Wednesday, April 09, 2008

Agility Versus Skill

In amateur sports, youthful agility can make up for lack of skill. For example, in tennis, a player that can get to most balls and return them will often be competitive with a player that has better skill. However, as players age or the playing level increases, better skill wins more, primarily because players tend to have less differences in agility.

The same is true for personal finance. In our youth, personal finance agility can compensate for lack of personal finance skills. Spend more that one makes? Get free money through account bonuses or free loans through 0% credit card transfers. Need more money to buy a house? Get an ARM (adjustable rate mortgage) and plan on a yearly raise to cover the adjustment or move before the adjustment occurs. Need more passive income? Keep moving money to the online bank with the best rates.

However, just like amateur sports, agility may not get one far enough in personal finance. At some point, skill becomes more important, especially as one becomes older. To note, I value agility. Agility works, initially. The first 0% card is easy to manage. However, five cards become harder. Add to that a home mortgage, HELOCs, and multiple bank accounts. And then kids:-) At this point, agility, by itself, may not be enough.

I have never been very agile in personal finance. So I had to depend on developing good skills. Here are some of the personal finance skills that I valued the most:
  • Spend less than one earns. Live below one's means. Buy only what one needs.

  • Save, invest and benefit from the magic of compounding.

  • Use debt sparingly and for items that may appreciate (e.g. home and education) and not for everyday expenses.

  • Go to college and major in a degree that leads to a profession.

  • Know when it sounds too good to be true, then it is.

  • To be financial successful long term, I believe one must develop skills at a minimum. The best, of course, is to have agility and skill.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

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