It is natural that people disagree about personal finance decisions and even investing strategies. Some people are comfortable with 5 year ARMs, 10 year AMRs, balance transfers, margin accounts, index investing, following Graham like he was the second coming, whole life insurance, etc. While some people think credit cards are the devil’s tool, that active mutual funds are the only way to get ahead, that any investing in the stock market is lunacy, that real estate is the only key to becoming a high net worth individual. I like to say that everything in life has its pros and cons otherwise it wouldn’t exist. Regardless of what you “believe” or follow there is one type of person that makes my head spin…this person isn’t a bull, a bear or even a pig…it is a sheep. Sheep are known to follow a leader and flock together with a very strong herd mentality. When someone acts in a particular way because someone they perceive as smarter they are a sheep and there is no room in personal finance for sheep.
Make Logical Decisions that YOU Believe are Best for YOU
There are some things that I do that some people think are extreme like buying whole life insurance on my child, but for the most part I follow a middle of the road approach in almost money decision in my life:
- I own index funds, but I invest in undervalued companies that pay dividends;
- I use a credit card, but only one credit card that I use;
- I have both a traditional IRA and a Roth IRA;
- I own term life insurance and whole life insurance;
- I don’t budget but I know my cash flow chart by heart
Regardless of the decision I make I usually have a logical and thought out decision for doing so; hell, I need one if I am going to write a post on it. That being said I think this is what makes me and most people with somewhat control over their lives different. It annoys me when I speak to people, especially through this blog or other blogs, that have no idea why they are doing something.
They “believe” index funds are the best thing ever, but can’t handle a simple rebuttal OR if they believe that someone should have NO DEBT EVER but then make an exception for schooling without even asking if the person is majoring in a bullshit major that will never be able to pay back the loans.
I get there are no easy answers when it comes to personal finances or everyone would do the same exact thing, but you should at least know why you are doing something. Actually the question of why is starting to pick up steam in an area of social science known as Behavioral Economics.
While you might not know why your risk tolerance is a bit above an 87 year old grandma like mine without intense psychoanalysis, at least I can make a logical reasoning why I do certain things based on the knowledge that my risk tolerance is that low.
That type of knowledge is both inspiring and powerful.
Are you a financial sheep?