Most people want answers. We want money advice to be universal and easily applied. If a billionaire or influencer does this or uses that strategy, everyone should be able to do it as well, right? Not quite.
Basic Principles
Speaking in generalities, there are some basic principles that I think everyone should follow in the majority of situations, emergencies and crises excluded (like major illness, death, etc). Things like:
- Having an emergency fund
- Paying yourself first to save and invest
- Automating your money
- Living below your means
- Staying out of consumer debt
Short of these basic principles, money advice will vary widely. Even within these principles, there’s wiggle room. For example, three to six months of an emergency fund will be sufficient for many, while others would be wise to carry 18 months or more.
What We Want
We want clarity and specific advice on how to get there. Problem is that it isn’t always possible, in fact it’s usually not. If I ask a billionaire real estate investor specializing in commercial properties in downtown New York and Chicago what to invest in, they are probably going to tell me commercial properties.
Buying large commercial properties in two of the most expensive cities in the world isn’t possible for most people without a lot of work and expertise before that. We want specific advice but when you get down to the nitty gritty, the advice is going to vary.
Good Advice For One Isn’t Always Good For Others
Ever heard a celebrity, influencer, or someone with a very high net worth say something like this?
- Keep millions in cash for flexibility
- Or the opposite: cash is trash
- Always use OPM (other people’s money)
All three pieces of the advice above are actually very good for many people. It’s also terrible advice for a large segment of the population.
For example, using other people’s money is a very effective strategy. You win because you’re getting the needed funds and the investor wins because they are getting a nice return.
For someone with little experience or who doesn’t know what they’re doing, using OPM is absolutely terrible, and irresponsible advice. Someone who has never bought a multi-million dollar apartment complex should never be using investors’ money (or friends and family) to buy their first solo deal.
Investing and Cash
As noted above, two common pieces of money advice is to keep large amounts of cash, and the opposite of that, keep as little as possible in cash. So who is right and who is wrong?
The truth is that both people are right, depending on the circumstance. Someone who owns a business with a large payroll should keep a lot in cash. While a 21 year-old living with his parents just starting out doesn’t need a lot of cash.
The business owner probably needs a couple years of reserves while the 21 year-old needs a few months of cushion and some money for future rent when he moves out of mom and dads house. Different advice for different situations.
Leverage
Leverage is another big one that varies. In my opinion, leverage works great for some people and is a complete and utter disaster for others.
For example, almost anyone with some level of expertise could have bought real estate using leverage from 2010 to 2022 and done really well. Buy a rental property, wait a year for it to gain value or fix it up, refinance and then repeat the process. Keep doing it again and again.
As long as the investor had some level of expertise and didn’t get crazy greedy, they likely would have done very well.
That strategy worked great for lots of people, especially those with above average expertise. Try that strategy from 2004-2007 and even the most seasoned investor would have lost it all, or most of it.
Try it now and you better have a lot of expertise and ability or you’re at great risk of losing.
So what’s the advice for leverage? In general, the best advice is probably not to use it, or use it sparingly. For experts, it’s proceed with caution.
New Circumstances and Information
New circumstances and information always emerge. As a result, the advice also changes. Someone who has built up a large portfolio is going to get very different advice than someone living check to check.
And when the person who was living check to check builds up a solid portfolio, their advice will change because their circumstances changed.
Things change–life doesn’t remain stagnant. As things change, advice changes and what worked last year, or was best practice at the time, won’t necessarily work this year.
Conclusion: Find the Advice That Works For You
Ultimately, you have to find the advice that works for you. Our social media feeds are filled with influencers showing us and telling us what to do. One successful person says do this while another says do that.
It’s impossible to listen to everyone because the advice and strategies are different. Leveraging debt and being completely debt free are both good pieces of advice, but they are incongruent. You have to pick one or the other, or something in between.
My advice is to pick the advice (pun intended) that speaks to you and is most applicable to your situation. If you’re a W2 employee creating wealth one month at a time for the long-term you’ll want to listen to someone who has followed that blueprint.
However, if you’re someone who wants to build wealth through a business, you’ll want to take advice from someone who has done it that way, not the W2 employee who is building wealth slowly. In the end, it’s plain and simple: follow what works for you.
Who do you, or would you, take money advice from?
