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#328 - The 10 Dumbest Things I’ve Seen People Do With Money · Money Grows on Trees

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  The biggest wealth destroyers aren't market crashes, they're decisions you
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  make when you think you're being smart. And most
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  people think keeping the savings in a bank account or using home equity
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  for lifestyle spending or paying for a specific financial advisor, certain
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  things are safe moves. The reality is these decisions are
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  quietly compounding against you every single year. I'm Lloyd J. Ross,
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  seven-figure investor and entrepreneur, and I've helped thousands of everyday Aussies get
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  out of debt and build real wealth, and those in Canada and America and other
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  places too. So in this video, I'm going to break down the 10 dumbest things
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  I see people do with their money, how to fix them before they
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  cost you your financial freedom. So here we go. In no
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  particular order, the 10 dumbest things I've seen
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  people do with their money. Number one. Lifestyle inflation,
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  okay? Income doubles, it feels like success the entire
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  time. People are taking the money they're making and they're spending it
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  just as fast, if not faster, just to look rich. Now,
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  lifestyle is insidious. It's a little bit like the frog in the pot that
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  if you boil it over time, it gets cooked, but if you chuck it in
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  there when it's already boiling, it jumps out. Lifestyle inflation is like that. It
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  will not feel like you're doing it, but you will actually just justify the
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  expenditure. And so it's very insidious, it's very, It
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  creeps in and the way to avoid that is to do an
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  audit every month on what you're actually spending money on because
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  the objective is not make more, spend more. It's make more, buy assets and
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  then spend more in that order. The second thing that
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  people do, which is crazy, is buying a brand new car with debt.
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  Now, I'm not totally against buying a car with debt because
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  sometimes you have to do those things and it's a bit of an asset sometimes because
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  it enables you to move, right? But to buy a brand new
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  one with debt, you're literally borrowing money to pay an interest rate
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  on a depreciating asset that, you know, as we all know, except for the moment in
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  COVID where they went up. they go down in value straight away. Okay. And
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  so you see it time and time again. And it's pretty dumb, because it's
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  very well known. If you just bought off a dealer three years old,
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  you get a lot of what's called the sting money out of it, that the money that
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  stings you depreciate a lot of the initial depreciation is going
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  away. So you may say 15 to 20k straight away in depreciation, just
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  by doing a little bit second, I'm not saying go and buy a bomb that breaks down every five
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  minutes, not what I'm saying. Although, Japanese cars for about 10k
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  are pretty good. They're almost bulletproof. And consider that too, by the way, if you want to
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  save money and make money. And for the first many years of my career, that's
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  what I did. But if you want to buy a car, you know, if you just
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  buy it secondhand and then the less debt you can have on it, the better. Because it is a depreciating asset.
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  It's not ideal to borrow money to buy a brand new car. I think it's pretty crazy. Just
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  to put a picture on Facebook with a red ribbon that you bought a car, congratulations. It's
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  narcissistic, I think. I think it's a dick pic. Who
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  cares? When we bought our car, I didn't go, we bought a fucking new car. No, didn't
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  put a red ribbon, whatever. Right? Try and
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  impart some wisdom as you're doing it. And that car that's sitting right here in the studio right now, that
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  was three years old. Yeah, three years old, three and a half years old when we
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  bought it. had some K's on it, but I reckon I say we
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  saved 80 grand, I think, doing that. Whilst it's still depreciated,
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  it's just not as bad. We ended up borrowing it because I took the money
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  and I actually then put that into some shares that doubled, and then I
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  used some to pay that off. So yeah, it depends on what you can use money with, but... That's
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  what I see people do. Third thing, using home equity like
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  an ATM. There used to be this TV commercial by Commonwealth Bank, and
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  it used to be like this guy washing his boat down, and his neighbor comes over and goes, hey man,
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  how'd you get a boat? And he goes, equity, mate. You can remember the
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  ad on TV, right? It's so, can you imagine
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  banks are doing that? Like, use your home equity to buy a boat. It's good for
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  the bank because they got your house of security, but no good for you because you're borrowing money to
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  buy a very highly depreciating, not just depreciating, but
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  highly operating, it's a lot of operating costs to run a boat, as
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  an example, right? But for holidays, you know,
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  Whenever you use home equity, just so you know, you're borrowing money, right? You're borrowing against
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  the asset, just so you know, okay? That's not a good idea, all right?
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  Four, panic selling during downturns or panic selling in general
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  because you don't really know what you own. And you see this a lot, like there's a lot of fear right now
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  in Iran where Trump's like, we're on, we're off, we're on, we're off. And
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  there's all this fear about he's going to bomb them and there's this fear going
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  on and people are like, I'm out. But then five seconds later, it's like, oh, it was a
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  ceasefire for two weeks, and all the stocks are up. So you really, when
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  you invest, you want to be doing it for all seasons. And I see people panic
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  all the time and sell because they don't know what they own. And if you don't know
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  why you own it or what you own, you shouldn't own it. All right? Number
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  five. SMSF, used to buy lifestyle assets. Not
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  always easy to do, but there are certain circumstances, whether
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  it be some proof of hardship or certain things you can
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  draw out of super for to buy, it's not always a
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  good idea because what you're actually doing super, you're actually selling assets. I
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  don't know if you know this, but your super fund, generally, your
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  retail fund, whatever it might be, is actually already invested in assets. So
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  when you're taking money, you're selling assets that are compounding and
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  buying lifestyle things. I'm sure I don't need to go
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  into details, that's a pretty dumb idea. One,
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  it has to be legal to draw out. Two, what are you spending it on? And
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  I think people are too frivolous with it, like you just stop for
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  a second and go make money elsewhere before you do that. Six, investing
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  it in things they don't understand, like this happens almost on a daily basis.
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  I have students of mine that go, Lloyd, I've got this, what do I want? I'm like, why the heck did you
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  get that? And of course, because such and such said, I
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  saw this on Instagram and blah, blah. This is awful, right? So
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  here's the rule. If you can't explain it to a 12-year-old, then you shouldn't be
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  putting $50,000 into it. People spend more
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  time researching what new fridge to buy than they
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  do about what investment to invest in. It's fascinating. And
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  if the answer's not sure, then the answer's no. And
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  if you need to get educated on that, that's why we have these books to start educating
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  you on how to do these things. So investing in things you don't understand, that's very
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  common. Seventh, paying a financial advisor 1% a
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  year to put your money into a portfolio that you can pay 0.03% on. I was talking to one
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  of my students the other day. She said, Lloyd, my
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  financial advisor's got me in these two, they're managed funds. She's
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  in the United States. They're managed funds. And
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  she said, what's the fees? I can see the fees and I'm like, oh, the fees are about 0.55 per year.
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  And she said, oh, okay. And then she said, oh, but the dividend's high. And
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  the dividend wasn't high, but some managed funds, what they do is when they pay
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  out a payout, they sell some of the shares
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  and then pay that out and then they class it as a dividend. So what looks like an 11% dividend yield
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  is actually a 1% dividend yield. But these are the types of things that active
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  managers do to pull the wool over people's eyes so that they continue to pay them
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  1% to 0.5%. The reality is you could take that and put it into a
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  broad-based index fund and pay 0.3% or 0.15%. And
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  so I find it fascinating, sad actually, really, it's not fascinating, it's
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  really, it's just criminal that you're paying someone
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  1% to get you an inferior result as to what an index fund would
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  get you. Does that make sense? So over time, I think
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  we worked out for her that if she was to continue that without her steering
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  the ship a bit with her financial advisor, is that it
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  would cost her like $40,000 or $50,000 in lost
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  equity in the next 10 or so how many years if she continues
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  doing that. I forget what it was the exact, might have been 20 in fees, just
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  lost money, right? So that's what happens a
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  lot. And people can bestow a lot and some
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  financial advisors aren't like that, a lot aren't like that. Like they'll be
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  very open and transparent, but a lot are. So just,
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  you know, just because they're an advisor doesn't mean, you know, it's perfect advice.
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  This happens a lot in the industry. But again, not all
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  bad. There's some great ones, right? Just quickly, if you're ready to take control of your finances
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  but feel stuck on where to start, I have a solution. My
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  book, Money Buys Happiness, simplifies investing and
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  wealth building with practical steps to help you achieve financial peace.
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  Get your copy via the link in the show notes and let's get your money working for
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  you. Now back to the episode. Next, number eight, keeping three
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  years of savings in a transaction. So keeping your savings in
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  a transaction account or a savings account with 0.01% interest, or
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  it's like 500k just sitting in
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  an account. What you don't realize is the inflation is eating away at that. Now,
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  that doesn't mean you've got to run out and deploy it into shares or property. It'd
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  be sensible, but just leaving it there to just go down in value
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  over time because it's perceived safety. There's a lady I engaged once I knew, and
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  she had half a million bucks in her bank account. Half a
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  million. Should I buy a property? Should I do this? It
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  seems to me like you're so attached to the money, because it's this security blanket
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  that you're not going to deploy it anywhere. And she just had an irregular set,
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  it wasn't even an intern deposit. And so she was handbrake, she
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  was just stuck in scarcity. She was so paralyzed
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  by, what if I do this and this happens? She didn't do
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  anything with it. And little did she know that that's going to fall in value by $25,000 a year. So
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  she'd already invested it. She's just invested in something that was going down in value. And
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  once she saw that, she went, oh, I see now that it's in
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  a banking account. So I've lent it to the bank at 0%. There's
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  an opportunity cost for that. So that's also a
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  straight dumb thing to do for long periods of time. Number
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  nine, this is big. Either you
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  ask your parents to guarantee your home mortgage and you put yourself in a position to get house bought
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  and you foreclose and you risk them. getting foreclosed
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  on as well, it's going to affect their credit. But going guarantor on
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  someone else's loan, right, putting your own
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  financial situation at risk so they can get
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  the right of passage to buy a house, pretty stupid, I think. It
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  also doesn't teach them anything. Many people out there are
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  like, I bought a house. No, your mom and dad bought your house. I just say that
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  and that's fine. It's cool but doing it
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  in a way that doesn't compromise your parents' home equity or
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  place them in a specific situation that's not ideal. There's
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  a guy I knew and he was in a trade and
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  he ended up going through the rite of passage. He bought a house. He had his mom
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  as the guarantor and then he was so anxious that
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  he couldn't meet repayments that he was going to kill himself. So,
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  that's not ideal. Just be aware of that. Ten,
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  confusing net worth with wealth. So,
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  I'm worth 1.2 million, which is your assets, money,
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  liabilities. I'm worth 1.2 million. I'm worth 8 million. No. Your
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  net worth might be 1.2 million, fine, but why do you feel
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  broke? Why, and if you look at it, it's typically because
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  you're not generating enough free cash flow from income. So income
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  is gonna be a better driver of your ability to experience wealth,
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  a wealthy life, than having a net worth. Of course, it's
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  nice to have both. One will help the other. If the net worth
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  is in income generating assets like a business or like a
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  portfolio that generates actual free cash flow. But if it's sitting in
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  a home and you're living on top of it and you're living paycheck to paycheck,
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  you aren't wealthy. Yeah, yeah, how? How
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  are you wealthy? Tell me. Well, it's got their, well, yeah, but you're
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  living on it. It's like you're sleeping on it. So just
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  because you've got a high net worth doesn't mean you feel wealthy. And I'll give you a quick story on that one. There's
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  a lady I was talking to many years ago. She was a Chinese lady from Melbourne.
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  And she said, Lloyd, I'm feeling, I'm living paycheck to paycheck, I've got side
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  hustle, I'm trying to do this, I'm just, like, burnt out. Oh, give
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  me a look at your snapshot of what's going on. And she said, I've got $6 million in real estate, $6 million
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  in valued real estate, $3 million in debt. So
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  she had $3 million of equity. So her net worth was multiple
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  millionaire net worth, $3 million. But because she
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  was living in one of them, which had about, I guess it
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  was $2 million of equity, the rest of it was debt and property investments.
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  She wasn't getting any return from the property investments because they were just washing their own face. And
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  then the other one, she was living on the equity in a house and she wasn't prepared to
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  make the bold decision to sell them and perhaps put the money
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  into an income-producing asset or even just sell them and put all of it into one
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  and rent it and live somewhere else. She wanted to make that decision, so she just
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  kept living paycheck to paycheck. So here's someone who has a multi-million dollar
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  net worth. And she was struggling, trading,
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  doing all these weird side hustles just to make ends meet. So she was absolutely
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  house poor. And so just because you have a net worth of X,
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  Y, Z doesn't mean you are wealthy. So there are
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  some of the dumb things people do with their money that prevents them
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  from not just building wealth but living a wealthy life. So if you want
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  a pathway The best thing to do would be to avoid those scenarios.
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  Make sense? Which one do you love the most? Pop in the comments below. Hit the subscribe button and
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  share this with someone who needs to hear it. Share with a friend. And thanks for tuning in.
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  I'll see you in the next episode. Thanks for listening to Money Grows on Trees. If you enjoyed
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  the episode, leave a five-star review on Apple Podcasts and Spotify
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  and subscribe to us on YouTube so you never miss an episode. And
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  if you're serious about building wealth, make sure to check out the links in the show
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  notes and follow me on all social media platforms at
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  LloydJamesRoss for more. See you in the next episode. you