Jeff Brown, Philly Inquirer finance columnist, wrote a farewell column today which is brilliant in its simplicity. Now that he is going freelance and cutting back from three weekly columns to one, he distilled his financial educational principles, gleaned from both his research and personal experience. In money management, says he, "success comes from smart budgeting, not super-smart investing". The sooner you start saving money, and the bigger the percentage of your income you can save, the sooner you will reach your financial goals. Like, in Brown's case, going freelance at age 50. You don't have to do anything clever, really, you just have to be smart about living beneath your means.
He adds something very important to this simple formula. Even though he and his wife were able to put away 30% of their pretax income as journalists (read "not whopping incomes"), they did not feel deprived. Here is more wisdom: "Thrifty budgeting isn't about a life of want, it's about trimming the things that don't really matter - so that you can have the things that do."
What is endlessly variable, of course, is what matters to you. It is different than what matters to your parents, your partner, your neighbors, your friends, your colleagues - each person has a different menu. Exercising discipline in areas which don't matter to you allows you to loosen up in areas that do give you pleasure. In most cases, pleasure can come a lot less expensively than pricey designer duds or upscale widgets.
I would add that Brown intends to spend time doing a lot of things that cannot be priced or bought. So along with pleasure, you need meaning, too. Financial discipline can help you liberate time to spend on things that matter, too.
I highly recommend his column! PS it is no longer availabe on line, so I'm reproducing it here:
On Personal Finance | The two essential financial truthsCan years and years of thinking about investing and personal finance be boiled down to a few essentials for everyone?
I'm going to try.
This is prompted by a change. For nearly 12 years, I have written this column three times a week. Starting today, it will appear only on Sundays. After 20 years at The Inquirer and 32 in newspapers, I left the paper Friday for a riskier life. I'll write the one column a week as a freelancer.
I am taking my pension, digging into a pile of freelance writing assignments, strapping on my carpenter's belt, brushing up my piloting skills, looking forward to my 12-year-old's baseball season and, I hope, launching a project to deliver basic financial education to employees in the workplace, face to face.
Why would a reasonably sensible 50-something trade a good-paying gig with health insurance for a life of uncertainty? Because I followed my own advice and set up my household finances to make this work.
So here are the two basic financial truths this job has taught me:
First, success comes from smart budgeting, not super-smart investing.
I am not an investing whiz. Long before I started this column, I dabbled in stocks, and during one period I even traded options. The results were awful.
When I became a business writer about 15 years ago, I stopped buying individual stocks to avoid conflicts of interest. I turned to mutual funds.
I'm not a whiz at that, either. My returns just track the overall market.
The key to building a nice nest egg, I've found, is not getting a dazzling return. It is trimming expenses so you can invest as much as possible. For years, my wife and I have set aside about 30 percent of our pretax income, sometimes more.
To do that on newspaper pay - she is in the business, too - takes trade-offs. My pickup is 10 years old, and her car is 13. The house we bought 14 years ago was a fixer-upper, and we've done most of the work ourselves, and paid down the mortgage. We had just one child.
I don't feel deprived. Cars don't do much for me; I'm not too keen on fancy restaurants or nights on the town.
Despite all the saving, we've taken lots of nice vacations, including many sailing trips in the Caribbean. And I do have one major extravagance, a 42-year-old, four-seat airplane we fly to New England and the Carolinas. Keeping it going costs about what we'd spend if we bought new cars every three or four years.
Thrifty budgeting isn't about a life of want, it's about trimming the things that don't really matter - so you can have the things that do.
The other essential personal-finance truth is that investors should suppress the ego.
Americans celebrate winning, and most investors define that as a big return - beating the overall market, at least. That generally means lots of buying and selling, which can rack up annual fees and tax bills equal to 2 percent or 3 percent of the money invested.
That doesn't sound like much, but an inexperienced, passive investor can escape those costs - and match the market's returns - simply by holding low-fee index-style funds long-term.
Because of the extra costs, the active investor has to beat the market by 2 or 3 percentage points just to match the passive investor's results. If the market averages 10 percent a year, the active investor has to get 12 percent or 13 percent to break even - and perhaps 14 percent or 15 percent to justify the enormous work involved.
That equates to doing 40 percent to 50 percent better than average. It's like lifting your bowling score from 200 to 300 - and keeping it there. Forget it.
I'm not against striving for excellence. If my son wants to be a major-leaguer, I'll pitch him a million baseballs. But I'll also insist he get good grades.
In the same vein, the investor who wants to beat the market should try it with only a small slice of his holdings.
For me, big returns are not the goal. I want to send my son to college and then retire comfortably.
If I can do that with tight budgeting and investments that simply match the market, I feel I'm a winner.