The Pros and Cons of Being Conservative with Money

Most financial books geared toward the needs of the general population are pretty conservative in their outlook. And they should be. Financial knowledge can be dangerous when you act on it without much experience. It’s the old “monkey with a handgun” scenario. Over-confident investors can lose all their money pretty quickly if they make aggressive actions that are not carefully considered. Conservative financial advisors want to save you this personal disaster. However, in order to go from good to great in the world of finance, you’ll have to take some big risk sooner or later. It’s how you learn. It’s how you grow. I’ll explain how taking calculated risks is necessary, and how you can start to plan yours.

1. The World Likes Slow Steady Money, But That’s Not How You Get Rich. New investors are advised to invest in mutual funds and ETFs, relatively low-risk investments that will nonetheless grow in value enough to support one in retirement, providing that monthly contributions are maintained throughout the life of the account. Conversely, there are lots of financial instruments that are designed to pay you slow and steadily, rather than giving you the responsibility of a lump sum. I’m talking here of structured settlements and annuities. These financial instruments are great, as long as you don’t mind getting paid a very little bit at a time. You’ll never have enough money to do any real harm, or any real good. If your hands are tied with a structured settlement, sell it and do something better with the money. I would recommend paying off a high interest loan, buying a house, or starting a business, but the choice is yours.
2. Being Slow and Steady With Money Forces You to Put Off Life. And, at the same time, it doesn’t. People think about retirement in terms of special things they will get to do during it: travel mostly. Travel is expensive, and is one of those things we love to do, but don’t have the time or money to do most of the time. Being conservative with money forces you to put off these big ticket leisure activities. But being frugal in this way can also teach you how to enjoy your life in little ways, cultivating interests and building friendships in a way that is personally fulfilling, as well as affordable.

There are a million other ways to be conservative or risky with your money. Your risk tolerance will determine how much wealth you are likely to accumulate. But there are also plenty of rewards to being frugal and conservative with your money. Figure out what your goals are early in life. Try to enjoy your life at whatever financial state you find yourself in. Then make sure that the way you are managing your money can sustain this lifestyle for the rest of your life. That’s pretty much the trick. If your risk tolerance (usually measured by how well you are sleeping at night) doesn’t match your goals, then maybe it’s time to reevaluate your goals. Other than that, it’s pretty simple to learn this stuff and make a plan that will give you the kind of life you want.