There is so much information available on personal finance these days. Where do you start if you want to really learn about money ?
There are of course a number of approaches. You could become a CERTIFIED FINANCIAL PLANNER™ Professional. More than a few people I know did that for exactly that reason. You could also take college courses. You could read all the personal finance books and blogs. While all these options have value, they really don’t provide the proper framework for someone who wants to learn about money quickly.
And even if you do pursue one of the methods I mention above they won’t solve your immediate problem. That’s because you still need to gain a basic understanding pronto . Every day you operate without fully understanding how money works is another day you are apt to make costly mistakes that may take years to correct.
Fortunately there are 4 steps you can take to master basic money skills very quickly. Here they are:
1. Books and Blogs
Books and blogs are a good way to get up to speed quickly but you have to be super careful about this. If you are like me, you like to gain as much information as possible before you act. In many cases, this is a very good approach. But when it comes to finance, this behavior can be a major problem. It can lead to “paralysis through analysis”. When you get too much information, you can get frozen out because the information conflicts often. When that happens, you start speeding down rabit holes. That’s because you’ll do even more analysis in order to determine which path is correct.
The problem is there will always be many different opinions – nobody gets it right all the time. In order to save time and really be effective you have to limit your source of information to some extent.
Rather than the number of number of blogs or books you read, I suggest that you spend no more than 15 minutes a day doing research on the net and that includes reading blogs. When it comes to books, I like reading one book at a time and I spend no more than an hour a night reading.
It’s great to get new ideas. In fact it’s critical to continue to always push your thinking. But when you spend all your time researching and no (or little) time “doing”, you cheat yourself and often stay stuck. The best way to avoid this trap is to limit the time you spend and thereby limit the ideas that compete for your consideration at any one time.
This step actually ties in to the previous action item. You have to ask yourself the right questions in order to learn about money. Specifically, when you come across a new concept, ask yourself one question:
What about this idea is right? What about this idea can help me?
Often, people look for information that already confirms what they already know. This is called “confirmation bias” and it is deadly to learning (about anything). When you hear a new idea, your natural tendency might be to look for the flaws. We look for what is wrong about the idea rather than what is right and that’s a shame.
I’m not suggesting that you adopt every new idea that comes your way. I am asking you to take advantage of every idea. Ask yourself what you might learn from it. What might be true? What about this idea is helpful?
This may sound like a simple concept and it is. But unfortunately very few people actually implement this tool which is a real tragedy. Don’t sell yourself short. Look for the truth and the usefulness in new ideas and implement that part of the concept which is true.
Again, integrate the top two ideas and apply them when it comes to people you consult with when it comes to money. Be strategic about who you talk to about money. Your time is limited. There is nothing wrong with getting ideas from different people but once you’ve selected your “sounding board” stick with them as your main go-to people. And once you have a network of people you can rely on them remember to use the second principle to get the maximum learning you can from them.
Just because you like, trust and/or respect someone, doesn’t mean they are good money mentors for you. And just because someone is successful doesn’t mean her approach will work for you either.
4. Do It
When you invest, you do so without perfect knowledge and without any knowledge of what the future holds. None the less, you have to move forward. Get out there and get your feet wet – but do it slowly. Let’s say you have $25,000 saved and are just learning about money now. After you’ve read your books and blogs and consulted with your “advisory board” invest $1,000 for 6 months. Consider using a service like Betterment if you want inexpensive hand-holding. See how it works. You’ll learn a lot more from this step than from all the research you could possibly do.
What is the best way you’ve found to learn about money? How did you educate yourself about finance? What would you do differently?
Rick Bordeaux says
I’m 57 yrs. old, college educated, recently retired chemist, and I don’t think I have ever heard of “confirmation bias” but I sure have it! Thanks for introducing me to the concept and I will try to break the habit. Have always enjoyed learning about money and enjoy sharing my knowledge with younger people so they can retire young if they want to. My success to early retirement is probably living within my means. My wife and I are very happy with 0ur life and we are living on about $42,000/yr. pre-tax right now. I have a state government pension and she is still working part-time. Not yet having to draw from retirement savings and not getting Social Security.
Happy in Raleigh, NC
Neal Frankle says
Rick……you hit the nail on the head. Spending is the key to financial success in my experience as well. It’s also the thing most people have most control over. Sounds like you are really enjoying the fruits of good decisions you and your wife made. Good for you both!