The biggest truth in personal finance

For the past six weeks, I’ve been working hard to write my “Introduction to Financial Freedom and Early Retirement” project. Heard And Great courses.. It is challenging and fun for new audiences to work on their past content in a new format.

Naturally, I’m emphasizing two key points in this project: profit and purpose.

  • I firmly believe that you need a clear one. Personal mission statement To succeed with money (and life).
  • I also believe that the most important number on your path to financial freedom is the difference between your personal profit, your income and your expenses. (Most people refer to this number. Savings rate. I prefer the term “personal gain” because that’s fine, Sexy.)

That last point is important.

Many people want magic pills. They want quick and easy ways. Get out of debt And wealth building. They believe (or hope) that there is a secret that they can uncover, that they have somehow escaped. Well, it’s no secret. Money is a combination of psychology and math. And the math part is so simple that a third grader can understand it. Wealth accumulates what you earn and what you spend.

There are only two aspects to this wealth equation – earning and spending – but disproportionate amounts. Financial advice Focuses on one factor, spending, and that’s too bad. Indeed , Austerity is an important part of personal finances.. And if you’re in a tight spot and / or have a high income and are still struggling, cutting costs is a great choice. But the fact is, you will not get rich slowly or otherwise from a single click.

The biggest lie in personal finances.

Recently, Nick Miguel wrote about his best blog, Dollars and Data. The biggest lie in personal finance. What is that lie? He writes:

Although there are many people who are financially distressed because of their actions, there are also many people who have good financial habits and do not have adequate income to improve their finances.

That is why the biggest lie in personal finance is that you can become rich only if you reduce your expenses. And the financial media is lying to you by telling you to stop spending ڈالر 5 a day on coffee so that you can become a millionaire.

With charts and graphs and data, Megoli has shown that the problem facing low-income people is not their spending – it’s their earnings. If you live on the poverty line Currently 26,200 per year. For an American family of four – you won’t miss out. Austerity is an emergency measure, a stop gap. This is a bandage on a large wound.

Here’s the bottom line:

  • If you are poor and hopeful. no Poor thing, your focus should be on increasing your income, not reducing your expenses. Your costs are already too low.
  • If you have an average household income – currently $ 63,179. According to the US Census Bureau – Your path to wealth building may include both austerity. And Increase in income
  • If you have a high income but are still struggling to make ends meet, you should focus on reducing expenses. You need to control your lifestyle. But you will not do it sparingly. You will do this by improving the big things.

Miguel is fed up with the biggest lie. This makes it “dynamic”.

“It’s the same financial media that writes stories about how people save money by staying in a trailer, making their own dish soap, or reusing their dental floss.” “Yeah Al that sounds pretty crap to me, Looks like Al that sounds crap to me, Looks like Al that sounds crap to me, Looks like Al that sounds crap to me, Looks like Al that sounds crap to me, Looks like Al that sounds crap to me, Looks like Al that sounds crap to me.

In my experience, these kinds of things are as popular as they are. Easy. It’s easy to write and easy to read, even if it doesn’t offer a real solution. It’s harder to write about increasing your income. And, it is more difficult to apply this information because it requires time, effort and real sacrifice.

Real life examples of the biggest lies in action.

This morning, Trent published an article about the simple dollar. Improving dishwashing for money and time.. Trent writes:

If I could devote some time and thought and effort to improving a routine that I do three times a week, and this improvement reduces the cost to five minutes of effort and $ 0.50, I would literally Save 13 hours and $ 78 each year. rest of my life.

Trent is not wrong. If his math is correct (and so is his discipline), he. Will Literally saves 13 hours and $ 78 each year on how he cooks. This is not a lie. In this case, the lie comes from what lies behind it: do it and you will become rich. You get leverage to become a smart dishwasher.

That’s right: you don’t get a one-time win for thirteen hours and an annual profit of $ 78. You’re saving five minutes and fifty cents a day. This may sound like a bare point, but it is important. If you get thirteen hours or $ 78 at a time, this is a real and solid thing you can work with. But an extra five minutes and fifty cents per day? Not so much.

I’m not saying you. should not be Improve your dishwashing routine. do it! But don’t expect it to make you rich. Because it won’t happen.

This is a great example of a lie in action.

Elizabeth Willard Thames writes. Frugalwoods, Which is one of my favorite mini blogs. Recently, in particular, has been publishing leases. Lots of amazing things. I look forward to each new article. (Those of you who use the spare change list of links on the first page of GRS may have noticed that I often bookmark Frugalwoods.)

As you can guess from the name of her blog, Liz (almost?) Focuses exclusively on austerity. She and her husband practice. Extremely frugal. He wrote a book, Meet Fergal Woods. [my review], Who documented their journey from poor college students to gaining financial independence on a 66-acre farm in central Vermont.

Now, there is no doubt that Liz and Net are frugal. They act on what they say. But they are frugal. no Because of his wealth, because he retired early. You can’t buy a 66-acre farm in Vermont just by improving your dishwashing routine. Or clipping coupon. Or Host potlucks. To do this, you also need a high income. And that’s part of the story that Liz doesn’t share with her readers. She and her husband made a lot of money, and that’s how they got rich – not through austerity.

I’m sure Liz doesn’t mean to downplay the truth, but it’s a net effect. He is involved in “the biggest lie in personal finances”.

To her credit, Liz is adding as much truth as possible to her writing. Today, for example, About page in Frugalwoods. Recognizes their high income. It did not happen. It used to be the case.

Now, I don’t mean dog on Liz and Trent. They are both good people and good writers. But I think they do their readers great harm by covering only one aspect of the wealth equation, mentioning very little (if ever) income. He is actively involved in Miguel’s “biggest lie.”

And I will confess: For a long time, I was guilty of that. Sometimes, I still am. Hell, I’ve been saying a lot lately. My quest to improve my food costs., Don’t I? I’m not claiming to be better than Liz or Trent. But I want to at least acknowledge the lies – and the mutual truth.

The Greatest Reality in Personal Finance

What if austerity is not the way to wealth? The answer is simple: big wins. Big win is the fastest way to wealth.

You can scrub your dishes and wash them with cold water every day for the rest of your life, and yet you will not match the benefits you get from buying a cheap home. Or the choice of a more fuel-efficient car. Or negotiate your salary.

The best way to spend less is to cut back on big things.

If the average American household cuts their living expenses by 10 percent, they will save about housing 150 per housing payment. Twenty times The benefit of improving your dishwashing routine. Transportation provides similar opportunities. According to the American Automobile Association.The average driver spends only 000 9,000 a year on his car. Reduce these costs. Less than one percent And you’ve done the same thing as washing dishes for a year.

But, as Miguel notes in his article, the room is an elephant in the room, a topic many writers ignore.

So far, you can only reduce costs. There is no way to reduce your costs to zero, and most of us can’t get close to it. As I mentioned earlier, the US poverty line for four families is currently $ 26,200. (For two, that’s $ 17,240.) Don’t count your business, Mr. Money Mustache (a well-known frugal partner) Spent 2019 13,068 in 2019..

If you are living like this and want to run away, you should not look for ways to reduce costs. These things are useless to you. If someone tells you otherwise, they are lying. You should be in these situations. Trying to increase their income.. And even if you have a standard middle-class salary, an increase in income is usually the best way to meet your goals.

There are three basic ways to do this. Make more money.

  • First, be better educated. Despite the horrific details in the sad media, one fact is undeniable: the more you learn, the more you earn. in America , Education has a greater impact on lifetime earnings than any other demographic factor.. It’s more important than your race, your religion, your gender, your location. (In fact, the Census Bureau says there is education. Five The effect of sex on annual income
  • Second, be a better employee. I’ve read a lot on Reddit (and elsewhere) where people pee on their employers, complaining about how their boss (or company) is out to cheat them. These things are contradictory. Sure, there are some lousy employers out there, but most are happy to promote and reward their best workers. If you want to earn more, work harder and harder than others. If you are in a situation where there is no reward for hard work, change jobs.
  • Finally – and most importantly – learn to negotiate your salary. Study after study. Shows the same thing: Failure to negotiate your salary can cost you more than half a million dollars over a typical career. Half a million dollars! For over a decade, I’ve been promoting Jack Chapman’s book, Discuss your salary: How to make $ 1000 in a minute.. Let me do it again

“You can’t reduce your income,” Liz wrote. Meet Fergal Woods.. She speaks the truth! Of the biggest the truth

I am not the enemy of austerity. Yes, of course, pinch your money, if you’re happy with it. Austerity is a great way to build good habits. Over a long period of time, a lot of austerity habits were found. Can Make a big difference in your financial situation.

But if your income is low, don’t focus on frugality. This is red herring. Instead, turn your attention to the big win. And, in particular, to increase your income. Because this is the biggest truth in personal finance: You can’t get rich just by being frugal.