At the highest level, success in personal finance can be pretty straightforward. If you spend less (preferably, a lot less) than you earn and invest those savings wisely, you’re well on your way.
However, the devil is in the details. There are some basic truths in personal finance, but after a certain point, things get a bit more complicated.
Some of the simple questions include:
Should I spend less than I earn?
Yeah, you should. We’ve already covered that.
Should I have credit card debt?
Should I make sure I have health insurance?
(N/A if you live in Albania, Algeria, Andorra, Antigua and Barbuda, Argentina, Australia, Austria, Bahamas, Bahrain, Barbados, Belarus, Belgium, Belize, Bhutan, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Brunei Darussalam, Bulgari, Burkina Faso, Canada, Chile, China, Colombia, Cook Islands, Costa Rica, Croatia, Cuba, Cyprus, Czech Republic, Denmark, Ecuador, Eritrea, Estonia, Fiji, Finland, France, Gabon, Georgia, Germany, Ghana, Greece, Guernsey, Guyana, Hong Kong, Hungary, Iceland, Iran, Isle of Man, Israel, Italy, Jamaica, Japan, Jersey, Kazakhstan, Kiribati, Kuwait, Latvia, Liechtenstein, Lithuania, Luxembourg, Macau, Macedonia, Malaysia, Maldives, Malta, Mauritius, Mexico, Moldova, Monaco, Montenegro, Namibia, Netherlands, New Zealand, Niue, Oman, Pakistan, Palau, Panama, Paraguay, Peru, Poland, Portugal, Qatar, Romania, Russia, Rwanda, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Saudi Arabia, Serbia, Seychelles, Singapore, Slovakia, Slovenia, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Timor-Leste, Tonga, Trinidad and Tobago, Tunisia, Turkey, Tuvalu, Ukraine, United Arab Emirates, United Kingdom, Uruguay, Uzbekistan, Vanuatu, Venezuela, Zambia)
Yeah, you should.
Should I take out $100,000 in loans for a degree in English literature?
Nay. Whilst ‘tis a noble pursuit, penury will be your consort ‘til you shuffle off this mortal coil.
Should I buy lottery tickets?
Only as entertainment.
But there is an endless list of questions that are far more complex. A small sample includes:
Should I buy a new or used car?
Should I go to college?
Should I buy or rent my housing?
Should I pay off my mortgage early?
Should I get life insurance?
Should I sell plasma for extra income?
How should my spouse and I handle our family finances?
How much money do I need to retire?
Do I need to save for my kids’ college? How much?
What’s the right asset allocation for my investments?
Do you want fries with that?
Should I invest in index funds or individual stocks?
How should I invest a windfall?
Should I plan on leaving money to my kids?
Amazingly, though, they all have the same answer: It depends.
What is right for one person might be very wrong for another, and that’s where personal finance can get tricky. Experts who spout universal wisdom on one subject (“Pay off yer credit cards!”) can shovel the same type of general advice for a question that demands a person-specific answer.
There’s a natural desire for a single simple answer to every question, but that doesn’t work for most of personal finance. The answer depends on you – your situation, your wants and needs, your stage of life, your tolerance for risk, and your goals.
I’ve already addressed some of the subtler personal finance topics, where there is no “one-size-fits-all” answer. I’ve got a few more lined up in the queue. If you have one you’d like to see addressed, let me know. Just remember we already know what the first two words of any discussion will be 🙂