It’s Not Snake-Oil, It’s Common Sense

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Have you noticed lately that the classical personal finance advice that you’ve come to know and rely on — create an emergency fund, spend less than you earn, invest in the market, etc. — has come under attack? Take this new book out from Helaine Olen, whose Amazon rundown describes the author bravely going “behind the curtain of the personal finance industry to expose the myths, contradictions, and outright lies it has perpetuated.”

And what, you may be thinking, are some examples of these myths and lies? Well, apparently it’s a myth that by keeping your spending in check and avoiding consumer debt, you can greatly improve your personal financial situation. News to me! You see, per Olen, the reason that most Americans are in dire financial straits is through no fault of their own — they are merely the victims of larger macroeconomic forces beyond their control.

Enter Felix Salmon of Reuters, who has now taken up this same cause. In his column — “The invidious reach of personal-finance snake oil” — Salmon puts forth a very similar argument:

If we don’t have money it’s not our fault: household net worth has been falling as living expenses have been rising and median incomes have been stagnating. There are deep structural reasons why most Americans don’t have any real savings; those reasons explain substantially all of the problem.

Like hell they do! When it comes to folks handling their personal finances, I think people essentially fall into two categories — those who think they can get a handle on it themselves by taking responsibility for their actions, and those who think it’s out of their control and that they are the victim of circumstance.

If we don’t have money it’s not our fault.

This I think is the number one reason why people allow their finances to spiral out of control. Their attitude sucks. They believe that because they don’t make a high enough salary or that the economy is in the tank, then it’s not their fault that they don’t have any savings. Of course, this is ridiculous and terrible advice. If you don’t believe that you can improve your financial situation via your own actions, then you will never try in the first place. And we all know how that’s going to end up.

Don’t get me wrong: there are many Americans who have been out of work for some time, or who are disabled and simply cannot work, or who do work but are truly poverty-level poor. They spend all their income on necessities and make the most out of every last penny. I am not talking about those people.

The people I’m talking about are your average, working, middle-class Americans, living paycheck-to-paycheck, with an iPhone and a matching $85 monthly bill, a flat-screen TV, two vacations a year, a $100 cable and internet bill, a meal out at a fancy restaurant every week — you know who I’m talking about. (I used to be exactly this type of person.)

Here’s the thing that Olen and Salmon refuse to admit: no matter what “deep structural” economic issues exist at the time, these types of gratuitous expenses can be cut back! And by doing that, over time, dramatic savings can be achieved. But cutting back can be hard, and most people simply do not have it in them to make the sacrifices. Why take responsibility when it’s easier to play the victim? What’s crazy is that Felix Salmon is more than happy to perpetuate this type of attitude.

Salmon continues, now decrying the rise of personal finance gurus like Dave Ramsey, Suze Orman, and David Bach:

And there’s one thing they all have in common: A message that you can fix these things on your own, and somehow, magically, become fabulously wealthy — or at least financially independent — even without earning more money. You can’t, of course: that’s a myth.

Actually, Felix, it’s not “magic” — it’s common sense. Spend less than you earn and you will be “financially independent,” i.e., you will not be drowning in debt in order to support your lifestyle. The little things do add up: I stopped buying Starbucks every day before work and it saved me about $725 per year. Do you think most people could use an extra $725 in their pockets, each and every year, and more so if you were to invest it? All you would have to do is drink the free, crappy coffee at work. That’s it! No magic, no myths — just a small sacrifice. And that is the smallest, least significant example I could come up with! Just imagine the money you could save if you applied this thinking to every other thing you were wasting your money on.

Look, people will do what they want to do; I’m not here to judge. But I’m baffled why Olen and Salmon would want to go out of their way to attack the kind of basic, common-sense personal finance advice that have helped out so many people get their financial house in order. The reason that advice is so popular is because when applied properly, it works. And the reason still so many fail at following it is because it’s hard.

Now whose fault is that?

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