Money Expert Reacts to Viral TikTok Finance Advice

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 now the big moment. You have the down payment, correct? Oh yeah, all of it. Here you go. All 40,000 grades seems to be in order. And you also have the closing costs.

Correct.

But that was in the, the down payment. What's closing costs? Yes, the closing cost. That's the additional $12,000. What? The additional 12,000. There's 40. You have $40,000. I thought that was the closing cost. Well, okay, so I do see that you have your earnest money, your good faith money. So that was the 5,000. Then we also see the appraisal that you paid for and the inspection that you paid for. But on top of that we also have fee, the title search fee, we have the recording fee. Then we have the underwriting fee and the commissions and the fee feed. Also see that you're only putting 10% down. With a conventional loan we actually require 20%. But it's okay that you're putting 10% down. But because of that we have to get mortgage insurance on top of your home insurance. Even though it is $40,000 for your $400,000 home, we do require that we have the mortgage insurance as well. Right, and I'm sorry, just to make sure I'm understanding, even if I did do the 20% down, I would still have these $12,000 costs would be minus a hundred dollars for the mortgage insurance. But yes, around like the 12,000 cost.

Yeah. Okay.

Oh no.

When were you gonna tell me about this? When we gonna mention $12,000? It is actually lined out in your loan estimate. You did sign that? Yes, indeed I did sign that. But I thought that that was like all encompassing 40,000, not an additional $12,000.

When I'm.

Okay, right, exactly. So do you. You have the 12,000 correct. Sign the 12,000 correct. No. Okay. So I take it we are not clear to close today.

Do you think, how do you create a video like, this is so good. This creator is amazing and right on the money. When it comes to major purchases like a house, there are so many phantom costs. The video kind of reminded me of my wedding. Like I had planned out. I'd been saving for like over a decade or something like that. Even with all that said, some of the cost just absolutely blew my mind. And that was just a wedding. A house much more expensive. You know, everyone has different fantasies, okay? Some people fantasize about power. My fantasy is that when you. Yes, you, the people who have been leaving all those comments saying I'm stupid and I don't understand anything about buy versus rant, and I just want everybody to rant forever because I'm with the W E F. My fantasy is that you take a camera in the room when you are actually finding out how much your total house costs. I want to see the look on your face when you realize how much it actually costs, how much those actual phantom costs are, and if you plug them into an investment return calculator, how much you could actually made by just investing them over the last 30 years. Yes, there are a ton of phantom costs, costs that might be written on page 264, but nobody really understands what they are. I need you to understand them because you need to be prepared for. For how much you have to bring to the table. Now, I have gone through several large purchases in my life, for example, the wedding, et cetera. And one of the guidelines I use for myself is basically I just give myself a huge amount of buffer because I know that there will always be phantom costs no matter how much you projected and predicted. So, for example, for the wedding, I knew that even though I'd planned everything and had a planner and this and that, there were still going to be things that came up that day or even afterwards. And so I put money aside for those things. In other words, I did not have a wedding so big that it would stretch my budget if something went wrong. I want you to apply the same principle for a house. You need to know that there will be unexpected expenses. Even if you read the contract and put it through ChatGPT and try to understand exactly how much you're paying, you need to know that you will be paying at least $10,000 more than you even thought of, and it will probably be way more. That's the same principle you use when you go on vacation. You always leave a buffer. It's the same principle you use when you use my conscious spending plan, which I will link right Here we automatically build in an extra 15% for your fixed costs right in the template. I want you to always build in a buffer so that you are never in the situation where your back is against the wall and you can't afford it. All right. Great video. Appreciate it. Look forward to watching more videos from this creator. By the way, I'm coming to a city near you this January. Tickets are now available for my Money for Couples Live book Tour. If you enjoy these videos, you want to see this happening live on stage and you want to meet hundreds of other people who are also interested in improving their relationship with money. I want to see you at these events. You see real couples live on stage. Every city is different and we never know what's going to happen. I'm coming to Boston, DC, Chicago, NY, SF and LA. Get your tickets at iwt.com booktour or click the link in the description below. Now let's get back to the video.

I have a lot of money in my 401k.

Okay.

I'm sorry for you. Why do you feel sorry for me? It's a way to put money in without paying taxes on it. It's a way for you to be trapped for 30 years. Well, you could pull it out when you're 63. How old are you right now? 50, 13 years from now? Will taxes be higher or lower? Higher. You will wish you would have sold when you were 50 because you'd pay low taxes. Dude, you don't pay any taxes when you pull out money out of your 401k. If you wait until you're 63 when you start using that money, you're going to pay taxes. Bro, you weren't charged taxes sat there. What's wrong with you? You're not. IRS allows penalty free withdrawals from retirement accounts after the age of 59 and a half. Penalty free, not tax free. So they're going to charge you a penalty. They're going to put handcuffs on you to sell it before then. But dude, when you're 63 years old, when you start withdrawing, you're going to start paying taxes at that point. 401k withdrawals are taxes Inc. Exactly.

I can't believe my team actually found a video where Grant Cardone is right. This is mind blowing to me. Of all the videos where he's wrong about everything, he's actually right about this one where you will pay taxes on your 401k when you withdraw it. And taxes are different than penalties on a 401k. Unbelievable. But as for the Central point that Grant is making that you're trapped, your money is trapped. Hey, most Americans need their money to be trapped because you know what they would do otherwise? Spend it. And you can see this because Americans have an abysmal savings rate. They basically spend almost everything they make. But when they take money and automatically set it aside for things like a 401k or an IRA, that money grows to considerable amounts. You can also see this because what's American's central source of wealth? Their house. And their house. This is why people call it a forced savings account, although I find that to be a very stupid phrase. It's that Americans know they have to pay it, but anything left over after their mortgage, after their 401k, they just spend it. First off, I don't want you to be that person. You're watching this. You know, your money should automatically be routed to your pre tax post tax accounts. But more importantly, there's nothing wrong with having your money locked up. It's okay. The 401k is there for a reason in exchange for these tax advantages. Okay, your money is illiquid for many years. That's the point. Now if you need it for some emergency, for a couple of special exceptions, you, you can withdraw it, sometimes with a penalty, sometimes penalty free. But in general you don't want to be able to have all your access to all your money, especially your retirement money, because guess what? You're going to do? Spend it. So Grant Cardone accidentally makes a good point when he corrects this interviewer. But the central point of what he's saying is that you know, taxes are going to be higher and you're going to pay more taxes and on and on and on. Okay, you can make that argument. Theoretically then you would go and invest in something like a Roth ira, but post tax that's fine. But in general, don't attack the idea of your money being locked away from you because that's what most people need. Personally, I actually love that some of my money is in retirement accounts. I don't want to touch it. I'm not tempted to touch it, but if I were, it's locked away for a very good reason.

The way to always go with a car is buy it outright if you can second hand. And three to five year old, that is like the sweet spot where it's depreciated enough at someone else's expense and it won't depreciate as much when you have it. If you are someone who doesn't mind making the savvy Choice and wants a nice cool car every couple of years, but is happy to pay with the extra cost that comes with it. Then rent. That's the mindset or the approach to take those two with. When it comes to rent in the uk, there's different ways to rent. There's lease, pcp, getting a bank loan. The way to approach that is think about how long you're going to have that car for and what the price is for owning it for that specific period. Figure out what the total cost of ownership is. Calculate this out.

Good video. I like it. What I also like about this video is I don't necessarily agree with the first part and I'll tell you why, but I like that she has a very strong point of view and she has a very good reason for it. This is the fun part about money is we don't all have to agree with each other and that's totally fine. But you want to hear people's logic, you want to hear them explaining the details and then you want to see if it makes sense to you. So this creator mentions that financially speaking, the sweet spot is a car of roughly three or so years old. That's actually correct. Yeah. You see that major depreciation happen in the first few years and if you wait for roughly three years or so, you can basically let someone else pay for the depreciation and then you can swoop in and get a really good deal. So if I were a value buyer and I were extremely focused on finding a car that is of value, that is exactly what I would do. I agree with that. Personally, my philosophy is a little bit different. I'm risk averse when it comes to a car. I do not want to have even the possibility of, of the car breaking down or something, having a problem with it because I'm busy in other parts of life. So my personal solution to that, again just personal, is to buy a new car, but then hold it for a long, long time. Okay, minor difference. The difference is in this creator suggestion, you will pay less on the front end. In my suggestion, I shift some of those savings to the back end. Now, of course, if you're lucky, you can buy a car that's three years old and you can keep it for 10, 12, 15 years and you can actually do both. And that is phenomenal. But overall, I think she makes a really good point. Next up, she says if you want to have a new car every couple of years, rent it, or as we say in the U.S. lease it. That's also true. Typically I say the only people who should really lease a car are business owners who can run the vehicle through their business. Or if you're very wealthy and you go, look, I know I'm the one paying for that depreciation in the first couple of years, but I don't care. It's fine, I'm happy to pay for that. I have the money, I can easily afford it and I'm going to get a new car every two to three years. Fine. Let's move on to the next TikTok.

As my family member who retired early at 56, what are three tips he.

Would give a young person today?

And here's what he had to say.

One of the key things is take advantage of what your employer has for options as far as saving your 401k. If they match 3, 4 or 5%, you can take advantage of the whole thing. You're getting free money. The second thing would be every year when you get a raise. Take a piece of that. Say you're putting in 3%, your 401k, you get a 3% raise. Take your 401k input 4% because it's money you didn't have before, so you're never going to miss it. You want to keep trying to do that every year. I mean, you do the simple math on compound interest. It does snowball itself into a nice nest egg at the end. The third thing would be people don't understand sometimes. It's never how much you make. You can make 100k, 200k but if you spend 125k or 225k, you go on the hole every year. Well, it's not how much you make, it's how much do you spend between a couple. You say you make 100k and you only spend 50k. Well, there's a huge pot of money. One you could put in retirement funds or you put it into a any day fund to have it for that. Or you can save that money for other things down the road. But the key thing is is never overspend what you make.

Take advantage of your 401k match.

Put a portion of your raise into.

Investments every time you get it and spend less than you make.

Yes, amazing solid advice. Love this video. Especially love learning wisdom from people who have come before us. You know, our elders have a lot to share with us, especially people who have successfully retired early. These are the people. If that's your goal, you should be asking and you always want to be learning from people who are in the situation that you Yourself want to be in. I think this is an awesome video. A couple of things I noticed about it. First off, just really simple, almost mundane things that this gentleman mentioned. Those are the things that actually make a huge difference over the course of your life. Notice that there was no kind of jumping around and buying and selling stocks and all that stuff. No, it's just very simple, methodical, long term focus. The next thing I noticed is that talked about taking advantage of your employer sponsored retirement plans. Things like a 401k. You know those can be confusing. Okay, I wrote about those in chapter three of my book. A lot of times what you got to do is just call your HR person or if you don't have an HR person, email your boss and say, look, I'm a little confused. Can you talk me through this 401k paperwork? Like how does it work? Do we have a 401k? How much can I contribute to that 401k? And how do I log in to find out about these different investment options? Okay, all these things covered in my book. Sometimes we need a little help. It's confusing. There's nothing wrong with that. The really powerful thing is the idea of increasing your contributions every single year. So here's a simple back of the napkin trick that I encourage people, especially young people, to do. When you're starting out, you go through my conscious spending plan. You're trying to find the answer to four numbers. Okay? How much is your fixed costs? Savings rate, investment rate, and guilt free spending. Those four numbers are the most important numbers in your financial life. Let's say that when you're starting out, you can't contribute 10% of take home pay to your investment accounts. You're like, I just can't afford that. I'm not making enough. My costs are high. Okay, fine, you start at 6%. But you know that every December you have a calendar entry set up and you have notes set up. So when it comes to that time, you remember what you're there for. And do we need to make any major changes. Things like increasing your investment rate from 6% to 7%. Now if you simply increase your investment rate by 1% per year, especially starting your 20s, but it's even fine if you start later in life, you will make a huge amount of money. In other words, that single decision that every December you increase your contribution rate by 1% will be worth more than all the coffee you ever buy. In other words, for a lot of people, if you start early can be worth over a million dollars. That is why these simple long term decisions really matter. And I love this video because it shows you how tangible they can actually be. Good stuff. 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. 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.