When I started this blog, I made a deep commitment to myself that this was going to be the linchpin for building my understanding of personal finance issues in many directions. I’ve spent countless hours at the library researching about personal finance, talking to financial professionals, and talking to other people facing the difficulties of managing debt and getting by financially. I’ve come to discover a lot of deeply fascinating things about personal finance that simply were not apparent to me when I was deep in debt and struggling to escape from it.
Here are the ten most powerful lessons that this blog (and my wonderful readers) have taught me.
Personal finance is deeply personal. For example, home mortgages. Some will argue on behalf of never buying unless you have your full 20% down payment. Others will argue that you should buy a home the first moment you can. Both have a lot of statistics that back up their point. So which is right? There is no true right answer, because everybody’s dreams, needs, and risk tolerances are different.
The people who comment keep me on my toes – and keep the conversation going. It’s hard to get lazy and not do your research when you’re getting 10,000 readers a day, many of them opinionated and quite vocal about it. If I do something wrong, they let me know – so it makes it worthwhile for me to do my homework and post things right. This is a good and bad thing at the same time – it’s good for the readers and for me in terms of learning more about personal finance issues, but it’s terrible for my sleep habits.
The power of compound interest is amazing – but not as amazing as I first thought. Compound interest is an incredibly powerful force, but many people are so overcome by its power that it is held up as the solution to all of your problems. When you see amazing descriptions where people put a dollar a day away and have a million dollars in 30 years thanks to compound interest, it is amazing, but it is tempered by the fact that a million dollars in 30 years won’t be worth nearly what it is right now.
(Almost) everyone underestimates risk. Even fairly conservative people tend to ignore the risks inherent in many financial transactions. Every debt you have is a substantial risk. Every item that you owe regular taxes on is a risk. Every income stream has risk associated with it. Every investment, no matter how seemingly stable, has some degree of risk. Many of these risks aren’t worth staying up at night over, but putting all your eggs in one basket means that eventually this risk will bite you. What if you lose your job? What if you neglect to pay a tax bill or a loan payment? These things happen in life, and personal finance success is about planning against them.
Investing isn’t scary. Since I started this blog, I’ve invested in a mutual fund, started a Roth IRA, and am about to invest in some individual stocks as well. I used to think that such things were incredibly complicated and overwhelmingly scary; the truth is that they’re actually pretty simple if you spend some time with them and ask questions. In fact…
The more questions you ask, the better. Some of the research for this blog has involved me on the phone with customer service people and others, asking questions that were probably moronic to them. I realized that if I actually wanted to understand what was going on, I needed to check my ego at the door – and fast. If you’re scared of looking stupid for asking questions, you’re basically choosing to be stupid.
Frugality isn’t about being a tightwad. My impression of frugal people in the past is that they were just “tight” – they were greedy and self-centered. Quite often, the opposite is true: frugality usually goes hand in hand with a desire for freedom and independence from the rat race, which can eliminate a lot of stress from people’s lives and usually make them much more pleasant to be around. Given a choice and knowing little else about them, I’d now rather spend an afternoon with a frugal person than a person in a lot of debt – I bet I’ll have more fun with the frugal person.
Many personal finance books repeat the same material – the ones with originality and the ones with a unique voice are the only ones that stand out. I’ve read a ton of personal finance books lately and the truth is that much of the material inside the covers is the same. The real key is finding books with a strong, unique perspective or books with a clear, direct voice. If it bores me, it’s almost assuredly going to bore most people.
Honesty is the best policy. If I don’t fully understand an issue, I used to just think I shouldn’t post about it at all. The fact is that all that does is make this blog boring. Now, I regularly post things where I know only part of the picture and my readers jump in and fill in gaps. This was especially true yesterday when I simply compared two of our many home mortgage options and before I could blink the post had twenty six comments with people contributing all sorts of ideas. My post was still as informative as ever (I showed how to break down such a financial comparison, step by step), but my readers had more than enough room to polish things up.
The simpler stuff is often the best stuff. I often post on complex issues, but I quite often find that if I focus on simpler topics, even things that seem like common sense to me, I almost always help someone out, and that’s why I write this blog. Even readers who clearly fully understand what I’m posting about already sometimes get something useful out of it, and if not, they’re quite often there to contribute some additional thoughts.