We all forget simple things sometimes. The other day when I was trying to login to my system at work, I could not remember my password for the life of me. I always typed it in without hesitation and without thinking about it. But for some reason that day I could not remember it.
My memory lapse (aka brain fart) was so bad I even had to get my password reset. And when I remembered it later that day I couldn’t believe I forgot it in the first place.
But it happens. We are fallible. Even billionaires like Donald Trump make mistakes. Or lots of them.
The same thing applies to personal finance. I have done so much reading on finance the past few years sometimes I forget the basics. And I know others do the same. Life happens and sometimes we can lose sight of what’s important.
So here are four fantastic pieces of personal finance knowledge that we may have forgotten:
1. No interest is better than low interest
It is very easy to get into debt in our society. If I wanted to, I could just visit a few websites and sign up for a car loan, mortgage and personal loan in just a few hours. And if you have kneecaps that you don’t mind losing, payday loans are always an option!
Debt has become such a normal part of society, that people don’t really mind keeping “low” interest debt laying around. This especially includes tax friendly debts such as mortgage debt and student loan debt. What’s the harm in keeping around a mortgage that is “only” at 4% and where you can deduct the interest paid from your taxes?
The harm is that you are effectively giving the bank a dollar so you can get back a quarter. If you have the funds to pay off debt quickly, you will be SO MUCH farther ahead if you pay down the principal faster rather than keep the debt around because you can save some money on taxes. The only one’s getting richer in that situation are the banks.
Debt is so easy to obtain and even more dangerous to keep around, even the “low interest” kind. Don’t get lackadaisical in and pay it off as quick as you can.
2. Delayed gratification really works
Awesome personal finance habits can take a while to learn. That’s why they’re called habits. Depends on what school of thought/guru you follow, habits can take 21 days, 28 days, 30 days, 40 days or 2 months to fully form.
The bottom line is that they take time, and this really applies to the essential habit of delayed gratification.
But the problem is that our society is very impatient. We want things now, now now. And waiting to buy something you want just seems silly to most people. But if you keep spending money every time you see something you like, you are sabotaging your financial future.
Spending money frivolously means you can’t put extra money towards debt paydown. It means you can’t make that home improvement you’ve always wanted. It means you don’t have enough money to start your business. But if you save money for a period of time and live lean, you can do whatever your heart desires.
The best way to delay gratification is to save until it hurts. If you’re saving so much money into your retirement plans, savings accounts HSA’s and self education that you can’t seem to find the money to buy that new Apple Watch, you’re doing well. Just know that over time those accounts will grow and grow and you can do whatever you want with your money
3. Marketers know us better than we know ourselves
Walk into any major department or clothing store in the country, and you will be bombarded by sights, smells and sounds that are engineered to keep you in there. Lights will accentuate the sharp curves of the newest smartphone. Catchy music will be playing at a volume that will keep your ears perked up just enough.
And you will quickly forget that you popped into the store to pick up just one thing.
Making a list before going out to help keep your spending under control is a tried and true personal finance hack. But companies know this and they hire very smart people that know how to keep us engaged.
Knowing this really is half the battle. We need to realize that these companies need to keep making higher and higher profits every year, so they will keep looking for innovative ways to keep us in the store and handing over our money. Keep this in mind next time you get caught in their web!
4. Focus on the big wins in life
As the old saying goes, don’t lose sight of the forest for the trees. Going through life day to day, it can be easy to lose sight of our big goals. We’ll hear a co-worker or family member talk about this amazing sale or this incredible new way to save some money on groceries.
The fact is, our brain bandwith is finite, so it’s important to keep the bigger goals in mind. Things like debt repayment, family and friends and spirituality are some of the important things in my life. But it’s easy to lose sight of that when the latest savings fad or mind numbing game or TV show comes around.
The things that have made people lots of money in the past are pretty much the same things that make people lots of money today. Getting an advanced degree, building a business, paying off debt and investing are still the best ways to become richer.
Obsessing over things like cutting out lattes and draining the last bit of toothpaste out of the tube will save you some money in the short term. But it could come at the expense of the real big wins. Keep your actions geared towards those.
Personal finance has been an evolving subject for me. I learn new things all the time and that’s really exciting. But some things I’ve learned on day 1 are still the most important. Sometimes all you need is a refresher!