The Most Important Tenet of Personal Finance is Your Behavior Not Your Knowledge of Math or Numbers.

There’s a common perception out there in the internets that uses math and numbers to “sell” personal finance fundamentals. And while I don’t have any problem with numbers and math per se (I’m an engineer after-all), it doesn’t tell the whole story. There’s far more to tell than just the math behind personal finance. The behavior that governs the decisions that we make regarding money is much more important than the math.

But the behavior that governs your personal finance habits is simply not preached enough. We learn and teach the math behind budgeting, debt, and investing. But the attitudes and behavior that make it happen are often forgotten.

To illustrate the importance of behavior, let me summarize where I think most people are with their money. From my perspective, there are three levels on the path to succeeding with your money.

Level One: Simply “The Awakening”.

There are many people who are simply going through life with no clue about their money. Unfortunately this is where most Americans are – level zero. They know they have debt, and money comes in, and money goes out. But the “knowing” stops there.

For instance, they have no idea how to tell how much of their 401k is going towards fees. Either because they don’t care, or perhaps they’ve never invested in one. And they are blindly following the crowd when it comes to debt and investing. Which, as we all know, is downright dangerous.

But something in your life causes you to wake up. You have an “aha” moment. And you realize that your money won’t just manage itself. And you have no idea what to do. You’ve entered level one; the awakening.

So you start researching money and budgets and paying off debt. You learn all you can about interest rates, compounding, the snowball and avalanche method, making a budget, investing, and 401ks. And you soak it all in. There are many great blogs and articles about starting out with money. And what you should do. I like to think this is one. 😉

But once you’ve grasped these fundamentals, you should move on to level two.

Level Two: Knowledge Drives Action and Behavior Change.

Level two is all about changing your behavior. Using your new-found knowledge, you should start to make some positive changes. You’ve realized where your spending is out of control, and you’ve cut back. You start to take your extra money and throw it at your debt, or sock it away for a rainy day or for your retirement.

Things are moving in the right direction. Your finances are turning around. As you move through level two, you’re establishing some good, healthy financial behaviors. You track your spending at least to level of knowing where your money is going.

You’ve paid off or are working a plan to pay off your consumer debt. And you won’t make any more dumb money mistakes like financing a car or borrowing money on a credit card or personal loan for an emergency. You actually have an emergency fund, because you know life happens.

In short, you are well on your way towards financial security and independence because of some basic personal finance principles and behavioral habits that you learned and instituted in your life. Level three, watch out!

Level Three: The Complicated, Numbers Intense, “Expert” Personal Finance Nerd.

This level is where a lot of personal finance bloggers like to hang out. You can find articles all over the internet about complicated money topics.

And now that your basic finances are under control, you can start to delve into the weeds a little bit regarding this mutual fund or that ETF. You even start to learn more about P/E ratios and the like. This is the fun stuff for the money nerds.

You can debate a 0.05% expense ratio on an index fund vs a 2% expense ratio on a well managed mutual fund all day. And people do. Should you put your retirement money in a 401k, IRA, or a Roth IRA? Or should pay off your mortgage? These are all valid questions, and this is the time to take it all in. There’s a myriad of information out there. Learn, learn, learn.

You wouldn’t have even thought to ask these questions back in level one or before. But now, you’re a fledgling personal finance “expert” when compared with most people.

Do you have to reach this level to succeed with money? No, absolutely not. You really only need to conquer level two.

So why are most people failing with their money?

Two reasons. One, they haven’t yet reached their “awakening” moment.

Or two, they’ve skipped level two and went straight to level three.

Because here’s the rub. You can’t go straight from level one to level three. You just can’t do it.

Without instituting those fundamental behavioral changes from level two, nothing you do in level three will matter. Call it taking your lumps, or paying your dues, or paying your stupid tax. But you have to go through those behavior changing hard times.

Otherwise, you’ll fall right back into debt after a while. Or your excitement for the complex numbers and math will wane, and you’ll be back where you started. Or you’ll lose your shirt picking stocks. And then I’ll have to pull out the “keep it simple, stupid” lecture. Ain’t nobody got time fo’ that!

What you need is a good behavior changing financial plan. You don’t need a plan to eek out a few more dollars from your retirement or move your debt from this bank to that bank because the interest is a fraction lower. You need to fundamentally change your behavior, control your spending, and eliminate your debt.

Dave Ramsey’s Baby Steps are a Great Example of a Behavioral Changing Plan.

These 7 simple steps are all about changing behaviors. It’s not about math or numbers. It’s about habits and good healthy financial behaviors.

I’ve read countless articles disparaging these well-known baby steps. And they all have the same overused talking points.

They say things like: “In baby step 1, you shouldn’t save only $1000. Most emergencies cost much more than that. You need more like 3-6 months of emergency savings.”

And, “In baby step 2, you shouldn’t use the snowball method. The avalanche method can save you more money in interest.”

Also, “In baby step 2, you shouldn’t stop investing to maximize the amount of money you can throw at your debt. You need to keep socking money away in your retirement accounts, because, compounding baby!”

And the main dissension, credit cards. The one thing that those, who seem to agree with Dave on most things, will still keep around. Because, rewards – amirite?

Dave Ramsey's Baby steps are a great example of a behavior changing financial plan. Click To Tweet

How the Baby Steps Encourage Behavioral Changes

But take a step back, and look at those baby steps through a behavioral changing lens. In baby step one, when you save your first thousand dollars, something changes in your psyche. No longer are you at the mercy of your creditors if something happens. You have some savings to fall back on.

Is it enough to cover most emergencies? Of course not. But it’s a start to encourage saving. And it’s not intended to be your only savings for an extended period of time. It’s a small buffer while you are quickly getting out of debt. And it’ll help keep you from getting back into debt just to cover a small crisis.

And the snowball method? It’s been well documented that the morale boosting effects of those initial wins are more effective than using the avalanche method. Remember, good financial behavior is much more effective in personal finance success than knowledge and numbers.

And the advice to stop all investing, even 401ks, while you’re paying off debt? Well, that is intended to make you angry at your debt, and see it for what it is – slavery. Mathematically, it’s unthinkable to advise someone to give up free money in an employer match.

But when you purpose to get rid of your consumer debt, and you use all the resources available to you to accomplish that goal including your 401k contributions, the power of focus takes over. Paying off your debt becomes your singular focus, and it can be destroyed quickly! Instead of playing around with the numbers and interest rates, you throw all your extra money at your debt.

There are countless examples of families and couples who have implemented positive behavior changes and were able to pay off their debt quickly. Check out these debt-free stories, and note the common themes. They all made some changes to their behavior. And most of them used Dave Ramsey’s Baby Steps.

And credit cards? Well, if you’ve been reading this blog for a while, then you already know my feelings on credit cards.

In Conclusion

There are three levels of personal finance that we go through. The most important level is level two, which is where the good behaviors start to take shape. Without these habits, what you learn in level one or three will be ineffective at best.

Don’t be too quick to discount Dave Ramsey’s Baby Steps. You’ll do your readers and yourself a disservice by recommending action based solely on numbers and math. Good money behaviors are a better foundation to financial success than simply knowledge. Knowledge is good. Knowledge with behavior modifications is better.

So how about you? What personal finance level are you on?

Let me know if I can help. Thanks for reading and sharing. It’s much appreciated.


Chris is the original Cash Dad. He's a father of 3 and a mechanical engineer by trade.


  1. Great post! I’m all about behavioral over the numbers in most cases. People can hate on Dave all they want, but he’s helped more people get out of debt than just about anyone else in the world. I don’t agree with everything he teaches, but he is great at getting he average person to improve their financial situation.

    • Chris Reply

      I agree – one of the reasons I wrote this post. Thanks for the comment. ?

  2. I agree. You have to start with behavioral changes, although that’s usually learned the hard way. So glad we eventually learned. Yeah, I am not that financial nerd but I am glad you are. 😉
    Love you!

  3. I think you’ve got it spot on. It is really all about fundamentally changing your outlook. Like a reset.

    • Chris Reply

      Thanks for the comments. Though, I also thinking changing your behavior is the hardest thing to do. ?

  4. The hardest part was deciding to commit. The easiest part (and most potent weapon to pay off loans for me) was the snowball method!!

    • Chris Reply

      Well done Sam! Thanks for the comment. I appreciate it. ?

  5. Jerry Brown Reply

    I love this post, Chris. Creating new financial habits can be an arduous task. I am currently reading this book called Atomic Habits that goes in depth about explaining how the habit formation process works on a neurological level.

    • Chris Reply

      Thanks for the comment. The book sounds interesting. . . maybe too in depth for some? I think I’ll check it out though. ?

  6. I enjoyed reading this post and definitely agree that you can’t skip from step 1 to 3 and think all will be well. Oftentimes people think money is their issue when it’s actually their spending habits. And a lot of times they don’t want to change their behavior. And I couldn’t agree more in regards to the Baby Steps. My husband and I used them to get out of debt.

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