馃攳
You Will Never Have Your Finances In Order, Here's Why - How Money Works - YouTube
Channel: How Money Works
[0]
this video is made possible by squarespace check聽
out the link in the video description to save 10聽聽
[5]
off your own professional website it's a new聽
year so i want to start this video off on a聽聽
[10]
positive note you will never be rich i know i聽
have said this before but it's not something聽聽
[16]
that people hear enough statistically based on聽
the demographics of people who watch my videos聽聽
[22]
most of you are from advanced countries so you聽
will be doing well by global standards but you聽聽
[27]
still won't be rich the one percent is exactly聽
that one percent of the population even if you聽聽
[34]
do everything right even if you save regularly聽
even if you invest wisely even if you binge聽聽
[40]
watch finance channels and even if you were lucky聽
enough to be born in a country with some degree聽聽
[44]
of social mobility you probably have a 1 in 10聽
chance of making it at best so why aren't we聽聽
[51]
taught this more often well because people don't聽
like to hear it it's much more fun to binge watch聽聽
[57]
channels or read books that promise that if you do聽
this you will be rich if you learn to manage real聽聽
[63]
estate you will be rich if you turn credit cards聽
you will be rich if you live below your means聽聽
[69]
you will be rich it's easy to see the appeal聽
but how many works is where dreams come to die聽聽
[75]
so to kick off the new year i want to look at a聽
few reasons why you will never be truly wealthy聽聽
[80]
so it's time to learn how money works which聽
was made possible today by squarespace the聽聽
[85]
most powerful website building tool for both聽
professionals and amateurs alike squarespace聽聽
[90]
allows anybody to create and host beautiful聽
looking websites but you probably already knew聽聽
[95]
that what you might not know is the utilities聽
available out of the box with squarespace's聽聽
[100]
development tools if you are building a website聽
for your brand squarespace offers incredibly聽聽
[105]
powerful inbuilt analytics tools which can let you聽
track everything from how long they are spending聽聽
[110]
on your site to what menu item people are most聽
interested in these insights can make all the聽聽
[114]
difference to a business trying to figure out what聽
works and what doesn't detailed analytics is just聽聽
[120]
one of many tools at your disposal when building聽
a website with squarespace so make sure to check聽聽
[125]
out squarespace.com for a free trial and see for聽
yourself what kind of website you can put together聽聽
[130]
when you're ready to launch you can use my link聽
to save 10 off your first website or domain聽聽
[135]
the first thing i should probably do after聽
crushing your dreams is to define what rich聽聽
[140]
actually means the millionaire next door by thomas聽
stanley and william denko is considered by many to聽聽
[146]
be one of the best books on personal finance ever聽
written the authors surveyed american millionaires聽聽
[152]
and found that most successful people fall into聽
two broad categories under accumulators of wealth聽聽
[157]
and prodigious accumulators of wealth they made聽
this distinction based on a simple formula which聽聽
[163]
multiplied their annual earnings by their age by聽
10 percent and compared that number to their net聽聽
[168]
worth if a 50 year old was earning a hundred聽
thousand dollars a year then that income could聽聽
[174]
be run through this formula to give us an expected聽
net worth of five hundred thousand dollars if the聽聽
[179]
individual in question had a net worth greater聽
than this amount then they were said to be a聽聽
[183]
prodigious accumulator of wealth if they had a net聽
worth below this amount then the author labeled聽聽
[188]
them under accumulators of wealth it's a simple聽
premise but there were a few obvious problems a聽聽
[195]
22 year old graduate going into fifty thousand聽
dollars per year shouldn't expect to have a net聽聽
[200]
worth of a hundred and ten thousand dollars the聽
authors did point this shortcoming out themselves聽聽
[206]
and they said this distinction was more a tool聽
to be used to measure the wealth accumulation聽聽
[210]
success of people in their late careers or early聽
retirements but that's not the biggest issue聽聽
[216]
the biggest issue is that this system doesn't聽
truly reflect what financial success looks like聽聽
[222]
the message of the millionaire next door is聽
that most millionaires look like regular people聽聽
[226]
who might be living next door to you in this book聽
a millionaire was defined as a person that has a聽聽
[232]
million dollars worth of assets outside of their聽
primary residence the authors argue that most聽聽
[237]
millionaires got there by being good at saving聽
money rather than being good at earning money聽聽
[242]
the majority of millionaires lived in blue collar聽
suburbs drove regular cars and avoided spending聽聽
[248]
money on vanity items like designer clothes聽
and fast cars it's easy to see why this book聽聽
[254]
is popular the idea that a regular person with a聽
regular job can be a millionaire is by its nature聽聽
[260]
broadly appealing to most people and before i go聽
any further i want to stress that i love this book聽聽
[266]
it can teach you some really important lessons聽
about financial traps that too many people fall聽聽
[271]
into but i'm sorry to say it again but you will聽
still never be rich naseem talib a finance phd聽聽
[279]
and former hedge fund manager pointed out that聽
the book had major issues with selection bias聽聽
[285]
if you survey a group of people then most people聽
are going to live in blue collar suburbs because聽聽
[290]
most people live in blue collar suburbs if you聽
survey a group of people then the most popular car聽聽
[296]
is going to be the ford f-150 because the ford聽
f-150 is the most popular car in talib's opinion聽聽
[303]
the way that stanley and danko conducted their聽
survey on american millionaires was backwards聽聽
[309]
what would have been more insightful would聽
be a survey of the suburbs that have the聽聽
[313]
most millionaires the cars that have the highest聽
portion of millionaire ownership and the careers聽聽
[318]
that produce the most millionaires there are more聽
millionaire plumbers than millionaire surgeons but聽聽
[324]
that's simply because there are more plumbers if聽
you want to be a millionaire you are much better聽聽
[329]
off pursuing a career as a surgeon the book's聽
message that anybody can get rich if they are聽聽
[334]
financially disciplined just simply isn't true聽
and that has a lot to do with the way that you聽聽
[339]
define rich a one million dollar net worth outside聽
of your primary residence is certainly respectable聽聽
[345]
it was even more respectable back in聽
1996 when this book was first released聽聽
[350]
but critics argue that this doesn't make聽
someone rich if you need to survive off聽聽
[355]
the passive income from that money then you聽
would need to apply the four percent rule聽聽
[360]
the four percent rule is based off the trinity聽
study which back-tested an investment portfolio聽聽
[365]
to see how much you could draw from it every year聽
without the value of that portfolio going to zero聽聽
[370]
the study concluded that if your portfolio聽
was well invested then four percent was聽聽
[375]
the upper limit of what you could take out聽
without slowly digging into the principle聽聽
[380]
my good friend richard over at the plain bagel聽
did a much more detailed video on this last month聽聽
[385]
so if you're interested in the math behind this聽
four percent rule then go and check that video out聽聽
[390]
anyway would you consider an income of forty聽
thousand dollars a year rich i know i wouldn't聽聽
[396]
assuming you had fully paid off your house you聽
could probably make yourself comfortable outside聽聽
[401]
a very high cost of living areas but you are going聽
to have to make certain sacrifices almost anywhere聽聽
[407]
you live here in the states yes most people聽
can move to low cost of living areas and then聽聽
[413]
scrimp and save to put a million dollars away for聽
retirement but calling the millionaires next door聽聽
[418]
is a bit misleading even calling them financially聽
secure might be a bit of a push nasim talib again聽聽
[425]
pointed out that this book was written in 1996 and聽
was based on a survey done throughout the 1990s聽聽
[432]
the millionaires that got there through thrift as聽
opposed to high incomes were heavily assisted by聽聽
[437]
markets that had been favorable to them for two聽
decades prior had the survey been conducted at聽聽
[442]
the end of prolonged downturns like 1935 or 1982聽
it is unlikely that the thrifty millionaires would聽聽
[449]
be as well represented prolonged downturns聽
push the balance of earning versus savings聽聽
[454]
in favor of the high earners average workers are聽
more likely to be laid off during these periods聽聽
[460]
and high income earners will be able to take聽
advantage of cheap asset prices the inconvenient聽聽
[465]
truth is that if you want to get rich you need聽
a high income why don't you hear this more often聽聽
[471]
because it doesn't sell well a personal finance聽
channel here on youtube would immediately lose 90聽聽
[478]
of their audience if they said that this聽
only works if you are making six figures聽聽
[482]
the millionaire in palo alto is not as intriguing聽
as the millionaire next door and nobody wants to聽聽
[487]
buy an online course on building wealth through a聽
40-year career in medicine the dream that anybody聽聽
[493]
can become rich through thrift is just that a聽
dream the millionaire next door is still a great聽聽
[498]
book because it can teach you a lot about some聽
very common financial traps that people fall into聽聽
[504]
but you are best to think of it as the financially聽
comfortable couple next door although i get i am聽聽
[510]
a youtuber now so i understand the importance聽
of a catchy title alright what if you are lucky聽聽
[516]
enough to be in a high income career or run a聽
successful business surely you will have your聽聽
[522]
personal finances in check then right wrong聽
most high income earners are unfortunately聽聽
[528]
just as financially unstable as their blue-collar聽
peers there are a few reasons for this the first聽聽
[535]
is lifestyle inflation as you age and progress聽
throughout your career you should hopefully make聽聽
[540]
more money as you gain more experience and take on聽
more senior roles it doesn't always work out like聽聽
[547]
that but for most people this is the career聽
game plan a shared house and a piece of car聽聽
[552]
is great when you are a broke college student but聽
once you have a family and a job you are going to聽聽
[558]
want a house all on your own with a car that can聽
reliably get you to work and your kids to school聽聽
[563]
if you are lucky enough to get promoted you聽
are going to need nice suits a bigger house聽聽
[568]
and an imported car to park in your reserve spot聽
at work your partner might choose to stay home聽聽
[574]
with the kids so you can focus on your careers聽
demanding schedule they do it because they know聽聽
[579]
that they will go on an overseas vacation with聽
you every year to catch up on lost quality time聽聽
[584]
many personal finance personalities make it聽
sound like succumbing to lifestyle inflation聽聽
[589]
is a personal shortcoming but many of a聽
lot of these expenses are far from optional聽聽
[594]
it's getting better these days but if you want to聽
take your career seriously as an investment banker聽聽
[600]
you are going to need a very nice wardrobe聽
you are going to need to live in a very high聽聽
[604]
cost of living city and you are going to need a聽
stay-at-home partner or hired help to take care聽聽
[609]
of domestic duties while you are working 100 hour聽
weeks investment banking is where i have personal聽聽
[615]
experience but the same financial sacrifices need聽
to be made for a career in big tech medicine law聽聽
[621]
or to start your own business there is also the聽
personal sacrifice to consider with these careers聽聽
[627]
nobody goes into investment banking or big聽
tech because they love corporate consolidation聽聽
[632]
or stealing people's data people go into these聽
competitive and demanding careers because they聽聽
[637]
pay well these people want a well-paying job聽
so that they can enjoy the finer things in life聽聽
[642]
so are we all just destined to be on the聽
precipice of financial ruin for our entire lives聽聽
[648]
well yeah sorta the dream you have been sold聽
of reaching financial independence and then聽聽
[654]
never having to worry about money again for聽
the rest of your life is never going to come聽聽
[658]
through the richest among us spend more聽
time worrying about money than the poorest聽聽
[663]
so this begs the question does making more money聽
actually make you happier fortunately you can聽聽
[670]
find out in my video where i look into two major聽
studies which have actually applied the scientific聽聽
[675]
method to the old adage that money can buy you聽
happiness so if for some reason you actually聽聽
[680]
enjoy these videos dedicated to shooting on your聽
dreams make sure you go and check that one out聽聽
[685]
thanks again to squarespace for making it possible聽
for everybody to keep on learning how money works
Most Recent Videos:
You can go back to the homepage right here: Homepage