IDEA: Start a personal finance blog. Two Cents? Articles focused on practical stuff, positive, straightforward, earnest. Personal finance is easy to understand but hard to actually do. A friendly voice – do people need a “money friend”?
I’m not sure exactly what day The Simple Dollar was “born,” but I can say this: Ten years ago today, I wrote an entry in my personal journal describing the basic idea of launching a personal finance blog which I tentatively called “Two Cents.” I quietly debuted the whole thing within the next few weeks, playing around with some ideas on Blogspot, and then eventually launching The Simple Dollar as a public website at thesimpledollar.com near the end of October of that year.
Ten years. It feels like forever since I wrote down those words.
Back then, I was truly in the “honeymoon phase” of my financial turnaround. While I had discovered a lot of very strong ideas about personal finance, ones that were enough to help me dig through the financial mess that I was in, I hadn’t really put them in the broader context of my life yet. In many ways, I was like a lumberjack with a dull axe – I could certainly chop down the trees, but I wasn’t going to be doing it all that effectively. My passion for changing my life and for discovering new techniques and trying them was my biggest driving force.
Since then, I’ve been through a ton of financial, personal, and professional ups and downs. I switched careers. My oldest child went through infancy, toddlerhood, and early childhood and is now on the very cusp of becoming a teenager, and we followed that first child with two more. We moved from a tiny apartment into a larger home. We paid off all of our debts, including our mortgage. Friendships grew, others faded away. I watched family members that I loved very much pass away, while others were born and still others grew into adulthood. I dealt with a pretty severe illness of my own, to boot.
Along the way, I’ve learned some valuable principles about money and its role in my overall life that now guide me in every waking moment. Today, I want to share these principles with you. While some of these principles might not seem directly connected to personal finance at first, the connection becomes clear when you look deeper.
Principle #1: Personal finance is deeply connected to all aspects of modern life, so don’t isolate it.
It is often tempting to think of personal finance as something distinct from the rest of your life. Paying bills, saving for retirement, buying groceries, paying bills, plotting out what to do with the rest of your checking account balance, navigating online banking, paying bills – all of those activities are things that can feel inherently different and somehow cut off from the rest of the things we do and feel in our everyday lives. “Money tasks” are those drudgery-filled things we have to do in order to keep living our “life,” but it feels like they’re not connected at all.
The truth of the matter is that they’re deeply connected. Virtually every decision we make in life has an implication in terms of using our money or our time (and time is money, considering you constantly trade money for time by buying convenient things and time for money at work). Even something as simple as choosing to veg out in front of the TV in the evening is a choice about time use – you could have done something more productive but less enjoyable.
Money is nothing more than a means of exchange between all of the things we care about in our lives. Thus, money runs through every aspect of our life.
So, to me, smart personal finance begins with figuring out what you truly care about most in the world over the long haul. For some, it might be a stream of momentary pleasures. For others, it might be building a great life down the line. It’s an intensely personal question: What really matters to you more than anything else? Your time, your energy, and your money should be devoted to those things, because those things are what will bring you lasting joy in life.
For me, it’s about being a good parent and a good husband now and then having a ton of life freedom to share with my wife in 10 to 20 years when our children are independent. Along the way, I want to enjoy intellectually fulfilling hobbies (reading complex books, writing, learning new things, playing complex games). That’s it. To me, that is the definition of a good, joyful life.
My money and my time and my energy are devoted toward building and preserving that life. Yes, that might mean that things aren’t as fun today as they might otherwise be – after all, I’m not spending money or time on immediately fun things when I otherwise could be if I wasn’t focused on those goals – but it does mean that I get to lead a deeply fulfilling life today and I’m building an incredible life for tomorrow.
Personal finance is a thread that runs through all of it. It’s the means of exchange of time and energy and pretty much any material item or activity you can imagine. Every dollar has the potential to improve some dimension of your life – the real decision is what dimensions matter the most to you.
Principle #2: Spend less than you earn, always.
Successful personal finance runs through every single decision you make, but it’s the total of those decisions over a period of time that really helps to determine the path ahead for you.
As Charles Dickens puts it in his amazing novel David Copperfield:
“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
If you spend more than you earn, you’re going to end up in a miserable situation eventually where your destiny is largely controlled by all of the people you owe money to. If you merely spend every dime that you earn – living purely paycheck to paycheck – you’re riding a fine line that can be tipped into misery by even the smallest unexpected event.
The only way to keep that miserable future at bay – the one where your decisions are controlled by the people you owe money to – is to spend less than you earn, consistently. You should strive to do it every year, every month, and every pay period, but it becomes even more crucial the longer the period (meaning you might occasionally need to spend more than you earn over a pay period, but spending more over a year is a recipe for disaster).
But what if you don’t have enough money to cover all of your wants and needs while still spending less than you earn? If that’s your situation, then you need to either find ways to cut back on your spending or else you need to earn more money.
I view those two branches as being equally vital to personal finance: cutting spending and earning more money. Both of them allow you to increase the size of the gap between your spending and your earnings, and the bigger the gap between the two, the faster you’ll achieve all of your big goals and dreams in life.
Personal finance goals, by their very nature, should be oriented toward at least one of those things. Your goals might center around finding ways to cut your spending – those are typically short term goals – or increase your income – those are typically long term goals.
In the end, it’s all about that one key principle: Spend less than you earn, always. You should strive to spend less than you earn every pay period, every month, every year, every decade. When you do that, you’ll never have debt for very long, you’ll usually have money set aside for whatever bad things may happen in life, and you’ll likely end up achieving a great deal of personal freedom down the road. If you don’t do that, over time the walls will close in and you’ll find yourself trapped, walking a highwire act to keep all of the bills at bay. That’s a miserable life – trust me, I know it from experience.
Principle #3: The early stages of any project or life change are awful, and sticking with it is the key to success.
Whenever you start a big change in your life, there will always be a brief honeymoon period where the change itself is new in your life and it all seems exciting. Before long, that honeymoon period will pass – and it’s that period after the honeymoon, when you’re struggling with the change and you’re not seeing the big results yet, that determines whether or not you’ll succeed.
It happens with everything. It happens with big changes in personal spending. It happens with weight loss. It happens with building a side business. It happens with a hobby.
The honeymoon is exciting. The honeymoon wears off. You still haven’t achieved your goals. The steps forward seem hard. What are you going to do?
You’re going to stick with it, that’s what.
You’re going to keep taking steps toward that goal. I find that focusing mostly on the very next step is quite useful – I just need to get through today.
You might fail on one step, but don’t just give up and walk away. Go back to that step. Keep trying. Don’t abandon your goal because of one or two missteps. Everyone makes missteps.
The key to success in almost anything challenging in life is a willingness to stick with it when it’s hard. Turning your financial ship around can be very hard. Resisting financial temptations can be very hard. If you want success, you need to keep going anyway.
A couple of tips: I find that “turning the financial ship around” works best if you automate your budget as much as you can through automatic bill payments and automatic savings, leaving just a little in your checking account as a “free spending” allowance. I find that “resisting financial temptations” works best if you focus on attacking the desire itself by digging into why you want it and understanding why that desire usually doesn’t make any sense when you look at it rationally.
Principle #4: Track your spending, because a shockingly large portion of the money you spend is used on something that isn’t worth it.
No matter how careful you are about your spending, things simply slip through the cracks sometimes. It often happens when you’re not focused on the moment – you buy something when you’re thinking about other things and you quickly forget about the purchase. I know this happens to me with Kindle books more often than I’d like.
Tracking your spending helps greatly with this problem because it brings all of those spending mistakes front and center for you to see them. It gives you a chance to really look at all of your spending errors so you can see where you make the worst mistakes, and bringing those mistakes to the front of your mind is perhaps the best strategy I’ve found for killing those mistakes. It not only means you’re focused on them at the moment, but it also means you can seriously question them and figure out why you’re spending in that way and why those reasons are usually bad ones.
So, how do you track spending? One tool many people use is Mint, which automatically pulls in your bank and credit card statements and helps you to categorize everything automatically. I personally prefer You Need a Budget 4, which does the same thing – helping you sort and organize spending – but without using account access, as you download the statements and import them separately. If you don’t want to use digital tools, there’s always the method of keeping all receipts in your pocket and recording them manually later on (and then cross-checking with your bank and credit card statements).
Whatever way you do it, what you’re looking for are patterns. Where do you spend the most money? What exactly are you buying there? Are those smart purchases?
Not only does that thought process help you figure out which purchases are good or not, it actually also helps you focus on them, meaning you’re less likely to make mental errors and spend money out of a lack of focus.
This isn’t just a one time thing, either. It’s a good thing to do on a consistent basis, because I’ve found that whenever you let yourself get comfortable, you start making mistakes, and those mistakes end up eating directly into your financial progress.
Principle #5: When in doubt, shoulder burdens now instead of later, because your ‘future self’ is going to be in worse shape than you are now.
Many people get themselves into a bad financial position because they buy into what I like to call the “future self myth.”
The “future self myth” is the idea that at some point in the future, you’re going to be earning more than you are now and have better self-control than you do now, so you’ll be much more able to fix the financial mistakes you’re making right now.
People use the “future self myth” constantly to do things like buy more house than they can afford, charge up their credit cards, let themselves get out of physical shape… it goes on and on and on.
Here’s the real truth: Your future self is often less likely to be able to dig out of that hole than you are right now. Your future self is going to be older, with all of the health changes and metabolic changes that comes along with it. You may have been injured or hit with a devastating disease. Your future self might be employed with a higher salary, but your future self might also be facing a lower salary or no salary at all. You might not even be in the same career.
The thing is, people often picture themselves with a pretty bright future, one that isn’t necessarily a realistic future. Their image of themselves in 10 or 15 years – at least, the image they have if they don’t look at it seriously or critically – is usually a really positive one in which life has gone well and they’re making lots of money.
Unfortunately, that picture often isn’t true, and betting on that bright future is a huge, huge financial mistake.
The truth is that you’re probably better equipped right now to handle the challenges in your life than you’ll be 10 years from now or 20 years from now. That’s because you’re stronger right now. You have more energy. You have your health. Those things aren’t given at any future point.
Thus, if you have a chance, you should choose to shoulder some of the burden from your future self right now rather than the other way around. Take care of that older version of yourself, the one that might not be capable of carrying the whole load of life. Put some money in the bank. Put in the long hours to secure a more stable and well paying job for your future self.
Most of all, don’t assume your future self will be wealthy, which means that you shouldn’t saddle that future self with heavy debts just because they’re convenient today. Choose a more challenging path right now so that your future self has a wider array of choices and easier options.
Principle #6: Time, money, and energy are all deeply connected, so be frugal with and manage all of them.
This principle ties heavily back to the ideas I talked about in the first principle, that money and time and energy are all interconnected and that they all weave through every aspect of life. In fact, I view money as nothing more than a medium of exchange between time, energy, and stuff – you receive money for spending some of your time and energy or selling stuff and you spend money to receive time and energy and stuff. Think about it – almost every financial transaction you make in life falls in there somewhere.
That’s why I view time management, energy management, and focus management to be crucial to personal finance success. Let me give you an example of what I mean.
I’ve learned over time that I am most productive as a writer starting about 30 minutes after I wake up and lasting for about four or five hours after that. I can do work outside of that timeframe, but the work is slow and I feel as though it has a lower quality. I’ve also learned that my focus comes and goes in waves, even during that “best” period, and the waves are about 40 minutes long.
So, I take advantage of that. I do laundry in the morning most days when I’m working because the loads run for 40 minutes in the washer and 80 minutes in the dryer (usually). So, every 40 minutes, I take a laundry break and move a load around. This simultaneously saves me time later on so I don’t have to do any laundry at other points in the day, plus it gives me a “mental break” from working so that when I come back to the desk, I’m recharged.
I also usually avoid any “busywork” for the first four hours or so of my actual work. I often do six 40-minute sessions of intense work – research and writing – before I start to feel things trailing off, at which point I read and respond to emails and other such things.
(I’ll usually also do an evening session, which is mostly outlining posts or brainstorming potential post ideas.)
This means that, on a typical day, I stop working around 1 p.m. and have a late lunch (I rise really early) and I spend the rest of the day on other projects, with an evening brainstorming session usually right after supper in the family room with a notebook in my hand.
Because of that schedule, I have a maximum amount of time to spend on other things – household tasks, hobbies, parenting, learning, and so on. By using smart time management and energy management and focus management, I actually have time to have a solid career along with time to be the best parent I can possibly be. I don’t have to pay for child care. I don’t have to sacrifice hobby and leisure time (too much).
Without good time and focus and energy management, my work would sprawl all over the place, devouring my leisure time, cutting down on my quality parenting time, and likely forcing me to pay for child care. It would cost me in terms of the personal time that I value, the key relationships in my life, and in terms of my dollars and cents, too.
Time management, energy management, and focus management directly save me money; this is just one example among many. Other instances include knowing when I should and shouldn’t shop for groceries, not even bothering to work at all in the later evenings aside from pure brainstorming, and exercising vigorously in the early afternoon to keep the doldrums away and leaving me available for my children and for household tasks that may require alertness.
Principle #7: You’re better off ‘underbuying’ unless you can explain exactly why not based on personal experience.
Whenever I’m buying a new item that’s not merely a direct replacement for something that I regularly use, I start off buying the least expensive version of that item that I can find.
I start shopping for many things – clothes and so on – at secondhand stores to see if I can find something that meets my needs and I only go to a “better” (read: higher priced) store if I can’t find anything at my current store. I don’t start at a high-end store because I’ll almost always find something that fulfills my needs at a cheaper store.
Why? If I can find an item that perfectly matches my needs at a discount store, there’s no sensible reason for me to go to a high-end store and pay several times as much. That’s just throwing money away for no good reason other than perhaps a bit of convenience.
Similarly, if I’m trying to decide between a low-end or a high-end version of an item that I’m unfamiliar with, I go for the least expensive version that doesn’t have disastrous reviews.
Again, why? If I don’t know for a fact that I will have any use for a feature, why on earth would I pay extra money for it?
The “high-end” items I own are items that are direct upgrades from cheaper items that I used to own. Because I used those items a lot, I began to understand exactly what features I wished that the item had and thus when I needed to buy a replacement, I looked for those wished-for features.
For example, with a chef’s knife, I wanted one that would hold an edge for a long time and fit well in my large hand in a way that I didn’t really understand when I was first buying a knife. So, when I went shopping for a replacement, I was able to intelligently compare options and choose one that truly met my needs and wants, rather than just my theoretical needs and wants.
Don’t spend money buying features if you’re not sure of their purpose or if you’ll actually need them. Don’t spend money on expensive versions of things when less expensive versions perfectly neet your needs. Both are an enormous waste of money.
Principle #8: Little savings that are frequently repeated are just as vital as big savings.
It’s easy to get caught up in the “big” personal finance moves, like whether to own a home versus renting an apartment or when to buy a car and so on. Obviously, it’s very worthwhile to give those decisions proper time and focus and respect, but it doesn’t mean that the small ones are completely irrelevant by comparison.
The key thing to remember about little financial moves that save money is that they’re often very repeatable. Let’s say, for instance, that you install a new energy efficient light bulb – an LED bulb. It might cut the energy usage of that socket down from 60 watts to 13 watts, a savings of 47 watts. The only problem is that it will now take you about 21 hours of use to save a single kilowatt hour of energy… and a kilowatt hour costs about $0.12. For most lights in most houses, that’s going to take a while to make that savings mean anything significant.
However, that humble light bulb gets used a lot. It’s not going to burn out for 20,000 hours. So, let’s say you use that light four hours a day. After a day, you’re saving about $0.02. Big deal. After a month, though, you’re saving about $0.60. Still not big enough to care about. After eight months, well, you’d be replacing the bulb if it were an incandescent, so you’re saving the cost of an incandescent – let’s say another $1. After a year, it adds up to about $9 in savings.
This very thing will repeat for the next 15 years or so without you lifting a finger. Over that time, your humble little light bulb change that only saves you a penny or two is actually going to stick almost $200 in your pocket.
Now, multiply that by every single bulb in your home.
The savings aren’t so small any more. That decision to switch all of your light bulbs in your home might seem like a trivial choice, but it will save you thousands over the next decade.
It happens because that little thing you did is so repeatable. It’s a very tiny savings on its own, but when it’s part of something that you do or that you use every single day, it adds up over time into a big number.
Small things are small on their own. They become big due to repetition. Ignoring those small things because they seem small means that you’re ignoring some awfully big expenses, and that’s a huge mistake.
Principle #9: Spend part of your spare time every day preparing for what’s next in your life.
As good as things might seem in your life right now, the reality of life is that things will eventually change. Your career will change. The key relationships in your life will change. You will change.
The person you are 10 years from now will be very different than the person you are today.
Ten years ago, I worked in a research lab with a very steady full time job. Today, I’m a freelance writer. Ten years ago, I had one infant child. Today, I have three children in elementary school. Ten years ago, I was endlessly passionate about video games and trading cards. Today, I scarcely play video games and haven’t looked at trading cards in years.
Things change.
The thing is, changes don’t have to sneak up on you. You can be proactive about discovering the changes that are coming in your life as well as being proactive about preparing yourself for those changes.
There are lots of ways to do that.
You can do it through starting a small side business. Devote 10 hours a week (or more, depending on your passion) trying to build a side business related to something you enjoy doing, just to see how it works. If it doesn’t, move on to something else. I started many different blogs back in the day before The Simple Dollar ever clicked, all in my spare time.
You can do it by taking classes and preparing for the next rung in your career ladder. What kind of education and training do you need to take on the next logical job in your career? Get ready for it.
You can do it by working at a part-time job and saving money for a major change, like going back to school or moving to another part of the country.
You can do it by starting a vigorous personal fitness plan, which will improve your personal appearance, energy level, and long-term health.
What it all comes down to is this: A major change is coming in your life. You may not see it yet, but it is coming. What are you doing to make sure that you’re ready for it? The more you’re preparing, the more likely it is that you’ll be able to take advantage of a positive thing or be able to handle a negative thing.
Principle #10: Build relationships with people who are like what you want to be.
Think for a second about the kind of person you aspire to be. What character traits do you wish you had in your life? Do you wish you were more honest? Do you wish you were frugal? Do you wish you were more trustworthy? More reliable?
Now, think for a second about the life you realistically wish you had today. What is that life like? What would you had to do to achieve that life?
Do the same for the life you realistically hope to have 10 years from now, and the same for the life you would like to have had five years ago. Again, what would those things really look like?
This isn’t about stuff or keeping up appearance or possessions. It’s about the day to day life that would leave you feeling fulfilled and joyful, feeling like you were a good person, feeling like you were prepared for a bright future.
Got that? Now, look for people whose lives are as close to those visions as possible. Build friendships with those people – or at least the ones you click with. Spend time with them. Make them into your social circle.
Why? If your social life is full of people who exhibit the very character traits and behaviors that you aspire to, it’s going to be far far easier for you to have those traits as well. You often build up and display the traits of the people you spend the most time with, so spend time with people who have traits you wish that you had.
Build a friendship with the couple who made the local food pantry work. Build a friendship with the guy who managed to climb a career ladder similar to yours. Build a friendship with the woman who built a great local business. Befriend the people who are at the center of a great local organization or community. Double down on the friendships with people who click well with you.
What you’ll find is that by pure osmosis your life becomes better. You just naturally start gravitating toward the behaviors you’d like to see in yourself. Not only do you start to become the person you want to be, you also build up a handful of great friendships along the way.
And, now, for one final bonus “principle,” the one that I think is at the center of everything in my life:
The Golden Rule: Treat others as you would like to be treated, every single time.
In every single interaction with others, in every single thought you have in your head, strive to treat others as you would like to be treated.
Don’t waste a second of your time thinking of nitpicky or highly critical or “brutally honest” things about other people, unless you’d like them thinking such things about you. Don’t waste a second of your time saying such things either, unless you’d like them saying such things about you.
When you meet someone or interact with someone in daily life, ask yourself how you’d like to be treated if the roles were reversed and treat that person in that way. Do it for loved ones, friends, acquaintances, and people you don’t know.
Yes, sure, sometimes you’re going to be burned by a person who is selfish or who has bad character traits. Guess what? You were going to get burned by that person anyway, just maybe in a different fashion. That’s okay.
What you will find, though, is that you end up seeing tons and tons and tons of little positive interactions and positive relationships appearing in your life, as if almost by magic. It takes a while – you have to “fertilize your world” with the golden rule and that’s never immediate – but if you truly apply it to every action and even every thought, it just begins to happen.
Those relationships will be a positive for you in almost every way – personal, professional, intellectual, financial, and otherwise. Almost every relationship in your life will start to skew in a more positive direction and that’s going to help you in every possible way.
Final Thoughts
Over the last 10 years, over thousands of posts and thousands of life experiences and thousands of hours of reading books on personal finance and self-improvement, I’ve realized that pretty much all of the good things that have happened in my life come down to a handful of principles. These are the ones that really cover the personal finance aspects of life. Others – take care of what you’re responsible for and so on – are mostly refinements of the Golden Rule.
Whenever I am in doubt about a situation, I fall back on these principles and they always seem to guide me well. They encourage me to take real action now rather than putting it off. They encourage me to treat others with the respect I hope to have and to seek out relationships with people who do the same. They encourage me to make smart moves with my money, and realize that money just represents time itself stitching my life together.
I believe there is great value in these principles. For me, they’ve changed my life drastically for the better over the past ten years, and I genuinely hope that they can do the same for you.
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