The seven deadly sins of personal finance
I've been reading and writing about personal finance for more than thirteen years. In that time, I've consumed a lot of books about money. Lately, I've found that it's fun to revisit old favorites.
Recently, for instance, I've been re-reading Brett Wilder's The Quiet Millionaire [my review]. It's different than most personal finance books. It's targeted at those who are farther along their financial journeys rather than at those just starting out. Still, there are bits and pieces in The Quiet Millionaire that are applicable to everyone.
Ten years ago, I wrote that I particularly like Wilder's list of the seven enemies to financial success (which is my phrase, not his). I still like them. He writes:
If you want to become and stay the quiet millionaire, you must plan and manage your financial way of life…You must be proactive in order to obtain the financial life you want. By doing this, you will overcome the seven major obstacles to financial success.
Wilder is saying that we know there are certain common barriers to wealth. These obstacles arise for everyone. Because of this, it's possible to plan in advance to cope with them. First, however, we have to be able to name these enemies so that we can prepare the proper weapons to fight them.
The Seven Enemies of Financial Success
According to Wilder, the seven enemies of financial success are:
- Lack of discipline. Without discipline, it's difficult to build wealth. In fact, it's impossible to get rich — slowly or otherwise — if you spend more than you earn. The math just doesn't work. Wilder also warns against compulsive spending, and he urges readers to track where their money is going.
- Materialism. Stuff will not enrich your life. It's so very easy to find yourself “keeping up with the Joneses”, succumbing to lifestyle inflation. But materialism breeds discontent. Instead, Wilder says, focus on intellectual and spiritual pursuits to obtain fulfillment.
- Debt. Not all debt is bad, of course. A reasonable mortgage on a sensible home is fine. But consumer debt — or a bad mortgage on a big house — is an enemy to financial success. In fact, bad debt may be the biggest enemy to financial success.
- Taxes. It's our responsibility to pay the taxes we owe, but we're under no obligation to pay more than that. “It is not unpatriotic to reduce paying your taxes,” Wilder writes. We should instead actively work to keep our tax burden as low as possible.
- Inflation. Inflation is wealth's silent enemy. It will not destroy you all at once. But it's always there, nibbling at the corners of your life, consuming a little cash every year. It's impossible to keep inflation completely at bay, but you can learn to mitigate its effects.
- Investment mistakes. Poorly structured investment portfolios can be a killer. This enemy is fought through education, through an understanding of diversification and asset allocation, by taking the emotion out of investing.
- Emergencies. The final enemy to financial success is the unexpected: unemployment, death, illness, and legal complications. Without a plan for emergencies, you leave yourself at the mercy of the fickle fates. Carry adequate insurance and maintain an emergency fund!
I've fought all of these enemies at one time or another. I still fight some from time to time. I feel like I have a good handle on investment mistakes and saving for emergencies, but my tax bill this year was onerous due to my own poor planning. And, of course, I've always struggled with discipline.
The Seven Deadly Sins of Personal Finance
Wilder's seven enemies to financial success always reminds me of Catholicism's traditional list of seven deadly sins. This catalog of transgressions has a long, complicated (and intersting) history. Today, the seven deadly sins are considered to be:
- Vanity (or Pride). An inflated belief in your own abilities.
- Envy. The desire to have what others have.
- Gluttony. Consuming more than you need, especially with regards to food and drink.
- Lust. A passion or longing for bodily pleasure.
- Wrath (or Anger). The tendency toward indignation and the desire for vengeance. Hatred toward others.
- Greed. The desire for material wealth or gain.
- Sloth. The avoidance of work. Laziness. A failure to act or make use of your talents.
What would happen if we combined Wilder's idea — seven enemies to financial success — with this list of seven deadly sins? If we were to make a list of seven deadly financial sins, what would those be? Off the top of my head, these seem like good candidates:
- Sloth. The avoidance of work. Laziness. A failure to act or make use of your talents. Procrastination. Expecting others to solve your problems.
- Envy. The desire to have what others have. Comparing yourself to others. Keeping up with the Joneses.
- Gluttony. Consuming more than you need. Succumbing to lifestyle inflation, the endless desire to have more. Never being satisfied with what you already have. The inability to defer gratification. Impatience.
- Aimlessness. A failure to plan for the future. A lack of purpose or direction. Failing to track your progress is also a form of aimlessness.
- Improvidence. A lack of prudence or care in managing your resources. Spending mindlessly. Wasting what you already have. Not taking care of your possessions. Replacing the things you own before they need to be replaced.
- Myopia. Making decisions without considering greater implications. Focusing on small, easy steps that make no real difference (clipping coupons, maybe) while ignoring the big things that destroy your financial future (paying too much for housing, for instance).
- Ignorance. A lack of financial education. Putting blind faith in outside advisors — or the news. Failing to do your own research.
Although this list is spontaneous, I like it. These really do feel like seven barriers that prevent people from succeeding with money. But I'm sure it's possible to come up with other (possibly more grievous) sins.
What do you think? If you were to list the seven deadly sins of personal finance, what would you include? And why?