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Is the Personal Finance Industry a Scam?

Good Morning!

Is the Personal Finance Industry a Scam?

That appears to be the proposition put forth in a June 13, 2019 article in GQ magazine revolving around the advice of cable TV guru Suze Orman and the author’s experiences with Orman’s advice.

The real issue from what I gathered is that the author is a Millennial, frustrated with the type of advice that is generally reserved for the Baby Boomers. Her biggest beef is the personal finance industry’s current penchant for harping on coffee!

That’s right, good old java is the culprit for financial disaster and a shortage of cabbage in the wallet of Millennials.

CNBC recently reminded the viewers of Suze’s distaste for coffee: “If you waste money on coffee, it’s like peeing one million down the drain.”

Orman claimed in the CNBC video that if someone invests $100 a month in a Roth IRA for 40 years, they’d end up with a million dollars. This assumes you really have 40 years left (I personally do not think I have 40 years left!) and you make a 12% rate of return every single year. That is historically not possible either!

Because of such advice, the author goes on to conclude that “the personal finance industry is a scam for those of us who aren’t already loaded. It’s not that saving money is bad; it’s that, for some reason, we have an entire field of experts who are supposed to be taken seriously when they claim that every single American can get rich. Personal finance is the prosperity gospel of cable news, happy to claim that you’ll end up with all the money if you listen to its experts, take their advice, buy their book.”

As you read the article, her student loan debt jumps out. The writer laments the $220,000 of law school debt she has incurred and goes on to say, “And if retiring comfortably or buying that house or paying off those big debts doesn’t happen for you, like it’s not going to happen for the majority of us, well, it’s your fault that you didn’t get rich like you were supposed to. Have you ever thought about not buying coffee?”

Yikes, her future sounds so grim, I think she needs her soy milk, carob caramel, double-shot frappachino!

So, what is a Millennial to do?

I agree with the author; cutting back on the cup-o-joe in the morning is not going to fix anyone’s retirement plan or future, however, recognizing the myriad of ways marketers employ to separate us from our hard-earned money is critical and the key.

Here is the key from me, a Baby Boomer financial planner. Want Less! That’s it. Want less and spend less. That is all it takes to live the desired retirement lifestyle of the future.

The whole point of investing is making your money work for you, instead of you having to work for your money. The more money you have working for you now and earning interest the better off you will be in the future. So how do we get more money? We cut back our expenses, reduce our debt and we put more aside to work for us. 

The reality is simple, if you don’t have the money for a purchase, going into debt and borrowing money is a blight on your future. Most of what we want, we don’t really need. 

A $5 cup of coffee seems innocent enough but when you consider $25 a week, $100 a month, $1,200 a year and $48,000 over forty years it makes you start to think about other areas in which we spend unnecessarily. Compound interest is the true secret sauce of investing but you have to have money set aside earning that interest.

63% of American’s cannot afford a $500 emergency expense and yet many of those people probably convince themselves that they can afford a $5 coffee or a new wardrobe, a new phone, cable TV,  a new car payment, the list goes on. Prudence is by no means an easy thing but it leads to a much happier stress free existence.

Marie Kondo has recently become popular by showing us how to reduce clutter in our lives by asking a simple question of our belongings. “Does it make me happy?” If not, get rid of it. But why are we not asking this question before we buy something?

Keeping up with the Joneses has put America in a mountain of debt. Instead of working hard and saving for something like we did before the days of easy credit, we convince ourselves that we deserve many things we cannot afford. We go into debt and in exchange for stuff, we pay interest on the things we want.

It makes absolutely no sense to live this way and yet so many have convinced themselves that it is the only way to live. 

Do you want to earn interest or pay it? Do you want to live a nice life or spend your life paying debts?

The choice is yours. Reducing debt should be everyone’s primary financial goal. Coffee isn’t the problem, frivolous unchecked spending is. The next time you make a purchase, ask yourself, “Do I really need this?” And if you don’t, is it going to bring you happiness in three or four years or is it just going to become more clutter to get rid of?

I was privileged to have spent thirteen years of my life as a coffee merchant. To the Millennial author, I offer some thoughts. Starbucks coffee is the real deal for those who desire genuine American crap!  I, for the life of me, cannot understand the appeal of over-priced, bitter, acidic brown liquid garbage. Why not make coffee at home where coffee is cheap to make. Grab a $29.95 Aeropress from Amazon and make the best coffee you have ever had at a tiny fraction of the price. If you do that you will enjoy better coffee, drink healthier coffee and grow your retirement plan at the same time!

Life is choices and the author made a choice to incur $220,000 of student loan debt for a law degree. A good financial advisor could have prevented that. The real scam is believing that incurring debt is wealth and millions of people like the author believe just that and have lives to prove it!