Money Expert Reacts To The WORST TikTok Finance Advice

I'm the host of Netflix's Money show and the author of a money book with over a million copies sold. And today I'm looking at more financial advice on TikTok. Now some of the advice is good and some of it's even great, but a lot of the advice is just plain wrong. In this video, my team put together some financial TikToks for me and I have not seen any of these before. So let's take a look at which of this advice is good and which of this advice you should avoid at all costs. Let's see what's up. First.

The value of $1 to the average person in the US is the same as $878 to Taylor Swift. Twelve hundred dollars. IPhone to her costs a dollar 37.

Okay? Literally that's like a side of fries.

I can't even buy a coffee for 1:37. So like a phone is like that's a tip on a coffee.

That's amazing in the coffee.

Wait, this one really got me cuz I relate to it. Dinner at Nobu Malibu for two is like $715. Which saying, I'm sorry, what are y' all eating? Okay, so $715, guess how much relatively.

That would cost divided by like 800 or whatever? Like, like five bucks.

81 cents. You wouldn't even bat nice.

81 cents is literally.

You didn't even know that was missing.

81 cents is in the belly of the beast.

I really like this video. I think that more of us need to understand how money works or on a percentage basis and not just an absolute dollar basis. So using Taylor Swift is a great example because she's incredibly successful, incredibly wealthy, and we can start to understand how an iPhone or a $750 dinner is effectively a dollar or two to her. This example right here is why I always talk about money in terms of percentages. Okay. When I talk about how much are you spending on guilt free money, I often Recommend People spend 20 to 35% of their take home pay 20. They go, Whoa, I never thought about it like that. Yes, I intentionally use percentages because as your income increases or decreases, your absolute dollar value should flow with that. I'll give you the most classic example. You have somebody who grew up with frugal parents. They're frugal in their early 20s and they start to do well. Their income goes up, they're saving more, they're investing more, et cetera. But they never thought about things in terms of personal percentages. A lot of Times when I talk to people about vacation, I'll ask, how did you decide how much to spend on it? And they look at me completely dumbfounded. They're like, oh, well, we didn't really think about a budget. We just kind of picked a number. And I go, where'd the number come from? And almost always the number is the same number they used when they were in their early 20s picking their first vacation. They never adjusted it, even though they might be making 2 times, 4 times, 10 times more than they used to be making. Taylor Swift is thinking about money in a totally different way than you. But we can adjust the same principle and adapt it for our needs. We can think on a percentage basis. All right, I want to see what's next.

If you're 18 years old, it's 0.

Seconds into this video, and I'm already on edge because it says, turn $300 into $1.8 million.

If you're 18 years old and you invest $300 a month for eight years, and then at eight years, you no longer invest again, you'll be financially free by the time you retire.

Whoa. I stand corrected. Okay, you caught me off guard. I apologize. You were right. That is the way to turn $300 into $1.8 million. I really thought you were about to say, this is what you do, guys. First of all, you take $300, you buy this coin, and then overnight, it's going to turn into 1.8, and then you cash out. It's all about financial freedom, my friends, which is. Oh, God, how many of these degenerates do that every single day and lose all their money? Mostly all of them. In this case, we have somebody who's actually giving really good advice. Let's Continue.

You have $1.8 million. People are like, what the heck are you talking about? Well, at eight years, you would have invested $28,800. And if it was invested in the stock market, which has earned about 10% each year for the last 30, 30 years, and because of compound interest at, you know, retirement age, which is mid-60s, you'd have $1.8 million. It's Psycho.

You know, $300 per month for a few years, and then you just let it sit, and compound does turn into a huge amount. I actually want to run the math just to double check. Okay, $300 a month for eight years. Okay, all right, let's just let that grow. We're going to contribute zero, and we're going to let it grow for, like, four, 40 years. And he said 10%, which we can talk about. Yes, this is correct. This is a great video. I also like the very foreboding music in the background. Like, if you don't do this, you're going to die. You're going to. And your bones are going to be scattered in a dungeon. It looks like a freaking vampire is about to jump out. What I really want to point out here is, first of all, it's incredibly powerful to invest early in life. Incredibly powerful. Time is your best friend when it comes to investing, okay? Second, I want to point out that the psychology of investing is extremely important. A lot of people listening to this, they go, $300 a month. That's so outrageous. How would I do that? No, it's not. And if you can't do $300 a month, then adjust it. Make it 200, make it 150, make it 50 to start, okay? The psychology of investing is about not thinking in an all or nothing way. If you can't do 300, do a little bit less. But the point is to get started. The other thing that people's minds will play tricks on them is when they say, well, who wants to wait until I'm 65 to have 1.8 million? Nobody said you have to wait. If you want to invest more, you can do that. If you want to start a side business, you can do that. If you want to negotiate your salary, you can do that. I teach how to do all those things in my different programs. But what's important is that you turn this voice off that wants to keep you stuck, that wants to keep you small, that that has an excuse for everything. I can't do 300. That's outrageous. I don't want to wait till I'm 65. Well, then fix it. Invest more, save more. There's so many different ways to go about it, but this gentleman is correct. If you invest that money early and you let it sit and compound, you have $1.8 million. In fact, if you keep investing like most people do, you'll actually have way more. Now, the final thing I want to point about is the return rate that he assumed. He assumed a 10% return rate, which is actually a fine assumption. You've heard me use a 7% return rate. The difference is inflation. So he's using what's called the nominal return. Okay? Nominal means just how much you get without factoring in inflation. My rate that I use, 7% is called the real return. Real does not mean that I'm better or it's more real. Or anything. Real refers simply to inflation. And because we assume 3% inflation, you can change it to whatever you want. But 3% is typically what economists use. Ten minus three is seven. That's the difference between nominal and real return rate. I personally use real because I want to be more conservative. But I know that in my bank account over the long term I will probably have more like 10%. It just means the purchasing power will be less. This guy is a great video. It's very compelling. Let's take a look at the comments. Just for Holy the comments are exactly what I said. Who has $300 a month to invest at 18? See, these people pop out of the woodwork every single time you talk about investing early. Okay, fine, you don't have 300 bucks a month at 18 years old. I agree that might be challenging. What about at 22? Can't you simply adapt the principle and make it work for you? Another comment here says nobody trust stock market. It has become a joke with gme. That belief will cost this person millions of dollars over the course of their lifetime. Right? They've basically become this disaffected young person who doesn't believe in the stock market. I can guarantee you they've never read a single book about personal financ. And so because they have simply dismissed the stock market as a concept, they will miss out on all the millions of dollars of gains that they otherwise could have had. Then there's this one. This is my favorite comment. It always pops up whenever you talk about how much money you can have in the Future. Chris writes, 1.8 million in 50 years won't be anything close to enough to retire. Guess what? This example is simply about investing for eight years. Don't you think, Kris? If you wanted to have enough to retire, you would probably invest for more than eight years. Do you see how that little voice in the back of your head is coming up with random excuses that don't actually mean anything at all? They're just keeping you small and stuck. I wish that we had more comments like this. True compound interest is crazy and really starts to go nuts after decades. The hardest part is having the discipline to not touch it. I I've been investing since I was roughly 14 years old. I'm 42 years old. The compounding has grown and grown and grown. It's like a snowball that gets bigger and bigger and at a certain point it's unstoppable. I want you to be able to benefit from that. Now. Most people don't start investing at 14 years old. But you can start investing today. And I want you to start to control that voice in the back of your head, the voice that tells you not to invest, that it's too scary, that it won't be enough, that you should just keep doing what you're doing and be stuck and be resentful of the stock market instead. I want you to get educated and I want you to start taking action with your money. That is why I'm here. That is my wish for you. Okay, what's next?

Can we normalize telling each other what our savings accounts are? Because I really want to know. I feel like I see people saying, like, they have no savings. I feel like I see people having insane savings and I just don't know what the normal is. And I know you can't compare because you have different lives, but I want to know. I really do. So between the age of 20 to 35, I'd really like to know what like, the average is for people, because life is, is expensive. But I just came back from Australia. I live in Australia. People live with their parents after they graduate high school, in college, and then even like later, like, I know someone who still lives with their parents at 26, no shade at all. But they've lived with their parents the whole time. They have over like $60,000 in savings.

What?

No, I like this video. First of all, I think all of us are curious, how much does that person have in their bank account? That's natural, that's human. That's one of the reasons I started my podcast where I talk to couples and they share every single number. Some of them have $500,000 in debt. Some of them have 8 or 9 million dollars. This question about how much money do people have in their savings? I think is so dependent on different factors. The creator here mentioned that some people live at home. There are certainly different cultures in which this is totally normalized. For example, for Indian and Asian people, it's often quite common to live in a multi generation structure. That makes a lot of sense. There's also things like family money. I recently asked on Instagram, who has family money? And would you be willing to share with me anonymously? And I got hundreds and hundreds of stories of people saying, my mom and dad paid for my down payment. Or every year they give a scheduled distribution, which is often tens of thousands of dollars to us. So there's that, of course, there's different incomes that people might have. So if you are making in your early 20s, 100k, 150k 200k. There's a number of people who are doing this. Then your savings are likely to be very high. And finally it's your living situation. Are you living with roommates as I did when I was in my early 20s? Are you living in an area where it's difficult to find roommates or you have an expensive car or your gas or insurance costs are really high? These are all factors that play in. I love the curiosity. I personally want to know how much everybody has in their savings account too. I love it. I go to a gym and there's people there who bench amounts that I will never bench. Okay. I like to know. I'm curious, but I can see how much they're benching. I have a guy in the gym who does four plates on the incline press. Never going to happen for me. Okay, that's okay. I've accepted that that's not going to happen for me. I admire what they have. I'd be curious how they got there, but it's not going to happen for me. That's kind of the approach I want us to take with how much people have in their savings or investments. All we can do is focus on where we are today and where we want to go tomorrow. Can't look back. I love this video. I'm super curious. If you all want to tell me how much you have in savings, put in the comments. I'll read every single one of them. So let's also remember that we can be curious about how much people have, but if we have more or less, it doesn't make us more or less of a good or bad person. You want to know how much people have in savings? I have thousands of conscious spending plans from real readers in my inbox. So why don't I just tell you? A 31 year old active duty military officer in Seattle, $76,000 in savings. A 28 year old business analyst in Chico, California, $0 in savings. A 38 year old senior product designer in Brooklyn, $35,000. A 30 year old project manager and nurse practitioner in Nashville, $60,000. All right, let's get to that next TikTok that my team lined up for me.

You can grab a house for $250,000, put a 3% down payment, 3 to 4% of closing costs. So about $15,000 to get your foot in the door. 7.5% interest rate would put your principal and interest at 1700amonth plus 500 for taxes and insurance will put your total payment at $2,200 a month. I'll save the incomes for last. The metropolitan areas are looking at $30,000 for down payment and closing costs, 7.5% interest rate, principal and interest at 3,000, plus 800 for taxes and insurance, putting your total payment at $3,800. Now, in the expensive cities like in California or New York, you're looking at $800,000, $50,000 for down payment and closing costs. 7.5% interest rate would put your principal and interest at $5200, plus another 1300 for taxes and insurance would put your payment out the door around 6,500. Now, what income would you need to qualify for these homes?

Before we continue, I just want to point out how's everyone talking so fast in these freaking videos, man? I'm looking at like 800 numbers in front of me. I'm just trying to keep up, okay? And I do this like, what the hell? How do people do this so fast? Second, it's very important for us to understand just because you can get a 3% down payment does not mean you should. Let me explain. You have to understand that one of the deep, cultural, invisible scripts we have in America is that everybody should own a home. It's part of the American dream. I disagree. If you want to own a house and it makes financial sense, fantastic. But you don't have to. You can be quite successful and rent, and that's also fine. The American dream does not have anything to do with homeownership except as created by the racist organization, the national association of Realtors. But once you begin with the conclusion that everybody should own a home, you will find that people let the tail wag the dog. In other words, they will concoct all sorts of confusing ways to get to the destination that they already set. This is one example. This creator is talking about 3% down. Now, maybe it's a good idea, maybe not. You see, there are a lot of risks with putting 3% down. First, it means that if the value of your house goes down, you are washed out because of leverage. Leverage works on the way up. It also works on the way down. Second, and I think more importantly, if you are buying an expensive house and you're only able to scrape together 3%, that's actually a sign that you might not be ready to buy a house. Because. Because you will inevitably have unexpected expenses that come up, and some of them can be extremely expensive. Well, guess what? If you couldn't save more than 3% to put down before you had a house, what makes you think you're going to be able to save anything more once you have a house. This is why I always emphasize to people that you should ideally have 20% ready to put down. It doesn't mean you have to put 20% down. For example, when interest rate were 2%, there's no way I would have put 20% down. But by having 20% or close to it available, it means that you are sending a signal to yourself that you have the discipline to save money. That is a skill you will sorely need when you own a house or.

At least have a shot at qualifying for these homes. So for $2,200 a month in this Midwest home, you're looking about a $70000 income with very little debt.

Okay, at $70000 a year, you're making $5833 a month gross. Now, this person is saying that $2200 a month of payments is what you should be able to afford. If we calculate that 2200 divided by 5833 per month is 37% of gross. No way. No. This is way too expensive. Let me tell you why. There's a rough guideline that the financial industry uses, which is your total housing costs should be less than 28% of gross income. Now, total housing cost includes everything. Not only taxes and interest, but maintenance and even maintenance for the roof repair. That's going to cost you $18,000. That's going to happen 11 years from now. All of it. Now, I understand that 28% feels very out of touch. I understand that it's almost impossible in major cities and even in mid cost of living and even some rural areas is very difficult to hit that number. But just because it's difficult doesn't mean we ignore it. If we can't hit certain metrics, it doesn't mean we just discard the metric. It means we need to really be thoughtful about our approach here. Now let me tell you why this troubles me. At 37% of gross, which is really high, it means you're going to have very little money to save, very little money to invest, very little money to be able to spend on things like eating out or travel. If I saw a number like this, I could almost guarantee you that, that this individual or couple would be super stressed out about money. I could also almost guarantee you that they wouldn't be investing enough and that they would be in debt. This would be a very bad decision to make, in my opinion. Let's keep going.

In the metropolitan area here with 3,800 for the monthly payment, you're looking at $120,000 with very little debt. And then here in the expensive big city, you're looking about $200,000, maybe even a little bit more.

All right, let me skip the middle one and let's talk about the expensive one, because there are certain dynamics that emerge, and in high cost of living areas. So at 200K, that's $16,666 a month. So we're going to do 6,500 over 16666. Now, again, theoretically, this should be less than 28%, but I can tell you it's going to be way higher. 39%. Now, here's the additional wrinkle. When it comes to high cost of living areas, things are more expensive. Maintenance is more expensive. People tend to renovate in more expensive ways. Services are more expensive. So in my own personal calculations, I'm constantly running buy versus rent calculations. You know what I do? I add 50% to the mortgage price to account for all kinds of additional phantom costs. Now, my number adding 50% to the mortgage is probably higher than most. And that is primarily because my dream is to never walk into a Home Depot for the rest of my life. So I'm happy one day when I buy to overpay some general contractor to come over and fix the light on my microwave. I know it's a waste of money, but I don't want to go anywhere near that freaking wood smell that haunted my childhood. I'm done. I'm never going to do it. I'd rather pay money. You might say, hey, Ramit, first of all, get a life. Learn what a 2x4 is, you freak. But second, you might say, look, I don't think it's actually 50% because even factoring in a roof repair and all this stuff, you know I'm going to add 30%. Fine, we can debate the number, but the fact is there will be phantom costs, and you absolutely have to account for them. If we're not sure what number to use, let's go ahead and just use mine. So I'm going to show you how to do it. 6,500 plus 3,250 means the total actual housing cost is $9,750 per month, not 6,500. But when you factor in all those phantom costs, including transaction costs of buying and selling opportunity, costs of taking your down payment and not investing it, and on and on and on, we're looking at approximately 9750 per month. Now, let's divide that by 16,666. And you see you're at 58% of gross. Are you insane? If anyone buys a house at a $200,000 income for $6,500 a month mortgage, they're going to be broke. I'll tell you right now. So this is a sure fire recipe to be stressed out about money and to be in debt. But do you know why people do it? Because they start with the end goal in mind, that they have to buy a house. And then again they create all kinds of justifications for how to get there. But again, we begin with the end in mind that you must own a house because if you don't, you, you're a loser who's not living the American dream. This is extremely risky. I would not do this. And I could tell you right now, if you use these financial numbers as the guideline for buying a house, you will be in a financially disastrous place.

Maybe even a little bit more depending on your debt. So anyone who's looking for relocation, these homes do exist across America. So that's going to be the big question over the next five to 10 years. Are people going to relocate to buy a primary home?

Yet again, why would you move to just to own a house? It makes no sense. You know, I'm getting a little suspicious. I can't currently see the username of this person, but I'm willing to bet that he's in the mortgage industry. What is he? A, a broker, A loan officer? Let me scroll down and see, what is he? I can tell you because this is not good financial advice. This is from somebody who wants you to buy a house and make a transaction so they make a commission. Let's take a look. Ah, what a surprise. Chat with my preferred lender. Freddie is in the mortgage industry, one of the scammiest industries on earth. Guys, you need to be cautious about who you take advice from. First of all, just speaking generally. I would never take any advice from anyone in the mortgage industry. I trust them as far as I can throw them. They are designed to get a commission. That's it. Now if you need a loan, sure, use a loan officer, but you better put them in a box and understand what is the game they are playing and what is their incentive. Okay, what's next?

How do you know if you should lease or buy a car? I've gone through like five cars in the past three years.

Let me stop you right there. You've gone through how many cars in the last five years? Right there. We know this is a Terrible financial decision right there.

So I've, I've experienced quite a bit. I think anyone starting out like, if you're, if it's your first car you're getting, you should night and day, hands down, at least it.

What the hell. Can I just repeat what I think I heard him say? If you're getting your first car, you should lease. Lease it. What? What's the justification? Let me tell you, there are two people who should lease cars. Number one, if you have a business and you're running the car through your business, okay. Number two, if you're extremely wealthy and you just don't give a how much the car costs, you're like, look, I'm willing to pay all the depreciation in the first couple of years. I just want a new fresh car every two years. I don't really care what it costs. I have tons of money. It doesn't matter to me. Lease the car. Aside from that, for the everyday person, you probably should not lease a car. You should probably buy it and keep that car for as long as possible. Because financially speaking, your real financial benefits come when the car is paid off and then you keep driving it. You're basically spreading out all those costs across multiple years. That's the way to do it. That's exactly how I did it with my Honda Accord. All right, let's keep going.

Let's just say for math purposes, if you want $100,000 car, let's say you want to finance it. Meaning like you want to own it, you're going to have to put more money down. Say probably anywhere from 10 to 20 grand down because it's your first car, you have no credit history, they're going to want more money down.

In his example of someone buying their first car, the car costs $100,000, then.

You have to loan the remaining amount. So like it's 100k car, you put down 15k, you owe 85k on the car, not including interest. So your monthly payment is going to be more, you're going to be out of pocket more. If you finance and it completely up your debt to income ratio, which is super important when you want to buy a house or get another loan for something versus leasing, say you want that same hundred thousand dollar car you put down less because at, at the end of the three years, the people you lease it through get your car back so you don't have to pay the whole 100k. Let's say you only pay like 65k and you get put seven grand down. So you put half the amount down. Your monthly payments are less. You don't have to pay any interest on lease payments, I'm pretty sure. And whenever the car runs into any problems, the company you leased it through will take care of them for free. And as a business owner, you get to write off lease payments 100%. So the only reason why you should ever be financing a car is if you want to have that car forever.

Well, that was one of the worst videos I've ever seen. A lot of factual inaccuracies. Just because you're a business owner doesn't mean you write off the lease. I'm a business owner, doesn't mean I can write off a lease. What the hell are you talking about? The example of buying $100,000 car. Let's set that aside. It's just a number. We can adapt it. But no knowledge of depreciation, no knowledge of costs in the first three years versus over 5, 10, 15 years. None of that. It's just, hey, I don't want to put a down payment so I can put less by leasing. You know, when it comes to money, a lot of people are very simple thinkers. It's kind of like going to a child and saying, what do you want to eat? Their choices are chicken nuggets or a sandwich. Like, that's it. You don't have a lot of three year olds going, I'd really like that tuna tartare. It's so make sure you put the citrus on there, okay? But we're adults. We're not a freaking kid. We're not an infant, okay? If you're Talking about a $100,000 purchase, you better understand the nuance of depreciation. Lease, own all these things. Not come on here and talk about, oh, put less down so it's better for you. Now, it doesn't surprise me that this creator is giving overly simplistic and incorrect information because my team actually found that this person has another video that's extremely racist. Talking about the great replacement theory. That is the idea that white people are not having enough births and other people, people of color, are coming to replace them. It's a classic white supremacist theory. It's basically shared by morons across the Internet. And as we can see, this person.

Is one of them, witnessing the collapse of every single great country in the world right now. He means white birth rates are plummeting from actual native UK people. The white British people are down 18 in their birth rate and is skyrocketing. Pretty soon, the UK won't even be English.

What do you mean by that the UK won't be English? Surely an Indian person born in the UK is English, right? Oh, do you mean white? Hm. So interesting. Why don't you just say that what.

They want the France election was just rigged because the people, the person that was supposed to win was pro deportation, deporting all of the immigrants that are purposely being let in to once again diminish the white race.

Ah, wait till he finds out those Indian people are just British people.

Good luck to you my friend. You're definitely going to need it. All right. I hope you learned something from this video and it gets you to start questioning a lot of the advice that's surrounding you when it comes to money. Make sure you click that subscribe button and turn on notifications so you don't miss any of my new videos. And now check out this video popping up on screen to watch more.