This is a related post to Stop Making Money Excuses.
Don’t worry, it won’t be as rant-y as that one. 馃檪
But it will address an objection that I come across all too often.
Not Rocket Science
Let’s begin with the obvious: understanding personal finance is not rocket science.
The concepts needed to become wealthy are few in number and easy to understand. In fact, I’ve got the basics boiled down to three steps. You do not need a PhD, MBA, CPA, or any other degree to understand them.
All you really need to grasp the fundamentals is to be able to read and do some simple math. These alone will allow you to master the knowledge of wealth building.
This is why almost anyone can become their own financial advisor.
That’s obviously not true for all topics. No matter how much a person studies most people can’t become a brain surgeon, nuclear physicist, or even, well, a rocket scientist.
But managing money is pretty simple.
Common Excuse
Now we’re getting to the excuse part.
Because the concepts are simple to understand, many people brush them off.
I get comments on posts like “this is common sense,” “everyone knows that,” and “tell me something I don’t know”.
But many of these comments are really excuses.
Basically the person is saying “I know that, so I can move on.” The real issue is “I haven’t applied that, but since I understand it, I don’t need to think about it.”
The underlying problem is probably the largest issue in personal finance — taking action on the few, simple concepts that can make you wealthy. It’s where the rubber hits the road and most people fall woefully short.
Simple but Not Easy
As I wrote in this guest post, becoming wealthy is simple (concepts easy to understand) but not easy.
The reason it’s not easy has to do with the implementation of the concepts, the sticking point for most people.
Why don’t they implement what they know? Because it’s hard. Implementing the concepts requires discipline, patience, and persistence. Those are qualities most Americans either don’t have or try to avoid like the plague — because they are TOUGH.
Excuses and Criticism
So when someone gives me the “that’s common sense” response (excuse) my first reaction is to ask them how they are doing financially.
Nine times out of ten the answer is something like “not great.” Uh huh. I thought so.
In addition to being excusers, these people are money critics — they want to criticize others and yet they aren’t doing as well as those they are criticizing.
And the reason they aren’t doing well is because they haven’t applied what they know. But they don’t want to hear that.
Common Sense That’s Not So Common
So let me summarize:
- The concepts behind building wealth are simple to understand.
- Because they are simple, many people will dismiss them as “common sense.”
- As a result they fail to implement them, which is required to actually become wealthy (no one becomes wealthy by knowing how to become wealthy — they become wealthy by doing something about it. Take financial advisors as an example. They KNOW what to do, but it seems few of them actually apply what they know.)
- People don’t implement the concepts mainly because it takes hard work to put them into practice.
- These people would rather dismiss suggestions as “common sense”, avoid painful implementation, do nothing, and get no results than actually take action and be disciplined, patient, and persistent.
- If they did take the simple steps to building wealth they would eventually achieve financial independence.
So yes, it’s common sense. But it’s not that common to implement, otherwise there would be many more wealthy people than people who are broke, in debt, never able to retire, and so on.
So take your “common sense” excuse and pack it away. Unless you are already wealthy — then you’ve earned the right to say, “That stuff is just common sense.” 馃槈
Wall Street Physician says
Nice post. It is kind of like dieting. The path to success is so simple. Calories in < calories out = weight loss. But the execution and the sacrifices necessary to achieve this simple rule are very difficult.
Lance @ My Strategic Dollar says
Yes! Totally agree here. It really is simple but not easy. Anyone can do the math have the common sense to understand what options yield the best long-term results. It’s very difficult to keep up with it.
Paul says
Dieting really is one of the best analogies to personal finance. Our DNA works against us on both fronts, and the discipline + patience it takes to succeed is not innate in most.
Laurie@ThreeYear says
I say the same when people ask me how to figure out how much they need for retirement. “It’s simple to figure out,” I always say, “but it’s not easy.”
The math behind tracking how much you spend is math you did in third grade. But actually disciplining yourself to sit down and categorize that spending, each and every month, while simple, is far from easy.
I guess that’s why they say personal finance is 90% behavior and only 10% know-how.
UK Wealth Manager says
This is very frustrating….
”This is why almost anyone can become their own financial adviser”
No, they can’t, and to say so is highly misleading and potentially damaging.
Whilst there is much to be applauded in this piece, it’s a shame that you have completely over simplified what is a highly specialised profession.
ESI says
Uh, are you saying most people can’t understand and implement the simple, easy steps to becoming wealthy?
If so, is it because you think they can’t understand the concepts or they can’t control themselves (spending, etc.)?
If the former, I think people certainly can understand the concepts.
If the latter, I think most people CAN control themselves, but they often choose not to.
biggreydog says
You couldn’t possibly be more wrong. Anyone reading this blog can do it, and do it as least as well as any average financial adviser. I have a very large sample set of people from whom to draw observations.
Apex says
“you have completely over simplified what is a highly specialised profession.”
This statement is hilarious. Many “financial advisors” have no formal training and simply moved on to being one because they could sell people on their “expertise” of which initially they have none.
I know many people who were doing all kinds of completely non-related jobs and all of a sudden to my shock are now financial advisers. On the other hand I don’t know anyone who was doing completely non-related jobs and all of a sudden with no training has become a doctor, a lawyer, a nuclear physicist, etc. See those are “highly specialized” professions. You can’t just become one because you decided to be one some day. Financial advisers are highly hyped professions that take no formal specialization to actually be in. Simply study a few manuals, take a couple certification tests and boom you are an expert. Anyone want their next surgeon to have taken a similar path to their expertise?
JD says
Couldn’t agree more. Personal health is pretty much identical. Common sense and discipline that the large majority of society lacks due to all the noise and billion dollar marketing ads designed to confuse them and attract them to error
Mrs. Adventure Rich says
Agreed! I think the hardest part for me initially was the “fear factor” because I thought finance was a crazy, complicated world (it can be, but doesn’t need to be!) that I could never decipher. That goodness it is accessible!
Now, my struggle is around emotion. I was in high school/college in the 2008 timeframe so I have not lived through a financial downturn. By acting as our financial manager, I will need to have a steel stomach if/when we have a downturn or crash.
Amy @ Life Zemplified says
A lack of discipline, the ability to delay gratification as well as look into the future, keeps many people stagnant I think.
I’m amazed at how many individuals in the world seem not to have ‘common sense’ though. Book smart, highly intelligent, even genius sometimes, but truly lacking in ‘common sense’.
Apex says
“common” sense is misnamed. It’s uncommon.
Dave says
It is simple, but not easy. It is hard to postpone gratification for many people. It is even harder to postpone gratification for a few decades. It is, however, worth it if you can muster the will to save and invest your earnings.
Rob K says
I always say it’s common sense. Just people won’t apply it unfortunately. I am not there yet but on well on my way. Real close to retirement escape velocity right now.
Mike L Weber says
Have to disagree. Good personal finance habits are far from common – look at credit card dept statistics or the data on how little savings people retire with! Your audience all share the view that it is common sense, but they are outliers!
What we desperately need is better education – at least enough to match the advertising from credit card companies and the excessive consumerism we all learn in the Amazon age!
Thank you for what you’re doing on the education front!
Joe says
I think the path to becoming financially independent or able to afford a comfortable lifestyle is easy to understand ($1 million to $10 million in investable assets). I think the path to becoming “wealthy” is a whole other ballgame.
Bill says
Three simple steps? Then why didn’t you include them in the article?
ESI says
If you click the link where they are mentioned, it takes you to an article detailing them.
Brownie says
Why not just put them here if they are so simple?
ESI says
You must be new here.
This entire site is premised on the three steps to wealth: ESI — earn, save, and invest.
If you would read the “about” section at the top, it would explain this.
I talk about the three steps in one way or another almost every week. I don’t detail them in each post that refers to them because otherwise regular readers would get sick and tired of me saying the same thing every other post. This is why I link to posts that have additional info — for those people who want more specifics.
If you click the second link in this post — the one that includes the words “three steps” — you will be taken to a post with the following as the first sentence:
“As you know, this site is about three easy steps toward financial independence (FI): earning, saving, and investing.”
I don’t think I can make it much easier than that.
And by the way, you can stop trying to leave the same exact comment under different names…
Paper Tiger says
ESI, I think Bill Brownie just made your whole point. If he can’t get it spoon-fed to him, he doesn’t want to have to do a little work (click another link and read another post) to figure it out 馃槈
Ryan Coughy says
I agree totally. It’s lazy to have to click on a bunch of links that DON’T lead the the supposedly three simple steps. If they are so simple, they should be listed on every page. One of the only links that mentions any steps only mentions two steps, and another sounds just like a brochure or advertisement. But I agree, I bet Bill Brownie literally eats brownies from a spoon and a blender with milk and ice cream. Frankly, it sounds delicious.
Rob K says
The other thing I don’t understand, most people have access to a 401k, and most match the first 5% so if you put in 5% company puts in 5%. Just imagine if all the people that had access to accounts like that actually put 5% in them from their first job until their last job. And in a regular 401K it is NOT even a 5% reduction in income (with the tax advantage), it’s only like a 3% reduction in income to save 10% of your NET pay in a retirement account.
You are going to tell me these people can NOT reduce income by 3% and still live comfortably? And on top of that most would qualify for tax saver credit when they file taxes too and get more money back for saving, I don’t understand it. These people would then have a decent amount of money (maybe not stupid rich, but they would be good enough to have a normal retirement).
Now I know some will poo-poo this and say that not everyone has a “good” 401K plan (bad options or bad match) and that some don’t have any 401K plan, but just imagine if those that do would actually do this……..
George says
I really like it when ESI and commenters on this website remind us of how taxes factor into savings. I would not have thought of the $ saved on taxes factoring into the X% put away… even though I do exactly that myself and know that I pay less taxes due to maxing out my 403b. Thanks Rob – you’ve given me another weapon to convince my younger colleagues of the advantages of using their retirement funds.
Turning Point Money says
Saving is a simple concept. Investing is slightly more difficult.
Decision making is the hurdle. Understanding your own biases will help make proper decisions. There is no easy button. If you don’t have the temperament to watch your net worth decline by 30%, don’t invest in common stocks. Pick a different strategy. There are many ways to compound your money.
Sloan Ranger says
One of the troubling aspects of our current national mindset is the lack of appreciation for personal sacrifice. Those of us who have consistently saved, invested, etc. are encountering a vast population that now thinks that those accumulated assets belong to them. The “eat, drink and be merry” crowd denied themselves nothing, racked up huge credit card debt, etc. Now they find themselves without retirement funds – and it’s somehow the fault of our capitalist system. The common sense that used to apply to personal finance has been turned on its head. Once upon a time, those who exceeded their credit limits were considered spendthrifts. Today, it’s the fault of those who issued the credit and debit cards. Shame on them! And the media report it that way. If one fails to read a contract or question an agreement, the originator is to blame. It’s as though we’ve become a country of perpetual Peter Pans, who never grow up and can never be held accountable for any adult decisions. Anyone who has achieved FI had better take into account a government that is listening to a vocal majority who think that they shouldn’t be held responsible for their poor planning. All too soon Congress will be responding with new ways to tax retirement savings – the retirement savings of those who thought ahead – to fund the retirements of those who wanted it all NOW.