4 Offbeat Truths (And Hacks) About Money
Dear Rich Lifer,
Sometimes it’s good to read personal finance blogs to remind oneself how most people learn about money.
Most of the advice you see online says more or less the same thing: Cut expenses, budget, save, and invest the difference.
While there’s nothing wrong with this general advice, it usually lacks one thing:
The human factor.
Financial gurus like to preach money truths that work if you’re a robot with no emotions and have unlimited willpower.
But, most of the advice you read or listen to online doesn’t work the way it should in the real world. For instance, do you think it’s better to receive a large tax refund or small?
The pundits will tell you things like:
“If you’re receiving a tax refund, you’re doing something wrong!”
“Stop making the government rich off your money’s interest!”
“The minimum amount is what you should be sending.”
Don’t listen to them. The truth is, if you had that money, you’d spend it. What research shows is most of us take our lump-sum tax refunds and save them or pay off debt. Are you really going to miss that $12.60 in interest come April?
This is just one money truth the experts get wrong. Today we’re going to debunk four more for you.
Money Truth #1: You Don’t Have to Budget
We’ve met a lot of financial gurus you see on TV and read online and one thing they all have in common is they don’t like to follow their own advice.
In an ideal world, yes, a well-planned budget should keep any family’s spending on track.
In reality, most budgets don’t work.
The reason why budgets fail is nothing to do with the budget itself—it’s psychological.
Tracking your spending is hard. And constantly looking at your spending will make you feel bad about yourself.
Do you really think you’re going to spend hours, or even half an hour every month tracking your spending, only to feel guilty? And you’re supposed to this for the rest of your life?… Get real.
A better way to control your family’s finances is to automate them. When your paycheck comes in, it should automatically be allocated to different accounts: 401k, Checking, Roth IRA, Savings, Credit Card, and then any other miscellaneous bills or cash withdrawals you need to make.
Within your savings, you should have sub-savings accounts setup for different financial goals and emergencies. Whatever is left over after you’ve taken care of your automated accounts is considered guilt-free spending money. When you automate your money, you limit the effect the human factor causes.
Money Truth #2: Unexpected Expenses Are Usually Expected
We know this sounds odd but when you think about it, it’s true. What are the chances your 7 year-old car needs a $300+ repair in the next two years? Pretty high. Given time, unexpected expenses become pretty expected.
You should have a sub-savings account dedicated to these “unexpected expenses.” How is this different from an emergency fund? Emergency funds are more robust and for expenses outside your control. You have no say in whether or not your company chooses to downsize.
For things like parking tickets and other stupid mistakes, you should be able to cover these expenses with an “unexpected expenses” fund. How you grow these sub-savings accounts is by automating them so you don’t have to think about allocating a few dollars every month to one of these smaller savings accounts.
Money Truth #3: Look for Big Wins vs. Frugal Wins
We all sometimes brag about our frugal wins but it’s usually because it leads us to a bigger financial win like when you purchase a new car. However, it’s easy to get lost in the frugal-win mindset and overlook opportunities for bigger wins.
For example, instead of cutting out appetizers when you go to restaurants to save $10 or $20, look at ways you can make 10x or 100x those savings. What if you negotiated a $7,500 raise? Not only is this a recurring win, you get that extra income every month, it’s significant enough that it covers all the small frugal wins that drain you mentally over time.
Negotiating a raise is just one big win. There are hundreds of ways you can start making more money each month today.
And the most meaningful wins? They’re going to come from investments. For an example of this, take a look at a recent discovery from our friend and colleague Jim Rickards, and see why June 9, 2020 is going to be a game changing day for anyone in gold.
Money Truth #4: Ignore the News
Contrary to what you might think, your personal finances are loosely tied to what’s going on in the government, economy and other macroeconomic forces.
CNBC and all the other money pundits need you to pay attention to every stock market gyration and currency fluctuation because views equals money in their world.
If you ignore the news entirely and keep doing what you should be doing: automatically saving, investing and looking for big wins — your finances will be just fine. This works when the stock market is down and when it’s up.
Focus on what you can control and ignore everything else.
To a richer life,
The Rich Life Roadmap Team