We all have hobbies that are self-taught. Maybe for you it is cooking, or gardening, or carpentry. They are the skills we picked up by following our passions, maybe with some mentorship but rarely with formal education. For me, guitar and golf are my self-taught hobbies; Learned the hard way since my teenage years.
Most of these self-taught skills have no real consequences if we don’t excel at them. If the tomato plants do not yield fruit? The family will still eat. If I hit another golf shot into the woods? Take a mulligan and swing again.
There is another skill that is self-taught for many of us, but the consequences can be much steeper: Managing our personal finances. The basics of finance are often left out of our educational curriculum so most of us end up learning in real life. Managing budgets, debt and the basics of investing are left for us to figure out as we go.
In my early career, managing my financial affairs came with its share of mistakes and lost opportunities, which is one of the reasons why I decided to become a financial planner. I had a bad experience with an advisor who placed product ahead of planning and I was left to make some major decisions about saving and investing on my own.
There is nothing wrong with being self-taught. In fact, some masters of their craft have learned outside of formal training. Thomas Edison and Eddie Van Halen come to mind. There are some unique elements of self-teaching about money and some unique risks, too. If you feel as though you learned personal finance on the fly, here are some things to be aware of:
- Your past matters: How you were raised and your early relationship with money will have a major influence on how you save and spend. Growing up in a household where money created stress will often manifest in adult decisions that are not always rational. If money was not discussed growing up, then it may be a rude awakening to find out the cost, let alone the value of the things we need to pay for. It is helpful to recognize how your past influences decisions, if only to create systems that support your unique relationship with money.
- Who is around you: When you are self-taught there is not a teacher standing in front of the classroom as a beacon of wisdom. Instead there are your golfing buddies, or the other people in the band, who influence what you learn and how. I wanted to be the next guitar player for Aerosmith, but instead I learned dozens of songs in the Grateful Dead catalogue. Why? That’s what my band played. I learned a great deal, but it was also very concentrated, niche knowledge. We can be susceptible to the financial influence of neighbors, friends, and family. “Keeping up with the Joneses” is such a persistent cliché because we see the way people behave around us and assume that is what we are supposed to do as well.
There are risks to being self-taught that are especially true in the case of personal finance:
- Habits develop un-checked. A hack golfer like myself knows that the ball is always going to slice to the left when I hit my driver. The tools to fix that are not really in my kit bag, so instead I compensate by aiming a little further to the right every time. Rather than fix the bad habit we will do extreme things to compensate for not knowing what else to do. As advisors, we see habits like spending turn into a carousel that is difficult to stop. Expenses creep up as lifestyle changes and as income increases. Talking about spending is what makes visits to the financial advisor’s office seem like a combination between a dental appointment and marriage therapy. No fun. Rather than scold about spending, a conversation within the family or with an advisor should be about understanding expenses. Knowing how to stop or slow down the carousel if needed can be an empowering feeling, but it takes that first step of assessing the way habits have grown over time.
- Gaps can exist without our knowledge: We all have our unique areas of interest in our personal finances. Some people like watching the budget month-to-month while others check their investments daily. The person who is immersed in CNBC every day might fancy themselves knowledgeable on what the stock market is doing, but have little interest in the bond market. These gaps in interest and knowledge can lead us to focus on what we have taught ourselves at the expense of equally important subjects. We have seen investors try to compensate for low interest income by taking on more stock risk or, they do the opposite, and try and make up for a lack of growth by reaching for more income. The common factor is that they lean toward the aspects of finance with which they are most familiar, ignoring options that might require education or understanding beyond their experience.
In our self-taught personal financial world, we all have blind spots. Unlike learning to cook or duffing around on a golf course there are real consequences created by habits and gaps. That means we have to ask one very important question: Who sees the full picture?
The answer, rarely, is “I do.” More often, and more effectively, the answer should be “We do.” You may have a division of labor within the household of who handles different aspects of your financial picture. Be sure that you have a means of communicating with each other so that your knowledge is complementary. If you are unsure, then this is where a Certified Financial Planner™ can be a vital resource to look at all aspects of wealth.
As you continue your path of lifelong learning, bear in mind how being self-taught can have its limitations when the consequences are real.