One TERRIBLE Piece of Financial Advice You Should Never, Ever Listen To

Have any money-related conversation and you’ll hear the following bad financial advice: “It worked for me.” It likely didn't work as well as you thought!

Bad Financial AdviceLaunch into any money-related conversation and you’ll inevitably hear the following bad financial advice:

“But it worked for me!”

Those insidious five little words have been used to justify all types of terrible ideas, from buying lottery tickets to over-leveraging your investments to investing every last dime into Apple stock.

Let’s try this one on for size:

Common Sense: “Even if you find an awesome investment, spread your risk by picking a few other investments, as well. Rental properties are awesome, but even if you could make 20 percent cap rates, you should still keep a solid chunk of money in stock market index funds.”

Retort: “But I put 150 percent of my savings in gold in the year 2007 and it totally worked for me. Put every dime in gold! Nothing else! Why bother diversifying when you get the best returns in this arena?!”

Common Sense: “Hold on, you invested 150 percent of your savings?”

Retort: “Yeah, I can take a cash advance from my credit card at 14.9 percent and invest it for 170 percent gold returns! I’d be stupid NOT to!”

Common Sense: “Uh, don’t you think that’s a bit risky?”

Retort: “Hey scardey-cat, if you’re so terrified of risk, why don’t you sew your money into a mattress and leave REAL investing for us tough guys?”

Uh-huh. Right.

Tip: When your opponent has to justify their investing strategy with ad hominem attacks, they’re grasping for straws.

Alright, that was an easy example. Afford Anything readers are an intelligent group. I don’t need to explain this example. You can see why it’s an insane argument.

But let’s look at a subtler example of the “it worked for me” phenomenon. Let’s check out an example in which the counter is uncommon sense.

“But I Sold my Home for $20,000 More Than I Paid!”

UnCommon Sense: “Don’t tie up a huge chunk of your net worth in your home. Your home is NOT an income-producing asset. It won’t stick cash in your pocket each month.

Your money should make money. So live in a cheap home while you deploy your cash into rental properties, stock index funds or other income-producing investments. Reinvest. Lather, rinse, repeat.

“Better yet, buy a small apartment building (like a duplex, triplex, 4-plex) as your first home. Live in one unit and rent out the others. If your neighborhood doesn’t have multi-units, live with roommates until you either have a baby or your mortgage is paid off.”

Retort: “But I sold my home for $20,000 more than I paid for it! So my house IS an investment! It worked for me!”

This is precisely the type of argument you’ll hear from someone who hasn’t crunched the numbers. The people who say it often conflate gross gains with net gains.

The average person doesn’t make very strong net gains on their home value, after adjusting for insurance, taxes, loan interest, repairs, maintenance, Realtor commissions and closing costs. If they’re lucky, most of their net gains can be explained as “inflation plus 2 percent.”

Most people would be better off living in tight quarters and putting the excess money into stocks.

Are there exceptions? Sure. Just ask the people who bought houses in Southern California in the 1970s. But this is the tail end of the bell curve. People have also made millions winning the lottery.

Furthermore, most of the people who happened to buy in 1970’s Southern California shot themselves in the foot by “trading up” continually until the market burst. Many people thought they were different, that they were the exception to the rule, but then they became scared that they’d be “priced out in five years.” So they bought a big home, then lost all their gains.

The best antidote to getting “priced out in five years” isn’t to pay an overinflated price today. It’s to create more wealth. Build your net worth at a rate that’s faster than housing growth. It’s not that tough.

Let’s try another example.

College is Good, Grad School is Better

UnCommon Sense: “You’re not a zombie. So don’t blindly repeat the mantra that college is good and graduate school is better.

“Do the friggin’ math.”

“If you want to be a neurologist, awesome. Take out a six-figure student loan to go to medical school, because you’ll have a rare, high-demand skill that will command you a $225,000+ income.

“But if you want to be a social worker earning $30,000 a year with a master’s degree, think twice before burying yourself with debt.”

Retort: “But I did it and it wasn’t so bad! My student loan payments are only $180 a month. That’s nothing. That’s less than my car payment! And I think the government will forgive my loan in 20 years, anyway.

Plus, I got this job that pays $42,000 a year, and there’s a chance I could get enough in bonuses to make as much as $50,000. There’s no way I could have gotten that without my master’s degree.”

Ouch. This is one of the most common “it worked for me” arguments that I hear. And what’s befuddling is that the underlying message is that it really didn’t work.

$180 per month for 20 years is $43,200. That’s a decent chunk of cash, but it’s not horrifying. People have lost more by buying a house at the wrong price.

What’s worse is the missed opportunity. $180 invested monthly over 20 years is $106,730. That’s a horrifying amount.

But that’s still not the worst part. The real sad news comes from other missed opportunities. Want to start your own business after a few years? Good luck! The rest of us can move into grandma’s basement, mow lawns on the weekends to pay for groceries, and spend the rest of the week building our own graphic design enterprise. Your extra $180 monthly loan payment means you’ll need to mow many more lawns.

“That’s true of a mortgage, too.”

Yes, but you can sell a house.

That’s not the only hang up. You’ll be far less inclined to change careers if you decide your current path isn’t fulfilling. What would you do – go back for a second master’s degree in a different field, racking up even more debt?

You’ll have a rougher time quitting your job to travel the globe. You’ll lose the flexibility to change jobs and take risks. You’ll probably delay buying your first rental property or maxing out your Roth IRA by a few years.

“It worked for me” isn’t always the best path. At best, it’s an isolated data point. At worst, it’s bad advice.

Why Being Yourself Is a Disruptive Act

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We ought to spend time and money in a way that’s aligned with our values. In reality, our spending habits are often tied to other people’s expectations of us.


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Humans are social creatures. The people in our lives influence us, both consciously and in subtle ways we never realize. We decide that we “should” climb a career ladder, buy fancy appliances and live behind a white picket fence.

There’s nothing wrong with these choices, as long as it’s a conscious, deliberate decision. Our only error is buckling to the expectation that we’re a failure if we don’t follow the script.

But influence is a two-way street. If we break away from the mold, we challenge other people’s assumptions. We create chaos without saying a word.

Being Yourself is Disruptive

Being yourself is a disruptive act. Your lifestyle becomes a mirror that forces people to re-examine their own decisions.

The result? Some people will criticize you.

The rude ones may overtly condemn you. But the polite ones will mask their assumptions in the form of a question. It’ll often be tied to age and/or an arbitrary timeline:

  • “Aren’t you too old to be living with roommates?” (There’s no age limit.)
  • “You’ve been in a relationship for 5 years? Why aren’t you married yet?” (I live by my own schedule.)
  • “No kids yet? The clock is ticking.” (OMG. If I hear that one more time …)
  • “Your project still isn’t profitable? Shouldn’t you quit?” (I’m not going to honor that with a response.)
  • “Shouldn’t you have a nicer car/house/wardrobe by now?” (Shouldn’t you stop questioning my life?)

These questions have nothing to do with you. They pertain to the person posing the questions. They want you to confirm their assumptions so that their worldview can persist intact.

(By the way, my friends who followed the so-called ‘right’ path still get hassled. “You’re getting married and/or having kids already? Aren’t you too young for that?” Pleasing other’s expectations is a no-win situation, no matter what side of the fence you’re on.)

No One Asks How You Afford Conventional Things …

From 2008 to 2010 I backpacked across Europe, the Middle East, Asia and Australia/New Zealand. I heard tons of assumptions about how I paid for the trip.

Roughly 50 percent of the assumptions involved some imaginary benefactor, usually a male figure like a father or boyfriend. “Did your Dad pay for it?” or “You snagged a rich boyfriend, huh?” (Why is it so hard to imagine that a girl can pay her own way?)

The other 50 percent assumed that I maxed out credit cards to fund the trip. (Newsflash: noodle carts in Cambodia don’t take Visa.)

Almost no one guessed the obvious – I saved money. You know, the old-fashioned way.

I lived like a cheapskate. I wrote freelance articles until my fingers hurt. I saved aggressively. It’s not rocket science, folks.

No one questions us when we spend thousands on dollars on conventional things: Buying a house. Buying a car. Paying for grad school. Having a baby.

Those are massive, big-dollar expenses, yet no one bats an eye at how we afford it, especially if we do these things at a socially-appropriate age.

But the moment we spend that type of money on something extraordinary, questions form.

Stick With Those Who Inspire You

The solution? Ruthlessly cull the people in your life. Surround yourself with yay-sayers. Keep company with those who inspire you. Don’t waste your time trying to “educate” people who aren’t willing to learn.

This world holds plenty of beautiful people, ones who handle challenges with grace and enthusiasm. When you tell them you’re spending your time and money on something unconventional, they’ll be the first to say, “Sweet! That’s awesome!”

Here’s the true test: they’ll show enthusiasm regardless of whether or not your tastes mesh with theirs. They understand that it’s valid for you to spend time and money on something they would never want, buy or do themselves.

Here’s one of my favorite examples:

A few years before we started dating, my boyfriend Will and a few of his friends bought an $800 school bus at an auction. They retrofitted it into a house on wheels, complete with a kitchen sink, beds, couches and a veggie-oil-powered engine. Then they set out from their home in Colorado to tour the West Coast.

Most of Will’s friends share his lifestyle tastes, so this didn’t rock their assumptions about life. They’d do the same thing.

But one of his friends holds different preferences. “That sounds miserable,” he said. “I’d never want to live with a bunch of stinky people on a school bus.”

Nonetheless, this guy was one of Will’s chief supporters. He never uttered a word of discouragement. He never planted seeds of self-doubt into Will’s head about how this decision would “derail his career” or “cost thousands.” When Will needed help troubleshooting the transmission or fixing the engine, this guy pitched in with enthusiasm.

“Have fun,” he told Will. “Call me if you need anything.” Then he went home to his white picket fence in the suburbs, a conscious, deliberate lifestyle choice that suited his own taste.

He aligned his money and time in the way that suited him. And he allowed others to do the same.

Live and let live. It’s a simple concept, really. But few people do it.

Most people question their friends’ dreams, especially when those choices are framed in days and dollars. “You could buy a house with that money!,” they’ll say. “You could finish grad school in that amount of time!”

Life involves a series of trade-offs. Know what you’re willing to sacrifice for the life you want. Surround yourself with people who support it. The rest will follow.

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Money Doesn’t Buy Stuff. It Buys Choices.

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The casual observer might think this is a website about money.

It’s not. It’s a website about choices.

Wealth isn’t about having stuff; it’s about having opportunity. It buys the flexibility to quit jobs we hate, walk away from bad living situations, and plunge into new hobbies or projects.

How Money Buys Freedom

Most Afford Anything readers understand that wealthy people have options. But money doesn’t just buy freedom for the rich. It gives everyone choices, just to different degrees. Freedom starts with the first dollar we earn.

Searching for the Next Big Thing

We pave our future with each penny we spend. Most people will make similar selections with their first few bucks: we’ll prioritize food, water and electricity. Few would opt otherwise.

But as we climb above the poverty line, our options explode at a near-exponential rate. We can eat fruits and veggies rather than Ramen noodles. We can drive a car instead of taking the bus. We can buy new clothes instead of used threads.

Remember graduating from college? Or getting your first steady paycheck? If your experience was anything like mine, those first few months felt glorious. I could fill my gas tank, eat lunch and order prescription contact lenses without my stomach turning in knots.

After six months, I –- like most people –- adjusted to that level of spending. It became the “new normal.” At this point, I faced two choices: I could maintain my current lifestyle and save any raises and side income. Or I could get flashier.

You Could Choose to Be Trapped …

Society likes to pretend that money traps us. “Mo’ money, mo’ problems,” people say.

But money doesn’t trap us. Money sets us free.

Lifestyle inflation, on the other hand, traps us. We want to eat at posh restaurants, buy designer furniture and get haircuts at fancy salons. For a few months it’s a treat, but eventually it normalizes.

So we search for the “next big thing.” Our friends begin driving luxury cars, so we question our wheels. Our friends buy five-bedroom houses, so we question our abodes.

Our friends enter a life trapped by an endless quest for more. Sometimes, we choose to follow that path.

The result? Fewer choices. Diminished freedom. High monthly bills.

Flashy spenders don’t recognize the relationship between money and freedom. They think money is for acquiring “stuff.” They end up just as imprisoned as they were in their young, hungry days.

Choose To Be Different

The solution, though, is NOT to decry riches. It makes no sense to spend your life working while pretending money’s not important.

Money’s most significant role in our lives isn’t to buy luxury cars. It gives us independence. It allows us to quit jobs we hate, travel, and visit sick relatives across the country at a moment’s notice.

These choices don’t require millions. They just require spending a bit less than we earn, week by week.

So no, this website isn’t about money — at least not in the “pursuit of a Mercedes-Benz” sense of the word.

This website is about living on your own terms. The rest is just details.

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The 5 Lessons a Millionaire Taught Me

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The 5 Lessons a Millionaire Taught MeWhen Richard Evans was a little boy, his father fell down a stairwell, shattering the bones in both of his legs. The injury left his dad unable to work for a year, forcing Richard’s parents to sell their home and squeeze their family of 10 – two adults, eight children — into a three-bedroom rental.

Richard vowed to become wealthy during that tough year. He wanted to give his children the financial security that he never had.

He didn’t know it at the time, but he had just taken the first of five steps towards wealth. The first step is the simple act of choosing to be wealthy. Believe it’s possible; commit to making it happen.

Evans’ book, The Five Lessons a Millionaire Taught Me, describes the steps that lead to wealth:

#1: Decide to Be Wealthy
“A dentist friend once told me: ‘Those who don’t think about their teeth (early in life) are those who later in life spend the most time thinking about them.’ It’s no different with money.”

… “the people I know who are the most obsessed with money are not millionaires … (they) are the ones who are living paycheck to paycheck” …

“To be in great fiscal health is very much like being in great physical health: it allows you to do more and be more, and it permits you to live your life free of constant pain and bondage.”

#2: Take Responsibility for Your Money
This step involves knowing three things:

  • Know how much money you have. What’s your net worth?
  • Know where your money comes from. Track every tip, bonus, and interest payment. Record the small amounts that normally slip through your fingers, like checks you get for your birthday, dividends from your index funds, and money you get from rewards credit cards.
  • Know where your money is going. Your car, for example, doesn’t just cost the sticker price; it also costs insurance, repairs and registration fees.

#3: Keep a Portion of Everything You Earn
He recommends keeping a minimum of 10 percent of your regular paycheck, plus 90 to 100 percent of your side income.

#4: Win in the Margins
“The most money I’ve made in my lifetime was on a side project,” he said. “(But) it wasn’t my first venture. It was my fourteenth.” In other words, keep your day job, but always look for ways to earn more on the side.

#5: Give Back
Generosity feeds the soul. Give financially to good causes that have a proven track record of properly handing money. In addition, teach others the principals of becoming wealthy. It’s through teaching that we learn.

Should I Read This Book?

This is a quick read, with less than 100 pages of large font. I finished the book in one sitting.

The lessons are basic, and they’re designed to be inspirational / motivational rather than informative. In other words, this book is designed to get a financial novice excited about the possibilities that lay ahead.

This Book is For You If: You want to give a gift to someone who isn’t interested in money. This is a motivational book for beginners.

This Book is NOT For You If: The intended reader is an “advanced student” of money or is looking for specific, actionable information, such as how to set up a Roth IRA or diversify a portfolio.

The 5 Lessons a Millionaire Taught Me is only $5.98 on Amazon, with free shipping. Check it out!

Money Can’t Buy Happiness … Can It?

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“Anyone who says money can’t buy happiness just doesn’t know where to shop.”Bumper Sticker

money and happiness
When I tell people that I write about money, I occasionally hear the response: “But money’s not important!” or “People are too obsessed with money.”

It’s tempting to criticize the idea that wealth profoundly changes a person’s life for the better. It runs contrary to the cliches we learn: money can’t buy happiness, the best things in life are free.

People who study happiness, however, have a nuanced view. In 2010, Princeton researchers Daniel Kahneman and Angus Deaton discovered a strong correlation between money and happiness up through the first $75,000 in income. After that, the correlation fizzles.

In other words, money is linked to happiness when it impacts a person’s ability to buy the basics: housing, food, health, education, transportation. Beyond that, the correlation subsides.

How people got their money also plays a huge role in happiness levels. Non-earned money — such as lottery winnings — doesn’t have a strong relationship with happiness, researchers found. But earned money is more closely tied to happiness, perhaps because it lights up the section of the brain that’s wired for reward.
money and happiness study
How people spend money also plays an important role. Money spent on objects, like nicer furniture, tends to produce less joy than money spent on social experiences like going to lunch with a friend, researchers found. Money spent on personal growth and development, like photography classes, also tends to produce higher happiness levels.

Of course, complicated factors make a true apples-to-apples comparison difficult. Poverty is often linked to worse health, lower life expectancy and higher incarceration rates, while wealthy people may be burned with high-stakes business risks, volatile market exposure, and a stronger likelihood of being the victim of frivolous lawsuits.

Perhaps a more enlightening metric is broad-scale happiness. Wharton researchers Betsey Stevenson and Justin Wolfers spent 40 years studying 155 countries to measure the relationship between a nation’s wealth and the happiness of its citizens. The team discovered a “robust relationship between well-being and economic development.”

That happiness stems from the freedom to make choices that self-govern our lives.

“We have choices that our friends in Burundi don’t have,” Wolfers said. “And those choices are enabled by greater purchasing power.”

That research fits with a survey conducted by researchers in New Zealand, who polled half a million people across 63 countries about their income and happiness. They reached a similar conclusion: money is a tool that gives people freedom and choices, and freedom leads to happiness.

Comedian Chris Rock probably summarizes it best: “Being wealthy is not about having money, it’s about having options.”

(By the way, Chris Rock is exceptionally money smart.)

Thanks to Jason Hargrove and Better than Bacon for today’s photos.

How Passive Income Is Like Gardening

Fall is here: leaves are turning red, stores are stocked with Halloween candy, and it’s chilly enough to wear sweaters at night.

This means it’s harvest season, and my garden is in full swing. I have so much basil, tomato and mint that I can’t help but think about — passive gardening is like money and passive income is like the harvest

Yes, I just compared passive income to vegetables.

I know, you think I’m nuts. I’ve gone fruity! (Haha. Pun totally intended.) But hear me out:

The Hard Work Happens Upfront

Planting a garden is a pain-in-the-butt. Here’s what happens:

I sprout the seeds in a starter tray, which I mist twice a day. Then I hunt down 40 cheap planters and fill them with soil and compost.

When the seedlings are an inch high, I transplant them to containers. Feed them nutrients. Water them daily. Monitor for pests. Thin them as they grow.

Soon its clear I’ve bitten off more than I can chew – er, planted more than I can grow. I need more space. So I head across the street to the house that I own but rent out to tenants. I ask them if I can tear up a section of my own front yard and use it as a garden. (Side note: It feels surreal to ask permission to dig in my own yard. That’s landlord-ing for ya.)

Before I can dig, I need to chop down a tree. I have a small yard and the only place I can plant is completely shaded. So I spend a weekend sawing down the tree and hauling away the limbs. (Relax, earth lovers: it needed to be chopped down regardless; it posed a safety hazard. Trees in my neighborhood are famous for falling on houses.)

Then I have to till and aerate the soil. I listen to catcalls from the homeless guys who like to gather on the sidewalk in front of my house while I work. (I live in the city. This is normal.)

Next I head to the store and load my car with cow poop – er, “cow manure,” as polite society says. I dig trenches six inches deep, cover it with cow manure, and rake the soil back over it.

By this point, I resent these darn plants. This stupid project has taken at least 50 hours of my time.

Then I transfer each plant into the earth and cover it with mulch. The homeless guys watch and provide commentary. They’re like my personal sportscasters. Or paparazzi.

Now I need a fence. I buy some chicken wire, several stakes and zip ties. I find a shovel and a sledgehammer. It ain’t pretty, but it works. Then I check the price of tomato cages. Hmmm. $4 per cage, times 40 plants, equals – yikes. So I gather 40 sticks. Jab them into the ground. Tie the base of each plant to each stick.

I’m fed up with the plants now. I just wanted to grow some darn tomatoes. No one told me it would be this much work.

Passive Income Is Like the Fall Harvest

But then something magical happens. The hard work – the upfront work – is finished. There’s nothing left to do.
how a garden is like managing money

This lasts for months. My garden goes from being as demanding as a second job to being so passive I almost forget about it.

Now comes the harvest. I have hundreds of tomatoes. Hundreds and hundreds. Enough to feed the homeless guys. (They help themselves to it.)

You see, I do the tough work upfront – in the springtime, during the youth of the year. I maintain it throughout the summer, the adulthood of the year.

Now fall is here. It’s harvest time. And I have abundance.

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A 28-Year-Old Writes on Money for Her Generation

Two weeks ago Ornella Grosz emailed me, asking if we could meet for coffee.

I normally don’t leap at invitations from strangers, but Grosz seemed intriguing: only 28 years old, she’s already published a book on money management. She’s appeared on all the major networks (CBS, NBC, ABC, FOX) and holds a slew of wealth-related professional licenses.

So at the risk of feeling like an underachiever in comparison, I agreed to meet at a coffee shop near my house. Besides, I figured: I’m only 27. I still have one year to do everything she’s done.

To my surprise, Grosz turned out to be a very relatable person.

Like me, she’s the daughter of immigrants -– mine Nepalese, hers Romanian. Her hardworking parents “gave me what I needed, but not necessarily what I wanted,” she said.

“I wasn’t wearing the latest Air Jordans … but they paid for me to be in Girl Scouts, to play basketball, to go to Israel.”

She watched her parents find their footing in a foreign land. Their degrees and experience, so well-respected in their home country, were less regarded here. They accepted jobs for which they were overqualified, diligently working their way up the ladder, sometimes slipping on a rung.

Since they came to America “later” in life, they started saving for retirement later than their peers. Now in their mid-60’s, they’re facing the fallout of this inevitable reality.

(Paula’s tangent: I completely understand this. My parents were almost 40 when they came to the U.S. and, at that age, they started from scratch: buying their first used Ford, saving for a down payment on a small ranch home, raising little ‘ol me, AND catching up on 20 years of missed retirement savings. It’s enough to make anyone’s head spin.)

Watching her parents, Grosz grasped the reality that money is a useful tool for making your life easier. It’s not about having “stuff,” it’s about having opportunity.

By the time she started college, she knew she wanted to spend her life sharing this message. But she wasn’t quite sure how to do it.

First she majored in finance. She enjoyed the subject, but it wasn’t as focused on “personal” finance as she wanted.

After graduation she became a licensed Realtor. Then she became licensed to sell life insurance. At some point, she moved across the country. She worked in the Wealth Management section of a major bank as an investment advisor. But none of those tracks felt quite right.

Her true calling, she slowly discovered, is to become a financial educator for Generation Y. After all, shouldn’t her peers be learning about money from one of their own?

She wants to remind Generation Y that we need to save for “retirement” – even though it’s a fuzzy, abstract event that won’t happen for another 40 years.

So Grosz reached out to her generation in the best way she could: she wrote a book.

“Moneylicious: A Financial Clue for Generation Y,” is designed to be an easy, quick read, with only 128 pages. One reviewer called it a “Sex and the City style approach to personal finance.”

Her chapter titles appeal to a young, hip crowd. The ‘retirement’ chapter is called “Back to the Future.” A popular Beyonce song, “Check Up On It”, inspires a ‘budgeting’ section. At one point in the book, she compares a bear market to a “huge sale at Macy’s.”

“[Generation Y is] seeing stars on reality television who seem like they have money flying at them,” she says.

Her book is geared towards a crowd that enjoys watching those shows – but has to budget on less than a Kardashian salary.

“The book is simple, without being overly simplistic,” she says. Though it’s an easy read, it respects the intelligence her readers.

That’s in part because she has high hopes for her generation.

“This is a generation that I think will have a lot of entrepreneurs,” she says, “maybe more than any other generation.”

Maybe We Don’t Need All This Financial Advice

Don't miss the forest for the trees.

I spend a lot of time learning about personal finance. I read books, blogs, magazines. I read forums and comments. I listen to radio shows and podcasts.

And sometimes, I can’t help but think that I’m wasting my time. Maybe we don’t need all this financial information.

I know, this idea is heresy in the personal finance community. But hear me out.

Most of what we know about personal finance is intuitive:

  • Spend less than you earn.
  • Don’t carry credit card debt.
  • Invest wisely and minimize risk.

The rest of the information, really, is just fine-tuning. Should I invest in a Roth IRA or a traditional IRA? Should I pay the mortgage early or invest?

These questions are important, no doubt about it. But if you spend too much time thinking about them, you’ll “miss the forest for the trees,” as they say. The big picture slips away in a barrage of information about indexing, dividend growth and amortization tables.

This onslaught of minutiae seems scary when personal finance writers – including myself — start calculating the consequences of NOT tending the small stuff. Here’s an example from my own blog:

Warning: You might lose $40,000!!

Investing $50,000 in an actively managed fund (huh? what’s that?) with a 1.19 percent expense ratio (huh?) instead of a passively managed fund (huh?) with a 0.23 percent expense ratio (huh?) will cost you $39,123 over the span of 20 years.

“Uh-oh,” I imagine a reader thinking. “I don’t know what those words mean, and I’m overwhelmed!”

Decoding this language is daunting. It might take weeks or months to grasp all those acronyms: “Put your ETF in a SEP-IRA.”

And the reader has immediate concerns. She has a job. Her car needs an oil change. Her bathroom is filthy. Her air-conditioning filter needs to be replaced.

Besides, she wants to see immediate payoff. She doesn’t want to save $40,000 over the span of 20 years; she wants to save $40 this week.

I’m not a fan of couponing, but I think — (controversial statement alert!) – that coupons are so popular precisely because they provide that immediate gratification. “I saved $9 today!!” a shopper might think, unaware that she’s bleeding $200 a month in hidden charges elsewhere.

Living in the Now.

Our mental bandwidth is limited. We can only focus on a small number of things. And when we need to choose among the priorities that compete for our attention, we focus on those that yield the most immediate result.

Bad: That’s why most people eat burgers instead of kale. The immediate deliciousness of the burger supersedes the long-term benefits of kale.

Good: That’s why many people who eat healthy are motivated by their weight (immediate) rather than their cholesterol (long-term).

Bad: That’s why people lay out in the sun, even though everyone knows that tanning weathers and wrinkles your skin (at best) and causes cancer (at worst). Immediate conquers long-term.

Good: That’s why many people who wear sunscreen do it to avoid a sunburn (immediate) rather than to avoid wrinkles (long-term).

Bad: That’s why most people don’t research whether it’s more cost effective to rent vs. buy a home. Researching the fiscal nuances of home ownership is too much of a stinkin’ hassle.

People are happy to read Harry Potter (myself included), but toss The Complete Idiot’s Guide to Real Estate into their hands, and they’re suddenly filled with excuses (“I’m too busy / I know this stuff already / I’m growing my goldfish collection.”)

So here’s a radical idea. Maybe telling people to think about the long-term tax implications of a Trad vs. Roth IRA is taking the wrong track.

Instead of advising people with incentives that are against their nature, why not work WITH our natural tendencies?

Natural tendencies dictate:

  • Simple is better than complicated.
  • Immediate is better than long-term.

To embrace these tendencies, instead of swimming against the current, we need to:

  • Find easy ways to manage money
  • Focus on how much you’ll save or earn this week , not over the span of 40 years

It’s a No-Brainer!

Budgeting is tough. Tracking every penny into a spreadsheet is hard. Software makes it easier, but software can get it wrong. It can mislabel our spending. It requires our input and oversight.

Automatically diverting sections of each paycheck into a special fund is easier. If you get a regular monthly paycheck, I envy you: this step is as simple as setting up automatic transfers from your checking account to a series of savings accounts each month.

If you’re self-employed, like me, and you keep a cushion in your checking account, just start conceptualizing different clients for different bills. Your checks from one client funnel into your emergency fund. Your checks from another client are your savings for a kitchen remodel or Kenyan safari.

This is literally a no-brainer: it doesn’t require your brain. It doesn’t require oversight. It lets you move on with your life – and focus your spare time on growing your goldfish collection.

Motivate Me

Let’s assume you’re an avid runner. (I’m not.) You set a goal to run the distance from Manhattan to Miami over the span of the year. That’s 1,300 miles: an average of 25 miles a week, or 3.57 miles per day.

If you constantly compare yourself to your grand goal, you might be discouraged (“I’ve been running so much, and I’m still in New Jersey!”)

You’ll do far better by comparing yourself to a smaller metric (“It’s only Tuesday, and I’m more than halfway to my 25 miles for the week!”)

Keep your finances the same way.

While it’s sometimes fun (fun? Or scary? Both?) to think about the theoretical $40,000 you can save by switching to passively-managed funds, that step can come later, after you’ve entered Personal Finance Geekdom, like I have.

If you’re not optimizing finances like it’s a varsity sport – if you want to leave good enough alone – then stick to those intuitive basics you knew before this post began:

  • Spend less than you earn.
  • Don’t carry credit card debt.
  • Invest wisely and minimize risk.

The rest, as they say, is gravy.