Happy New Year! Let’s start 2023 with a few of those dirty secrets of personal finance. Please share this blog post on your socials and let’s fight back against financial scammers, opportunists, and predators! As always, my website will never pop crap up in your face while you’re trying to read, and there are no affiliate links on this page. This is for you, and your success on your journey to financial independence and living every day on your own terms.
#1 There’s No Magic – Simple is Better
Dividends! Real Estate! Crypto! Gold! Long/Short Options! I-Bonds! Ladders! Alternatives! Credit Card Points & Miles! Day Trading! Market Timing! Guess what – there’s no magic, only illusion. Nobody beats “the market” over time. Nobody.
What’s “the market?” A single low-cost diverse index fund that tracks the total US stock market and perhaps a sprinkling of an international fund for even more diversity and flavor. Set a simple combination of 2-3 stock and bond funds and you’re done. You’ll own Apple and all the other sexy stocks. You’ll get great dividend income plus growth and value. Set it and forget it, then watch others spend all that time chasing their tails and wasting money. Do something fun with your time – that’s what this is all about, isn’t it?
Many of the folks on your social feeds bragging about this nonsense are simply presenting the illusion of success in order to lure you into a “class” where they’ll teach you their “secret formula.” That’s how they make their money, for real. So, if they’re making so much money doing that stuff, why are they spending so much time on social media trying to hawk classes to people? Do you notice a lot of FIRE bloggers pushing credit card points and miles? Right, that’s how they make their FIRE side hustle money, with affiliate links that pay a bounty for each customer they send into the waiting clutches of the credit card companies.
#2 You Don’t Need to Pay Someone to Manage Your Money
If you’re invested through an advisor or company, even for a 529 college savings plan, you’re likely paying through the nose for that help, and directly out of your investment returns. Advisors typically charge 1% of assets under management (many charge more!). That’s around $417 a month on a $500k portfolio. For doing exactly what? If you’re doing this right, you’re not doing much (see #1 above). Read more at my blog post here.
Even if you have your money under your own control in low-cost brokerages like Vanguard, Ally, or Fidelity, you might be paying someone to manage your money, even though you think you’re not.
Check the expense ratio on the funds you’re invested in for your retirement, brokerage, 529, and other accounts. If it’s above .09% (i.e. more than 1/10 of a percent), it’s likely a managed fund, meaning you’re paying the fund managers out of your returns to manage that fund. This is typically unnecessary. Most statements don’t make these expense ratios obvious, for this reason. Look up the funds you see on your statement at morningstar.com. If you’re paying an advisor to manage your money, and they in turn are putting you in funds with high expenses and/or loads/commissions, you’re funding their lifestyle and retirement, not your own.
Find the correct recipe of just a few simple investments for you and your future, and invest in ultra-low cost index-based funds at .05% and less. If you need help doing that, pay a true advice-only, fee-only, flat-fee, fiduciary advisor to spend a little time helping you. Read or listen to The Simple Path to Wealth by JL Collins, and all the great Boglehead books and web resources. Spend your driving or exercising time listening to great podcasts like Optimal Finance Daily and The Retirement and IRA Show.
#3 You Don’t Have to Budget
There are very simple, easy ways to monitor your spending trends and cash flow. Apps like Mint make this visual, and will alert you when things are going in the wrong direction. If you’re hands-on and want optimal progress/results, you should use a zero-based monthly budgeting tool like EveryDollar or YNAB. Simplifi is a good cross between the different approaches.
Another good technique is to draw a line in the sand for yourself. If you really believe you’ll have, say, $1,000 positive cash flow at the end of the month, set up an automatic transfer of that amount on that date to your high-yield savings or brokerage account. If you have debt, use it to eliminate that (it’s the biggest thing standing in the way of ever being financially independent). But monitor this as the transfer nears! If the money won’t be there, it means you’re spending more than you think. You can then decrease or remove the transfer, and get to work figuring out where your money is going.
#4 Many “Advisors/Planners” are Wolves in Sheep’s Clothing
Most of the terms and titles we’ve been told to trust (fiduciary, fee-only, advisor, planner) have been diluted and co-opted by the greed of the industry. That “advisor” you’re talking to, especially if they’re paying for a nice dinner or lunch, may be nothing more than a commission-based insurance shill looking to burden you with an expensive, risky, complex annuity or permanent/whole life insurance policy. Or, get you to allow them to manage your assets at a hefty cost (see #2 above).
Even the CFP® board, who claims to help you find a “trusted advisor” doesn’t bother to make sure the planners that use its mark have clean records. They rely on planners self-reporting any complaints, discrepancies, disciplinary actions, legal trouble, etc. Guess how that worked out? Many of the “find an advisor” sites require the CFP® designation, so they’re no better.
Go to this link to check to see if the person you are trusting has any complaints, discrepancies, or legal actions against them. A true advisor should be supplying you with an ADV form to read through for at least 48 hours before signing an agreement or paying them. Read through it, especially sections 4 and 5, to see how they make money. Learn more in my blog post here.
#5 There’s No Free Lunch, Retirement Plan, Points/Miles, or 0% Interest
Question anything that’s free. Often, free financial plans, lunches and dinners will saddle you with financial problems for life, such as a timeshare, annuities, and more. Always see them as a trap you may be getting lured into. Those free retirement plans aren’t free. They’re bait into the type of expensive asset management or other bad financial instruments discussed above.
When you’re buying a car or other expensive item at zero-percent interest, it just means the interest is baked into the price. And worse yet, you’re paying it all upfront, instead of over time! Nobody loans money for free, except maybe your mom. They could be investing it and making a nice profit. Which, by the way, is what you should be doing, instead of buying things you can’t afford to pay cash for (low-interest mortgages excluded).
As far as credit card points and miles, a lot of folks feel smug, that they’re gaming the system by paying off their cards every month. Those credit card companies aren’t stupid. They well know that the lure of points/miles causes you to spend more than you would otherwise. Just watch the recent commercials where the woman gets locked out of her house and proceeds to go on a three-hour spending spree because “cash-back!” And another one where a woman’s dog keeps destroying her friends’ property so she gladly buys them new stuff, and some for herself, because “cash back!” They’re putting the stupidity of this right in people’s faces, because they think we’re all stupid. Not you, you’re smarter than that. At least you are now!
Is that the route to financial independence? You want to buy $10,000 of stuff on credit just to earn a measly $200? It disrupts your monthly cash flow, makes your cash flow opaque, not simple and transparent. The CC companies know you’re one disaster (pandemic, anyone?) from not being able to pay the cards off each month, and then they’ll lower the boom with 29% or more monthly interest,and things spiral down from there. The house always wins!
#6 You Probably Don’t Need That Life Insurance
The point of life insurance is to take care of anyone who is dependent on your earned (job) income if you die. Period. It’s not to “leave a legacy or inheritance.” It’s not a (very good) investment or savings vehicle.
If you sign up for “permanent” life insurance (i.e. whole, universal, variable, indexed, etc) you’re signing up to pay for it the rest of your life. Back to the original point – will there be anyone depending on your job income when you’re in your 90s? I hope not, for their sake and yours! All you’re doing is funding a piggy bank for the insurance company to invest, make nice profits, then “maybe” give you savings account returns someday, and yes, take their fees and premium increases out of the piggy bank, often unbeknownst to you.
If the insurance company goes bankrupt (and they do), guess what happens? If you sign up for a $500k policy, and then save up $500k in the piggy bank they run, guess what your heir gets when you die? Right, the $500k you saved. The insurance company is off the hook, in many cases. Riders or options to add nice features are very expensive. The fees are expensive, and come from your savings, which you can’t touch for years, by the way. If you have one of these, check the current face value and surrender charges and see if it might be better to cash it in to pay off debt and/or invest. By the way, why does anyone with a good product/service need to lock you into it and make you pay to get out of it? See: timeshares.
If someone is dependent on your job/earned income, figure out what that timeframe is (typically until the kids are out of college) and get a simple, inexpensive term life policy to cover that timeframe. Do the math and figure out when you are self-insured (the best kind!) by having that money in the bank and invested. Hint – the faster you stop throwing your money at everyone else, the faster you get there. If you do things right, you’re going to leave a hell of a legacy to your heirs – particularly by setting a good example.
#7 You Can Build Your Own Plan
In olden times, planning software was under the control of said advisors/planners, at a premium (thousands of dollars to build the plan, which is generally a two-inch thick binder that’s obsolete the day it’s printed!). But today, there are great life/retirement planning tools like Pralana, New Retirement, and others. Pralana is a high-fidelity tool that rivals the best private planner tools on the market, and it’s incredibly inexpensive. New Retirement doesn’t have the same powerful features, but is simpler and a way to get started if you don’t have the detail and financial knowledge to factor in all of the important details like health insurance, etc that Pralana provides. Both have a simple free version! These let you continuously update the numbers/goalposts and do what-if analylsis.
As a caveat, if you enjoy dabbling in real estate, or learning the ins and outs of crypto, or really anything that’s legal and not harming or taking advantage of anyone else, go for it. We all need a side hustle to engage our minds and occupy our time, right? What I’m saying above is be diverse in the funds that will get you where you want to go, for the important goals. Don’t rely solely on any one of those things as your plan, or to pave your path to financial independence. Keeping control over your own money, and not funding everyone else’s dreams, is how you’re able to afford to do and learn new things at your leisure. Some people love being landlords. Some take the expensive seminar/class, pour all their money into it, only to discover that it’s hard work and they hate it. Chasing points and miles can be a fun hobby or pursuit, but not as a legit way to become financially independent. It’s work – unless you enjoy the challenge! Same as those extreme couponers on the shows, who wheel out carts of free groceries. It’s a lot of work to accomplish that, but if you like the challenge, do it.
The bottom line is that this isn’t very hard to do on your own. Especially now that we know simplicity is the path that is easiest to manage, and gives the best reward over time! If you need help, or want to be on the fast path to building a clear roadmap and gaining the knowledge you need, find an ethical, fee-only, flat-fee advisor/planner and/or dive into the resources provided above. Good luck, live life on your terms, and enjoy every day! Life is short, my friends.
Available Mon-Sun: 8:00AM – 8:00PM
To request a callback, just drop your phone number in the form below and hit the request.
Emancipare Investment Advisors LLC is a registered investment adviser domiciled in Pennsylvania. Check the background of your financial professional on FINRA’s BrokerCheck.