The Tiny Truths That Completely Changed How We Money

We don’t walk around in the world feeling like some financial masters of the universe. I blog about money, of course, so I think about it a fair amount – though less than when I was more obsessive in checking our balances and updating the spreadsheets. But I still don’t think of “awesome with money” as core to my identity. If I had to tell you what kind of car I am and why, the thought wouldn’t even occur to me of “Hmm, what car is the best representation of good with finances?” #subarualltheway (Also, in full transparency, I actually don’t think I am awesome with money at all. If I have cash in my pocket, I spend it, even many years into this aggressive savings journey. What I am a master of, however, is creating systems that eliminate those temptations and decision points, namely through hiding money from ourselves, more commonly known as paying ourselves first. More than one way to skin a cat. So I’d identify more as an expert life hacker and less as a money whiz. But I’m getting off topic.)

Despite not actively thinking of myself as a financial pro, lately I’ve been having more conversations with people in real life that have provided the reminder that, oh right, this is a totally important part of who I am. I know this stuff. And the best part is, I’ve been able to help some friends make some big connections in the course of often very short conversations.

Because the most powerful ideas are often the simplest.

We can read long book after long book, and read lengthy blog post after lengthy blog post (y’all, I know I am the most guilty of writing the longest ones), but ultimately the part of the book or post that impacts your life is one tiny nugget of wisdom.

Like I vaguely remember what’s in Your Money Or Your Life, but the big, indelible idea I took away from it? Money is a representation of life force, and when I spend it, I’m spending part of myself. That’s such a simple idea, but it changed my entire way of looking at money in an instant. I read that book years ago, and I still say that to myself multiple times a week.

Certainly there are financial topics that cannot be summed up so succinctly (tax law, anyone?), but the ideas that have most dramatically changed our relationship to money and the way we manage it are the most simple and elegant. And today we’re going to celebrate them!

How We Used to Money

In case you need a refresher, I started out not exactly terrible with money, but definitely not smart with it. I spent everything I earned, sometimes more than I earned, I saved very little, and I was totally freaked out by the idea of investing risk. I side hustled pretty much from right out of college, but I spent most of that money instead of saving it. I kept the tiny bit of extra money I had in a savings account, and I felt so proud and adult when I took the big step of beginning regular investments into a super conservative bond fund. (It’s okay, you’re allowed to snicker.) I never racked up debt that was truly massive, bought a car more expensive than I could afford or bought a mcmansion with a balloon loan, so I dodged the BIG mistakes, but I feel quite sure I made all the small ones.

So that was my starting point.

Along the way Mr. ONL joined the picture, and we were a mostly positive financial influence on each other (after that expensive long-distance year that we still wouldn’t trade for anything). But I’d say we got, at best, to the level of “sensible” on our own, never “wise.” (Have I told you about the time we kept $80,000 in a savings account for an extended period?) That is, until we started encountering the tiny truths.

The Simplest, Most Transformative Money Ideas

I think of a tiny truth as something you hear, and you immediately intuit the truth in it. Maybe it’s the missing puzzle piece that magically connects all those other floating pieces. Maybe it instantly answers the question you never knew you were asking. Maybe it answers exactly the question you’ve always been asking. Whatever reaction it causes, it’s always a big “Aha!” And here are the ones that dramatically changed our views on money, often in an instant:

People first, then money, then things – My first tough money love came from Suze Orman, and I loved her show. It was like a cross between financial expertise and some campy movie that didn’t mean to be funny but was accidentally hilarious. And she ended every show with this line: “People first, then money, then things.” Whether this was what she meant, I took it to mean people are always more important than money, and are worth investing in, and things are the least important thing of all. Far better to have accounts full of funds than a home full of stuff. That tiny truth made me completely evaluate my priorities, and start questioning the mindless stuff purchases I was used to making. (Speaking of Suze, I also loved that she didn’t judge people for wanting some ridiculous stuff, so long as they could afford it. No latte preaching!)

“Safe savings” guarantees losing money because of inflationary risk – As any fearful investor knows, there’s something so warm and cozy sounding about that phrase “FDIC insured.” A guarantee that you can never lose your money, no matter what. In my early days of saving, I had no cushion or real safety net, and the possibility of losing money in the stock markets that I might need made me feel helpless. But that FDIC insured promise felt safe, like the nice but boring guy who doesn’t stimulate you intellectually, but who you know will never cheat on you, beat you up, or leave you. (The markets are obviously the bad biker boy who will show you excitement but might also ditch you on the side of the road in the middle of nowhere when some hotter, younger piece of ass comes along.) In those days, I hadn’t yet learned that there’s no such thing as a “safe” option and a “risky” option – there are only different risks. And by choosing what felt safe, I was actually taking the worst kind of risk of all: a guarantee that my money would lose value every day it sat in my savings account, thanks to the power of inflation. Though I started out terrified of market investing (and to this day, a large portion of my 401(k) investments are in the Pimco bond fund), understanding that inflation will always outpace savings account interest rates was the singular factor that got me on board with real investing, and I have never wavered since.

The markets hit a new high, on average, every few days — Okay, full disclosure on this one that I can’t fully substantiate the claim. The closest I have found is this story that says the markets have hit a new high every seven days since the end of the last recession, and that the markets have hit new highs 30 out of the last 54 months. But I’m including what we might call a tiny “truth” in quotes, because I took it as face value as true when I first learned it, and it had a powerful effect on my willingness to invest in the markets, especially when paired with my newfound understanding of inflationary risk. Why it is so powerful is the reminder that, even when markets seem high, that doesn’t mean they’re bound to go down soon, or dramatically, or for long. Recessions and corrections have historically tended to be shorter than bull markets, with a few notable exceptions, and looking backward at least, the trend is ever upward. Condensed version of all this: don’t try to time the markets, and especially don’t hold off on investing just because the markets seem “high,” a term that is so relative as to be essentially meaningless.

Dollar cost averaging trades false comfort for smaller gains — Just like FDIC-insured feels so safe and comforting, dollar cost averaging seems like such a lovely little hedge against volatility risk. Instead of investing that lump sum of cash all at once, you dole it out into the market little by little, buying some shares at a higher price, some at a lower price, but never going all in on one price. And after I’d gotten comfortable with investing, we still insisted on dollar cost averaging our windfalls. Until, that is, we read the now-famous Vanguard study on the topic, which concluded that dollar cost averaging simply shifts the risk to later, it doesn’t eliminate it. (See? No such thing as a risk-free life.) Put another way: what you gain in a hedge against risk, you lose in market exposure time, re-introducing inflationary risk or creating the possibility of missing big booms. That whole quote that time in the market is more important than timing the market? Totally applies here.

Millionaires don’t eat caviar – So let’s be real here. Though most of us pursuing early retirement are willing to live cheaply to do it – not like the stereotypical idea of “rich people” (I’m picturing the Monopoly Man, or the Kardashians) – somewhere along the way, we become actual rich people. And when that realization hit us that we were there, it was hard to tamp down the thought that, “Well, then shouldn’t we be allowed to do some rich people stuff?” And that’s the same kind of slippery slope thinking that leads to lifestyle inflation and keeping up with the Joneses. Fortunately, the Millionaire Next Door came into our lives around that time, and it has the best anecdote ever. When the authors arranged focus groups of millionaire individuals, they put out fancy champagne, caviar, and various other items you might imagine Robin Leech ticking off in an episode of Lifestyles of the Rich and Famous. And then the guys (ahem, it was a bit gender-skewed) that showed up didn’t touch that stuff, and went for the Coke and club sandwiches instead. Which was a big aha moment for the authors, and in turn the biggest takeaway for us from that book. In other words: you can look like a rich person, or you can actually be a rich person. We’d rather be the latter and (mostly) skip the fancy stuff. (Mostly.) ;-)

What Tiny Truths Have Changed How You Money?

Let’s keep adding to the list in the comments! What little nuggets of wisdom have you happened upon that blew your mind, changed your approach to money or stick in your head? Share away!