Simple Money: A No-Nonsense Guide to Personal Finance - Tim Maurer (2016)

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You can not overestimate the unimportance of practically everything.

John Maxwell

You may have heard of the 80/20 rule. It is also known as the Pareto principle, named after the early-twentieth-century Italian economist who noticed that 80 percent of the peas in his garden came from only 20 percent of the pea pods.

While the 80/20 rule is not a cosmic absolute, it persists in money and business—and especially in the business of money. For centuries, the financial industry has sought to hoard proprietary information for the purpose of selling it at a premium. But as the information age collided with the financial collapse of 2008 and the subsequent Great Recession, an entirely new problem has appeared: now everyone’s a financial expert.

The pursuit of money is nothing short of its own religion, and rather than move toward simplicity, its scores of paths have become painfully circuitous. Sifting through the plethora of information from an industry with questionable intentions and a blogosphere with questionable credentials, we’re left echoing T. S. Eliot: “Where is the knowledge we have lost in information?”

Simple Money strives to cut through the noise, providing at least 80 percent of what you need to know about personal finance with under 20 percent of the information and investment in time. The chaotic financial world simplified.

This leaves you with a decision: If you’d prefer to live on the hairy edge of financial insanity, this book might not be for you. But if something in you yearns for a simpler financial existence, a more comprehensible plan, or an achievable financial to-do list, this book was written for you.

This short introduction lays the groundwork, beginning with four fundamental tenets that link each of the book’s five parts.

Tenet #1: Personal finance is more personal than it is finance

This is not a clever tagline but a statement of fact rooted in science. In psychology, yes, but also in biology. The proof is everywhere. This is why people who make a million dollars a year live paycheck to paycheck and why underpaid teachers retire with millions in savings. This is why investors make a fraction of what their investments return. This is why consumers entrust their life savings to salespeople who buy them fancy dinners.

This is also why the first part of this book is dedicated to Planning for Life. One of the ways we can make financial decisions simple is to genuinely understand what motivates us. These motivations are too often separated from our financial planning, even though they are the foundation.

The research and writing of Daniel Kahneman, Richard Thaler, Cass Sunstein, Jonathan Haidt, Daniel Pink, Malcolm Gladwell, Simon Sinek, Chip Heath, and Dan Heath collectively raise a big neon sign that reads:

The way we think people make decisions—and therefore the way we motivate people—is wrong.

We’re stuck in an era of carrot-and-stick motivation, even though science passed such a system by decades ago. We’re stuck telling people what to do and how to do it without ever ensuring they understand why.

Tenet #2: We need to know why

Simon Sinek reminds us what really motivates people to action in his popular TEDx talk, “How Great Leaders Inspire Action,”1 and in his book, Start with Why. People won’t really listen to what you tell them to do or how to do it until they understand why it’s important.

The financial industry is notorious for berating people with an onslaught of whats and hows. I’ll follow Sinek’s example and begin every chapter telling you why you need to read it.

The reason why part 2 of the book—“Planning for Today”—will likely interest you is because we’ll answer the question “Where do you stand financially?” relative to a host of indicators. It also offers a few essential practices for anyone hoping to develop long-term financial stability.

If you don’t care about why, consider going directly to chapter 19, “The Top 10: Your Next Dollar’s Home,” and get to work!

Tenet #3: Simple, not simplistic

Even that which I’ve deemed the Minimum Effective Dose of personal finance might feel overwhelming at times, especially if the subject matter is new to you. I’m sure there will be times when you’ll think, “Uh, this doesn’t exactly sound simple to me.” Please take heart. It’s part of the plan.

If I just give you a few bulleted action items with no background education or explanation, that would be overly simplistic, a cheapening of the advice, and ultimately detrimental to your long-term financial health. To get to elegant simplicity, we often have to wade through complexity.

Consider this quote attributed to Oliver Wendell Holmes Sr.: “For the simplicity on this side of complexity, I wouldn’t give you a fig. But for the simplicity on the other side of complexity, for that I would give you anything I have.”

An illustration of this principle: A Major League Baseball catcher flashes the pitcher a simple hand gesture, his recommendation for the next pitch. Once a pitcher has reached that level, he needn’t retrace an elaborate mental framework to orchestrate a curveball, sinker, or fastball. But this process is only simple and efficient in the present because of the years of training and practice and the catcher’s intimate knowledge of the pitcher’s—as well as the batter’s—strengths and weaknesses. The process is made simple thanks to the participants’ willingness to endure the complex.

I strive to give you the simplicity on the other side of complexity. I reach for simple recommendations that are based on a deep and wide understanding of the complexity of these topics. And sometimes, I’ll need to walk you through a helping of that complexity to ensure you can fully realize the benefits of these recommendations.

Parts 3 and 4 of the book—“Planning for the Inevitable” and “Planning for the Unexpected”—delve into the meat of personal finance and tap into the heart of its complexity. But don’t worry, at the end of each chapter, you’ll find a Simple Money Summary with concise, manageable guidance to help you accomplish the most with the least.

We conclude with part 5, “Planning for Action,” because the best-laid plans are worthless if they are never implemented.

How to Use This Book

This book endeavors to provide a comprehensive overview of personal finance. It certainly won’t touch on everything. For example, instead of a chapter on taxes, I discuss taxes throughout when appropriate. But the comprehensive scope means some sections will be more applicable than others to you.

Therefore, here’s how I recommend approaching this book:

Part 1 is required reading. It’s the foundation on which everything else is based. Even though you see very few references to money, if you were going to read only one section of the book, I’d implore you to read part 1.

Part 2 will be beneficial for everyone, but especially for those who wonder where they stand financially, those who are fearful they are behind, and those who are predisposed to saying, “Yeah, I’m really just not good with money.”

Once you get to parts 3 and 4, if your attention is prone to wander or you have areas of special interest, you shouldn’t be lost by going out of order. Take a glance at the chapter headings for your topics of choice.

To make the most of this book, I recommend keeping a Simple Money Journal. This is for two reasons:

1. The visual exercise of writing things down increases the impact of what you’ve learned.

2. As David Allen teaches us in his Getting Things Done (GTD) methodology, having a receptacle for things we want to remember declutters our brain space and thereby reduces our stress.

Throughout the book, you’ll find Simple Money Journal Entry invitations where you can reflect on important questions, and at the end of each chapter I’ll ask you to jot down any insights that strike you and the actions you choose to take as a result. Use your journal of choice—mine is the classic Moleskine—or use the Simple Money Journal that I’ve prepopulated with exercises and questions from each chapter (found at www.simplemoney.net/journal).

Part 5 is short but punchy, helping you apply whatever it is that you’ve learned for maximum effect. It functions best if you have used the “Insights and Actions” sections at the close of each chapter.

Tenet #4: Enough is “Enough”

It is, as the old Shaker song lyrics say, a gift to be simple, but simplicity is not an end in itself. It’s the vehicle to something much more meaningful, and something very difficult to find in a financial landscape dominated by information overload and the emotions of fear and greed.

That is the place of Enough, and that’s where we begin.