I have no problem reminding myself and others that I’m often wrong.
You ever been wrong? Happened to me.
You see, it’s far easier to course correct when you can admit to anyone in earshot that you’ve screwed up, for whatever reason, and maybe what you said or did up to that point should be re-evaluated.
Case in point: I’m about 90 percent done with another blog post on which I’ve spent several researching, running numbers, and organizing my thoughts. As I was putting a bow on the final table showing why one financial option seemed like a lot more trouble for very little gain, I made a (not shocking) discovery.
I was wrong. My bottom line will thank me for admitting that.
Math doesn’t lie, people do
Personal finance is largely about two things: behavior and math.
Everything is basically a combination of those two elements to varying degrees.
Budgeting, investing, insurance, saving, splurging, scams — these are all expressions or results of people making wise or poor decisions with behavior and math.
In 37 years of life, I’ve learned a few things about myself. One is that no matter what researchers say about a fixed mindset vs. a growth mindset, I’m never going to be a natural at math. I was lucky enough that my math score on my ACT met the minimum requirement for college, meaning I haven’t had to take a math course in 20 years. When they asked me to sign the paper that said I understood I was exempt from taking gen-ed math, I offered to sign it in blood.
What I have figured out about my math ability is that for most things I encounter, if I don’t focus on the figures and instead just look at whether what I’m seeing makes sense, I can tell if something is off. But if I focus on the details of the formula without doing that common-sense gut check, I start to trust my own bad math.
That’s what happened with this almost done blog post, which I plan to retool with the right math. I went way down the Excel rabbit hole, running several variants of formulas with different interest rates and timelines, accounting for taxes and compounding. Then I stepped away from the spreadsheet and thought about whether the answers I was getting actually made sense with reality.
It turns out I missed one step along the way, and — poof! — several hundred dollars disappeared from my total. I had to admit I was very wrong. But I was happy to be wrong on paper, not in practice.
Upward and onward
Are there things in your financial plan that you assume to be true, or that were true when you made the initial decision but you haven’t revisited since?
Car insurance is a prime example. Ask anyone who’s been with the same insurer for five years why they’re with that company and chances are really good they’ll tell you they were the cheapest company. Have they called around to see whether they’re still the cheapest? Nope.
We did this with USAA many years ago. We’d always heard they had extremely good rates and awesome customer service. We didn’t think to compare how good those rates were until it was time to add a driver. Then we realized for our particular situation USAA wasn’t very competitive. We assumed what we heard and knew to be true. It cost us several hundred, maybe even several thousand, dollars over a few years.
Now I rate shop at least every two years.
What about your credit card rewards program? As I outlined in a previous post, I’ve been getting cash back for years. Now that I’ve seen the power of card churning for travel rewards, I realize I was wrong about the value of cash back vs. travel points.
We also made the mistake of paying into a whole-life insurance policy for many, many years before cashing it in as down payment on our house. I’ve already written about how I assumed my financial advisor was, you know, doing what he was paid to do.
Admitting your mistakes both big and small makes it so much easier to swallow your pride and move forward with the right approach. Times change, circumstances change, business models change, investment options change. (I’m still sitting on the fence with my two sector ETFs, though.)
We all need to revisit our long-held assumptions about everything and ask ourselves whether they need to change, too.
Your thoughts might be worth more than a penny.