How to Manage Your Money So You Don't Go Broke

Ben Stein is a respected economist known to many as a movie and television personality, but he has worked in personal and corporate finance more than anywhere else. He has written about finance for Barron’s, the Wall Street Journal, the New York Times, and Fortune, was one of the chief busters of the junk-bond frauds of the 1980s, has been a longtime critic of corporate executives’ self-dealing, and has co-written numerous finance books. Stein travels the country speaking about finance in both serious and humorous ways, and is a regular contributor to CBS‘s Sunday Morning, CNN, and Fox News. He was the winner of the 2009 Malcolm Forbes Award for Excellence in Financial Journalism. His latest book is called How To Really Ruin Your Financial Life and Portfolio.

In this interview, Stein talks about how he originally got into personal finance, why people are confused about it, why their should be a class on it and how to avoid money mistakes.

How did you originally become a personal finance expert and media personality and why do you continue to be in that field?

Well I don’t really consider myself to be a personal finance expert compared with some others. There are quite a few that know a lot more than I do. By the process of thinking about what’s good for me and my family, I learned something about it and I’ve been interested in that for a long time. My father was very good at personal finance and he would tell me about it and I came somewhat of an expert. I want to emphasize that there are many that know more about it than I do.

As to a media personality, well that just happened in large measure because people found me amusing and I did lots and lots of T.V. news interview shows. People thought I was a funny guy so they kept inviting me back to be on more and more shows and then I got my own show and then I had another show I was on. Even before that I had that astonishing part in Ferris Bueller’s Day Off and it all just sort of happened by accident but it happened not entirely by accident because I was in Hollywood and had I not been in Hollywood it would not have happened. As I always like to say, you can’t win if you’re not at the table. You can’t win at blackjack or poker unless you’re in Las Vegas or someplace where there’s a casino. You can’t win as a media personality unless you’re in a town where there’s a lot of media which would be generally Hollywood, L.A., New York and Washington D.C. I just happened to be at the table and that worked out very, very well.

Why are so many people confused about how to manage their personal finances and why doesn’t our education system teach us more about money?

That second question is a particularly good question. The education system should teach us about money; it’s an incredibly big subject. I run into people all the time that don’t have the first clue of what they should do about money. I know there’s classes at the high school near us where we live in North Idaho during summer that do teach about personal finance and they seem to do a useful job. In general, people just get the idea that they should buy whatever they feel like they want to buy, spend whatever they feel like they want to spend. There doesn’t need to be any kind of long-term planning because any kind of planning to match outset your liabilities and that is a very bad thing. That definitely should be taught in school. I only recommend two classes that should be taught in school for sure, personal finance and how to get along with your wife and neither of those is taught.

What are the most common ways people lose money?

The most common way would be spending what you earn and going into debt and then getting into debt to the point that you can’t recover. Most people do not go broke because they speculate too much in stocks; people who speculate a great deal in stocks can, although there are the exceptions, to have some knowledge of stocks and therefore don’t go broke by getting into stocks. They can also go broke, and have in recent years, by buying more house than they can afford and counting on the house itself to generate appreciation that will pay for the house; that doesn’t work as we now know.

I’d say the main way people get into terrible financial trouble is just to spend too much money relative to their income and that is an endemic problem in the United States of America and that’s the kind of thing that should be taught about in schools. There’s no reason there should not be a class. I’m thinking I should write a textbook about that. It’s an awfully good idea actually. I think I should get in talks with those that know even more than I do about planning; it’s a darn good idea.

Out of the 49 ways in which investors ruin their portfolios, as cited in your book, which one is the most significant?

To ruin your portfolio is to not plan; to not take advantage of all the historical data that tells you you’ll be better off buying index funds than picking stocks. If you really sincerely, think you can pick stocks and outperform the market, you’re in a world of hurt. If you just buy indexes and let the indexes sort of carry you along a gentle flow, you’ll do much, much better. That’s the best way to ruin your portfolio. The best way to ruin your career is to not learn any useful skills and that unfortunately is a real serious problem that a great, great many Americans have.

What are your top three pieces of financial advice to young people?

1. Start saving regularly at a very young age. Start summer jobs or part-time jobs, save as much as you possibly can.

2. When you do save, save in a safe way which I would say by buying index funds and buying funds that do not rely on stock picking.

3. Make a very careful plan for how you’re going to eventually retire even if it seems like it’s an unimaginably long way away, it comes up upon you very, very quickly.

Bein 

Ben Stein is a respected economist known to many as a movie and television personality, but he has worked in personal and corporate finance more than anywhere else. He has written about finance for Barron’s, the Wall Street Journal, the New York Times, and Fortune, was one of the chief busters of the junk-bond frauds of the 1980s, has been a longtime critic of corporate executives’ self-dealing, and has co-written numerous finance books. Stein travels the country speaking about finance in both serious and humorous ways, and is a regular contributor to CBS‘s Sunday Morning, CNN, and Fox News. He was the winner of the 2009 Malcolm Forbes Award for Excellence in Financial Journalism. His latest book is called How To Really Ruin Your Financial Life and Portfolio.

In this interview, Stein talks about how he originally got into personal finance, why people are confused about it, why their should be a class on it and how to avoid money mistakes.

How did you originally become a personal finance expert and media personality and why do you continue to be in that field?

Well I don’t really consider myself to be a personal finance expert compared with some others. There are quite a few that know a lot more than I do. By the process of thinking about what’s good for me and my family, I learned something about it and I’ve been interested in that for a long time. My father was very good at personal finance and he would tell me about it and I came somewhat of an expert. I want to emphasize that there are many that know more about it than I do.

As to a media personality, well that just happened in large measure because people found me amusing and I did lots and lots of T.V. news interview shows. People thought I was a funny guy so they kept inviting me back to be on more and more shows and then I got my own show and then I had another show I was on. Even before that I had that astonishing part in Ferris Bueller’s Day Off and it all just sort of happened by accident but it happened not entirely by accident because I was in Hollywood and had I not been in Hollywood it would not have happened. As I always like to say, you can’t win if you’re not at the table. You can’t win at blackjack or poker unless you’re in Las Vegas or someplace where there’s a casino. You can’t win as a media personality unless you’re in a town where there’s a lot of media which would be generally Hollywood, L.A., New York and Washington D.C. I just happened to be at the table and that worked out very, very well.

Why are so many people confused about how to manage their personal finances and why doesn’t our education system teach us more about money?

That second question is a particularly good question. The education system should teach us about money; it’s an incredibly big subject. I run into people all the time that don’t have the first clue of what they should do about money. I know there’s classes at the high school near us where we live in North Idaho during summer that do teach about personal finance and they seem to do a useful job. In general, people just get the idea that they should buy whatever they feel like they want to buy, spend whatever they feel like they want to spend. There doesn’t need to be any kind of long-term planning because any kind of planning to match outset your liabilities and that is a very bad thing. That definitely should be taught in school. I only recommend two classes that should be taught in school for sure, personal finance and how to get along with your wife and neither of those is taught.

What are the most common ways people lose money?

The most common way would be spending what you earn and going into debt and then getting into debt to the point that you can’t recover. Most people do not go broke because they speculate too much in stocks; people who speculate a great deal in stocks can, although there are the exceptions, to have some knowledge of stocks and therefore don’t go broke by getting into stocks. They can also go broke, and have in recent years, by buying more house than they can afford and counting on the house itself to generate appreciation that will pay for the house; that doesn’t work as we now know.

I’d say the main way people get into terrible financial trouble is just to spend too much money relative to their income and that is an endemic problem in the United States of America and that’s the kind of thing that should be taught about in schools. There’s no reason there should not be a class. I’m thinking I should write a textbook about that. It’s an awfully good idea actually. I think I should get in talks with those that know even more than I do about planning; it’s a darn good idea.

Out of the 49 ways in which investors ruin their portfolios, as cited in your book, which one is the most significant?

To ruin your portfolio is to not plan; to not take advantage of all the historical data that tells you you’ll be better off buying index funds than picking stocks. If you really sincerely, think you can pick stocks and outperform the market, you’re in a world of hurt. If you just buy indexes and let the indexes sort of carry you along a gentle flow, you’ll do much, much better. That’s the best way to ruin your portfolio. The best way to ruin your career is to not learn any useful skills and that unfortunately is a real serious problem that a great, great many Americans have.

What are your top three pieces of financial advice to young people?

1. Start saving regularly at a very young age. Start summer jobs or part-time jobs, save as much as you possibly can.

2. When you do save, save in a safe way which I would say by buying index funds and buying funds that do not rely on stock picking.

3. Make a very careful plan for how you’re going to eventually retire even if it seems like it’s an unimaginably long way away, it comes up upon you very, very quickly. 

Great interview from Dan Schawbel. Hope you found this piece of sound information good to the extent that it has changed the way you handle money.

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