No doubt you heard of the Big Rocks metaphor in setting priorities, focusing attention, and managing one’s time. It says you should focus on things that make the biggest difference and not get distracted by small things. When you put big rocks, pebbles, and sand into a jar, you should put the big rocks in first, followed by pebbles, then sand. If you put sand and pebbles in first, your big rocks won’t fit.
In personal finance we face a lot of decisions. Some of them are big rocks; some are pebbles; some are just sand. If you ask people who don’t read a lot of financial media and blogs, it’s very obvious to them what is the biggest rock. People who pay a lot of attention to their finance, however, can easily get distracted by pebbles and sand and forget the biggest rock.
I do a number of things to manage my financial affairs. In doing so, I accumulated knowledge and experience, which I share here. Some of them, to be honest, are just sand. Not that sand is useless, it’s just you shouldn’t mistake sand for big rocks.
I list below in random order a number of things that contribute to one’s financial well being. You tell me which ones are big rocks and which ones are just sand:
- Contribute to retirement plan at work, ideally to the maximum allowed by law.
- Invest in index funds and/or ETFs.
- Pay your credit card balances in full every month.
- Know which credit card to get and which one to use where for maximum rewards.
- Use a high deductible health plan with HSA.
- Stay in your “starter” home forever.
- Find the best provider for investing your HSA money.
- Get the best rate for your mortgage.
- Understand I-Bonds and TIPS.
- Know which cell phone plan to use.
- Only buy term life insurance.
- Get a 15-year mortgage instead of a 30-year.
- Do home maintenance jobs yourself to save money.
- Know how to do tax loss harvesting.
- Contribute to a Traditional IRA or Roth IRA. Understand how to do a backdoor Roth.
- Come up with the best asset allocation for your investments.
- Stay away from financial sales people masquerading as advisors.
- Drive a 15-year-old car.
- Send your kids to public school.
- Understand tax efficiency and which investments to put in which accounts.
- Figure out which bank to use for a savings account.
- Pretend you want to cancel cable and ask for a lower price.
- Figure out the best way to get and use frequent flyer miles for international travel.
- Participate in ESPP.
- Pay cash when you buy a car.
- Decide on whether to use CDs or bond funds for fixed income.
- Find and use coupons when you buy groceries.
- Know when to claim Social Security.
- Figure out the best method to rebalance your portfolio.
- Find the best rate for auto and home insurance.
- Minimize eating out.
Over 30 action items and counting. Some of them may qualify as a big rock, but the biggest rock is not in the list. If you manage your biggest rock well you can do none of the above and still be more financially secure than someone who does all of the above.
What is the biggest rock? It should be super obvious when you take a step back. If not, allow me to offer this one hint for what I regard as the biggest rock:
Do you think Dave Ramsey’s financial success comes from paying off his debt and refusing to borrow? Do you think Tim Cook knows how to do a Roth conversion ladder?
Why then do we see a lot of sand in the financial media and blogs? Because sand is easy and filling — there’s a good reason McDonald’s gets more revenue than Whole Foods — and because there’s money in making you do those sand things.
“I switched to this cell phone plan and I saved $_______.”
“I’m getting ___% rewards from this credit card.”
“I refinanced my loan to _____%.”
“I cut my spending on eating out by $______ a month.”
These are all small victories worth doing but remember they are not the biggest rock. Your biggest rock is your human capital, your ability to add value and do things fewer others can. It’s backward to treat your biggest rock as a mere inconvenience, something that should be thrown away ASAP.
There are only very few big rocks. Next time we continue with sand. 🙂