There are thousands and thousands of well worn financial tips – bits of advice that people rattle off here and there. And, a lot of the adages provide great guidance given the right set of circumstances.
However, real financial wisdom is a little less common. Here are 11 twists on conventional advice that we think are worth considering:
1. A Penny Saved (and Invested) is More than a Penny Earned
I am a big fan of Benjamin Franklin, but he could have done better with his admonition of “a penny saved is a penny earned.”
He was not wrong. The phrase underscores the importance of frugality, thriftiness, and saving money. It is absolutely true that saving and avoiding unnecessary expenses are good habits that enable you to increase wealth.
However, Franklin missed an opportunity to make a perhaps even more important point. A penny saved and invested is actually worth more than a penny earned.
Given the right investment vehicle and time horizon, a penny invested has the potential to be worth far more than just a penny.
Want more investing wisdom, check out quotes from John C. Bogle.
2. The Joneses Don’t Matter (and They Aren’t as Rich or Happy as You Think They Are)
Guess what, the Joneses probably aren’t as rich or happy than you think they are. And, it is likely that the family in the modest house driving old cars are much better off than you could ever imagine. However, what is really important is that: they don’t matter.
You are not living their life. They are not living yours. Do what you need to do to find happiness with your own life. Prioritize what is important to you.
Don’t try to keep up with the Joneses. Build and maintain a financial plan that enables you to:
- Feel in control of today’s financial obligations
- Weather unexpected financial events (a car accident, inflation, job loss)
- Support a lifestyle you are content with now and in the future
- Set and achieve financial goals
If you can do that, you’ll feel confident and content and the Joneses will want to be like you.
Admire people who earn more money than you, not people who spend more
Look, it is easy to get dazzled by what other people have and how they spend money.
However, it is probably a better idea to focus on the qualities and actions that contribute to financial success rather than simply comparing material possessions or extravagant spending.
3. Don’t Buy Low and Sell High, Just Buy
If you could forecast the future, there is no doubt that “buy low and sell high” would be good advice. The thing is, you can’t predict what is going to happen tomorrow, let alone over the next 10 plus years. So, it is impossible to really know when the low and high points will be.
Because we don’t know what will happen, many financial experts advise that you don’t try to time the market and buy low and sell high.
A better investment strategy for most people is to just buy. And, more specifically, to buy into the market at regular intervals – no matter the price of the investment.
This strategy is called dollar-cost averaging. By investing a fixed amount of money at regular intervals, investors can reduce their exposure to market volatility. Rather than investing a lump sum at one point in time, dollar-cost averaging allows investors to spread out their investments over time, potentially reducing the impact of short-term market fluctuations.
Dollar cost averaging:
- Reduces the impact of market timing, as it avoids the need to predict short-term market movements
- Encourages disciplined investing
- Eliminates the urge to make emotional investment decisions based on short-term market volatility
4. How You Spend Your Time and Money Is a Reflection of Your Values
You are probably aware that the clothes you put on and the vehicles you drive say something about you are. But, have you ever reflected that how you spend each and every dollar and every minute of your time is also a reflection of what is important to you?
There are so many demands on your money and time that it can be difficult to make sure that you are spending each of them in a way that is true to who you want to be. However, it is useful to be mindful of the choices you are making and prioritize for what you really want.
There are actually countless ways to live your life and you’ll want to be sure that your choices reflect your values.
5. Better to Go to Bed Hungry Than to Rise in Debt (Unless You Own the Home Where You Are Waking Up)
Buying a home can be one of the greatest ways to create wealth, even if you buy the home with debt.
When you purchase a home, you get the utility of a place to live – a necessity. However, you’re also building equity as you pay down your mortgage. Equity represents the portion of the property that you own outright. Over time, as property values tend to appreciate, the value of your home can increase, allowing you to build even more equity.
This can provide you with a valuable asset and potential wealth accumulation.
Use the NewRetirement Planner to model the future value of your home and explore how you can tap your home equity to help cover retirement or other expenses.
6. You Don’t Need to Be a Finance Whiz to Build Wealth
Too often people think that personal finance is about math and insider information. It’s not. There are simple strategies to employ and all it really takes is discipline to:
- Spend less than you earn
- Save and invest
Look, financial success for most people requires something like 5% intelligence and 95% discipline to be able to control spending, save, and invest.
7. Money Can Buy Happiness
Sure, material wealth and possessions do not guarantee genuine happiness or fulfillment. However, a certain level of income to cover basic needs is foundational to happiness. And, once past covering for your needs, there are many different ways to spend to improve your well being.
Explore 11 ways to spend money to increase happiness.
8. Your Actual Investment Returns May Be Significantly Less than You Think They Are
Your investment returns are probably not exactly what you think they are.
Investment return refers to the gain or loss on an investment relative to the amount initially invested. It is a measure of the profitability or performance of an investment over a specific period of time. Basically is is a measure of how much has your money increased (or decreased). (This measure is more specifically referred to as nominal return.)
The thing is that inflation, taxes, and fees should also be considered when calculating returns. And, these factors can really eat into your profitability.
Inflation: When you factor inflation into your investment returns, you basically take your rate of return and subtract the inflation rate to get your “real investment return.” So, if you earned 10% on an investment, but the inflation rate is 4%, then your real rate of return is only 6%. (When you include inflation as a factor in investment returns, it is called a “real rate of return.”)
Fees: Many households pay investment fees to brokerages or advisors who invest their money. These fees are typically around 1-1.5% of the money they are investing for you. So, if you earned 10% on an investment and are paying 1% in fees, you only really get to keep 9% (10% minus the 1% fee).
Taxes: How your investments are taxed can be complicated. But, it is another factor that can eat into your returns.
Your actual returns may be half what you think they are or more when you consider inflation, fees, and taxes.
NOTE: The NewRetirement Planner provides comprehensive modeling. While you enter your nominal rate of return, the system factors in inflation to all of your projections. Fees can be subtracted from the rate of return you enter for investments or you can add the fee as an expense.
9. Investing Should Be Boring
Look, if you’re excited about an investment, it may be a bad idea. Gambling is exciting. Investing should be boring.
When you are trying to invest for the long term, you want:
Consistency and Patience: Successful investing requires consistency and patience. It involves staying committed to a well-thought-out investment strategy and avoiding impulsive decisions based on short-term market fluctuations or noise. This patient approach may not involve frequent trading or chasing the latest investment trends, which can make investing seem unexciting or dull.
Focus on Long-Term Goals: Investing is primarily about achieving long-term financial goals, such as retirement savings, funding children’s education, or building wealth over time. The process of steadily contributing to investment accounts and maintaining a diversified portfolio may not involve constant excitement or dramatic gains. Instead, it requires a focus on the long-term perspective and the discipline to stay the course despite short-term market fluctuations.
Minimizing Risk: Boring investing often revolves around minimizing unnecessary risks and avoiding speculative or volatile investments. Instead, it emphasizes strategies such as diversification, asset allocation, and investing in low-cost index funds or other proven investment vehicles. By taking a more conservative and measured approach, investors aim to protect their capital and generate steady, reliable returns over the long term.
Reducing Emotional Decisions: Emotions can be detrimental to investment success. Boring investing promotes rational decision-making and discourages emotional reactions to market movements. By maintaining a calm and objective mindset, investors can avoid making impulsive decisions based on fear or greed, which can lead to poor outcomes.
10. Happily Pay Interest When It Will Increase Your Wealth
Most debt, particularly high interest credit card debt is bad.
However, debt can also be an effective tool for increasing wealth, especially with careful consideration of interest rates, loan terms, and repayment capabilities.
Examples of using debt to improve your financial situation might include:
Investing in real estate: Whether it is your own home or an investment, you can leverage debt to increase wealth. By obtaining a mortgage or a loan to acquire property and benefit from potential appreciation in property values over time, rental income, or profits from property sales. The use of debt allows you to access larger investments than you could afford solely with your savings, increasing their potential for wealth accumulation.
Education and Skill Development: Using debt to invest in education and skill development can significantly increase earning potential and long-term wealth. Taking out student loans to pursue higher education or vocational training in fields with high demand and earning potential can lead to improved job opportunities and higher salaries.
Flexibility: By securing a line of credit or borrowing against your home, you can increase financial flexibility. For example, a low interest loan can sometimes be a better source of funds than selling investments at a loss.
Not sure? Run a “what if” scenario using the NewRetirement Planner to determine if debt could actually improve your financial picture.
11. Retirement Shouldn’t Be About Retiring
The dictionary defines “retirement” as unwilling to be noticed or be with other people.
While you may want to get away from your work colleagues, retirement these days is not usually a calm solitary time. It is a tremendous opportunity to live life on your own terms and do exactly what you want to do, preferably with adequate social engagement.
