Let’s talk about personal finance time investment.
One of the great profound mysteries that I have been completely unable to understand or solve in my 7+ years of personal finance blogging is why the masses invest so little time in personal finance. Practically zero for most.
It is borderline INSANITY.
Think about this for a moment…
First, we dig ourselves high interest student loan debts in the tens of thousands that will take 20 years to pay back, so that we can hopefully get a high paying job.
Then, if we are lucky enough to get that high paying job (or any job), we then work 40, 50, or 60+ hours per week. This is the majority of our waking hours, at least 5 out of 7 days per week, and we do it for the next 40+ years. These are the years that are supposed to be the most vibrant and healthiest years of our lives.
Our jobs can leave us stressed out to the point of undesirable health. It is a rarity if you actually genuinely enjoy your job – a majority of Americans don’t. Even if you do, you could be just one unlucky appointment to a jerk boss or recession “right-sizing” away from having it taken away. Employer loyalty is a thing of the past.
We sacrifice a lot for our employers – health, family, friends, community involvement, time, and willpower for one primary purpose – to make income to pay for things.
Somewhere along the way, workers realized this tradeoff kind of sucked, so we fought for pensions so that we could sustain ourselves when our working days ended. But the balance of power shifted in the workplace, and now pensions are dead. All we are truly left with is the hourly wage or salary we make for the time and effort that we put in while we are working.
We then spend almost all of that money – saving just 5% of it, on average. Many save less, nothing at all, or quite commonly – spend more than they earn and dig themselves a hole of high interest debt that they have to work doubly hard to pay off. In fact, the average millennial personal saving rate is at -2%.
At a 5% savings rate, it would take you 20 of the best years of your life just to save up enough to buy back the 21st year’s living expenses. Let that sink in for a bit. Keeping your head barely above or below water is not successful personal finance.
Now, all of this might be fine if you absolutely love your job, couldn’t see yourself doing anything else with your time, have no desire to EVER retire (Social Security won’t be enough), AND you’ve done everything you possibly could to boost your savings.
Except, we don’t. Instead, we give most of our lives for that income and then we do nothing with it but consume.
If you’ve read this far, you may be an exception to this rule. Nevertheless, this is the standard in our country and beyond. 40+ hours a week to make money and then just over ZERO hours a week on personal finance to get the most out of it. We even spend more time planning vacations than retirement.
I’ve often wondered, what if, instead of zero time investment towards personal finance, the average was 7, 5, or just a simple 2 hours per week. Everyone can find 2 hours per week, right? And, what if, as a result of those 2 hours…
- Everyone created a budget and held themselves accountable towards it?
- Everyone spent an hour a week reading about ways to cut costs and properly invest their savings?
- High interest debt was feared and avoided like it was the Ebola virus?
- Everyone trained themselves to consume mostly needs versus wants?
- Everyone bought just the right amount of home to live comfortably?
- Everyone had an adequate emergency savings fund?
- Everyone was properly insured to avoid financial catastrophe?
- Everyone commuted by self-power or public transportation?
- Everyone learned what healthy foods were good to buy and then how to cook them?
- The personal savings rate jumped from 5% to 25%+?
- Everyone could eventually afford to work jobs they truly enjoyed versus working jobs they didn’t to pay for shit they don’t need? How much better would physical and mental health, job satisfaction, and general happiness levels be?
- Everyone put their savings to work for them as mini-dividend generating employees?
- Everyone could save enough to buy their time back so that they could use their energy, effort, and willpower to improve their lives, and their family, friends, and community?
The more time investment the better, but just 2 hours of personal finance study per week to manage your money (less than 5% of the time invested in hours worked to make your money) is really all it would take to get you to an adequate level of basic proficiency. Once that basic proficiency level was achieved, it would take even less time to maintain it. And in investing the time into this skill, you can even get rid of your financial advisor (which saves you even more money).
Sure, shit happens. Life events are not always fair. You may suffer a number of setbacks along the way that you’ll have to pull yourself up from. And you still have to find a way to make a decent income that will provide you the means to live within. But never in the history of mankind has there been the kind of resources available to you to learn how to do that and then how to get the most out of those earnings.
Two hours a week. That’s it.
Do it for yourself and encourage everyone around you that you care about to do the same. The dividends will be life changing.
I, personally, am getting on alright with the whole savings, paying off debt lifestyle. The next step, though, is going to be investing.
Can you recommend any books to read as a practical introduction to investing? Currently my money is tied up in property, however I feel like I need to diversify slightly and put some money into other investments.
Thanks again for the interesting read.
Good question and one I have been investigating. Look around the web and I frequently see these listed. Sure there are others, but these are consistently mention and anything by Bogle is worth reading.
“The Four Pillars of Investing,” again by William Bernstein
“The Little Book of Common Sense Investing” by John C. Bogle
“The Intelligent Investor” by Benjamin Graham
“A Random Walk Down Wall Street” by Burton G. Malkiel
“The Investment Answer” by Dan Goldie
The simplest thing to do, and I did once I started working, is to open a Fidelity account (or similar) and wire money to it regularly, whatever you can afford to save per month. $100, $500, more…
This will be your biggest source of return early on. Consciously saving.
I ended up picking a few Fidelity mutual funds/ETFs (commission free! but they do have minimums)… if you only have enough $$ for a minimum investment, find a really broad one like ITOT (total US stock mkt)
This way, you are instantly diversified (among stocks). They will also provide tax documents. You can set up a Roth IRA retirement fund, too.
I actually ended up using them as my main bank, putting paychecks in and paying my CC from it.
Be careful and invest only money you can afford to lose half of.
NOT PROFESSIONAL ADVICE. :)
I agree completely with the sentiment that people need more financial education. It would really even out the playing field. However, a lot of what you write, G.E., is a lifestyle judgment.
There’s nothing inherently wrong about buying more than you need, wanting things, continuing to work for said things, any of that. People have different values.
If having a new car or buying lunch out every day provides you a level of happiness and utility to match its cost, and you can responsibly afford it, go for it. There’s no sense working so hard to live near poverty, just so you can leave the workforce and be cheap at home.
But a financially informed decision is just that: a decision.
You make some excellent points here. I love this post! We can all definitely find 2 hours/week to work on PF, especially if people would quit sitting in front of the TV in the evenings like mindless zombies…
It certainly takes more time in the beginning, but there’s a point in which people need to spend almost no time on personal finance week-to-week. Set up investments automatically so you don’t need to consciously think about how to invest each week/month/whatever. If you have a budget, it shouldn’t take more than ten minutes a week to see if you’re spending too much. If you don’t have your credit cards set up to be paid automatically, go and pay them online, in full, once a month or with each paycheck – shouldn’t take longer than five minutes, max. Same with other bills.
Other than that, what is there to do on a recurring basis? Sure, there’s the occasional task that comes up – filing taxes, re-balancing investment portfolios (which can be automated for you with Vanguard Target Retirement or LifeStrategy funds, Betterment, etc.) but they’re the exception, not the norm.
Yes, it takes some time to get set up at the start, and for many people a lot of mental gymnastics to convince yourself to overcome inertia, but at a certain point personal finances can be put on autopilot. You have to pay enough attention to see that the autopilot is still flying in the right direction, but really no more than that. Technology has made it so quick and easy that almost anybody should be able to condense his or her own personal finance into less than a half hour per week while still doing everything right, odd weeks here and there notwithstanding.
Great Article! I feel the exact same way. Want a reason for the lack of wealth of the middle class, or for rising income inequality? It’s a lack of education.
Part of that is the fault of school systems and the lack of formal education, but another huge part is that people, perhaps unfathomably, simply don’t bother to learn the simple things they need to to understand basic personal finance.
I’d have to say spending 12-20 years pursuing education and only having maybe one class if any at all on finance for the vast majority is one of the most insane things I can imagine. Now consider that every high school will take several years of math, science, language and other subjects that they or may not use ever again but they won’t get more than one finance class, a subject which would benefit them nearly every day of their life for the rest of their life. This has always blown my mind,
It takes self-control, accepting personal responsibility, the desire to avoid instant gratification, a reasonable level of contentment and the acknowledgment that the government is not going to take care of you at retirement in the manner you’d expect. No political meaning here, just that an entitlement mindset has economic limits.
I don’t think I could have said it any better D.R. The world is full of people who want it, and want it right now. Swipe the plastic and worry about it later.
How can students leave school and not have a class on budgeting, or better yet, a class designed to help students put a plan together to pay off their debt? I know it would have helped me get a jump start on becoming debt free and living a richer life!
Great post, G.E. I just want to say thank you for inspiring me to start paying attention to personal finance. I’ve been following your blog for over three years, and your advice and insight has totally remade my family’s financial picture. We have a strict budget that we follow, we have substantially increased our savings rate, and we take advantage of numerous money-savings tips you’ve recommended over the years, including my favorite which is to put the cash back we earn from our AmEx card towards the kids 529 account. Nothing like free money compounding over the next 16 years! I did have to spend a lot of time in the beginning figuring out how to optimize our budget and to pick the right investment vehicles, but now the two hours (if that) that I spend on our finance is mostly me just reviewing our goals and feeling immense satisfaction seeing us inching closer to them month in and month out. My message to other readers? Dive in! It’s not that hard and you’ll never regret the time you spent empowering yourself to a better future.
Agreed! It so frustrating at times because so many people work so hard while saving nothing. It drives me nuts! I’d love to see everyone go to a 50-100% savings rate.
Debt avoidance + hardcore savings + tax minimization + prudent investing + frugal living = Freedom & Increased Happiness…try it people!
Hey GE, long time reader here and I have to commend you on this post. I enjoy your stuff on the regular, but this is one of my favorite posts of yours. Keep it up!
So you are saying it’s pretty foolish to carry a 20,000 bank acct balance and have 10,000 on my credit card??
Unless the interest on that credit card is 0%, yes.