The more I have written about personal finance, read about it, and discussed it with others, the more I have come to the conclusion that all personal finance advice can be distilled down to two categories:
1. tactical (strategic)
2. ideological (values)
I’ve noticed that a very large majority of personal finance advice asked and given focuses on the tactical. You’ll recognize some of the standards:
“How to save on…”
“Where to invest…”
“How to make money with…”
“The best account for…”
“Where to buy/sell item x, y, z…”
“3 ways to…”
A much, much smaller portion focuses on the ideological components. Things like:
“Do I value money or time more?”
“What’s more important: my family or ascending in my career?”
“How much money is enough?”
Maybe it’s just because I’m the founder of a personal finance blog, but 99% of the time, I get approached with tactical questions. I like tactical discussions. But I feel like most of the time, people put the cart before the horse – often to their own detriment.
Personal Finance is Rarely Black and White
The thing is, personal finance is mostly gray area. Even statements as seemingly universal as “debt is bad, savings is good” can be challenged.
For example… I’ve been asked dozens of times what the better investment vehicle is: a Roth or Traditional 401K. There should be a definitive answer, right? Not exactly. Questions like this are impossible to answer fairly without a healthy number of follow-up questions.
- “Do you plan on making more now or in retirement?”
- “Do you think the tax rate will be higher now or in 40 years?”
- “If you go with traditional, are you investing the tax savings to retire early?”
- “At what age do you want to retire?”
Some of these questions are tactical in nature as well, but their answers are all guided by ideology (or… they should be).
An Observation About Personal Finance Discussion
When I ask more questions, something interesting happens. People get irritated, impatient, or simply don’t have an answer. Their body language is telling me, “JUST ANSWER MY ONE SIMPLE QUESTION NOW!!!”. This observation has led me to believe that most people don’t consider, or at least undervalue the ideological nature of personal finance. Like most things in life, they want the 30-second sound bit, so they can quickly move on to the next distraction.
That’s rarely a good thing. Non-values driven personal finance decisions seem a bit hollow or short-sighted at times. Goals are much more easily achieved and sustained when they are firmly rooted with values.
There is nothing wrong with getting tactical – most of the topics you’ll find here are tactical in nature. It’s a necessary component.
Just don’t overlook the ideological.
Besides, ideology often makes for much more interesting discussion. Especially over a beer or two.
I like the distinction you’ve made between tactical and ideological. Although in order to idenyify something as grey you first have to know what is black and what is white. There should be universal financial principles applicable to all people. Once they’re in place you’re able to make additional choices based on your preferences and goals.
BRAVO!! You very eloquently described the “personal” (ideological) part of personal fincance.
You’re so right that it’s not always enough to know the tactical stuff. People MUST start with their values, opinions, plans, dreams, level of understanding, etc in mind before (or while) making big decisions about their money.
First of all, congrats for your blog! Lots of useful and interesting articles here.
And sorry to post this here, but I couldn’t find your email posted anywhere. I am looking to have a guest post here, do you think this would be possible?
In the article, you suggested that a desire to retire early effects the choice between a Traditional and Roth IRA. How so? Thanks!
Tax savings now (traditional), if invested in a non-tax advantaged account can equate to more pre-retirement savings that could be used towards early retirement vs. more post-retirement savings (Roth). There are ways to take distributions from a Roth prior to age 59.5, but they are a little more advanced, and that loophole might not always be there.
I always say that saving, spending and personal finance is a state of mind. If you are not saving, investing, etc., it is very difficult to make a shift and start putting x amount away every pay period. You must transform your mindset and like you said, understand the ideology behind healthy personal finance. If you think you are going to read some personal finance tips and tricks and automatically start saving, you are dead wrong. There must be that ideological commitment.
Now, the question becomes, are we discussing this ideology over a $2 pitcher of Coors Light or an $8 glass of a fine American craft brew? The ideology of beer is a whole other discussion.
I made three batches of homebrew last year. One of the three was incredibly good. Very cost effective, just not feasible in the small space I live in.
I love this blog post. I prepared personal tax returns in college and people would always ask me “what the best amount of money to make?” My response was always “as much as humanly possible.” I know these people are really asking what is the right amount money that gives them the largest tax benefit, the problem is that there isn’t a best number and even if there was it’s changing all the time. I agree with GE most of the personal finance concepts are grey.
@Drew. I can see your point and I think the only real personal finance theory that always works is spend less than you make. In my opinion that’s the foundation of all personal finance. The problem is that in practice it can be very difficult to accomplish and plan for. Also a problem with the equation occurs when the amount you make doesn’t pay for food and water.
I would love to see less “10 ways to…” Articles and more discussion and thoughtful opinions about things or even personal accounts. I find that type of article vastly more interesting.