I push for people to take action on their personal finances, it says it in fancy letters right under the name on this site (look up). One of the my favorite lines is “Knowledge without action is worthless” and I 100% percent believe that.
But…. one thing I haven’t spent any time on is, what if you don’t have the knowledge? Should you sit idle until you can carve out the hours to become a Financial Master?
If there is one thing I have learned in my short project management career:
Delivering early and iterating is better than seeking perfection and never delivering
The same thing applies to personal finance, doing something, even if it is not the 100% best, blue ribbon choice – is better than doing nothing. Money is surrounded by a lot of complicated terms and theories that no one understands right out of the gate. It takes time to absorb, and even more time to trust your knowledge enough to put it to use.
Don’t feel like you need to be an expert to start making improvements. It has taken us years to put our current approach to personal finance together and it will continue to iterate for the foreseeable future.
I still don’t consider myself a pro, more like Chris Farley in Beverly Hills Ninja. Am I a Ninja? Sure. But there is still a lot of room for improvement. (I got a Dumb and Dumber quote in a few weeks ago, people said they loved it, riding the awesome old movie train)
Starting the Iteration
If you don’t if know you should invest or pay down debt, pick the one with the lowest barrier to entry until you create a financial plan or set financial goals.
Making it simple:
- Paying down debt is better than increasing it
- Investing is better than not investing
- Either one is better than doing nothing
There are fewer barriers to debt dominance, all you need to do is pick some debt you want to tackle and increase the payment. There are a few debt payoff strategies you can investigate in the mean time and adjust if necessary (Debt Snowball or Debt Avalanche).
If you have an employer sponsored 401K, it takes a few finger taps on the keyboard. Pick one of the pre-packaged solutions (you know the Low, Moderate, Aggressive check box) and get it started. Worry about optimizing or adjusting later.
An example of Iteration
Our 401K approach has changed at least 8 times in the last 4 years. We have slowly increased the percentage, and tweaked the funds that we invest in.
- 2013: 3% Contributed
- 2014: 6% Contributed
- 2015: 10% Contributed
- 2016: 13% Contributed
Set small incremental goals to increase investment amount over time:
- In 2014 we realized we were leaving company match $ on the table and corrected immediately
- In 2015 we had a qual to increase our contribution by 1% a quarter (Missed it by 1% on my side)
- 2016 we wanted to get to 12% (Goal Complete and surpassed!)
On top of just investing more we started tweaking the funds from the “out of the box” approach to a custom one based on fund performance and expense ratios.
While these criteria are super important and can materially alter your returns – you need a lot more knowledge to make these decisions. Even though I was confident in my research, I didn’t make a big bang switch and completely change everything in one day. It took 4 changes over 9 months to completely switch over to my new allocations.
Invest first, and optimize through iteration.
As you enhance and increase your knowledge, you can implement new strategies and sunset ones that no longer fit your ideology. A few things to remember:
- You will make mistakes
- Your decisions may not be “right”
- Chasing perfection will waste time
Most importantly – Start Now, and even if you don’t want to be a Financial Master, paying off your debt and investing in pre-packaged portfolios will drastically improve your financial situation.
Some products that can help you:
Personal Capital: Personal Capital has a ton of great Free features, you can track your spending, net worth and even analyze your portfolio. It has top notch security and I am able to connect all of my accounts. Saves a ton of time!
Bluehost: Starting a blog has been one of the best decisions I have ever made. If you are interested in starting your own site, I recommend using Bluehost. Super easy WordPress installation and they have some great starter packages that bundle domain name, hosting and email.