With the right measurement tools, it is possible to find ‘the BEST’ way to do things.
I think there are a lot of folks in the personal finance community who have fancy spreadsheets that can crunch any number imaginable.
However, even if something is mathematically and empirically the best, that doesn’t mean it is the best for you.
For example, my wife and I decided make an effort to pay off our mortgage early. We made this decision knowing that someone with a fancy spreadsheet can tell us it is not the BEST thing to do with our money. However, there are factors that the calculator cannot account for – emotional peace, spiritual calling, and lifestyle preference. Last year we pulled some money out of the market to make a significant payment towards our mortgage.
On paper, that was the wrong decision. Our money would have brought more returns in the market since it was such a strong year.
Does that mean we made a bad decision?
I still confidently feel like it was the best thing for us to do because when that money was in the market, it produced fruits of worry and anxiety (because it was a short term investment). We do have retirement funds in the market, and we’re not worried about those funds.
This experience serves to illustrate that there are many times when people say what is the BEST and you should instead decide what works.
The BEST Way to Invest
This week I was doing some research on Dollar Cost Averaging (DCA). I kept reading about these folks with big brains who can do fast calculations, and they were telling people that DCA is dumb because you could make more money if you invested in lump sums.
While I won’t dispute the numbers, I will say from experience that DCA is the simplest and most effective way to invest. In fact, for most people, DCA is better because it is simpler and effective.
Lesson: The BEST is not determined by the bottom line rate of return.
The BEST Way to Budget
If you tracked every single penny you spent, that would be the BEST way to budget.
However, when some people try to budget in a way where they must manage every small detail, they often get overwhelmed and quit. The problem is that the BEST way doesn’t work for them.
When I teach about budgeting, I encourage people to customize the process in a way that works for them.
The best personal finance software in your opinion may very well be different than what I believe is the best software. Guess what? We can both be right.
Lesson: The way that works for most people isn’t the BEST way unless it works for you too.
The BEST Way to Pay Off Debt
We math geeks get turned off by the debt snowball.
On paper, there is no way that the debt snowball is the BEST way to pay off credit card debt.
However, once you step outside of the squeaky clean mathematical numbers, you’ll find that for so many people the debt snowball works.
Lesson: The BEST way doesn’t always add up on a piece of paper.
Your BEST might not truly be the BEST!
How do you find out the best way to manage your finances?
There are really only two pieces of advice I can give:
- Trial
- Error
Every failed attempt is a lesson learned. Unfortunately, sometimes we hold onto a system or management approach because everyone talks about it, and everyone continues to tell us that it is the BEST. Instead of spending all your time searching for the BEST way to do something, you should discover some good ways to do it and experiment to see what works.
What are some of the BEST pieces of advice that don’t seem to work for you and your finances?
Photo By Doctor Yuri
{ 5 comments… read them below or add one }
Thank you. I loved this post. There is so much wisdom in this approach.
I’m pretty good at self-denial, expense-tracking, and all that good stuff. My husband hates it. I could tell him for a million years to track every penny and stay out of the candy store and it would do nothing for his spending (or our marriage).
What works for him? An allowance he can spend any way he wants. Less of it goes to the candy store because he’d rather support the street musicians or causes important to him so we both get something we want.
Enjoyed the post….we definitely need to do what works for our individual situation. We can take the best of all suggestions/recommendations and parlay them into a custom solution that is just right for our situation.
My best piece of budgetin advice was to use Mint, but it didn’t really work out for me because none of the accounts stayed current.
Your idea of “the best” not necessarily being the best for you, as an individual, can be applied to a whole lot of things. Foods — what’s healthy for most, you may have allergies to; exercise — what burns the most calories may be something you hate doing, so won’t do consistently; Learning — the “best” way to teach a math class may NOT be the way you or your child learn the best; etc.
This is so true. I invest in real estate. I borrow money from banks to buy property and they like to see I have a lot of cash on hand. I also need cash on hand to maintain properties and make down payments on more properties. I could try to pay off my properties, my house or my vehicle (which I am naturally drawn to do) but then I would deplete my cash. It has been tough just figuring out what is best for us, especially since I hate debt. The time will come when we will be able to do it. Most of my properties are ammoritized for 10-15 years so I know if I patiently pay what I can and keep the amount of cash I need, it will happen.