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Peosrnal finnace deos not riqueire perftceion

But it is important that you get the basics right.

By Karen Datko Nov 27, 2009 1:33PM

This post comes from partner blog The Dough Roller.

 

You’ve seen this e-mail:

Aoccdrnig to rscheearch at Cmabrigde Uinervtisy, it deosn't mttaer in waht oredr the ltteers in a wrod are, the olny iprmoetnt tihng is taht the frist and lsat ltteer be at the rghit pclae.The rset can be a total mses and you can sitll raed it wouthit any porbelm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the wrod as a wlohe.

Whlie it's not at all clear wheehtr a Cmabrigde Uinervtisy stduy rellay exsits, the concpet has treeemnduos aplpication to presoanl finncae and ivnsetnig.

Get the important things right. While we don't have to be perfect, we do need to get the important things right. Just like the first and last letters of a word need to be correct, there are some core personal-finance and investing concepts that we must get right:

  • Spend less than you make.
  • Begin saving and investing as soon as possible.
  • Never stop learning and improving.

We can get lots of things wrong and still succeed financially. Once we get the important things right, we can make a lot of mistakes without wrecking our finances. Here are a few examples:

  • Picking the wrong mutual funds. I've made plenty of investing mistakes over the last 20 years. At first, I invested in mutual funds with front-end loads and high expenses because I didn't know any better. Then I picked the wrong funds for a taxable account, and paid more in taxes as a result. I've learned from those mistakes, of course, but they didn't wreck our finances.
  • Paying too much for a house. As I look back at our first home purchased in 1993, I'm convinced we could have gotten a better deal. I just wasn't a great negotiator. That's lost money, but nothing we couldn't recover from.
  • Having less than perfect credit. We've written about what it takes to have a perfect credit score of 850. The truth is, however, that a score of about 760 or higher will get you the best interest rates on most loans. And even a score in the low 700s would be fine in most cases.
  • Carrying a credit card balance. We've not paid interest to a credit card company in years. But there was a time when we did carry a balance every so often. It's important to get out of credit card debt if you have any. But carrying a balance now and again is not the end of the world. Of course, it helps if you have a credit card with a low interest rate (see perfect credit above).
  • Splurging. While it is critical to sound money management that we spend less than we make, that doesn't mean we never splurge. We've bought some big-ticket items in the past. Did these purchases set us back? Yes. But they didn't bring financial ruin.

My list of financial mistakes could go on, but you get the idea.

 

Wehn it coems to mnoey, do not wrory abuot prefcetion. Get the improtnat thnigs rihgt, and wrok to imrpvoe the rset.

 

Related reading at The Dough Roller:

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