One of the best books I’ve read for professional reasons this year is Tim Maurer’s Simple Money: A No-Nonsense Guide to Personal Finance. Tim is a speaker, blogger, author and financial adviser, and is the Director of Personal Finance at the BAM Alliance — a collective of more than 140 advisory firms across the United States. He kindly agreed to give TEBI this interview, which I hope you’ll enjoy and share.
There are so many books about personal finance, and many of them say the same sorts of things. What’s different about this one? And what were you trying to achieve with it?
You’re right, there are many investing books — too many! There are also a growing number of books discussing behavioural science and economics. But I couldn’t find any books that synthesised the wisdom of behavioural economics throughout a comprehensive scope of personal finance. So I almost felt a duty to write the book, because the evidence points to recommendations that often run counter to the “conventional wisdom” of personal finance.
You say in the book that personal finance is more personal than it is finance. For those who haven’t read it, what do you mean by that?
Personal finance is often limited to dollar- or pound-denominated demands, without paying attention to the behavioural factors that impact our financial decisions. In the parlance of behavioural economics, it’s System 1 (the emotional processor in our brains) that’s responsible for more than 80% of our financial decisions, not System 2 (the rational processor). Therefore, we can’t rely solely on rationale to properly motivate us to positive financial outcomes; nor can we expect to set our emotions to the side. We must recognise — and even incorporate — our emotions into our decisions.
Why is personal budgeting so important? And how should you start going about it?
It’s important primarily because it forces us to be cognisant of what’s going on in our finances. Some of us are natural spenders while others are natural savers, but all of us are prone to self-deception. Budgeting, therefore, becomes a discipline that keeps us in touch with our money and helps ensure that our bent toward self-deception doesn’t become self-destructive!
You suggest in the book that people should think less about saving for retirement, and more about planning for financial independence. Why’s that?
It’s because I believe that the whole notion of a “traditional retirement” is closer to myth than reality, especially for younger generations. The two-act play of 1) work yourself into the ground, and then 2) kick your feet up in the sand for the rest of your days, isn’t particularly healthy, physically or fiscally. But financial independence — working because you want to, not because you have to — is a worthy goal, and one that can also be enjoyed (in part) well before “retirement”.
You work for a firm called Buckingham Asset Management. What sort of funds does BAM use and why?
Buckingham is a firm dedicated to the academic, evidence-based approach to investing, so the funds we use tend to be lower-cost funds designed to capture a diversified spectrum of a particular asset class. While not purely “passive index funds,” they are certainly not “active”.
Your book is pretty comprehensive. Are you suggesting that people who read it can manage their personal finances and investing on their own? Or are they better off using an adviser?
Well, for someone who is a DIYer, I think there is much to be gained from the book. If you read through it and complete all the exercises, you’ll have put yourself through a fairly in-depth financial planning process. However, because I believe personal finance is more personal than it is finance, I also believe that a great adviser offers much in the area of behaviour management (at the very least). That’s why, even as an adviser myself, I have my own adviser!