Updated: Jun 19, 2020
You always need to do what is best for yourself, no one is perfect and never feel guilty.
By: Allan R Kirby
With the proliferation of personal finance information on the internet such as blogs, YouTube videos, podcasts, TV shows as well as financial software, you would think everyone would be experts at personal finance by now. Yet this has not happened. Even for myself, I am not sure if my personal finance blogging is helping anyone succeed? I am an optimist and I do hope people learn and develop the behaviours and skills necessary to achieve their goals. Unfortunately, the reality is that many people struggle with finances and will continue to struggle even with the vast array of information available. The question becomes why?
To answer “Why” people have difficulty in finance when there is an abundance of information available, I only need to look at my own experience. As I journeyed through the labyrinth of personal finance information to achieve my own financial success, I found myself frustrated at times with some of the approaches taken in the personal finance field that were intended to help people. The following are a few examples, well intended or not, that can lead people in the wrong direction when they are trying to achieve their financial goals.
Assumes success is easy.
Highlighting mistakes & creating guilt.
Over simplify investing & rate of returns.
“Time to make the tough choices"
Assuming that success is easy to achieve
It is sometimes assumed in the personal finance industry that following a simple set of rules will lead to success and financial freedom. But is this really reflective of what will happen? I am not so sure this is the case, not because readers do not understand the advice, it has more to do with their situations. People continue to struggle due to a number of economic factors such as: low wages; inability to save and/or low investment returns; increasing medical, education and housing expenses, all of which put tremendous pressures on household finances. Advice is great, however, people sometimes have difficulty doing finances themselves and need to have additional guidance and support, regardless of how simple it may seem. The reality is that success in personal finance can take time, patience and lifestyle adjustments, which can be difficult for some people to make. It is not easy but it can be done.
“Personal Finance just may not be as easy as it seems to be"
I have read countless articles with titles such as “Mistakes Most People Make…”, which sometimes even frustrate me after reading. They are good eye catching headlines but do nothing to help people with their finances. Yes, I agree it’s a mistake to use a credit card for example, but from my own experience and talking with others, people will struggle at times, necessitating the need to leverage high interest debt to get by. While not everyone will be good at managing their money, I do find that most people find themselves in bad situations due to unexpected health problems, job loss, high student debt, having to care for family, and other issues which are at times no fault of the individuals. We need, as personal finance writers, to understand that bad things can and will happen to good people and we need to stop making readers feel they are to blame. I think that encouraging and guiding people is a better avenue to take than the “in your face”, highlighting money mistakes, because this type of an approach does not work for everyone. We tend to forget that bad things can happen to people who are very good at managing money.
“If investing was simple we would all be millionaires"
Oversimplifying investing and rates of returns
I could write a book on investing, not on how successful you will be, but how difficult it can be. As I read in one article, Personal Finance Advice can be mathematically challenging when it comes to the returns you can achieve by following simple advice. This is not the case. Using long periods of time, 20 to 30 year time horizons with over 8% annualized returns is great, but if your time horizon is shorter and the amount of money you can put away to your retirement is lower, you will not meet the same expectations. What happens if you did everything right? You are ready to retire and suddenly the market goes down 50%. If your luck runs out and you invested in Nortel, what about Enron or Theranos? We cannot predict the future nor can we know what will happen to the investments we have, so you could do everything right and still be out of luck. As well, just by cutting out coffee does not necessarily mean you will become a millionaire. The actual amount you will have if you are super disciplined and saved every penny, invested it, and got a good return will likely be less than $100,000 for most people.
Even saving more money, cutting expenses, and being disciplined does not always mean you will get the same expected returns. The reason is simple. Even if you move to an index to eliminate single stock risks, not all mutual funds and ETF’s are created equally. You may or may not get the same return expected by the articles. Simply put, if investing was easy we would all be millionaires.
“Listen to your inner voice, try not to despair, your smarter than you think"
Look, I am not saying it is not possible to be a success. What I do want to do is highlight that fact that personal finance advice can be overly optimistic and give readers an impression of simplicity. The reality is that you need to be committed, disciplined, and continually following up on your finances in order to succeed. It can be a lifestyle change that becomes a little more difficult than you thought when you started. This is why many people who try to follow advice end up frustrated. Personal finance is not a sprint, it’s a journey that takes time and patients and in some cases it may be measured in years before someone gets to the point of feeling financially free.