Personal Finance 

Seven Wonders of the Personal Finance World

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When I was younger, I used to play Sid Meier’s Civilization all the time. One of the best parts of the game was trying to build one of the Seven Wonders of the Ancient World because it gave your civilization a distinct advantage in the world. My personal favorites were the Lighthouse (it gave your ships a farther range and they wouldn’t get lost) and the Hanging Gardens of Babylon (I believe each one of your cities now had a Granary), but fun part was being exposed to these wonder in the first place.

Since then, there have been more “Wonders of the World” like the Natural Wonders of the World, 7 Wonders of the Modern World, so why not create a Seven Wonders of the Personal Finance World? Hokey, I know, but it’s my opinion that, if you can, you should “visit” every single one of these wonders.

1. Roth IRA

Retirement Nest EggsAny list of the seven wonders that doesn’t start with an investment account that grows tax free and whose disbursements are tax free isn’t worth a darned thing. Another wrinkle that makes the Roth IRA is interesting, outside of the tax free elements (growth and disbursements), is that you are limited in how much you can contribute based on your income. While you’re young, it’s less likely that you’ll be restricted in your contributions and it’s more beneficial (because you’ll be taxed less now), so it creates a scarcity effect that almost spurs you to contribute while you still can. (Photo by scottwills)

2. 401K Employer Match

If you put $1 in this jar, I’ll put in 50 cents and you can keep it all. It’ll grow and grow as long as you pick the right jar and you can have it all in forty years, minus taxes. That’s sounds like magic right? Well, for some workers, it’s a reality and it’s called a 401(k) employer contribution match. At my former job, if you contributed 6% of your salary to your 401(k), the company would kick in 3% of your salary and that vested immediately. It’s like a 3% raise for something you should be doing anyway.

3. Pensions (and Social Security)

Faded Social SecurityI lump these in together because they exist and will likely stop existing in the near future so get your looks in now. In both cases, you’re contributing (with a pension, you’re contributing by virtue of having a slightly lower salary than if there was no pension; with social security, it’s deducted straight out of your pay) to a pot that is supposed to grow over time, without you having to deal with it. The problem with pensions is that it requires your company to remain in business, not a guarantee. The problem with Social Security is that it requires the government not to pilfer the lockbox, which it already has. In both cases, they look like great plans because you don’t really contribute and you get a benefit in retirement, which make them wonders, but they’re also both probably on their way out, which makes them ancient wonders. (Photo by Barack Obama, yeah really!)

4. ETFs

These babies have the flexibility of a stock with the diversification of a mutual fund. Before ETFs, you traded mutual funds on their net asset value calculated at the end of each day. Now, with ETFs, you can do everything with it than you can with any stock, such as short it, and you can do it all day as its price is determined much like a stock is. Want to invest in diamonds? Find a Diamond ETF. Want to track the S&P? There are a ton of S&P ETFs. I’m sure if enough people wanted a Personal Finance Blog ETF, someone would sell those too.

5. Credit Cards

Like many things in life, credit cards are a double edged sword. It’s easy unsecured credit that can get you out of a jam or just give you some extra time to float a purchase. It’s easy, unsecured credit that can get you into a jam if you lose control, overspend, and find yourself unable to pay the bill after the grace period. To say that it’s not a wonder would be wrong, but to say that it’s a wonder with just an upside would be wrong as well. With one plastic card, you can bring to bear the power of thousands of dollars of purchasing; it’s enough to carry you through the difficult times and it’s enough to sink you through the prosperous times. With great power comes great responsibility. 🙂 (Photo by Martin Q)

6. Insurance

Automobile, homeowners, renters, term life, medical, dental, disability, … etc etc etc. If something bad can happen to you, someone is willing to sell you insurance against it. If you’re willing to pay enough, you can insure parts of your body! However, the fact that this exists is a wonder because there is absolutely no reason why someone has to sell you protection against an unknown future. The reason they do is because they can make money, but that doesn’t necessarily mean that they’re making money off you or that you shouldn’t get insurance because you’re “losing.” Insurance buys you peace of mind, sometimes at a premium, but the fact that you can even buy peace of mind is a wonder in and of itself. Look at your situation, look at the various coverages, do you have enough insurance?

7. Personal Finance Blogs

That’s right, I’m calling personal finance blogs a Wonder of the Personal Finance World and you all probably think I’m having a swell time patting myself and my “colleagues” on the back right? There are excellent reasons why personal finance deserve to be mentioned:

Personal finance blogs are open, honest, and they’re not written by Suze Orman, Robert Kiyosaki, or other “experts,” they’re written by regular people for regular people who are dealing with regular problems. That’s why it’s a Wonder. (Photo by nina_pope)

There you have it, the seven Wonders of the Personal Finance World; what do you think?

(Photo: Retirement eggs by scottwills, Social security by fabricatorofuselessarticles)

{ 7 comments, please add your thoughts now! }

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7 Responses to “Seven Wonders of the Personal Finance World”

  1. Money Socket says:

    Its hard to believe I know of many people who do not take advantage of an employer match or tax free growth in an IRA. Just the other day my girlfriend, who just became eligible, signed up for her company 401k. She was talking to a colleague who has been working there for 3 years and is a lot older than her. He was telling her how he thinks it’s not that great of an idea and how you tie up money and can’t take it out until your old. The craziest thing he said, and I quote, was “is it really a good thing?” Goodness! its free money!!

    I also like credit cards and wrote about them recently as well. They offer such great flexibility if you use them right. With the 0% offers, it sweetens up the deal that much more. Also, I do agree with you that personal finance blogs are a wonder. Just a few years ago we had nothing like this. If you wanted to write about something you’re passionate about, you can’t show the world unless you get published by some major magazine or you know someone important. I think blogs in general are changing the way our media works, and its great that any one with a computer and a few bucks for hosting can put their ideas on the internet and even make a few bucks for their time as a side income.

    Great post, thanks.

  2. Flexo says:

    Nice metaphor! (Personally, I might have chosen index mutual funds rather than ETFs for their dollar-cost average advantage, but six of one, etc.)

  3. One point I most definitely agree with is Roth IRA being at #1, it’s just such a great saving/investment tool that many people still don’t quite understand. I also agree with Flexo about ETFs. While the overall concept of ETFs is really good and there are excellent funds, I am concerned about the explosive growth of “exotic” ETFs and the fact that they’re becoming more popular than they really should be.

  4. Evan says:

    1) CIV is one of the best games ever created…
    2) Compounding should be #1, since most of the list depends on it

  5. editorialstaff net notes that, like land line phones, and buggy whips, mutual funds are finished, dead. It will take a while for the ETF miracle to eliminate the mutual fund companies, as they thrive off those who cannot, or will not manage their own wealth. After all, even the criminals who sell high load funds to widows and orphans, and pocket most of their victims earnings, decade after decade, still have millions of victims. Their victims have no paid representatives, eager to end the pilfering. The congress won’t help them, and until we include personal investing in high school business courses, a large population of victims will still be out there. The recent admission by a major wealth manager that all mutual funds ravage their investors, coupled with advice to sell them, and invest in ETFs, indexes et al, is, like 5000 lawyers chained together, in the bottom of the Marianas Trench, too little, too late, but, by far, one of the best ideas available. An immediate subsidy for LED home lighting, to put our terror financier petroleum vendors into penury, is the next best idea, although the 34 curly bulbs in our home is an example of one thing we can do to stop funding terror, in the interim.

  6. Harrison says:

    I agree with the wonder #7 – “Personal Finance Blog”

    With a blog, everybody can be an expert in personal finance and the funny thing is there are somebody going to read the blog of ordinary people again and again. I think this is a big revolution on the world of personal finance.

  7. Tricia says:

    Thank you for the mention 🙂

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