I recently read Nick Maggiulli’s (Of Dollars and Data) thought-provoking article on why personal finance is a bit too personal, and I had a few thoughts. Here is why I think he’s both right and wrong.

The Exceptions Set the Rules

If you haven’t already read his article by clicking on the link above, I’ll wait. Go on, it’s worth a read.

Ok, all clued up? Alright, let’s go. Remember this passage?

This lesson [that teaching should be individualised to the student] seems to be lost on many financial commentators/bloggers who provide personal finance advice based on their own experiences, which are typically outside the norm.  The exceptions become the rule and then personal finance becomes a bit too…personal.  I am reminded of the words of Richard Hamming:
Please remember that what made you great is not appropriate for the next generation.

Nick Maggiulli, The Problem with Most Financial Advice

I tend to agree with Nick here, because everybody’s circumstances are different and what works for some people may not work for others.

However, it would not be wise to ignore what has worked for other people – it might work for you, too! There are always aspects of what others have done that can be applied to your own situation, whether that is the method they used to achieve their goals, habits or even their philosophy.

Also, by definition, the exceptions are the people who achieve different results to the majority of the population. And currently, the majority of the population are not saving enough for retirement.

Sure, you can’t take all of their advice word-for-word – some of it may not be relevant to your situation – but take what you can from it and apply it to your own life. You have the brains to figure out how, you just need to do it!

This is why we can still take lessons from the greatest figures in history like Marcus Aurelius, even though we probably won’t be able to replicate the military campaigns that gave him power.

Survivorship Bias

Just like the news never interviews the people that didn’t win the lottery, we rarely hear from the people who followed a particular set of financial advice and never got rich.  This is known as survivorship bias and it has infected our industry like the plague.  They say that, “history is written by the victors,” well so is most of the financial advice.

Now, of course, it is probably better to listen to a self-made rich person than a self-made poor person when it comes to financial matters.  However, this doesn’t imply that the rich person understands how they got rich.  It’s easy to come up with a story for how you earned your wealth after you earned it.  It’s like shooting an arrow and then painting the bullseye.

What’s hard is finding a person who creates a system (and publicly documents it) while they are poor and then uses that system to get rich.  Of course, even this person could have gotten lucky, but we could at least try to test this.

Nick Maggiulli, The Problem with Most Financial Advice

A side note: there are many amusing stories about survivorship bias – a quick read of the Wikipedia page (in particular the one about the military and cats) will give a few examples.

I have a few bones to pick with this passage – I will break them down into 3 sections.

1. The stories about how they earned their wealth are worth listening to and emulating.
2. Self-made poor people are all around you – it is unlikely that they themselves have even attempted to create such a system.
3. My blog is this experiment where I publicly document my system to get rich.

1. Listen to the Exceptions to Become One

Financial advice is given by those who ‘survived’ and came out on top. They would certainly be in a credible place to give it. As Nick writes, what would be even better would be to hear from those who tried to get rich but didn’t do so well, and hearing about where they went wrong and learning from those mistakes.

Bear in mind, though, a lot of those same people also made mistakes, and learned from them, so it wasn’t just one lucky trajectory upwards. This shows that they do understand, to some extent, what they did right. Of course, the winds of luck were probably also blowing in their favour, but your sail has to be in the right position to catch the wind in the first place!

What is even more reassuring is that the basic rules seem to be fairly consistent across all these self-made rich people (like live below your means and invest the difference), so perhaps there is some truth to them – correlation does not equal causation, but there is a stronger chance that it is causation.

I think Nick’s point here is that not everyone can become financially independent. I would agree with that – there are people who genuinely are poor, who can barely afford to put food on the table. They have already optimised their spending as much as possible, and cannot afford to consume. Not much is able to pull them out of the poverty cycle except more money or better education.

However, there are also ballooning numbers of the middle class who don’t know better than to use their money to buy junk food and toys and clothes that get forgotten. Mindless consumerism dictates their rules. Wouldn’t you like to be the exception to those rules?

2. Where are all the ‘Failures’?

Non-financially independent people are all around you, but often they have not put any of these recommended systems into place. This places them as the control group, so their lack of results does not tell us whether the recommended systems work or not.

As Nick says, we need the negatives – the people who tried to implement the systems, but failed to get rich. The voices of these people are hard to hear, because we don’t like broadcasting failure. These people also blend into the control group, so it’s hard to distinguish them, even if they were willing to talk about their mistakes.

So does the FIRE financial advice work? Inconclusive.

This is where my blog comes in.

3. Public Documentation

I am currently an objectively not-wealthy student. This blog is the public documentation of how I’m setting up systems in my life to create wealth, and I guess the result of this experiment is yet to be determined.

I am not going to lie – I have had my fair dose of luck. I was born in one of the richest countries in the world, to a hard-working, middle-class family, who valued my education and character. I am healthy, with no long-term mental or physical affectations. I have been born at a time when gender and racial equality and disease eradication has been at an all-time high. I mostly feel the support of society, rather than the oppression.

There are so many things to be grateful for – and I probably have a lot more luck coming my way.

So it is with social experiments. There are a lot of factors that might affect the result, not just the systems that I implement. Luckily, I am not alone in documenting my journey to FIRE. There are a few other blogs out there at varying degrees along their financial journeys, like:

• Fretful Finance
• A Purple Life
• The Happy Frugals
• Casual Money Talk
• Game of Budgets
• Retiring by 45

And there are so many more that I haven’t mentioned yet! I give you permission to leave your blog below if you are also currently on your journey to FI, and we can expand our sample size.

Of course, there might be a selection bias in that the people who are likely to achieve FI are also the people who are likely to start a blog, but by implementing the systems and then charting our progress, we can prove it is causation, not correlation.

Conclusion

Financial advisors probably won’t know exactly how you can get rich too, but it is probably worth listening to their advice and implementing as much of it as is relevant to you as possible. Sometimes, really practised complainypants (a favourite word of MMM) can come up with all kinds of excuses as to why something is irrelevant to them (they must get a car loan or can’t buy second-hand electronics), but those people must first take a good look at their habits and ‘needs’ and reevaluate them.

The financial advice that is out there seems to make logical sense, and these self-made rich people seem to have converged onto the same set of ideas. MMM’s article summarises these ideas – but check out my post for how I will apply these to my life.

Hopefully, this blog will document my journey to financial independence – and even if I don’t get to financial independence at the same pace as others, we’ll be able to see if the systems that I implement will help or hinder or do nothing at all.

Do you think financial advice is worth listening to, and how would you distinguish what is relevant to your life? Let me know in the comments or on Twitter!