I know what you’re thinking…
What are normal financial rules?
Basically these are financial rules of thumb that focus around money that 90% of the world or so believes is concrete and everyone should follow them.
I’m here to tell you that many of these rules I disagree with and I will share two with you today.
My first piece of advice here is to never trust anyone that tells you an absolute rule.
Especially about money.
Money management and personal finance is always on a case by case basis.
And I’m going to walk you through my take on this today.
My Take on Financial Rules & Management
Now, since I was 18 I’ve classified people and their financial needs in two ways.
There’s the slow and steady group. The people that save for retirement, pay off their debt ASAP, buy a house and a van, keep the same job for 40 years and then live off their pensions.
This is for the cops, teachers, military, mechanics or basically any person who is counting down the days until they can retire. The type of people that follow Dave Ramsey and Suze Orman.
This post is not for you. Not to say there is anything wrong with that, if that’s the lifestyle you want. I just will be spilling out some reasons why I don’t agree with the financial rules that you should follow and I don’t want to confuse you.
Now you’re probably wondering what’s the other classification of people.
This is the 10% who are trying to become the 1%. The people actively trying to become within the wealthiest of the world and not trying to wait until 65 to get there. The people who follow Grant Cardone and Robert Kiyosaki for their money advice.
More importantly, most of the people are entrepreneurs in this category. The people who fall into this category might resonate with the points made throughout this post so get ready…
Like I said before, my way is not the right way. Dave Ramsey’s way is not the right way. Your high school friend who is now living out of a shoebox is not the right way. No one has the right way to manage money. We just have ways that work (or at least think they work) for each of us.
So let’s get into the rules and my take on them…
The 50/30/20 Rule
Most people don’t know this rule has a name but it basically means 50% of your income goes towards necessities, like housing and bills. 20% goes towards financial goals like retirement and investments and paying off debt and then 30% goes into wants like vacations and entertainment and those type of things.
The reason why I don’t agree with this rule is for two reasons. The first one is when you’re an entrepreneur your income is so volatile that you can’t live this way. One month you’ll make $5,000 and the next month you’ll make $2,000 then you’ll jump up to $10,000.
We can’t keep an absolute rule like that when our income varies so much.
The second reason why I don’t agree with this is because this rule doesn’t factor into self growth. The number one factor that will help you reach success is investing in yourself. Buying books, learning from online courses, going to conferences and traveling, and having the ability to create multiple income streams are so important and these things compound over time.
In 2014, I spent close to $700 on books and courses. I then kept track (I’m a spreadsheet nerd) of the income from the things I learned. It was close to $4000 from the new skills and enhancements. I then made close to $8,000 the next year using the same skills and guess what I did? I bought around $3,000 in courses from 2015 to now and I turned around and owe a lot of my success into investing in myself.
If I didn’t have that extra money to spend on the books, I might not have even learned how to be able to make this website and write this post for you right now. That’s the power of investing in yourself and it’ll just keep compounding non-stop.
Save 15% for Retirement
This one will ruffle a few feathers. I don’t save any money for retirement. I don’t think I need to right now for a couple reasons.
First one just so happens to be that I’m 23 years old. But I’m not the 23 year old that acts like he can always do it later or like I’m indestructible. It’s just that for right now, it’s not a need of mine. Robert Kiyosaki tries to find more ways to earn passive income for his retirement. So instead of having a finite amount of money in his accounts, he makes “X” amount a month of income still and spends “Y” and as long as “Y” never goes over “X” he can keep living his way. I’m looking for more ways to increase my income now than to worry about something 40 or 50 years away.
The second reason has to do with 401(k)s and IRAs. If you’re following along with this post correctly, you can probably guess I’m not a fan. I would probably (hopefully) never be in a position where I have an employer to match my $6,000 a year or whatever it would be. I wouldn’t like the chances of just giving up a little bit of money and just hoping it grows. You’re not even allowed to touch it for 40 years.
This might hurt but I believe the reason why people say to use 401(k)s and the like so much is because these advisers and teachers don’t trust the collective of the group to invest or spend their money wisely. It’s the easy way out and the Wall Street way out.
You’re basically saying, “I’ll send you money for the next 40 years so you can invest it for me because I don’t want to learn to create income on my own. When I’m ready to retire I hope enough money is there for me.”
Let’s do a comparison real quick. (if you hate math, just skip this part.)
We’ll take my example of investing in myself above and we’ll take a person (let’s call him Randall) who puts the same amount of money into an investment fund.
We’ll take mine first. $700 in books and courses in a year comes out to $58 a month but let’s round down to $50. I then turned that around into $4000 that year giving me a real return of $3300 in the year 2014. Not buying anymore courses or books on those topics, I made another $8000 from those skills bringing that up to $11,300. Then I said I bought around $3,000 in courses and books after that up until 2017. That brings it to $8,300.
Let’s just stop right there and take that number to show you how crazy this is.
Bring on Randall. Let’s take that $50 a month and put it into an index fund that has an annual rate of return of 10%. I am using a calculator on calculator.net if you want to try this out for yourself. From 2014 to now is about 4 years so that’s 48 months making for the contributions that Randall makes $2,400. I inputted that amount into the calculator. As you can see from the picture below in those 4 years he only made an extra $510.03 or around $125 a year.
So $8,300 in profit within two years or $510.03 in four years.
Which one would you want? Let me make it even worse. $510.03 plus let’s say your friend wanted you to invest in something with them or you slipped and hurt yourself and need that money out. You then have to take off fees for the investments, penalties for taking it out early and probably more that we can’t even think of here.
I understand that the investment route is a long-term play. But the things I do with that $8,300 as a long-term play for me too (hint: you’re reading a post off of one of them now.)
Now most don’t want to put in that work. They’d rather work their job and let their money work like Randall and that’s perfectly okay. But if you ask me, that money that I make from my “investments” I then turn them into some kind of income through a side hustle like these.
To close, I wanted to recap that these financial rules aren’t for everyone like money advisers say everyone should follow. But on the other hand, not everyone reading this should follow the advice I’m giving here today. Remember what I said in the beginning. Never listen to anyone that gives you an absolute rule.
Thank you for checking out this Part 1 of this post. What rules will I disagree with in part 2? Make sure to stay tuned if you enjoyed this one.
If you have any questions or comments on this controversial post, don’t be afraid to leave a comment below!