Money Management

Ramit Sethi says money is about meaning, not a number. Here’s why having $1 million saved didn’t change his life. 

If you don’t have $1 million in your bank account, you may assume that amassing so much money would be life-changing. But that’s not necessarily the case for everyone.

In fact, finance expert Ramit Sethi explained on Twitter why having a seven-figure bank balance did not change his life and, by contrast, why meeting certain other milestones did.

Here’s what Sethi had to say, along with some advice on how you can achieve life-changing money milestones of your own.

Hitting the $1 million milestone didn’t change Sethi’s life

According to Sethi, amassing a $1 million bank balance did not change his life because his idea of financial success isn’t focused just on numbers alone.

“Do not build a life where you think that ‘some day’ with a magical number, suddenly you will start living your Rich Life,” Sethi said. Instead of experiencing a mindset shift when he became a millionaire, Sethi believes you can live a “rich life” every day through the smart financial decisions you make over time that give your life meaning.

To demonstrate this, Sethi gave some examples of things that did change his life, including being able to pay a personal trainer, buy expensive food, and have a sufficient amount of money not to have to think about paying for unexpected expenses, appetizers, or groceries.

These milestones changed his life more than becoming a millionaire did because they affected his ability to live as he wanted on a day-to-day basis. By contrast, simply hitting the $1 million mark didn’t make as much of an impact because “money is about meaning, not a number.”

What money milestones would change your life?

For far too many people, hitting a certain financial target becomes the focus of their money goals. It’s not necessarily wrong to feel like you want $1 million — or some other target number — in your brokerage account.

But if you get too caught up in thinking about how much you’re trying to save for your future, it is far too easy to lose sight of what would actually make you — personally — feel happier and more secure financially given your past experiences with money and your future goals.

Sadly, if your focus is just on numbers alone, then you may find when you hit that target number (if you do), that you still don’t get to really enjoy your money because you haven’t created a philosophy focused on how you’ll use your cash as a tool to improve your life.

Rather than just setting a numerical financial goal, take the time to think about what milestones would make a meaningful impact on your happiness both now and later. This will be different for everyone. If you love cars, for example, being financially secure enough to buy a fancy sports car may be the money goal that would get you excited, and there’s nothing wrong with that.

By defining what you want your money to do for you, you’re more likely to be financially successful because it will be easier to stay motivated with your financial goals. And you can also enjoy your life more because you’ll be using your hard-earned cash in a way that provides the most value over time.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Ramit Sethi believes the three secrets of living a rich life include being able to talk about money. Take a closer look at this secret and two others. 

The purpose of becoming financially successful is not just to have a lot of money in your bank account. Finance expert Ramit Sethi believes the goal is to live a rich life, which means spending on the things you enjoy the most that make your life worth living.

If you’re hoping to live that rich life Sethi talks about, he says there are three money skills you need to adopt. Here’s what they are, along with some advice on why these skills are so important and how you can develop them.

1. You should be able to talk about money

According to a tweet in which Sethi explained the essentials of being able to manage money, the first money skill you’ll need is being able to “talk about it.”

So, why is talking about money so important?

Being able to talk about money is essential. If you’re dating or in a relationship, you obviously need to be able to talk about money issues with your partner. This can help ensure you’re on the same page and able to work together toward shared financial goals.

You need to be able to talk about money in other situations as well. You shouldn’t be afraid to ask people for investing advice, talk to your coworkers about their salary, or ask questions about money issues you don’t know the answer to. If you can do these things, you can develop a financial philosophy that lets you use your money as wisely as possible to make your life richer now and in the future.

2. You need to know your basic financial numbers

The second money skill Sethi highlighted is knowing “your basic numbers.”

So, what exactly does this mean? Basically, you need to know some fundamental details like how much you’re earning, how much is in your investment account, how much you’re saving, and what fees your financial planner is charging.

Sethi warns against focusing too much on mundane details, like how much you’re spending on things like lattes, and instead paying attention to big picture stuff. And he’s right.

You need to keep an eye on the things that have the biggest impact on your net worth so you can devote your attention to what matters most and make sure you’re on track to financial security and your rich life.

3. You should develop automated money flows

Finally, the last important skill is having “automated money flows.”

If you’re not sure what that means, it’s simple: You want to make as much of your financial management as automatic as possible. This will reduce the chances of not following through with doing the right things with your money.

If you set up automatic transfers of your desired amount to your savings accounts and retirement accounts, the money is going to end up going in there unless you change it — which you probably won’t do. It’s easier not to, and you’ll have lots of opportunities to reconsider when you have to go in and manually reduce your contributions.

Likewise, if you set up automatic credit card payments and bill payments, you won’t forget to make one and hurt your credit score or end up carrying a big credit card balance. If you make smart money management automatic, you don’t have to spend time managing money or thinking about what to do with it — you’ll effortlessly do the right thing and can experience the benefits of not having to face financial stress.

For all these reasons, Sethi is right and you can live a better, richer life if you work on developing these three basic money skills.

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While many homeowners dream of being mortgage free, it may not be their best financial move. Read on for advice Suze Orman offered a podcast listener. 

Financial guru Suze Orman never fails to entertain me. I may not agree with every piece of advice she offers, but Orman always makes me think. On a recent episode of Orman’s podcast Women & Money, a listener asked about her mortgage. She’s carrying a low interest rate of 3% and wondered if she should focus on putting an extra $10,000 a year toward the mortgage to pay it off early or invest that money instead.

I was sure of what Orman’s answer would be. Like every other expert opinion I’ve recently read, Orman would recommend that the listener invest the money instead of paying off a mortgage with such a low interest rate. After all, if she invested in a financial product earning as little as 4% to 5% a year, she’d still be ahead.

I could not have been more wrong. In this case, Orman suggested that the woman take a different approach.

Orman’s mortgage advice

Orman prefaced her advice by admitting that the question was a little tricky for her to answer, primarily because there are so many unknowns. For example:

Orman knows the listener has 26 years left on her mortgage, but she doesn’t know how long the listener intends to work.Orman doesn’t know anything about the woman’s investment skills. Will she invest in a way that provides her a return of 3% or will her investments bring in much more? Is she a nervous investor who will sell when the going gets tough?Orman doesn’t know if the listener will stay in the home for 30 years or move away much sooner.

“But let me tell you what I do know something about,” Orman said. “I know that nothing makes a woman in particular feel more secure than owning her own home outright.”

The value of financial security

As financial writers, we tend to focus on cold, hard facts. And statistically speaking, investing $10,000 a year will likely net a person more than paying off a mortgage early. However, Orman pointed to the value of financial security.

“And what have I told you year in and year out is the goal of money?” Orman asked. “The goal of money is to make you feel secure. So here’s the question back to you. How would you feel knowing that in another 15 years or so, you would own that home outright? How would that make you feel?”

Orman followed up by saying, “And remember my law of money. It’s better to invest in the known versus the unknown.”

Orman asked the listener to think about what happens if she gets sick or in an accident and cannot work. Would having a home paid for leave more money in the bank each month, ultimately making her feel more secure?

A counterpoint

What I like about Orman is how much she seems to care about the people she advises. She exposes her heart as she attempts to help them figure out their finances. That said, I can think of several reasons investing might be the better option for many of us. They include:

Historically, the S&P 500 has averaged gains of around 10% a year. While some years have been much lower and others higher, it averages 10% over the long term. No matter how you cut it, a 10% return gives you more money than paying off a 3% mortgage rate will save you.Homeowners will always have a house payment of some kind. Even after our mortgages are paid off, we’ll spend money each month on property taxes, homeowners insurance, and maintenance. Those expenses must be planned for whether there’s a mortgage or not.The average length of homeownership is eight years, according to The Zebra. Whether a homeowner needs to move out of state for a new job, sell their home to downsize, or decide to travel, we don’t tend to stay in one place for very long. For many of us, working to pay a mortgage off early may leave us with more equity, but chances are, we’ll have to borrow money to buy a new home somewhere else.

Orman may not have given the listener a clear answer, but she did remind her that she has more than one option. And perhaps offering more options is the best thing money can do for any of us.

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Extreme couponing was something I did for years, but I stopped cold turkey. Here are four reasons why. 

For a few years, I was an extreme couponer. While I never went on the TLC TV show of the same name, I easily could have qualified, as I was regularly walking out of stores with carts full of stuff after charging just $1 or $2 on my credit cards.

Extreme couponing undoubtedly helped me get tons of stuff for free, so I was able to keep more cash in my bank account instead of spending it on personal care items or groceries. But I ultimately stopped cold turkey and now I rarely use coupons for most purchases.

Here are four reasons why I gave up my extreme couponing habit.

1. I was getting too many unnecessary items

One of the key features of extreme couponing is that you put together deals based on what promotions stores are running. For example, you might need to buy $25 worth of items to qualify for a $5 gift card, so the goal would be to get $25 worth of stuff that you could get close to free by using coupons — even if you didn’t necessarily need that stuff.

In order to be able to qualify for promotions and deals, I bought a ton of stuff I didn’t need, including diabetes monitors, lots of shampoo and toothpaste and razors and cough syrup, and food I wouldn’t really eat.

I didn’t want to just waste these things so I had to try to find homes for the items or try to resell them at garage sales and flea markets. This didn’t always work, so stuff ended up getting tossed out.

2. It was taking up too much time

Extreme couponing requires doing deals at whichever stores happen to have specific promotions going on at a particular time. This could mean going to multiple stores each week, like CVS, Walgreens, Rite Aid, and more.

Also, I would sometimes get ExtraBucks or other promotional deals that had to be used within a certain timeframe. So if I didn’t do a deal, I would end up wasting the ExtraBucks or other promotion.

I ended up spending tons of time going to all of these stores as well as managing my big collection of coupons and searching online for the deals of the week. This was taking several hours every week.

3. I was collecting a lot of clutter

Remember above how I mentioned I had to buy a ton of stuff to take advantage of deals? All of this stuff had to be stored somewhere. Many extreme couponers talk about their “stockpile,” or collection of items, and I had one that was taking up a big portion of a spare room. In fact, my guest bedroom looked like a drugstore because there was so much personal care stuff in it.

4. The stores started making things harder

Finally, some of the stores started catching on to the fact that extreme couponers were getting lots of stuff for free. They began making it harder by limiting how many coupons you could use or how many transactions you could do in a day or how many of a particular item you could purchase.

For all of these reasons, I decided there were better ways to reduce my spending and I gave up extreme couponing for good.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Should you buy a home now that demand seems to be weaker? Read on to find out. 

There was a point in 2021 when listed homes would sell within hours of hitting the market. That’s because record-low mortgage rates fueled a major surge in buyer demand.

But buyer demand has cooled off a bit this year — largely due to the fact that mortgages have been more expensive to sign. And home sale figures have been slipping as a result.

In March, existing home sales fell 2.4% from a month prior and 22% from a year prior, according to the National Association of Realtors (NAR). And if you’ve been looking to buy a home, you might assume that now’s a good time to pounce.

But is it? That’s questionable.

Buyers might continue to struggle

While it’s true that these days, you may not face the same steep competition on the home-buying front that you would’ve faced in 2021, today’s housing market is hardly buyer-friendly. For one thing, real estate inventory is still extremely low. As of the end of March, there were only 980,000 housing units for sale per the NAR. That represents a 2.6-month supply.

But it can easily take a six-month supply of homes for there to be enough properties on the market to meet buyer demand. So clearly, we’re a ways off from there.

Low inventory, however, creates two distinct problems. First, it gives sellers the upper hand when negotiating.

Now, it’s worth noting that in March, the median existing home sale price dropped 0.9% from a year prior to $375,700. But that doesn’t mean homes are suddenly inexpensive. And if sellers get multiple offers on a given home, they get plenty of leeway to demand a higher price for it.

Also, low inventory means that you might struggle to find a home that’s suitable for you and your family. You may want a few extra bedrooms to accommodate a larger number of children. If there are only six homes for sale in your target neighborhood when there would normally be 20, you might struggle to find the type of property you’re looking for.

Higher mortgage rates aren’t helping

On top of low inventory and higher home prices, buyers today face the challenge of elevated mortgage rates. Rates have been hovering in the 6% range for 30-year loans since the start of the year, and there’s a good chance they’ll be largely stuck in that zone for the remainder of 2023.

Historically, a 30-year loan in the 6% range isn’t such a terrible deal. The problem is that many buyers are used to seeing lower rates. And when you’re signing a loan in the 6% range and are also paying a premium for the home you’re buying because your seller can get away with charging more, it creates an affordability crunch.

That’s why a dip in existing home sales shouldn’t necessarily drive you to buy a home in the near term. While there are definite benefits to homeownership, it could at least pay to wait until housing inventory picks up before making a move.

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You’ll often hear that buying coffee at shops will hurt your ability to grow wealth. Read on to see what might have a bigger impact. 

Perhaps one of the most frustrating (and even bogus) pieces of financial advice you’ll hear is that if you were to stop buying coffee at a shop every day, you’d bank enough money to retire in comfort.

Now, it’s true that the more money you save and invest, whether in a brokerage account, IRA, or 401(k) plan, the more wealth you stand to grow. But rest assured that buying coffee every day will not automatically doom you to a cash-strapped retirement.

In fact, it’s better that you forget about those coffee purchases, and similarly small purchases you make on a regular basis. Instead, it pays to think about the ways you might be losing many thousands of dollars in your lifetime.

How much money are you losing to fees and interest?

In a recent tweet, financial guru Ramit Sethi explained, “Life cannot be a series of random financial transactions. That’s when people get stuck asking $3 questions instead of $30,000 questions.”

He then went on to illustrate that some people try to save money by cutting out a $3 daily coffee that makes them happy. But those same people might be spending $50,000 or more on investment fees and thousands of dollars on the interest they’re paying on their mortgages and other debts. And it’s those sums that are more likely to make a difference over time.

Let’s imagine you buy a $600,000 house and put down 20% at closing. If you sign a 30-year loan at 6% interest, you’ll end up spending a whopping $556,000 on interest in the course of paying off your home. That’s a huge sum of money that could make a major difference in your retirement.

On the other hand, spending $3 a day on coffee means forking over about $1,100 a year. That’s not nothing. But over 30 years, that’s about $33,000 in “wasted” money, if we even want to call it that. That pales in comparison to spending $556,000.

Plus, you may be losing money to all sorts of investment fees, especially if you tend to invest in actively managed mutual funds, which tend to be far more expensive than low-cost exchange traded funds (ETFs). Shifting your investment strategy could result in a lot more savings and wealth than cutting out your daily coffee.

Know where to focus your efforts

If you’re in a place where you owe money on credit cards and have no savings to your name, then it’s generally best to not buy coffee or spend on anything that isn’t essential until your financial situation improves. But is your daily coffee habit impeding your goals if you’re generally in a good place financially? Probably not.

So rather than feel bad about spending a small amount of money daily on something you enjoy, instead think about the big-picture ways you can avoid losing money. You’re better off trying to refinance your mortgage strategically and assemble a low-fee portfolio than deny yourself a treat that helps you wake up each morning and feel more productive.

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