It’s now been long enough since I published my book that I’ve received some feedback and seen how it has or has not helped people.
I was initially concerned about higher-level issues, given that it was aimed at absolute beginners: will they be able to figure out the most appropriate index funds/EFTs without me holding their hand? Did I explain the pros and cons of owning real estate well enough for them to make the best decision for themselves? Will an advisor overcharge them just to put their money in shitty managed funds, despite all I’ve said?
As it turned out, these problems rarely arise. It seems that people either get everything, from the basics up, or they grasp nothing at all.
Here are the three biggest finance blunders people are running into, even after reading the book:
1. No budget
If you’re no good with money, the easiest move you can make right now to improve your situation is to download a budget app and use it. This is very, very easy, takes little time and provides the biggest bang for buck in terms of improving your finances.
Other forms of budget are fine, but plenty of people have no budget at all. This one little app would solve everything without the need for spreadsheets, envelopes or whatever. Once you know where your money is going, everything becomes much easier. Without a budget, managing your finances is like trying to play tennis blindfolded.
If this is a >be me moment, here’s an app that ought to work fine for anyone. Very easy to use.
Is it the absolute best one for you? I don’t know. But if you’ve gotten this far and are still thinking up ridiculous excuses to prevaricate about the mind-bogglingly obvious, take your finger out and download this app now. It’s good enough. I get no kickback. Read no further. Stop pissfarting around. Do it NOW.
If you have still have money problems and no budget, stop reading this blog, don’t get my book, go buy yourself something nice on credit and leave me in peace.
I’ve had it.
2. No emergency fund
Someone I know was complaining about a problem with a bank. Long story short, he needed to pay them $20 cash for a new bankbook in order to access his account but he didn’t have that much on him.
This is nuts.
I’m not talking about a homeless person. This is a man with a reasonably good job, a mortgage, some retirement savings.
He just didn’t have twenty bucks at that moment.
You must always have twenty bucks at every moment. Doesn’t matter if you have to drop over to an ATM or whatever, you must have enough money for life’s normal extingencies.
Maybe my explanation of how much cash to hold for emergencies was too complicated – three months living expenses if you have debt, six months’ worth if you don’t.
Is that too hard? Are people unaware of how much money they would need to get by without an income for six months? Do they think this amount is less than $20, or that presumed future income or a potential line of credit counts as an emergency fund in some way?
Maybe in the second edition I’ll simplify it like this:
You need to have $10,000 in the bank.
No ifs, no buts.
Save that amount before you do anything else.
More is okay. Less is not.
3. Set up regular investments.
The third common problem is that people know all about indexing, tax-protected retirement funds and the rest of it but fail to actually put any money away.
The best way to do this, using the old but indispensable cliché, is to pay yourself first.
Figure out via your budget (done that yet?) how much you can afford to save for the long term each month, and immediately send that amount to your index fund/retirement fund as soon as you receive your monthly paycheck.
Even better, set this up to happen automatically via your employer or bank so that willpower is not required.
Once you’ve done this, you’ll find that the remainder of your income will magically last for the rest of the month because you’ll have no choice but to make it last. And if something goes wrong, you’ll have that emergency fund to draw upon.
You set up that emergency fund, didn’t you?
Conclusion
When setting out the 10 steps to financial freedom, I thought that the later steps would be the hardest. Figuring out the difference between shares and bonds is tricky if you’ve never read about them before, and things like finding an advisor or assessing your comfort with risk take a lot of judgement that is hard to spell out.
However, the vast majority of people who are failing to get ahead fall down much earlier than that. They don’t budget, have an emergency fund or regularly invest.
Those things are both easier and far more important.
Don’t believe me? Check this out:
In the long run, how much you save and invest is far more important than how cannily you invest. A high saving rate depends on your budget, emergency fund and regular investments.
For some people, my book is not good enough. They want me to come over to their house, download a budget app for them and personally explain how to use it. They want me to set up an emergency fund for them. They want me to start a savings plan for them. And even if I did all these things, they’d stop using the app as soon as I was gone, spend the emergency fund and cease the auto-invest option.
Horses, water etc.
If this is you, frankly, I can’t help you. You will live a financially constrained life, work longer than you want, retire with little money and die in debt.
If that’s not you, my book will help you a lot.
- This article provides general information. It does not take into account your personal circumstances and is not intended to influence readers’ financial decisions. Get your own, professional advice.
SovietMen 
So the fellow didn’t even have $20 in the bank? I don’t usually have any cash at all in my pocket, since I can use my credit and debit cards nearly everywhere. But I do have quite a lot of cash in my bank and brokerage accounts.
Budgeting is so easy, you don’t actually need an app. It can be done with Microsoft Excel or MacBook Numbers. And you don’t need to actually do the math – the software will do it for you. I’ve been budgeting for so long it is second nature to me. Can’t imagine NOT budgeting, quite frankly.
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Imagine a time there were no apps. Like 20 years ago. Like 200 years ago. For some reason, inexplicable to many Millenials, people even then saved money, made investments, got rich, retired without social insurance, and so on.
Nikolai, we both live(ed) in a land that logic forgot, and know that many people just don’t make it beyond a teenage level of consciousness. Bless their souls, and let them throw their money at sharks. In order for assholes like me to make a lot more than the average guy, there must be idiots like them. I wouldn’t take the time to spit on them, but I thank them 😉
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True but I look bad if people read my book and still can’t manage their money, so I’m trying to simplify as much as possible.
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This was very good, and I think you’re right that if someone reads this and still can’t get their act together financially, they’re beyond hope.
For what it’s worth, our emergency fund just got wiped out by unexpected medical expenses, one of the things about life in the US that really is truly awful. I’m now working on hopefully building it back before it’s needed again, and then I’ll look into investing more than I do now, which really amounts to just paying my mortgage down and maxxing my 401k contributions. Thanks for the reminder about the basics, it helps me stay on track.
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