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“What Works For You” Can Be a Trap

This article was written by in Personal Finance. 21 comments.


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

itsatrapOne 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.

Updated August 29, 2011 and originally published November 10, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 21 comments… read them below or add one }

avatar craig

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.

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avatar Mike Piper

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.”

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avatar Romeo

Hi, Mike.

Would you tell someone who has had an overwhelming success in day trading, because they have taken huge degree of speculation out of it by studying the companies for which they trade daily, that they shouldn’t continue to do it? Or would you tell that to someone who is completely ignorant about the markets? What if someone has maxed out all 401(k)s, 529s, IRA’s, etc., for years on end, and has “money to blow?” Then what? Would you also tell this person not to risk day trading?

In other words, day trading may work for some, and will absolutely not work for others. But the philosophy stands founded. There is no absolute in this case either.

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avatar MoneyEnergy

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.”

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avatar Romeo

I absolutely agree, Money Energy. I think that Flexo has turned this broad philosophy into a hard rule with no room for interpretation.

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avatar Rick Francis

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

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avatar Mike

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.

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avatar Romeo

Absolutely. Someone may choose not to max out a Savings account and instead pursue paying off a home mortgage instead. This same person may think, “what’s the point of having $50,000 in the bank if I owe $50,000 on a mortgage?”

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avatar Financial Samurai

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.

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avatar Dr Dean

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).

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avatar Luke Landes ♦127,490 (Platinum)

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.”

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avatar Luke Landes ♦127,490 (Platinum)

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.

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avatar Romeo

There is always an opportunity cost of saving more or spending less. I agree that there are some people that can absolutely save 70% of their annual income, but should they do so? What if that leaves them no room for vacations, dining out, or whatever activity that they prefer to do? My philosophy is pretty simple, and very, very similar to J.D.’s. Though, it can not be summed up into one mantra.

1) Determine what “wealth” means to you.
2) Set goals in place to bring “wealth” within your reach.
3) Reevaluate as necessary.

There are no hard rules in this approach. Once can max out a 401(k) or not, contribute to an IRA or not, or pay for their children’s college expenses or not.

What if someone defines “wealth” as just having an income stream of $3000 a month because they have minimum financial obligations (paid off mortgage, no car debt, etc.)? Surely this person can have 3 rental homes and collect this amount. So, should they max out $16,500 every year or work towards having three homes that are $165,000 paid off in the next 30 years? Both investment vehicles will “hopefully” appreciate. Which is the better approach?

The only way to make such a decision is to run the numbers and hope that the decision that is made is the best one that worked for us.

There are no hard rules. Ever. For every one person that was screwed in one era (the current housing market), there was one person that was successful (the housing market before the crisis).

For every one person that saved money and maxed out their 401(k)s in, say, Enron, and got screwed, there is another who maxed out their 401(k) in a thriving company and started living fat, dumb, and happy.

Personal finance, IS personal. Hence, “what works for you.” The assumption is that people are able AND willing to make a rational decision, which, by the way is relative to what they’ve learned as a “best practice”, and apply it to their “wealth” building equation.

This is why I try not to speak in absolutes. It’s pretty damn hard to make an argument. Yes, do something. Anything. But don’t talk people into saving another 10% if it means that they’d have to give up their yearly vacation. They are not going to do it, especially if they are already on track to reach their definition of “wealth.”

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avatar Dr Dean

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).

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avatar Financial Samurai

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.

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avatar Four Pillars

Just to clarify – Flexo, you are not one of the “preachy” kind of bloggers I was talking about.

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avatar Luke Landes ♦127,490 (Platinum)

I didn't think I was. :-) I'm pretty much anti-preach.

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avatar Tyler Karaszewski

“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.

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avatar Holly

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!

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avatar Rob Bennett

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

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avatar Ronald Dodge

I do basically go with what works for me. However, there are some rules that I still follow:

While I am using what works for me, I most be constantly on search to make it better.

I must set financial goals annually to meet. One such goal, though made an exception to it for this one year given a separate goal I put in place to make this goal nearly impossible to meet, daily residual savings must be improved by $3.65 with just the money added to investments and/or drop on investments. Another goal, which I didn’t make an exception for with this year, 25% minimal though shoot for 40% of actual gross income go to countable savings.

This year, I turned 40. This year, we as a family have done the following:

YTD Actual Gross Income: $52,000 (appox.)
YTD Countable Savings: $17,000 (appox.)
YTD Short-Term Networth Value Increased By: $12,275
YTD Long-Term Networth Value Increased By: $25,000

Note, other than for Actual Gross Income, all of the above numbers are after tax based numbers. As for the Networth values, there’s 2 basic ways of valuation, cash basis or accrual basis. For me, I refuse to use the cash basis as it doesn’t give you a true picture. As such, the numbers above are accrual basis of Accounting primarily using US GAAP rules. There’s only one or two exceptions to the US GAAP rules I break away from, but even with that, the networth numbers are still US GAAP numbers cause where I break away from isn’t in so much the networth, but more so as how I treat the tax aspect of it. Rather than me reporting the tax as a liability, I reduce the pre-tax investment amount down to it’s after tax basis number, so as I have an after tax number to compare to all other after tax numbers on the report. For me, it’s better to compare apples to apples than to compare apples to oranges. As such, rather if it’s via a reduced investment amount or via a higher liability amount, the networth value is still reduced by that same tax amount. That’s why the networth itself is still a US GAAP number, even though the total assets and total liabilities are not US GAAP numbers.

Not only that, but we have other financial successes this year:

Short-Term Networth Value finally came out of the hole

Long-Term Networth Value not only broke the $50,000 mark on an after tax basis, but well on it’s way to breaking the $75,000 mark as it’s currently at $67,500.

We knocked out of the 1 of the 6 remaining debts, so we now have 5 debts remaining.

Overall debt went down by about $12,000 (8.4% of long-term debt dropped)

As for the credit card thing mentioned in this article, I do use my cash back reward credit card, but it’s not without having to consult with my cash flow management and financial objectives first which I keep it all within my Excel financial file. Though I created this file, this file has served as my own personal financial advisor. Granted, there are limitations to it, but it has been serving it’s purpose quite well over the years, much better than what paper was doing when I first started budgeting as I went out on my own. Doing it via paper is okay to get started, but even with me as good as I am with math, it’s too time consuming and too tedious to do by paper. With me using Excel instead, I can use formulas quite extensive and with minimal work, it only take minutes to get the results I’m looking for per week. That’s including all of the tracking that I do. If there are changes to be done within the financial including the cash flow management worksheet (the one that requires the most maintenance as it’s ever so dynamic as our set of circumstances change over time), I can make such changes with very little time spent as I use formulas to do most of it for me. Of course, for some things I do have to use the Advanced Filters, but that’s okay as that’s easy to deal with too. Currently, that cash flow management worksheet is setup to the end of the year of 2020 on a daily basis.

Maybe I’m a rare breed of this sort, but after what I been through in the first 30 years of my life, I don’t want to be through it in my retirement years either.

Example: How many people set a minimal goal of 25% of actual gross income goes into countable savings and have the ultimate goal of 40% of actual gross income goes into countable savings, so as when those bad years happen, you have those extra savings to get you through?

This year, we did have some emergency spending (Not really true emergency but still a financial emergency given it still counts against countable savings, but yet had enough of an emergency fund to cover such expenses), but even with that, I still managed to have about 31% of actual gross income go into countable savings, which means I have banked 6% of actual gross income for that future rainy year.

This year, while I haven’t really notice the snowball effect on our debts, this is the first year I have noticed the start of the snowball effect on our short-term investments.

I also have within my Excel financial file which gets updated every 3 years as the SCF report comes out showing national averages in the 10 dependent categories. The one independent (or control) category is the age of the head of household, which that is updated via the Census Bureau data every 10 years. EBRI data also impact the numbers in this table average as well. I have all the number broken down into 5% blocks or 20 blocks per category with the mean in each block.

As such, given how the ages works, one must improve 4 blocks per year minimally during their working years to maintain, with regards to their age. Based on this data, I also score it accordingly too. Granted, this isn’t a perfect system, but it’s a pretty good indicator. My age score according to this is 8.65. Where I stand financially in this (mostly objective, but a couple of the categories are subjective) is 10.45, which means I’m higher up by 1.8 groups or 9% higher than where I would be estimated to be at based on my age. This year alone, we have thus far moved up a total of 9 blocks.

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