Next week, I’m going to be a guest on an industry podcast for wealth management professionals. We are going to talk about the “rules of thumb” when it comes to investing and wealth management. I’m sorta jumping the shark a bit because that interview hasn’t yet happened. But, the focus of what I know we are going to discuss is what inspired the topic for today’s piece.
In the realm of personal finance, there’s a plethora of common money rules that are often touted as foolproof guidelines for managing your finances. Often, they are positioned as if doing these things will guarantee financial success. Things such as, pay yourself first (save), spend less than you earn, invest, and carry little-to-no debt.
As I frequently share, what makes these rules tricky is that they are prudent practices.
However, I’ve not been shy about why I feel they also tend to miss the mark and cause people to feel money shame in the form of embarrassment, guilt, or inadequacy when they fall short of following them.
Easy is Appealing
I get it, though.
Rules offer simplicity and convenience. And given the complex lives we all have, who doesn’t want that!
But, rules, like these, do come at a cost.
They miss the mark because they lack any personalization, as they are not predicated on your particular financial situation, goals, and values.
Additionally, they let you off the hook and allow you to bypass doing any deep thinking or evaluation of your choices and trade-offs. As a result of this minimal effort, you don’t have to don a critical hat and review your decision-making process.
In short, it’s easier to follow a set formula of rules than it is to invest the time to craft a personalized and nuanced financial game-plan tailored to you and your individual needs.
It’s also easier to follow rules because it is our natural human tendency to conform – whether for the sake of social validation, out of fear of disapproval, or abdicating to the expertise of others.
So, I’m not rule shaming you (or anyone else)!!
Besides, rules definitely provide a sense of guidance and structure.
Beware the Limitations
But, they also give the illusion of a clear-cut path to financial stability, security, and success.
That’s why it’s essential to recognize the limitations of adopting a “one-size-fits-all” approach, because your financial journey is unique to you and to who and what is important to you.
Because what works for someone else may not work for you and vice versa.
For example, a change in your circumstances can make saving a fixed percentage of your income unfeasible for a period of time. Or, given the current performance of the stock market, it may make sense for you to lock in some of your gains and sell some shares, whereas for someone else buying more right now makes sense because they are utilizing a dollar-cost-averaging approach.
In order to remain consistent with the rules you follow, they must align with what you need and want.
You likely know this, intellectually.
But when doubt or fear about whether you’ve made or are making the correct choices creeps in, how quickly do you default to the comfort that comes with following the “rules of thumb.”
Make it Personal
The term “personal finance” means so much more than just how you manage your own money. Especially when you consider how doing so intersects with broader familial, cultural, societal, and economic considerations.
After all, your decisions:
- Don’t just affect your immediate family, but your other loved ones, too.
- Can often have a ripple effect on your community and society as a whole. (Do you ever think about how your consumer spending or borrowing behavior – or lack thereof – shows up in the inflation numbers we hear about?)
- Are affected by access to financial resources, opportunities for wealth accumulation, and systemic barriers to financial empowerment and advancement.
One of the (many) reasons you hear me shouting from the proverbial roof-top how money is about so much more than the numbers is because personal finance is deeply connected to your goals, priorities, and values. Along with what you believe is possible.
The industry likes it, though, when you define “personal finance” through the lens of common (rigid?) “rules of thumb” that you apply to the various aspects of your money. Think about it, what is simpler for you is also simpler for those who espouse this way of thinking.
But because the circumstances of your financial journey are unique to you, there is no one-size-fits-all approach that will equally work for you as it does for someone else.
So, when you define “personal finance,” you’d benefit from really leaning into the question: “What is most optimal for me?”
Usually, what’s optimal tends to be more “right” than it is “easy!” And, this is a much more involved and complex experience.
Create Your Own Rules
Suggesting that people blindly follow common “rules of thumb,” whether it regards personal finance more broadly, or investing and wealth management, more specifically, drives me bonkers. (Which is what I shared with the podcast host during our pre-interview call!) But, that doesn’t make rules inherently wrong.
From my perspective, it’s essential to recognize when you are taking the “easy” path, which may not result in you making the choices that are really “right” for you.
Hence, my suggestion:
Use common money rules for reference to help you create and play by your own rules.
This, my friend, is how you challenge conventional wisdom and carve out your own path to financial success and fulfillment.
