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5 unconventional truths about money

Ramit Sethi

Make Extra Money

Imagine you spent years getting really good at something — maybe weightlifting, or ice skating, or personal styling, whatever. Then you went back and read the “introductory” articles about how to succeed.

You would want to grow arms like Gumby, reach through the computer screen, and strangle the writer.
And that is exactly what I find myself wanting to do. Because I’m a glutton for punishment, I like to read conventional personal-finance advice to remind me how most people learn about money. It’s like watching videos of removing 25-year-old blackheads (do not click that unless you want to watch the best/most horrifying video in the world).
For fun, and self-flagellation, I recently watched this video warning against the evils of getting a tax return. Notice the 3 bullets pointing out what you “could” do with your tax return money, which of course you will not do.
So today, I wanted to remind you about 5 money truths you won’t hear from most other “experts” — along with links to some of my favorite articles.

UNCONVENTIONAL TRUTH #1. Tax refunds are a good thing

Around this time of year, pundits love to say things like:

  • “If you’re receiving a tax refund, you must be doing something wrong!”
  • “The government is making interest off your money!!”
  • “You should only be sending the minimum amount!”

Ignore them. The truth is, if you’d had that money, you would have spent it. And research shows most of us take our lump-sum tax refunds and save them…or pay off debt. And what did you miss out on? $3.80 in interest? Please give me a break.
Read more about why tax refunds are good.

UNCONVENTIONAL TRUTH #2. Budgets don’t work

 2014-04-11 comment

Who wants to live like this?

Even if you were able to keep a budget for more than 30 days — which almost nobody does — what then? Oh, so you look back at your spending for the last month and realize you spent too much? Then what?
The fundamental error in budgets is a misunderstanding of psychology:

  • Tracking my spending is hard
  • Looking at my spending makes me feel bad about myself
  • So let me get this straight…I’m supposed to spend hours every month tracking my spending, only to feel guilty…and then do that for the rest of my life?

Right. The idea of, “Yeah, I should really keep a budget” has been more responsible for guilt than all Asian parenting — combined. And that is an impressive amount.
I want to let you in on a little secret: I know a lot of these financial experts. Very few of them actually keep a budget themselves!
Perhaps after 50 years of berating Americans to keep a budget…showing them multiple compound-interest charts…and lecturing them about why buying bananas in packs of 50 is CRITICAL TO FINANCIAL SUCCESS!!….perhaps it’s not “trying harder” that will work. Perhaps budgets just don’t work.
What to do instead: Automate Your Finances 

UNCONVENTIONAL TRUTH #3. Big Wins beat frugality

We don’t believe in cutting back on $3 lattes. Who cares? Not only do you feel horrible about yourself every morning, it doesn’t really add up to that much anyway. Oh wow, you want to save $3, and 39 years from now, you’ll have $38,000 saved? Wow, amazing. I’d rather just get a $10,000 raise, or automate my savings/investing, and buy all the coffee/hot sauce/appetizers I want.

We don’t worry about minutiae. We focus on the BIG WINS.
Read these:

ramithotsaucefestivalMe, buying $10 hot sauce and NGAF because I focus on Big Wins

UNCONVENTIONAL TRUTH #4. “Unexpected” expenses are actually pretty expected

Read any comments by freelancers and witness their favorite thing in the world to do: complain about how hard their lives are. “Sure, all that automation might work for YOU, but I get paid $200 one month, then $5,000 next month. What am I supposed to do???”

You’re supposed to stop whining and implement systems to handle your “unexpected” expenses and income.
Truth: Given enough time, unexpected expenses are very expected! For example, I knew that I would get a traffic ticket approximately every two years, so I could create a sub-savings account (“Stupid Mistakes”) to plan for it. I didn’t know when…but I knew it would happen.
Check out this couple who are actually CELEBRATING a large, unexpected tax bill. Notice a few key words:

  • “We have enough money in a sub-savings account to easily cover it”
  • “We owe more… because my husband increased his income by 35%”
  • “Our money mindset has changed dramatically…we are having fun!”

RBTcommentThey are part of my Brain Trust program.

Here’s how to plan for unexpected expenses: Read this and this.

UNCONVENTIONAL TRUTH #5. Ignore the news. Your personal finances have very little to do with the macro economy

Entire industries are built on the absurd notion that you have to pay attention to every stock-market gyration, every currency fluctuation, and every pundit’s bowel movements.

Without it, what would CNBC talk about? Or money magazines?

For most of us, the government, the economy and other macro-economic forces have a minimal effect on our personal finances. You keep doing the same, boring thing: automatically saving, investing, and adding value to the world. I did it when the stock market was up. I did it when the stock market was down. I profited handsomely over the long term.

Here are my thoughts from years ago — just as valid now as then.

Instead of focusing on forces that you can’t control (and that have little day-to-day effect), focus on big wins.

And a couple other bonus ones:

Hope this was useful. I love reading these old posts and sharing them with you.

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