There are many ways to manage your finances, and they can be combined as you work to achieve your goals. You can get professional advice.
If you have the time and expertise, you can research financial issues that impact you. And you can follow the example of others.
Many of us have role models in our family. My parents lived through the Great Depression and World War II.
They had points in their lives when money was tight. And even though I grew up in a home that was comfortable and financially secure, my parents set the example of being frugal, but not miserly.
Sometimes your social group will have enough in common financially that you can take some cues from those folks. But the facts aren’t always obvious.
Maybe you look at your friends and wonder how they manage to go on lavish vacations, get new cars every couple of years, and eat out several times a week.
If you are saving 10% to 15% of what you make for retirement and emergencies, pay off your credit cards every month, live in a home that is reasonable for your income and keep your cars after they’re paid off, you might be someone that your friends could learn from.
One of the downsides of looking to others for inspiration in financial matters is what you don’t know. Perhaps their home, their expensive habits and those things you see that they own don’t tell the whole story.
These people might work excessive hours and not have much time with family. They might have extreme debt. They might have nothing saved for emergencies or the future. And perhaps most importantly, they might have had some opportunities that you didn’t.
That could include their business contacts or just being in the right place at the right time.
A classic personal finance book is “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko, first published over 25 years ago. The authors did a study interviewing millionaires about their financial habits. What they found is that these many of these rich folks don’t drive flashy cars, live in oversized houses, or rack up debt. They buy good-quality used cars, live in the same house for most of their lives, and spend substantially less than they make. In other words, they’re saving a lot of what they make and not spending a lot on material items.
Academic studies have shown that the acquisition of material things often leaves people unhappy, because other areas of life don’t get enough emphasis.
And financial comparisons to others are sometimes helpful, but not always. Having a role model who’s in a very different situation than you are can be demotivating.
We can all learn from Warren Buffett, but we might not accumulate a net worth comparable to his, no matter how many of his pointers we pay attention to.
Linda Leitz is a certified financial planner. She can be reached at [email protected]