Doctrine, Dogma, and Personal Finance

Today’s post is inspired by my military career, a recent post on a Dave Ramsey page, and the latest ChooseFI podcast. All are sources for great personal finance inspiration as well as some occasional frustration.

Months ago, back when this blog was still brand new (instead of just pretty new as it is today), I wrote a post titled The Key To Personal Finance. In that post, I shared my cardinal rule for personal finance:

THIS IS THE OVERRIDING PRINCIPLE IN PERSONAL FINANCE

Everything else is negotiable. There are some things that are more true than others. Processes that you probably really need to give some thought to following, for instance. Others are true for some people but not others. And many ideas in personal finance are great in specific situations, but not great 100% of the time…and yet they are presented as if they are gospel truth.

Today I want to review the concepts of doctrine and dogma and what they have to do with your money. Because while in theory everybody I’ve seen basically agrees with the Personal Finance Is Personal principle, in practice people might not exhibit a real good understanding of what it means.

The Doctrinal Definition Of Doctrine

In the military, we use doctrine to guide our thinking. Doctrine can be defined a number of ways.

Rand:

Military doctrine is the fundamental set of principles that guides military forces as they pursue national security objectives.”

A 1948 Air University (go USAF) study defined doctrine as:

those concepts, principles, policies, tactics, techniques, practices, and procedures which are essential to efficiency in organizing, training, equipping, and employing its tactical and service units.”

And my favorite, the DOD doctrinal definition of doctrine. I was hoping the DOD Dictionary would have just a plain “doctrine” entry, but sadly I have to settle for “joint doctrine.” Still, how very US military it is of us to define doctrine in the doctrine.

Fundamental principles that guide the employment of United States military forces in coordinated action toward a common objective and may include terms, tactics, techniques, and procedures.”

(yes, there are non-military definitions of doctrine. If you are confused about why I default to military definitions, uh…look at the name of the blog)

What do all of these definitions have in common? Principles…tactics, techniques, and procedures…guiding.

Yet not one of them says “the absolute set of rules that must be followed”

They are principles that guide our operations. Think of them as best practices. The way doctrine is developed over time is that when we complete a mission, we review it and see what lessons we can learn. As we discover what does and doesn’t work, we develop those things into tactics, techniques, and procedures that eventually become the doctrinal way of doing things.

But if for some reason the doctrinal way isn’t right for a specific situation, we adapt. Doctrine is not regulation. It is not law. Doctrine is not meant to be set in stone and never challenged. In fact, it is often challenged and updated as needed.

There are plenty of people in the military who treat doctrine as law, and freak out if you dare suggest doing something differently. These people are wrong. Doctrine is a set of best practices but it allows for modification depending on the circumstances.

Every hill should not be attacked the same way. Every bomb should not be dropped from the same altitude, right? That’s what doctrine helps us learn. It says “Here are some things that have worked in the past when completing a similar task.”

Doctrine, when used correctly, can help you figure out the best way to do things in the particular situation you are in.

And Then There Is Dogma

Dogma is different. Dogma is “a principle or set of principles that is laid down by an authoritative figure as incontrovertibly true.”

When was the last time you heard something that was incontrovertibly true, no matter the circumstances? Other than physical laws like “gravity is a thing that exists,” probably not a lot.

Unfortunately, a lot of people treat personal finance doctrine as dogma. The thought process is “this thing worked for me in this particular circumstance; now I shall tell everybody that it works always for everyone.” That is a problem, because personal finance is personal.

And that mentality has led me here today. So today I wanted to share with you two recent examples of people mistaking best practices for rules, why that is a problem, and what to do about it.

Dave Ramsey’s Recommended Thrift Savings Plan Allocation

Ah, Dave Ramsey. Has there ever been a figure in personal finance more controversial, who makes you simultaneously want to hug him and yell at him?

Dave Ramsey is fantastic for people who need to change their mindset about debt. Seriously. He’s the tops. But his investment advice….grrrrr.

One of the things that drives me crazy about Dave…and about his dogmatic followers…is that he tells people there are very specific investments that everybody should make. Everybody!

I ran into this recently. I was on a Dave Ramsey forum and somebody asked about the Thrift Savings Plan (TSP, the federal government 401k). She didn’t understand what it was. The very first response to somebody asking what the TSP was was an asset allocation recommendation. Not an answer or a link to the TSP website. No questions about what her goals were. No questions about risk tolerance, or age, or anything. Just a “here is what Dave says you should invest in.”

That’s dogma, folks. That is a scary amount of blind faith and universal application of what should be a situation-specific recommendation.

I don’t even think Dave’s recommendations are all that bad…for me. But what works for me and my situation should not be recommended to everybody!

Not A Dave Ramsey Acolyte? Don’t Start Feeling Smug Just Yet

The Financial Independence (FI) community has a similar answer when someone asks about investments – VTSAX. I don’t go a week without seeing someone say “hey I have money to invest, what should I do?” and 37 people chiming in with “VTSAX.” Ask if there is a single fund people should put their entire portfolio into, and the answer is VTSAX. Ask what the best index fund of all time on the entire planet is, and the answer is VTSAX. You get the point.

VTSAX is a fine passively managed index fund. It’s diverse, has low fees, is managed by a well-respected company, etc. It’s a great stock index fund! But it is not appropriate for all people in all situations. Here are some of the things that make VTSAX a not-perfect investment:

• VTSAX is a stock market investment. That’s great if you are investing over the course of several-to-many years and don’t need the money for anything else. It’s not so good if you are operating on a short time horizon or need the money for a specific purpose.
• VTSAX is all stocks. As I discussed in this post,  most people shouldn’t go 100% stocks…if they even realize that’s what they’d be doing. Most people like to hedge their bets because their risk tolerance isn’t that high. And – this is important – most people don’t need to expose themselves to that much risk to meet their objectives.
• VTSAX is passively managed. I’m a fan of passively managed funds and I often recommend people consider them. That doesn’t make them 100% right for 100% of people 100% of the time. If they were, actively managed funds wouldn’t exist.
• VTSAX is all domestic stock. This is by no means my largest concern, but it shouldn’t be ignored either. Having international stock in your portfolio is another way to manage the risk of investing.

Et cetera and so on.

Recommending a specific TSP allocation or a specific index fund without accounting for an individual’s needs because you think it’s the ultimate answer is dogma, folks. Not doctrine.

Now let’s talk about that other recent incident…

“The Traditional Path To Financial Independence”

On Monday, the ChooseFi podcast aired an episode that has proven to be very controversial. But I’m not sure why. The “controversy” appeared to be, uh…that there are multiple paths to FI? And that the FI community doesn’t talk about that?

The guest repeatedly commented about the “one path to FI” that he claimed was taught by the financial independence community. This path, according to the guest, includes:

• Stoicism through reducing expenses as much as possible
• Achieving “lean FI” by having a low overall net worth/spending rate, which is not what lean FI actually means (it’s a reference to how many multiples of your annual expenses you have saved, not an actual dollar amount)
• Using only “paper assets” (stock market investments) to achieve FI and not real estate or businesses
• Ignoring, or at least not planning enough for, risk and risk management

Except here’s the thing: there is no traditional path to FI, and certainly not one advocated by Brad and Jonathan of ChooseFI. Some of the guests have talked about exactly the things episode 052’s guest said the FI community ignores. People like JW from The Green Swan (owning a business) and Chad “Coach” Carson (real estate).

Frankly, it felt like the guest was accusing Brad and Jonathan of advocating “traditional financial independence” without apparently having listened to the podcast before (evidenced by not knowing about the hot seat).

(PS: Brad and Jonathan, this is honestly the most annoying part of your show IMO. How many people have now said they have never heard of the hot seat when they are interviewed? Don’t they listen to your podcast before coming on??)

The FI Community

But this isn’t actually about ChooseFI. This was about the FI community, and whether they are spreading dogma. I would argue the community as a whole does not and if you think it does, that’s because you haven’t been exposed to enough of the community yet.

• Yes, some FIREes seem to spend an exceedingly low amount. Mr. Money Mustache’s annual budget for a family of 3 is about $30,000. On the other hand, Physician on FIRE spends $62,000 annually before accounting for income taxes. And if you visit early-retirement.org you can find polls like this where 29% of the 300+ respondents said they plan to spend over $10,000/month in retirement.
• FIREes only advocate paper assets? Um, have you heard of Bigger Pockets? And my buddy Drew over at Guy On FIRE is my real estate hero!
• Risk management is left out? The 4% Rule espoused by the community has risk management baked into it. Multiple Streams of Income is the name of the game. And that thing about always recommending VTSAX…that’s an index fund, because we know relying on single stocks isn’t a great idea from a risk perspective.

I’m certainly not saying everybody talks about all of these things, or that some people aren’t dogmatic. But the community as a whole offers a wide variety of principles to help achieve FI…not just one.

The Doctrine and Dogma of Personal Finance

Let’s look at some common “truths” of personal finance to determine whether they are doctrine or dogma.

Live below your means

This is doctrine that is a virtual truth; it’s nearly dogma. The exception would be those that use leverage. Technically they are living above their means by using borrowed money to invest (such as using mortgages to buy rental properties). However, in general this phrase is used to describe non-investment spending. If you are investing, living above your means *may* work. If you are not investing, I can’t think of any examples off the top of my head where spending above your means will move you closer to any personal finance goals, so it becomes a near incontrovertible truth when talking about non-investment spending.

The 4% Rule

Often referenced like dogma; definitely not incontrovertible truth. I’m going through a whole series on this right now so I’m not going to spoil the surprise, but…a lot of people advocating the 4% Rule don’t actually understand it. There is a lot more to the 4% Rule than people think, including when it applies, what research led to it, why it is “true,” whether you have to follow it to be safe, etc. If you are telling people the 4% Rule means 4% is the max amount you can safely take out of your portfolio every year in retirement, you don’t understand it and are repeating (false) dogma.

The only way to get rich is to own a business

Good night, this is neither doctrine nor dogma. That’s just, like, your opinion, man. I mean, I guess this one really depends on what you mean by rich. My net worth isn’t even a million dollars (yet!) but I think I’m doing pretty darn okay. Will I ever own a yacht? No, probably not. But neither do most people I’d consider rich. I’ve been working for the ultimate “The Man” my whole career, and it’s not stopping me from achieving riches.

Young people should use Roth accounts

Yeah, lots of them should. Not all of them. Here are some reasons you might want to use a Traditional tax-advantaged account instead of a Roth account.

• You want to take the tax advantage now in case the laws change. The IRS isn’t going to retroactively come after money put into a Traditional account, but they could technically end Roth advantages. I don’t personally believe this will happen, but plenty of people worry about it.
• You need the tax break now and can deal with not having it in retirement.
• Your current income is higher than your expected retirement income.
• You want to hedge your bets, so you do some Traditional, some roth.
• You might be planning to do Roth IRA conversions later on.
• This principle assumes that young = lower paid. While often true, that isn’t always true. And how the hell are we defining young here, anyway?!? Is there an age cutoff?

Avoid Dogma, View Doctrine With A Critical Eye

There are so many ways to get better at money. There are so many paths to financial independence. If you think there are specific steps you should be taking, you may have been isolating yourself in a small corner of the personal finance community.

If you look at Rockstar Finance directory, you’ll find a wide variety of perspectives. There are an astounding 1,376 personal finance blogs registered with Rockstar Finance as of today. Of those, 240 are in the Early Retirement category, which is misleading because a blog may talk about FI and not be in that category (like mine). Heck, there are 11 military personal finance blogs (a very small niche) and that’s excluding several that haven’t made it to Rockstar yet!

I created my Summary Sunday series specifically to expose my readers to ideas and thought processes that are not mine. It’s important that you see other perspectives because I’m not right all the time! As well as because what works for me won’t necessarily work for you.

If you think you know the exact answer to a stranger’s personal finance woes, I would challenge you to examine whether you are operating from doctrine or dogma. If somebody say “what should I invest in?” and you think there is only one answer, you are being dogmatic. Even if it is doctrine and not dogma, you should still think about whether the doctrinal answer applies to the particular situation you are in, or if you need to try something else.

Avoid dogma, it’s dangerous. Consider doctrine, but examine your situation. Challenge your assumptions. Use sources you haven’t used before. Trust me – all of us can benefit from reading more. None of us knows everything.

What “incontrovertible truths” of personal finance do you disagree with?