Money Expert Reacts to Personal Finance TikToks

Do you all want to know if the advice you find about money on TikTok is good or horrible? My name is Ramit Sethi. I'm the host of Netflix's money show how to Get Rich and I've written a best selling book that sold over a million copies on personal finance. Today I'm going to take a look at actual money TikToks. I'll tell you one thing, I have not seen any of these before. My team pulled together a bunch of finance TikToks for me to review and I'm going to tell you what I think. Some of them are good, some of them are awful. Let's check them out together.

First up, the budgeting strategy that I use.

Already bored. I hate budgeting. But okay, I'll watch this video to.

Save my first 100k was a zero based three bucket budget. And I still follow this budgeting strategy today. I swear by it. And here's exactly how to do it. So first let's define what zero based and three bucket actually mean. So a zero based budget is a budget that allocates every dollar of income you earn to either an expense or a financial goal. This means, let's say if you earn $2,000 a month, then every single dollar of that $2,000 income is allocated somewhere. You subtract your income minus your expenses, minus your goals and that equals zero. A three bucket budget takes this one step further and allocates every dollar of income that you earn to either an essential expense, a financial goal, or a non essential expense.

In that order.

So already lots of things to like about this. Even though, you know, I joke about a budget, but I really do not personally like budgets. I don't use one myself. I do like that this creator is talking about what zero based means. It means that you have a finite amount of money each month and you got to make that money work for you. Every dollar has a job. Okay, there's a really good app that people use called you need a budget. I know it's a little ironic that I actually recommend this app for people when they're first starting out. Because I'm like, you don't actually need a budget, but if you really want to use, you need a budget. But the two I think are mutually reconcilable. Why? When you're first starting out with your money, it is important to start to train your intuition. How far does this money go? What's the effect of taxes? When I add up all these little things that I buy, how much does it actually add up to. And even in my book I recommend look for a month or two. It's okay to track everything, just so you get a sense of it. I do think that there's a point where it stops making sense to track every transaction and instead it starts to make sense to focus on the larger buckets. And I think that's what this creator is right about to describe those three major buckets. Let's listen.

There are a few main reasons why this budgeting method is so effective. First is that it gives every single dollar a purpose, so you are not left with any, any money left over at the end of the month. And I know that a lot of people freak out when they hear that there are people out there who have money left over, but it just means that you are not allocating your money to all of your different expenses.

Incidentally, this is how somebody making $680,000 a year can go out and with a straight face tell people, I'm living paycheck to paycheck. I mean, after I pay for the nanny and the private school and the allocation of our seven vacations and then the mortgage, I mean, we just have nothing left. We're living paycheck to paycheck. Stop using that argument. The vast majority of Americans are not living paycheck to paycheck. The statistic that you're all quoting is bs. It's made up by like a market research firm. The actual answer is these statistics which I'm going to put up on screen. So we got to stop using paycheck to paycheck. It actually doesn't mean anything because a very wealthy couple using zero based budgeting could theoretically claim as many do, that they live paycheck to paycheck. Let's keep moving.

The second benefit of this type of budget is that it really brings awareness to where your money is going. So you can see how much money you're spending on essentials. You can see how much money you're spending on non essentials.

So this creator mentions that it gives you some awareness of where your money's going, which I agree. If you do this for for a month or two, you will have mind blowing insights about where your money goes. I would say that when it came to mind blowing insights, it went like this. In order tracking my calories using a food scale, understanding how compound interest actually works. For example, what happens if you add 1% to your investment contributions every year? What is the effect of a 1% fee fee such as paying a financial advisor 1% and what are the differences between the performance of a professional money manager and a Vanguard S&P 500 index fund. And then third would be tracking my spending that was also mind blowing for about a month or two, which is what this creator is referring to. I will say I think there are weaknesses if you track every line item for too long. I've seen it so many times. I see it almost every week on my podcast. People who continue tracking, they stay small because they're always playing small. They're tracking, you know, how much did I spend on asparagus and what about peanut butter? And it really feels like they're being productive. I've filled out my spreadsheet, but the spreadsheet is not actually the end goal. The end goal is living a rich life. And a lot of times you only need to know a few key numbers, like your four numbers from your csp. And if you're tracking anything, you probably need to track like a couple of variable areas. For most people, it's eating out, it's vacation, it's kids expenses. Those ones matter because they go up and down and you have a little bit of control over those. But tracking every last item, I've found that over time it can be not the most effective or efficient strategy.

And if you're looking for a resource to help create your own zero based three bucket budget, obviously I've got you. I use.

What the. What, what is this? Ah, she's showing her personal finance dashboard. Oh my God. No, I mean, okay, for some people, they love it. But I can tell you that most of the people who love it, first of all, they're project managers. PMs love this. And second, it's really hard to think big when you're playing small. Now, again, for some people, they love it. But I have to wean some really successful people off of this stuff because they find themselves constantly living in the spreadsheet. And we all know that a rich life is lived outside of the spreadsheet. It's dinner with friends, it's walking with your son and daughter in the park at sunset, it's taking a trip or experiencing a moment of awe. And this spreadsheet honestly traps people often from doing those things. And it provides a false sense of productivity.

And this is an example. So you can see at the top there are all of the essential expenses, and then beneath that there are the non essential expenses. And then beneath that there are the three subsets of financial goals, which are savings and goals, investing goals, and debt payoff goals. The cool thing about this Template is that it has this little chart at the bottom that breaks out your income based off of percentages. So you can see how much of your income you are budgeting for your essentials, how much of your income you are budgeting for your goals, and then how much of your income you're budgeting for your non essentials.

Okay, hold on. So actually, a lot of good stuff in this. I mean, I may disagree. My approach is different. No disrespect to this creator who has her own philosophy. I appreciate that. I do want to point out that just having a bunch of numbers is not meaningful for the vast majority of people. So if you take the average person and you say, look, you're spending 68% on essentials and 32% on non essentials, they actually have no idea what that means and they don't know what to make of it at all. One of the things that I really, really focus on with my work is telling you, here are the numbers to target, and if you hit these numbers, you're good. If you want to live a very extravagant life, here's what you need to do. I don't just want math. I want to turn math into meaning. That is one of the key differences in the work I do at. I will teach you to be rich.

If you don't know where to start. I always say to aim to follow the 50, 30, 20 rule. I will disclaim this that I understand in this economy, this rule is really hard to follow. So just use it as a guideline to frame things up if you are able to. But essentially what it does is says that you put 50% of your income towards essentials, 30% towards financial goals, and then 20% towards non essentials. But don't yell at me, because I know that this is hard for a lot of people.

Don't yell at me. If you're in a career in personal finance online, be prepared to be yelled at, especially when you talk about a few other topics. All right. Honestly, it's a good video. This is good stuff. You know, I don't have to agree with everybody. I think that obviously she's got her template in there. It's working for her. She likes the tracking. I think it's cool. I think that tracking does give you insight into your numbers. I personally think there's a finite amount of time you should track, and I think that there are probably some really big levers you can pull in terms of, like, big wins and adjusting your asset allocation and things like that. But we're not disagreeing. We, you know, we're just looking at it from different lenses. Both lenses can be correct.

If you want to manifest money in 2024, then don't skip this video. Because if you aren't willing to do this one thing that takes three minutes a day and see your financial situation change, I don't know what to tell you. There's nothing easier, is it?

Setting up an automatic investment plan that automatically takes money from your paycheck, sends it to your retirement accounts in the following order. 401K, Roth, Ira, et cetera, et cetera, as described in my ladder of investing, and then automatically puts it into a diversified fund, such as a Target date Fund.

I literally started doing this October 16th of last year, and I had $4200 unexpectedly come to me in November, and then another $5800 come to me in December. Not from a job, just like unexpectedly. It literally works. It's wild.

What the is going on?

But I'm not kidding. I did not skip a day. So if you're going to do this, commit to the bit. Okay? You're going to go to the mirror. You're going to look yourself dead in the eye. When you're looking yourself in the eye, you are the authority of your subconscious. And whatever you tell yourself, you're going to believe more than you would if you're just saying this thought in your head. This is what you're going to say to yourself, literally. I would just, like, pause the video and repeat everything that I say back to yourself. Just do it every day until you have it memorized. I do it every day. When I get out of the shower, here's what you're going to say to yourself. Success and joy. All the wealth of this earth, all the riches of the universe belong to me. I am a child of the earth and the universe. And so all it's worth.

Wait, I can't keep up. What the. Hold on. Slow down. I never heard these words in my life.

Just belong to me. I once lived in thoughts of poverty and decided I was poor, so I was poor. Now I am home, and the rightful consciousness has made me wealthy. I am rich. I am successful. This is my treasure. I am rich. I am rich. I am rich. I have everything. Because I am everything. I am rich. I am wealthy. I have everything. I have everything. I possess all and everything. I am rich. Money flows to me. I am rich. Money flows to me. I have everything. I have everything. Remember to do this every day until you believe it. This eventually will become second Nature follow for more like this.

I'm definitely not going to follow, but let's talk about this because there actually are some things in here that I think are positive and then there are some things that are extremely destructive. So the positive I've worked in the self development field for 20 years. That includes personal finance, business, psychology, careers, and I've spoken to many, many, many people, well, well over a million people through my email, newsletter and social media and all kinds of of stuff. I have conversations with a lot of you even in the comments. And I can tell you that one of the central things that I notice is that many people simply do not believe that they can be wealthy. They do not believe that they can get a better job, they do not believe that they can be in a healthy relationship, etc. And that lack of belief in themselves, in their ability to change their situation is highly constrictive and it is defining. If I don't believe I can change, then I can't. And I know what that's like. Because I did not believe I could change my own physical fitness for about the first 25 years of my life. I thought in fact I would even joke with people. I'm just a skinny Indian guy. I used those exact words. And that turned out to be one of the worst possible things I could do because I started to believe it and it was a half joke, but it actually became a self fulfilling prophecy. And it went like this. Why would I bother trying to put on muscle or change the way I look? I'm just a skinny Indian guy. You see how circular that logic became. And finally it took some big things happening in my life for me to actually want to change. And so, you know, while I might not resonate with the manifestation thing that this Creator is talking about, I do think there is some something powerful and true about the fact that our language really defines who we are and who we become. When I finally stopped saying I'm just a skinny Indian guy, I started to replace it with phrases like I haven't learned about physical fitness yet, but that's the journey I'm on now. I haven't learned how to train properly, but I'm going to find some teachers and trainers who are going to show me how. Whoa. That's why when we talk about money and how hard it is for some of us to start investing and to understand these phrases and change, I know what that's like because that was the same thing for me with my physical fitness. But when I started to learn how to change my beliefs and my language. Then I started to learn how to change my behavior and my feelings and all of those things work together powerfully. You can do the same with money. Now for some things that didn't really connect with me. I don't love the idea that you can simply stand in front of a mirror and chant a few things and then money will somehow come down from the sky. That's not how it works. And candidly, that's pretty reductionist and potentially even a little offensive. There are a lot of people who don't have money not because they did not say the right words or even that they don't believe in themselves. It's that for generations before them, their mom and dad worked in low wage industries and that's what they grew up knowing. And saying a few words is not going to change that. It also can be structural in the sense of they're taking care of parents who are old and sick. It might be the case that they simply grew up in a place where they weren't exposed to education. There are lots of reasons why simply saying a few words and even changing the way you believe will not change someone's socioeconomic status. Certainly not in a month or two like this creator described. On top of that, I find that a lot of the things that people focus on with money in the personal finance field are so focused solely on the individual. Now, yes, I believe that we can take responsibility for a lot of our behavior with money and our feelings about money. That's been my entire work for the last 20 years. But I also think that it is missing the point to simply say, oh, you're not making money because you haven't said these things or you haven't gone to this website. There are real structural reasons that people are in poverty or even struggling to get by. Housing is not expensive just because a bunch of young people are buying avocado toast. It's expensive because for the last 70 years we have systematically under built housing. Health care is not expensive and it's number one cause of bankruptcy in America simply because people are eating junk food. No, it's that we have structurally encouraged the the privatization of healthcare, unlike almost every other developed country in the world. And so it's one thing to say we should focus on personal responsibility. I believe that. But I also believe that we can simultaneously acknowledge the need for structural reform as well as acknowledge the need for personal responsibility. Listen, if you're in your morning commute and you're driving in the car and you want to say a few affirmations to yourself or you want to listen to somebody in self development say a few things online. Go, great, fantastic. But I also want us to emphasize that building a rich life is not just about saying a few words. We actually have to take this really seriously. We have to learn the language of money. We have to understand how compounding works and the difference between a 401k and a Roth IRA. We have to realize there are things we can control and things we can't. And we can focus specifically on the things we can control. Our income, you can earn more money. That is a skill. Your investments, you can invest, even if it's just $50 a month, your savings, you can automate that money. And even your spending, your guilt free spending, you can spend money. You don't have to deprive yourself of everything. So I will say this video would have really, really made me mad when I was in my early 20s. Now I look at it and I say, okay, I think this video could probably help a number of people. I think it's incomplete. I think that this is just scratching the surface of what it takes to truly live a rich life. And I think that talking about specific examples like, you know, I made $5,000 the month later is not particularly helpful. Just for curiosity, let's take a look at the comments. What the f? The first comment is by Manifestation plug 44 and it says mirror work is the best. I've been doing this for 20 years. I never heard the phrase mirror work. What the f. Can I manifest a new cashmere sweater? Will that work? Is that how it works? Softness, texture, comfort. Where's my sweater? Where? I don't know if manifesting works. Okay, what's next?

I do not understand the point of owning a home. Not only do you have to pay an outrageous amount of money for a down payment on the house, but everything that breaks is then your responsibility to fix it. I don't have to bring my trash cans to the end of the street on trash night. All of my neighbors are super close, so I could just walk, walk from apartment to apartment and meet friends easier. Anything that comes up, literally anything. I walk across the street to my leasing office, bang on their door and say, hey, I need this fixed. I don't have to pay anybody for it. You're telling me if I have a house, I have to call somebody in special to come and fix something and then I have to pay them extra money to do it? I don't really think I'm interested in that. Don't want to mow my lawn. And I don't want to shovel snow in the winter. I just don't get the point of having a home.

Whoa, this is a good video. Now again, I have nothing against buying a house. I will myself buy a house one day. But what I love is this person is just simply raising a question. Hey, what's the point of buying a house? I'm not interested in mowing my lawn. I'm not interested in having to go repair a bunch of stuff or even taking trash cans out to the curb. In my opinion. Good questions, very innocent. But in our culture, they are so provocative almost to the point of being subversive. And that really reveals how far the pendulum has swung to the side of you must own a house. I'm not surprised. This creator, her name is finance. With Bella, in order to even ask these questions, you often have to have an understanding of money. I say that because most people have a very simplistic view of buying a house. They think that that is the only way to build wealth and buy a house. Somehow you become wealthy and then at the retirement stage you have no mortgage. And somehow that's awesome. If you understand things like compounding, you understand there are different asset classes like housing equities, et cetera. If you understand things like opportunity costs, like what about putting that $100,000 down payment into the market and letting it compound over many, many years? Then you start to have the knowledge to be able to ask certain other questions. So I'm going to just scroll right down to the comments because if I'm going to guess correctly, Bella has a lot of beginners following her. They're going to be absolutely outraged and they're going to say things like, oh, so you want to end up 68 and still paying rent? And then they're going to say things like, I don't want to pay my landlord's mortgage. And rent is just throwing money down, you know, down the tube. Let's take a look at what they say. Most folks don't want to work forever, so they don't want to pay rent forever. This is exactly what I'm talking about. This is a very simple one dimensional understanding of money. The idea that you're paying rent right now and you don't want to keep paying rent forever, so you better buy a house so that one day your rent will end. Guys, isn't it funny that when it comes to money, nobody thinks long term? Nobody's talking about how much am I going to have by the time I'm 60 or 65. They don't calculate that. They don't even think about that. They're not talking about what's my asset allocation at the age of 25 versus 65. Of course not. Interestingly, the only time in American culture that people think long term with their finances is when it comes to buying a house. Do you think that's an accident? No. That is the exact product of the mortgage industry telling you you need to buy now so that when you retire you won't have to pay rent. Let me explain how somebody who's a little bit savvier with money might think about this. They might say, hey, when I retire, I'm not going to have an income. How am I going to pay for things, including how housing and even eating out. And the answer of course is that ideally they have accumulated enough in their portfolio that they will have some type of income being produced from that portfolio. Like for example, if you have a million dollars in your portfolio, then you can safely withdraw approximately $40,000 a year. So even without an income, they've invested enough. But somehow people do not apply that same exact principle to their housing. One day I will stop earning an income and then I can't pay for housing, so I need to not have housing costs. Then let's take a look at some other comments. Oh, here's the shame one. It's called being an adult. Who gives a F about what you think being an adult is? Oh, so I have to own a house to be an adult? Do I have to own a car? Do I have to own a belt? What do I have to own all these things that you think being an adult is? No, this is just a classic shame based comment. So many people will talk about. And you'll find the same people, they often believe in very regressive things about family structure and you need to do these things in order to be an adult. But of course, your rich life is yours and my rich life is mine. A couple other people, as someone who just lost their house and is renting again, I never want to own again, okay? Bought my home for 180k. Eight years later, no major repairs. Now it's worth 500. Just made 320k. How much you made renting? Laugh, laugh, laugh. First of all off, okay, going into other people's comments and bragging about how much you made on your house is extremely lame. Secondly, you totally miscalculated your numbers. You've totally forgotten how much your opportunity cost was. You've totally neglected the costs, all of your maintenance, even Though you said no major repairs, there's still a lot of costs. You've still neglected things like furniture, which you probably furnished a little better owning than renting. And finally, you forgot all the transaction costs. If you sell, you have to pay a lot. What are you gonna do with that money then? Are you gonna go and buy another house that's equally as expensive? Again, we need to think a little bit deeper than going on someone's comments and trying to make yourself look good and then getting your math wrong. Sorry, but can't leave a rental for your children when you go. This is the American belief that the only way to be a truly successful parent is you have to leave them a house. Did anybody else find this confusing if you think about it for Even more than 5 seconds? First of all, I ask people, what would you rather inherit, a big, large portfolio or a house? Almost everybody said a portfolio. That's because you can take the money and do what you want with it. Second, what if you have two kids or three kids? How are you going to split that house? Third, what if your house is in an area that's not popular anymore or it hasn't been maintained well? Which, by the way, if you did maintain it well, means that you actually made less money on the house. Again, I want you to be thoughtful. If you can pass a house along to your kids, fantastic. But that is not the only way to create generational wealth, nor do most people actually need to be thinking about generational wealth. I actually created a video on generational wealth, and I want you to watch it right here. Now, to go back to what Bella said, she doesn't want to own a house. I completely understand. When I think about my money, dial the thing I love to spend money on, it's convenience. So the last thing I want to be doing is, is having to look up online how to fix some water heater or pipe or something. I have no interest in that. I'm never going to do that in my whole life. So at a certain point, at least at this point in my life, it makes sense to rent because those problems are handled by somebody else. For example, we had a microwave break. We texted our landlord it was fixed. We had some warping happen somewhere, text. Our landlord was fixed within 24 or 48 hours. The natural reaction is like, oh, must be nice to have a landlord who actually cares. And I would say, yes, it is. It is nice. If I didn't have that landlord, I would move to another place. That is one of the benefits of having a flexible housing situation. I think we also got lucky. I think we also pay enough that we tend to attract a higher caliber of landlord. But what I really like about Bella is she's interrogating the invisible scripts of America. The idea that we have to own a house, we have to have kids, we have to live in a certain place, we have to drive a certain car, we have to buy a car when we have a baby, and on and on and on. The more and more I talk to people, the more and more I see people who are rethinking their relationship with the American dream and best of all, creating their own American dream for themselves. All right, what have we learned from these videos? First off, be very careful who you get your advice from. Second, there's actually really interesting advice going around on social media when we shouldn't dismiss it all. We should just be selective about who we learn from and what we learn. Don't forget to hit that subscribe button. Turn on notifications so I can send you the next video when I do one of these. And check out this new video popping up on screen to watch more.