I’ve learned a ton during the past decade, thanks to reading, interviewing, and massive trial-and-error. I’ve distilled many of these lessons into today’s blog post.
Here are 17 lessons that can improve your money and life.
#1: Money Can’t Make You Happy, But Lack of Money Can Make You Unhappy
They say, “money can’t make you happy.” But that’s false.
Researchers have examined the link between money and happiness — and guess what? Money can make you happy, to an extent. Multiple studies found a significant correlation between money and happiness among people in low-to-middle income brackets.
More money = more happiness, up to a certain level. That’s not surprising. If you used to earn $30,000 per year, and now you earn $50,000 per year, this additional money makes a huge impact. You’re not as stressed.
The wealthier a household becomes, the more this effect diminishes. Each additional dollar in household income produces a smaller incremental boost in happiness.
What’s the tipping point? That’s up for debate. One famous study says there’s a huge correlation between money and happiness up to the first $75,000 in household income, after which it plateaus. Other studies claim that marginal gains start dropping off between $80,000 and $100,000, while yet other studies put the number closer to $160,000.
Of course, “enough” depends your family size and location. Earning $100,000 as a single person in Des Moines is different than $100,000 for a family of six in San Francisco. It’s oversimplified to discuss dollars in a vacuum.
But the takeaway is that while money can’t make you happy, lack of money can make you unhappy.
P.S. — You know that cliche, “I’d rather be happy than rich?” That’s B.S. The effect is either positive or neutral. There’s zero research that shows an inverse correlation.
#2: Experiences Make Us Happier Than Things
About a decade ago, University of Colorado psychology and neuroscience professor Dr. Leaf van Boven decided to unlock the key to happiness.
He surveyed hundreds of people about recent purchases they’d made, classifying these as either “experiential” or “material.” Then he asked about their self-reported happiness levels.
Can you guess the results?
If you want to be happy, spend money on experiences, not things.
Here’s a run-on sentence from Dr. van Boven’s report:
“Preliminary research suggests three reasons why experiential purchases make people happier than material purchases: (a) experiences are more open to positive reinterpretation, (b) experiences are less prone to disadvantageous comparisons, and (c) experiences are more likely to foster successful social relationships.”
Huh? Here’s what he’s saying:
First, experiences are subject to nostalgia bias. Memories get rosier over time. When we look back on that trip to Disney World, we don’t remember the long lines, fussy kids, or the dropped ice cream. We remember the highlights, like the smiles on our kids’ faces when they met their favorite characters.
Objects, on the other hand, depreciate over time. They wear out, break down, and the happiness we feel from them fades. We get more joy from looking forward to a purchase (anticipation) than we do from owning it (hedonic adaptation). Once we have an item, it’s easy to take it for granted.
Second, experiences have less of a “keeping up with the Joneses’” effect. Your neighbor’s amazing vacation in Costa Rica didn’t make your epic trip across Argentina less memorable. (Although these days, the Instagram effect might be muddling the line.)
Third, experiences help people bond with friends and family. And the happiness effect from those relationships is straightforward.
#3: Never Delay Gratification
I know, I know. This sounds counterintuitive.
Isn’t money management supposed to be the practice of delaying gratification? Aren’t we supposed to have a sucky “right now” for the sake of an awesome future?
Nope.
Here’s a framework shift: Don’t delay gratification; reframe gratification. Find gratification in index fund investing, buying rental properties, and watching your net worth grow.
Find gratification in home-cooked meals, driving a reliable used car, and not getting brainwashed by fancy labels. Find gratification in the fact that you can spend your Tuesday taking a random hike on a whim, because you’ve designed your life accordingly.
Delay gratification? Are you kidding me? Pffffft. I’m not delaying jack. When I build a pile of cash for the down payment on my next rental property, I feel effing awesome.
When I check my net worth and see the results of what I’ve built, I’m deeply gratified — much more so than I would feel if I bought a few extra pieces of plastic junk.
#4: Know Your “Millionaire Next Door” Number
Do you pass the Millionaire Next Door test?
The book The Millionaire Next Door explains how to calculate whether you’re a prodigious accumulator of wealth (PAW) or an under accumulator of wealth (UAW). The formula is:
Your age x your annual pre-tax income ÷ 10 = your target net worth
Let’s say you’re 35 years old and make $70,000 a year. You’d multiply 35 times $70,000 and divide that number by 10, for a target net worth of $245,000. If your net worth is higher than that, you’re a prodigious accumulator of wealth. If it’s lower, you’re an under accumulator.
If you’re a couple with commingled finances, take your average age and multiply it by your combined annual pretax income.
If you’re in your 30’s or older, crunch this number once a year.
Here’s the catch: If you’re in your 20’s, this formula won’t apply to you yet.
If you’re 25 and you make $70,000 a year, for instance, this formula would claim that your net worth should be $175,000. Buuttttt …. That doesn’t make sense. If you’re 25, this might only be your first or second year of salaried full-time work.
Ignore this formula until you’ve hit your 30’s. Once you’ve been in the workforce for a decade, then start crunching your TMND number.
#5: The Less You Try, the Better
In most professions, trying harder = getting better results. But when it comes to investing, the less you try, the better.
We see this in index fund investing. Frequent trading and micromanagement often produces worse results than a set-it-and-forget-it, buy-and-hold approach.
We also see this in real estate. Flipping houses is a ton of work and carries an added risk premium; a buy-and-hold strategy requires that you frontload the workload and then enjoy the results for decades to come. The passive approach creates a long-term recurring income stream. Double win.
The lazy, simple, couch potato portfolio might be your BFF.
#6: Simplify Everything
Find the simplest way to do whatever you’re doing. For example:
Index Investing:
You could spend hours and hours making micro-tweaks to your asset allocation, but why bother? Pick an allocation you’re happy with and move on.
Real Estate Investing:
You could fall down the rabbit hole of every available possibility: rentals, flipping, wholesaling, tax liens, residential, commercial, offices, warehouses, mobile home parks …
Nah.
Don’t attempt everything. Pick one niche and one strategy. Focus there. Let the rest go.
My niche is residential properties, and my strategy is buy-and-hold. That’s not because I believe it’s “better;” it’s because I’m simplifying. I’m choosing one investing style, deep-diving in an effort to create mastery, and staying focused.
Cash flow:
Don’t bother creating a detailed, line-item spreadsheet with a dozen-plus categories that micromanage your budget in excruciating detail. That’s unnecessarily complicated. Besides, how long are you really going to stick with it? Do you think that in five months, you’ll stay motivated enough to tally every item from the grocery store?
Stick to the anti-budget: yank your savings off the top, then chill out about the rest. Pick whatever savings rate you want — 10 percent, 30 percent, 50 percent, it’s your call. Transfer this into savings each month. Live on the rest.
You don’t need to create a hyper-detailed budget. These budgets introduce complexity into the system, and the more complex a system, the more likely that system is to fail.
Work life:
Find the 80/20 solution to every project. What activities give you the biggest return on your time, energy and attention?
Ask yourself, “what’s the ONE thing I can do [for my health, money, relationships, etc.] such that by doing it, everything else becomes easier or unnecessary?”
Workouts:
I don’t need to learn 40 different types of exercises. I need to know how to perform bench presses, deadlifts, squats, rowing, some cardio, and some stretching. My workouts don’t need to be more complicated than that. Find a routine that works for you and ignore the urge for shiny-object-syndrome when it comes to the latest workout fad.
Simplifying isn’t about deprivation; it’s about maximizing your enjoyment of a curated selection.
#7: Curate
Own fewer but better things.
Last year I interviewed Jean Chatzky, the financial editor of the Today Show, on the podcast. During our interview, she told me that she only buys items at full price.
Wait, what? She only buys at full price?
Yep.
She realized that when she saw a sale, she would pick up “extra” things — items that she didn’t need, or that she bought impulsively — simply because they were on sale.
- “I wasn’t planning on buying a candle, but it’s on sale for $5…”
- “I don’t need this table, but it’s on Craigslist for $15…”
By only buying items at full price, she owns fewer but better things. Her home is less cluttered, because she’s placed more thought into each purchase.
Lesson:
- A Craigslist sale is still a sale.
- A thrift store sale is still a sale.
- A sale is a sale is a sale.
When you clear out your closet, garage, or attic, the question to ask yourself isn’t, “What should I get rid of?” but rather, “What must I keep? What is so amazing I can’t imagine getting rid of it?”
If an item doesn’t meet that high standard, then why do you have it around? Why surround yourself with mediocre items?
Once you’ve curated your personal possessions down to the few things that matter most, you’ll discover that your desire to spend and accumulate will drop.
#8: Don’t Half-Ass Anything; Whole-Ass the Right Things
Here’s a well-known secret about coupon and deal websites:
Those website owners are successful six- and seven-figure entrepreneurs. They’re promoting money management through shopping clearance sales, but their own finances are fueled by revenue, rather than deal-chasing.
Sure, they might use a $3 coupon on a package of frozen chicken so that they can relate to the content they’re releasing. But on that same day, they might earn $1,000 in daily gross revenue from that same article.
“If you service low-impact activities, you’re taking away time you could be spending on higher-impact activities,” says bestselling author and podcast guest Cal Newport. “It’s a zero-sum game.”
You have time for anything; you don’t have time for everything. Every hour you spend on X is an hour you’re not spending on Y.
- If your toilet needs to be replaced and you decide to install the new one yourself, that’s four hours you’re not spending at the gym.
- If you clip coupons to save $12 per week on groceries, that’s one hour you’re not spending on growing a side business.
What matters most?
#9: Work with Your Nature, Not Against It
A couple of years ago, I decided I wanted to drop the vast majority of my freelancing and consulting clients. I didn’t need the money; I’d gained financial independence, and I wanted to spend my time traveling, writing, and podcasting.
Yet I felt reluctant to cut the cord.
“If only I were more disciplined, I could do both,” I told myself. “If only I were focused, I could keep my freelance/consulting clients while also going to the gym and cooking and traveling and reading and writing and podcasting and making space for a social life.”
I’d take an honest look at my time (including tracking my time in 15-minute intervals) and I’d see how much time I wasted. Fifteen minutes here; 20 minutes there.
“If only I didn’t waste so much time,” I told myself, “I could do it all.”
And then I drove myself crazy trying.
Because you know what? I’m not more disciplined. I’m not more focused. I’m capable of a certain amount of daily output, and that’s that. My mission isn’t to increase my output, it’s to curate what happens during those hours.
Eventually, I admitted to myself: “I can’t do everything. If I want to lead the type of lifestyle that I want to lead, then something’s gotta give.”
That’s when I dropped my clients and lived happily ever after.
Do you tell yourself, “I’d be [X] (happier, more successful, more fit) … if only I had more willpower” or “… if only I was more disciplined?”
You know what? You are who you are. Find ways to work with your nature rather than constantly battling against it.
#10: Focus on Habits, Not Willpower
When I wake up, I immediately drink a glass of water. This isn’t an act of willpower or discipline. It’s because I formed a habit.
“Willpower isn’t just a skill, it’s a muscle, like the muscles in your arms or legs,” says Charles Duhigg, author of the fantastic book The Power of Habit. “And it gets tired as it works harder, so there’s less power left over for other things.”
If you rely on willpower, you’ll eventually get tired and give up. But if you focus on forming habits, willpower doesn’t enter the equation.
Here’s how to turn anything into a habit:
- Find a cue, or trigger.
- Take an action.
- Receive a reward.
My cue or trigger is waking up. The action is drinking a glass of water. The reward is the instant feeling of hydration.
Here’s the part that most people get wrong: the action should be its own reward.
Most people try to set up a system in which they have a cue (I finish my workday), they take an action (I lift weights), and they receive an unlinked reward (I allow myself to drink a glass of wine when I get home).
Author Gretchen Rubin found that unlinked rewards are counterproductive, because you begin to see an activity as a means to an end. If you reward yourself with a blueberry muffin every time you go running, your brain starts to think, “Okay, if I go running, I can eat this blueberry muffin.”
You’re not learning to appreciate running for its own sake. You’re only learning to cope with running in order to get to that muffin.
The more effective approach, Rubin found, is to find the inherent rewards of running, like the “runner’s high” you feel immediately afterward. Focus on this as its own reward.
If you must give yourself an external reward, she recommended, choose something that furthers the activity of running — such as a new pair of running shoes, or a better rain jacket for the days you’re jogging outside during a drizzle.
#11: Risk = Probability x Magnitude
“How risky is this?”
I frame the concept of “risk” as the probability that something may happen, multiplied by the magnitude or impact of its consequence.
There’s a low likelihood that I’ll get a papercut today. And if I do, the papercut’s impact on my life will be near-zero. Therefore, the risk of handling paper is low.
There’s a high likelihood that I’ll get stuck in traffic at least once this month. But the impact of a few extra minutes in traffic is unlikely to have a big effect in my life. Therefore, getting stuck in traffic is a low-risk activity, even though there’s a high chance of occurrence.
There’s a low likelihood that I’ll get diagnosed with cancer, but if I am, the impact on my life would be tremendous. Therefore, this is a high-risk situation.
There’s a high likelihood that I’ll experience tragedy during my lifetime. And it’ll be shattering. This is also a high-risk situation.
Prepare (and insure) against the situations that are risky. Don’t stress about the ones that are not.
This framework (risk = probability x magnitude) can help you make smarter decisions. Should you quit your job? What rates should you quote to a client? How much should you offer on that house?
Ask yourself what’s the worst that can happen. Oftentimes, once you start to think through the worst-case scenario, you realize it’s not that bad. Many of the things that scare us are survivable.
#12: Value = Impact x Reach
The value that your work/business creates is the impact you have on others, multiplied by your reach.
If either variable (impact or reach) is high, then your work is high-value, even if the other variable is low.
A trauma surgeon makes a massive impact in the lives of others, yet she concentrates that impact on a relatively small number of people (each patient gets individual attention). She impacts thousands of people, but not millions. Her impact is ultra-high, so the value of her work is high.
In comparison, Coke or Pepsi makes a small impact on people’s lives. We enjoy a fizzy caffeinated drink. But they reach billions of people, and as a result, their value is high.
#13: Achieve Being Through Doing
The best cure for writer’s block is to start writing. The best cure for not wanting to exercise is to start moving. You don’t need to feel like doing something before you do it.
Act first, and the feeling will follow.
Thought, behavior and emotion are interrelated. By changing your behavior, you can influence your thoughts and emotions.
#14: When You’re Not at Work, Don’t Be at Work
Here’s a pet peeve:
I’ll go to a party, or meet a stranger in an UberPool, or start chatting with someone at a festival. They open with the question, “What do you do?”
Guess where that leads the conversation? Yep. We start talking about work.
I reply that I’m a podcaster, they ask follow-up questions (like “what topic do you cover?” or “how do you make money podcasting?” or “how did you get into that?”), and soon the conversation starts to mimic high school Career Day.
This is one of the many ways people stay “at work” even when they’re not at work.
Work isn’t everything. When you’re not at work, don’t constantly think and talk about work. You’re not there, so don’t be there.
This is the art of being present.
By the way, I’ve started a new game. If anyone asks, “What do you do?” I respond, “Great question! Okay, here’s a game. I’m going to list three different careers, and you have to guess.”
And that leads to the next lesson …
#15: “Yes, And…”
The most important rule in improv comedy is to “yes, and” the situation.
If another actor says, “My brother is flying to Moscow,” you can’t reply, “You don’t have a brother.” That negates the storyline.
You have to accept the premise and say something like, “Did he accept that job offer from the Kremlin?” This keeps the story moving.
Just like in improv, life gets easier when you take a “yes, and” attitude toward whatever comes your way.
If you’re at a party and someone asks “What do you do?,” don’t push back with, “I don’t come to parties to talk about work.” Your heart may be in the right place — you’re trying not to think about work outside of work — but that kind of resistance puts up a wall and cuts off the conversation.
Instead, be open to what the person is saying and build on it: “Hey, that’s a great question. All right, I’m going to list three things. You’ve got to guess.”
This “yes, and” response takes the conversation to another level — and it’s a heck of a lot more fun.
#16: Stay in Your Circle of Influence
In Seven Habits of Highly Effective People, Stephen Covey explains this concept by describing two circles. One is called your circle of concern. Inside your circle of concern is everything you could possibly be worried about, from nuclear war to whether or not your socks match.
The other is your circle of influence. These are the things you can directly influence, like whether or not your socks match.
To be effective, focus on your circle of influence. For example:
- You can’t control the stock market, but you can control your contributions.
- You can’t control the job market, but you can develop skills, expand your network, and build a nice stash of “FU” money.
- You can’t control whether or not we find a cure for Alzheimer’s, but you can control whether or not you contribute to the cause.
Stay inside your circle of influence. The more you do, the bigger your circle of influence grows.
#17: What Is Stated Happens (WISH)
If you say, “I’m not a good investor,” guess what? You won’t be.
If you say, “I’m not good at math,” you won’t be.
If you say, “I’m awkward at parties,” you will be.
Our actions follow our words, so be careful about the words that come out of your mouth.
That’s why I don’t believe in the statement, “I can’t afford it.” It’s self-defeating. You can afford anything — not everything, but anything.
Sure, there are reasonable limits. You can’t afford a rocketship to Mars. You can’t afford to single-handedly pay off the national debt of Ghana. But within reason, you can afford anything.
You can travel to Europe for six weeks. You can buy an RV and cruise across the nation. You can save for a downpayment on a rental property.
Try this:
- Replace “I can’t” with “I choose not to.”
- Replace “I don’t have time” with “it’s not a priority.”
“I can’t afford to travel” equals “I choose not to travel because I’d rather [X] — eat at restaurants once a week, drive a 5-year-old car instead of a 15-year-old car, etc.”
“I don’t have time to exercise” equals “It’s not a priority to exercise.”
Anytime you catch yourself saying (or thinking) “I can’t,” reframe this idea. Then ask yourself if the new statement resonates with you. Do your actions reflect your priorities?
If they don’t, it’s time to make a change.
Mary
What a great read! Thanks so much, especially for the last item. My husband and I really wanted a car. He has his eyes on his future car, but I am the negative one and often thinks that we really cannot afford a car in two years’ time.
Paula Pant
I’m happy the What is Stated, Happens concept resonated with you! If you share his goal for a car, try sitting down to create a plan … where can you cut spending or increase income in order to get you to that goal? 🙂
Dave @ Accidental FIRE
Good stuff Paula. For me “Focus on Habits, Not Willpower” was one of the biggest factors that got me to financial independence. I created habits and systems, then I “washed, rinsed, and repeated” A lot. It worked.
Paula Pant
Yes!! Habits (rather than willpower) are the way to go!! I’m happy to hear that it worked!! 🙂
{ in·deed·a·bly }
Fascinating list of ideas there.
I like the simple “do less, but better” approach, especially when through the “what risk?” and “how valuable?” lenses you describe.
Less convinced about the wish one. Wishing I had a time machine or could fly like a bird isn’t going to make it so. Figuring out how to accomplish achievable goals I am in favour of however.
Paula Pant
Glad you liked the list! And yes, there are reasonable limits — like the laws of physics. 🙂
Randy @ Emusements
What a profound and actionable list of life practices and principles! The Keep It Simple idea resonated with me, especially the part about avoiding budget micromanagement. On my family’s journey to FI, we’ve broadly tracked our expense categories and our overall annual expenses so we could calculate our FI number and measure our progress toward it. But we stopped short of tracking at the transaction level via spreadsheets or YNAB because the time and mental energy required seemed excessive and better spent elsewhere. I love life hacks, but there is always a danger of them becoming circular where you plug your time savings into more life hacking instead of into family, friends and experiences.
Paula Pant
“the time and mental energy required seemed excessive and better spent elsewhere” — Oh heck yes!! I’m glad you also recognized that!! It can be tempting to dive too far down the rabbit hole … 🙂
lk
Your last one, I appreciate. It’s a subtext of your blog that I’ve tried to integrate into my life. Own it, right?
I disagree with “don’t half-ass anything.” My half-assed is better than the full effort of some people because I have years of experience. Half-assing some things allows me to do more things. And if I don’t half-ass it, it’s likely no one will do it.
Laura Vanderkam has helped me understand this, too. It’s better to go running 3 times a week and give my students some feedback on their papers rather than give excellent feedback and not run, or run everyday but give very little feedback. Being ok with that is a challenge for high performers, I think.
Roshan
Love this list of principles and the concise way in which you write Paula 🙂 I always enjoy reading your articles and am going to pass this one on.
Sylvia
I wish you were around in my 20’s! I would be sooo much farther ahead in the game. Good news is it’s never too late to learn and you offer up wonderfully fresh lessons in this post. Thank you so much!
A Purple Life
Fantastic advice! I might need to print this whole thing out and paste it all over my fridge. Absolutely wonderful, especially “Work with Your Nature, Not Against It.” I have a real problem with that. I need to just accept that (for example) I require a lot of downtime to be a happy, functional human being and I shouldn’t be comparing myself to people who are the opposite and might need to constantly be doing and creating to be happy. We’re different people with different needs. Thanks so much for sharing!
DxL
FAN-TAS-TIC! Loved this list, and it really got me thinking about a few key points – net worth, curation, WISH – to name a few.
Paula Pant
Thank you so much! Glad it got you thinking. 🙂
Mrs. Picky Pincher
Dewwwwd, #17 is so true. It sounds like a “woo” strategy, but the way you speak and think about your goals actually influences the outcome. It’s hard admitting that as a pessimist, but negative self-talk can actually be self-sabotaging.
Paula Pant
Absolutely! I’m glad you’re seeing that. And who knows … perhaps one day you won’t be a pessimist! 🙂 I’m hopeful about that, at least! 🙂
Cathleen
I found myself nodding at a lot of what you said. Doing something is usually a matter of just starting. once you start, there’s momentum to keep you going. Physics for more than just the physical- it applies to actions, too.
For the millionaire next door number- does net worth include your home? Or just cash and investments? If not, then I’m a little short of my PAW number in terms of investments and cash on hand.
(and I’m sorry, but this is bothering me- really really mean “no offense” in the least snarky way possible): The PS of lesson 1 has a misspelling: “I’d rather be happy that rich” should be “i’d rather be happy than rich”. Unless you really did mean “I’d rather be happy that rich”, which could work- I know I would rather be happy being that rich. Its just that I do this all day (examine patent applications, so have to correct spelling and grammar errors in claims….not an editor).
Paula Pant
Thank you!!!! That’s a great catch — I appreciate it! I’m fixing the typo now. Grammar is important, so I’m grateful that you caught it! 🙂
Yes, for The Millionaire Next Door number, your net worth includes the equity in your personal residence. 🙂
Laura
Great article. There are so many things on your list that work for personal finance and life. The idea of creating habbits not using will power is the best. This is why I do automatic investing and saving. There isn’t any ongoing will power required.
Paula Pant
I’m glad you liked that one! Habits are powerful and effective. 🙂
Nathan @ LifeBeforeBudget
“Do your actions reflect your priorities?” What a beautiful line and a question that we need to ask every single day! And if not, should we change our actions or our priorities? Hmmm …
By the way, although you can’t buy a rocket to go to Mars, you may be able to afford to travel to Mars sooner than you might think. Didn’t you say that one of yours favorite blogs is Wait, But Why? #elonmusk
Jon W
Regarding the TMND number, thoughts on what income figure to use? Is it just your current gross income? Or perhaps an average over your work history? Is it just W-2/1099 or include investment income from rentals or other passive instruments?
I guess in my case, I’ve taken a healthy W-2 salary, saved a significant amount of it, and am now converting some of that savings into significant cash flow. I look at the TMND number as how well am I doing toward building net worth that I can convert into retirement income.
In my case, if I go by just my current W-2 income I end up just over the threshold of being a PAW. However, if I add in my investment income as well then I’m closer to an UAW. Then again, if I use my average annual income plus investment income I’m back to being a PAW. Perhaps that’s the figure I’ll use. 🙂
Robert Hawkins
Money is not the final purpose, but the means. Your financial purpose or dream should not be to accumulate money. Money is the means to reach your goals. From buying a house, increasing your assets or even starting a new business idea, money is the basis to fulfil it. It is useless to accumulate and treasure money without a purpose.
Victor
Such a great article. I remember learning some of these concepts a couple of years back but this is a great refresher condensed into one article. Love it!
Denise
Paula,
This list!! Such a great read with so many actionable ideas. Many resonated with me and in particular your mention in #11 of thinking through what could happen in the worst case scenario. We used this strategy when renovating the basement suite of our second home. I was so worried that we wouldn’t be able to afford the 2 houses (even though we had a solid rental strategy). My hubby asked me “So what would we do if we didn’t find good renters right away?” Within 5 minutes we had 2 back up plans. It was such a relief!
*pinned
Thanks for the great info,
Denise
Jake Kimberling
#3 really stuck out to me. Mindset shift has been a recurring theme as of late. Thanks for the awesome post!!!
Heidi
Paula,
I live in a resort town. When asked “what do you do?” , the expected response is something like: “I ski in the winter and mountain bike in the summer” or ” I hike and cross-country ski”! If you respond with your profession, you sometimes get a funny look.
What would happen if you lead the conversation down the “what I do for fun” road?
Also, I agree with Robert Hawkins- I feel that money give us options. I love options!
Thanks for your wisdom and positive approach!
GenX FIRE
That Youtube link is epic. The advice is sound, and love the attitude. The philosophy in this post is equally important. As others have said, I wish I heard it earlier. Depending on how the market goes, and our savings rate, we could be at the FU moment in 4- 13 years. I suspect it will hit in 7 years. Daycare ends in 1 year, and that will be a big chunk of change back in our pockets.
Katie Camel
Great list! I especially love the first one. While I agree that money can’t buy happiness, the lack of money can certainly make you miserable. I look at where I was a decade ago, and that lack of money made me miserable! Earning the income I now earn has provided the life I wanted a decade ago and I’m much happier. However, more than just my financial situation changed. Still, it’d be silly to say money didn’t play a role in increasing my happiness. That said, I likely wouldn’t be much happier with a higher income, unless it was substantially higher and allowed me to do exactly as I please every day.
I love #10 too and will need to read that book! I have a few habits I’d like to break.
Danielle Ogilvie
I love the I can’t to I choose not to statements. It makes you conscious of things you’re choosing to make a priority.
Desmond@FinanceForTheYouth.com
Wow, Paula! Great article, I absolutely love your outlook on delayed gratification and the importance of reframing it rather than delaying it. I personally love the feeling I get from buying a bunch of dividend stocks… I also feel good later, knowing that it was a long-term decision, rather than getting gratification by wasting money on clothes or electronics that I don’t need.
Sportzz
This is my favorite personal finance and life hack article for 2018!
Barbara Hamiltaon
This is a great post, Paula. So meaty and delicious.
As a doctor, I must comment on the Millionaire Next Door equation. It should be adjusted for physicians. We don’t enter the workforce until near 30 at earliest. So this equation is bound to make us feel even more financially inferior, like real UAWs!
By this calculation, I am supposed to have accumulated $1.4 million, 4 years out of training. I have paid off $136k in medical school debt. I earned far less than I do now during 6 years of residency and fellowship training. My husband and I are pretty frugal. Yet I hope to be at HALF this calculated number in a year or two.
By my estimation, the opportunity cost of entering medicine may be 20 years or more! If I take my age, subtract 20, multiply by my gross income, divide by 10, I come close to (but still above) my current net worth.
Doctors get ragged on as it is in Millionaire Next Door. I love that book. But for our profession, and others like it, this equation is unrealistic.
Tired super heroine
TJ
“Because you know what? I’m not more disciplined. I’m not more focused. I’m capable of a certain amount of daily output, and that’s that. My mission isn’t to increase my output, it’s to curate what happens during those hours. ”
I loved this. [Big time!] We have to accept limitations to realize possibilities. Steve Jobs famously said “Focus really means saying no.” I get diverted too easily and take on too much. But it’s not about trying harder (provided one is making a serious & legitimate effort in the first place). It’s about first accepting what is, and then working with that to move forward.
Thanks! Great advice/reminder.
Catherine R. Valerio
Money can’t buy happiness but at the same time money can make you happy when you bought things that you wish in life. So money is equally important. Great post I must say. Keep it up.!
Emma Watson
Thank you so much for helping me with this great piece of information!
Your point #14:[ When You’re Not at Work, Don’t Be at Work]
that’s really helped me out with working issues and problems thanks a lot.
Kenneth D. McKenzie
It’s not all about money, sometimes you have to be at rest as well with no money at all. Great post really helpful for youngsters.
Bryan Anderson
This is so true Paula, your point #17: What Is Stated Happens (WISH) exactly conveys the truth about what say our actions follow it.
Thanks for sharing worthy content with us.
Keep it up
Katherine Ryan
Needed this piece, especially getting to the end of the year when every emotion comes crashing down when I begin to see where I am versus where I want to be. I connected to #1 and #6. I have to work on simplifying my life since I overthink simple things, which leads to paralysis.
Anand Ahuja
Wow Paula, This is such a great post. Love this list of principles and the concise way in which you write the article.
I always enjoy reading your articles.
Freedom Sprout
I don’t even know where to start with this one. This article is so exhaustive and full of great points. I’ll say though, #10 is so key! Habits and systems are really the things that we actually do. I actually believe in creating habits and systems instead of setting goals, especially with finances. If you put the right things in place, the outcome with naturally happen like you plan.
Anna Williams
Well, that’s true, experience makes us happier than things. I agree with that point because when you experience new things in life you get surprised which makes you happier than normal things.
Trippe
Nice blog! I started a blog 6 months ago at 67 and am looking for blogs that I can learn from. I know it is hard work and often frustrating. I will give a good try even though I know I don’t have as much ‘time’.
Laura
Hi Paula,
Great article; I especially like the theme of curating experiences, time spent, things bought, etc., instead of trying to snorf up everything because it’s there.
I spoke to you at the November ChooseFI San Diego meeting and I want you to know that I am keeping my promise to listen to your podcasts at a 1:1 sound ratio. I love them — they are so happy and upbeat. They really cheer me up. And so educational! Thanks!
Ali
I’ve been listening to your podcasts for a couple of weeks now, and I can safely say it’s changing my life! I’m currently a vet student in the UK approaching the final 18 months of the course. I’m unlikely to be able to take on too much work during the remainder of my study and my student loan is barely making ends meet.
Do you have any advice for once I start my first job on how to transition from quarterly loans to a decent monthly income? A part of me wants to relax and enjoy myself, but there’s another part that feels I’ve lost a few years of savings during my time at uni so I’ve got a lot of catching up to do!!
Mr FIRE Ready Aim
Thanks Paula. All of these points are money, but as I start to seriously journey towards FI and think about the how, the reminder to “simplify” rings strongly for me. Can’t wait to share this with the wifey.
Peter Horsfield
Nice work Paula.
So are you walking your talk or just writing about it?
Success. 1% inspiration + 99% perspiration.
Catherine Lynch
One of the best articles I’ve read in a long time…and I read a lot…thank you!
Lyn
Thank you for taking the time to make the impact in my life today.
Moriah Joy @ Our Table for Two
#7 hit me. hard. Because I do that, but the culture around me (you’re young and broke and newly married, you don’t get nice things in your 20s) makes it really hard to remind me that it’s okay to go without until you can find what you actually, really TRULY want.
Kerry @ yourfinances.com
Paula, nice article. My favorite was the “know your millionaire next door number”. The reason is that it allows you to think about a important (maybe the most important) financial goal and where you are related to that goal. (ps you have a small typo on that one in the equation where the “:” should be a . Cheers, Kerry
DNN
I have to admit I wasn’t frugal in 2017 and most of 2018. I splurged online, looking for macys clearance sales, shopping at online fragrance stores, and buying up sneakers and shoes. And Ralph Lauren online sales too. With a renewed focus on building and sustaining financial management, I’m going to strive to earn my money back I spent online by writing reviews in hopes of improving my money life.
Papa Foxtrot
Love your advice. I have not read The Millionaire Next Door yet so I was scared of #4. According to the equation I was UAW (between 60% and 70%). I felt bad because I was feeling frugal with my money, but I was still under. I am 26 though, maybe mention that the equation only applies if you are in your thirties or older before what the numbers mean. Lol. Then again that made sure that I will continually aim for that. I will be sure to read that book. Some more of your advice like simplify also rang in my ears because I am, shall I say, over ambitious. Maybe I should focus a bit more. Check out my blog for some other financial advice. I just started, but I will post more at least weekly.
Alan | Smart Money Journey
Hi Paula, Great article. I can definitely agree simply everything by finding the simplest way to do whatever you’re doing. Great point to simplify your life in this chaotic world that we live in.
Linda V. Mack
Your financial purpose or dream should not be to accumulate money. Money is the means to reach your goals. From buying a house, increasing your assets or even starting a new business idea, money is the basis to fulfil it. It is useless to accumulate and treasure money without a purpose.
Dad Life
We always have to strive for ways to achieve our dreams. Money is a tool to make it happen. Time is our limited resource and we must always try to make the best of it. The key is realizing along the way you might mess up or spend on the wrong thing but realizing it doesn’t have to be final, that there are ways to change and grow even after financial and life mistakes. The key is staying the course push on and pursue the dreams.
Mark Spink
I loved number six! In particular the section on budgeting. I went through Dave Ramsey’s “financial peace university” and am now debt free. I enjoyed it but the budgeting section was a little overwhelming. Thank you for assuring us that it’s ok to simplify!
Capital Blue Cross
The lessons given in the post are very useful and interesting.. everyone should start using them..
Mr. Frugal Wheels
Not a bad list overall, but asking people to play guessing games is a pretty annoying response to a straightforward question. The question what do you do is actually quite open-ended – although it’s assumed, nothing about the question says you have to talk about work. Or you could start with your job but pivot away by saying, “well, what I’m really excited about lately is… ” I might point out that forcing someone to guess your job is still talking about your job.
The delayed gratification one is interesting because I think people have false assumptions about this lifestyle; they equate spending with fun. Just because I save half my income doesn’t mean I’m not enjoying life. In fact, I think I’m enjoying life moreso, because the things that really matter don’t cost money. Hosting my podcast, helping on movie projects, taking bike rides or playing disc golf with friends, getting together with family, or just a simple conversation over a coffee are low cost/free and to me are the important things in life.
Isabella Jason
Thanks for writing this great article. I’ve been using some of these techniques on by blog. But I didn’t know the phrase “Social Proof”. Thanks for sharing.
Roger moody
No 17 AKA If you think shit, you’ll get shit!
If you don’t like something you’re experiencing, then don’t do it, drop it, destroy it, make it irrelevant.
If you still are undergoing the experience, then don’t think I dont like it, because the fact you are still doing it must mean you either like it or need it.
Lesson – Always raise the bar, and engineer yourself!
NO Excuses!
Emmie
This is a great article. Great points. It’s important to be wise with your time and money.
Überweisung nach Pakistan
I found myself nodding at a lot of what you said. Doing something is usually a matter of just starting. once you start, there’s momentum to keep you going. Physics for more than just the physical- it applies to actions, too.
For the millionaire, next door number- does net worth include your home? Or just cash and investments? If not, then I’m a little short of my PAW number in terms of investments and cash on hand.