I have plenty of friends who are bad with money.
Despite decent salaries and barely-there responsibilities, they’ve little to show for 20 years of work but memories and wrinkles.
Some have allowed hundreds of thousands of pounds to trickle through their fingers.
Others bought their first property long ago thanks to parental urging (and in part with parental cash) and it is the London house price boom alone that has salvaged their net worth – at the cost of retarding their financial education.
Incidentally, if you’re thinking that having me as a friend has clearly made little impression on my friends’ finances…you’re right!
It’s not that I haven’t tried.
But I’ve learned it’s a bad idea to bring up money with people who’ve been careless with it, especially if it’s one of your favourite topics.
They get defensive or alienated or worse.
And I’m sure I’ve been unbearably preachy at times, especially in my 20s.
A lot to learn about money
In the past few years though, it’s been a slightly different story.
Friends who’ve noticed my obscure passion for investing will sometimes ask off-hand about ISAs, or pensions, or their daughter’s university fund.
And while I’m not the world’s most empathetic person, I’ve discovered this is their cue for a chat.
They finally feel ready to “be sensible” with their money, as they put it, and they want to know what to do next.
Of course, what they should do is a big subject – it’s the subject of an entire blog about managing money!
When it comes to investing, I usually suggest they start simple with a cash and tracker split across ISAs or perhaps a Vanguard LifeStrategy fund, although there are lots of variables, such as whether they have a workplace pension or big obligations.
That’s even more true with personal finance, where different approaches work better for different people.
I’m a simple Micawber man myself, but others such as my co-blogger swear by tracking and budgeting to the last penny.
Finally, I stress to them that I am not their financial adviser, and that these are just ideas for further research.
This isn’t just because it’s true – I’m not their adviser, I don’t have all the information required to be their adviser, and I’m not qualified to be, anyway – but also because the whole point is they need to learn the basics for themselves.
People ask me “What is a hot stock to put my money into?” or “Should I put this £10,000 redundancy into a wine fund?” or similar.
(Really, they do).
They have a lot to learn about investing, and more to learn about themselves.
You are what you bleat
For my part, I get to hear them justify what took them so long:
- “I don’t have the time to win big on the stock market.”
- “There’s no money at the end of the month for saving.”
- “I’ll think about investing when I’m not in debt.”
- “When I’ve got more money, I’ll start to get serious about it.”
This is all terrible thinking, if also terribly common.
Many people wonder why lottery winners often end up broke.
Not me. Time and time again, I’ve seen people believe that thinking follows facts:
“When I’ve got out of debt and I have more money, THEN I’ll start taking all this seriously.”
In reality, the facts follow the thinking:
“When I start taking all this seriously, THEN I’ll get out of debt and have more money.”
If you want to make money your tool – an asset, rather than a liability – start behaving now like the rich person you’re going to be:
- You don’t have non-mortgage debts as a rich person, so get out of debt.
- You think positively about money, so think long-term.
- You’re already living the plan for how you’ll retire early.
- You save money, time, and energy by investing with index funds.
- You get paid what you’re worth.
- Young? You’re richer than I’ll ever be again. Compound your money rather than buying clothes you don’t need.
Start today
Here’s some advice I once heard1 on being the person you want to be.
It’s not about money, and it’s all the more powerful for that:
I finally reached a decision a few years ago when I was deeply into an ‘I’m ugly and I always will be’ phase.
I sat down and made a list of all the things I would do if I were ‘beautiful’.
For example: I’d feel confident in a room full of beautiful people, I’d wear great, well-fitted clothes, I’d walk with my head up, wear make up and do my hair properly, buy and wear high heels, and so on.
Then I decided to do it anyway. I only have one life, and not enough money for the surgery required to meet my mental image of perfection.
I’m damned if I’m going to let that stop me from having the life that I want.
Amen to that.
From now on, you’re good with money.
- Tweaked for privacy. [↩]
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Inspiring. Thanks, TI
Good advice Mr M. One of the phrases out of the numerous “personal development” tomes gathering dust on my bookshelves that stuck with me was “Act as if”. If you were good with money, how would you act? Maybe you’d start reading financial websites, building a blog, putting a fiver a week in a jar by your bed. So why not start acting like you are serious about cash? It’s surprising how much this little phrase can be a tipping point. I used it this morning as I contemplated diving in to a cold pool at the gym. “Act as if” I really enjoy plunging into that refreshing water. Instantly, I dived in. Bloody freezing, but I was off!
Great article, I was interested to notice your choice of words though, specifically ‘rich’…
I always make a really clear distinction between ‘rich’ and ‘wealthy’, and I think this distinction really helps my thinking when it comes to money. I always use wealth when referring to money. With wealth being a simple calculation of your material values, ‘richness’ is a much more emotional value placed on the full composition of your life. You can have a ‘rich’ life without being materially wealthy.
At the end of the day, we become the sum of our actions. My interest in personal finance began with a desire to be tax efficient, a newspaper article on passive investing that led me to Tim Hale’s Smarter Investing, a trip to a Kindle Store and a Google search for cheap trackers which led here.
Now I’m a spreadsheet jockey always happy to talk about taking control of personal finance at the drop of the hat. It goes well with my other pet topics of classical liberal politics and religion as dinner party conversation. Thanks Monevator!
Such an interesting topic, I’ve always been confused by why so many of my smart friends – often older & better educated than me, so no lack of life experience – in good jobs & ‘successful’ by conventional measures seem to be at total amateur level with their personal financial affairs.
The best I could come up with is the ‘ostrich factor’ – that is when people find things uncomfortable, they push them out of their minds & simply avoid thinking about it, like shoving angry red reminder bills in a drawer & closing it …….out of sight out of mind. But while this must be true for some, it’s hard to accept it’s true for such a % of the population, especially since quite a few of those seem smart & to be getting life right.
When I’ve gently tried sounding out my own friends & acquaintances on this sort of thing, I’m none the wiser, their answers don’t make sense, so I assume they’d really prefer not to discuss it for reasons of personal privacy, which is fair enough.
Can such a big % of the general population really be so financially illiterate? …..& I so don’t mean that to be an insult even though I know the words can read as patronising. Personally I did also take a few years longer than I would have liked to get self-educated on matters finance, but I believe that that doesn’t require great intelligence, just enough curiousity & a willingness to read – I’ve learned plenty just from this site.
Hello again all monevator fans.
Back from my holiday!
My friend is absolutely terrible with her money. fortunately she has an NHS pension and lump sum on retirement but I despair at how she manages her money. I’ve finally decided to give up lecturing her, it only makes for bad feeling between us.
I look upon it as some people have an abundant mindset and some have a poverty mindset.
I have learned so much from this site, thank you Mr M. I would like to be able to influence my two sons (in their mid twenties) but one ‘gets it’ in terms of saving his bonuses from work and investing and the other spends all he has available. I will keep trying.
In terms of friends, no one wants to discuss these sorts of financial matters (too personal) which is a shame as information exchange is so helpful.
Thanks for this post. We’ve been struggling with whether or not we should talk more openly to friends and family about our plans for early retirement.
On one hand, we don’t want to hide our dream of retiring early (because 1) it seems alienating and selfish to keep something so important away from loved ones and 2) they might resent us when we DO retire early and feel that we’ve kept some secret to success from them).
On the other hand, we wonder whether talking more about our plans might lead to other resentments. Would close family and friends bemoan their more indebted states (as well as be jealous of whatever success we are having in saving)?
All this is probably the reason why there are so many personal finance blogs–and readers–out there communicating with each other…
Thank you! A great uplifting post which is exactly what I needed right now!
If you are not averse to the idea of annuities, and you want to be a senior money hero, you could do worse than take a google at the new Class 3A NICs. I calculate that a 74 year old BR pensioner paying the maximum permitted age-related, top-up, lump sum of £17,350 would be buying a 6% net yield.
I love this type of people. These people are irrational in the markets too. What if everybody would be Warren Buffet? Short-sighted people make irrational decisions so make opportunities for us.
I have a single female consultant doctor friend in her early thirties who is professionally at the top of her game. She was bemoaning how the new doctor pension rules meant that she would be working till she was into her late sixties.
I challenged her on whether it was conceivable that given she’d earn well north of a million pounds in wages in the the next ten years she might put a little bit away and reduce her time to retirement….she looked at me like i had two heads.
I eventually persuaded her to consider maxxing out her ISA, investing it in something other than cash and opening a SIPP and putting in the difference between her annual allowance and whatever her final salary contribution was as well as any unused allowance from previous years.
She considered….and did nothing, bought a new car and two carbon fibre road bikes. We agreed not to talk about it again.
@ Bob
My oldest friend is also at the top of his game, he runs IT for a global corporation. [a well known name] I don’t even want to know his salary, but every year, at least twice a year, he takes his family [of 4] on dream holidays, each one of which comes to my annual income …..every year.
After 15 years of marriage & 20 working, he still lives in a rented house & has not too much in the way of investments/savings, he is totally grey at 45 & his health is shot already.
I have achieved FI relatively early, mostly by living extremely modestly in comparison, I never had his many opportunities, so never earned anything close, but envy him absolutely nothing. I know he feels very sorry for me for my humble, quiet life & thinks I blew it ….. I don’t explain that my primary motivation & pleasure in life is total & utter freedom, because I don’t even know where to begin.
He is however a wonderful person ….. and we too don’t talk about finance.
While young I had the (mis)fortune for a number of years to be in a job which I loved, but which paid poorly. My family struggled to make ends meet. This seared our outlooks about money.
When a better paying job turned up, in the light of our experience my wife and I saved like crazy. We drove the ropiest ancient cars, the shabbiest in the car parks.
My then well-paid colleagues did not save; spending all their income and more, much more on credit in spite of my gentle protests.
Nothing I said would persuade them otherwise and the conversation could turn uncomfortable, as noted above (none so deaf ….).
So yes it is difficult to talk about money.
With our savings we began to learn to invest, made all the usual mistakes but gradually improved.
The company department folded (could be seen coming), my colleagues were forced to live away from home and similar for many years, to earn enough to support their families and the serious debts. I decided to retire at age 49, my wife following suit to live off our accumulated capital.
So is the recipe to learn the true power of money for lifestyle choices/freedom, to first experience poverty?
Maybe, maybe not?
@Fremantle
“It goes well with my other pet topics of classical liberal politics and religion as dinner party conversation”
Don’t forget to add us to your dinner guest list.
@magneto
> So is the recipe to learn the true power of money for lifestyle choices/freedom, to first experience poverty?
probably 🙂 Too much too early can stuff a fellow for life in two ways – one is they need a high income to service the lifestyle they anchor on, and the second is that makes their personal finances brittle – they stand in the flow of loadsamoney but build up no stock to bridge the gaps in the flow that can come out of the blue.
Careers seem to peak earlier in the common PF occupational fields of IT and finance than they used to, which is good in one way but bodes ill on the increased early spendiness.
I am surprised so many of my friends cannot change a tap washer and rely solely on their IFA in investments yet seek every deal going when it comes to living.
When does the moment of realisation come that there are better ways of doing things. Perhaps never for those that have more than enough to matter and in moments of crisis for others.
How do we educate a nation to be more knowledgeable about investing?
I hope zero % interest rates don’t deter youngsters from getting into the habit of saving. My old National Savings and Scarborourgh xx day notice accounts were great fun to watch when I was an old boy. From that, and comparing saving rates in the old Sunday paper, it’s a natural step to investing in funds and stocks – though back then it was more difficult to set up those accounts.
@magneto
”So is the recipe to learn the true power of money for lifestyle choices/freedom, to first experience poverty?”
This is something I have also often wondered. I grew up in the 3rd World & saw people starve, so to this day, I still can’t ever waste food & food fights seem obscene, let alone supermarkets sealing their unsold-&-therefore overpriced, food mountains daily in containers to keep the homeless out of.
This is what made me always save, no matter how well life was going, to not end up on the streets, because I knew a couple of wrong turns could get you there, however unlikely that scenario may have appeared when you were still flying high earlier.
My ex-wife in comparison grew up personally deprived/poor, [I only saw it] so I expected her to be more frugal than me, yet she was the opposite, a reaction to the mental scars of past poverty maybe by avoiding the shame through conspicuous spending….. & that wasn’t through intellectual stupidity, she had an awesome job & education.
So I think that character trumps experience, people believe in what they already wanted their world to be, sift through the evidence, then point to what fits & discard any proof that doesn’t.
But, on a related point, I think that if you have it easy from the start, you can be profilgate (according to your character again) because you think this is a cakewalk & you can always get more on demand, as I think @ermine alluded to in a post just earlier. Those with this attitude with a less-rigid character may well change their outlook after an exposure to poverty, because they could realise it can even happen to people like them. The psychology of the human mind is kafkaesque.
@Survivor – I think psychology plays a massive part, but it’s also hard to predict the impact; no doubt many people who grew up in poorer households have a psychological need to have financial security and others who spend to make up for deprived times.
Personally I think the single biggest factor is that it takes a tremendous amount of time to really understand finances. I manage my money, and it is an area of interest to me, but I couldn’t succinctly and clearly express a financial plan.