Good money management isn’t about making all the smartest moves. It’s about avoiding the dumb mistakes. You don’t need the perfect budgeting method, the highest interest rates on your savings, the best investing strategy, or a flawless system for managing your money. Those things certainly won’t hurt you, but they’re not essential for financial success either.

       Learning to avoid the major pitfalls in personal finance is all you really need to be moderately successful. Getting a hold on the basics of personal finance is enough to get you most of the way there. The advanced stuff only helps you improve your success once you’ve gone as far as the simple stuff can take you. Let’s talk about a few examples so you can see what I’m saying.

Spending

       Dumb Mistake: Spending more than you earn.

       The Basics: Don’t spend more than you earn!

       It’s so simple that it almost sounds stupid, but spending less than you earn (or earning more than you spend…) is by far the most important step in personal finance success. Without it, you’ll be floundering in debt and never getting ahead. But with it, you’ll be well on your way to controlling your money and putting it to work for you.

Savings

       Dumb Mistake: Having no savings at all.

       The Basics: Keep an appropriate amount in savings for emergencies.

       Without some savings in place, you’ll have to rely on credit or gifts to cover your emergencies. High interest rates can crush your financial progress if you don’t repay quickly. And relying on gifts isn’t likely to produce much success if people keep seeing you make poor financial choices – eventually their generosity will dry up. Having access to savings will help you weather hard times and give you the ability to seize good opportunities that come along.

Insurance

       Dumb Mistake: Ignoring insurance because you think you can’t afford it.

       The Basics: Make sure your major risks (life, disability, home, auto, health) are covered if they need to be.

       I’m not a big fan of insurance myself, so I can understand why people tend to ignore it and put it off. It can be confusing and it’s difficult to get objective advice from someone who’s not just out to sell you a policy so they can get a commission. But taking time to learn about insurance, figuring out how much you need (if any), and shopping around for policies will be well worth the reward. Insurance can help protect the financial progress you have made and ensure that setbacks won’t destroy your finances.

Retirement

       Dumb Mistake: Saving nothing for retirement and hoping it all just works out.

       The Basics: Take a little time to estimate how much income you’ll need for retirement, save the right amount every year, and invest in it in a low-cost, diversified portfolio of index funds with an appropriate asset allocation.

       Ignoring retirement because you’re not sure what to do isn’t going to help anything. Too many people wait until 10 years before they want to retire to start thinking about whether they have enough saved or not. That’s just about the dumbest thing you can do in retirement planning because there’s very little you can do at that point without some drastic changes to your life. But a little basic knowledge and small time commitment can help you come up with a plan to save a bit each year for retirement. Revisit that plan every few years and you can approach retirement with more confidence.

Stop Worrying and Get Started!

       The basics of personal finance will get you a long way in your journey but not if you don’t start implementing them now. Yes, there’s much more to discuss about personal finance than the few things I’ve laid out here. But these few examples show that just a little basic knowledge will get you most of the way there. You can worry about all the complicated stuff as you get farther along, but if you don’t start using the basics now you’ll never get to a point where the complex stuff even begins to matter.

       So stop worrying about whether you’ve got it all figured out yet. If you know the basics, start doing that stuff now. You can improve things as you go along to increase your chances of success, but neglecting the basics will ensure that you’ll never have to worry about all the advance moves you could make in the future. Master the basics and you’ll be fine!

photo credit: (Eric Wüstenhagen on Flickr)