Financial Advice
Sometimes the best financial and wealth building advice is the most boring and basic, but it’s usually the advice that will benefit you the most.
What I read: “How To Get Wealthy – Slowly But Surely: 5 Secrets From Research” by Eric Barker.
I’m aware of the irony of publishing this topic on what’s tax return due day for many. Although maybe that’s exactly when this is best read.
Financial advice abounds. It’s everywhere. Experts. Pundits. Wall Street operatives. Content creators. Authors. Writers. Influencers. Average people who are sure they have the secret to financial success in their grasp and are ready to tell you their tips and tricks.
Some financial advice is sound. Some of it’s crap. Some of it’s highly specialized to certain life circumstances. Some of it’s conveyed from the perspective of wealth while some is conveyed by people pinching pennies to make ends meet.
Now here I am about to give you some advice myself. Well, not me really, Rather, Eric Barker, from his excellent article to which I’ve linked.
The truth is, becoming wealthy isn’t about having a brain the size of a planet. It’s about doing the boring, sensible things, consistently, over time.
I consider Barker’s advice excellent because it doesn’t proclaim any magic secrets to attaining wealth or financial independence. All the advice is grounded in practical messaging that most people can benefit from. Even the title of the article signals measured advice, accumulating wealth “slowly but surely.” No get rich quick schemes because those are nearly always total crap.
My guess is most of the too often worshipped billionaire class started with a lot of money from the start. Regardless, I think defining wealth as being financially comfortable and not necessarily riding around in quarter million dollar cars and living in multi-million dollar homes is a wise framing of what wealth is for most of us.
Also, what’s wealthy? Honestly? With our capitalist culture run amok, rampant corporate greed, the rise of the billionaire class on the backs of the average worker, and so on, I think wealthy is living a decent lifestyle, being able to pay your bills, and maybe having enough in the bank for emergencies and hopefully a comfortable retirement someday.
I don’t like how the “lifestyles of the rich and famous” have been elevated to goals so many seem to want to attain. I just read an article stating that every single current billionaire under 30 has inherited their wealth. That’s an important data point we should all keep in mind.
Typically, I’m not a fan of discussing my own finances publicly. Suffice it to say for my purposes here that when I left corporate life in late 2022 my future was comfortable, but certainly not wealthy. I still work some, mostly writing. I hold open the option of taking a job again someday should I want or need to. I’ve delayed collecting Social Security until this year when I turn 70 years of age because quite frankly I need that higher benefit payment because it will improve my financial situation considerably. That’s about all I’ll say about specifics for my own financial situation. I just didn’t want anyone to assume I’m writing from a position of massive wealth or financial savvy outside of some solid basics that I believe Barker’s article outlines.
Before anyone mentally wonders about my privilege, I definitely started from some privilege. I’m white. That’s a big one. I’m male. Also a big one. I was raised an only child with a great middle class father. Definitely a leg up situation. My father made sure I had an excellent early education. Also a big plus. I know not everyone starts from such good starting points.
With all that said, Barker’s advice is excellent and I think generally applicable to many people. Perhaps not everyone, but many. You can decide what applies to you or not, but based on my own experience he’s correct about everything he writes about in the article.
Barker’s first bit of advice is to practice strategic frugality. In other words, spend money on those things that bring you the most joy and be extremely careful with your money for everything else. Such frugality feeds into this point by Barker.
The simple formula? Earn more than you spend. Invest the surplus. Avoid debt.
Debt is usually something to be avoided although these days if you want to own a home you’ll probably have to take on considerable debt. I know some financial content creators will tell you to leverage debt to become rich. Maybe. Sometimes. But that might require so much financial savvy that the average person like me and perhaps you can’t employ those tactics. Barker mentions exceptions.
Now there’s one exception: if you have anything with a very low interest rate, like less than 3%, you may actually be better off paying the minimum and investing. Anything over 5%, just pay it off ASAP.
I hate debt. I avoid it whenever I can. It hangs over my head when I see a credit card balance of any significant size. It causes me a bit of financial panic. So, I try to pay it off as quickly as possible, and most certainly on time if I can’t pay it all off in one payment. A few times in my life I was poor enough to have to live on credit card debt for a while. I don’t recommend it. If I could rewind my life to those times I would have done more to not have done that.
As for stock market advice, I think Barker is offering wise advice. I have a few day trader type friends who play the market and a few of them do alright, but they are constantly buying and trading and doing research to the point that it’s almost an obsession. I don’t think most people have that amount of time or the inclination.
The best investment advice book I ever read was The Little Book of Common Sense Investing (paid link) by John C. Bogle. Bogle was the founder of The Vanguard Group and is credited with popularizing the index fund.
In short, an index fund is typically a mutual fund managed (these days mostly by computers) to follow certain preset rules so that it can closely track and therefore replicate the performance of certain large markets (S&P 500, Nasdaq 100, and so on). Money you put into an index fund is invested in all the companies that make up the particular index being tracked and replicated. That type of investing gives you a much more diverse and usually less volatile or risky portfolio than if you were buying individual stocks or buying a fund comprised of a smaller set of companies.
Stable investments are attractive even when I’ve occasionally seen a few friends garner massive returns on certain investments. The risk they undertake to make those returns would keep me up at night. Your mileage may vary, but I contend most of us are better off with slow and steady investments, avoiding the potential big ups and downs of individual stock trading.
I never utilized a lifecycle fund that Barker mentions, but they seem like a good idea to me if one is available to you.
When Barker talks about buying a home, I’m entirely with him on that point. I’m fully aware that real estate tends to always increase over time. Barker makes the economic case for sometimes renting over buying but I’m going to avoid that because that discussion seems to raise the hackles of so many people. In my case, there’s an emotional toll owning a home takes on me. I owned a home once. I didn’t like the experience. When friends asked about my home, I used to say it’s my hole in the ground into which I poured money and time. Maybe I’ll own again someday. Time will tell.
Like Barker says, if you want to own a home, do so. However, buy it because it’s a place you want to live, not because it’s an investment. Search online for the rent versus buy content that’s all over the internet and you’ll read about sunk costs and other variables not often discussed. I think home ownership is great for many people. It’s also not great for other people. It’s up to you to figure out what’s best for you, but I’d take Barker’s counsel when making that decision.
Right now, we’re amid a big uptick in home prices. That means quite a few people are sitting on homes worth a lot more than they paid for them. But treating your home, the place you live, as a piggy bank isn’t always the best idea. Again, you’ll have to decide what’s best for you and your situation.
Your house will likely appreciate, yes, but probably not enough to surpass its myriad of expenses combined with the compounding that would come with investing the money elsewhere. If you rented and invested the difference, you could be making it rain somewhere on a beach, not worrying if your basement is currently turning into an indoor swimming pool.
Now that all the homeowners reading this hate me, let me be clear: Buying a house because you want to live in it is great. But don’t tell yourself it’s an investment.
Next Barker talks about 401(k)s and Roth IRAs. Here is where my own life experience is illustrative. Many people didn’t know I had corporate jobs for decades. While my external facing public life was often the radical gay man and sexual outlaw writing and organizing around those communities, my bread and butter jobs that paid the bills and that allowed me to do all those things was firmly entrenched in corporate America.
I would tell friends my corporate job was my fancy waiting tables (no disrespect to servers) that gave me the money to do what I really wanted to do in life. It was a tradeoff, a tradeoff I consciously accepted for my own financial peace of mind and to strategically allow myself to do the community and other work that fed my soul (I don’t believe in a soul, but I like the usefulness of the phrase).
My dad taught me at a young age to put money away. After I exited my wild younger years and my theater and dancing efforts (let’s call it a career) in the early 1980s, I had a string of corporate or corporate consulting style jobs that allowed for retirement fund contributions, typically 401(k)s. Whenever I had one of those corporate jobs, I tucked a significant chunk away from every paycheck (this is the part where my dad would have been proud) in the employer’s or agency’s 401(k) program and I never thought about that money again. I let it just sit there, often being matched by the company’s matching program which was free money.
There can be glitches. In the mid-80s when I was diagnosed HIV+ and was self-employed and therefore self-insured for my healthcare, I ended up draining my existing 401(k) account early of 10s of thousands of dollars to pay for my medical expenses with cash because I feared being dropped by the health insurance company which happened to many HIV+ people back then. It nearly zeroed out my retirement savings and had to start over. But I started over tucking money away from each paycheck, and it was the best thing I could have done.
If you have access to a 401(k), use it. If you don’t have access to that sort of company program and need to start a Roth IRA, do it. I know it’s probably more difficult to save money today than it was years ago. Young people tell me this all the time and I believe them. Still, when one can, do it.
I recommend reading Barker’s article in its entirety. It’s the best concise advice I’ve read lately regarding wealth accumulation, and again I emphasize that wealth needs to be seen as a relative term despite what the media and influencers might portray.
Perhaps capitalism will implode entirely. Maybe the job market will dry up to the point where much of this isn’t true. But for now, I echo Barker’s advice.
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