Today a “financial expert” in the Wall Street Journal proposed that you can save $2000 by holding off on an iPad 2 and investing the $500 over the next 30 years. Yeah seriously….
You don’t have to look far to find bad financial advice these days. Many of these so called financial experts will tell you the same thing: Find a steady 9 to 5 job, pinch pennies for 30 to 40 years, and if you’re disciplined enough you will be rich by the time you retire.
The truth is that many of these so called financial experts, like Suze Orman (who is worth $25 million dollars) do not live by their own advice. They haven’t become rich because of their frugality. They are rich because of their entrepreneurship, million dollar book deals, tv shows and seminars.
Popular sites like GetRichSlowly encourage readers to live as cheaply as possible and avoid any kind of debt like the plague. Ironically this site was secretly bought by Quinstreet, a company that focuses on generating new customers for the credit card companies and banks.
I’m a big believer in having a solid portfolio of assets, putting your money to work, and developing a comprehensive long term financial plan. However my long term plan doesn’t include living broke now so that I can live rich when I’m a senior citizen.
Living “broke” doesn’t necessarily mean financially broke. Many people don’t realize that money is not your most valuable asset – time is.
Are you really willing to give away 90% of your most valuable asset on the premise that you will be able to enjoy the last 10% relatively comfortably? You only live once. There is no turning back or starting over.
I have always valued my own time over EVERYTHING else, which is why I’ve never had a 9 to 5 job working for someone else. Most people don’t realize just how valuable their own time really is. I actually wrote about valuing your time and self worth last year.
Let me give you an example of why frugality and the whole penny pinching mentality is flawed:
Dave is browsing the internet and comes across an article about frugality. He decides to take the advice of these financial experts and has given up all of the goods and services deemed “unnecessary”. He is now a slave to his own daily routine, having to spend 5 hours every weekend doing lawn work after firing the landscaping service he used to pay $50 / week for. This means that Dave is now working for $10 an hour on the weekend.
What if Dave continued to pay the landscaping company to manage his yard and instead used that time to start a small online business that made just $1000 a month? This would pay for the landscaping service and he now has an extra $800 in his pocket – a much better return on his investment. Instead of working for $10 an hour on the weekend, Dave is now working for $50 an hour.
The best road to wealth is action. The financial experts will teach you how to die rich all day long but if you want to live rich you need to take a different approach, you don’t have to wait for anyone, or anything.
Great post!! I’ve always been irritated by Suze Orman and Dave Ramsey TBH.
Thanks John – I was actually debating mentioning any names – the last thing I want to do is help them sell more books.
Inspired to take some action now, you are killing it with these posts.
Solid advice not often heard from the big time experts. I love the 90%-10% example.
Excellent points Kevin, and I agree. Maybe the author was trying to show an example of compound interest, but I don’t think this was a good one. So many people are focused on living cheaply and saving, instead of finding ways to have money work for them. What I mean is that many people are “penny rich and dollar foolish.” I always wondered why they never taught anything about money in schools, and why so many people have the mindset of “slave, save, retire (maybe).” Tim Ferriss and a few others call this the “Deferred Life Plan.” Saving for retirement is important and should not be neglected, but at what cost in terms of time and enjoyment now?
Yes! People should definitely save for retirement, however they shouldn’t live under the big illusion that being frugal will make you wealthy.
Most people don’t understand that they can succeed and virtually anything they put their mind to. Worse yet, they don’t realize they can put their mind to anything they can think of. Instead, they tend to only put their effort into the things everyone else is doing – high school, college, resume, 9-5 for others. The problem is based on a flawed culture with a flawed education system bent to train the most to serve the few. It’s time to wake up. I’m awake, Kevin seems awake… are YOU awake?
This is the point I try to make a lot here on CTW – I started out with literally nothing, and used $50 in college to start my first business. If I can do it, I have faith that there are millions of others out there who will be able to succeed taking an entrepreneurial path, as long as they are willing to be persistant and learn from their mistakes.
imrat.com just reviewed a book on this very subject, that personal finance guru’s advice won’t make you rich. I’ve only read the first 40 pages you can download free, but I think it hits on exactly what you’re talking about. http://www.themillionairefastlane.com
What it comes down to with me, is that you either live by a scarcity mindset or a prosperity mindset. I was a big fan of GRS (and still like JD very much as I’ve actually come to know him personally, good guy and good entrepreneur), but you can only cut your spending so far. Eventually, you have to increase the top line. And that requires a change in mindset that the majority of the population just doesn’t get.
Speaking of…did you know they came out with an Atlas Shrugged movie?! Great book. I want to see this but it’s not playing in my city.