Money Basics

The Stupidly Simple Secret Sauce of Personal Finance

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Take your income and divide it into five equal buckets. Take each bucket and multiply by your age in dog years. If Mercury is in retrograde, convert two buckets to Bitcoin. Otherwise, use 14% of your future Social Security income (calculated pro-rata) and buy Lottery tickets.

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This is stupidly complicated, emphasis on stupid. People yearn for hidden knowledge—the secret sauce! But personal finance doesn’t have to be complicated. The real secret sauce of personal finance is simple.

Today’s article contains these simple (but overlooked) steps to personal finance success.

Four Stupidly Simple Rules

The following four rules aren’t highlighted enough in the personal finance space. Yes, they’re simple. Stupidly simple. But these rules provide the easy answer to how a frugal teacher can end up in a better financial scenario than a slick Wall Street banker.

  1. Spend less than you make.
  2. Double down on the above, and spend way less than you make.
  3. Find ways to earn more money. But don’t increase your spending.
  4. Invest. Make your money grow on itself.

There are two equally important inputs to the final product: how much money comes in and how much goes out.

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We love to focus on money coming in. Salary is king. If not for salary, how could I compare myself to another human?, asks the Modern Midas.

But salary is an incomplete statistic, much like batting average was described in Michael Lewis’s Moneyball. It accounts for some results, but not all results.

Savings rate is a much better statistic, at least when it comes to personal financial health. Saving 50% of your income is better than saving 5%, whether you’re a teacher or a banker.

Winners are Loud, Losers Stay Silent

Let me know if this headline looks familiar:

28-year old turns $35K to $1 million with Tesla stock

We love winners. Man gets rich off great stock pick. Woman shorts company right before it goes bankrupt. Dog digs hole, owner finds gold.

Planet Money recently had a fun episode about people making money off of Hertz’s recent bankruptcy and subsequent stock price roller-coaster.

And like a roller-coaster, making money creates a wild and exciting curiosity. Who doesn’t like a story about someone making lots of money? The Big Short is one of my favorite books and movies. Making billions is fun!

But people rarely publicize their screw-ups. Mundane failures aren’t in vogue and never were.

  • “Man spends $50K in 30 years on silver coins, never sees returns”
  • “Woman neglects free retirement accounts, regrets choice”
  • “Bros buy crypto at the top, lose their shirts”

These aren’t the stories that stick with us. But they should! We hear stories through the filter of survivorship bias. The winners make the cut and the losers don’t get publicized.

Not Losing GIFs - Get the best GIF on GIPHY

For every winner you hear about, consider the silent losers. Your slow and steady solution might seem lame compared to people taking rockets to the moon.

But lots of those rockets blew up on the pad. Don’t forget it.

Boring Is Best

A low-cost index fund is the most sensible equity investment for the great majority of investors. By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals.

Warren Buffett

Picking stocks is fun. So is picking horses. But unless you’re really good, it’s probably a losing bet for you. And let’s face it—you’re not really good.

Just check out this breakdown about luck vs. skill in stock picking. You can’t just be above average. You’ve got to be consistently above average for long periods of time.

The alternative to complex stock-picking analyses is to invest in boring index funds. It’s what Warren Buffett recommends. You see, he’s really good. And he’s good enough to know that you’re not really good. And that’s why he thinks you should invest in index funds.

It goes beyond index funds. There are other contrasts in personal finance between exciting and good. For example, gold is exciting. Bitcoin is exciting. But saving tax dollars via a 401(k)? Ugh—gag me with a spoon. It just sounds so boring. Can I watch paint dry instead?

And yet, maximizing tax-advantaged investing accounts is one of the best methods for the average American to achieve a healthy retirement.

It’s like saying, “Eating carrots and jogging daily will help you lose weight.”

Okaaayyy. But what about a magic weight-loss pill? Or a Himalayan calorie-burning meditation technique? We yearn for solutions to be exciting and exotic. But they don’t have to be.

Meditation by Andrii Burak on Dribbble

Boring and rich, or exciting and broke? Easy choice. And if the choice isn’t easy, I know of a Tibetan cliffside just for you.

You Make the Economy Go

At least in part, you make the economy go. Your purchases keep money flowing, and that flow of money greases the wheels of the economy.

There’s an enormous vested interest in ensuring that Average Jane and Joe spend a significant portion of their incomes. The advertising industry is predicated on that interest.

If you’ve taken an economics course, you know that markets are supposed to be based on informed consumers making rational choices. You take a look at the first ad you see on television and ask yourself…is that it’s purpose? No it’s not. It’s to create uninformed consumers making irrational choices.

Noam Chomsky

Drink this beer because you’ll be the Most Interesting Man in the World.

Buy this computer so you’re not an Orwellian drone.

These shoes will make you cool like [Insert Basketball Star Here].

We’re urged to consume until we’re fat and broke. Once obese and opulent, we’re urged to lose that weight and store that stuff. The cycle continues.

Black friday GIF - Find on GIFER

To the powers-that-be, you’re a consumer. You make the economy go.

The Fulfillment Curve is the antidote to this mindset. Do you really know what spending will make you happy? Once you answer that question, maintaining the four stupidly simple rules from above is an easy task.

The Answers Are Out There, and Usually Free

I’m biased here because I share freely. So now I’m going to whine.

It grinds my gears when one of my peers advertises, “You want to know the four stupidly simple rules to achieving financial success? Just sign up for my $99 ‘Personal Finance Genius’ course.”

And then the course is an unfunny, poorly written version of this article. I’m not only jealous but also indignant.

How dare someone pawn off ketchup as a secret sauce?

It’s like saying, “Do you want to know how to add single-digit numbers to form larger sums? Just sign up for my $99 ‘Finger math for adults’ course!”

Some information is so simple and so useful that it deserves to be taught widely and freely. Did you know that 45+54 = 99? As in 99 dollars! Whoa! By the way, you just passed the course!

Abacus GIFs | Tenor

When it comes to personal finance, you aren’t the first person to ask your question. The answers are already out there.

And if you search a bit, you’ll find that most of the answers are free. If you can’t find the answer for free, there’s probably a message board (I use Reddit) where nice strangers will go find the answer for you. For free.

Personal finance can certainly feel like a jungle. But the trail is well-blazed, and people have successfully navigated that jungle before.

Measure –> Manage

Frequent Best Interest contributor Peter Drucker opined, “You can’t manage what you don’t measure.”

Manage = analyze, take care of, improve.

Measure = watch, observe, take notes, quantify.

Let me present two people. One tracks every single calorie she eats. The other pay no heed to what she slides down her gullet. All else being equal, who is healthier?

Counting Calories Is Basically Pointless. So Why Are We Still ...

First instinct, it’s the woman who measures all her food intake. Why? Because we know that her abundant self-knowledge likely leads to smarter food choices. The woman who doesn’t care? Well, she doesn’t care.

The same applies to personal finance. You don’t have to track every dollar (though I do). And you don’t have to check your accounts on a daily basis.

But you should have a good idea of where your money is going and where your net worth stands. Are you improving? Slumping? Spending thousands of dollars on Nepalese meditation retreats?

Measure you money. Then improve.

What did I miss?

Were you expecting exponential functions and derivatives? Are you gassed at my lack of Gaussian distributions? Fret not. I’ve got complicated stuff too.

But the basics of personal finance—the stuff that gets the most bang for its buck—is stupidly simple.

Don’t believe me? Just sign up for my million dollar weekly email list. I take all forms of credit card, crypto, and Nepalese rupee.

And thanks for reading the Best Interest.


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About Jesse Cramer

I’m Jesse. I’m an engineer, a new owner of an old home, and an avid reader/writer. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@BestInterest_JC) or on Reddit (u/BestInterestDotBlog). Many of my posts have been directly influenced by my readers. It’s the most fun part of writing this blog. And as always, thanks for reading the Best Interest.
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3 thoughts on “The Stupidly Simple Secret Sauce of Personal Finance

  1. Yeah man I feel that more attention should be put on maintaining things, fixing things, getting your things/ life in working order and keeping it that way. And when you buy things, think about what problems does that thing solve. What problems does that thing create.

    Can I solve this problem with creative use of what I have. If my problem is boredom, can I turn the boredom feeling into a fulfillment feeling without spending 3 grand to lie on a beach or pay 20 bucks to sit in a theater and eat popcorn. If I decide to chill out at home, can I get more out of that 1.25 mg dose than I get out of that 2.5 mg dose? Can I get more out of a shot of wine to calm the nerves than a glass to induce a stupor or feel-good flush?

    Maybe what I really need to do is channel that half-dose into a contemplative evening in which I fold my laundry so that I can use the laundry bin for the dirty clothes scattered across the floor. If I sweat a lot and think its a good idea to not have the dirty clothes touch the surface that the clean clothes will touch, do I need another container that will make my room feel smaller and increase my yearning for a larger room, or can I get away with putting a cloth/plastic bag inside my bin for the worn clothes that I can remove and fold up? Actually just thought of this and I may have to implement.

    Back to questions worth evaluating when purchasing a new item…
    Will it fit in my closet or garage, will it make my room messier, will it cause me to gain weight so I need to restock my wardrobe with clothes a size up?

    Does buying a Tesla solve my commute problem 3x better than the basic Toyota plug in? Does having a car solve my commute problem so much better than a bike/train solution that it’s worth the cost of gas, insurance, maintenance, speeding tickets, DWI citations, cardiovascular stimulation deficiency induced diabetes, or possible death to crazy people who stumble across the highway that will scar my conscience forever as I was responding to one of the critical UR squash reunion messages instead of watching the road? From the externalities/ societal level perspective, is it worth the noise pollution, brake dust, smog, asthma, air toxin induced learning disabilities, black-ice induced hip fractures, yada yada yada.

    Dude awesome GIFs.

    1. Bill, I always appreciate your thoughtful replies.

      It’s good analysis. And if you like it, fun too. My two cents—just make sure you don’t succumb to analysis paralysis eg wasting an hour optimize a $2 decision, etc.

      And thank the Internet gods for GIFs…they’re the real spice of blogging 😉

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