If I had to rate my financial performance across my considerable span of years lived, I would, so modestly, give myself an A. Realizing of course that it’s not that different from high school where I was one of the smartest kids, and was able to pull A grades without studying. So giving myself a Financial A is not a humble brag, it is much more a reflection of the unmerited gifts I was given by my circumstances. Great college educated parents who were frugal and understood how to invest wisely and who desired to pass that on to their children, that’s an amazing superpower. That and timely advice on picking a career that leveraged my IQ and interests but also paid extremely well, was responsible for most of my excellent financial grade point. My personal effort was a minor contributor, in my opinion.
Most people do not get catapulted toward success like I did, life is very unfair in that respect. Most of you reading this did not start out your adult life with iron clad rules drilled into you and exampled to you by financially successful parents like my brother and I did. Rules like, never run a balance on a credit card. Never borrow money to buy a car. Never spend more than you made in a given month. Automate your investments into retirement plans at the maximum allowed. After you’ve filled every retirement plan to the limit then put a significant amount into a taxable Brokerage account. Invest in stock funds and to a lesser extent some fixed income assets. Buy an affordable house and pay it off early. Rules that were lived out in front of my impressionable young eyes.
I suppose the reason there are so many of us in this financial independence blogosphere is because most people did not start out on a sustainable economic path like me. They were mired in the weeds and mud and had to fight their way out of the swamp of bad money habits to find the trail to success. That makes for a lot of potential readers and a lot of writers with much more compelling stories than mine.
I’ve found that there are several established schools of thought that have distinct tribes of followers. First, there are the Dave Ramsey thinkers. Love him or hate him it’s inarguable that Dave and his organization have pulled many people out of the swamp and set them on a rigid path to financial success. I can remember when my company’s HQ was in Jackson, Mississippi I would drive there often from Arkansas. Somewhere around Monroe, Louisiana, late at night, I would pick up Dave on FM radio. Yes, that was before you could stream podcasts or Spotify into your car radio, ancient days. Dave was in your face, a Rush Limbaugh of personal finance. And when you are trying to stay alert on a long drive he was a perfect companion because of his brash confident delivery. It’s very popular to criticize Ramsey now because personal finance is personal and the Ramsey plan is anything but. It’s rigid with baby steps that have to be in a specific order.
But there is a method in that madness. Something one of the T Party right wing leaders explained to me when I challenged her rigidity on a “no tax” pledge stuck with me and I think it applies to Ramsey’s program. She said her people were single minded and complex when it came to political issues. To lead them she had to have simple and inflexible message. I’m not getting political, but her point struck home. It was that if you are trying to lead people you have to go to where they are and talk to them in terms they can connect with. And if you are trying to get them to follow you then you have to draw a line on the road they can follow. You can’t just toss out some ambiguous directions toward the destination, or you will lose them.
That is exactly what Dave does, his followers are not simplistic people, they are as capable as you or me, but they have a money problem that is very simple. They spend more than they make and they use debt to cover the difference. It’s unsustainable and so Dave built the baby steps as a painted line to a sustainable trail out of misery. You save up $1,000, you attack your debts small to large in a way that brings early success to sustain a long battle. And on from there. Another way to look at it is that his tribe has a spending addiction that led to their woes. Generally speaking, though I am not an expert, I do not think most treatment plans for alcoholics revolve around teaching them to drink moderately. And Ramsey’s plan to treat credit card addiction is to eliminate the cards. I think that is appropriate for someone who is addicted. But not for someone like me or my wife who have had credit cards for over 40 years and have yet to fail to pay off the total balance in a single month. That’s true for most of you as well, but you have to admit there are plenty of people who can’t stop spending when they have a card in their hand.
A second school of thought is to focus on extreme frugalism. And there is logic to that, if you minimize your spending you will surely be better off financially. This overlaps heavily with the minimalist crowd. Folks like Joshua Becker. And like Dave Ramsey I find value in how he sees things, but it isn’t how I live. Again there as so many people who keep score on how well they are doing in life by how much stuff they have, and that’s sad. They need that message, looking for happiness in things is a fool’s errand, it didn’t work for Solomon and it won’t work for you or me. And perhaps the only way for some people to break the consumerism habit is to eschew it entirely, to go cold turkey on buying stuff and to clean out their horde from their homes and sell it or give it away. There are thousands of stories of people who have greatly increased their joy in life by doing just that. Yet it isn’t my lifestyle, I have plenty of hobbies that have caused me to buy stuff, tennis racquets, a fishing boat and lots of tackle, pickle ball stuff, hiking stuff, skiing stuff, running stuff. I don’t want to drop a single one of those hobbies because they all bring me joy. At the same time I rarely buy anything except replacement gear for things I wear out or break. I have no problem with seeking joy in buying stuff. I detest shopping, it is a necessary evil sometimes. But I never enjoy it, unless I find a bargain for something I need to replace.
A third take, one popularized by Ramit Sethi, a blogger, author and podcaster is to live a rich life. It is to strike a balance between living large now and also investing for a rich future. I’d call it the moderation in all things approach but Ramit would not like that because he is not about moderation at all. You can sum up one of his main tenets like this, spend lavishly on the things you truly value the most and be ruthlessly frugal on the things that are not important. This is one I come the closest to identifying with but I can’t embrace it entirely. Mainly because Ramit preaches that there is almost no practical upper limit on what you should spend on those big happiness items, like a wedding or honeymoon or your dream vacation. And the fact is my wildest dreams will always be out of reach of my comfort zone, even if I can afford them. So will almost everybody’s. Johnny Depp is the poster child for wild dreams.
My version of Sethi’s philosophy is spend to the sweet spot on what thrills you and be reasonably frugal on the rest. I love performance cars but I’m not buying a Ferrari or a Plaid Tesla because that’s too big a piece of my total assets to spend on a depreciating asset. So I bought a three year old lightly used Infiniti that does 0 to 60 in 5.5 seconds. That’s the sweet spot for me. A nearly new, fast car that cost a total of $25,000. That is about one tenth as much as an Italian supercar. Ramit would have bought the Lambo and would say I was settling, because, in truth, I could afford a Lamborghini. I’m just not spending that much on a car. To me that would take all the fun out of having it and I’d be terrified to drive it or park it anywhere.
So where am I? Well like Dave Ramsey I advise buying cars with cash, though I wouldn’t ever judge someone who took a low interest rate loan. Especially if they invest that car money at a higher rate of return. I also recommend buying an affordable house and paying it off early. However, I will continue to use my credit cards and pay them off faithfully every month because it is convenient, I get free float on the money and I get cash back. As far as Joshua Becker and minimalism, I never buy anything that I don’t find real value in. I have all my pre-retirement clothes and other than sports wear that I wear out, I don’t clothes shop, I have plenty. I’m far from a minimalist but I’m not particularly materialistic either. The only stuff I have is stuff I use consistently. And as far as Ramit and living a rich life, I do spend on the things I value but I do it as frugally as I can without taking the fun out of it. We take road trips all the time but I stay in Hampton Inns and Hilton Garden Inns because I collect the points and they are consistently clean and affordable. On things I could care less about, like my jeans, I get those at Walmart. But my tech toys like the device I’m typing this post on? it’s the most expensive one in the world, because I’m worth it!
In retrospect, I do life like my parents taught me which combines almost equal amounts of all three schools of thought of the camps Ramsey, Becker and Sethi. Probably none of them would totally approve of my lifestyle, but it has worked for my family.
What about you? Do you find yourself firmly in one school of thought or do you have a mix and match take on financial philosophy and practices?
Is it a rational choice to have a balanced combination of outlooks that incorporate rigid policies, anti-materialism and splurging occasionally? Or is that a cop out, a lack of personal discipline?
How would you describe your take on optimizing personal finance?
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I am keeping track of my expenses in tabular format (for each day) since 1998. It used to be diary-pen-paper earlier. From 2004 onwards I moved to computer spreadsheets.
This one habit has helped me a lot and led to many good things.
That is very disciplined Baransam! I’ve often heard said what isn’t measured isn’t controlled and you have put great effort into creating tools to have control. Congrats on a winning game plan!
My experience growing up was pretty much the opposite of yours, at least the financial lessons part. My parents spent more than they made, changed jobs frequently, moved a lot, got divorced. It all felt very unstable. The lessons I learned were based on a foundation of fear: fear of financial chaos. By age 12, I was vowing to do everything different.
So avoiding debt was drilled into me by bad example. Being careful about who I married was based on a bad example. Choosing a career path that practically guaranteed high income and stability was doing the opposite of my upbringing. I only bring this up to say that “Rules that were lived out in front of my impressionable young eyes” must work both ways, thankfully.
Guru Number One: the main guru who helped me coalesce around a formula was Stephen Covey. His “Seven Habits of Highly Successful People” became my daily operating manual for life. It’s not a financial philosophy per se, but a life philosophy that led me to financial success and stability. Covey’s Seven Habits was my line in the road.
A number of lesser gurus have helped over the years. Example: The philosophy of the FIRE community helped crystalize for us the incredible value of financial independence. None of this deviated from 7 habits discipline of course. Another take: John Goodman’s monologue in “The Gambler” re FU money.
Today, the financial philosophy that best describes my wife and I is Bogleheads, named after Jack Bogle. Although we were already practicing many of his principles, it’s nice to have in mind the clarity of his line in the road.
So answering the question, who is your guru, one could do a lot worse than a combination of Jack Bogle as a financial guru and Steve Covey as a life guru.
I have a theory that says people who win against harder odds and by way of negative examples are stronger and more resilient that people who have had easy paths like me. You’d be the one I’d want to be stranded on a island with because you’ve flourished and overcome odds that bury a lot of people in a repeated cycle of debt and despair. You could do much worse than Covey and Bogle when it comes to financial and business success, very good mentors!
Steve, ironic that you bought the Infiniti, I bought a Nissan 370Z using the same logic as my “last fun car” for the final 6 years of my Atlanta commute. Assuming you bought the G37, they’re built on the same bones. Sure, I would have loved a Porsche or BMW, but the 370Z gave all of the thrills with a lot less $. I’m very much aligned with you, so does that make YOU my guru??
I bought the hatchback version, they call it an SUV but it’s basically a 370z like the G37 with a different body style. It was called the EX35 when they introduced it in 2008, I had two of those in a row. In 2016 and 2017 they added 4 inches to the back seat leg room, a big improvement and renamed it the QX50. They stopped making it in 2018 and then in 2019 they introduced a totally different vehicle and called it the QX50. It was not sporty, had sixty less HP and a 4cyl Turbo instead of that big Z six. It also was kind of styled like an over inflated version of mine, lots more usable room but nowhere near as much fun. It was kind of sad that they turned a 5.5 Second 0-60 little beast into a soccer mom car but that was where the market was headed. I don’t know what I’ll get next, my wife’s Badlands edition baby Bronco is nearly as quick and has some serious off road chops, I might try one of those. It doesn’t glue to the road the same as mine though. I love that traction on the curvy roads we drive. We must be kindred spirits on vehicles, Fritz! Oh no, like the Tony Robinson 2016 documentary, I’m not your Guru!
The Infiniti EX35 sounded fantastic we were going to get it but the trunk space was too small and we settled on a Mazda CX-5.
Gym, yes it is very limited. When they changed it to the QX50 they fixed the back seat leg room where adults could sit there comfortably but they never added to the back storage area. Our kids were grown so it’s plenty big for two people. We are on a 2,500 mile road trip through Michigan and may be gone for ten days, and there is ample room for our gear. But it wouldn’t work for a family with kids I don’t think.