Eventually, all good things must come to an end.
Today will be the final episode of our Q&A series. I hope you’ve enjoyed the content and format. Also, just because the mini-series is closing out, it doesn’t mean you can’t continue to reach out with questions – we are here to help, and we enjoy hearing from our readers.
The funny thing about personal finance questions is that the answer is often the same, “It depends.” This is a good reminder that advice and financial solutions should be customized to the investor and that often, there isn’t a “right” answer but an answer that is right for you.
As the author of this commentary, my goal is simple – I want to teach you how to think; I want to help you build a framework for addressing financial questions. The questions may be different, but often, the principles and truths you lean on are few and have broad application.
With that said, let’s close out our series on Answering Your Questions…
What books would you recommend to someone starting off their investing/planning journey?
This question is a difficult one for me because no single book comes to mind.
Early on in my journey, I read books like The Richest Man in Babylon and Rich Dad, Poor Dad. Later, I enjoyed a few by John Bogle, like The Little Book of Common Sense Investing and Enough. I skimmed books like I Will Teach You to be Rich and The Millionaire Next Door. Over the last few years, I have enjoyed The Psychology of Money and Same as Ever by Morgan Housel. Although I wouldn’t recommend it to everyone, I did glean some nuggets of wisdom from Die with Zero.
Yet, I don’t think any of these books get to the heart of the question. Most people asking me this question are looking for a short and simple playbook for where new investors should start to build their plan and their wealth. I believe that these books gave me a wide array of perspectives and taught me the language of finance (which is important), but these books didn’t unveil the type of blueprint that most are seeking.
It’s important to remember that the “Finance” section at the bookstore will have everything from Accounting for Dummies to Learn How to Day Trade to Corporate Financial Analysis. I am sure these are not the types of content you are looking to gift to your niece or nephew, which is why filtering by finance genre is helpful. Personally, I enjoy the Behavioral Finance genre as I think most financial ruin has been caused by bad decision making and bad financial behavior that could’ve been avoided.
A few years back, David Bahnsen published a free course on economics. What does a busy man with limited free time do in his free time? Create a free course on economics for you and me, of course. I know it is in David’s heart to create a similar endeavor on the financial planning front, and when this comes to fruition this will be my recommendation over the current literature available out there.
What would be the most important single piece of financial advice you would give a young person?
The first Thoughts On Money I ever wrote was on the subject of budgeting. I explained that I thought budgeting wasn’t the best approach, and I encouraged my readers to shift their focus to awareness. I advocated that being aware of what you spend each and every month is more powerful than adopting a budgeting system that you can’t stick with. The reality is that most people will spend a lot more time creating a budget than actually following it.
So, what’s the answer? It’s a low bar yet still challenging – track your finances each month (categorize, if you’d like) and be able to know exactly what you spend each month. This sounds simple, yet most people couldn’t tell you with a high level of accuracy what they spent last year or even last month.
You might be wondering why I think this is so important and why this would be my single piece of advice to investors, both young and old. It’s simple: so much of your financial plan will be determined by your spending, and in order to do worthwhile planning, you need to be able to forecast spending, which means that accuracy here is key. Imagine a drunken sea captain who falls asleep at the helm, and he nudges the wheel ever so slightly off course. When he is awakened from his drunken slumber, the ship will be nowhere near its destination, as a small error projected over a long time creates a big problem. Inaccurate expense figures in a financial plan work the same way.
The other key attribute around awareness is that it does change behavior. Going red in a budget category is often just frustrating and deflating, but when you allow yourself some “category freedom” and just focus on awareness of your total spending, you will change the way you operate. This same truth would apply if you had to write down the calories you were taking prior to sitting down for a meal or a snack. Awareness would drive you to second guess that third chocolate chip cookie – the “cost” would simply outweigh the enjoyment. Ignorance isn’t bliss.
So, my single most important piece of advice for you is to know what you spend every month.
What budgeting tool would you recommend?
Based on my previous answer, I will rephrase this question as, “What tool would you recommend for tracking spending?” 😊
I think it is important to keep things simple. Simple is sustainable, and consistency drives longevity. So, I use an Excel add-in that allows my bank account and credit card transactions to feed directly into an Excel sheet. I used Excel quite often for school, and I use it regularly at work, so I am comfortable with spreadsheets. I prefer this aesthetically compared to some of the free applications that are littered with advertisements. All I have to do is click a drop-down to categorize each line item, and then I get a clean report of my monthly spending.
Full transparency: even with how simple and low maintenance this is, I still have trouble keeping up sometimes. Why? Because life is hectic, that’s just the reality for most of us. Also, no one is going to hold you accountable for not keeping up on this awareness homework. For me, I believe the benefits here are real and I feel a conviction around the importance of staying caught up. I also know that good habits are hard to get to stick, so I just try my hardest to get back on that horse when I fall behind.
If you want more information on the specific tool/product that I use, feel free to reach out.
This is the End.
Well, this closes out our mini-series, which I have greatly enjoyed doing.
Thank you for joining us and providing the inspiration for our content. As mentioned, please continue to send over questions, as we are happy to be a resource to you.
For now, I will bid you adieu, but I will be back with more of my Thoughts On Money next week…
