Managing Your Money

Managing Your Money

Managing Your Money

It was Captain DIY who said it.  I looked up at him across the table questioningly and repeated his words.  Managing your money is like plugging a desk lamp into itself.  Huh?  He went on to explain that as an electrician he had been called out on service calls a number of times to evaluate a faulty desk lamp.  Running from the back of the lamp is a cord that plugs into the outlet on the wall.  Exactly how you would expect.  On the face of the lamp is an internal outlet that serves as a base to charge a mobile phone or electronic device.  More than once, DIY arrived to find the light plugged into itself instead of the wall.  Lacking a power source, it was no real surprise that the lamp wouldn’t turn on.

The solution was as simple as unplugging the lamp from itself and connecting it to the outlet on the wall.

But many people today often have trouble grasping such concepts.

Is money any different?

Mechanical Ignorance

Why wasn’t it incredibly obvious that plugging a lamp into itself wouldn’t create any light?

The maker of this mistake would have to have a good deal of mechanical ignorance.  There would have to be a complete lack of knowledge about how electricity works and how power is transferred from its source to another object.

Managing your money is no different.  The average citizen has no understanding of the mechanics of the stock market.  Compounding is a foreign concept.  And financial independence isn’t even on the radar.

The result is often agonizing for those of us in the know about personal finance.

  • Mistaking speculation for investment
  • Saving at abysmally low rates
  • Fear of investing

Bridging The Knowledge Gap

The knowledge to fix a desk lamp is fairly obtainable.  Understanding the basics of electricity in order to realize that a lamp plugged into itself won’t work should be within one’s grasp.  A small investment of time could go a long way.

While obvious when it comes to basic knowledge, managing your money is often looked at as a black box.  The rest of the world thinks it is so complicated that they are unwilling to spend a modicum of time and energy studying the basics.

Understanding investing, savings, and compounding enough to make smart money moves is not an all encompassing feat.  A few hours a month is enough to learn how to be adequate.  Yet few are willing to spend the requisite time.

We No Longer DIY

Why do it yourself when you can hire someone?  There is always an electrician, plumber, handyman, or accountant waiting in the wings.  You can pay someone else to take responsibility.

And when it comes to managing your money, we have financial advisors.  I certainly used to have one.  Because I convinced myself I was too busy or didn’t have the energy to understand something so complex.

But like the desk lamp plugged into itself, I was just a little education, knowledge, and effort short of managing it on my own.

Final Thoughts

No one will manage your money as well as you do.  No one will put as much effort and be as thoughtful.  There are thousands of reasons to hand over the reigns. There will always be an excuse about enough time, patience, or knowledge.

Don’t fall into this trap.  Otherwise you are sitting in a dark room next to a lamp that is plugged into itself.  As hard as you try to flip the switch, there will be no illumination forthcoming.

DIY and I are at CampFI South this weekend.  This blog post is coming to you from Little Rock, Arkansas.  

 

Doc G

A doctor who discovered the FI community but still struggling with RE.

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11 Responses

  1. Xrayvsn says:

    No one will care about your money more than you. Everyone else is looking to transfer as much as they can of it to themselves. To get enough knowledge to be a DIY financial person really is not that much, just the right book or two can provide almost your entire needed financial knowledge base.

  2. E says:

    Funny analogy! Gave me a chuckle , but so true . What would you suggest to someone who wants to learn more? And become more savvy in his field. Handing over the reins to someone else who works specifically in the field has its drawbacks and benefits. Thanks!

  3. Gasem says:

    It’s not either/or, it’s both/and. I have a degree in Electrical Engineering, I’m still calling someone like DIY to install a new drop from my breaker panel. The reason is I can hack something together but he would do it to code. He would make sure the fire safety was observed. He has already invested in the tools for doing such a job correctly and has successfully done that many times. He would do a professional and experienced job. I don’t want my house to burn down because of half assing it and saving $100. Yet I still completely understand the theory and science. I can tell if the job is done right and satisfies my need. I would not hire DIY to manage my money. He may have some modicum of success in his personal account but I want a professional.

    • Doc G says:

      You have voiced this viewpoint before I think it is completely reasonable. You are incredibly knowledgeable about your money in addition to having an advisor.

  4. An infinite loop, more common in the software world! Hilarious analogy. My husband and I have always been DIY on nearly everything, and we have different skill sets. I think that people are more likely to be building net worth if they manage their own money. Learning not to have an infinite loop with some financial shark is step one.

  5. Captain DIY says:

    Thanks for making me sound smart! What a great way to tie something simple into basically every aspect of our lives. It seems so simple when you say it: a little bit of time and effort towards self education can make the difference between simplifying our lives and believing things are just “over our heads”.

  6. Dragon Guy says:

    Everything comes down to education. I am comfortable managing our money because I have educated myself on how to do it. I am not good at home maintenance because I haven’t taken the time to learn how to do basic things (even though almost everything can be found on Youtube now). Over the years I thought I ate good because the package said “low fat” or “fat free.” But after educating myself I learned to eat differently and avoid things that aren’t as healthy as they say they are. So many of the challenges in society are ultimately due to lack of education.

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