I just can’t take it anymore!! Here is the Huffington Post, a supposed “responsible” journal, spewing simplistic nonsense in their Personal Finance section November 5, 2015. They targeted their audience somewhat to an older group, stating: “…Sage advice [is] targeted at people with mid-income, struggling with optimizing their saving and spending habits, rather than those crumbled under the weight of student loans or crippling credit card debt,” and gave out three simplistic tips to this “older” group. I shall comment on each of their three tips:
Tip #1: Get better rates for yourself. “There are substantial savings to be had if you just shop around, compare prices and bargain for cheaper rates on such items as car insurance, cell plans, bank fees, and virtually any subscription service.”
My comments:
- This is a case where an idea is presented without adequate examples.
- The target group knows this idea instinctively; they are always looking for a better price.
- Shopping for better rates on car insurance is complicated. One needs to understand the elements of liability cost versus collision cost, versus deductibles, versus package discounts versus driving records, versus teenage drivers versus number of automobiles in the household.
- A recent example of savings on car insurance amounted to $700 per year.
- As to cell plans, what are the benefits of contract versus non contract
purchases? And what about insurance on the phone, etc. Only careful analysis of the various providers and their plans can be beneficial. For example, are you willing to switch from iPhone to Android to save a few bucks? - Saving bank fees, how is that done? How about knowing the difference between the costs of a personal account versus a business account? There is a huge difference, but you need to know how the bank works in order to ask the right questions. And do you really want to move your account relationship to another type of account or to another institution? Is it worth the trouble?
- Subscription services can be negotiated. Knowing how to ask and what to expect is important in negotiating anything. It takes some moxy to do this. A very exciting area to negotiate is your credit card rates. Sometimes it is as simple as asking, but mostly it is knowing what your specific cash flow limitations are.
- In my experience, 95 percent of you do not know your real cash flow limitations, therefore you are handicapped in your ability to negotiate discounts.
Tip #2: Learn to Earn — Find Another Income Stream. “There’s plenty of online and offline gigs requiring zero to mild prior training. The freelance world is booming, and it’s high time to take advantage of it!”
My comments:
- I have met thousands who have taken this suggestion who have ended up in worse circumstances than when they started.
If you have financial ambitions and concerns, making more money is a good idea, but it is not a solution to every problem.- In a flawed personal cash management situation, more money is just processing more money inefficiently. Until you have your spending and debt under control, simply going out and getting freelance work will not solve money problems.
- Making more money really goes without saying. Additional income streams have been preached by the multilevel marketing industry for years, so there is nothing new or helpful in this tip.
- Remember, it’s not the money you make that matters, it’s the money you keep.
- It should be further understood that one’s allocation of time available to make additional money is critical. If you cannot persistently spend the time it takes (weekly and for years) then you become part of the 75 percent who fail in the attempt.
Tip #3: Home Sick — Don’t Buy a House as an Investment. “If there’s one thing the crash of 2008 should have taught us, it is that home ownership is no longer a good investment.”
My comments:
- The idea that home ownership ever met the standard of investment is flawed, because equity build up came from paying down the debt and/or appreciation in market value.
- In general over many years on a national basis, house appreciation has been averaging 3 to 4 percent per year. In other words building home equity is expensive (interest, taxes, maintenance and repairs).
- A home is typically considered “bad debt” because as long as you are living in it, any equity is “dead” equity. Only when you sell it or take out a reverse mortgage can you consider the equity a way to make you money.
- The Post is simply referencing what has always been said that one can justify
calculations supporting renting over ownership, and vice versa. - Any suggestion to not buy a house is greatly oversimplifying the idea. For most of us, we cannot put a dollar value on the security of knowing you are living in your own home, to enjoy with your family.
- Since most of us would prefer to own a home, properly managing the debt can be a key to your retirement.
So you see, as I see, an oversimplification by the Huffington Post is not informative, beneficial, or even interesting. It doesn’t tell us anything.
For real information on these subjects, contact Alan at 801-292-1099, alan@moneymasterey.com
