Managing Your Money

It was Captain DIY who said it. I looked up at him across the table questioningly and repeated his words. Managing your money is like plugging a desk lamp into itself. Huh? He went on to explain that as an electrician he had been called out on service calls a number of times to evaluate a faulty desk lamp. Running from the back of the lamp is a cord that plugs into the outlet on the wall. Exactly how you would expect. On the face of the lamp is an internal outlet that serves as a base to charge a mobile phone or electronic device. More than once, DIY arrived to find the light plugged into itself instead of the wall. Lacking a power source, it was no real surprise that the lamp wouldn’t turn on.

The solution was as simple as unplugging the lamp from itself and connecting it to the outlet on the wall.

But many people today often have trouble grasping such concepts.

Is money any different?

Mechanical Ignorance

Why wasn’t it incredibly obvious that plugging a lamp into itself wouldn’t create any light?

The maker of this mistake would have to have a good deal of mechanical ignorance. There would have to be a complete lack of knowledge about how electricity works and how power is transferred from its source to another object.

Managing your money is no different. The average citizen has no understanding of the mechanics of the stock market. Compounding is a foreign concept. And financial independence isn’t even on the radar.

The result is often agonizing for those of us in the know about personal finance.

Mistaking speculation for investment
Saving at abysmally low rates
Fear of investing

Bridging The Knowledge Gap

The knowledge to fix a desk lamp is fairly obtainable. Understanding the basics of electricity in order to realize that a lamp plugged into itself won’t work should be within one’s grasp. A small investment of time could go a long way.

While obvious when it comes to basic knowledge, managing your money is often looked at as a black box. The rest of the world thinks it is so complicated that they are unwilling to spend a modicum of time and energy studying the basics.

Understanding investing, savings, and compounding enough to make smart money moves is not an all encompassing feat. A few hours a month is enough to learn how to be adequate. Yet few are willing to spend the requisite time.

We No Longer DIY

Why do it yourself when you can hire someone? There is always an electrician, plumber, handyman, or accountant waiting in the wings. You can pay someone else to take responsibility.

And when it comes to managing your money, we have financial advisors. I certainly used to have one. Because I convinced myself I was too busy or didn’t have the energy to understand something so complex.

But like the desk lamp plugged into itself, I was just a little education, knowledge, and effort short of managing it on my own.

Final Thoughts

No one will manage your money as well as you do. No one will put as much effort and be as thoughtful. There are thousands of reasons to hand over the reigns. There will always be an excuse about enough time, patience, or knowledge.

Don’t fall into this trap. Otherwise you are sitting in a dark room next to a lamp that is plugged into itself. As hard as you try to flip the switch, there will be no illumination forthcoming.

*DIY and I are at CampFI South this weekend. This blog post is coming to you from Little Rock, Arkansas. *