| Personal Finance: Don’t Be So Defensive

There are literally thousands upon thousands of personal finance blogs on the Internet. The writers behind the blogs range from investor-millionaires to kids coming out of college with over 200k in debt; there’s plenty of diversity.

Reading fairly common threads of thought can be helpful to see where most people are “coming from.” Many of the sites are dead on; most personal finance sites emphasize the saving of money, smart investing, financial analysis and all around great personal finance advice.

But most personal finance websites are wrong. Don’t get me wrong, the basic principles certainly work to a certain extent. But only to an extent. The view ends up causing those who follow it to settle for much, much less than they can achieve. To understand the following concept just make sure to read the entire article.

Defensive Personal Finance

Personal finance websites encourage investing and saving, and they certainly should. The reason we want to save/invest is the bottom line; we end up with more money to spend on larger material possessions, retirement and other things. This is the ultimate reason for having a job, saving money, investing, etc. The purpose of personal finance is material.

The typical advice for personal finance looks something like this:

Want to build wealth? There’s one sure-fire way to do it, and it will take from now till your 70s. Be frugal and save, save, save. Focus on ways you can save money. Find ways that you are wasting money. Save! If you have to, skip lattes, drink water, downsize your house — just save your money and invest it. The key of success is to be frugal, thrifty and to save, save, save. Save a few thousand per year more than you spend and you’ll have a nice egg in 20-30 years.

This is all fine and dandy if your goal is to live well only in the future. This method emphasizes saving more than you make. It emphasizes holding back, cutting expenses, downsizing your lifestyle and saving. And it’s this mindset that destroys the potential to achieve.

Don’t get me wrong: there’s nothing wrong with saving. Everyone should most certainly save a portion of their income. I save constantly, keep a budget and never violate it. If I continue at this rate, I’ll have a dandy retirement in a few years.

But let’s look at how this emphasizes the lifestyle. In order to understand it, let’s analyze the life of Frugal Danny.

The Story of Frugal Danny

Frugal Danny is a frugal man, and focuses on saving his money. His personal finance philosophy is, “it’s better to do without than to spend.” He makes sure that everything he does is the cheapest possible. He only drinks water when he goes out to eat, never gets steak, doesn’t listen to much new music, doesn’t go to the theater and he lives in a small apartment.

Danny has an okay job as a technician and makes $15-per-hour and $30,000-per-year. His wife a three kids require a lot of time and money, so his job just barely makes ends meet. Danny doesn’t have the luxury of having luxuries. Every year his family invests $2,000 from all of the scrimping, saving and cutting costs. He and his wife talk about money for at least a half-hour every night.

When retirement rolls along and he’s 65, Danny is going to have 1.5 million. He is going to get about $75,000 to live off every year. He;s excited! When retirement comes, he’s worked hard to get it, and he is planning on spending time working on the garden, walking the dog and watching game-shows.

Unfortunately, Danny will never make it to retirement. He’ll be in a fatal car accident a month before he reaches his goal. His long-term plan won’t be working out for him; the dead need no money.

It might sound odd in story form, but we can learn a lesson from Danny. His lifestyle focused on scrimping and saving, hoping for a distant time in “the future” where he could enjoy the fruits of his labors. That time never came for him.

This doesn’t mean that we shouldn’t save, invest or be relatively frugal. But it does show us the flaw of Defensive Personal Finances. So what should he have done? What can you do? Read below.

Offensive Personal Finance

There are two approaches to personal finance. You can focus on saving more than you spend or you can focus on making more than you spend. The difference is vital to understanding how to manage your money.

Defensive personality focuses on saving money. The emphasis is on holding back, and living in a poverty mindset. The emphasis is on not spending too much. Offensive person finance is different in the approach: rather than looking for ways to scrimp, offensive personal finance looks for ways to earn.

Offensive personal finance does take into account saving and investing, but that’s not where the emphasis lies. The emphasis is in making money. Remember the old quote: the poor work for their money; the rich make their money work for them. That could be modified to: the poor save their way to wealth; the rich build it.

Focusing on saving money is certainly a way to build wealth for the long term, but that’s just it; it’s a long term goal. The best approach to personal finance will have both short and long term impacts on your budget. Want to be successful? Don’t focus on skipping lattes; focus on building another stream of income. Find another way to make money. This doesn’t mean, of course, that you ever skip the life insurance basics (my friend’s website where you can learn the fundamentals — something I don’t have time for here), or you never focus on finding the best savings account or best money market rates — just focus on the short-term as well as the long term scenarios.

By actually making money you are focusing on the now as well as the future, without sacrificing either. Unfortunately, defensive personal finance seems to be reflecting the immortal words of Emerson: “We are always getting ready to live but never living.”

But of course, this all simply begs a question. How on earth are we to discover new ways to make money? Well, SmartMoney reports that building a business of some sort is the best way to generate wealth:

So how do you join the millionaires’ club? You could buy stocks or real estate, play the slots in Vegas — or take the most common path: running your own business. That’s how half of all millionaires made their money, according to the AmEx/Harrison survey. About a third had a professional practice or worked in the corporate world; only 3 percent inherited their wealth.

Building a business is just one way of thinking offensively. Have an obsession? Start a website about it, enjoy yourself and make money. Know a lot about math? Consider tutoring. Turn your skills and assets into another income source, build a business; just think offensively.

This doesn’t mean you should stop turning the lights off when you leave a room. It’s simply a question of perspective; sometimes one’s attitude is just as important as one’s circumstances.

Last Words

We’ll be discussing later why this simple perspective change is vital, and why positive/negative/realistic thinking is incredibly essential to success. Don’t worry, no “new age”, just realistic analysis of the successful and looking for attitudes that win. One last thing; I find the following quote by personal development coach Jim Rohn to be incredibly dead-on:

“Money is usually attracted, not pursued.”

I’ll be writing quite a bit about having an attitude that guarantees success; one that nearly every successful individual reveals. We’ll be talking about how anyone can get what they want in life, it just requires knowing what you want and knowing how to get there. Enter your email below and I’ll let you know when the guides are published.

Related posts:

1. 5 Reasons You Should Get Rich
2. Save Money or Make Money?
3. Rethinking College, a Series of Articles
4. Personal Development Articles
5. Don’t Go Into Debt for College
6. The Creator Personality
7. Most Don’t Need a College Degree