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Our Financial Reality and the Value of Financial Principles
Over the last few months, I’ve seen a great deal of criticism of various financial and frugal bloggers who have achieved financial independence of some kind, arguing that their stories of being frugal and careful with their money and the strategies they share are somehow tainted because they earned a high income. Today, I wanted to address those ideas.
For starters, if someone has a good frugal idea, I don’t care if their annual income is $10,000 a year or $1,000,000 a year. A good idea is a good idea and I’ll happily use it. If someone making $450,000 a year suggests that it’s a good idea to cut your spending a little by re-evaluating all of your monthly bills one by one and deciding if you really need this streaming service or that gym membership, the idea isn’t suddenly a bad one because the person with a high income is suggesting it. It is a good idea because it’s a good idea – it works.
That being said, it is true that someone in a very, very different financial situation than my own is probably less likely to suggest a financial strategy that makes sense for me. If someone is making 10% of what I do, their financial reality is probably substantially different than mine and the financial decisions and cuts they make are going to not be applicable to my life. The same is true, of someone making ten times what I do – cutting my monthly budget for artisanal cheese delivery is not going to be something that has any real use for me.
However, the core principle behind all of those strategies, whether the person is making 10% of our income or 10 times our income, is the same. It’s still all about figuring out which expenses really aren’t all that important to me and which expenses are important to me. It’s just the threshold of “important enough to spend money on” is going to be different for each of us.
That being said, I feel like – and have always felt like – Sarah and I are in the ballpark of the average American family. We earn a little bit more than the average American household income, but if either Sarah or I were out of work, our income would be below that average. We have three kids, which are an enormous drain on our financial resources in terms of extra food costs, health care costs, household costs, space costs, educational costs, and so on.
I’ve really only felt that Sarah and I have had an exceptional household income for a couple of years during our adult lives, and that’s when I was simultaneously working at a full-time job with travel requirements while also launching a small business on the side and maintaining another one. I was practically killing myself during that period of our life and I soon decided it wasn’t worth it, so we made some lifestyle changes that severely cut our income. Trust me, working 100 hours a week every week without any breaks for years burns you out in almost every way.
While we might be earning somewhat more than some readers of The Simple Dollar, it’s not orders of magnitude more. At the same time, I know we earn less than some readers of The Simple Dollar. I feel like our financial situation is at least comparable to the vast majority of Americans.
Here’s the thing, though: Regardless of what specific financial tips I’m sharing, I really want to expose the principle underneath, the one that’s applicable to as many people as possible. For example, I recently wrote an article about our experience cutting the cord and eliminating cable television. While I talked a lot about the specific things we did during this process, I was even more interested in the principles behind it: Why did we cut the cable? What was the general process like? What did we consider when choosing which entertainment services to retain?
The reason is that, as I noted above, everyone’s lives are different. There isn’t someone out there exactly like me, and there isn’t someone out there exactly like you. We’re all going to have different interests, different considerations, different income levels, and so on. My parents, for example, are in a different situation with a different income level and they came to a different conclusion about cutting out cable.
What matters most when we share ideas for a better life are the principles, the broader rules that can be used to guide us to the best decision given the specifics of our lives. The only reason I tell my own stories at all is to try to give an example of those principles at work in the life of someone who, though they’re not exactly like you, is hopefully at least somewhat relatable.
So, what’s the take-home message here?
My belief is that personal finance articles are most useful when you can pull principles out of them that you can use in your own life. You can combine an awful lot of specific tips down to a few guiding principles, and those principles line up with the specifics of your own life to guide you to good financial results. They may guide different people with different lives to different conclusions.
At the same time, showing those principles at work in someone’s real life, even if it’s not my own, can be really useful. So, for me, I want to be shown the generally applicable principle, and then show me how it applies in someone’s real life. Even if it’s not my own, the example makes it clearer and more relatable.
The more specific an article gets with tips, the fewer the number of people that will get value out of those tips. While I like big lists of tips, I find that I discard most of them because they’re just not applicable to my life. Even worse, a lot of them are very timely, which means that in a few years, that article won’t be valuable. That’s why I don’t write big lists of tips all that often, and when I do, I’m usually trying to point at some underlying principles along the way.
When you’re reading a personal finance article written by me or anyone, including myself, look for the principles you can use in your life. How can I make better financial decisions in my life? How does this particular tool help me, and if it doesn’t, can I safely ignore it? How is this person applying those principles in their life, and does that make sense, and does that relate to how I might apply them in my own life?
Don’t get hung up on whether the other person’s life story is substantially different than yours. Instead, look for those core principles; almost everyone out there applies many of the same principles in their lives. I use a lot of strategies and principles that would work just fine if I were earning $10K a year or if I were earning $500K a year.
Remember, not everything will apply to you and your life. When you don’t feel like it applies, step back and try to see the bigger picture. It might fit better than you think.
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