Netflix released a documentary film this month titled “Get Smart with Money”. In the show, 4 people struggling with different money issues are paired with financial advisers on a one-year coaching program.
The 4 client-adviser pairs are:
- Lindsey, a waitress and bartender working 2 jobs and living from pay cheque to pay cheque. She is paired with Paula Pant, founder of Affordanything.com.
- Ariana, who is buried under a mountain of debt with credit card debts of $45,000 as well as $108,000 in student loans. She is paired with Tiffany Aliche, author of Get Good with Money.
- Teez Tabor, an NFL (National Football League) athlete who blew most of his $1.6 million signing fee and was left with only $280,000 by the time he was released after 2 seasons. He is paired with Ro$$ Mac, a former Wall Street guy turned financial educator.
- Kim and John, a high-income couple making $150,000 a year, but are unable to save money for retirement due to their high expenses. They are paired with Peter Adeney, aka Mr. Money Moustache.
These are the lessons in personal financial management that I found the most useful.
Contents
Lesson 1: Keep your Expenses Low
Lesson 2: Get a Side Hustle
Lesson 3: You can Start a Business with Little or No Money
Lesson 4: Be Humble and Learn
Lesson 5: If you can’t Beat the Index, Buy the Index
Lesson 6: Dollar Cost Average is King
Lesson 7: Parents are our First Financial Advisers
Lesson 8: Opportunities are Everywhere
In Conclusion
Lesson 1: Keep your Expenses Low
In all 4 of the cases, there was a spending problem.
For Lindsey and her partner, they spend $720 on takeout every month instead of cooking, even though her partner is a chef. But their spending problem was small compared to the other cases.
Ariana has an impulse control problem with spending, which started when she got her first job and was able to apply for credit cards. She went out with friends often and brunches easily cost more than $100 each weekend. Her friends were always shopping and buying new clothes, and she went along as well.
When she got married and had children, she started spending even more on clothes, kids’ stuff and entertainment, especially on Amazon and Target. She did, at one point, restructure all her credit card debt into a lower-interest personal loan, but ended up maxing out her credit cards again as she couldn’t curb her spending habit.
Teez received a $1.6 million pay cheque when he was drafted to the NFL. While much of it went towards unavoidable expenses (agent fee 3%, taxes 40%) and property (which is a durable asset), a lot of it was wasted on transient things like gold chains and travelling around the world.
Kim and John were earning $150,000 a year (or $12,500 a month) but spending $13,000 a month. Amazon shopping alone was $2,000 a month, and groceries for a family of 4 costs $1,200, which their financial adviser described as “banquet level spending”.
Teez, Kim and John were high-income earners, but they had as much of a spending problem as Lindsey and Ariana who didn’t earn as much. Why do some people still struggle to save money despite having high incomes?
Robert Kiyosaki, author of “Rich Dad, Poor Dad” and “The Cashflow Quadrant” describes this perfectly.
“The rich buy assets. The poor only have expenses. The middle class buys liabilities they think are assets” – Robert Kiyosaki
Kim and John embody the archetypical middle-class. When their income goes up, their expenses go up. They don’t just buy stuff; they also buy houses and cars on credit which they think are assets but are in fact liabilities.
According to Robert Kiyosaki, assets put money in your pocket while liabilities take money out of your pocket.
Kim and John had a good income, but their biggest expense was their huge and beautiful house.
Yes, they could afford the mortgage, for now. But Kim, the sole breadwinner, is self-employed and doesn’t have a fixed income.
The moment she is unable to work (e.g. falls ill) or unable to earn as much (e.g. business goes down), they will have problems paying the mortgage. The house now becomes a liability because it takes money out of their pockets.
Instead, they can downsize to a smaller house (which they did eventually) and either sell the big house and invest the proceeds or rent it out for income. This way, even if Kim’s income is affected, the rental from the big house or returns from the investment can still pay for the mortgage on the small house.
At the end of the day, wealth is not just about how much money you make, it’s also about how much money you keep.
Lesson 2: Get a Side Hustle
Paula said to Lindsey, “there’s a limit to how much you can frugal down, but no limit to how much you can make”.
This is very true. There are two sides to the money-saving equation.
On one side, you can try to save as much money as you can. This is quick and easy to do and starts putting extra money into your pocket immediately. It is a good and necessary foundational habit critical to all financial success. But there’s a limit to how much expense you can cut.
On the other side, you can raise your income. The results may not be as immediate as cutting expenditure, but theoretically, there is no limit to how much you can earn, especially if you build a business.
A full-time job only requires 40 hours a week. But if you work 12 hours Mondays to Saturdays and 8 hours on Sundays, you can rack up 80 hours of work per week and still get 4 hours of chill time on Sunday.
I started my business journey by building an online business while working a crazy, 70-hour job.
When I quit my job and did my business full-time, like many other entrepreneurs, 80-hour weeks were the norm in the beginning. Though I am more established now and have 4 kids, I still put in 60-hour weeks. Even at my laziest, my minimum is 50 hours a week.
Therefore, if you’re living from pay cheque to pay cheque but only work one 40-hour job, you have nobody to blame except yourself.
Lindsey worked two jobs, as a waitress and a bartender. But both were dead-end jobs and required her to exchange her time for money.
Eventually, she decided to quit one of her jobs and use the time to grow her own business in areas where she has talent in, such as art, fashion, and pet walking.
Now, I’m not advocating that everyone starts a business as a side hustle. It is inherently risky and not everybody has the stomach or desire for such an endeavour.
What I am advocating, however, is that instead of spending all your after-work hours on entertainment, spend at least some of it on something useful.
It can be a part-time job to earn some extra money. Or reading and learning about investing. Picking up a new skill that you can monetize. Something more useful than Netflix (unless you’re watching education shows like Get Smart with Money).
Lesson 3: You can Start a Business with Little or No Money
As you may already know, I strongly advocate that people start a business with little or no money instead of putting in their life savings and risk losing it all.
If you don’t need money to start a business, when you fail, you fail small, giving you breathing space to learn from your mistakes and try again. But when you find something that works, scale it quickly!
Lindsey had a talent drawing and she loved dogs. Paula gave her a great idea about how to spend her free time to rest and relax and earn money at the same time.
She suggested that Lindsey go to the park during her time off, draw 2-minute sketches of cute dogs she saw, give them to the dog owners, put her telephone number behind the drawings and tell them “By the way, I walk dogs”.
What a great idea!
She was able to do something she was good at and loved (drawing and walking dogs). She started a dog-walking business with little or no money (just money for paper and pencils).
And what’s the worst that can happen? She doesn’t get any business, but she doesn’t lose any money either.
Has she wasted her time? Not really. If she failed (which she didn’t), at least she’ll fail forward and know that this strategy doesn’t work. Then she just needs to find a new strategy and try it. This constant trial-and-error approach and taking all failures as feedback is the foundation of the Ultimate Success Formula.
This is exactly the kind of out-of-the-box thinking you need to make money with no money. Forget all the online gurus that charge you money to learn dropshipping and online marketing. Often, you can be your own guru, if you are willing to push your brain beyond its limits and imagine what’s possible.
Lesson 4: Be Humble and Learn
My favourite character in the whole documentary was Teez.
I like him for his humility. He didn’t learn good money habits, but he was sufficiently self-aware to recognize that he had a problem with finances.
He was a millionaire NFL athlete, but that didn’t give him a sense of superiority. He knew that outside of football, he didn’t know anything about much else, including money.
He was wise enough to know what he didn’t know and humble enough to seek help. And then he was courageous enough to act on the advice given, finally setting up his trading account despite his misgivings and putting money regularly into investments.
Lesson 5: If you can’t Beat the Index, Buy the Index
For Teez, what Ro$$ Mac recommended was that he put a fixed sum of money every month to buy an index fund like those that mirror the S&P 500.
This is what I recommend for most people as well.
Investment is too complicated a thing to do well, especially for retail investors. The amount of knowledge you need to acquire and the complexity of how everything works together are just mind-boggling. You might be better off using your time to make an active income.
If investing is not your thing, just put your money into an index fund and let it grow over time. In the short term, prices will go up and down like a roller coaster. But over the long term, it will always go up.
Ray Dalio, Chief Investment Officer of Bridgewater Associates (the world’s largest hedge fund), says this is because of human innovation and ingenuity. Humans are a progressive species, and we constantly seek to improve our lives by doing things better, cheaper, and faster. Over time, we increase our productivity, and this will be reflected by businesses doing better and share prices going up.
Even if you’re a pessimist and don’t believe in this theory of productivity gain, I’m sure you believe in inflation. Over time, companies raise their prices in response to inflation, which leads to an increase in revenue and profit in nominal terms, but not necessarily in real terms. Since share prices over the long term are driven by nominal profit, they will also increase by virtue of inflation, even if the company hasn’t achieved any real productivity gain.
The stock market and index funds in general is thus a great way to invest your money and hedge against inflation without spending too much time and effort.
Property investments require a large capital. Speculative assets like precious metals, commodities, cryptocurrencies and NFTs follow market sentiments and not economic fundamentals, so they are too risky for passive investors.
But companies are income-generating assets, and you can usually count on the business leaders to use their resourcefulness and initiative to do whatever it takes to make their companies profitable. They do this regardless of daily movements in the stock price.
Thus, owning a share in a good company is a more reliable way of making a return than investing in speculative assets.
By buying an index fund, you are buying a basket of shares of different companies from all the various sectors. You are well-diversified and hedged against sector-specific risks while staying invested in the economy in general.
The key is to do two things:
- Don’t panic and sell when it goes down. Just remember that over the long term, it will go up.
- Keep putting a fixed sum of money to buy at regular intervals. This is called Dollar-Cost Averaging (DCA).
Lesson 6: Dollar Cost Average is King
DCA is a powerful investment concept that works on the premise that time in market is more important than timing the market.
It is virtually impossible for anyone, including all the best investors on Wall Street, to time the market perfectly. Instead, it is more important to stay in the market as long as you can, because, despite the short-term fluctuations, the stock market will always go up in the long term.
The problem with trying to time the market is that when the prices go up, investors buy more thinking it will go up further, but they may be wrong. And when prices go down, they tend to panic and sell their shares.
If such emotional roller coaster rides stress you out, DCA is a viable strategy. It takes the emotion out of investing.
While it doesn’t maximize returns by buying at the lowest price and selling at the highest, it does work to lower your average cost per share by buying more when the price is low and less when the price is high.
Let’s say you invest $2,000 on the 30th of every month. If the price now is $100 per share, you get 20 shares. If the price drops to $80 next month, your $2,000 investment gets you another 25 shares. If the price goes up to $125 in the 3rd month, your $2,000 buys only 16 shares.
At the end of 3 months, you would have spent $6,000 to buy 61 shares, bringing your average cost per share to $98.36, which is below the highest price of $125 per share.
The challenge with trying to time the market is that you don’t know if high is too high, or low is too low. DCA is a systematic way of ensuring that you participate in the upside when prices are low while limiting your downside when prices are high.
There’s a popular saying in the investment world that even God himself cannot beat Dollar Cost Averaging!
Lesson 7: Parents are our First Financial Advisers
Reflect on your life and see where you got your money habits from.
Most likely, you got them from your parents, didn’t you?
Along the way, maybe you had friends, and they influenced your money habits. But our first money habits were always inherited from our parents.
The attitude that Ariana’s parents had when it came to money is that money is for spending. If they want something, they just buy it and justify by saying that they deserve it. Frugality and investing didn’t seem to be part of their lives.
Teez inherited the hustler mentality from his parents, which was good because he recognized the need to work hard to make money. But how to keep that money and how to invest it was never part of the dinner conversation.
My parents, especially my mother, gave me a good foundation in money because she taught me how to save money. This is the foundation anybody that aspires to be wealthy must have. But they weren’t very good at investing, and it was something I had to learn on my own.
After I watched Get Smart with Money, I asked my teenage boys to watch it as well, along with a running commentary from me to give them added perspectives.
I’ve had conversations about money with my boys since they were 10 – 11 years old. I’m not sure whether they will earn a lot of money in the future, and to a large extent, that is beyond my control.
But I will make sure that they get good money habits from me. It is my stated objective that I want all my 4 children to be able to buy their first private property within 10 years of entering the workforce.
Lesson 8: Opportunities are Everywhere
For people with a limited mindset, all the good opportunities have been snatched by others, and there’s nothing left for them.
For people with a growth mindset, opportunities are everywhere. We just need to put our antennae out and detect them.
Lindsey was working a dead-end job as a waitress or bartender (it wasn’t clear which job she had quit). One would think that’s a job with no opportunities, right?
Wrong!
One of her regular customers owns an independent fashion company and has problems coping with the demand.
Lindsey was serving him a beer, and leaned in to say, “you know I went to fashion school, right?”.
She got hired.
Lindsey turned a dead-end job into a networking opportunity and used it to get her toes into the fashion business, which was what she studied in school.
Success is all about using your own resourcefulness. When you don’t have resources, use your brain to find those resources!
In Conclusion
The show begins with a quote from Benjamin Franklin which I think is apt for us to close this chapter with.
“An investment in knowledge pays the best interest”.
Keep investing in yourself. Keep learning!
