Two caveats about this post.
1. I’m thinking out loud here. I don’t think I’ve quite communicated the idea(s) I wanted to with what I’ve written, but I still felt like it was good enough to share.
2. As with almost everything I write on this blog, there is a lot of assumed privilege. This is because almost everyone that is likely to read this has that privilege, so that assumption is not a problem. But I do want to be clear that there are some folks where this is not currently in reach because they are living at the poverty level and often trying to overcome many systemic issues. So keeping that in mind, and assuming you do have the privilege I’m assuming, please keep reading.
Carl Richards used an interesting phrase at the 5:32 mark of this video, “self-driving money.” I think this term is very broad and has many, many applications and aspects, and I’m certainly not trying to explore all of them (and I may not be using it the same was as Richards is). But I want to briefly focus on two specific aspects that I think are important: being intentional and setting up systems.
I’ve written previously that I can define Financial Literacy in one sentence.
Financial Literacy is spending less than you make, on the things that you value, and saving and investing the rest in low-cost, diversified index funds selected based on your investment time horizon.
While the sentence is simple, the ideas contained in it are somewhat nuanced. Spending on the “things that you value” fits into the intentional aspect of how I think about the term self-driving money. One of the big problems many people have is they’ve never really taken the time and made the effort to truly identify their values and their goals. That can be both difficult and emotional for some folks, and it’s hard work, but it’s one of the most important steps you can take. This isn’t self-driving, although I do think it should be self-driven. But once you’ve done this work, then your spending decisions are in many ways self-driving, because they will be intentional based on those values and goals.
Once you have defined your values and goals, you will also want to set up systems (automated whenever possible) to help you achieve those goals. While setting up your systems takes a little bit of initial work, once they are set up then much of the rest of your finances becomes self-driving as well.
These two aspects of self-driving money are why I frequently suggest that somewhere around 90% of what you need to know to make good financial decisions is actually pretty simple. It may not be easy to define those values and goals, and it might take a bit of learning and thought to set up the systems that are right for you, but once you do that, much of your finances are then on autopilot.
There are certainly ways to optimize your finances, which is what many of the rest of my blog posts are about, but even if you don’t do any of that the 90% that is handled by these two actions will likely be enough for you to accomplish your goals.
In the financial literacy for educators class that I teach, there’s often pushback around this, with the specific pushback/question often being, “But I don’t know how to invest!” My unpopular (and often not-believed) response is that investing is the easy part (low-cost, diversified index funds selected based on your investing time horizon). Too often I think people use the perceived complexity of investing (and other financial topics) as the reason (excuse?) why they feel unsuccessful with their finances. But I feel like the biggest obstacles are actually not doing the thoughtful and difficult work of figuring our your values and goals, aligning your spending with those values and goals, and then setting up the systems so that your saving and investing is automatic.
So the reason I like the phrase “self-driving money” is that if you do the necessary – and sometimes difficult – work up front, much of the rest truly does become nearly self-driving. Perhaps we could call it “self-driving (supervised) money” to acknowledge that you can’t completely forget about it, but it’s still going to be doing the vast majority of the work on its own.
Fisch Financial 