Over the years, I’ve tried many, many different approaches to my own finances. I’ve read countless books, done countless calculations, and tried countless frugal tactics.
Again and again, I’ve found myself coming back to a set of core ideas that always work for me. Some of them are pretty commonplace, like spending less than you earn, but others?
Some of them are a bit unusual.
Today, I thought I’d share eight of the more unusual ideas I’ve discovered during my experiments with personal finance over the past decade or so. These are ideas that have really hit home for me. They make finances make sense to me as part of my life. I’m sharing them because they might make sense to you, too.
I want to stress before we dig in that these aren’t hard and fast financial rules. Each one of them is more than enough to start a great discussion about money and the role it has in our lives. If these ideas spur you to have those discussions, then it’s a great thing. It means you’re thinking about your financial situation in a deep way, even if you don’t come to the same conclusion that I did.
As my mentor always told me, you’ll never learn more than you do when you work through an idea you initially disagree with just to see how it works.
Let’s jump right in.
Idea One: Money and Time Are One and the Same
Over and over again, we sacrifice time to earn money. That’s what we do when we work – we’re swapping our time and energy for a paycheck. We do it when we build our professional skills – we’re swapping time for a bigger paycheck in the future.
Over and over again, we also sacrifice money to earn time. We pay a lot of money for health care. We pay a lot of money for things that will extend our life, from vitamin supplements to exercise equipment. We buy tons and tons of convenience items, like microwaveable foods.
In life, we can constantly choose to spend money to gain a little more time, and we can choose to spend our time to gain a little more money. In fact, they move back and forth so easily that I’ve more or less come to think of those things as being essentially equivalent, like different kinds of money.
In fact, different forms of money – like the dollar and the euro – are a great comparison for how I see money and time. Just as there’s an exchange rate for foreign currency – you might get $1.20 for each euro, for example – there’s also an exchange rate for time and money.
A person’s true hourly wage is, in effect, that person’s exchange rate between time and money. It’s an amount that they’ve demonstrated over and over again that they’ll accept for exchanging their time for money.
Since I essentially view time and money as an equivalent resource, I often use that hourly wage “exchange rate” as a tool for looking at various expenses in my life in terms of both time and money.
For example, I’ve learned that I save about $16 per hour of effort making my own powdered homemade laundry soap. Since it’s something I can do while watching a television show or something, it’s worth it. If I only made $1 per hour making homemade laundry soap, I wouldn’t bother.
Another example: there’s a kid on our block that will mow our yard for $10. Our yard takes about 40 minutes to mow, so I’m essentially paying $10 for 40 minutes of free time. Sometimes, that’s worth it; at other times, it isn’t.
Idea Two: Maximizing Monthly Cash Flow Is the Best Short- to Medium-Term Financial Goal
For me, the fundamental rule of personal finance is to “spend less than you earn.” If you do that consistently, over and over again, you’ll always succeed financially.
Cash flow is something of a related concept. In personal finance terms, it essentially refers to how much money you have left over at the end of the month after you pay your bills. During a month, you have a certain amount of income and a certain amount of bills, and your cash flow is the amount left over.
I find that maximizing cash flow is the best short-term personal finance goal for almost everyone. The wider the gap between your income and your required bills each month, the better off you’re going to be and the more life options that you have.
How do you do this? You pay off debts. You don’t acquire new debts. You work to reduce your normal monthly bills by doing things like improving your home’s energy efficiency and shopping around for things like insurance and cell phones. You work hard and get promotions at work. You start a side business.
Why do this? There are two big reasons.
First, the bigger the gap between your income and your required bills, the more you can save for the future each month. It becomes easier to save for things like your next car payment, your home down payment, retirement, your child’s college education, and so on. Those things can seem really difficult if your bills are eating up most of your income, but it becomes a lot easier when there’s a big gap between bills and income.
Second, the smaller your required bills, the easier it is to survive things like job losses and to switch careers. I call this the “golden handcuffs” phenomenon. When people have a high-paying job, they often buy into the idea that they can “afford” a big house and a nice car and they buy them on a loan, which gives them big fat mortgage payments and car payments. This makes it very hard to choose to switch careers, and it makes the prospect of a job loss incredibly scary.
My advice to anyone who is trying to build a flexible financial future for themselves is to maximize their cash flow – the difference between their income and their required spending.
Idea Three: Start at the Ultra-Low End When Buying Most Things
Whenever I need to buy something, one of the first places that I stop is at the secondhand stores in my area. I do it for almost everything, including clothing, small household items, and so on.
I do a lot of my grocery shopping at the discount grocer (usually Fareway or Aldi) because they offer the best prices on the items I actually need on my grocery list.
I buy generics for most of my household supplies as I’ve never found any reason to switch to buying the name brands.
Why is this unusual? Most people don’t start on the ultra-low end when buying things. They buy name brands by default. They skip the secondhand store and head to whatever their preferred store is.
Why? The prevailing idea, I suppose, is that they’ll only find junk there, so it’s not worth their time.
My argument against that is that it only takes a purchase or two at a huge discount in order to make the effort in shopping at the very low end worthwhile. If I go to a secondhand store with 10 things on my list and end up buying only one of them, but I save $20 over the department store on that purchase, it was well worth it.
But who has time for this? That’s kind of the point of figuring out my true hourly wage. I know exactly how much an hour of my time is worth in most situations (around $15 in post-tax money, usually) and I usually blow that out of the water with the savings by starting on the low end.
The exception to starting at the ultra-low end is when you’re replacing an item that you’ve actually worn out through use and you have very clear ideas on what you want for a replacement. I’ve tried the ultra-low end and actually found it wanting, not just thought that I wouldn’t like it.
That’s why I no longer buy generic garbage bags and now usually buy Glad ForceFlex garbage bags – I had several generics tear out on me and decided to try other brands until I found one where tearing was extremely rare.
Even then, you’re still well rewarded for taking your time to shop carefully for things, since there are huge differences in price on almost the exact same thing.
Idea Four: Your Friends Have an Enormous Influence Over Your Personal Finances, So Choose Them Wisely
In 2003 and 2004, I had a circle of friends that spent a lot of money on a lot of unnecessary things. They bought gadgets. They bought expensive meals. They bought nice clothes. They had nice cars. They went golfing a lot. Money flowed like water with that group.
Because that was my primary social group, it was incredibly easy to get drawn into excessive spending. I bought gadgets. I bought expensive meals. I bought nice clothes. I bought a car. I went golfing. Money flowed like water.
Conversations often revolved around bragging about how someone “dominated” at work by giving a “killer” presentation or about how someone else had failed at work. People not in the group were actively talked about and derided. Most other conversations revolved around material goods, with a few sidebars into pop culture and sports.
When I became a parent, my social circle began to change. Sarah and I started hanging out more with people in our community, often other people with kids. We got involved more in community groups. Our social circle changed radically.
Along with that change came a change in our spending. We no longer had to buy expensive meals to maintain a social connection. There was no need to own impressive gadgets to impress our friends. None of those things were necessary as a “price of admission” to my social circle.
Most of our friends today actively prefer things like potluck dinners. We have semi-regular board game nights, too. When we do go out, we usually mutually choose things like an inexpensive ethnic restaurant.
We have conversations about ways to spend less money. We also have conversations about how to manage our time better and how to do better in our careers. We talk openly about politics and philosophy and try really hard to have different viewpoints. We occasionally talk about pop culture and almost never talk about material goods.
In other words, the activities and conversations we have with our friends often reflect the state of our lives as a whole. It happened then. It’s happening now.
This leads me to a realization: if I ever started feeling unhappy about the direction of our lives and I saw those directions reflected in our interactions with friends and they were ever openly opposed to personal changes, I would work very hard to establish new social relationships and start growing them.
My friends and how I interact with them are a reflection of my life, and vice versa. If I’m not happy with what I see in either place, then it’s time to make some social changes.
Idea Five: Having Life Goals Beyond Finances Make Financial Responsibility Far Easier
I spend a lot of time – at least an hour a week – reflecting on my personal goals in life. What do I want to achieve next week? In the next three months? In the next year?
Those thoughts provide something of a guidance for me in almost every sphere of my life – personal, parental, marital, spiritual, professional, mental, physical, and so on. I constantly have a sense of where I want to go and how I want to improve myself in each sphere of my life.
These things give me a focus. They’re a constant reminder of what I want to improve on and how I want to improve.
Here’s the neat thing: Thinking about these things, and trying to make them happen in my life virtually every day, makes it easier to be responsible in all areas of my life.
Why? These things are teaching me self-discipline. With every goal that I focus on and every one that I achieve, my self-discipline gets a little stronger.
Self-discipline rides underneath virtually every goal we have and every way we try to improve ourselves. Self-discipline makes it easier to eat healthier. It makes it easier to save money. It makes it easier to exercise. It makes it easier to make money.
How do you build self-discipline? Choose goals that require you to not follow the path of least resistance in your life, then achieve those goals. Nothing more. Nothing less.
Idea Six: Teaching Your Child Life Skills and Independence Is Your Most Valuable Role as a Parent
Your job as a parent isn’t to be your child’s best friend. They need a leader and a teacher. They have plenty of pals at school.
Your job as a parent isn’t to helicopter your kids and make sure that they don’t fail at anything. Little failures teach your children a lot.
Your job as a parent isn’t to pay for your child’s college education. If you can, that’s great, but you need to make sure your future is well taken care of first.
Your job as a parent is to give your kids the life skills they’ll need to survive and thrive on their own. Period.
That means allowing them free time to learn how to structure their own time. That means allowing them some independence so that they know how to use it. That means allowing them to fail sometimes so that they know how to pick themselves up and try again. That means allowing them to face the consequences of mistakes – real consequences.
That means catching them when they take easy paths and making sure they take better paths. That means encouraging their work ethic, not telling them that they’re smart.
If you don’t do this correctly, your child will continue to rely on you fully until well into their adult years – and very possibly for the rest of your life. I have witnessed that very thing many times in my own life and it is the last thing I want for myself or for my children. Not doing so will cost me dearly for the rest of my life and leave them unready to face the world after I die.
Idea Seven: Financial Advisors Tell You Nothing You Can’t Learn Fairly Quickly Yourself
Every single time I have met with a financial advisor, they have either offered me information that I could have easily figured out on my own or they have tried to sell me on a financial product I don’t need. Period.
It didn’t take me long to learn that most of what they will tell me about normal situations in my life – buying an ordinary life insurance policy or investing a little money for the future – isn’t anything that I haven’t already learned from reading a few books and websites.
Sure, there are rare cases where a financial advisor might help. If you have a really weird tax situation or you’re trying to make sure you don’t mess up an inheritance, an advisor can help you.
But for most things, like buying a term life insurance policy or saving money for the future, you can easily figure out how to do it on your own. You don’t have to pay someone to do it for you.
So, don’t. Read a book. Read a bunch of websites. Learn how to do things like select an insurance policy or invest a little money on your own. Do your own taxes (most tax software packages are cheaper than paying someone to do it). You can easily do all of this yourself and in less time than it’d take to meet with an advisor anyway.
Where should you start? The Bogleheads’ Guide to Investing is a great book.
Idea Eight: Regret Is a Real Cost When You Spend Money Foolishly
It is often tempting to be impulsive with your spending. It certainly is tempting for me on a very regular basis. When I was younger, I used to give into that temptation quite a lot. It caused me a lot of financial pain, too.
What I learned over time is that whenever I spent money foolishly, I almost always forgot the “good” thing I spent it on within a few days. I’d go to some random movie, spend $10 on a ticket, spend $10 on snacks, watch the movie, and then barely remember the movie a few days later. I’d buy three books at the bookstore, stick them on my bookshelf, and barely remember them in a week. I’d go out to eat and really enjoy the meal, but I could barely recall it two weeks later (if at all).
What I did regret was the bill that would come in. It would fill me up with regret. I’d go through the listing and look at each item on that bill. Half of them I wouldn’t even remember spending. Even some of the ones that I did remember seemed really silly in hindsight.
One of the best financial lessons I ever learned is that you end up forgetting a lot of your non-essential purchases, but that regret stays with you.
I’ve eaten out so many times and eaten so many forgettable meals. I’ve bought so many books that I basically don’t remember. I’ve spent countless dollars buying beverages at convenience stores and I scarcely remember any of it.
But what I do remember is this: I used to visit a convenience store every night when we lived at my old apartment. I spent probably $5 per visit on stuff I’ve completely forgotten. That’s $150 per month – gone – for nothing memorable. I regret that.
I remember many, many nights going to movies and spending $20 a pop. If I went to two a month, that’s $480 a year – gone – for nothing memorable. I’ll say that maybe two movies a year were memorable, so that still leaves $440 a year that’s simply gone. I regret that.
When I spend money on something that really doesn’t matter, I don’t remember it in a few days or a few weeks. But I eventually see that bank statement or that credit card bill and I find out that I’m paying for it again in the form of regret.
Knowing that regret – and knowing that it has a real cost on my psyche – has done more than anything else to convince me to stop buying silly unnecessary things. It has convinced me to stop wasting so much money.
Spontaneity is still awesome, but it’s even better when you save it for something that matters. That way, it isn’t trailed with regret when you’ve forgotten the spontaneous thing in the first place.
These ideas aren’t generally things you’ll see bandied about in personal finance books. Yeah, you’ll see some of them sometimes, here or there, but they’re not consistent parts of the standard personal finance message.
For me, these ideas are guiding lights. They help me understand what I’m doing with my money and where my finances and life are headed. I hope they’ll help you out a little bit, too.