Sarah Fay, the author of the USA Today Bestseller Pathological and Substack Writers@Work, recently asked me what the difference between economics and finance is.
I said, “Economics is the study of choice; [personal] finance is the study of how we pay for those choices.”
But as an economist, since the two fields are so closely related, and since I run a household where big decisions have to be made, knowing about personal finance is necessary.
We’ve (my husband and I) also made all the mistakes: gotten into too much debt, bought the wrong kind of house, and failed to save. One mistake we didn’t make was holding off on buying a house in the first place.
Becoming homeowners was the single best decision we ever made. We built equity and never had to pay rent again. In our 60s now, we’ve owned our home outright for a decade.
But we didn’t buy in the best of times. It was 1983, and mortgage rates were nearly double what they are now. We chose a condo just outside the perimeter in Atlanta. Buying a condo turned out to be a bad idea, because we couldn’t sell it when we needed to move.
Why did we need to move? Because we started a family and needed more room. We had to move further out and buy a smaller home than we wanted because mortgage rates were still high (over 11 percent), but we needed three bedrooms.
But since then, we haven’t had to worry about rent hikes during inflationary times.
Getting an advanced degree while I had young children was never part of the plan, but doing so proved to be a lifesaver when our children went to college. We didn’t put money aside—we were on a pay-as-you-go plan. I learned that I had to teach summer school to pay for the fall semester because we racked up so much debt (to my own employers!) sending both children off when I didn’t.
Getting more education pays off in other ways too. And it doesn’t have to be a college education. Vocational training and apprenticeships in plumbing, electrical work, and carpentry are paying off better than ever. And that’s work that can never be offshored!
You can also save more for retirement. Doing so through a Roth IRA, traditional IRA, or a 401(k) is a good idea. Don’t worry if you get to it late, like we did. Just get there.
Those with more education and training have fewer unemployment spells and shorter ones. Although the current low-hire, low-fire labor market is straining those who work in the high-tech and non-profit sectors, when the labor market recovers, you’ll be better off.
One other lesson I learned: You can never prepare for everything. After celebrating 15 years at my university, I had to leave. I’d fallen down a flight of stairs and caused a lot of damage to my neck during the prior spring break. Leaving my career four years before I had planned led to lost earnings, lost 401(k) savings, and a lower Social Security payment.
Something else I learned is that you don’t need $15 million to retire. We didn’t. How much you need depends on how close you are to retirement, what your spending will look like after you retire, and how long you’ll live.
A close friend is retiring with about $1 million. Since she and her husband are very frugal and their house is paid off, they’ll be fine.
I also learned that staying married is a good financial move, especially for women. We lose so much more financially than men do. That said, however, divorce may be the only way.
While you’ll never have to worry about what “rebalancing your account” means, learning a little about personal finance—and learning what’s not true—will pay off in the long run.
About The Author
Nikki Finlay is an economics educator and author who helps people understand the economy in simple, real-world terms. She’s the author of The Economy Always Gets Better. Dr. Finlay can be found on:
Substack: Https://nikkifinlay.substack.com
LinkedIn: https://www.linkedin.com/in/nikki-finlay-586156269/
Book Links:
Amazon: https://bit.ly/TheEconomyGetsBetterAMZ
Bookshop: https://bit.ly/TheEconomyGetsBetter
Leave Comment