Today I am going to reveal a magic system that, if followed, will enable you to build financial wealth and lose weight! Does that sound good? You betcha!
Full disclosure, the inspiration for this post came from a recent post on Club Thrifty that struck a nerve for me. The author (who writes some pretty good stuff by the way), was arguing that the 50/20/30 budget that many advertise as being a great tool for beginners was not such great advice. I have to say that I agree 100%.
The 50/20/30 budget is a guideline of how to allocate your income. 50% is to go towards “needs,” 20% towards financial goals and 30% towards “flexible” spending. Suffice it to say that this kind of advice strikes me as enabling gibberish. I have often talked to my children about how to identify these sorts of things. When you come across advice on important and difficult subjects, the litmus tests should be:
- If it proclaims to offer easy solutions, it likely offers nothing of value.
- If it does not require you to educate yourself on the topic and put forth some effort, then you it will leave you shooting in the dark.
- If it moves money from your pocket and puts it in someone else’s, proceed at your own risk.
A great example are the thousands of diet programs that so called weight loss experts create and SELL to people desperate to lose weight. The science of managing your weight is not complicated. Eat fewer calories than you burn throughout the day and you will lose weight. As I can attest, it doesn’t mean it is easy because it requires a change in behavior, discipline, patience and perhaps overcoming some inherent disadvantages you may have, but the basic rules that govern whether you gain or lose weight are quite simple.
Unfortunately, this easy to grasp and implement concept does not stop what I assume to be tens of thousands of people from signing up for programs like Nutrisystem. Notice: Affiliate link. [Just Kidding]. Let’s run this prodigiously marketed product through Mr. Zero’s litmus test.
- Does it make a difficult activity sound easy. – Check
- Requires you to educate yourself? – Nope, just keep buying our crappy meals.
- Does it move money from your account to theirs? – Yes, quite efficiently.
So let’s come back to the 50/20/30 budget advice. No, this is not terrible advice. In fact, any advice that motivates you to start thinking about how you spend your money is a good thing. My beef is that it is one size fits all and tends to lead to too much discussion and thought around where expenditures fit in the framework. How you classify expenditures is not important! The total amount you spend compared to what you make is what matters. I think much better advice for newbies is:
1. Track your expenses and your net worth. Know where your money goes and know where you stand financially. [Track your caloric intake and weigh yourself]
2. Educate yourself on the basics of money, debt, investing and retirement. [Determine your daily calorie burn. Note that it will depend on your metabolism and physique. Know how many calories are in what you eat.]
3. Set goals and track your progress against them. [Set your target weight]
4. Make a budget based on your goals and your frugality tolerance. [Decide how fast you want to achieve your target weight]
There you have it. Mr. Zero’s magic wealth building and weight loss system. TESBR. Catchy, amiright?
Obviously I am being silly, but I think it is really counterproductive to give beginners the idea that there is a one sized, simple formula for deciding how to spend and save their hard earned money. It’s more important that they educate themselves on how their decisions impact their ability to meet the goals they have set. Once you have a clear understanding of this relationship, every financial decision you make can be scrutinized in the only context that matters.
If you told me I had to eat only grapefruit and kale to lose weight, I would be in for a lifetime of rollercoaster dieting. If you teach me that I have 2000 calories a day [or a more if I exercise] to spend as I see fit, I am equipped to manage my weight for the rest of my life.