Today’s guest post comes from Thias. Thias is a husband, father, and CPA from Wisconsin who blogs about pursuing financial freedom and a remarkable life.
If you read a lot about personal finance, you begin to see that there are A LOT of different strategies, techniques, and tools you can use. Some are great, some are interesting, and some should have never been invented.
But if some techniques are so much better than others, why do so many others still exist? Why don’t we all use the best ones? Why aren’t our lives perfectly optimized already?
Because we are human…and we are all different.
We all have different motivators, interests, and desires. That thing that pushes you each day may do absolutely nothing for me.
And that is okay. Life would be boring if we weren’t different.
But being different is why there are so many different strategies to choose from. One size doesn’t fit all when it comes to personal finance.
They do call it personal finance for a reason.
For example, let’s look at paying off debt.
Two of the most popular strategies for paying off debt is the debt snowball and the debt avalanche. Both models work to accomplish the same thing – paying off debt, but they do it in different ways.
The debt snowball focuses on paying off your smallest debt balances first, with no regard for what that debt’s interest rate is. Once one debt is paid off, you move those extra funds to the next lowest balance until finally, you are debt free.
The debt avalanche, however, focuses on paying down debt as efficiently as possible. Instead of focusing on your smaller balances, each debt’s interest rate is the main focus. By paying off debts with the highest interest rates first, you accrue less and spend less on interest.
So which is better? If you want to spend less money and the quickest payback, the debt avalanche comes out on top.
Perfect – less money and less time. Why does the debt snowball even exist?
Even though the debt avalanche costs you less money, it doesn’t guarantee success.
For certain people, they need to see wins to keep their motivation up. They don’t see progress in seeing a balance drop – instead they see progress as an entire debt disappearing altogether.
That is where the debt snowball wins. You knock out a couple small balance debts, realize it is possible to pay off debt and use that extra motivation to keep pushing forward towards the goal of being debt free.
To me, the debt avalanche is the way to go, and the strategy we used to pay off our final $36k of student loans in 18 months. But that doesn’t mean the strategy is the right one for you.
So What is Best?
So which strategies are the best? The answer is simple in theory.
The best strategy out there is the one that works for you.
See simple…and difficult all at the same time.
It is difficult because we don’t always understand what motivates us best.
Take a second and think about these two questions:
- Think of a time when you succeeded in achieving a goal. How did you keep going when you wanted to quit?
- Think of a time when you failed. Why did you lose motivation? What made you quit?
Looking at these two incidents should help shed some light on how you are best motivated. If you failed because it took too long to see results, a strategy geared towards quick results may be the best for you. If you succeeded because every day you looked at a graph showing your progress, utilize visuals for your goals.
There is no shortage of people out there telling you what they think is best for you to do – I know I am 100% guilty of this. But when it comes down to it, the best strategy for you is the one that fit your personality best. The most efficient method ever created isn’t very efficient if you don’t reach your goals.
Personal finance is just that, personal. You don’t need the best strategies to be successful – you just need the best for you.
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!