This was my favorite phrase back when I was on the endless corporate hampster wheel of earn and spend, earn and spend.
My dad used to tell me to stop buying new Nikon cameras and start investing more of my income.
“But Dad, personal finance is personal!” I would say.
I used to go out to eat every day of the week (yes, literally).
“Personal finance is personal!“
Any stupid decision I made with my money (which happened often!):
“Personal finance is personal!“
I’m sure you’ve heard the phrase before. And it’s true, to a point.
Personal finance IS personal.
But math isn’t. Math is quite universal.
Today, I hate the phrase personal finance is personal, and here’s why.
Personal finance may be personal, but math isn’t
Personal finance is personal…to a point.
For instance, one person might be willing to spend more to live in a high-cost-of-living area because they enjoy it there. It’s a personal decision.
Another might take a lower-paying but less stressful job in order to spend more time with their family. Again, 100% reasonable personal decision.
So what’s the problem, then?
People use that phrase to rationalize bad decision-making.
For example, going into debt buying an $85,000 pickup truck when you make $70,000 a year isn’t just a “personal decision.” It’s a stupid one.
Racking up thousands of dollars in credit card debt on shit like designer clothes, restaurants, and big TVs isn’t just personal or “right for me.“
It’s stupid.
Dropping $1,000 a month on restaurant food instead of taking an extra 20 minutes to prepare something at home is dumb (hint: this was me!).
When we use the phrase “personal finance is personal” to rationalize why we don’t practice basic money-management techniques proven to make us rich, we aren’t just making a personal decision. We’re making a stupid decision.
Here’s the point, and I cannot stress this enough: You gotta master the basics before making personal finance “personal.”
Math isn’t personal. It’s universal. If you don’t save and invest, you’re NOT going to have enough to live your dream retirement.
If you don’t pay off your credit cards every month, you WILL accumulate high-interest debt that will bury your hopes and dreams.
If that BMW is more important than keeping a 3 to 6-month emergency fund, then DON’T blame your income. Blame your decision to buy that car.
The math proves this.
And math isn’t personal. In fact, it’s pretty darn mean. It doesn’t care who you are or where you came from. It doesn’t care about your upbringing or how hard you try. It only cares about the numbers. And the numbers always tell the truth.
So, what’s the answer?
Get the basics down first. Use automation to build an e-fund. Invest 20% of your income. Pay your bills in full every month. Then – and only then, start making personal decisions about where your money is going.
Sorry about the “tough love” in this email. But it needed to be said.
Until next week,
– Steve
