Personal Finance Advice on the Internet is Bogus

After getting more and more comments about making money, breaking out of the middle class and generating passive income we decided to read a few popular personal finance blogs. The first step was realizing that most of these blogs encourage you to live a boring life by focusing on net worth instead of the much more important number, Adjusted Lifetime Spending.

A quick digression.

After an hour or so of reading personal finance blogs it became irritating. So irritating that we’re going to go ahead and outline every single piece of terrible advice you are receiving. Lets begin.

Bogus Rule #1 Save 10% of Your Income: Anyone who gives out this sort of advice is making a cruel joke, is broke or is a liar. One of these. The 10% rule does not work because your income should increase over time. If you save 10% of your income for life and your income never increases, you will be able to “retire” (see die) at the ripe old age of 60+ with the exact same standard of living… if you want to call it living.

How is this a cruel joke? Easy. If you believe you’re doing the right thing by saving “10% of your income” you’re going to lose motivation immediately. In your head you will mentally believe that you’re on the right “track” and instead of reinvesting in yourself you should ride the smooth wave to the same mediocre life at 60!

How is the person broke? Well if the person believes this, then there is absolutely no way he made it rich on his own. Why? If you actually want to get rich, you are busy generating a lot of income for many years of your life (usually in the beginning) so you are actually saving closer to 75%+ and hit closer to $1M by thirty or so. Why again? Simple, your life is extremely miserable if you try to live off of 25% of your income and have a salary of $100K a year… 25% on $400K is not difficult and the game works in your favor.

How is the person a liar? If the person is not trying to ruin your life with this cruel joke and the person is actually wealthy… then he is trying to sell you a steaming pile of horse sh*t. What is he actually trying to sell you? It depends.

– If this advice is coming from internet blogs (subject of this post) then he/she is trying to build a connection with you to keep you on their site generating money for them. Ever notice they try to make it seem like they were “just like you” in the ***past*** what an outstanding coincidence!

– If this advice is coming from a financial advisor (read broke guy who makes $80-100K a year). He is actually trying to get you to open accounts for his $50-100 bonus! Again, he is a liar.

– If this advice is coming from your employer? They want you to save just enough to feel good about yourself but not enough to be independent and quit! It also helps because knowing you can never leave allows them to pay you a smaller bonus.

There you go. Bogus advice #1 busted. Try to save 25% of your income per year and you’ll realize that the only way to do this, without stabbing yourself in the eye with a hot needle, is by generating significantly more income than average.

Bogus Rule #2 Focus on Day to Day Purchases: This is the second most useless piece of advice. It comes in many forms. You should spend your extremely valuable brain cells on… watching your $4 latte purchases, $4 bag lunch vs $7 take out lunch and you should be laser focused on $3 toilet paper versus $4 toilet paper. Just like the toilet paper, you should wipe your a** with this advice. Before getting too annoyed by this, it actually follows the same outline as above! Anyone who actually believes this is the way to become wealthy/rich is playing a cruel joke on you, is broke or is a liar.

How is this a cruel joke? It is a cruel joke because you are going to develop a frugality mindset. In addition to this development you’re not going to think about the extremely high cost of avoiding coffee. Want a solution? Every single time you get coffee, buy two, one for you and one for the guy you’re meeting for coffee. Now you’re down $8 instead of $4. How long does it take to make $8 with practically no skills? About 30 minutes. Go on fiverr and do a mundane job at your desk to make up the cost. Here’s the rub. If you can continuously find someone useful to have coffee with, the return on investment in a year is probably going to be $10,000 or so. How does that coffee taste now?

How is the person broke? Lets see… How many rich people do you know that fret about a $4 coffee? That is correct! Zero! If you are able to meet a rich person for coffee there is a zero percent chance he is going to be interested in the coffee. None. In addition, notice the trick from the question above… Rich people don’t pay a cent for coffee. Caffeine for thought.

How is the person a liar? Lets put the two points together. If you are telling people that saving $4 on coffee and $2 on toilet paper and $3 on bag lunches made you rich… This is mathematically impossible. Literally. If you saved an extra $10 a day for the rest of your life you’re putting away $3,650 a year. This is a rounding error.

Bogus advice #2 busted. The reason they are giving you this terrible life advice is so you feel better about your life when you read their blog. “If I just save $10 a day more I can be rich too!!!! (completely ignore the person’s $500K internet income!)”. If you feel better about your life after reading their blog, you are going to post their website links on twitter, facebook and instagram… This generates more income for them and you’ve been sold mathematical snake oil. In short, they made you feel good so you could spread their gospel… see make them rich. The “family man” is really just the mob, you are part of “the family”… doing his dirty work.

Bogus Rule #3 Bond Exposure Should be Equal to Your Age: Ahh yes lets continue to take advice from broke guys who only have $500K in assets! This makes complete sense. If you have bond exposure equal to your age this means that when you graduate college you will have 21% of your total assets earning 0% in inflation adjusted earnings power. Too complicated? The reality is here: bond and CD exposure = $ you are unwilling to lose.

In a low interest rate environment, the net gains by a diversified bond fund is likely in the 3-4% range. This means the yield is roughly offsetting inflation. So? The only time you should have exposure to bonds is when you are financially independent.

If you are not financially independent here is where you should invest your money. 1) In yourself. In anything that will actually generate real dollars for you over the next 2-3 years, 2) in a business you are starting where you can get cash on cash return within 1 year and 3) in index funds since you have to take on risk in order to move towards financial independence in the first place.

Other than that? If you have a low net worth keep a few months of living expenses in the bank in case you hit a rough patch and get to work on how you should really invest as noted in the three points above. The implied message is obvious, you have to continuously take on risk and volatility until you hit your stride. It will pay off.

Bogus Rule #4 Spend 30% of your income on Housing Costs: This is laughable at best. Housing costs at 30 percent implies that you are going to be spending at least $2.5K per month on housing if you make $100K a year. This is insane! You don’t make enough money to afford $2.5K per month if you’re only generating $100K per year. Lose the ego and downsize.

Until you hit your stride financially, you should spend as close as possible to 10-15% of your income on housing. If you are fresh out of college working in a legitimate career then you’re going to have roomates. Tough it out. You’re not going to spend any time in the room anyway (if you’re smart!) so there is no point in having a high end place. When can you spend 30% of your income on housing? When your passive income is more than 2x this metric.

Bogus Rule #5 – Get Rich Slowly:  Complete and utter lie. No one who is actually rich gets to their level in a long period of time. There is not a single successful person on this planet who got rich over 40 years and the general public knows his name. Not one. The reality is that you get rich in a windfall or by grinding out a large amount money over a shorter period of time. Why? The laws of mathematics once again!

Lets say you are happy with your lifestyle but you’re only saving 10% of your income… Now lets say one year you sell a business you were working on. It is sold for 10x your annual income. Boom an *event*. Assuming you do not spend the proceeds… you never have to worry about finances again. Why? Your savings just increased by a factor of 100x. Most people think their savings rate was only 92% versus 10% which doesn’t sound like much… This is not how you do the math. If you were saving $5K off of $50K a year, you incur an event at $500K, you just saved $500K/$5K = 100 years of savings in a single day. Make no mistake, most people who actually become rich have an *event* that makes it rain so hard the Mojave Desert could be turned into a swamp land.

Second way to get rich? Re-read point number one. If you go through these personal finance gurus who really tout “saving slowly” as the way to get rich you will realize that they made 3-4 times the median national income.  It is simply non-sense. Place any normal human being in a major western city, give them an ounce of self control, pay them 4 times the median income of that city and they can save 9x the median income in just three years. Look at how quickly the math works in their favor: Average income $50K, earned income $200K = 3 years at saving $150K = $450K…. $450K in three years = $450/$5K = 90 times the median savings of the median household. 

It had absolutely nothing to do with slowly saving money. It had absolutely everything to do with making money fast, fast, fast. The best robo-advisors out there are going to return 7% – 10% a year, maybe. You ain’t gonna get rich quickly that way.

Bogus Rule #6 – Focus on Entertainment Cost Cutting: This appears to be the “new age” personal finance advice. “Cut your cable! Just use Netflix!” or… “Go to XYZ cheap carrier and save $40 a month!”. This type of advice should make you puke. If you are thrilled to find a way to cut your costs by $5 a month through internet research you’ve already lost. You are running head first into a brick wall at full speed. Why? You’re not addressing the real issue. Why are you consuming entertainment instead of consuming information?!

Here is what you do instead. At the end of every single year you can review your budget by getting into an excel spread sheet or using mint.com or a similar software. Got it? Now for one full day you get to browse the internet and find all the fixed costs you can reduce. With us so far? Once you spend 8-10 hours doing this, make all the changes and you no longer get to review your costs for the rest of the year.

Congratulations. With this simple step above, you better make at least $10K more this coming year. Take all your free time that would have been wasted trying to save $5 and go earn money instead. If you don’t make $10K by following this advice you’re wasting your time consuming entertainment off of your “cheaper” television costs. The real cost of television is not the cable bill. The cost of television is the time you waste watching it.

Bogus Rule #7 – Buy a Home: Simply put, no. If you buy a home you need to realize that the long-term expected returns are flat with inflation. Flat. Think about this for a moment, if you are going to put down a sizable amount of money, say $200K for a $1M home… Then you’re locking in all of that cash at 0%. If you don’t believe this data simply look up the Case-Shiller composite. If you don’t want to do this, the summary is that the real value of a house is “in-kind”… this is a cute way of saying “feels”. Last we checked “feels” do not buy anything.

If you are a housing evangelist then here is the blueprint to buying your home:

1) Be 100% certain you do not want to leave the area for the next 10 years

2) Befriend a lot of people who can do housing construction for you on the cheap. This will take you 2-3 years to develop strong relationships so you receive a legitimate discount on renovations (yes you must add value to their lives)

3) Buy the home with cold hard cash, no debt

4) Buy a fixer upper

5) Call your new friends to help you make changes

6) Your only costs are now maintenance (use HOA costs for high end condos as a proxy – 1% hit per year)

7) Simply assume your home will grow at a rate of 1% maintenance + 2-3% inflation over the long run

——-

There you go, now you know the truth about the personal finance space which is full of lies and bogus equations that will ensure you remain broke for 40+ years and wondering “where your life went”. We have said this at least 100 times in the past, but if it is popular and mainstream you should probably do the opposite. Practically everything on here advocates the opposite:

1) Try to save the inverse of 10-20%… Try to save close to 80-90% of your income! The implied message is go out and make money so your life isn’t miserable off 10-25%

2) Double down on day to day purchases, buy TWO coffees, one for you and someone you want to build a relationship with.

3) Bond exposure is practically useless unless you’re financially independent, no risk, no reward

4) Housing costs should be a bare bones minimum since it eats too much of your income. You should be working extremely hard if you are broke which means you won’t be hosting dinner parties with that granite counter-top anytime soon.

5) Getting rich slowly is a myth, getting rich happens fast, fast, fast, fast, fast!

6) Forget fixed cost cutting. You get one day per year at maximum to plan all your cost cutting at once. After that 80/20 rule applies and its no longer worth your valuable time.

7) Unless you’re not going to move and love the location/city, do not bother with buying a home since it will be an inflation adjusted neutral investment

Finally, after perusing the web for a few days reading laughable personal finance blogs that talk about coupon cutting, wireless data plans and black friday saving tips we continue to recommend only one other personal finance blog which is Financial Samurai. This is the only other blog that admits the real way to get rich is by 1) working extremely hard to obtain high paying position or by 2)  starting a business. The math doesn’t lie.

***Side note, notice we don’t agree with his views on housing, you don’t learn anything from someone you agree with. If we agreed on everything we wouldn’t bother reading it**

Related Posts:

How To Start A Profitable Blog And Be Free From Corporate BS

How To Make Six Figures At Almost Any Age

Never Quit, Always Get Laid Off Instead For The Severance

Comments

  1. Ben says

    The coffee example is on point. You should be getting far more than $4 value out of the conversation if you’re going for coffee, even just enjoying a visit with an old friend that isn’t for networking purposes. Cost of the cup is irrelevant.

  2. Financial Samurai says

    Love It! I reminisce on the time where I was able to write these types of articles. I’ve since toned everything down as the audience has grown.

    The fact of the matter is that it is much easier to save and be frugal than to encourage anybody to work on their “X Factor” to make more money. The largest personal finance sites that have been sold for millions all focus on frugality, which is why I’m screwing myself on FS from a growth and readership perspective by never talking about saving on laundry, food, coffee, whatever.

    I agree with you on bonds and other ‘defensive’ asset classes. My goal is to have an offensive and defensive portfolio. Protecting my accumulated financial nut is priority #1.

    On housing, I just love real estate, mostly because of the utility factor. Money is pretty empty if it’s just sitting in cyberspace, accumulating digits. With real estate, one gets to enjoy their money. I always buy property with the intention of holding on to it forever fyi.

    Regards,

    Sam

    • Wall Street Playboys says

      Exactly Sam.

      Focusing on earning money is much harder than looking for coupons online to save 3% off you Amazon purchase.

      When does the easier path work? Never.

    • Stringer Bell says

      That’s not what Sam preaches. He preaches frugality. Like spending 1/10 of your income on a car and saving the rest. I’d rather buy a $20,000 CPO car which is clean and matches the image I’m trying to portray. I drove a $1000 car for 5 years, and I did not feel good rididng around in a rust covered beater. My MO is make more money, live well.

      • Wall Street Playboys says

        We disagree on that one. 1/10 on a car means you only have to make $200K to afford a $20K car.

        We believe he means you should earn more before you deserve a nice car. We agree.

        Hence why when we posted you should spend 10% of income on housing, the implied message is NOT to live in a dump but to increase your income so you don’t have to live in a dump.

  3. JBlaze says

    The only reason to purchase a home is to generate an income from it. However you don’t buy single family dwellings, you buy multi-family and commercial property. Purchasing a home is when your passive income from those investments equals about 50% of the home value.

  4. KW Stout says

    Out of curiosity, what’s your take on Ramit Sethi? He is guilty of the whole give financial advice, while simultaneously making his money off giving advice. On the other hand, he shuns the “skip the lattes” advice and focuses on advice about earning more.

    Found you through D&P and I’ve really enjoyed your content, keep up the great work!

    • Financial Samurai says

      One of the reasons why I’m so bullish on the internet is exactly b/c of examples like Ramit. Think about it. He was able to make lots of money with his book “I Will Teach You To Be Rich” when he wasn’t rich and just out of college. People ate it up!

      He has since parlayed the book into creating courses about getting a raise or promotion at work, even though I don’t think he’s worked a corporate job before, or at least not for long, and courses on making money online, which he is obviously an expert.

      Anybody can do ANYTHING online and do very well from themselves. Journalists are writing about retirement when they have no clue or are not retired or are in huge debt. The world is amazing because of all the opportunity there is for anybody who wants to try.

      Sam

      • Wall Street Playboys says

        What Sam said. The guy scammed everyone by coming up with a catchy title for a book.

        Go download his free samples, want to make a bet it’s the same bullshit! 401K first, go and negotiate pay increases, cut your subscription costs LOL.

        Same bull f***ing sh*t.

        Note he follows us on Twitter and is likely going to unfollow after this, already screen capped though. LOL!

      • Financial Samurai says

        At the end of the day, Ramit built a brand, figured out how to market his teachings and products, and made millions. He succeeded, and one has to give him props for that.

        The point is for people to TRY.Too many people don’t believe in themselves. If Ramit can do it right out of college, why can’t others too?

        There’s just too much opportunity online and in this world not to try.

      • Charlie says

        A case of “look at what I do, not what I say”.
        Get rich magic pills do sell. I always get amazed how easy it is to sell magic to the common person.

      • Anon says

        I’ve bought one of Ramit’s (very expensive) courses and was disappointed. A lot of the information was pretty basic stuff you could find online but it was packaged in a way that made the info seem greater than it was (ie. fancy video shoots, presentation slides). But, like FS said, you have to give him credit for building his little empire, just like so many other finance gurus have.

      • myownopinion says

        @Financial Samurai – not to sound like a hater, but i think you sold out as well with your website. Quality of content and comments you write are just so nice and targeted to the masses. I have a lot of respect for what you’ve done and how you got to where you are today, but the financial and lifestyle advice on WSP is as straight forward and no-nonsense as you can find on the web today.

  5. WINNER says

    Great post. Thank you for exposing the truth. I would love to see a post on debunking the retirement myth and the options on what to do during that time. As we get older I have seen that our options decrease for employment. Not a lot of companies want to hire someone over 40 especially if you have a lot of experience. Companies would rather hire a 20 year old with no experience and pay him crap than a 50 year old with knowledge and experience. Once again thank you for everything. P.S. what other financial books do you recommend besides the two that you have on the list. I bought those two and read it. Thank you…

      • Tom says

        Why use cash if you can get more favorable returns in the market? Investment property mortgage rates are still well below 7% market return. Additionally, set up an LLC and your mortgage interest expenses are tax deductible with no limit (unlike 1.1mm for own home). You all are bright so I might be missing something. Thanks

  6. Financial Samurai says

    @MyOwnOpinion – I really enjoy haters due to the motivation it provides to keep trying harder. So no worries! If you would like to contribute a post on a better way to write and article on my site, let me know. New perspectives are great.

    • Recent graduate says

      As WSPB would say, read for information not entertainment.

      I enjoy reading your site Sam because it’s more than just number crunching. It’s about mindset as well. Thanks!

      • Financial Samurai says

        It really is a lot about having the positive mindset. There is so much money out there for the taking. You’ve got to believe you also deserve to be rich.

  7. Benjamin says

    This advice will go over a lot of people heads due to the fact that the majority of population is in consumer mindset. Most people think spend money to consume (entertainment, rule #6), no return. You are saying spend money to invest (info, grow business, assets etc). This is the mindset shift that is needed to break out of middle class. Produce value, don’t consume value. Keep up the good work.

  8. Sim says

    Creation as entertainment, as opposed to consumption of entertainment.

    Think: painting, writing, producing vs watching football, video games.

    One gives you a product, the other nothing.
    Produce > Consume

  9. Tomas M. says

    Great article! Can i ask you if you read mr money mustache? If yes can you give your honest opinion on it?
    Thank you WSB

    • Wall Street Playboys says

      Have read 5-10 articles on the blog. No longer read it.

      While intentions are great, not willing to live that type of life. Also the main reason he pulled off what he did is that 1) their combined income was near $200K (more or less, just read the history of his money making – he was clipping about ~$150 and his wife at ~$50K) and 2) his ability to find a wife who had the same views as him. If you want to follow his model the real key is clear… Make $200K.

      Again advice around frugality/savings is complete and utter nonsense, no one gets rich saving an extra $3-5K a year.

      • dan f says

        the other thing MMM did was make a killing off some stock he received from his employer as comp, plus other stocks that he got lucky on. getting lucky (or being good) by making a killing on stocks is another windfall type event that can push you into the next level (e.g., you invested heavily in a stock that 10x’d)

  10. imho2015 says

    he encourages people to use less utilities, use the library as the top entertainment choice, not to buy clothes, etc..

    not sure what type of women you’d most likely find who’d want to join you for that life journey…

  11. ashoyoy says

    This is great guys. I was never a big fan of those personal finance blogs as they usually didn’t answer the question. That and they came off cheesy. Do you read Daily Reckoning?

    Thanks for this!

    • Wall Street Playboys says

      No we don’t. We don’t have time to read 99% of things on the Internet even if we like the authors. Too busy.

      Also we changed your name, do not use your actual email as a screen name. Not safe for sketchy spammers.

  12. My Own Advisor says

    Great post!

    I really liked this:
    “How is the person broke? Lets see… How many rich people do you know that fret about a $4 coffee? That is correct! Zero!”

    Wealthy people, I’ve found, focus on saving money on big ticket items, not sweating the small stuff.

    Mark

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