3 Smarter Money Moves to Make in December
Give yourself a gift this holiday season and ignore the conventional advice about money
It's the time of year when money is on everyone's mind. After all, if you're like the average American, you're planning on spending over $920 on gifts, according to the American Research Group. And if you're like the average American, you don't have that extra money to spend. You're probably going to go into some kind of debt to do it.
The media knows this, and there's no shortage of articles on how to save money during the holiday season. From opting out of gift buying to cutting all extra expense two month before Christmas to making sure you use the best credit card to go into holiday debt, the advice runs freely this time of year from so-called financial experts.
The problem is that most of this advice is poor financial advice. By that I mean advice that keeps you in a poor mindset. It is conventional advice that doesn't work anymore, advice the rich don't follow.
Bad holiday money advice
Take for instance an article from CNN Money called "3 Smart Money Moves to Make in December". In this article, you're encouraged to:
Bad advice #1: Give more to your 401(k)
Take stock in your cash flow and decide if you can put more money in your 401(k) for the coming year, says author Michael Douglass. "This is extra easy if you get a pay raise at the end of the year-You can make the adjustment simultaneously with your paycheck increase, so you won't even notice the change."
At Rich Dad,we've made no secret about why we despise 401(k)s. Take for instance one reason from the horse's mouth, John Bogle, the head of Vanguard: "…The financial system put up zero percent of the capital and took zero percent of the risk and got almost 80 percent of the return, and you, the investor in this long time period, an investment lifetime, put up 100 percent of the capital, took 100 percent of the risk, and got only a little bit over 20 percent of the return."
###Rich Dad's advice: invest in cash-flowing assets
If you want to be rich, the last thing you should be doing is increasing your contribution to your 401(k). Instead, you should use any raise you get or extra money you can squeeze out to increase an account you can use to invest in cash-flowing assets of which you have control over and of which you can keep all or the majority of profits. And if you want the tax benefits of a 401(k) to do this, you can use a vehicle like a self-directed IRA.
The best part of this strategy is that the more cash-flowing assets you acquire, the more money you make each month from those assets that you could redirect into even more cash-flowing assets. This compounding of assets, not just money, creates true wealth.
Bad advice #2: save your Christmas bonus
According to the article on CNN, nearly 42% of people will get a holiday bonus from their employer. "If you're one of the lucky workers getting a monetary 'thank you' from your boss, it's a no-brainer to put that money in savings," writes Douglass.
###Rich Dad's advice: savers are losers; spenders are winners
A mantra of my rich dad was, "Savers are losers." By that he didn't mean it as a personal insult to people who save their money. Rather, he meant it very literally. If you bet on saving money as a path to financial security, you will lose.
As I wrote back in July, "In an economy where almost everything is built to take your money, saving it is of little value. From inflation to taxes to hidden fees in your 401(k), the system is stacked against you."
Why, "Money is not backed by anything. It is a currency, which like a current of electricity, is always moving. Today, money flows from one sector to another. If it stops moving, like a current it dies. If your money isn't moving, it is dying, slowly, losing value day by day."
In the new economy, it is spenders who are winners. Not those who spend on liabilities that take money out of their pocket each month, but rather those who spend money on assets that put money in their pockets each month.
Again, as I mentioned earlier in this post, you should be stuffing extra money into an account meant specifically for investing in assets. This could be construed as savings, but it is a very different way to save. It is saving to spend. The aim should be to move that money as quickly as possible into assets that generate money rather than to let it sit and die.
Bad advice #3: give experiences; not gifts
As mentioned before, the average person will spend $929 this holiday season on gifts. Go cheap, says Douglass, and give experiences like a walk in the woods. "Let's say you reduce your holiday spending by $500," he writes, "and instead use that money to pay down credit card debt that you've been sitting on for awhile."
###Rich Dad's advice: Learn to increase your means, not cut them
There's actually a lot of good in the idea of experiences over stuff. Both Kim and I love to go on trips and see the world together, for instance. But the problem with this advice - besides the fact that experiences are still liabilities - is that at its core is it still keeps you poor. It's about cutting expenses rather than increasing your means. If you want to be able to buy a bunch of nice gifts for your loved ones, you should be able to do that. Focusing on cutting expenses will never put you in a place where you can.
My poor dad, my natural dad, would always say, "We can't afford that." My rich dad, my best friend's dad, would always ask, "How can we afford that?" Two very different ways of looking at the world.
If you're going to cut back on the gift giving this year, by all means do it (and if you have bad debt like credit card debt, you should probably pay it off). But use the extra money to invest in something even more important that experiences-financial education. Whether it's books, classes, or a coaching session, learning how to shift you mindset from "I can't afford it" to "How can I afford it?" will pay big dividends in the future. Just imagine if you could give lavishly and enjoy amazing experiences. You can if you learn how to harness the power of investing in the right assets.