Weird Financial Tips

I’ve written a lot of normal financial advice, stuff like favoring term life over whole life, taking advantage of tax-advantaged accounts, and mainstream advice like that. If you’re interested in learning more about that stuff, you can read it in almost any financial book or article. If you want a good source of information and a place to ask questions, try the Bogleheads forum.

This week, I thought I’d share some of my unusual takes–financial advice you don’t get from mainstream sources, or at least a different spin on familiar advice. You’re unlikely to agree with everything here, but hopefully, it will give you something to think about.

Total Market Index Fund

My first piece of advice is relatively mainstream, but it gets drowned out in all the attention-grabbing headlines in the financial press. All of your US stock investments should be in a single total market stock fund. There are plenty to choose from: FSKAX, VTSAX, SWTSX, VTI, and SCHB are some good examples. The financial press and many (usually bad) financial advisors will have you believing that a smart investor needs to buy and sell individual stocks, get in and out of sector funds, or do a lot of research to know which fund to buy. Nope. A smart investor just picks a convenient, low-cost US total stock market fund and uses that for all of their domestic stock purchases. A total market fund gives you fantastic diversification at low cost and guarantees that you’ll roughly match the market return. That sounds easy to do, but most professional investors fail to beat it, and many underperform it badly.

We can get into a side debate on whether and to what extent you should invest in international stocks, but that’s a separate issue. Brilliant minds like Jack Bogle and Warren Buffett say that you don’t need international, but I respectfully disagree with that view.

It sounds strange to counsel simplicity in investing when so many people promise to make you rich with complex investment strategies. Ignore them. As the saying goes, “Don’t just do something, stand there!” In this case, simplicity is better. I can’t tell you how many times I’ve seen very smart people do really stupid things because they believe that smart people have to be very active in their investing strategy. Don’t overthink it.

You Might Not Need a Budget

OK, maybe you do, but don’t just assume that you do. You should have a good idea of what your savings goals are. If you are young, that may just be a general rule, like saving 20% of your income. If you are mid-career, hopefully, you’ve created some retirement savings goals and you are tracking your progress toward those goals. Here’s the thing: if you are regularly hitting your savings targets without a budget, you probably don’t need a budget.

When do you need a budget? Couples sometimes use budgets to make sure that their spending is equitable between the two of them. People struggling to make their savings goals can use a budget to help them understand what discretionary spending they can and can’t afford. They can also be useful if you think that your spending priorities need reviewing or adjusting. But if you are happy with your spending and saving what you want to save, budgeting isn’t necessary. We haven’t used a financial budget in ages. We used them when we needed them, but quit when they stopped being useful.

Review Your Spending

A budget isn’t necessarily worth the effort for everyone, but I think we could all benefit from reviewing our expenses every so often. It’s very easy to accumulate subscriptions and other financial leeches. That’s why companies often offer a big discount if you sign up for auto-renewal. Look back through your expenses once every year or two. It doesn’t take long. If your only records are bank and credit card statements, start there and focus on two things. One is periodic payments for things like streaming services. Ask yourself (and your spouse if applicable), is this still worth that amount? If so, great. If not, cancel it. Also, look at significant expenses and ask yourself whether you still think that was a good expense. If you answer “no” fairly often, remember that the next time you get ready to make a major purchase.

Think About It

I have a little rule about purchases more than a relatively trivial amount–the bigger the purchase, the more I have to stew on it. Things that seem like a great idea right now often seem less compelling a few days later. You can save yourself a lot of money by slowing down. Salespeople understand this, so they work hard to build a sense of urgency. Avoid quick spending decisions. I’ve saved tens of thousands of dollars, not wasted on stuff that I thought sounded great, by just waiting a week to spend the money.

Keep Your Car Clean

What does keeping your car clean have to do with investing? One of the most pernicious ways I’ve seen people overspend is by changing cars too frequently. When you get in your friend’s nice car and mentally compare it to your junky vehicle, you’ll be tempted to get a new one for yourself. A good way to combat this tendency is to keep your car nice. Keep it clean. It’s not that hard to do. I learned a trick a while back that works great - don’t leave stuff in your car. If you do, it starts to accumulate. Then cleaning it out becomes a project that you’ll keep putting off. If you keep the junk from accumulating in it, it is much easier to keep it nice. And if you can drive your cars a few years longer, the savings will add up.

This advice applies to anything expensive, not just cars. I focused on them because that’s where I often see people fritter away money. I suspect it is because we use our cars a lot for mundane, practical purposes, but get seduced into buying new cars for emotional reasons. It may also be because there is a stigma about credit card debt, but fewer people think less of you for having a hefty car note. Whatever the reason, do more to resist the temptation to buy a new car.

Stay Where You Are

Moving is very expensive. If you own a home, moving is likely to cost you 10% of the value of your home once you factor in realtor fees, banking fees, moving costs, and other expenses. That’s a lot of money. I’m not saying that you should stay in your 1,500 sq ft starter home as your family grows to include six children or that you should stay in your 4,000 sq ft McMansion when you are an empty nester. Sometimes the juice is worth the squeeze. But understand that moves are really expensive, and think about whether moving is going to be worth the cost.

Drink Water

This is one of my stranger suggestions, but it comes from what I consider one of the best decisions in my life. As a kid, I drank nothing but Kool-Aid, which is water with a ton of sugar added. As I got older, I switched to drinking Coca-Cola. When I say I drank these things, I’m not talking about having one with my dinner or something. It was literally all I drank from the time I woke up until the time I went to bed. I know, it was a bad idea, but it just seemed normal to me.

One day, I started thinking about it. It occurred to me that some people drank tap water. Instead of spending $1,500/year (in today’s dollars), they drank for free. It was also healthier, didn’t rot their teeth, and didn’t leave them with a caffeine addiction. Water is available everywhere. It makes much less of a mess when you spill it. The only problem was that I didn’t like it. Switching to water would also allow me to eat between 500 to 1,000 calories more in food each day, and I loved eating food.

I was so enchanted by the advantages that I committed to try drinking nothing but water for a month to see if I could get used to it. I know that for those of you who grew up drinking water, it must sound strange to have to put out an effort to learn to drink it, but it was a challenge for me. I did it. At the end of the month, drinking water seemed normal. It wasn’t great, but it was good enough, and the benefits were exactly what I’d hoped. Later, I got to where I truly loved an ice-cold glass of water on a hot day or a cool, refreshing glass of it when I was thirsty.

I’m not suggesting that you become an ascetic, giving up all of the pleasures in your life. If you love an occasional beer or soda, drink an occasional beer or soda. But look for situations where you have a costly habit and ask yourself if it is worth it. If you are in doubt, try life without it for a while. Switching from being a sugary soda drinker to a water drinker has made my life much better. I not only saved money directly by drinking free water, but I also saved more money indirectly by being healthier. My only regret is not having started much sooner. Look for similar opportunities in your life.

Be a Cheap Date

Why should you take dating advice from an unattractive little old man? If that’s what you are thinking, you’re looking at it all wrong. Ask yourself, how did he manage to date and marry a beauty queen who has not only been an amazing wife but who has also been a great financial partner despite being an unattractive little young poor man at the time? I must know something.

My first piece of dating advice is to be a cheap date. Don’t woo your romantic interests with expensive dates. You’ll attract partners who expect to have lots of money spent on them. In fact, you risk having that be the primary reason that they are dating you in the first place. Make your dates fun and inexpensive. If your date enjoys dates like having a picnic, flying a kite at the park, or going for a walk, it’s because they like you. Dating is like interviewing. It should be a combination of trying to impress but also trying to filter. Keeping the cost of your dates low is a great way to filter for people who are more likely to be financially prudent in the future.

To be clear, I’m not suggesting that you be a “low effort” date. A good, cheap date can be quite a lot of work. But woo prospective mates without overly relying on spending money on them. You’ll attract a better quality of person, and your relationships will be better grounded.

The Financial Disclosure Talk

My next piece of advice is for people further into their relationships, and it will probably upset some of you. Around the time that you start talking about financial entanglements, whether that is marriage, buying a house together, or having children, you need to have “the talk.” You need to do a financial reveal and understand each other’s financial situation. And don’t be afraid to walk away if it doesn’t look good.

That sounds cold and unfeeling. Who would put money ahead of true love? The problem is that when your financial worlds combine, you are like two people sharing a boat out in the ocean. If one of you keeps your part of the boat in tip-top shape and the other is punching holes through the hull, the whole boat is going to sink, and you’re both going to drown in a sea of financial trouble.

I’m not saying that you should walk away from someone because they haven’t been saving 20% of their income in low-cost total US stock market index funds. But if they have a lot of credit card debt and the amount is growing, that’s a red flag. You shouldn’t necessarily run away, but put off any financial entanglement. Sit down and offer your advice and moral support to help them learn to live within their means, but make sure that they demonstrate that ability before you get financially entangled with them. Maybe they need a budget. I know it sounds heartless, but financial problems destroy as many marriages as infidelity. Be patient and give them a chance to prove themselves, but don’t let their lack of spending control destroy the financial foundation that you have hopefully been building.

Manage Your Career

When I started working, I thought you just showed up every day, tried to do a good job, and hoped that good things would happen to you. If you want to get the most out of your career, you need to do more than that–you need to manage your career. You need to be thinking ahead. What job do you want to do next? Know what you want and make a plan to accomplish that.

If your next career goal is with your current company, talk to your manager about it. Ask them what the process is for you to get to that level. Ask what you need to accomplish. Don’t ask to be promoted; ask what you need to do so that they will want to promote you. Then do it, document it, and communicate it. Make it an easy decision for them. And if they can’t give you a clear path, that should tell you something about your growth prospects working for that person.

But think about what you want. Progression in a corporation usually combines an increase in pay with an increase in responsibility. People sometimes get obsessed with that higher title, bigger office, and bigger paycheck, but neglect to ask themselves, “Do I want to do that job?” Is it worth it? Think about what you want and then set out to accomplish that. Your goal shouldn’t be getting promoted into a role that you’ll hate.

Failing In Your Career

Everyone makes mistakes. Things go wrong. The best advice I got from a mentor was to fail fast. When you’re working on a project and you see that it is going wrong–over budget, late, or just unlikely to work properly, the natural tendency is to try to quietly fix the problem or ignore it. Fight that urge. When you see that you are off track, let your manager/project sponsor know the situation and what you recommend doing about it. It’s not likely to be a pleasant conversation, but it’ll get more unpleasant the longer you let the problem fester. And you never know; they may help you get things back on track. Don’t raise the alarm over minor hiccups, but don’t hide real problems either. When in doubt, ask yourself what you would want to know if you were your boss.

And for goodness' sake, don’t be afraid to admit your mistakes. When you do, emphasize what you learned from them. I once interviewed a guy who kept dodging variations of the question of “what’s something that went wrong in your career and what did you learn from it?” Finally, my co-interviewer asked the candidate very directly, “Tell us something you’ve screwed up.” The most that he could admit was that his marriage failed because he was too focused on work and worked too hard. Seriously. A question any idiot could see was about assessing how a person dealt with failure, and was met with a response that effectively said, “I never admit to any mistakes.” Bad answer. He didn’t get the job because we figured that it was much more likely that he was a jerk than it was that he was a perfect and infallible worker.

Spending Money Doesn’t Necessarily Make You Happy

This is a hotly debated point. Many studies show a correlation between income and happiness, at least to a point. But those studies may be confusing cause and effect. Yes, making more money allows you to spend more money, and that sometimes leads to more happiness. On the other hand, happier people tend to accomplish more and thus make more money. I don’t know what the true answer is, but I am confident that money spent to impress people is not money well spent. You may think that wearing an expensive watch or driving a desirable car will make you happier, enjoying the admiration or at least envy of others, but I don’t think that works. Ask yourself, would I buy this if it were invisible and nobody knew I had it? OK, that doesn’t work well for clothes, but you get the point. If you are buying something just to impress other people, you are probably wasting your money. They don’t care. And if they do, you probably shouldn’t care about their opinion.

Wrap-up

That’s my weird collection of financial (or at least vaguely financially related) advice. I want to reemphasize that most of this advice is for people who are struggling to meet their savings goals. If you’re already setting aside all the money you believe that you’ll need, don't fuss too much about being more frugal. Don’t let money rule your life, but don’t let the lack of it ruin your life either. Handling money well isn’t about being some genius at picking stocks and timing the market. It’s not about driving a flashy car or wearing expensive jewelry. It’s about doing the things you want to do in life without worrying too much about money. You’ll be happier living modestly and well within your means than you will be living lavishly but stressing over money. Good luck.