As we go through life, we learn many new things. Every time we start to learn a new subject, for the most part, we start without much base knowledge. Over time the concepts become more advanced, until at some point you learn to master whatever it is you’re learning.
Think about things like writing or math. We start in grade school, learn basic concepts like the alphabet, or addition, and then later pick up more advanced things like writing coherent sentences and synonyms, or geometry and calculus.
We’re able to ease into it through a generally well-thought out curriculum over the course of our childhoods.
Money Is No Different Except When It Is
While this is true for things like math, science, language, and even more abstract things like art and music, it’s generally not the case with money.
The unfortunate thing about personal finance is that despite being one of the most important things to have true mastery of as an adult, it’s not taught in most schools. Despite being able to hold a job at age 14 in the US, there is no sort of formalized financial education provided in our middle schools or high schools.
Even as we ship kids off to college, many do not understand the implications of taking out student loans. As a result, many go through college racking up tons of student loan and credit card debt.
I had one personal finance class in college. I loved it, and it really resonated with me. Unfortunately, it was a bit too late and I’d already racked up five figures of credit card debt.
Many people don’t have the option of learning about how to manage their money through formalized education. For them, popular public figures like Dave Ramsey and Suze Orman are often their first exposure to the world of finance.
Dave Ramsey and Suze Orman both offer advice that serves the masses. Their goals are pretty simple: spread basic financial knowledge to the largest audience possible. Doing so requires teaching things at a relatively fundamental level.
It’s like teaching a class on addition, subtraction, multiplication, and division. There are a ton of other mathematical concepts, but those four will get most people by most of the time.
It makes sense to start there – it’s the foundation to more advanced concepts like exponents, and more complex areas of math like trigonometry and calculus.
Likewise, the world of financial information is extremely broad and deep. What Dave and Suze talk about is the most basic level of financial management.
Outgrowing The Dave’s and Suze’s Of The World
That means that if you want to advance in your money management, at some point you need to outgrow Dave Ramsey and Suze Orman. Once you master the basics of writing the alphabet, it’s time to put together coherent sentences. There’s little value in continuing to study the alphabet itself.
I remember after I’d started my second role at my first company. When I was in Detroit for a work trip, I was chatting with someone from HR who was on the trip with me.
Up until that point, all of the things I’d learned at the company felt so conceptual, and I’d mastered most of it. I felt isolated from the real workings of the business, but conceptually I was at my limit. I needed a new challenge, and switched jobs into a role that more directly supported the companies day to day operations.
It leveraged my skill-set I’d built up for two years prior, just like writing words and sentences leverages your understanding of the alphabet.
Suddenly with my new role, I was put deep into the weeds of dealing with real life scenarios.
It felt a lot like going to college, learning how something conceptually works, and then getting into the real world and realize there’s a lot more you don’t know than there is you do know. It’s overwhelming at points.
Personal finance is the same way, especially at the beginning. You can learn and master basic concepts, but eventually you realize that you have a lot more to learn.
More advanced things like 401(k)’s, Roth accounts, tax loss harvesting, and HSA’s are more advanced, and come up frequently when researching or trying to learn about money. And that’s just the tip of the iceberg.
Pair those complex ideas with a plethora of services and companies that offer them, and it’s easy to see how it can be quite overwhelming. Quite frankly it likely shuts people off to wanting to think about money at all.
Stopping the Overwhelm
And this really is one of the biggest challenges I see. Getting people interested in personal finance and simply figuring out how to stop the overwhelming feeling of there being too much to learn.
A key realization I had was that while it’s true that there is a lot I could learn, there isn’t much I must learn.
I don’t need to know about everything, and I certainly don’t need to know about most things all at once. Some high-level knowledge on a subject – like the 4% rule – was a simple enough ‘rule of thumb’ to get started.
Index funds were a huge boon for me as well, simplifying our investment strategy while still having underlying diversification.
For those who don’t know, an index fund is essentially a fund that tracks a ton of various stocks. It may track 3000-4000 different companies that represent a healthy mix of the entire stock market. By investing in an index fund, we’re not out-performing the market…but we don’t really need to in order to hit our goals.
As a bonus, we are diversifying our risk to a degree. By tracking so many different companies, if one of them goes down, it’s unlikely to have a significant impact on the value of the index itself.
Those two realizations got me set with where to invest our money, and what to invest it in. I didn’t need to explore the rest of the financial world to do that. And I didn’t need to explore the rest of the financial world to know that those two things alone would probably let us hit our goals.
Now that we’ve got those concepts and plans nailed down, though, I am eager to learn more. I love building on my knowledge as much as I can.
If you start small and slow, you’ll realize that you don’t need a lot to manage your money wisely. The basics of budgeting (or at least tracking your expenses), understanding your net worth, and a few tips on investment basics should get most people by.
At that point if you want to learn more, there’s plenty to keep you busy.
But if you don’t, even those basics are an adequate foundation for many. Time is the other missing component. Consistency is king when it comes to financial stability.
How did you move past the basics? Did you have any mental or emotional hurdles to overcome?