They say that as you get older, you get wiser as well.
I hope that’s true of me, but I’ll let you be the judge of that after this post. 馃檪
Anyway, I thought it would be interesting to list things I used to think about money but no longer do — just to see how I’ve hopefully improved over the years.
Or how foolish I used to be. Pick which you like better.
With that said, here’s my list of things I used to believe about managing money but no longer do:
- I can pick stocks better than most. Oh yes, I went through my “I’m-smarter-than-the-rest-of-the-world” phase where I was sure that my deep insights would propel me past all the other stock pickers in the world. I had just enough home runs to keep me believing this for some time, despite the fact that I had many losers. Fortunately I mended my ways, switched to index funds, and moved on with my time and my returns.
- The media knows what they are talking about. Believe it or not, I used to think this was true. Now I’m
wisermore jaded. Anyway, it’s amazing to me what the people we look at as “experts” say about money. Yes, they are great writers, radio hosts, TV personalities, etc. but I doubt they know beans about how to manage their own finances. - Buy term and invest the difference. I believe this one is still true for those who are disciplined (I would put myself in that group). But for the vast majority who will “buy term and spend the difference”, buying permanent insurance may be a better option. Otherwise they just blow their savings on stuff. The same holds true for debt. Some can keep low-cost debt and invest what they would have used to pay down the debt, but most can’t be disciplined enough to pull it off.
- Real estate is not for me. This most certainly was the case until I met my mentor, Eric. He taught me all he knew about real estate and helped me make some great buys. These properties then allowed me to retire early.
- Controlling costs is the best way to grow your net worth. I used to be a die hard “spend less than you earn” guy. I still am, but now I’m more balanced, focusing on both the “spend less” and the “earn” part. Obviously you need to control your spending and have it be below what you earn to grow your net worth. But 1) you have to earn a basic amount (i.e. it’s hard to spend less than you earn if you earn $20k a year and live in NYC) and 2) the more you make the larger the gap between earning and spending — and the faster your net worth will grow.
- Saving in tax preferred vehicles is the best option. This is true, up to a point. It becomes an issue when you retire early. If I had to do it all over again, I would put more in taxable accounts or Roth IRAs versus traditional IRAs/401ks.
- DIY is the only way to go with personal finances. For the most part, I still believe this. But now I’m willing to make concessions. I use realtors for real estate purchases, CPAs for my taxes, and lawyers for my estate plans. I still think being your own financial advisor is the best route IF you study the basics and have the discipline to apply them. Otherwise, you probably need help.
- Taxes are to be avoided at all costs. I remember trying to think of all sorts of ways to avoid taxes. What I used to not consider though were the other costs incurred when trying to cut taxes. So if I saved 2% by avoiding taxes but had 3% in transaction costs, it’s not a good deal. I now focus on balancing everything to make overall costs as low as possible.
- I need $4 million to retire. This is a relatively new revelation for me. For years I thought I had to hit this magical number. Then I began to consider different retirement options. I ran the numbers and saw that the earnings from my assets covered my costs. And even if they didn’t, I had enough assets that I could withdraw from them for decades. So, I retired.
There are probably a lot more things I used to think and no longer do, but these are the big ones and the items I can think of now.
How about you? What did you used to think about money that you no longer do?
photo credit: Mamedjarova Turkan via photopin (license)
George says
In my 20s I used to think money wasn’t that important and if I had an emergency fund and no debt I was set. When I was 29 I started learning a lot more about retirement and I’m glad I did!
Paul says
Very insightful post. I think for almost any finance topic, the answer could be “it depends” and your comments above help reflect that nuance. Perhaps there should be less black and white rules and more thoughtful analysis and scientific method for many key areas of personal finance. Things do change over time.
For me, the biggest change over time was the idea that once I stopped “working” (for the Man), I would stop working altogether. I realize now that things I find engaging and fun can keep the earning alive, and I’ll probably be working (broadly defined) for the rest of my life.
Coopersmith says
Yep. you bring up all good thoughts. Here is one of my input.
The media explosion offers more bad advise than good. It is all a matter of who is selling what and what you believe to get talked into.The biggest thing that is the worst for a person’s bottom line is panic, fear and despair. Selling when the market is down, buying gold because the fear of inflation and paying at all time highs, thinking that borrowing money for a college degree is good debt when the job with that degree will not cover the loan payments. Not thinking you will be able to retire on a 401k. The list is very long.
There are sound principles out there for investing and sound reasons to do them. The problem is they are boring and people want new and exciting and the salesperson is out there in full force. The sound principles are buried in tons of dirt and like finding a gold nugget, you need to sift a lot of dirt.
E says
We think alike on almost all the topics mentioned. A few years ago, I started reducing my contributions to IRAs and 401k. I’m contributing enough to get company matches, but no longer maxing them out. I’m probably contributing 50% of what I can. I rather have funds readily available than wait 30 years before accessing them without penalty. At the time, I thought I was the only who was thinking that way (well, other than those who don’t contribute at all).
But I just got out of my first foray in real estate and thinking now it’s not for me. Maybe I just need a mentor on how to deal with tenants and repairs/tradespeople. I find it too stressful.
My retirement number is $5 million. Being in a higher COL west coast urban area, I’m not sure I can budge on that.
param says
13 yrs back i used to think that if i have money in the bank that generates enough interest to cover my expenses, i can retire. thank goodness i kept working till i realised about terms called inflation & taxes 馃檪
Jeno says
This is fair list, I think everyone having similar thoughts at the beginning. But, experience will teach the reality. Problem starts if we don’t realize this and stick to our own way of thinking. The first one “I can pick stocks better than most” catch my eyes immediately, I had this thought deeply till I got into some loses 馃檪
Good to read post, thanks for sharing.
PatientWealth says
Used to believe the stock picking one and ended up exactly where you did. I also used to believe I could trade short-term and make huge gains and would shortly become a billionaire. Yeah well that didn’t happen! I lost a ton of money and learned a great lesson.
I also used to believe that paying off my mortgage was a great idea but now understand investing that extra money is a better option.
SBDad @ Small Budget Blog says
How has your attitude towards debt changed when it comes to house or rentals? Or has it?
ESI says
At this point, it hasn’t changed since it doesn’t need to. I don’t have to borrow, so why would I?
Would I ever mortgage my rentals to buy more rentals? I can’t say at this point. But I might consider it.
AustralianDividendInvestor says
I used to think that all debt was bad and it certainly slowed down my progress towards retirement. Debt, like anything else, is just a tool and can be both good and bad depending on how you use it.
Ten Factorial Rocks says
Good one ESI. I used to think that millionaires are arrogant until I became one and I realized that most of them are normal people and hustle for success like all others. There is no magical transformation that happens when your net worth hits 7 figures.