Book Review: “The Dumb Things Smart People Do with Their Money” – Part 1

I am in the middle of reading a book I checked out from the library (#frugalwin :)) called “The Dumb Things Smart People Do with Their Money: Thirteen Ways to Right Your Financial Wrongs” by Jill Schlesinger, a money analyst for CBS News.  In this post, I am going to cover the first four points she brings up:

  1. Buying Products They Don’t Understand – The first mistake Jill discusses is buying into investments or products you don’t understand, such as gold, reverse mortgages, or hedge funds.  Reverse mortgages (where the owner can access part of their home’s equity via regular payments), for example, may be beneficial for certain people, but certainly not all.  You should always ask questions and read the fine print before making any type of investment decision.  Do the same research you would for a major purchase like a home, because you’ll be facing the repercussions of this decision for years to come.
  2. Taking Financial Advice from the Wrong People – This tends to go hand-in-hand with the first mistake.  If you have an investment adviser, you should ensure they are required to act as a fiduciary, meaning what is in their clients’ best interests.  Some advisers are not fiduciaries, meaning their recommendations must only be suitable for your situation but do not have to be the best.  You might expect that a professional who is dealing with your finances will operate like a doctor, who you trust will give you advice that is in your best interests, not those of a pharmaceutical company.  Non-fiduciary advisers are more like car salesmen.  In essence, these people are sales-driven and may recommend a product or service to you that gives them a commission and is suitable for you, but not in your best interests.This chapter also reminded me of what Dave Ramsey always says, “Don’t take advice from the Joneses.  The Joneses are broke!”  You will always find someone (whether that be a coworker, family member, or general acquaintance) who will act like they are an expert on your financial situation and want to tell you exactly what to do.  Many times, these people are inundated with debt and may have the nicest and newest vehicles and other toys, but they can’t actually afford them!  Tune out the noise and ask clarifying questions of people who you are entrusting with your finances.  Find an investment adviser that is required to act as a fiduciary.
  3. Making Money More Important than It Is – Caring about money too much can drain your life of joy.  Moderation is key.  If you are obsessing over every last penny to the point where you are losing sleep at night or are completely socially isolating yourself so you don’t spend money, that is not healthy.  We all deserve to treat ourselves every once in awhile and that is a normal part of life.  Just like with restricting your eating, if you deny yourself too much, you are more likely to eventually end up bingeing and setting yourself back even further than if you would have allowed yourself a little treat here and there.
  4. Taking on Too Much College Debt – There is absolutely nothing wrong or shameful about going to in-state schools, technical schools, or other more affordable universities.  Oftentimes, unless you are attending an Ivy League or other top-20 college, the name of your school truly doesn’t matter.  If you graduate with crippling debt and are underemployed with no way to pay it back, you are not doing yourself any favors.One particular quote from this chapter really resonated with me: “Many people who don’t have college handed to them realize hidden benefits.  They become laser-focused on their career objectives.  They discipline themselves to make their monthly payments, becoming great savers once they’ve paid off their loans.  They come to appreciate the career goals they achieve all the more – because they’ve earned them.  Ultimately, they become more mature financially, more accepting of limits and of personal responsibility.”  I was 100% responsible for the cost of my college education (both my bachelor’s and master’s degrees).  Knowing this caused 17-year-old me to turn a critical eye to the cost of college.  The school I chose for my bachelor’s degree was an out-of-state university; however, they offered a reduced out-of-state tuition rate for incoming students who met certain requirements (grades, ACT score, extracurricular involvement, etc.), which I qualified for.  Additionally, I was able to earn two academic scholarships and my family qualified for the full Pell grant every year.  This combination resulted in me graduating with only $3,500 in student loan debt, which I was able to pay off right after graduation before it accrued any interest.  I took school incredibly seriously and truly maximized my time there.  I landed a job two months before graduating.
    Grad school, unfortunately, was not quite as affordable because I could not find any grants or scholarships I qualified for, so that meant taking out federal student loans.  I chose an affordable school that was well-respected in my field of study, budgeted appropriately, and was able to pay off my $20,000 in student loan debt within four months of graduating from my master’s program.  I am quickly recouping that cost of my education through my part-time job as an adjunct faculty member.  In less than a year, I have earned back half of the cost of my student loan debt through this job, which I would not have been eligible for without my master’s degree.

Next week, I will cover Jill’s points five through eight from the book.

What are your thoughts on Jill’s points?  Have you made any of these dumb money moves?

~Autumn

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