A couple weeks ago, I promised that I was going to share my best financial tip on November 15th. Well, today’s the day. This initiative is part of a contest for Canadian bloggers to help promote financial literacy.
While I realize that my best financial tip need not be a distillation of all my financial wisdom (real or imagined) into one pithy slogan, I still felt the burden of trying to ‘make it count’. Why? Well, I’m claiming that it’s my best financial tip. If I die young and somebody’s reading this site, I don’t want them to see “SAVE AT LEAST 20% OF YOUR INCOME!” as the microcosm of what I offered to readers. And so, without further ado…
My best financial tip is:
It’s a short tip, but it’s packed with a lot of potential for improving your financial life.
First off, thinking critically isn’t about second-guessing past decisions. Learn from past decisions — hindsight is 20/20 — to avoid the same mistakes in the future. If you’ve made an error, stop repeating it. Personal example: gambling on penny stocks is stupid. Dividend investing or index investing are the only two smart and tax-efficient ways to invest in stock markets.
Before you make major decisions, question your assumptions. I heard this endlessly in managerial skills-type courses at University. More recently, and on the topic of personal finance, I heard it from Glenn Cooke at CPFC 2012. Jumping to conclusions helped humans survive in prehistoric times — quick decisions about threats and opportunities were essential. Nowadays, this is antithetical to personal finance wisdom. While reading Glenn’s series on Permanent Life Insurance, it was clear to me that an assumption I held as a definitive truth (“only term life insurance is acceptable”) is not universal (no pun intended). Sure, if everyone adhered to the “GET TERM” principle we’d be further ahead because everybody would be insured, but that doesn’t mean the outcome would be optimal.
Trust facts over emotion. Emotions cloud a lot of decisions. The proliferation of marketing and post-modern relativism (the idea that an opinion is valid in and of itself) has led to passive ingestion of disinformation and the acceptance of some pretty terrible ideas — financial and otherwise. Bank financial advisors, despite all of their advertising and posturing, aren’t worth the various hidden commissions they charge. Another example of people destroying their lives by trusting emotions over sober analysis: the Canadian housing bubble.
As a person grows up, their brain develops. During the teenage years, one hallmark of development is the ability to consider possible consequences. So if you’re in your 20s or beyond, start using this capacity to consider more than just the ideal outcome. Optimism is a synonym for naivety. A risky investment can plummet just as easily as it could gain. Then again, you’ll miss out on a lot of opportunities if you’re negative all the time. I’m not telling you to pull out your Six Thinking Hats (even if studies show this exercise aids decision-making), but start considering more possibilities while maintaining skepticism.
If you think critically about every major financial decision in your life, you will be a lot further ahead than if you don’t.
Bonus Best Financial Tips
There are also two lovely ladies who write for TF regularly (Adina J. and Sara). So I shot them an email to ask for their best financial tips, to add them to this post. I was all like…
And they responded with some awesome “best money tips”.
Adina’s best financial tip:
Always ask yourself: “What would GV-O do?” except when it comes to designer handbags. For those, buy used, save 80% of the retail price; eat your cake and save it too.
Sara’s best financial tip:
Create your budget based on your pay schedule and not your bill schedules. It’s easier to keep track of how much you can spend, and you won’t be left with too much month at the end of your money.
There’s the most succinct financial wisdom you could ever hope to find on a site as verbose as TimelessFinance. This website, authored by a guy who struggles to convey just one nugget of wisdom in less than 1000 words, has now managed to publish three solid tips in about 750.