Do you remember when you were a kid and you never had to worry about money? If you wanted something, you simply asked for it or cried about it until you got it. Well, as an adult, I do get the urge to cry every now and then over money because it seems like there is always something to pay for. From car repairs to home renovations, the expenses we incur seemingly never end! However, in 2022, there are 3 things I am definitely not spending my money on so let me share with you what those are now!
Number 1: Credit card interest
I don’t know about you but when I was younger, me and my friends used to light little pieces of paper on fire and quickly put them out for a source of fun and excitement. While you would never expect fully grown adults to be acting in this way, the reality is that many are in fact burning paper every single day just that they are going about it by handing over money to cover their credit card interest charges.
Now, I know that many people in the financial world are against the use of credit cards and I can see why. In the wrong hands, they can do a number on your finances and when left unresolved can literally leave you in a financial hole that will be nearly impossible to get out of.
However, there is also a long list of benefits of using credit cards as well. For instance, I would have never been able to buy my house if I hadn’t built up my credit over the last 10 years through the constant use of my credit cards. Alternatively, getting cashback on my purchases eases a bit of the sting of having to hand out money wherever I go.
In short, credit cards are like knives. Are they dangerous when used improperly? Yes. Does this mean they should be avoided all together? No. I don’t think just because you can slice a finger using a knife you will all of a sudden stop using cutlery tomorrow. Instead, you will use this tool with caution and go about your life and the same should be done with credit cards.
At the end of the day, there are few reasons why anyone should be making credit card interest payments. I know some people fall upon bad luck and their credit cards are the only things that can get them through a tough time and I get it. However, most of the credit card issues people have are self-inflicted. Kind of like people who overeat who should just put down the fork, those who regularly overspend should just put down their credit card and avoid the negative consequences of its misuse.
Now, given that I have zero intention on spending money on credit card interest in 2022, you may be wondering how I intend on sidestepping this useless expense. Here’s my plan. First, I will only spend based on my budget that I have created. Spending outside your budget is where you start to run into problems. Also, when I do spend money on credit, I will ensure that I have the money in the bank to cover any costs so that carrying a balance is just a formality at best. Finally, I have automatic bill payments set up on my card so that my credit card statements are paid in full and on-time. With these three mechanisms in place, there is no chance I will even pay a cent in interest charges this year and if you adopt my system then neither will you!
Number 2: Extended formal education
Your college years will undoubtedly be some of the best ones of your life. From meeting new people to learning new things, there’s a lot of personal growth and fun that will take place during this time of your life. However, with all good does come some bad and if you ask me, the biggest downside to this time of your life is the financial setback it may present. I am sure you’re well aware that going to college isn’t free and most students have to take on some amount of debt to attend. In fact, in 2021, students had the highest record of student debts at an average of just under $40,000 a student.
Now, you may be thinking that that’s not so bad given that your starting salary will be about that much anyways however, there are a few flaws in that thinking.
You see, in the current times we are living in, a degree is experiencing what I like to call double inflation. The first form of inflation comes in the form of its cost. I’m sure it’s no surprise to you that the costs of tuition have been rising exponentially over the last few decades. However, you may not realize the extent of it so I will share with you how bad costs have become in recent years. Since 1980, tuition costs in the US have increased by 1200%, rising from $1,800 to almost $10,000 at US public colleges. Now, if only this was the full extent of the issue.
The other issue that comes with getting a degree in this day and age is its lack of value. Let’s face it, just about everyone these days goes to college and as such most people end up with a degree similar to yours. As such, having a degree provides you no distinguishability and this is partly why starting salaries have become stagnant. Simply put, there are so many new grads to hire that companies have no incentive to pay you more to come work for them. So, this is all to say that degrees are experiencing double inflation: rising costs and lowering value.
Now, unfortunately, I kind of came to this realization after the fact. With three degrees and two professional designations, I’ve spent a pretty penny on education and while I don’t regret it because like I said it was a ton of fun being a student, financially speaking, when getting educated you are walking a fine line. Getting the right education can lead to a lucrative career but it can also have you flipping burgers or folding clothes at American Eagle.
Therefore, for me personally, I have no real use for further formal education at this point in my life; however for those earlier in their education than myself, let me share one piece of advice. My advice is that before you spend a dime on any form of education, whether that’s college, online courses, mentorship etc. make sure you understand what the potential return is on your time and money so that you don’t give away your two most valuable resources for an underwhelming return!
Number 3: Individual stocks
Up until this point, both items I have no intention of spending money on in 2022 probably didn’t make you fall off your chair. However, for me to say that I don’t intend on spending money on individual stocks in 2022 probably has you scratching your head so let me explain why this is because I have a feeling this may open your eyes to a flaw in your own current investing strategy.
Generally, there are two ways that people buy stocks. The first, and the one that’s the most common, is that they learn about a hot stock on Twitter or from a friend and they buy the stock sight unseen. I know it sounds crazy but this is literally how most people invest. Then, we have the more sensible group of investors who heed Warren Buffett’s advice of never investing in a company you don’t understand and as such they do their due diligence before even a penny leaves their wallet. I’m going to assume you are a part of this more financially responsible second group of individuals and if you are then you will know just how time consuming it can be to do a proper assessment of a stock you want to buy.
At the very least, when buying a new stock, you will want to learn about their management group, their upcoming corporate objectives, and even analyze the industry the company operates in. This all takes time and this time is a cost of investing that most people overlook however if you ask me it shouldn’t be.
Now, let me share with you an example of how this cost factors into your investing returns so that you can see the true cost of the investments you’re making.
Let’s say that last year you bought $5,000 worth of stock in Company X. Company X had a good year and as such you realized a 10% return on your investment which in simpler terms means you would have received a $500 gain. Seems pretty good right? Well, it depends how you look at it. If you bought the stock sight unseen, which most people do,then yes that seems like a nice return for the minimal effort involved. However, this really isn’t investing but more gambling and in this case your return was more likely based on luck than it was proper due diligence and strategy.
Let’s say instead that you took Warren Buffett’s advice and actually took the time to do your proper due diligence before buying into Company X. When all is said and done, you spent 10 hours researching the stock before its purchase to give yourself the best chance possible of buying a winner. When this time is factored in, you have now invested 10 hours of your time and $5,000 of your hard earned money to earn that $500 return.
Now, keep in mind that you, yes you, are a valuable asset on the open market and can command a whopping $50 an hour for your time. If we consider the fact that you spent 10 hours researching and analyzing Company X before buying it, this means that you spent an equivalent of $500 of your time doing your due diligence. And how much did that time and financial investment yield? $500. Therefore, in effect, you spent $500 of your time and parted with $5,000 in accessible cash to make $500. Does that make sense to you?
Now, I’m not ignorant to the fact that if you hold that stock for longer periods of time than just one year then this initial time cost is smoothed over your holding period. But the main takeaway here is that there are hidden costs of single stock investing that most people are unaware of which do impact your real return.
So now you may be wondering if I am going to be investing at all in 2022 given this often overlooked cost of investing I am bringing to light and the answer is of course I will be investing in 2022! Investing is still a cornerstone of wealth creation but it must be done in a way that allows you to not only have your money work for you but also offers you the ability to use your valuable time in the most financially beneficial ways possible.
In my own life, I am fortunate enough to command a decent sum of money for my time. Between my job, my freelance work and my time spent on a YouTube channel that earns me into the six-figures a year, the cost of my time is constantly on the rise. As such, spending exorbitant amounts of time researching new stocks for me is rather inefficient.
This is why for the last few years I have adopted an entirely passive investing approach. Nowadays, all I do is identify which funds I want to invest in at the start of the year, which are usually low-cost ETFs, and then I set up an automatic weekly contribution into those funds. This means that I don’t spend any time during the year investing. The only thing I need to do is ensure that there’s money in my account to facilitate the purchases every week and I’m set! Not to mention, given that I am investing for the long-term, I also avoid wasting time constantly checking the market for its most recent updates which is an activity that goes hand in hand with most single stock investors’ gameplan.
Now, am I saying that you shouldn’t buy individual stocks in 2022? Not at all. If you are buying to hold or are investing large sums of money then this time cost will be rather negligible and if all goes well then you should still end up in the black when all is said and done. However, for me personally, the cost trade off of doing proper due diligence to buy individual company stock isn’t greater than the returns I can get buying reliable ETFs and as such I prefer diverting my limited time elsewhere. Therefore, in 2022, no I will not be spending money on individual stocks!