Knowledge is not enough. It must also be applied.
Good financial advice is easy to come by, but not always implemented effectively. The tips and suggestions on personal finance blogs are, for the most part, pretty generic. Unfortunately most people would read a few articles and quickly become bored of the topic because they don’t get anything meaningful out of them. Only personal finance enthusiasts are committed to read new material about money regularly, because they know how to turn generic advice into a more personalized form of advice that is practical and effective. Let’s look at some examples of this below. 🙂
How to turn generic advice into personalized advice.
A good rule of thumb to follow is to spend less than we earn. Well, okay. That’s great. But this is generic advice. Most people will roll their eyes at something so obvious. To personalize this principle, we can find a way to apply it practically. For example, we can pay ourselves 20% of our income by transferring money to an investment account. This can be automated to re-occur every paycheck period. This insures that we always spend less than we earn. Setting up a systematic rule based approach before we even start to save will improve our odds of success. 🙂
Another generic advice is to look for value when investing. Once again, this is pretty good advice, but not practical. So let’s find a way to personalize it. For example, the capitalization rate of a house in Toronto, Ontario is about 3% which is not a great return on investment. But a similar house near Barrie which is a smaller municipality in the same province can have a cap rate of 4% to 5%. So by simply zooming out and looking at a broader area, we are able to find more opportunities for value. If we search countrywide, we will find more, and possibly better bargains, than in any single city.
My favorite generic advice is don’t put all your eggs in one basket. To personalize this we can determine which different asset classes we should hold in our portfolio, how much of each we should have, and find low cost index funds to satisfy each class. The 100 minus age rule is a good place to start when it comes to determining one’s asset allocation.
Generic advice is good. But personalized advice is always better. Generic advice tells us what to do given a certain situation. But personalized advice shows us how to do it, and how to make a practical plan to tackle any situation. 🙂