Talking about personal finance with others evokes a lot of strong opinions, passionate debates, and all sorts of advice. But sorting through everything can be hard – what’s valid, what comes from knowledge rather than feelings or personal anecdotes? What will actually translate into better money management for you?
Sometimes what you hear is unorthodox – but could it still work? Let’s sort through some of the more controversial thoughts out there. I found a Reddit post where people posted their own controversial financial advice – let’s dive in!
To Budget Or Not To Budget?
If you have read my blog before, you already know where I’m going to land on this. But it’s a constant debate. A number of people feel that, particularly for people who have higher incomes or a healthy savings account, that budgeting is more of a time-waster than a money-saver. Others say that you should budget on a broader scale – allotting a certain amount to savings or debt, but not worry about budgeting for individual expense categories, like how much money goes to gas versus how much money you’ll spend on car maintenance.
Budgeting can be a very personal thing – it’s true. And not everyone needs to budget down to every item – it’s fine to budget X amount for eating out, rather than Y for lunch and Z for dinner, if that works for you. But you do need a budget, and it should be more than savings, rent, and general expenses. Otherwise, when you go over budget, you’re going to be wondering where it went, and you won’t realize that you had to pull money out of savings for gas, because you overspent on dog toys! (Although your pup absolutely deserves it!).
But the underlying issue is that many people find budgets to be restrictive. They shouldn’t be – they’re not prison sentences, they’re guides for your money. I’ve found people to be a bit more open to the idea of using a “spending plan” – basically, a budget with a better name, because that’s what they are —plans for spending your money.
Spending plans are flexible. Yes, you may intend on spending X amount on your pets, but when you see that really expensive new dog bed that they’ll look so cute sleeping on…what are you to do? The key is balance. The spending plan lets you say “Yes, this will put me over budget on my pet category, but if I eat out one less time this month, I can reallocate the savings to Fido.” Then you can decide if it’s worth it! That’s it – there’s no budget police saying you can’t spend the money how you want, it’s just about acknowledging that spending on one thing may mean not spending on another. It’s about giving you a choice.
[callout box] Budgets, or spending plans, are necessary. You can’t manage your money if you don’t know where your money is going.
The Retirement Savings Paradox
Another controversial debate is about how aggressively you should save for retirement. Some say you need to save aggressively to be prepared for inflation, potential significant health issues, and leaving a legacy. Others say that being too focused on saving for retirement means you’ll miss out on the present. After all, you could be hit by a bus tomorrow, and then you’ll regret not splurging on that dream vacation.
I fall in the middle. I absolutely believe in living life well. Money is a tool to be used for security and enjoyment, and if you’re too frugal and worried about the future, money may be controlling you, not the other way around. However, my family is also particularly long-lived, so I also see the importance of having robust retirement savings.
So, what’s the solution? How can you do both?
The first step is to figure out what you want from retirement. Do you plan on going full-hermit in a little one-bedroom cottage in an area with a low cost of living? Do you want to see the world via back-to-back luxury cruises, staying in a stateroom and doing every excursion you can sign up for? Those are two very different cost levels and you’ll need to save very differently. So, make a plan – and take into account your family medical history (and health issues you may face), life plans like having kids, and any responsibilities you may have (caring for your parents, for instance). Then you can estimate how much retirement will cost you and figure out how much you need to save.
Once you have a plan…here comes that dirty word again. You need to budget. Add how much you need to save each month into your budget. You’ll find that by saving earlier and steadily, you won’t actually need to save as much because your money will grow. And THAT means more money in your budget that can go towards experiences NOW rather than later. See? It’s all about balance and choices.
The second debate surrounding retirement finances is when to take social security. Should you choose to start payments early at 62, accepting a lower monthly payment? Or should you wait until full retirement age (around 66 now), in order to get the maximum monthly payment? The truth is that it varies from person to person (and that’s the nuance often missing from the debate). People with active health issues that may make working difficult, people with poor family medical histories, or people with significant retirement savings may choose to take social security payments earlier, even if the payments are smaller. On the other hand, in my family, we tend to live until we’re 90-something, and are pretty healthy into our 70s. Under these circumstances, you can benefit more from waiting to take social security because after retirement, you’re probably going to live for another 20 or 30 years. If you can work comfortably until 66, and/or have built up enough savings to retire at 62 while not needing social security right away, you’ll get more money back (because remember, you pay into social security – it is your money) by waiting longer for that higher payout.
[callout box] Saving early and wisely for retirement means you don’t have to save as aggressively, and means you can have both – amazing experiences now, and a financially-secure future.
Good Debt, Bad Debt
Debt is bad. All debt is bad. You should never do anything if you can’t pay for it completely up front.
Debt can be good. It’s okay to have “good” debt if you leverage it to build wealth.
Those are two fairly different opinions. As a money expert, yes, there are ways to leverage debt to build wealth. However, I never recommend them.
Why? Because most people don’t have the knowledge, the discipline, or the back-up plan to do so successfully. People get credit cards and say they’ll only use them once a month and pay them off immediately, or it’s only for emergencies, or it’s to consolidate debt because your money makes more in interest in the bank. The problem is, that one month that you forget you put a tank of gas on your card and don’t make the payment, you’re paying interest. Or the day when everything’s going wrong, and you convince yourself that dinner at your favorite restaurant – a meal that doesn’t fit into your budget – is an emergency, just this one time, sets a precedent, and you’ll find yourself in debt – and the “bad” kind.
Again, nothing’s clear-cut. A mortgage is a debt, and one that many people need to take on if they want to own a house before they retire. But your second home? That pretty little cabin on the lake? Pay cash or don’t buy it. A car loan because your vehicle is DOA may be a necessity, in order to get to work. But a car loan for your dream convertible? Nope. You can buy a used, reliable workhorse of a car at a quarter of the price, and start a sinking fund for your dream transportation.
And if you already have debt – yes, you might get a better return on your money by investing it and only making minimum payments (of course you might not), but debt will stay a weight around your neck. Instead, focus on paying off that debt as quickly as you reasonably can, and then worry about boosting your investment portfolio.
[callout box] Debt isn’t inherently the worst thing, but it creates risk and can endanger your financial future. It’s better to not take the risk. Eliminate debt and you’ll have less stress.
The Frugality Fallacy
So many times, when we talk money, we hold frugality up as the golden standard, the best virtue you can have. You should be cutting expenses to the bone, constantly looking for new ways to save even more money, and forgoing any luxury in order to prioritize saving at all costs.
Others say frugality is overrated, and that cutting expenses won’t help. Instead, you should focus on bringing in more income – getting new certifications to get a raise, starting a side hustle…starting another side hustle…
Neither is wrong, and neither is right. Yes, bringing in more income will help you achieve your financial goals. Yes, I support continuing education – after all, you’re reading my side hustle! But just focusing on bringing in more income doesn’t help, if you then allow lifestyle creep, or if you don’t make responsible spending decisions. And, yes, cutting expenses can help – but you can only cut them so far. Without any joy or fun – and money is what can pay for those – what’s the point in life?
So again…we budget. We find that balance. I forgo constantly dining out during the school year because I love to travel, RVing around the country for three months every summer. I don’t buy designer purses because it’s more important to me to be able to spoil my pet. I have a side hustle because…ok, well because I LOVE talking about money, but also because it boosts my income, and gives me the option to retire from my regular job when I want.
Because I know my priorities and have found a balance between saving and spending, money doesn’t stress me out. And really, that’s the key. Working non-stop to boost your income? Stressful. Never spending a penny on anything fun? Stressful. Balance? Zen.
[callout box] Balance is key. Cut expenses where you reasonably can. Boost your income where you reasonably can. Don’t fall into the trap of all or nothing.
The Impact of Lifestyle Choices
Rent or own? Pursue a high-paying career or work doing something you love that pays less? Splurge on experiences or creature comforts? These are the real questions and this is what it all comes down to. Every money decision you make will help to shape your life. You can have a high-paying career and never have to worry about paying your bills, but it might drain you, and you’ll come home every night wanting to quit. You can make yourself feel better by buying that stylish new designer couch for your McMansion…but then you won’t have the time or money for a trip to Fuji next year. You might hate cleaning that McMansion, and wow, hey, it needs a new roof … but at least you’re building equity that’ll pay off in thirty years, right?
Here’s the thing. There are no wrong decisions in lifestyle choices – as long as you can afford them. You get to decide what’s important to you. However, there are some…we’ll call them notes.
Do I recommend a 22-year-old new graduate who is just starting their career, buy a house? No! Because, in that season, a lot of life is up in the air. A young person who is just entering the workforce is likely to move to another city for a better job within a few years. Unless you’re sure you’re going to stay in the area and in that house for at least five years, you’re better off renting for a while. You can focus on starting your career without being responsible for maintenance, without worrying about the ups and downs of the real estate market, and you’ll have more flexibility to save money and chase your dreams. Later, you may want to buy, or you may continue to prefer the flexibility and carefree life of a renter.
Experiences or material things? I prioritize experiences, but that doesn’t mean the other is wrong. It’s about making the decision for yourself and not just following the crowd. Do you want this designer purse because you absolutely adore it (for me, it’s Coach…) or because Instagram says it’s going to make you look like the It Girl? Will that purse make you happier than a weekend at the beach with your best friends? Maybe … only you can decide that.
High-falutin career or following your passion? It depends. Maybe you don’t love computer programming, but it pays well, you’re good at it, and it doesn’t make you cry. You may find it’s worth it to take the job, because of what it allows you to do outside of the job. Maybe, by being a programmer, you can tour the world and work remotely. It’s okay to say that’s the priority! Or, maybe you prefer be a social worker, live in a smaller house, and travel less because you feel rewarded by helping people and having a small part in changing the world. That’s great!
What’s not great? If your career makes you suspiciously eye that knife block in your kitchen. If you’re so worried about sacrificing money or job satisfaction that the benefits don’t outweigh the cons for you. If that is the case, you need to step back and take another look at your life priorities – of which, money is only a part. Find your happiness.
[callout box] There are no wrong lifestyle choices because it’s your life. Find your joy, make sure the benefits of the choices you make outweigh the cons, and that you can afford your choices.