Wealth Archives - The Free Financial Advisor

Establish an emergency fund, pay down debt, save for retirement, and grow your wealth! Much of your financial life is focused on the things you should do.

However, what I think to be more important are the things you shouldn’t do!

Educational Debt

There’s been a lot of literature/news over the last few years about how much of a problem student loan debt is. As of 2018, total student loan debt was $1.47 trillion. With a T! (Source)

That said, here are some things you should avoid.

Taking on too much – Some degrees/professions require a lot of schooling, which can lead to large amounts of student loan debt. And I don’t mean to speak ill of any degrees/professions, but if your desired career requires a “basic” 4-year degree, it’s probably best to find an in-state university to cut costs. Better yet, start at a local 2-year university or tech school until your Gen. Eds. are complete, then transfer.
Not having a plan for after – I think this is a common fear for Millennials and Gen Z, but you have so much time to figure things out. Don’t just go to college to get a degree. If you need time, take time. Once you figure out what you want, determine what you need to do to get there.
Not researching options – There are SO many student loan options. Depending on what type of loan you choose (private or public), you could have a wide range of payback methodologies. I wrote about student loan options and payback options in two previous posts. Check them out!

Credit cards

There are two BIG problems with credit cards. People who use them irresponsibly and people who don’t use them at all.

Using irresponsibly – This one pretty much speaks for itself. This pertains to people who spend way more than they ought to. A good rule of thumb is to only buy something using a credit card if you have the funds readily available to pay the balance off. Don’t have the money, don’t put it on the card. Doing so will cost you in interest and can really set you back.
Not using at all – Better than the first point, but still not great. Using a credit card can help your financial situation if you use it correctly. Most of them have rewards of some sort. It’s another credit account on your report. Charging and paying off right away establishes a good payment history. All good things for your credit score.

No emergency fund

Establishing an emergency fund is Step 1. If you don’t have money set aside for unexpected expenses, you’ll have to charge it. This leads to the point above about irresponsible use.

Save $1,000 for emergencies, turn your attention to high-interest debt (credit cards), and then shift your focus back to your emergency fund once that debt is paid off.

Spending

Paying bills late – Not paying your bills on time, especially ones shown on your credit report is a big mistake. The #1 factor in calculating your credit score is payment history. Paying ONE bill late will knock your score down. Just one. Don’t do it.
Spending too much – (See irresponsible credit card use) This is especially harmful if you frivolously spend BEFORE taking care of important “budget items”. Things like saving, debt payments, and bills.
Being too frugal – Though frugality is helpful in building wealth, it can also hurt you. There comes a point when you are too frugal. A vital life skill is doing things in moderation. If you pinch pennies and forego rewarding yourself, you run the risk of breaking the bank on a “bender”.

Investing

Waiting – I cannot stress enough the importance of investing early. What helps you make the most of your retirement savings is compound interest. The more time you have to invest, the more compound interest works in your favor.
Panic selling – This is a timely point since the market dropped almost 5 percent in the last week. Selling out of fear is always bad. More often than not, when you “panic sell,” you’ve already experienced the majority of the drawdown. Now, this depends on your particular situation, but it behooves you to stay invested during that period.
Using generalities when setting up an investment plan – Your investment plan needs to reflect your goals, risk tolerance, time horizon, and behavior. Using generalities is good for someone who writes about this stuff, but it’s not good for YOU. Your plan has to be tailored to YOU.

Life and Wealth

Sticking with a job you hate – Sometimes money and comfort makes us do things we don’t want to do. Being unhappy at your job is not worth it. It’s important, however, to thoroughly think through this decision. Quitting is tough, but if your family counts on you for income, you need to have a plan in place before you jump ship.
Comparing yourself to others – I’m going to encourage you to develop a new mindset because society taught us that wealth looks like fancy cars and big houses. I want you to think about stealth wealth. It’s probably my most favorite phrase/term. Someone with stealth wealth lives within their means. They live in a modest home, drive a car for transportation only, but saves more than the average person. They don’t “look” wealthy, but their retirement account says otherwise.

Don’t get me wrong: I love reading money-oriented blogs. Sometimes I love them because their advice for financial success is spot-on. Other times it’s because the blogger’s sharing juicy personal stories. It’s like reading their diary—you feel a little dirty but also thrilled that you know some secrets about their life and what gives them inner happiness.

I love some others because I get to wonder how come the blogger didn’t invest in a spell-check button. Maybe saving money includes backing down on English lessons or spell-check tools.

Last week, one of the top financial bloggers on the “internets” shared a nice diary-type tale of a trip abroad. He allowed us to follow the travelogue with some crisp photos and helpful insights into the financial aspects of the trip. Trying to tie in some meaning, he discussed ways financial success can help your life.

Kind of.

Specifically, he wrote this: “Having money buys you freedom and happiness.”

Oops.

How many things are wrong with this statement? Let me count the ways….one, two….three.

1) First, can money buy happiness? I hope you aren’t that gullible. While it can be proven that financial success buys freedom– and a ton of doughnuts–there’s no fact backing up that money can buy happiness. In fact, sadly, the opposite appears to be true. According to a story in Scientific American in August of 2010, money can impair the ability to enjoy purchased items. Researchers in Belgium have discovered that while wealth allows people to purchase more things, thoughts of how that lifestyle was acquired lowers the amount of happiness people experience. In this case, money detracts from inner happiness.

I will agree that I’d rather be rich and miserable than poor and miserable. After all, I think it was former editor-in-chief of Cosmopolitan magazine, Helen Gurley Brown, who said, “Money, if it does not bring you happiness, will at least help you be miserable in comfort.”

2) Experts insinuating that money buys happiness is a reason I feel many have a spending problem. When I was a financial advisor, I met tons of unhappy rich people. They’d head to a store or expensive restaurant to buy away their ennui. I think they were buying into a house of cards. Do you want that for yourself? I don’t think so. Make a list of goals…not just financial goals or things to buy. What do you want to do? Who do you want to be? Explore your world.

3) I think the goal of many bloggers is to help others. By presenting to a large audience that money = happiness, we propagate a stereotype that many are actively fighting to eliminate. I like a pocket full of cash as much as the next guy, but let’s focus on building inner happiness. While it’s true that having money—or rather a source of income—quells fears at the bottom of Maslow’s hierarchy of needs, it’s still only a fuel for life’s goals. Let’s not prey on consumer psychology by creating an illusion. Chasing the next buck is not going to increase the amount of happiness we feel.

It might give you a warm, fuzzy feeling to go back and watch A Christmas Carol if you’d like a quick holiday reminder about the meaning of happiness.

My point: I love the fact that you read this blog and others like it. It’s exciting for me, too, to share better methods to manage cash, increase savings and prepare for a rainy day. Following the advice in my blog won’t make you happy, although it is completely true that my incredible wit will charm you to tears. Will money buy happiness? Nope. But there is good news: financial blogs can help you achieve the flexibility to do what you wish, when you want, with whomever you choose. Sometimes those of us in the financial world get so enamored with financial success that we forget that money can’t buy inner happiness. ….or maybe he just wanted to be the boner of the week.

Disclosure: Purchasing A Christmas Carol from Amazon.com through the above link pays us a commission. Although that money won’t make us happy, it will continue to allow the website to operate, which should totally fill you with joy.

Your Wealth: What You Shouldn’t Do