One of my favorite bloggers, and likely one of yours, is J.D. Roth. He has been writing about personal finance at Get Rich Slowly for some time now, and I was a fan of his writing at foldedspace when “blog” was still a new word. He is working on a book now, which I can’t wait to get my hands on (and read), and at the same time, he has been working on a blog series condensing his thoughts about personal finance into thirteen core tenets.
This is one of J.D.’s favorite mantras when offering financial advice or support: Do what works for you.
I think this is a great philosophy, and I can see how it is appealing to intelligent people who are capable of thinking independently, performing objective analysis, and making decisions based on empirical data and other established facts. It cuts directly to the core of personal finance: that money is personal and not every solution is universal. Different people require different answers, and what works for one person might not necessarily work for another.
The spirit of “What Works For You” is the important aspect: there are many paths to success and one should find the path that fits personally, using experimentation and consideration as a guide.
There are many open questions in personal finance but few concrete answers. What is a good investment? What will the stock market do tomorrow? Will I be able to afford college for my children in ten years? health care for myself next year? Uncertainty can lead to frustration, and when people don’t know what to do, they want to stick with something that feels comfortable.
I think it’s easy for the spirit of the “What Works For you” philosophy to be lost as one spreads the message, because the philosophy implies a search for comfort and is therefore subject to a number of psychological traps.
“What Works for You” grants a license to ignore criticism
One thing I remember about the time I was required to listen to a day-long Landmark Education seminar is the leader’s ability to silence anyone who didn’t accept their philosophy. If you disagreed with one aspect of their nonsense, a Landmark follower simply claimed you had a “racket” and you were immediately dismissed. The “What Works for You” argument does the same thing.
If you are focused on doing “What Works For You,” there is no room for opposing viewpoints. We are given the opportunity to selectively ignore facts that don’t fit our world view. Consider credit cards that offer rewards when you use them. I use a cash back credit card and never pay interest or late fees. That sounds like a great deal, and I often suggest this as a good way to make the credit card companies work for you. But according to consumer studies, on average, people like me spend more using credit cards than they would with cash. Even the rewards earned, particularly as credit card companies find ways to keep reducing these rewards, don’t make up the difference due to increased spending.
But many like me continue to use credit cards because it works for us. We say that we are spending less than we earn and we’re winning the battle with credit cards. But unless we have conducted our own experiments to determine how our own behavior, as an individual or family, is affected differently through using credit or cash, we have silenced criticism from cash-only advocates with a nothing more than a wave of the hand and the contentment that since we don’t see any surface damage on our finances, our behavior works for us.
“What Works For You” invites analysis that could be far too simple
Notice that the philosophy is not “What Works Best For You.” Whether something works is a binary state: either something works or something does not work. The only answers are yes or no. There is no gray area, no sliding scale, no room for judgment.
The Debt Snowball is often touted as the best method to pay off debt. There is no doubt this method, which calls for paying off your credit card debt from the card with the lowest balance to the highest, works for many people. And its popularity leads people to believe that it’s not worth considering another choice.
But many people who have succeeded paying off debt with the Debt Snowball would have succeeded with the Debt Avalanche, which offers similar psychological benefits but saves money and time. It’s important for someone embarking on the journey to pay off debt to be presented with options and be allowed to make their own decision. If you look only for “What Works For You,” you could be missing something that works better.
“What Works for You” accepts mediocrity as a way of life
I have been around enough high-achievers to be jaded with the constant strive for excellence and the endless desire to be the best in whatever activity happens to be involved. Determination to be the best is how some teams win world championships but others live in misery with failure. Thankfully we don’t all have to be the best in the world at what we do.
But that’s not an excuse for refusing to seek improvement. Since the 1970s, there has been a new focus on self-esteem, which after many years of filtering from psychologists through to popular culture, has resulted in an environment where “everybody is a winner.” Everyone in Little League gets trophies, even the team with the worst record. Consideration of self-esteem is important to a point, and the placement of that point is debatable; before too long, people should be rewarded for something more than just participation, something beyond just the minimum.
“What Works” is just the minimum. Do more than that. Do what works and look for something that works better. Don’t just stop buying daily $5 lattes, stop leasing expensive cars every three years. Don’t just start putting 5% of your salary into a savings account, put 10% into a great savings account, contribute the maximum to your Roth IRA, and get at least the maximum employer match in your 401(k).
It’s important, in dealing with personal finance, to just start somewhere but that’s not an excuse to stop doing or to stop thinking.
The spirit of “What Works For You” is a good philosophy. Personal finance is personal. You should be free to make your own choices based on the best information and experiences and find the path that works best for you. I will submit that it is also important that while searching for your personalized version of a financial plan that you don’t fall into the above traps.
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Nice approach. What works for you is an approach that works to a degree but without the ignorance behind it. You can still take advice or criticism and seek help and have a works for you mentality. Then you will be successful on your plan, being ignorant can lead to a trap like mention.
I too had a bit of a disagreement with J.D.'s post. Regarding many personal finance topics, there is no best way to go about something. But in other cases, there really is. (Or at least, there are some decidedly bad ways to go about something.)
Random example: Day trading stocks has been shown to have terrible results. I'd argue that it's perfectly OK to say, “don't day trade” and that saying so is probably more helpful than just “do what works for you.”
Very interesting and very well written! What interests me, though, is that I've had almost just the opposite interpretation of this all along. I don't use the words “what works for you” (although of course I'd support that), but for me the “rule” is just to not follow any dogma or “rule” just because it's a rule. To me, doing “what works for me” already takes into account the process of considering all the options and making an informed judgment on a case by case basis.
I think the point, I guess, is to do this all the time and not let “what works for you” lapse into a similar dogmatism/rule, especially when it prevents or precludes thinking fresh about each finance situation you face. Consider others' advice and criticism, of course, but since you will always be the one making the decision in the end, you have to accept responsibility for it. If you don't, then you're just following someone else's “rule.”
The other danger is that what “Works” today maybe terrible for you in the future… I looked at the consequences of putting off saving for retirement (http://ponderingmoney.com/2009/11/04/funding-re...). If you don’t start saving early then you will have to make very painful spending cuts in retirement!
-Rick Francis
I didn't interpret it the same way as you. Just because someone (ie JD) says to “do what works for you” doesn't mean he's saying do the minimum just to get by.
He's acknowledging that there aren't very many financial strategies that apply equally to everyone so unlike some bloggers who preach specific “rules”, he suggests that you try some different methods and use the best one (for you).
You suggest in your post that maxing out all available savings accounts is the a best case scenario but in fact that might not be a good strategy for everyone depending on their goals.
What works for you is not accepting mediocrity at all. It's being exactly happy with what you have. Being happy is the goal. Don't lose sight of this Flexo.
Very thoughtful post, Flexo. I, too, have had to face these difficult questions as I was writing, “The Millionaire Nurse” a basic book on personal finance for the nursing community-to be out before Christmas I hope.
When you are giving advice, whether it is financial or medical, both of which I do daily, you have to consider where people are in their own journey. So from that perspective, there are no absolutes/rules that fit every situation.
However, if you don't give people structure to work from, some sort of guidelines, suggestions and guidance, then most people, with their busy lives, will nod, and ignore.
Just like the recent decision regarding people having to “opt out” of their 401-k vs having to opt in. It is certain the retirement savings overall will go up now that people don't have to do anything to have money placed in their 401-k. Does this take away individual rights-maybe, is it better for most people who otherwise would not do anything to prepare for their retirement-I think so.
Like with most things, their will be disagreement, and varying points of view-which I think is the great thing about the personal finance blogosphere. I think we all agree, that doing something about your personal finances, is much better than ignoring it completely-(except maybe day-trading).
I know that J.D. (in this case) is not saying just do the minimum, but I do know that as messages are communicated, sense and deeper meaning is often lost. It would be quite simple for someone to interpret “do what works for you” as an invitation to stick to the minimum if the minimum works.
I mentioned putting 10% (not maxing out) into a great bank account not to preach that I think this is the One True Path, but just as an example of something that's in many cases *better* than 5% in any old savings account. You're right that the details depend on the goalsm and I'm saying just it's helpful to consider doing more than just “what works.”
I agree that everyone is free to consider themselves happy at any time. Happy doesn't have to mean “satisfied with the status quo.” Personally, I can't imagine life for me standing still and being “happy” with that. I'm always looking to improve at least one thing in my life, be it my finances, my photography skills, my knowledge about some obscure topic… etc.
Very thoughtful post, Flexo. I, too, have had to face these difficult questions as I was writing, “The Millionaire Nurse” a basic book on personal finance for the nursing community-to be out before Christmas I hope.
When you are giving advice, whether it is financial or medical, both of which I do daily, you have to consider where people are in their own journey. So from that perspective, there are no absolutes/rules that fit every situation.
However, if you don't give people structure to work from, some sort of guidelines, suggestions and guidance, then most people, with their busy lives, will nod, and ignore.
Just like the recent decision regarding people having to “opt out” of their 401-k vs having to opt in. It is certain the retirement savings overall will go up now that people don't have to do anything to have money placed in their 401-k. Does this take away individual rights-maybe, is it better for most people who otherwise would not do anything to prepare for their retirement-I think so.
Like with most things, their will be disagreement, and varying points of view-which I think is the great thing about the personal finance blogosphere. I think we all agree, that doing something about your personal finances, is much better than ignoring it completely-(except maybe day-trading).
I really believe that those who are satisfied with “the status quo” as you call it, are the happiest people on earth.
If you're happy with the money you have, or the photography skills, you are in perfect harmony.
Just to clarify – Flexo, you are not one of the “preachy” kind of bloggers I was talking about.
I didn't think I was. :-) I'm pretty much anti-preach.
“What Works for You” grants a license to ignore criticism
You *always* have a license to ignore criticism of personal decisions. No new license is granted here. Also, because you have such a license does not obligate you to use it. You may consider criticism and opposing viewpoints carefully, even if you determine them not to be the best course of action for you.
“What Works For You” invites analysis that could be far too simple
It does not. It invites analysis that is as simple as is possible while still working. This is, by definition, not *too* simple, it is adequately complex, or the solution it brings wouldn't work. Yes, this is a binary system, it has “pass” and “fail” — but that does not mean there's no room for judgement — you can set the bar for passing as high or low as you like. You can even raise it in successive revisions of your criteria for “working”.
“What Works for You” accepts mediocrity as a way of life
This isn't true at all. It depends on what you define as “works”. What if you define “working” as “earning $150k/year, saving 25% of income, having no debt, and being able to take two months vacation each year”? You have absolutely not accepted mediocrity as a way of life, even if you could have potentially made $160k/year and saved 30% of it.
Your points have some validity, but you overstate them. Yes, it is possible to use this philosophy as a crutch, but this basically just means you set the bar for “works” too low, and never went back and raised it. The traps are very much corollary to laziness.
Flexo,
I think your viewpoint on “what works for you” is valid. There is a point where one may compare their growth in financial means as the award for finally attacking their debt; then they become complacent and pat themselves on the back for a job well done. But, as you mention, a job may still need to be improved. Nice post!
If you disagreed with one aspect of their nonsense, a Landmark follower simply claimed you had a “racket” and you were immediately dismissed. The “What Works for You” argument does the same thing.
This is great stuff, Flexo.
I have been hearing from Buy-and-Hold advocates the charge that I promote “a racket” for seven years now.
They really do believe it. Because it causes them pain to let in the idea that there is a different way to see things than the way they have become accustomed to seeing things.
The phrase “whatever works for you” is great when it is put forward to suggest tolerance for new ideas. And it is a huge pitfall when put forward to justify ignoring hard evidence and continuing with foolish choices after then have been revealed to be foolish.
The trouble is — we’re flawed humans and none of us (including the fellow writing these words, to be sure) is capable of seeing when he is the one rationalizing bad choices made at an earlier time.
Rob