Wednesday, November 6, 2019

Beware of Financial "Experts" with Contrarian Advice

You'll never make it as a financial guru by offering common-sense advice.  Say something outrageous, instead!

A reader sends me a link to "Mr. Financial Kung Fu" who claims that making meals at home is just something that only stupid doo-doo heads do.  This sort of "advice" appeals to the plebes, because that plate of nachos at Chi-Chi's is so tempting, and they want to validate their restaurant eating habits as "making sense" as you can put all that time "wasted" cooking to work for you on your "side hustle."

This is so wrong on so many levels it isn't funny:
1.  No time is "wasted" making food:  As I noted before, in the time it takes you to get in your car, drive to a restaurant, sit down, order food, wait for it to be made (what, you think they cook faster than you?) serve it, eat it, pay the bill, and drive home, you could have cooked three meals at home.  The idea that restaurants are "time savers" is utter bullshit.   I can make breakfast in the time it takes for our teakettle to boil water. 
2.   You aren't going to use the "saved time" on your "side hustle" - or anything else:   This argument is often used by people who are lazy.  "I'm billing out at $200 an hour at the law firm!  Why not hire a maid and a lawn service?  They cost less than I do!"   The problem with this argument is that first, maybe you bill out at $200 an hour, but you only take home $X a year in salary, and odds are, you don't get paid more for working that extra hour.  Second, even if you are hourly, and make, say, $50 an hour (nice work if you can get it!) you may take home a lot less than that, with taxes and whatnot.  Moreover, in terms of disposable income, that may comprise only 10% of what you take home.  Unless your lawn guy works for $5 an hour, odds are, you are coming out behind.   But finally, let's get real - the time you "save" by going to restaurants, hiring a lawn service, or hiring a maid is simply spent watching television, or today, dicking around with your smartphone.    The idea that you can work an unlimited amount of time is specious - we all get tired of working.   You aren't going to "work more" because you went to a restaurant, which as noted above, isn't providing you with any extra time to work, anyway.   You can only work so much - we all have our physical and emotional limits.
3.  The savings are huge:   We are not talking a savings of 25% or even 50% here.  You can cook a meal at home for less than 1/4th the cost of a meal bought at a restaurant.  You go though the drive-through at McDonalds for breakfast, you spend four dollars or more (particularly if you are tempted to "supersize" to one of those expensive sandwiches).  The same meal at home costs under a buck.  Today, farmers are going bankrupt because milk, cheese, and eggs are selling for less than the cost of production (the last time this happened was in 1929 - hmm...).   So why pay the highest prices possible for these staples, just to save the hassle of "assembling" them (as McDonald's calls it). 
4.  There is more than just time:  As I noted in my dangers of lunch posting, if you work in a cubicle, there will always be a guy or gal who suggests you all go out to lunch on "hump day" or whatever, and two hours later and $20 poorer, you come back to see your boss glaring at you.  Social interaction at the workplace is fine - in small amounts. Look to see what the really successful people are doing - and the married guys - they are eating their brown-bag lunch at their desk, and finishing that Appeal Brief, while you were gabbing it up with your friends, getting fatter, and adding to your credit card balance.  Yea, eating out saves all sorts of time - not! 
5.  Your health:  For some reason the Financial Kung-Fu guy includes a chart about obesity in his posting, and argues that making meals at home causes you to overeat.   But this is just hooey.  No one is making the mound of french fries at home - the local "fast-casual" eatery is.   Entrees at most restaurants top 1000 calories, some over 1500.  That's half to three-quarters of your daily requirement in one meal.  And no, you can't simply wolf that all down and starve the rest of the day -  your blood sugar will be all over the map.  And no, you can "take home" some in a clamshell for later consumption.  That's dangerous (food poisoning), gross, and not saving any money.  At home, you can measure portions and better control your diet than at a restaurant.
So why does he offer this "advice"?   Well, two reasons.  First, it is controversial and contrarian, so it sells clicks.  Mr. Financial Kung Fu is trying to make a living, or at least a side-hustle, with his blogsite.  I just do this for fun.   I have more fun, too.  I am not selling anything, not your eyballs, not a book, not a seminar, nothing.   So, in a way, I sympathize with him - in order to break out of the pack of similar "fiancial kung-fu masters" like the Sooze and David "Tithe 10%" Ramsey, he has to offer unconventional advice.  And as sugar-frosting on top of this, he offers unconventional advice that also validates bad behaviors people have - so they feel better about themselves for wasting money at restaurants.  That, in turn, makes them more likely to click!

Now, this is not to say you should never eat at a restaurant.  Stop being reactionary.  There are times when you are traveling (not by RV, of course) where you have to eat out.  There are special occasions when you want to socialize, or have something that you cannot make at home.   You should go out to eat, for those reasons.   But "too tired to cook" or "I don't know how to cook" are not valid excuses, at least if you are carrying a credit card balance from month to month, or struggling with other debts.  If you want to use restaurants as your kitchen, fine. Just shut up about your financial problems and don't ask me - via my taxes - to pay off your student loans, OK?

A second article cites Mr. Financial Kung Fu as a "financial expert" (by dint of being one, like the Sooze, although he has yet to be "internationally acclaimed!") and says you should "Never spend more than this!" on a new car.   Oh, doncha just love click-bait headlines?  Here, I'll save you a click.  He says 10% of your income.  


By that standard, the most I can afford for a car is $5000.  The most more than half the country can afford for a car is $10,000.   That's a pretty tight budget.  According to Mr. Financial Kung Fu, I would have to make $400,000 a year to afford my used pickup truck, and these overwrought SUVs that are rolling off the assembly line would only be suitable for people making a million dollars a year or more.  Clearly, the vast majority of Americans are not following this advice.

Granted, spending less on a car is a good way to save money - up to a point.  Another reader inquires (for a friend) what good used car could be had for $2000 to $3000. And the answer is, not many, unless you are willing to fish very far downstream.  Yes, there are plenty of cars out there in that price range.   A used Chevrolet Spark with 200,000 miles on the odometer can be had for that, but it is ten years old and at the end of its design life.  I guess if you can eke 50,000 miles out of it without major repair, it might work out.  Not sure I'd want to drive it to Disneyworld on vacation.

A few years back - in the 1990's, you could buy a used Geo Prism for about three grand, and drive it for several years without much hassle, as it was a Toyota Corolla in drag.  That was 30 years ago.  Gee-whiz, time flies! That seems like only yesterday. Since then, cars have become more expensive - finding a good used car for three thousand dollars isn't easy.

Even at $5,000, there aren't a lot of choices. The cheapest new cars out there run about $12,000 (and according to Kung Fu, only suitable for someone making $120,000 a year).  The cheapest used rental cars are about $7,000.  There isn't much in the way of a late-model used car that can be had for the prices Mr. Kung Fu suggests.

So while this is "contrarian" advice, it really isn't very good or useful advice for most Americans, who don't want to drive around in a clapped-out end-of-life vehicle. In my income bracket, his recommendation is "scooter" which sounds fine, except on a rainy day or on the Interstate.

The big problem with this recommendation is that it is based on annual income and not overall wealth.  When we bought the F150, I wrote a personal check for the full purchase price.   Not many people can do that, but a surprising number can.   Looking at life based on annual income and not based on overall wealth is a big mistake - and I am surprised Mr. Financial Kung Fu falls into that trap.

Yes, people spend way too much on vehicles in America.   And yes, you can bankrupt yourself at the car dealer - very easily.  Cutting back on vehicle expenses is a good idea.  And the best used car value might already be parked in your driveway.   But to set unrealistic expectations as he does, is nothing short of cruel.  And making arguments that you'll "save on repair expenses" buy purchasing $5000 cars, is just sort of stupid.  This guy clearly doesn't understand the Weibull Curve.

And suggesting that people ride scooters or motorcycles is also idiotic.  Maybe in sunny San Diego this is "practical" but in snowy Central New York, not really so. Plus, there is the whole death and dismemberment thing to think about.  I used to ride motorcycles.  I gave it up after visiting too many friends in the hospital, going to too many funerals, and getting hit by a cop who decided to make a right hand turn from the left lane, right into my bike.  Yea, this is some great financial advice, to be sure!

So what to do?  Well, going to one car could be one solution, for a couple or family.  As I noted before, there have been many times in my life when I had more cars than I needed. When I moved to Alexandria in 1987, we had three cars (!!) and neither of us drove to work.  I should have sold my old jalopies and relied on Mr. See's newer VW instead.   At the present time, we have two vehicles (plus a golf cart) and the truck sits in a storage locker when we are not using it to tow the RV.   Arguably, we could have lived without the hamster (but it's so cute! - and comfortable, and well-made) and just had the Nissan, and now the Ford.

By the way, the article cited claims that Mr. Financial Kung Fu is an "financial expert" by dint of blogging about finances for ten years and being a millionaire.  Well, same here, but I would never claim to be an "expert" based on such slim credentials.  If you live long enough, as a middle-class person in the USA, you will likely become a millionaire (or should, if you want to retire).  So it is not really that big a deal.   The difference between him and me is that I am not trying to sell you anything, not even a click.  Yes, I monetized my blog for a year as an experiment - what ended up happening was that odious ads for the very things I railed against appeared in the side bars. Always be suspicious of anyone who is trying to sell you something.

So why is this bad advice?   Well, for starters, the stuff about "eating in restaurants" - even if he does limit this to an astonishing 50% of meals - will be taken by many as validation of their restaurants-as-kitchens lifestyle.  They will keep spending huge amounts of money on restaurant meals and end up fat and broke and with a credit card balance and wonder why.  After all, this is what the financial expert advised, right?  And right there is why I don't give advice (but critique others'!).

The 10% car deal is similarly cruel.  Since few people can live within this draconian limit on car purchases, people will feel they are failures in life.  His "helpful" advice to someone wanting to buy a $35,000 car is to figure out how to make $350,000 a year.   Oh, shit, why didn't I think of that?  I can just go out and make more money, perhaps on my "side hustle" - right?  But that is just cruel advice. The average schmuck in America can't just "go out and make more money" in most cases.

Yes, I was able to make more money by finishing my Engineering degree, going to law school, and starting my own law practice.  I mean, how hard was that?   Well, at the time, an heroic effort, with 14 years of night school.   Today?   No such choices would exist for me, which is why I am glad I put aside a little money when I was younger. But not everyone can become a lawyer (and the law business ain't what it used to be!) or become an internet millionaire, YouTube sensation, rock star, or "Internet Blogger Financial Expert" or whatever.  Odds are, your only "side hustle" is Uber, and that ain't about to make you much in the way of serious dollars.

Just go out and make an extra $100,000.  What are you, lazy or something?  Some swell advice!

Of course, if you could go out and make an extra $100,000, why would that limit you to buying as $10,000 car?  I would think that with this "extra" income you could afford a $100,000 one.   But the point is moot - there are few side hustles that pay a hundred-grand a year, at least for most of us.

Besides, life is more than just hustling.  And I am happy to say I am done with hustling, God willing.  I don't make money from blogging, I enjoy it.  We enjoy life, and spend a lot of time doing things that don't create wealth, but create happiness.  Mark enjoys helping set up the art shows at the gallery here on the island.  This isn't a "side hustle" - it is volunteer work.  It makes him happy.   If he was paid to do it, it would make him miserable, because he'd have to do it.

Life is more than just making a shitload of money so you can blow it all on restaurant meals.  Life is more than "side hustles" and trying to become rich.  Success is not just measured by dollar signs. And I guess that is the sad thing to me about Financial Kung Fu, is that he is trying too hard to get rich, and missing out on what life is really all about.

Oh, that and the shitty advice.