Updated on 09.19.14

Personal Finance Lessons That Changed the Game

Trent Hamm

daizyThe last two years have taught me many, many things about personal finances. Some of the lessons have been useful and others thought-provoking, but a few have really knocked my socks off and changed the way I view the world. Here are the five lessons I learned that really altered my perspectives.

5 Lessons that Rocked Me Like a Hurricane

1. Every time you buy anything, you sacrifice a bit of your dreams

I have an old college friend who constantly moans about how he hates his job and how he dreams of not having to work any more. Yet every single weekend, he spends about $100 on two new video games and about $60 on beer and pizza – he then spends the whole weekend “zoning out on reality” by playing games and watching football.

He constantly tells me how he should be making more money and how it’s difficult to save money, but it’s pretty easy to see that he’s spending away his future here. Every time he buys a video game or goes on a beer and pizza binge, every single time, he extends his attachment to the misery of his job. If he took that $160 a week and invested it, then spent his weekend free time looking for other avenues to raise money (like building a side business), he’d be moving directly towards the kind of freedom that he wants.

While his case is an extreme example, it’s true to a degree for all of us: every frivolous purchase is an active choice to postpone our dreams. Consider what your dreams are the next time you pull out the plastic – and ask yourself if this item you’re buying is worth giving up a piece of that dream.

2. There is no such thing as a free lunch

I used to often do things like sign up for in-store credit cards to get that “awesome” 10% discount. To me, it was like they were giving me money for free! I used to collect big time on the credit card offers on campus as well that offered “free” tee shirts just for getting a card.

Bad move. There is no such thing as a free lunch. If someone is giving you something for “free,” you will be giving them something in exchange. Often, it’s your time – other times, it’s personal information or access to you as a customer. Sometimes, it’s a freebie in exchange for signing up for something costly, as is the case with freecreditreport.com.

If someone offers you something for seemingly nothing, step back for a second and think about what they’re actually getting in return. Usually, it’s something more valuable than the freebie – your time, your information, or sometimes even your money.

3. My “income” wasn’t nearly as high as I believed it to be – and neither is anyone else’s

Want to see how much you really make? Take your salary, then subtract your annual income taxes from it. Then subtract all of the extra expenses you incur because of work – professional clothing, transportation to and from work, extra food, work-related social gatherings, travel. Then add up how many hours you actually contribute to your job in an average week – time at work, time transporting to work, time spent traveling, time spent doing other work-related tasks like buying work clothes and attending work-related social functions. Multiply that average week by 50 or so (assuming two weeks off a year), then divide your real income by your real working hours and find out what you actually bring home per hour.

Ouch. There’s no other word for how you feel when you see that number. Lots of people working at high paying jobs discover their hourly rate compares well with McDonald’s. So why not do other tasks that pay you more per hour than your real job? I know of at least one woman who switched to a lower paying job (on the surface) that actually allowed her to bring home more cash per hour of work than before.

Thinking about things in this fashion really changes your perspective about what’s really important in life.

4. Investing isn’t just for rich people – it’s for everyone

It wasn’t long ago that I had a perception that investing in the stock market and building a portfolio is something that rich people did, not people like me. In fact, I often used the fact that many investments return quite well as an excuse to believe that “the rich get richer and the poor get poorer.”

It’s not true. Anyone who is capable of spending less than they earn can invest and start collecting some great returns on the fruits of their labor. In fact, the internet era has made it easier than ever for people to invest – you can do everything from the convenience of your web browser. All you have to do is start spending less than you earn – that’s it.

5. Success is a choice

This one is going to get some people upset, I’m sure, but it’s true. If you want something to happen in your life, you have a choice to make: do you really want it to happen? Are you willing to wake up for three hours in the middle of the night most nights to get posts written for your blog, so that you can spend the daytime with your family? Are you willing to spend weeks in a row without any simple relaxing activity – no television, no entertainment, just the stuff you need to do to get the job done? Are you willing to forego spending unnecessary money, period?

Success at anything requires some level of sacrifice, and often the big successes require a lot of sacrifice and focus. If you want to turn your financial life around quickly, you’re going to have to make some very tough choices. If you want to start a successful business, you’re going to have to make some sacrifices.

I used to look at people who started their own successful businesses with jealousy, and I felt like people who had their finances in order were given access to some secret that I didn’t know. It’s not true – success at anything is a result of a lot of hard work. You lay the groundwork for good things to come to you, but it’s a challenge. Are you up to the task?

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  1. inabighole says:

    I’m of mixed feelings about this. Not in theory, but in my own observations about people. I’ve seen people who are solvent who are tightwads about some things, but spend money on things I wouldn’t dream of. You have to know the whole picture in these matters. I do believe in the theory that sometimes it’s just a matter of making something a habit, even things you wouldn’t dream of being able to make a habit. Like turning off the TV and Internet and spending the time doing something productive toward your goals.

    One of my luxuries was buying or subscribing to a daily large newspaper, whichever was cheaper (because of specials they would run). Cutting myself off completely & reading it only online has been very tough, but the habit has now taken hold, and even buying that paper only on Sundays is saving me something that ain’t chicken feed! (Note: In this instance, the Sunday coupons did not offse the price of the paper, because they were for things I wouldn’t buy in the first place; also, I go with generic brands.)

    I’m also trying to not eat as much, even though I try to always buy generic brands and don’t buy high-ticket items. This is tough because I’m in the habit of snacking while working long hours. The habit I’m not able to break is having low-cost sources of caffeine (generic tea and coffee) around at all times, as well as sugar-free gum. Will I ever get to the place where all I need for working long hours is tap water? That remains to be seen….

  2. Susy says:

    I completely agree!

    Income isn’t as high as we think: very true. My husband was a minister before, so he didn’t even make much, but the stress was a huge problem. You have to add in the “stress cost”, he was so stressed out all the time that he was starting to have health problems, not worth it for sure, no matter how much you make.

    Investing isn’t for rich people: I opened my first IRA in high school with my allowance money. I’m so glad I did that now! It started me down the right path early on!

    Success is a choice: so so true!
    We started our own business 5 years ago. Many people look at us and say, “Wow, you’re so lucky, it must be nice to be able to stay home all day at relax.” Yep we never do anything, we’re just “lucky”.

    We work long hours (10-12 most days) but since we actually enjoy our work, it doesn’t usually feel like “work”. We sacrificed financially during the first year eating a lot beans & living way below our means so we could invest most of our money in our business (no business loans for us!). We know it is crucial during these first years to work hard and do as much as we can to build up our reputation & our business.

    We have been rewarded for our hard work. We are now able to charge 2x as much for our product as we did 4 years ago, and we don’t have to spend any money advertising because we have built a good reputation in the area.

    Nothing in life is free or easy. But then don’t you appreciate & enjoy it more when you had to work and sacrifice for it!

  3. Daisy says:

    Your first comment about losing pieces of your dreams really hit me. I don’t spend that much in general, but thinking about that will make my spending even more responsible.

    And I totally agree success is a choice! My parents started a business more than 20 years ago, and worked 16 hours a day to get it running. We went without for quite a while, and I remember taking over some of the household duties so they could actually sleep. People sometimes say we’re lucky and occasionally get jealous, but they don’t see how much we put into it.

  4. David says:

    This article is brilliant, absolutely brilliant. I cannot tell you how many people tell me that they have no money, but have 3 cell phones, 3 automobiles, all the satellite TV channels you could ever want, live in a house that’s too big. then they have the audacity to tell me I’m lucky because I’m going to be able to retire and meet my savings and investment goals. Luck has nothing to do with it. I planned to be successful.

    Keep up the good work Trent!!!!

  5. Diane says:

    Trent this one belongs in “best of”.

  6. inabighole says:

    I’m actually an anomaly because I’ve worked long hours forever, while for other companies in industries that don’t pay overtime, and while working for myself, and yet I am really not financially successful at all. Some people like my work and others do not — it depends on what the client or customer is looking for, and in a service industry, it is sometimes hard to gauge what they are wanting. Sometimes it is not a magic formula of working hard equals success. There are other factors; Maybe the person is like me, and not someone who works all that smart, or who perhaps is doing what he or she is best at, or maybe he or she has “problems” with stress, or emotional issues, or family problems, or something that cuts into 100% productivity. We are not machines or robots. I don’t think of this so much as an excuse and I certainly do not “blame others” but I just think it is not always the case of “anyone can do it.” I’ve seen examples in my life of hard-working, diligent people who still work kind of slowly and don’t get the most bang for their buck. Having said all of this, I hated it a lot when people would tell me how lucky I was to work for myself, and would act resentful. I worked many long years before going into business for myself, and the main reason I did so was so I could at least charge for every hour I worked (something I could not do when I worked long overtime hours without extra money). I’ve always believed in the notion that everything is a trade-off. Just my opinion.

  7. Kim says:

    Outstanding article, Trent!


  8. Wow! Very inspiring and informative post. The point about choice and sacrifice for success is really great. I think that is something I have come to learn lately, though I have not yet fully embraced it. I guess that’s the trick. You have to fully buy into it and ‘go all the way’ in a sense.

  9. Mansi says:

    I agree, one of your best articles.

  10. Avlor says:

    SO TRUE! The first point has been a soap box for me. We have too many people insisting on “victim-hood” when they could do something to better themselves or their situations instead. Dreams are so easily given up for what doesn’t make one happy in the long run.

  11. Sam says:

    “Every frivolous purchase is an active choice to postpone our dreams.”

    This quote will forever be affixed to my monitor to serve as a simple reminder.

    Great post!


  12. Banban says:

    Excellent post!

    Besides the myth that investing is for rich people, many also equate investing with gambling. So instead of socking their money in a mutual fund, they’d rather keep it in a “safe” savings account.

    And I totally agree that success is a choice. Too many people think that they are poor because they have been unlucky in life. But if you add up all the choices they’ve made in their whole lives (education, risks, relationships, spending, etc.) you will see what lead them to whatever state they are in.

  13. plonkee says:

    Success is a choice is true if you have defined a reasonable level of success to aim at.

    I think 1 and 5 follow on from ‘your priorities are not what you say they are, but what you actually do’.

    Defining your dreams well is a big issue with carrying some of these out.

  14. louiuse says:

    I do some consulting work and the hourly rate is what most people earn in a day, so it sounds as if I can earn a lot. What most people don’t realise is that that (hourly) rate amy involve 2-3 hours of additional work, phone calls, and heaps of stress. Once I take out tax, super and my overheads it’s not that much more than a wage and a lot more stress!

    I also find it sad that so many people hate their work. If you can keep learning and training in things that interest you then you end up being paid for doing what you love. It’s sad to think of having to get up and hate work everyday.

  15. Sabrina's Money Matters says:

    Great Post, I’m glad you mentioned FreeCreditReport.com as well, I wrote about them and several like it-exposing them for what they are…nothing free about it.

  16. Jack says:

    Excellent article! and very true.
    I have to read the first point, again and again, and quit smoking, such a waste of money…

  17. Aaron Stroud says:

    Great post Trent. Understanding and embracing your last point is essential for success.

    I’d like to hear more about waking “up for three hours in the middle of the night most nights to get posts written for your blog, so that you can spend the daytime with your family?”

    Is that really how to *make time* to write?

  18. Andy says:

    I agree with some other posters, this definitely is one of your best posts. Thanks and keep up the good work.

  19. John says:

    Investing is the hardest one to learn. Requires a lot of discipline and patients. But if you can invest properly the sky is the limit. For anyone, and I mean anyone.

  20. Imelda says:

    A second vote for this going in the “best of” column. You probably have more specific requirements than a couple of people saying an article was really good…but this was really good.

  21. Dean says:

    Two week off per year? Is vacation time that bad in the U.S? The very worst holiday time I hear of here (UK) is probably about three weeks, most people getting about 4-5 plus “bank holidays”.

  22. Ro says:

    Great post and I also think it belongs in the “best of” hall of Trent fame!!! I’m going to print the firt one up and tape it to my wallet!!

  23. I agree! I believe anyone is capable of achieving their dreams. Dreams require ambition, sacrifice, time, and patience. The sense of accomplishment is well worth the effort!

  24. !wanda says:

    @Dean: Yes.

  25. Kim says:

    Wow. The first one is what got me. “Every time you buy anything, you sacrifice a bit of your dreams.” It’s something I’ve been internalizing for a while now, but you put a name to it and that certainly makes it more real. Thank you!

  26. Mariette says:

    Great post Trent! That first one sure was a mirror (well not quite pizza and beer but my own version of that,) all of these points are important for us to bear in mind.

    w/r/t Success is a Choice, I know that too often in the past I would expect opportunities to come to me and would be frustrated if I had to work too hard at it – but that’s what you have to do. It also makes you appreciate the success all the more when it does come – reminds you to be grateful for what you have earned.

  27. Minimum Wage says:

    Every time you eat something, you sacrifice a bit of your dreams.

  28. Tyler Corlen says:

    you are dead on on this one! If I even spend a dollar than I shouldn’t have (like paying too much for a soda at the turn when I’ve finished 9-holes), I think to myself “man.. that could have been a $1 that I sent to the mortgage or something”!

  29. chipping away at it says:

    Overall, great post. Re: figuring your “real” salary, I’m puzzled how I would calculate in the health insurance, free fitness center and tuition benefits from working at a college. . . I’m not paid well, but I keep insisting I’m here to put my kids through college.

  30. ooh-la-la says:

    Wants are quick to masquerade as necessities. One thing I’ve found that helps track income and expenses is to have a financial outline on a spreadsheet, monthly sorted by categories (like your “debt snowball”.) Go back over your statements and receipts for the past year and you’ll receive something akin to a small epiphany when you sort it all out. Pare debt, reduce or eliminate non-essentials, contribute to a 401k only to the extent of your employer’s match, use that remainder to max out your contribution to a Roth IRA. Diversify your investments internationally (15-35% of your total investment portfolio) and hold a small amount of physical precious metals (2-5% of your total) because the dollar is halfway to being toast http://stockcharts.com/h-sc/ui?s=$USD&p=D&yr=3&mn=0&dy=0&id=p86644027932

  31. Maggie says:

    Fabulous article with some amazing points, particularly #1 and #5. Working in the video game development industry, I know far too many people like your friend in #1, but it’s hard to get single males under the age of 30 to really focus on their retirement savings!

  32. Debbie M says:

    I like this, especially “Every frivolous purchase is an active choice to postpone our dreams.” Very well said.

    And Dean, yes, plenty of people in the US get two weeks of vacation, or even one, though this tends to increase as you stay on with a company. Uh, which we usually don’t.

    One of my personal finance lessons that rocked my world was that my house does not have to be a museum of everything cool that I see.

    And the first financial lesson I learned is that I don’t have to spend money just because I have it if I don’t see anything I want. a) No one will take it away or b) even if they do (which they did), that still doesn’t matter if I didn’t see anything I wanted.

    Another great financial lesson I first started learning when I got out of high school is that I should ask for things that I want, just in case it’s possible. I normally tend to assume the worst–my parents can’t afford anything at all (it turns out they could have afforded one of those $1 bouncy balls!), the price shown is the only price offered, etc. I don’t like bothering people or being difficult, so I still have a ways to go on this one!

    I am one of those people who makes way more than it looks like I do:
    1) Income taxes – I’m only in the 15% bracket; I don’t lose all that much.
    2) Extra expenses from work – virtually none. My clothes cost the same as what I would by if I didn’t work (because I get them at thrift stores). I bring my own lunch or eat out cheaply, just like I would do at home. I ride the bus for free. Any other travel is reimbursed. I don’t need to pay for day care. And I don’t pay for lawn service or maid service or anything like that to help me deal with my stress, etc. because I don’t have much job stress.
    3) Since I take a bus to work, I get lots of fun reading done on the bus. I also get some free exercise walking to and from the bus. I sometimes even get paid to exercise by having to walk across campus to meetings. I have more of an on-call type of job so I’m not necessarily working the whole 40 hours, and I almost never work more than 40 hours. I now get lots of vacation time plus sick leave and holidays.
    4) My company contributes to my retirement pension, and because it’s a pension, I get much more money per month than I would investing my own money because they can go on the assumption that I will live an average life expectancy, but I have to assume that I will live a very long time (just in case I do). This one item basically doubles my pay–I would have to earn that much more to be able to rely on pulling that much out each year. They also pay for my medical insurance and get me good rates on other insurances. I also get out of some taxes because I can contribute to a Roth IRA, a 403b, and a medical flexible spending plan. I also get longevity pay of $20 for every two years. Also I get free use of a huge library and I get all the latest news on interesting campus happenings.

    It would not be easy for me to make this much money per hour at a new job or working for myself even though officially I still only make barely what a first-year teacher does in my area.

  33. Trent, this post is excellent and I agree with the commentors above that it should go into the “Best of TSD”

    The “no such thing as a free lunch” should be reiterated and reinforced at every chance: The “freebie” is ALWAYS less in value than what the company is getting in return. Otherwise they wouldn’t do it!

  34. Bill says:

    Small house = low expenses for the biggest purchase you’ll ever make

    If 1950s and 1960s parents raised their 4 kids in a 3/2 ranch house totalling 1050 sq. ft., you can too.

  35. marcy says:

    very informative! i will always think about what i’m spending my money on from now on. that mocha or latte could be going into a savings account or mutual fund instead of being frittered away for a temporary fix. thank you for reminding me of the choices i have to make each day.

  36. icup says:

    doesn’t the McDonald guy have to subtract all that stuff from his wage too though? So if you take out all that stuff and find out you are “really” making $5 an hour, doesn’t he do the same thing and find out he’s “really” making 35 cents an hour?

    Also, @Dean, I don’t know where these guys work, but I get 2 days a month vacation, 1 day sick, and all bank holidays off and about a week off for xmas. All told, it works out to about 6 weeks off per year.

  37. RDH says:

    In the case of credit reports, sometimes there really IS a free lunch. http://www.annualcreditreport.com is a website operated by the FTC to provide you with your mandated once a year free credit report from each of the major credit reporting agencies. You do have to skip a couple of attempts by the CRAs to sell you your credit score etc, but its a great way to keep an eye on your credit.

  38. Laura says:

    The only thing McDonalds employees have on the rest of us is that their work clothes are provided down to their shoes. So they would at least make more than .35 an hour. Plus at some locations they are allowed to eat free. Just an FYI.

  39. D says:

    If “success is a choice”, then the opposite must also be true. Failure is a choice. So no need to have any compassion for others who are not as well-off as yourself, since they chose to be. Even if they’re elderly, sick or disabled, because anybody can succeed no matter what odds – if they CHOOSE to! Never mind if the playing field is grossly tilted to favor the already wealthy; poor people are poor because they are not worthy of being rich.

    I wonder if there isn’t a way to financial independence that doesn’t involve being a smug, condescending jerk. If you ever find one, let us know.

  40. Stephen says:

    Great advice–I’m incorporating this into my personal finance lessons for my 12th grade economics students. Thanks!

  41. David says:

    I need to agree with #39, success isn’t always a choice. While part of success is being ready to take advantage of the chances you’re presented with, not everyone will have access to these same chances.

    From reading “Outliers” by Malcolm Gladwell, I agree with him that a lot of success comes by virtue of being in the right place at the right time in ways that aren’t really within your control.

    I have been lucky to succeed in life – graduated law school, good job with the federal government. A lot of this was due to my work and effort, but not all of it. I grew up in a very wealthy suburb with parents who made a lot of sacrifices so I could go to one of the best public schools. If my parents had chosen not to stretch to buy a house in this district, I’m not sure where I would have turned out.

    At this point in my life, I feel like I’ve hit a double (many other goals I’d like to accomplish), but I was really born on first base.

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