Some people seem to take pride in their ignorance of specific topics. For instance, I used to know a couple of overly educated intellectuals who seemed to make a point out of not knowing how to program a VCR (yes, I show my age here). Not only did they not know how, they specifically did not want to learn, because they considered such simple knowledge beneath their refined tastes.
Go into the arts and letters department and you need not venture far to find someone who will claim with some pride that they were never any good at math. At this point more people will gladly admit that they were never good at math either. I remember one of our high school teachers who admitted to not being able to solve a quadratic equation. Her reason was that she never needed to do that. Well, she had a point there, but at the same time I overheard her discussing with her colleagues how exasperated she was that none of her “uncultured” students knew which year Marx wrote Das Kapital. Well, I guess, we never needed to know that either.
Now, go into the science department. Having been a member of such departments for quite a few years, I think I can guarantee that you will never ever hear anyone smugly claim that they are illiterate or that they are not good with words. However, what many will admit to is an ignorance of economics and personal finance. The reason is again that they consider finance to be somewhat beneath them. The general opinion is that finance is simple and that “I could if I would, but I prefer to focus on more interesting subjects“.
This is of course a big mistake. In an economic society a basic knowledge on retirement savings, stock markets, tax vehicles, and mortgages should be required knowledge on par with putting on one’s clothes, cooking a meal, and filling up the tank. But it’s not!
Having started this financial blog a few weeks back and having done more research on the topic I am amazed at stark difference in personal finance awareness between those who are actively interested in personal finance issues and those who are not. I mean, I was almost getting used to being one-of-a-kind in terms of net worth until I found those guys. This convinced me that having a six digit net worth at age 30 was possible for anyone with sufficient focus. It is not for lack of intelligence that many people are in financial trouble. Personal finance is not rocket science. It should be common sense not to buy things you cannot afford, not to spend everything you earn, and to save for a rainy day and in particular to save for retirement.
Now looking around, I see that there are personal financial advisors, personal eating advisors (dieticians), and personal trainers (about 40000 presently in the US and counting) and even personal “how to dress” advisors – at least on TV. Now I certainly do not question the current need for these professions. My question is why did we come to depend on professionals to solve problems that should be simple in the first place. Could it be due to excessive specialization in which we delegate more and more responsibility to other people (and sue when we don’t get what we expect)? Anyone? I believe the answer is yes. We don’t have to go back more than 2 or 3 generations to find a culture where people took personal responsibility for many more areas of their life than is currently the case.
I am all about taking some responsibility back for our personal finances rather than outsourcing this very important and decisive factor in our life. Start reading or find a mentor, but by all means think for yourself and don’t trust anyone. One thing I have learned is that each person’s financial situation is unique. It is not just a question of crunching numbers but just as much a question of matching your financial values to your emotional values. If you accept this, then you might also accept that financial advice, exercise advice, and diet advice and practically any kind of advice that depends more on self-control than on actual talent frequently reads like someone’s autobiography. The important is not so much the superiority of the plan or the method but the consistency by which it is applied.
There are only two rules.
1) Don’t keep changing the game plan.
2) The greater the effort, the greater the reward.
These rules can be summarized in one rule: Pick a direction and keep walking. The faster you walk, the sooner you’ll get there. It should be obvious that if you are changing directions, you suddenly find yourself walking towards a new goal. Some of the effort that went towards the old goal is therefore lost. Another point to note is that it is wise to pick a goal that is compatible with you as a person. If you don’t like real estate and like Wall Street, then don’t do real estate but consider stocks. Don’t pick an area on a whim. It is a learning process and you should consider yourself very lucky if you dive into an area that fits your personality from the get go. The second rule is that the more effort you put into it, the greater results. I call this the anti-easy rule. If something is easy, it is generally not worth having. Since we live in an interconnected society, the size of the reward is generally measured by how much effort you put into it relative to other people. Average efforts result in average rewards e.g. no rewards relative to the average. Extreme efforts do result in extreme rewards. In other words, if you are interested in extreme rewards, you got to make your goal part of everything you do. It should be the first thing you think about when you get up in the morning and the last thing you think about when you go to bed. If you want above average rewards, which is also okay of course, you should still be thinking about your goals more often than the average person does. It is as simple as that. Taking pride in not thinking about something is the dumbest goal possible.
Originally posted 2007-12-29 04:25:01.