Today’s post is by my awesome staff writer Jordann. Enjoy!
One of the best things about personal finance is that it’s so personal. Everyone has their own strategy, tailored to their own specific personality. I think this is why there can be so many personal finance blogs out there, yet somehow we all still manage to come up with unique and interesting content day in and day out.
If you’re anything like me, it’s the personal stories that keep me coming back, not the generic posts about maintaining a reasonably sized emergency fund.
One of the things I love reading about is risk tolerance. It’s so interesting how this personal threshold is so different for each individual. Myself, I’m not a risk taker. Instead of investing my income, I’m choosing to take a guaranteed but modest 5.5% return by paying off my student loans. After that, I’ll be paying off my low-interest car loan, and beefing up my emergency fund until it reaches 3-6 months of expenses, and saving for a 20% house down payment.
I don’t like being in debt, and I’d rather spend my money limiting my vulnerability than investing for a much higher potential return. Heck, even the idea of buying a house, and tied to such a huge mountain of debt, makes me squirm, even though it would be an asset.
I’m one end of the spectrum. At the other end, you’ll find people who are much more daring than me, and who, as a result will probably end up a lot more wealthy than me. These people are comfortable with maintaining debt in favour of investing their cash flow for higher returns. These people carry multiple mortgages for rental income, and are willing to take risks with their capital for the possibility of higher returns. Lots of these people are entrepreneurs, which in my opinion, is one of the biggest risks a person can take.
Neither end of this spectrum is necessarily the best place to be, and there is a ton of grey space in between. Knowing where you fall on the risk tolerance scale is important, and can influence your financial habits in a huge way. From the size of your mortgage to the expected rate of return on your retirement savings, determining your risk tolerance level when it comes to your finances should govern almost every financial choice you make.
I won’t go into how to figure out what your risk tolerance level is, a quick google search yields a bunch of great articles and quizzes on figuring that out. I will say that it’s important to take your risk tolerance into consideration when making financial choices.
Imagine if I suddenly decided that I was going to follow a formula for how to make my financial decisions, without giving any thought to my personal preferences for risk. According to conventional wisdom, I might still pay off my student loans, but I might not bother to pay down my car loan and instead start saving more aggressively retirement. I might also put down 5-10% on a house instead of 20% in order to take advantage of historically low-interest rates.
While this might sound like a perfectly reasonable plan for someone in the middle of the risk tolerance spectrum and positively boring to the world’s risk takers, to me, this plan is a recipe for sleepless nights and worry. By not factoring in my risk tolerance, I’d be setting myself up for failure from the start.
Personal finance is personal. This has got to be one of the favourite sayings in the personal finance community, usually to justify a bad purchase of some kind. In this case, however, it’s true.
Know your risk tolerance level, own it, don’t feel guilty about it if you’re like me and hate risk, and DEFINITELY don’t ignore your risk tolerance level when it comes to making financial decisions!
I’m what you might call a bad personal finance blogger. Or maybe just a bad frugal blogger (never said I was a frugal blogger though!) Anyways, yup, I said it. I like nice (and brand new) cars, big houses, vacations, cable and premium TV, and everything else. I don’t really talk about using coupons a whole lot either. I also use loans to my advantage by obtaining low interest rates (such as 0%) instead of paying for things with cash when I have the cash available.
Some of the things that I just wrote seem to be things that some bloggers and readers might frown upon. Yes, I would like to retire early and not have to worry about money. However, I do like buying things and having nice things also. For me, I don’t see it as me trying to keep up with the Joneses, I see it as I work hard for my money, so why not enjoy myself? I’m not the type of person who wants to retire early by being extremely cheap with everything that I do (no offense to those who do this).
I am not perfect, and if I have the income to support the things that I want, then why not? I’m all about increasing my extra income, and a lot of it is used to pay down my $38,000 student loan debt. After that is gone, a lot of it will be funneled towards savings but also for fun things in my life. I hope you all do not hate me by the end of this post by the way.
A couple of months ago I talked about my Budget Busters and My Plans. There are a lot of things on this list that I will be spending money on in the next 18 months. Big wedding? CHECK. Big house? CHECK. Paying off student loans? CHECK. Vacations? CHECK CHECK CHECK. Oh yeah and I plan on getting a new car also.
I agree with Cait and Leslie. Even though I am definitely not a frugal blogger, I am money conscious and watch my spending. I manage my money well (at least I think so) and make sure that I am able to pay all of my bills. I also make sure that my spending and expenses equal less than 50% of our income.
Yes, I have made mistakes. Probably way too many money mistakes, but I am human, and it happens. I do think frugal bloggers are awesome though. If you are able to save even more money, then why not? That’s awesome!
Being a personal finance blogger to me is not always about saving as much money as you can. It’s about enjoying life and reaching true happiness. If I’m happy with what I spend my money on and have a realistic game plan for retirement, etc., then I’m happy.
Right now my car is okay, not the greatest. But I haven’t told most of you guys something – I plan on buying a new car this spring. Yes, I do realize we just bought the Jeep last summer. And yes I remember that a lot of you were not happy with that purchase. But that’s why I blog! I rely on you guys to keep me in check. If it wasn’t for my blog, I probably wouldn’t think twice. With my blog I’m always double thinking my purchases and trying to think of what others would do.
W now works at a car dealership. He can get me a good deal. And while it’s not the most luxurious, I have been looking at the 2013 Chevy Cruze. He can get us pretty much the at-cost price (this is below MSRP, invoice, employee discount, etc.).
Up until last week, I’m not going to deny it, I was dead set on the 2013 Camaro 2SS. Yes, not the base model or even an SS. I was thinking about the super expensive one that is above all of that. The price was around $40,000 with the extras that I wanted (would be even more expensive if I wanted all of the extras). However, I kept thinking about the bad gas mileage it gets and how the Cruze gets around 2 times better gas mileage (38-42 for the Cruze versus approximately 20 or less for the Camaro).
P.S. Jen recently posted about how she bought a BRAND NEW BMW, I’m so jealous. With careful planning, just because you spend money on a new car does not make you bad with money. Haven’t seen any finance bloggers buy a brand new BMW yet
I really want a new house, and W and I decided that 2014 is the year. We bought the house that we currently live in when we were at the young and at the not-so-smart age of 20, and we are ready for something nicer. And bigger.
We decided that we want a decent sized house. Preferably two stories, around 3,000 square feet, with a finished basement, large fenced in backyard, and so on. Right now our house is okay, and yes we could do with less space, but I do believe we would be happier with a nicer house. And if we can afford it, then why not?
I know that for a lot of people, a $300,000 or $400,000 house might be average because of the places that you live (NYC, LA, Vancouver), but in the Midwest, it usually buys a pretty nice house. You can have a pool if you want, half an acre of land, and a brand new 3,500 square foot house. And this is pretty much what I want.
I like vacations. We all know this though, no surprises here.
Not everyone thinks vacations are bad, but I know that some may think it’s not a good idea to do this when you have student loans. I’ve had great vacations and haven’t regretted a single one.
My cable bill is around $60. We have HBO and a lot of other channels. Would I give this up? NO! I’m fine with watching it on TV the second it comes out and spending extra money on this.
I don’t know if I’ll ever get rid of cable. It’s a relatively cheap form of entertainment and an easy way to relax. And I’m addicted to reality TV shows that I probably shouldn’t name.
Do you ever feel like you are trying to keep up with the Joneses? It seems like everywhere I turn, a big purchase is happening to someone I know. A massive 3 story house, nice cars, fancy vacations, a new iPad every other month and everything else.
When a friend goes out and buys the next greatest phone or buys a new car every couple of months, it kind of makes you wonder, and maybe it makes you jealous?
I’m not going to lie, the jealous monster takes over my life every now and then. This is something that I am working on and something that I need to change in my life. Am I the only one? Sometimes I feel like I’m the only person who is jealous and no one else has these crazy feelings. Since my extra income seems to be continually increasing, sometimes I feel the urge to spend it.
Maybe the jealous monster has taken over your life as well and you are trying to keep up with the Joneses.
We know someone who isn’t showy with his money, he is careful with how he spends his money. He doesn’t buy all the latest gadgets that don’t mean anything to him. Instead he spends money on his family, vacations, making his house into a home, family gatherings at his home, and other things that truly mean something to him.
He is the perfect example that just because you “might” have money to spend, it does not mean that you should. Buying all of the newest things all of the time doesn’t always mean everything in life.