"Save more, spend less, and don't do anything stupid."
I'm reading Kiplinger magazine and I'm fascinated. I wonder if I should subscribe to Money, Fortune, and Forbes, too. This personal fiance stuff is fascinating. I'm working a lot of hours at the family restaurant, but in my spare time I watch programs on cable that cover personal finance, like Suze Orman's show. This stuff just makes a lot of sense to me and I love how simple and straightforward it is.
It's now a few years later and I'm working as a bank teller with a coworker and friend of mine. He tells me that his brother told him, "You aren't really living until you rack up at least $20,000 in credit card debt." We laugh. "What a moron," we think. Nobody should have that much credit card debt! That's so much money! Plus, it doesn't fit into any of the rules we've ever read or heard about in our personal finance educations.
Now it's 2005 and I'm bummed that had to cut back on my hours toward the end my college career because I was making less but the bills stayed the same. I move to the Twin Cities (Minneapolis-St. Paul, MN) where I find a temp job helping people peddle subprime mortgages, but it only lasts a couple months. I find myself unemployed in an expensive city.
By the time I find the job that starts my career I've taken inventory of my credit card bills. Somewhere along the lines I borrowed $25,000 over 10 credit cards with interest payments of over $5,000 per year. My mind flashes back to how I made fun of my friend's brother for having credit card debt and now I've gone and done it.
It took some time, but I finally learned that this personal finance stuff isn't easy, even if it is simple.
Simple, but Not Easy
Simple and easy are not the same thing. Simple usually refers to concepts and rules. Are the rules simple or complex? Easy usually refers to performing. Is it easy to do or difficult? Mowing the grass is both simple and easy, because the concept of cutting the grass is straightforward and actually doing the mowing is not difficult. The game Rock, Paper, Scissors is easy, because it's not a difficult game to learn. However the game itself is rooted in game theory and predicting opponent behavior, so it's quite complicated. Everyone's favorite comparison, rocket science, is both complicated and difficult (i.e. not simple and not easy).
The formula for me to follow if I want to lose weight is pretty simple; burn more calories than I eat. That's it. Is that easy to do? Well, how's it going for you?
Similarly, the rules of personal finance are quite simple. Live on less than you make, save for the future, insure against large risks, and have a plan in case bad stuff happens. Yet, so many of us don't follow the rules of personal finance. Something else must be going on. When we think about how simple it is, that is the logical part of our brains. It makes sense. It's rule-based. But, there's a second part. Once we know what to do we have to do it. Getting ourselves to actually do it is the biggest factor tripping us up. That's because the culprit is our emotions.
Simple = Logical
Simple usually refers to the concepts. The opposite of simple is complex. There are some in the personal finance world (salespeople) who make a living trying to convince you (read: speaking to your emotions) that finance is complex. It can be, but if it's done properly it doesn't have to be. In the world of money, simplicity beats complexity every time.
Not Easy = Emotional
Easy refers to how hard it is to actually do. Unfortunately personal finance is not easy. The opposite of easy is difficult. Managing our emotions and instincts is what makes this quite difficult. There are a lot of negative emotions attached to money, such as guilt, shame, envy, anxiety, anger, fear, and regret.
It's not always negative emotions, though. The fear of missing out (or FOMO to my hip friends) gets us to engage in behaviors that aren't in our long term best interest because we want a short term reward, which gives us a hit of dopamine (which is very addictive).
Logic Versus Emotion
Human beings will do a lot to