What if I told you we are currently living in a parallel universe where the tried-and-true approaches to money are never going to add up to wealth? Follow me on this one.
You can easily spend $200,000 to go to college and never once take a class on budgeting, which will run you a measly $100 on Udemy. Imagine all the money we could have saved with "How to prepare your taxes 101," rather than all the countless brain cells we lost to calculus and trigonometry. Still don't believe me on the parallel universe? I've lost count of how many people I've heard say, "you shouldn't take a loan from your parents if you ever want to grow your own wealth." Balderdash; the richest people on earth have acquired and leveraged intergenerational wealth. But that method shouldn't be exclusive to the one percent. A recent study showed that one in five 30-somethings took family funds-loans or gifts-to purchase their home. Do the math.
The time is ripe to put on your thinking cap and reconsider everything you think you know about money. Critical thinking skills can help ordinary people tackle personal finance problems in ways that seem out of the ordinary. Experts from Rich & Regular and Contrarian Thinking say that, in today's world, we have to make some counterintuitive decisions to stop living paycheck to paycheck. Here are some tips to get started.
Buy what you understand.
Many people struggle to decide between the "set it and forget it" method of exchange traded funds (ETF)s and index funds-or the excitement of day trading and stock-picking. It's best to do away with rules of thumb, invest in what you know, and admit what you don't.
Julien and Kiersten Saunders started their financial blog, Rich & Regular, in 2017, after wondering why their friends complained so much about doing everything "right" and still feeling financially stuck. When the young couple settled on investing exclusively in index funds, they did it because they knew they would never be experts at stock-picking. "Data shows that it's practically impossible," they said. Instead of spending the years it would have taken to become savvy in one sector, they decided to dummy-proof their portfolio. Index funds have helped them grow their wealth and save valuable time that they've reinvested in their business, which they know quite well.
On the other hand, Codie Sanchez of Contrarian Thinking took the exact opposite approach-and it worked out well for her. Why? Because she understands the market really well. She joined Vanguard ETFs in 2008, and then Goldman Sachs Alternatives, SSGA, and First Trust, in rapid succession. She knows her way around the stock market, so it's no wonder that she trusts her own expertise. She says, "Go deep into betting on yourself, and double down on investing in things you understand. Using what I knew from my early career of investing in stocks in the financial sector, I made a good bet during a volatile time. It ended up paying big dividends. My parents DID NOT like the idea, but it felt right to me. Investing in things I truly understood made more sense than a blind allocation."
Pause before you panic.
In the face of a downturn, Sanchez declares that "he who is least emotional wins. Look at the facts; then decide." But we all know that's easier said than done. The truth is, no matter how many times we're told not to panic, our lizard brain convinces us to do things that completely override good judgement.
"In 2008, I was sitting at Goldman Sachs watching colleague after colleague pack up their boxes, as the firm fired 20 percent of the workforce in one day," Sanchez recounts. "I'll never forget their faces. We all thought the world might go under. I sat watching the news late at night, saying Goldman was a terrible place. I crossed protesters to get to the office. They yelled while I kept my head down. Weeks of this wore on me, until I looked to find ways to leave. I found a new gig and sold all my stock. But I missed something entirely; the financial crisis wasn't their fault. I forgot a golden rule: When everyone is running in the same direction, don't get caught in the mob. Get to the periphery, take a pause. Climb up on an imaginary balcony and look for perspective. Now, every time I think about selling or buying an investment out of emotion, I say, 'go to the balcony first.' I pull back, get out of the thick of it and confirm it's my head, not my cortisol, making decisions."
Take the devil's horns off of debt.
I asked our experts: What is one money convention that they completely disregard? Julien and Kiersten say they don't credit card hack-because they know that that approach will lead to more spending. Rather than vilify all debt, they put some serious thought into all the offers on the table. "We opt for simple cash-back, no-annual-fee cards because we value having flexibility and cash over the occasional discount or free splurge. When we go on vacation, we don't want to be limited by the amenities and services that are only available through a rewards program. We want options."
I asked Sanchez the same thing, and her lesson learned was also about debt. She rejects the rule "that you shouldn't have leverage (aka debt). Smart debt can be one of the most powerful things a human can use. If I could go back and teach myself anything about finance and money it would be to know when to use my own cash and when to get OPM (other people's money). A mortgage is an easy one, a cash-out refi is less well-known, small business loans even less, small business grants lesser still."
"The world is trying to give smart, responsible people money," she adds. But so many of us have been told that debt is the devil, we'll never learn how to properly leverage it for the greater good.
Avoid having too many cooks in the kitchen.
Before Julien Saunders became a fan of finance, he was a professional chef. Now he and Kiersten blend the two in their YouTube channel, Money on the Table, where they hash out money issues over a home-cooked meal; he even launched an e-book to promote eating well on a budget. Over the dinner table, they touch on sensitive topics, such as how the "sandwich generation" manages financial responsibilities to both their kids and aging parents. But when Kiersten's mom dropped by mid-episode to help cook, even the trained chef put down his tongs. And that's how the Saunders believe finances should be, too.
In the world of outsourcing and personal finance influencers, there are a lot of people who swear by collaboration in money-but Kiersten and Julien say that sometimes, you really have to think that through. Getting too many "cooks" involved can lead to wasted time and resources that could've gone towards accomplishing a business or personal goal.
"Spending time with like-minded people is certainly important," they say, "but we don't overvalue collaboration." Instead, the couple prioritizes knowing when to lead and when to follow.
Don't overthink it.
Sanchez is certain that "getting rich isn't easy, but it is simple." She breaks it down: Earn as much as you can. Negotiate salary increases at least once a year. Invest before you spend. And if you don't have discipline, auto-invest through sites like Fundrise, Wealthfront, or Betterment that will do it for you. Then, acquire assets that appreciate: Think real estate, small businesses, and dividend-paying stocks. Last, get enough passive income to cover your expenses, so you can stop worrying about work. It's that simple.
The Saunderses agree that most people get in their own way by overthinking it. "Having less to think about with respect to our money makes managing it much easier," they say. They bucket expenses under categories instead of managing dozens of individual line items. And creating simple investment portfolios with a handful of holdings has reaped enviable returns. It might seem completely illogical that slowing down is the secret to leveling up, but these experts say that there's something invaluable about simplicity.