I have spent the past few months writing less and consuming more, likely a side effect of how COVID, moving, caring for 3 children and 4 properties has taken its toll on my routine and health. I finally seem to be settling back in and will now attempt to write at a less intense pace of once a week rather than twice a week until I feel the urge to start to produce more.
One thing I have noticed is that when events outside of my control knock me off my feet I tend to spend a lot of time consuming rather than focusing and producing. In my case, which I imagine I’m not alone in, I consume a lot of social media. My latest addiction in this sense is Tik Tok which I find exciting because it tailors funny as well as interesting content for me to consume. Yet in the long run, this doesn’t produce much contentment or happiness, likely because I don’t get much done. I’m sure I am not the only one that feels like this sometimes.
When I find myself feeling inadequate or envious of others on social media that’s when I know I’m letting myself become conditioned and I need to turn it off. For example, a real estate Tik Tok page of a younger man who seems to be quite knowledgeable and successful, had me questioning whether my own real estate strategy was the right one and why things aren’t moving faster. Seeing so many ultra successful people constantly talking about how successful they are can start to really feed that sense of inadequacy. Once I start to feel this, I know that it’s time to start producing again and get off of the consumption treadmill.
Producing may mean writing this blog, organizing bills, coordinating for the real estate I own or it may mean planning a date with my girlfriend this weekend. These little things tend to bring more satisfaction because they give me a sense that I am making progress in at least some areas of my life rather than remaining stagnant, I feel this is one of the keys to remaining happy.
A lot of happiness can also be derived from helping those around you and seeing them progress with the use of your help. I thought of this during this week when my girlfriend and I had a discussion about our finances. The result of this discussion reminded me that there are many very smart people out there that can still make simple personal finance mistakes simply because that’s what the status quo of their environment told them to do.
When the Consensus is Wrong
With her permission, I am able to share her particular rule of thumb which was the focus for much of our financial discussion.
Part of our mutual pact is to save for goals like retirement and children’s education while managing debt that was left over from earlier times. We had discussed and tackled much of these items one by one except for one: she has kept a decent amount of credit card debt (the equivalent of about 2 months salary) rolling over since last year. When I asked her what this debt was about, she explained that she had always had a bit of credit card debt and she thought this was just the way one managed money.
I was shocked, carrying a balance on a credit card is one of the most pernicious and damaging financial habits you can have over time. The high interest rates you pay steal from your future by stealing away money that could be saved. For example, if you carry a balance of $10,000 at 20% interest, which isn’t an absurd rate for a credit card, you are literally throwing $2,000 a year down the toilet. That’s $166.67 a month. It may sound like a small amount but investing that amount over a 40 year period continuously could yield $885,000 at a 10% growth rate. Bad habits over time can literally have you throwing almost a million dollars in the trash.
Keep in mind she had the money to pay off her balance sitting around, she just didn’t. When I asked her why, she explained it was the 30% rule. A rule that stated one should keep a balance on your credit card but to make sure it’s no more than 30% of the credit line. Again I was shocked, who would give such advice other than a credit card company looking to make a buck off of you?
The logic of the usage makes no sense either. You don’t need a balance to have a good credit score. The credit bureaus just want to see if you pay your bills, they don’t give you higher marks for paying interest on the balance. Personally, I only started using credit cards in my mid to late 20’s and I think in my life I have maybe carried a balance over to the next month once by mistake. In my mind, a credit card was what it was: a loan with a high interest rate unless you paid the balance every month.
On top of that, the knowledge of this debt changed the advice I had to give her on what debt to pay down first and when. It also changed the plans for other assets and debt we had been thinking about in the medium term.
Don’t Guilt Yourself
My girlfriend is a very smart, capable and highly educated person, but like many, she wasn’t taught good financial habits on how to use credit, debt and savings. Her ex husband, much like my ex-wife, wasn’t good with money and worse than my situation, he could be better characterized as grossly irresponsible. The difference in my relationship now is that the mutual respect is there and she listens to me, just like I listen to her when it comes to family law and other areas of life, which is very relevant to my life at the moment.
My shock at her rolling balance really seemed to bother her. She spent the next day or so asking other people she knew if they also went by this 30% rule. She noted that many of her white friends simply paid off their balance every month but many of her black friends went by the same 30% rule. I can’t speak on where this rule originated or who started it, but I am well aware that social norms around money in some communities are very different and sometimes hurt more than they help.
To make matters worse, when I looked into it, utilizing more than even 5% of your credit limit will start lowering your credit score according this CNBC article. Individuals with a FICO score of 795 or above on average use 7% of their available credit.
Fortunately, at this time in our lives, this matter is relatively easy to fix but it made me step back and think. How many people have been basing years, decades or even their whole lives on terrible financial advice just because they thought it was the status quo?
It immediately made me think of the rising cost of college and the frustration that many recent grads and young workers have today: that they are burdened with student debt and they were told their lives would be better if they went to college.
In one respect, I have sympathy for people who worked hard and are seeing little reward. On the other hand, 4 years of studying or more could have been saved if they had simply done a quick Google search in many cases. I remember doing this when I was 16 or 17. I loved history and was considering studying history in college but I also didn’t want to be poor, so I did a search of earnings by degree type and found something like this:
History is right down there with communications and agriculture and wasn’t much better than art history, the archetypal useless degree. It made me wonder if that if I was in a different environment or had different parents, would I have ever even thought to look up information like this? Or would I have just thrown myself blindly into getting a college degree assuming that just having the degree was what mattered and that the major or course of study wasn’t worth caring about?
I can imagine the bitterness and resentment this must engender if upon graduation, your job prospects pay little better than those you may have sought before college. The government itself promotes the college to better yourself argument and even underwrites the entire process for many students. It also makes me wonder if there is a place somewhere between financial coach and life coach for people at different stages of life.
A Life Wealth Coach
If such a coach existed, it could take the role of a mentor paid by parents when someone is a young adult. If not steering them, but at least educating them on the consequences of the choices they are making. For example, an education degree from a private university may not make much sense given the cost versus the pay.
As careers start, a life wealth coach could help give advice on companies, career paths or when the client may be hitting a dead end and needs a fresh start. They could also keep track of saving, helping to ensure that younger clients are on a path to where they can retire or find the purchase of their first home.
Ideally, such a coach would be able to give advice on money and relationships as well. They may suggest how money personalities match and where to focus joint efforts. Apart from the typical prenuptial agreement, trusts could be set up before marriage to help protect at least some of the assets of a successful young adult and keep them from being burnt up in a divorce.
This arrangement may not be for everyone, but for the few that could get it and accept it, it could provide invaluable small adjustments in the course of young adulthood which may avoid destructive habits, even one’s that may seem innocuous in the short term.
If I think back to my youth, I don’t know how open I would have been to a coach or mentor such as these but times are changing. People offer coaching for all types of things now, from dating to trading to raising kids, it would be interesting to know if someone is already exploiting this niche.
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