Netflix's new film "The Economics of Smart Life" has found financial experts to provide four groups of guests with a year-long "personal finance coaching class"; If it were you, what financial problems would you hope to improve?
The 19th-century economist Vilfredo Pareto published the famous "Twenty-Eight Rules", proposing that "20% of society owns 80% of social wealth"; In other words, when everyone is born, there is an eighty percent chance that they will become ordinary people in the world of wealth.
Without a rich dad and no partial financial luck, the most practical way for most people is to rely on their own efforts to establish a healthy and long-term relationship with money and money.
In September 2022, Netflix released a new film "Get smart with money", which hired four financial coaches to provide four groups of amateur guests with a one-year "personal finance coaching class";
And with the quarter as the tracking unit, according to the needs and goals of different cases, practical and implementable improvement plans are proposed.
Whether you are an office worker with a stable income, a moonshine family with tight hands or a person who cannot make ends meet, here are four cases to re-examine your financial concepts and absorb the practical advice of four financial coaches to help you go more smoothly on the road to financial management.
Image | Netflix
Debt snowballed, "Do I have the right to a good life?"
"Money is spent." This was the first view of money that Ariana learned from her family of origin.
In the past, she had little savings, rented expensive apartments, ate good food with friends every week, went shopping for clothes when she was in a good mood, and used credit cards to pay almost every purchase.
Because of a misconception of money, starting with college student loans to spending habits beyond her personal ability after graduation, Ariana was saddled with $110,000 in debt in just a few years.
Now, Ariana is in her 30s, has to take care of the family while working, and has a deep sense of guilt for her husband and children -
Every month's salary is used to pay off his own loans, and the husband is responsible for almost all the family's living expenses, and there is no room to enjoy the dream family life, or even the money to repair the car.
Practical advice from financial coaches:
1. Review the type of consumption: give priority to "demand + love" rather than "want + like"
(1) Needs: Essential items to maintain health and safety, such as: water, electricity, gas, rent, daily necessities, fruits and vegetables, etc.
(2) Loves: What do you most want to have without considering money?
Usually this type of satisfaction is high and expensive, like Ariana wants to take her family on vacation. But in order to save money, people often retreat to the second place, choose "want + like" and fall into the trap of impulse consumption.
(3) Wants: Can satisfy temporary cravings, but usually brings happiness for no more than half a year.
(4) Likes: Hardly makes people happy, for example: Ariana often "slips" orders on Amazon, but after careful evaluation, it is not necessary at all.
Image | Netflix
2. When payroll, it will be automatically transferred to 5 types of wealth management accounts, usually only with "normal expenses" financial card
The five wealth management accounts are divided into "Family Bill", "Personal Account", "General Expenses", "Emergency Expenses" and "Dream Budget".
Because the financial allocation has been done and the process has been automated, each consumption is more secure; Debt repayment starts with high interest rates, so that the pace of loan repayment tends to stabilize.
The coach also asked her to put her credit card on hold and replace it with a financial card to help Ariana improve her control over her money.
3. Build a positive abundance mindset: Think "I can control money" instead of "I'm afraid of money"
Ariana, who was in debt, was worried for a while that her 20-year-old car would break down and she would not be able to pay the down payment for her new car.
Fortunately, I started to make financial allocations a few months ago, and one day Ariana's car really had a problem, and she and her husband agreed to buy car repair tools with "emergency funds" to temporarily survive the crisis.
The coach also used this to guide Ariana to practice a positive wealth mindset, and her anxiety about money was much lessened.
Image | Netflix
The economic situation is stagnant, "Do I still have a chance to chase my dream?"
27-year-old Lindsey is a moonshine family who wears two hats, graduated from the Fashion Design Institute, and has been struggling to show her talents;
Constrained by the lack of extra disposable money, he can only succumb to the time-consuming restaurant industry work in front of him, and even when he is at a low ebb, he cannot see a psychologist because he cannot pay for health insurance.
In fact, Lindsey is a hardworking and talented girl who aspires to become a designer, but the vicious circle of finances has dragged down her heart to switch runways.
Coach Paula saw her potential and quickly identified opportunities for her to break the ice.
Practical advice from financial coaches:
1. Save money: reduce the three major expenses of "rent", "transportation" and "food" to maximize savings
(1) Rent: Find a smaller house, or share it with your roommates.
(2) Transportation: Choose the cheapest but safe means of transportation.
(3) Diet: Reduce the frequency of ordering takeaway and food, arrange supermarket shopping trips every week, and prepare three meals by yourself to save money and health.
Image | Netflix
2. Open source: Start from yourself and play your own unique value
(1) Odd jobs
Short-term work that can be paid in immediately.
The coach suggested that Lindsey take advantage of the gap between walking the dog to sketch for other dogs when she was working as a dog nanny, and attach her name and contact number to the back of the painting, so that the dog owners who received the work could become potential customers and expand more opportunities for herself.
(2) Set up a side business or start a business
Lindsey, who aims to become "self-employed", bravely quits one of the jobs that has failed her.
Despite a temporary decline in income, she focused on her artistic career: she digitized her paintings and scaled them up in print, taking them to the market stalls.
Lindsey made a name for herself, not only receiving commissions for murals, working with a small costume team, but also setting up her own workshop courses.
With limited throttling and unlimited open source, the coach guided her to shift her mindset, learn to evaluate the efficiency of making money, and try to build her own business from scratch.
Finally, Lindsey successfully enrolled in medical insurance and continued to move forward in the field of art she loved.
Image | Netflix
From getting rich overnight to sitting on the mountain, "How do I stabilize my wealth?"
Football player Teez was signed to a professional team at the age of 21 for his excellent performances, and his first salary was as high as $1.6 million.
After deducting 40% tax, paying a broker's salary, buying two houses, and taking his wife on a small tour, the savings in the account were only 280,000 in two years.
To make matters worse, he suffered a foot injury and was unable to play and earn for a long time.
The career of a professional athlete usually peaks at the age of 25 and almost has to retire after the age of 30; Teez, who had just woken up from a big dream, realized that something was wrong, and he knew that if this continued, the whole family would have to drink the northwest wind with him.
Practical advice from financial coaches:
1. Reduce spending and abstain from luxury goods
Teez's family spends $12,000 a month, and looking around his home, you can also find many luxury goods, such as a whole shoe cabinet of designer sneakers, high-end brand jewelry, which is worth up to $60,000.
The coach told him that if he had invested $60,000 in the stock market and simply invested in the S&P 500, it would have become $112,000 by now. Teez, who heard the numbers, showed a chagrinized expression.
Image | Netflix
2. Start investing in index ETFs
In the logic of athletes, to invest money is to let the money go to the game and make money for yourself. The coach suggested Teez would save $10,000 a month to invest in the stock market and buy index funds.
At first, Teez was a little hesitant, because he didn't understand, he was only willing to invest $1,000 regularly, and when he encountered a decline, he was easy to panic.
The coach told him that the most important thing in investment is the frequency of buying, even if the index falls in the short term, it will still rise back later, and you can also take advantage of the cheap stock price to increase the weight.
During his time studying investment and financial management, Teez also actively participated in the team selection and tried to become an official player.
A year later, his career stabilized and his attitude towards salary was completely different, because he knew that wealth was no longer a headache, but a building block to settle his family, gain self-confidence, and give him room for choice.
(Guess what you want to see: What exactly is ETF lazy investing?) Don't ignore hidden costs, be a smart investor! ）
Image | Netflix
One of the spouses is unemployed, "How do we retire early?"
When the epidemic broke out in 2020, engineer John lost his job and became a full-time daddy amid layoffs.
In contrast, his wife, psychotherapist Kim, has seen exponential growth in revenue — 70,000 in 2018, 150,000 in 2020, and 300,000 in 2021.
However, as the only source of income for the family, the working hours are getting longer and longer, which makes Kim, who cannot get along well with his family, a little anxious.
On the other hand, as the total income continues to increase and the quality of life improves, the family's monthly expenses are as high as $13,000, so the two hope to reduce expenses, study and save money, and aim to retire early because they care more about time than material life.
Practical advice from financial coaches:
1. How much does retirement cost? MULTIPLY the cost of living by 25 times and that's your FIRE value
The popular FIRE trend (Financial Independence Retire Early) in recent years reflects people's desire to "retire early and regain autonomy in life"; When the passive income is greater than the cost of living, you can have the confidence to support yourself without working.
According to the 4% rule, multiplying the annual living expenses by 25 times is the minimum threshold for achieving financial freedom; Put this money into an exponential investment and withdraw 4% per year as living expenses, you can have an endless stream of passive income without reducing the principal.
Image | Netflix
2. More important than income is "how to spend"
For Kim & John, because the current household expenses are too high, even if the FIRE value is calculated, it will take at least 21 years to retire compared to the current annual income.
Coaches advise them to start by cutting their living expenses, such as cutting back on impulse shopping at $2,000 a month or going to a mass merchandiser to reduce their monthly food costs from $1,200 to $500.
In the ninth month, the couple decided to change the house to the cottage, halving the maximum expenditure, the $36,000 a year mortgage, and investing the 18,000 saved.
3. It's important to save money, but it's even more important to live well
After the coach's company and guidance, Kim was impressed:
"We learned from him (the coach) how to live life in a happy and responsible way; It's definitely not about saving money, it's about saving money, but now start living well and spending time with your children."
With costs falling dramatically, the Kim & John family arranged a "mini-retirement" where the family went on a five-week vacation to Costa Rica.
Hearing their recent situation, the coach showed a relieved expression, saying that travel can bring memories for a lifetime, and that children only have one childhood and that the money is worth spending if they can afford it.
After reading the four sets of financial cases in "The Economics of Smart Life", are you also eager to try your own financial management?
Everyone's financial situation may be different, but as long as you start clarifying your financial goals, understanding your personal spending habits, and correcting your financial management methods on a rolling basis, I believe you can also live the happy life you want!
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