I was inspired by an exceptional speech I heard the other day. This speech was given in 2014, so I’m a little late to the party. As I was watching it, I asked my wife if she was listening to any of it. She said she saw it when it first came out. Better late than never I guess.
The speech was given by Admiral William H McRaven at the University of Texas at Austin 2014 commencement address. One of the things he spoke about was making your bed every morning. His lesson was that if you make your bed first thing in the morning “you will have accomplished the first task of the day.”
To paraphrase, he goes on that this first accomplishment of the day will encourage you to complete additional tasks throughout the day. By the end of the day, you will have completed many tasks. You have to do the little things right to get the big things right he says.
As I was watching, I couldn’t help but think how true this is in personal finance. Now and then I hear people talk about only having to get the big things right with their money and spending, and that the small things don’t matter. To me, that kind of talk is all theory.
Yes, in theory, you do only need to get the big things right. If someone optimizes their spending on housing, transportation, and medical, that puts them way ahead of the game. On an average salary, that person can easily afford to go out for coffee and lunch every day of the week, and even purchase unnecessary items online.
However, I question how realistic that scenario is. Will someone who has difficulty managing their finances at the most basic level be able to manage their finances at a high level? There may be the outlier who can do that, but in general, no. Here are a few analogies.
For a professional basketball player to become a star, he really only needs to play great in the games, and help his team win games. But does a basketball star become great out of thin air? Of course not! There are countless hours of practice, film study, weight lifting, cardio, and extra shoot arounds. For a basketball player to become great, they have to do the daily little things.
In theory, a real estate investor only needs to pick the right properties to be great. How does she become great at picking the right properties though? She does extensive research on up and coming areas of town, makes phone calls, networks with other investors, finds contractors and property managers, analyzes properties, and many other things. She can’t just successfully pick properties out of thin air.
Even a child learning to ride a bike doesn’t all of a sudden pick up a bike and start riding it. That child first needs to learn how to crawl, walk, and run before riding a bike. You can’t just plop a kid on a bike and expect them to ride it if they haven’t learned how to walk and crawl yet.
It’s the same thing with personal finance—it’s more than just getting the big things right. You have to start with the small things. If someone doesn’t learn to manage $5, they’re not going to be able to manage $5 million, or even $5,000. How many stories have you read about lottery winners going broke a couple years after winning the lottery?
The lottery winners you read about going bankrupt never learned the little things.
Doing the little things gives you a foundation to build on. Learn how to manage a few dollars, then move on to more money. After that it will be much easier to get to the big ticket items like housing and health care. Try to jump straight to the big things without putting in the work with the little things, and it’s going to be a struggle.
