Personal Finance Advice from Award Winning Author Jesse Cramer

Jesse Cramer is the creator of The Best Interest, recently nominated as 2022 Personal Finance Blog of the Year. Jesse lives in Rochester, NY, with his wife and dog, and after 7 years in aerospace engineering, now works full-time at a fiduciary wealth management firm. Jesse spends a lot of time focusing on the psychology of personal finance, including the habits that cause (or cure!) falling into debt.

1. You went from being a rocket scientist to educating people on their finances. Why and how?

Ha! I love the question. Yes, my background is aerospace engineering - specifically on satellite telescopes (think the James Webb Space Telescope). Like many young professionals, I had no idea what to do with my money in my first few years out of college. So I did a lot of self-study, read a ton of books, and eventually started helping other young coworkers with their basic finances. They encouraged me to start sharing online - and I loved it! My blog is now 4 years old, my podcast is 2 years old, and I get so much joy out of helping and teaching my followers.

2. What is the biggest psychological crux holding people back when it comes to achieving their financial goals?

I'm a big fan of Brad Klontz's work (he's a Psy. D and a Certified Financial Planner). To answer the question, first let me invoke Klontz's work to give the wrong answer. Despite what many people assume, Klontz asserts that financial failure is not a function of being lazy, irresponsible, unintelligent, etc.

Instead, our psycho/financial shortcomings are similar to other psychological problems in our lives: a subconscious response typically stemming from years of memories, learned behaviors, and habits.

If you want an answer to, "Why do I always spend $200 too much at Target?!" - kudos to you! That's an awesome question worth answering.

The answer lies somewhere in your past. There are real reasons from your past that explain your relationship with money. The challenging part is the self-discovery to understand those reasons and then re-write your money script.

3. Pay off debt or invest?

I'd want to know more about the person asking the question...but without that info, the answer is: it's a function of interest rates.

Personal finance is a wonderful mix of math and psychology. Personal psychology matters here. But without knowing your psychology, let's focus on the math.

Paying off a 10% debt is mathematically better than investing in a bond yielding 4%. Then again, investing in that same 4% bond is mathematically better than paying down a 2.5% mortgage. It's all about rates.

4. Do you think social media played a role in people spending more than they can afford? If yes, how?

Absolutely. Social media is designed to attract eyeballs, addict its users, and then serve them advertisements. That's the business model. And what's the goal of advertisements? To sell stuff! While some individuals might have "advertisement immunity," I have no doubt that social media leads to overspending.  

5. What are some common psychological traits you see from the most financially healthy people?

Discipline - for example, the ability to set a budget and stick to it.

Positive habits, often aided by automation (e.g. automatic investment contributions)

Delayed Gratification - as Warren Buffett famously quipped, "nobody wants to get rich slowly." The ability to think in decades (not in days) is a financial megapower. Don't rush for short-term gratification.

Planning - the ability to conceptualize the future, and plan for it

I have a confession here, and it's really interesting.

I have strong psychological traits for money, but those same traits are weak when it comes to food. I need to work on understanding why I'm "good" with money but "bad" with food, even though the same traits - discipline, good habits, delayed gratification, etc - should apply to both.

Interesting, right?! I have a feeling it had something. todo with my answer to Question #2.

6. On the flip side, what are some common psychological traits you see from those who are struggling financially?

Self-criticism - it's all-too-human to think, "I spent $75 on those jeans I didn't need!? I'm a failure..."

But room for forgiveness is an important part of breaking old habits and forming new ones.

Seeking short-term gratification - it's the opposite of the healthy habit seen above. A lot of personal finance is, "I'm making a small sacrifice today for a big reward in the future." The first key, obviously, is making that small sacrifice today.

Analysis paralysis - personal finance is full of choices. Many people get bogged down by all the different options and end up choosing to do nothing. This is called analysis paralysis. It's very common.

Behavioral biases - Almost all humans suffer from different types of behavioral biases that give us false impressions of reality. One common example is confirmation bias, which is the "tendency to interpret new evidence as confirmation of one's existing beliefs." We believe stuff that supports our opinions and ignore stuff that doesn't. But that's not rational, nor helpful in improving our personal finance. Here's an excellent list of other biases.

7. Best piece of advice?

Especially after the challenging 2022 investing year, I'm reminding those I work with to recall Jack Bogle's immortal words: "stay the course."

As discussed above, long-term investing is all about delayed gratification. Think in decades, not months or years.

We should understand the challenging markets of 2022, but should not make drastic investment decisions in response to those challenges. Instead, our first instinct should be to stay the course.

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