These time-tested methods can help us live smarter today. meeboonstudio / Shutterstock.com
When you were a kid, did you roll your eyes at the lengths your parents or grandparents went to conserve, save and find new uses for old stuff? I did. But the older I get, the more I appreciate many of those nearly forgotten frugal strategies. With society’s renewed focus on green living and simplicity, maybe we only need to look back a couple of generations to find our way forward.
Many people describe themselves as being bad with money, but Ramit Sethi believes this can be a problem. Here’s why.
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Have you ever described yourself as being bad with money? If you have, you aren’t alone. Lots of people say this about themselves if they have a hard time getting a handle on how best to manage their cash flow, pay down their credit cards and other debt, and build wealth.
But, while you may think it’s harmless — and even accurate — to say that you aren’t very good at money management, finance expert Ramit Sethi thinks this is a bad habit and something he’d wave a magic wand to stop people from doing if he could.
Here’s why Sethi has a problem with this phrase.
Sethi explained in a video on Twitter why he doesn’t want people saying they are bad with money any more.
“We give ourselves these labels and then they become self-fulfilling prophecy,” he said.
“I’m bad with money and then we overspend one month. See, we tell ourselves. I am bad with money.”
In other words, by simply stating that you aren’t good at managing money, you could end up dooming yourself to continue making poor financial choices over the long term because you believe that this is just a part of who you are, with no option for change.
Rather than ending up with this as your fate, Sethi wants you to adopt a different belief if you don’t yet have a handle on your finances. “Let’s reframe it,” he suggested. “I haven’t yet learned the skills of money or investing. But I’m making a plan to do it.”
Sethi’s advice that you should stop saying you are bad with money is advice that everyone needs to read if they feel like they’re struggling.
If you simply accept being “bad with money” as part of your personality, then this doesn’t motivate you to make positive changes to improve your situation. In fact, you may simply believe that you’re just going to be bad with money forever so there’s no real effort in trying to get things under control and grow your bank account.
Instead of assuming being “bad with money” is an inherent personality trait, you should follow Sethi’s suggestion to make a plan to learn how to be better at it. And this doesn’t have to be hard, since managing money is simpler than most people think. In order to do it successfully, you need to:
Spend less than you earnDevote some money to your savings accountAvoid carrying high-interest credit card debt
You can take a lot of different approaches to that. You can increase your income so it’s easier to spend less than you earn. You can look for ways to cut spending. You can automate your savings so money transfers right to your brokerage and high-yield savings accounts each month. And you can budget to pay your credit card bills in full or avoid credit cards entirely if you don’t think you can use them responsibly.
The important thing is to just start with the basics and instead of saying you’re bad with money, start focusing on getting better at it. Soon enough, you’ll be able to say you’re good with money and will have the growing bank balance to prove it.
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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.
Dave Ramsey has argued against rewards cards, but one of his best arguments is that the money is supporting a credit card industry that preys on people. Find out more.
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Dave Ramsey is a well-known advocate of living a debt-free life and he has made clear repeatedly he does not believe you should use credit cards — even rewards cards that give you cash back, points, or miles for your purchases.
Many of Ramsey’s reasons for steering clear of cards don’t make much sense.
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He’s argued, for example, that you don’t need a credit card to build credit because you shouldn’t care about your credit score (which is simply untrue, as your credit score is used in all sorts of transactions). He’s also said earning rewards isn’t worth it because so many go unused (also a bad argument, since you can simply choose to use your rewards).
There is, however, one good point he makes. And, while his reasoning won’t convince everyone, it’s the best argument he’s made for steering clear of rewards cards.
Ramsey’s best argument against using rewards cards is that these cards end up perpetuating a system that preys on people who are struggling financially, need credit to get by, and get stuck paying the exorbitant interest rates that credit cards charge.
“Part of what pays for your rewards is the interest payments from other people,” Ramsey said. “The 40% of people who don’t pay off their balances each month and get slapped with interest payments are the ones paying for your rewards…And why can’t they pay their balance at the end of the month? We don’t know. Maybe a family has a medical bill pop up they can’t cover because that month’s budget is already too tight. Maybe a single mom is scraping by, holding her breath every time she swipes her card at the grocery checkout.”
Ramsey’s argument here is that by using credit cards to earn rewards — even if you pay your balance in full — you’re enabling the credit card companies to persist in operating under a business model where they charge high rates (often 17% or higher), and high fees from those who can least afford it.
The system essentially transfers assets from poor people who can’t afford to pay their balance in full to wealthier people who are able to benefit from rewards while paying their balance in full without interest costs. And, if you earn rewards, you’re benefiting from this transfer of wealth.
While Ramsey definitely has a point about how the credit card rewards system works in favor of those who have more, ultimately this is true of many aspects of the financial system. The government subsidizes wealthier people in the form of a mortgage tax deduction, for example, while banks pay interest to those with money and collect fees from those with too little who overdraft their accounts.
Even if you don’t like the way this system is set up, deciding not to participate in it comes at a cost to you. You may decide you’re willing to pay the cost of forgone credit card rewards because you don’t want to help the card companies earn more profits. Or, you may decide to take advantage of the perks that are likely to continue to be available no matter what your personal preferences. But, whatever your choice, at least this Ramsey argument against rewards cards is worth thinking about — unlike so many of his other reasons for steering clear of credit cards.
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Companies used to discriminate against older workers. Here’s why that is changing. Julia Zavalishina / Shutterstock.com
Here is some startling news for anyone over 50: Many companies will fall all over themselves to hire you. Dismayed by what they view as a shoddy work ethic among younger folks, companies increasingly view older people as harder-working, more dependable employees, according to a recent Wall Street Journal report. As a result, members of the older set are getting a second look during job interviews.
Some investments carry serious risks that could cost you money. Check out one former financial advisor’s picks for the worst investments so you know what to avoid.
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Investing is a financial habit that practically every expert recommends, and there are plenty of options available. Unfortunately, some of these investments aren’t good places to put your money. If you don’t know what to watch out for, you could make a mistake based on poor advice from someone you know or a salesperson looking to make money off of you.
Former financial advisor Humphrey Yang provides a lot of useful investing advice on his social media channels. He recently shared his opinion on the four worst investments, and you should definitely avoid them at all costs.
Whole life insurance often gets marketed as an investment as well as a life insurance policy. As you pay premiums, your policy accumulates a cash value, and you’re eventually able to borrow against that or make withdrawals. But there are a few major drawbacks:
Your return on investment with a whole life policy is low. The average annual return is about 1.5%, according to Consumer Reports. The average stock market return, on the other hand, is about 10% per year before inflation.Whole life premiums are extremely expensive. When comparing whole life and term life, whole life often costs 10 to 20 times more.
The reason whole life insurance gets touted as an investment so much is because insurance salespeople earn juicy commissions when they sign you up. Instead of wasting money on this, stick to term life for life insurance and invest all the money you save on premiums.
A triple leveraged fund is a type of exchange-traded fund (ETF). They leverage debt to increase their positions, effectively tripling returns — and losses. If the ETF gains 1%, your triple leveraged fund gains 3%. If it loses 1%, your fund loses 3%.
While these can work out, you’re taking on quite a bit of risk. Yang also brings up a good point that during volatile markets, even if the ETF breaks even, you could still lose money on your triple leveraged fund. That’s because when the fund drops in value, it takes a much larger gain to break even on the loss. The top stock brokers offer plenty of normal ETFs with competitive returns and without the risk that comes from using leverage.
As interest rates have risen, the gap between typical big bank savings accounts and online savings accounts has gotten wider and wider. Case in point, the average savings account APY nationwide is just 0.37%. Many of the best online savings accounts offer 4% or higher.
With such a huge difference in rates, it doesn’t make sense to put your money in an average savings account. There’s no risk to online banks. All the good ones carry the same FDIC insurance as any other bank, which covers up to $250,000 per bank, per depositor if there’s a bank failure.
If you’re not sure how much interest your savings account earns, make sure to check. If you’re not getting at least 3%, it’s probably time to switch to one with a more competitive APY.
A loaded mutual fund comes with an upfront fee paid to the financial advisor who selected the fund for you. Yang says that if you hold the investment for a very long time, then the returns could make it worthwhile, but that this type of investment doesn’t make sense for most people.
Fees like these are one of the biggest factors that affect your investing returns. Yang’s correct that loaded mutual funds don’t make sense for most investors. You can find plenty of quality mutual funds on your own that will get you competitive returns without excessive fees.
All the investments Yang mentioned are popular financial products, so it’s good to know about them and why they’re not the right place to put your money. As far as where you should invest, low-cost ETFs and mutual funds are excellent choices, particularly those that invest in the S&P 500 or the entire stock market. Another option is to pick stocks and build your own portfolio. Whatever you choose, the key is to do plenty of research on investments first so you can see if they’re legit before committing your hard-earned money.
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Utilities are a big expense for both renters and homeowners. Keep reading to learn how your spending on utilities compares to your peers.
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Whether you own your own place or rent it, chances are good that you are responsible for paying your utility bills. These are your monthly bills for things like gas, sewer, water, and electricity — all services that you absolutely need and can’t live without.
But, while you have to pay utility bills out of your bank account, you don’t want to overspend on these essentials.
It can be helpful to compare how your spending looks relative to your peers so you can get an idea of what is normal. Here’s what the Bureau of Labor Statistics 2021 Consumer Expenditure Surveys says about what people are paying for utilities.
According to the Bureau of Labor Statistics, the mean spending on utilities among all consumer units was $4,223 in 2021. This includes mean spending of:
$447 on natural gas$1,551 on electricity$122 on fuel oil and other fuels$1,409 on telephone service$695 on water and other public services
The amount consumers are spending does vary substantially based on income, though. While consumer units with an income of under $15,000 had mean spending of $2,596 on utilities and services, those with incomes above $200,000 had a mean spending of $6,488.
Larger houses and increased consumption are the likely reasons why higher income households spend more in this area.
Although spending on utilities isn’t optional, you have a lot of control over just how much money goes to these costs each month. And, the less you can spend on utilities, the more you’ll have left over for other things, such as paying off credit cards, making fun purchases, or saving for big goals.
If you want to reduce your utility costs, some steps you can take include the following:
Live in the smallest space where you’re comfortable. Larger homes and apartments cost more to heat and cool. You can save a lot of money on electricity if you pick a home that’s just the right size for you.Opt for energy efficient upgrades. Adding solar panels or switching to a heat pump or energy efficient appliances can sometimes save you a lot of money — especially if you have older appliances in your home. Many electric companies as well as the federal government and some local governments periodically offer incentives for making energy-efficient upgrades to your home.Adjust your thermostat. If you can keep your house a little bit cooler in the winter and a little bit warmer in the summer, you can save a lot on heating and cooling costs. You can also install a programmable thermostat to change the temperature while you are sleeping or away.Fix energy drains. If you have gaps in your doors or cracks around your windows or too little insulation, make fixes to these issues so you aren’t air conditioning or heating the outside world.Unplug unused items. Many items use phantom power when plugged in and there’s little reason to waste this electricity. Turn off the switch on the power strip or unplug the items when not in use.
These are just a few of many things you can try out to lower your utility costs — and they are well worth considering, especially if you’re spending more than your peers.
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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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