Stop Ignoring The Financial Forest
Stop Ignoring The Financial Forest
Get the heck out of the trees! You heard me. I’m talking to you recent financial independence convert. I see you raking around in the weeds. Hasn’t anyone told you that perfect is the enemy of good? This holds not only for tasks and relationships, but also for saving and earning. Your focus is all wrong. Your laser vision has honed in on absurdly small details and at the expense of the big picture. Stop ignoring the financial forest. It has an important story to tell above and beyond the trees.
Are you listening?
I know this sounds like a bunch of metaphoric mumbo jumbo, but there is a lesson to be had here. The excruciating detail of personal finance can be dizzying and lead to hours if not months of unneeded struggle and headaches. In reality, however, the tools needed to make the financial freedom journey are fairly basic. Fill your toolkit with the most important, there is always time for the details later.
Here are some examples of where I think people get needlessly derailed by paying too much attention to the trees and missing the financial forest as a whole.
Roth vs Traditional
Should you invest in a Roth or a traditional? The answer is yes. Yes, you should sock away as much money as possible in tax-deferred vehicles. The decision that is going to win the financial game is not which account you put the money in, it is that you are deferring tax in the first place. Roth, traditional, who cares?
I’m not trying to be flippant. The point is that the financial forest is much more important than the trees here. None of us are fortune tellers. Who can predict how the government is going to change tax law? Who can predict what tax bracket they will be in at what age?
You can’t. Nor should you cause yourself undo stress trying to figure it out.
Put as much money away in 401k, IRAs, HSA, or whatever vehicle you can get your hands on. I guarantee, if you do this, you will come out ahead in the end.
Mortgage Arbitrage
Pay off the house or invest? The answer is yes. Do either or. Again, the key point is to save as much money as possible and then use that money to make more.
If you pay off the mortgage faster, you won’t have to cough up monthly payments. Guess what you can do with that extra money? Invest! Put it to work for you.
If you continue to pay off the mortgage turtle style and invest the extra money you make every month in an S&P 500 index then guess what. You will be making extra money, that will compound, that you can eventually use to pay off the mortgage or keep investing.
The financial forest is all encompassing. It whispers its age old wisdom. Can you hear it?
Save. Invest. Pay down debt. Be responsible.
It doesn’t care in which order you accomplish these tasks, as long as you do them!
Frugality Faux Pas
Nothing drives me more crazy than reading blog posts about ways to save five dollars a month with frugality hacks. I’m sorry. It’s just not my cup of tea. You could spend all the hours in the day figuring ways to save a dollar here or there. And that would be great. But I think there are many other higher value targets.
Forget saving on knick-knacks and spend your time optimizing the bigger purchases.
Buy a used car!
House hack!
Live in a low cost of living area!
Sell your children! (Ok, that’s a joke!)
The financial forest dictates that you spend your time frugalizing the bigger purchases and costs. You can haggle at the dime store if you want. But I think you are wasting your time.
Final Thoughts
At the beginning of this grand voyage, it is easy to get caught up in the little decisions. And while I do believe in the aggregation of incremental gains, your time is valuable. See the financial forest from the trees and spend your time optimizing the high-value decisions. Which job you take, where you live, and what type of car you drive can all have a big impact on your finances.
Whether you go Roth or traditional, in my opinion, is something that should be debated amongst the academics.
Yeah, the traditional FI model is actually pretty simple if you focus o the big things. Some people just find the need to complicate it unnecessarily. Wasting valuable energy in the pursuit of saving an additional $5 a month is literally grinds my gears… oh well to each his own
I think the key to for most people is to teach simplicity. Not ease but simplicity.
Haha I kid you not, I was talking about the Pareto Principle (upcoming post) with some of my students and residents yesterday. The idea is 20% of the work accomplishes 80% of turn mission.
So just focus on the 20% that matters (i.e. fill up tax advantaged space. Destroy your debt. Fill up a taxabalrb account next with extra. Investing in passive index funds. Be diversified. Stick to the plan no matter what. Know conflicts of interest so you aren’t the sucker. Protect your assets with DI, term life, and umbrella).
There ya have it. There’s the 20% of the forest you need to pay attention to. Don’t get stuck in the trees!
TPP
The Pareto Principle infuses most everything we write about. Such an important concept.
I totally agree. Once you start thinking in terms of what gives you the most return (not only money) in your life, you’ll go far. I’ve been calling it the “Big Rocks” for years.
The “Big Rocks”. Yep!
For most Americans, if they would just optimize and get smart about the big three (house/car/food), they would substantially improve their financial situation. The rest can help indeed, but if you do the big three the rest is just padding the score.
The big three. Very true.
It’s crazy how little money you need if your housing and transportation costs are close to $0. Get the big things right first and don’t get lost in the minutiae!
Cody…if I only knew what you know in my twenties!
Great metaphor, and absolutely true.
It’s simple. It’s just not easy.
Culturally, we want easy. Complicated, if it feels easier, “feels” better.
Spend less than you earn (that’s two components…earning…and spending…)
Stay out of debt
Invest the surplus
Thanks Planedoc. Sometimes we get so far into the minutia that my head spins. The big picture is the best picture sometimes.
If nothing matters but you job your house and your car then I guess you have no problem putting half in BTC. How about dumping it all into BRK.B and let Buffet Uber you to FI? That penny stock the urologist was hawking in the Dr’s lounge? Yea yea that’s the ticket! Don’t worry about taxes, yet retire 30 years early? Save the last bullet for yourself. The government wants it due. PERIOD. Fill out the matchbook cover and learn to draw! (aka side gig). Why yes that sounds like a perfectly plausible way to survive! I bet you can get $50 bux a doodle. Here’s the 411: unfortunately it all matters. It’s nice to look at the forest, but the fruit and nuts are all hanging on the trees. Push comes to shove when you get hungry you’re going to find a tree. It takes more than a pretty face to do the dishes.
You are correct however there is an incredible amount of bilge floating in FI land, most of it designed to get clix and nothing more.
So as I was writing this post, I winced a few times and thought..Gasem isn’t going to like this!
Apparently you have gotten under my skin. My premise still remains. If you can understand the financial forest you are 80%, no 90% there. Yes there is optimization and tax considerations and all sorts of things you can do to further reduce your risks.
But for most. They struggle with the first 90%. Gasem, your are like at graduate school level.
I think your weariness is not for the trees but for the manure surrounding the trees. Sometimes the echo chamber is deafening. That’s why I like your blog. It’s a road less traveled. And that’s why I bother to comment, it’s worth my time. I appreciate your indulgence. I represent one of the possible end games.
And you may ask yourself
What is that beautiful house?
And you may ask yourself
Where does that highway go to?
And you may ask yourself
Am I right? Am I wrong?
And you may say yourself, “My God! What have I done?”
David Byrne
Love me some David Byrne.
Here are some bullets I just read from a daily mail article:
New study finds that 53% of Millennials believe they will one day be millionaires
Despite that, 25% say they’ll never marry and 30% plan on never having children
Nearly 1-in-5 report that they they still rely on their parents for financial support
They expect to retire at 56, though won’t start saving for retirement until age 36
They need them a money tree by golly. I know, legalize dope, it will promote continued denial at least till age 55. You will still fail, you just won’t care.
I think I’ll invest in marijuana.
It’s so easy to drop down a rat hole to the details while your finances go adrift. But as your elegant metaphor noted really it’s quite simple. Automate increase earnings, spend less then you earn, and invest in something simple like index funds. Then persist.
Yes. the rabbit hole is deep and unnecessary. I like your last line the most.
I love it. Straightforward advice. It’s definitely not as complicated as others make it. “Save. Invest. Pay down debt. Be responsible.” No secret formula here.
I think we forget this all the time. I love these cerebral discussions about optimization (heck I blog a bunch of them) but don’t want to miss the glaring obvious big choices.
Doc G,
Couldn’t have said it better!
Actually you often do on fiology.com!
This reminds me of the famous Vince Lombardi speech to professional football players that states “this is a football.” Sometimes even the professionals forget that it is being great at the basics that make them so good. It is not the fancy stuff that does it. If you want to become financially successful, just go back to the basics. “This is a dollar.”
Dr. Cory S. Fawcett
Prescription for Financial Success
The basics will get you most of the way there. Your books drive home the most important ones.
Great Clear advice! Great self discipline for the gift of living debt free!
I have found that budgets and frugality have their limits. The restrictions and focus on the nickels and dimes can become detrimental.
Think I’ll join you in the forest!
There is a lot of room there.
Just got a message in a beverage bottle cap that made me think of your blog in general …..
“ Good things come to those who hustle” !
Ha! With that be hustle or side hustle? Or lazy side hustle!
Any hustle of your choosing! Including the dance from the 70’s ! Lol!
Believe it or not, years ago we had dinner with an older Italian multi-millionare, who owned the winery my brother-in-law worked for. He even cooked for us at his home. I’ll never forget that he advised “watch your pennies and let the big dollars take care of themselves”. The exact opposite! I love how we get so many pieces of advice that contradict. They all make you think.
What’s really bad is when I write one post that contradicts another. Doh!
I’m a believer of the Pareto Principle. Expend your energy on the activities that get you the biggest return. 80/20 works everywhere. Also, you expend the same energy saving pennies as trying to earn dollars. Abundance mindset.
I think someone should write a blog called The Pareto Principle and just go off on this stuff all day.
As some one who is not very detail oriented, this post is music to my ears. I think some of the frustration at the way people obsess over minutia is a side effect of spending too much time interacting with/reading post from financial bloggers.
If it makes you feel any better, I think most people who aren’t finance nerds like us aren’t missing the forest for the trees…they don’t even know they should be looking for the forest.
-Ray
True. There is a line between too ignorant and too knowledgeable. Hopefully we are neither.
Optimizing the high value items is of ultimate importance, no doubt. But once that is completely optimized, I don’t think there’s any problem with further optimizing the little trees within the forest 🙂
I think that’s fine as long as you master the forest first.
Our biggest expense was and will be taxes. That is the one that will smack you between the eyes when the government comes calling. Then the next largest is saving for retirement, then saving for children’s advanced education. Then it is the housing, transportation and food. Perhaps I am missing something but my numbers show those as the largest of my expenses.
Canada is a little different, But the reason you can worry about that is because you got the other 90% right. Tax optimization is great, but the majority struggle to make the basic right steps from the beginning.
I’m probably older than a lot of your readers, but I’ve reached the stage in my life where I’ve paid off my house, bought my (new) car outright, and use public transport most days to get to and from work for $3/day. All this while pulling in a teacher’s salary. (We get paid better over here than most teachers in the States.)
Once these expenses are taken care of, it’s CRAZY how much surplus is left over, especially when you do like I did and buy a house just around the corner from an Aldi. (No, that wasn’t the reason I bought the place, but it’s a nice bonus!)
However, I still watch the little things, because it’s crazy how those expenses add up too. But yes, get the Big 3 taken care of and then you have options in front of you. It’s a nice feeling.
I think people sometimes shy away from equating FI with simplicity. But to me, the simplest path seems best.
Great post. I was wondering if I could do a guest post for you or perhaps suggest an other topic?
I’m not accepting guest posts at this time. Thanks!