This article might offend personal finance bloggers, that’s fine. The truth is more important.
The personal finance industry is weird. It’s a bunch of people writing about their experiences living frugally and saving their way to a good life. The truth is these bloggers make a lot of money blogging ($100k+ at least but often $500k+) and that is how they make their money.
They don’t live frugally like they tell you they do and they don’t have an “early retirement”. Instead they make hundreds of thousands (frequently millions) by selling advertising and affiliate offers. They quit their coporate gigs because they realize the money is way better as an online marketer and an entrepreneur.
But they could never tell you this.
Personal finance bloggers cannot tell you the truth because they make their money from lying to you.
The Biggest Lie In Personal Finance
You can get wealthy by making an average salary and living frugally.
I know how this idea started, but I don’t know how this misinformation spread so rapidly.
The idea is that the stock market has returned 8% on average per year since the early 1900s. Compounding annually at 8% if you save $50,000 per year for 40 years you will have a net worth of $1,398,905.20
But this is wrong because it looks at average annual stock market returns. It does not account for down years, when stock markets decrease by 15% for 2 years straight in a recession this massively decreases net worth. It takes years after a recession when stock markets recover for the net worth of an investor to return to its pre-recession level.
Consistent compounding returns are impossible
Forget the 8% returns that most personal finance bloggers quote. If there was a reliable way to get 5% returns yearly, smart people would bite your hand off at this offer. When stock markets crash people lose massive amounts of money. The reason the private wealth management and hedge fund industry is so large is because people will spend millions of dollars to get consistent returns on their wealth.
But a personal finance blogger tells you 8% returns can be expected on your stock portfolio.
Give me a break.
Why do personal finance bloggers lie?
Advertising offers in the finance sphere are massive. This process below basically describes one of the methods
- The blogger tells people they can make good returns and get wealthy by saving a little bit every year
- This gives people a dopemine rush (pleasure), which makes them more likely to return to the blog
- The bloggers tells his readers to sign up for free wealth management software
- For each person that signs up the blogger earns $50-$100.
I am not hating on this process, there is a ton of money to be made here and I respect the hustle of affiliates in the finance vertical (niche). I just hate to see financially illiterate people following their advice and expecting it to work.
The secondary reason
People want to believe that they can save their way to wealth and a happy retirement. Most people, are not ambitious and simply want to live a quieter life. That is what it is and there is nothing wrong with that, but it’s wishful thinking that people with average salaries can save enough to become wealthy.
Most people would be upset at their favorite personal finance blogger if they shattered their favorite illusion by telling them they should risk some of their hard earned money to start a business. A real, non-charlatan personal finance blogger would recommend this to average people because it isn’t that difficult.
But most people don’t want to read a blog telling them the truth. They need to work harder and be more ambitious, but average people don’t want to hear this, as Dan Pena says, “They’ve limited their thinking and would feel much more comfortable if you’d limited yours too.”
The personal finance blogger community is a very tight circle. If someone suddenly told their readers to start a business and take risks they would be kicked out of the community. It would go against the orthodoxy of the group and people would stop networking with them, sharing their posts and linking to them. This would cause a massive decrease in revenue for a blogger, this explains why you never hear anything original from personal finance bloggers.
Personal Finance For Ambitious People
Honestly most personal finance is stupid as hell if you are an ambitious person. The reason is because the goals of average people are not the same as ours. Average people want to live a comfortable life and then have enough money to retire.
Ambitious people want to live a good life and get rich while they are still young. What’s the point of being rich when you are old and you have no energy to do anything? Life is about living not about who dies with the most money.
If you want to have money and time to spend it doing the things you love, you need to start a business.
Point blank, that’s the only way.
In your 20s you can work a full-time job while you start a business on the side (e.g. an online business in eCommerce or affiliate marketing). But eventually you need to make the jump and go all in on your business. That’s only if you want to be rich and free.
If you aren’t ambitious like this you can do whatever you want.