefs about the dangers of Buy-and-Hold are simply your own opinions. Other opinions you strongly hold are;
1)”the vast majority push Buy-and-Hold relentlessly and have continued to do so even after it caused the greatest loss of middle-class wealth in the history of the United States.”
2)”The Stock-Selling Industry has invested hundreds of millions into promoting this strategy….”
3)”…there are many investors who are not even aware of the grave flaws (flaws revealed in the academic research 28 years ago).”
3)”Buy-and-Hold has one huge advantage over more realistic strategies – it’s appeal to the Get Rich Quick impulse within all of us.”
4)”The problem is that it always causes an economic crisis in the long run.”
5)”The materials made available at my site were developed with the help of hundreds of my fellow community members in the Retire Early and Indexing discussion-board communities.”
6)”The discussion of realistic strategies has been banned in those communities at the insistence of Passive Investing dogmatics.”
A conversation about your strongly held beliefs/opinions is more appropriate for your own blog than imposing your views upon the blogs of others. None your strongly held opinions listed above have much basis in reality. Therefore they contribute little to ones understanding of the ABC’s of stock investing. Since you desire to have the discussion center around your beliefs and only your beliefs, a more appropriate forum would be your own blog.
However, as E says in #22, “you believe that everyone should do things your way and all other ways lead to failure.” So I don’t care to waste any more of my time with you. Good day.
Since you desire to have the discussion center around your beliefs and only your beliefs, a more appropriate forum would be your own blog.
This part is not so, Carlyle.
It is of course critical that I state my own views honestly. It is equally critical that all others participating in the discussions state their views honestly. It is by listening in on the interaction of different viewpoints (which are the products of different sets of life circumstances and different personality types) that we all learn together.
The primary cause of our economic crisis (in my view!) is that a number of us for a time became intolerant of strong criticisms of Buy-and-Hold and thereby shut off the learning process that in many other areas of life endeavor has helped us achieve great things as a nation of people. We need to follow the procedures that have helped us learn about so many other subjects in our efforts to begin learning anew how stock investing works in the real world, in my view.
We don’t know as much as we once thought we knew. Our state of understanding of what works in investing is primitive. Letting that in will be the first step on a wonderful journey to the discovery of hundreds of exciting insights. Or so Rob Bennett believes, in any event.
Rob
“We don’t know as much as we once thought we knew.”
We? I think it’s fair to say your use of the editorial we is a bit presumptuous.
“Our state of understanding of what works in investing is primitive.”
Our? I think it’s fair to say this is another permutation of the editorial we. And still rather presumptuous.
Carlyle (55)–I don’t know how many of Rob’s posts and comments you might have read, and while you might not agree with what he writes, he’s studied the subject more deeply than most and is a real resource. I wouldn’t be too quick to dismiss what he says, even if you don’t agree with him.
Sometimes the opinions we find most disturbing are the ones we need to explore the deepest.
in 1980, I took a 4 month leave of absence from my job(lucky me- I could go back to it!) to backpack in Asia . Many/most people said “oh, no, you will lose 4 months of pay and the trip will cost a lot of money”. My mom was just worried I would die- foreign country and all(she had been ony to Canada). I didn’t have a family, a house or a car either and I knew the trip would be worth all the money and more. That trip changed my life -it expanded me in many ways(except weight!). The money I didn’t make and the money I spent I have recovered many times over- but the experiences were worth so much more than I spent.
I appreciate your comment.
Similarly , I went into the Peace Corps after college and spent 2 years in Honduras. Getting away from the fast pace of life in the United States can give you a broader perspective on what your priorities should be.
Hardly a day goes by that I don’t think about my experiences in Central America.
I’m waiting on an invitation from the Peace Corps to teach environmental awareness in Africa. I’ve been up and down on whether or not I should do it, but I’ve finally decided that if they make me an offer, I’m taking it. I don’t think it’s an experience that can be replicated in any other way, no matter how much I travel around the world. There’s something different about spending 2 years in a community. You just can’t get that in 2 weeks or 2 months.
I just got my three month LOA approved – and I’m going to ASIA in January!
It’s going to cost alot (mostly in terms of lost wages), and no one can believe I can afford it. We did buy a house 3 years ago, and paid for our wedding last year. But it’s amazing how the money piles up when you buy less then you can.
Thanks for the reassurance that this will be worth it!
Very nice post. Money is nothing more than a tool, but like with any tool, you need a good plan to use it effectively. If you’ve thought hard about what you want to do with your money and are working toward a goal, who can say your goal is the wrong one?
The goal I set for my financial life was to achieve freedom – freedom from a boss, freedom from a job, freedom from a place. Like you, I value travel, and I’m happy to say I’ve been on the road fulltime since April 2010. My choice may not be for everybody, but it suits me. And that’s all that really matters.
Great article!!!!
Ditto!
To know what works for me, I need to know my alternatives. I need to experiment to compare the alternatives. Unless there is some guidelines to determine what works for me I’ll never know what works for me and continue to move nowhere.
I too am learning that finances is psychological. I used to be so curious why people would make crazy decisions to live in debt and such, but I know it is much more than failing to know what is the right decision.
“Do you want to get out of debt? Buy a boat? Send your daughter to Harvard?”
… but does your daughter *want* to go to Harvard? 😉
Thanks for this 🙂 Sometimes financial blogs can leave me depressed- there are a lot of bloggers who are “it’s my way or you are going to die alone, in poverty, living off of cat food” I personally, for example, cannot use credit cards unless absolutely necessary. I hope one day I can use them as a tool, but I also know a lot of personal finance is psychological. You have to know your limits, learn what works for you, and make a plan that you can sleep with at night. If you are making money and saving money, I think that counts as success.
I use these blogs as inspiration to fight for my money. Just this week I got a company to fix my 3 hole punch instead of buying a new one, bought a crock pot I wanted for 50% off on craigslist and asked for another $5 off the selling price, invested in some mutual funds I had read about… those are big accomplishments for me, and I am glad we can celebrate what money goals matter to each of us.
Nice work! Those are great accomplishments for the week, and its only Wednesday!
Right on CD! Give yourself some high praise for your achievements. Cheers!
This is a terrific message. And you’re right that two years is too long between reminders.
I always start a counseling session with a first home buyer by asking them why they’re looking at buying a home now. It’s a great way to learn about someone quickly.
It always surprises (and saddens) me when someone says they’re considering homeownership because their parents think it’s a good idea. Or because they figure it’s what they have to do now that they’re a grown up.
We all need the reminder that the right path for someone else isn’t necessarily the right path for us.
Travel is a great catalyst in helping you discover what is important. To my mind, this is what we save for – an unforgettable experience and learned wisdom from all the encounters on the trip.
Thanks for this post. I am making financial decisions right now that many within my circle of friends and family furrow their brows at and sometimes it makes me question myself and my vision for my life.
I am working hard to pay off debt as quickly as possible but in ways that are not always “highest interest first”. I am pretty much resolved to never buy a home as long as I live in my city because the market I live in (Vancouver) is crazy expensive and renting fits my life goals better. I love to travel, have decided to go back to university and get my PHD, and will be in a position to work less once the debt is gone to carve out time for my studies. I have an eye on saving for retirement and will try to find smart ways to get my money working for me.
So I am shunning a lot of what works for others but I feel these are the ways and means that I currently see my life unfolding as I wish it to. I am trying to get to doing more with less. And I am good with that.
This is so true. In the early years of our marriage, we were buried under a mountain of student loan and credit card debt. We were financially educated only by what we saw on shows like the Today Show. The prevailing wisdom at that time was to pay off debts by highest rate first.
However, we realized that we received an incredible psychological boost when we could finally put a debt to bed – we began doing the debt snowball and we’d never even heard of it. A couple of years later, we were financially much better off and had picked up some fiscal discipline. This time, we attacked the student loans by first going after the ones to whom we were paying the most interest.
Same couple. Different techniques for different times.
My wife and I managed to accumulated enough money while earning average incomes to retire at age 56 without investing in the stock market like everyone told us we should. We chose to put our money into certificates of deposit, T-bills, and annuities,instead. It worked for us.
This would make a great guest article! I’d love to hear how you decided how much money you’d need for retirement, how much of your income you saved, and what you actually spend now that you’re retired compared to what you budgeted. If you want to share that juicy information, of course. :0)
This is a great reminder! It’s so easy to look at others and judge how they spend money but in reality, we don’t know what their goals or feelings are.
I could read this article everyday. Such an important message!
Great reminder. This is one of the topics that left me frustrated with many PF blogs too.
1) Just because it is perfect for one person, doesn’t mean it is perfect for everyone.
2) Just because it was good for you at one point of time, it doesn’t mean it is good for ever. Life changes, priorities changes, we should be open minded to explore and adapt to the changes.
3) And my pet peeve, this is very similar to my point (1), the subtle difference stems from the fact that we don’t do our own calculation and take someone’s word for it. Just because some “says” it makes sense, it doesn’t mean it really does. Do you own math, then decide whether it is good for you or not.
So far we have made a lot of unconventional decisions, but I know that it has been the best decision for “us”.
This comment is spot on and takes the essence of the post one step further! Just as we grow and change, so do our values and priorities. I like to think of a financial picture as a perpetual ‘working draft’ subject to constant revision and editing. 🙂
I would expand these points to almost everything in our lives – parenting, finances, living arrangements, careers.
Do what works for you, and if it’s not working – Change it!
“…use methods that draw on your strengths…define success in a way that reflects your values.” GREAT ADVICE!! Financial gurus give advice for the masses, but personal finance is not “one size fits all.”
Technical comment: This past week or so reading and commenting on GRS has become excrutiatingly slow for me. I use I.E. Can JD or someone look into this problem?
This is why GRS continues to be my favorite PF Blog.
When the negativity starts to creep in, we can be reminded of what the real goal is here. Do what works for you to live your most meaningful life.
Awesome.
BTW – Taking a 60% pay cut to go manage a pet supply store, hands down best professional development decision I ever made.
For me its about making the dollars I spend count to exact the change I want to see in the world.
Thank you for the remind JD. I too, could read this everyday.
Are we having a “Kumbaya” kind of morning?
I personally love to have my ideas challenged, which is why I make public posts. I enjoy reading opinions that are contrary to mine, so that I can examine my own opinions, regardless of whether I ultimately change my mind or stick to my guns.
The avoidance of healthy strife leads to stagnation. (Am I a Klingon?)
There are plenty of different viewpoints represented here. I’ve read many articles by writers whose personal choices are pretty much opposite mine. I don’t expect that to change.
Strife is never healthy … though civil disagreement can definitely be.
This post was timely because all too often those who disagree with an article’s viewpoint go immediately to attack mode. And every once in a while Person B makes a comment that is clearly presumptive – taking what Person A wrote and building an alternate universe around it.
We have to remember, we really don’t know ANYTHING about each other.
If strife is never healthy, how come we have sports?
I hear what you’re saying about knee-jerk responses though. For that, there’s always… boot to the head!
http://www.youtube.com/watch?v=Z8VD4JXUozM
😀
It’s because there’s not much to disagree with. It’s almost tautological. It’s like saying “That rose is so pretty”. The real question is how the hell do we know what’s right for us? What’s right today may be absolutely WRONG tomorrow.
I agree there are no clear answers to our questions on how to spend our money on wants. But most people don’t have a problem SPENDING their money. I guess a few might, but that’s not most of us. We can debate about how best to spend our money in terms of happiness research, but that doesn’t mean every trip or experience will be worth what you paid.
And I think Roth has set up a bit of a straw man saying that some people might prefer that he re-decorate his bedroom instead of travel to Peru. I doubt that is the case. I don’t imagine anyone cares if his bedroom is unfashionable or dowdy. A few did suggest he was overpaying.
“And I think Roth has set up a bit of a straw man saying that some people might prefer that he re-decorate his bedroom instead of travel to Peru. I doubt that is the case. I don’t imagine anyone cares if his bedroom is unfashionable or dowdy.”
Many many people would suggest that taking a long, expensive vacation when your home needs remodeling is frivolous and a waste of money. Or that he should have compromised more on spending money on practicality versus pleasure (maybe paid for his rent for 6 months and used the rest for travel). His point is that no one knows his finances like he does. Every single post on this blog can help you figure out the “real” questions that you posed. I think that posts like this are so important because the only person that can choose the right answer to those questions is YOU. Some folks seem determined to get annoyed at blog posts because they seem to find them threatening. But these are all just ideas and tools that you can use to find a system for you. There’s no such thing as a “that rose is pretty” column on the internet. Even this seemingly innocuous one seemed to get a negative reaction from you 🙂
No, not a Klingon – probably a Vulcan – aka INTJ in Myers Briggs speak.
The problem with bucking social norms and “choosing your own path” is that when you fail, you are fully responsible for the consequences. If you try to live a normal middle-class life (3 bedroom house in the suburbs, 2 kids, 2 new cars, big TV, vacation every year, etc.) and end up underwater on your house and broke, it is likely that most of America will be underwater and broke with you and the government will step in and bail you out. At that point, people say there is a “systemic problem” with our economic/political system rather than say that most Americans made dumb decisions with their money. Similarly, you will maintain your social support structure, since you will be in the same place as your peers. If you buck the system, you’re on your own when things go wrong.
I can’t remember who said it, but it is like the buying/selling decisions of mutual fund managers: If you go with the herd and win, you keep your job. If you go with the herd and lose, you keep your job. If you make a bold move and win, you’re a genius. If you make a bold move and lose you’re fired. There is a strong incentive to go with the herd. You may be the deer that finds the sweet spot of grass everyone else missed, but then you’re all alone when the predator comes.
Interesting. I had never seen it as a prisoner’s dilemma before.
I preach this concept ad nauseum on my blog and to everyone else who will listen to me.
I have a strong belief that financial advice cannot be a simple blanket statement, and therefore apply to every single person. Each person has different circumstances surrounding their financial situation. Additionally, the way people view and understand finances will vary greatly. Those are the two things that people who dispense “advice” do not comprehend or they simply just don’t care.
Bravo JD! Don’t change a thing. I have been reading your blogs since 2007. Now debt free because I did what works for me. Guess what? it worked!
In a similar sense, my husband & I made a similar decision about having a wedding. It is my second marriage and his first, and neither of us are youngsters, so even having much of a wedding was optional to us. Regardless, we knew we wanted a small-medium size (a little over 100 invites; about 60-70 people actually came) wedding with a sit-down lunch. We were not extravagant about anything and did what we could to cut costs without sacrificing the quality or experience for us or our friends and family.
My point boils down to the question my father asked me. He asked, “If you had to choose between this wedding and a down payment on a house, would you take the house?” My father, the super-frugal person in my life, would have taken the house, I’m sure. But in our minds there was no question; we WANTED that wedding. That was an experience that gave us UNFORGETTABLE memories, memories that we will cherish forever.
Its funny, we asked ourselves that same question when we decided to get married. In the end we eloped, for two reasons: neither of us enjoy being in the spotlight and we looked at our finances and decided we’d rather buy a house. Instead of having a big party for one day with our family and friends we figure when we have the house, we will have the space to entertain and can accomodate more of our family and friends on a regular basis. I can understand people enjoy catching up with family and friends at big events like weddings, but luckily we are able to visit with our loved ones regularly. I just wanted to be married to the man I love, I didn’t really need anything else.
Personal Finance is just that – PERSONAL!
There are no right or wrong ways to manage finances. It absolutely boils down to doing what works and feels comfortable for YOU.
The same situation can look totally different depending on the perspective of the people looking at it, simply because they have different values and priorities. I’ve worked with a lot of people to help them identify their REAL goals and then create strategies to achieve them, guilt-free:
http://investstratcre.wordpress.com/2011/06/10/live-spend-without-the-guilt/
It’s frustrating when people latch onto an idea or concept and twist it into some kind of sacred tenet. Living completely debt free is actually one of them, just as you noted above. There is good debt (asset-related) and bad debt (like credit cards) and they are two completely different things. Debt (or credit) is simply another tool that can help you achieve your financial goals if managed well. Like any other tool, you can choose to use it or not. Whatever works best for YOU! Great post!
Articles like this are the reason that I look forward to reading your blog every day. Thank you so much for providing interesting posts.
Very true! I live a low profile lifestyle, but enjoy traveling. We fly business or first class (using miles) and go on cruises or stay at 4 star hotels. At home, we drive modest cars, live in a modest house and watch what we spend. I max out my retirement savings and have a nice nest egg built up. Travel makes me happy every other year. I don’t feel we deny ourselves anything.
Just wanted to point out – for people who don’t know or who assume it has to be expensive to travel – that international travel can actually be dirt cheap. Rather than being the cost of a used car, it can just be the cost of a few months of car insurance! Yes, it’s nice to have the funds to stay in nicer accommodation, do fancy tours, etc. But, you can see most of the same things and eat and stay comfortably on a very, very low budget in most of the developing world. Some backpacker-types do it on $10-20 a day.
Funding your retirement up to the amount the law allows is fine, but it probably won’t be enough. I still haven’t been able to find the highest amount of Social Security payouts available. With the current interest rates and depressed housing market, stocks might be the only viable option other than selling your company or improving distressed real estate to increase your assets. I really got a tickle out of the outrage in the Rich vs. Poor debate. Most people commented with the Poor mentality. I was too worked up to comment yet. So many excuses! They missed the point in many of the instances. Ann
I could not agree more with this article. I always tended to follow my own path. This has worked for me tremendously. When you follow your own path and define your own goals and determine what success is you will be richer and happier
This is what I love about GRS and your writings. I quit reading certain PF blogs because the writers got really judgmental about certain subjects.
I hate it when people judge each other on how to spend, invest, and save money. This is why I don’t talk about money with strangers.
I first heard of the “do what works” philosophy here at GRS and I loved it so much that I adopted it into my personal life as well, it’s a philosophy that works for me in all areas of my life and not just financial.
Thanks for the reminder, we all need it from time to time.
I believe in many wrongs and rights. For instance, I believe it is right to live in control of one’s finances, and wrong to take on unmanageable amounts of debt. I believe it is right to teach our children the value of family and experiences over Stuff, and wrong to teach our children to be mindless consumers. I believe in giving money to those who are in a bind, and that all people on earth should be generous. I believe that we should be seeking to live lives of freedom, a life without trauma, including trauma brought on by financial mismanagement [bankruptcy, homelessness, etc]. I believe that *ALL* people on earth should be this way.
The method/manner through which parents teach their children to avoid unmanageable amounts of debt will variate. They should “do whatever works best for them”. But they all should do it.
This is also absolutely, positively my philosophy when it comes to building wealth. There are “best practices,” but no absolutes in personal finance. Though, it also took me a while to come to this conclusion.
Thanks for this post, JD. It was much needed in the blogosphere!