Hi, guys.

It's Chelsea from The Financial Diet. At TFD, we always say that the best time to start investing is yesterday, and the second best time is today, and that's doubly true if you're planning, not only for your own finances, but also for your families.

And with the UNest app, you can easily visualize and start planning for your child's future right from your phone. There's a lot going on in the world that feels beyond our control, but investing in your child's future is one thing you can start taking care of. UNest is empowering parents of all income levels and financial backgrounds to save and plan for their children.

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Plus the minimum monthly contribution is only $25 per account, less than half a tank of gas these days. With UNest, you'll feel completely at ease knowing that you're actively saving for your children's future. Click the link in our description to download the UNest app, and don't forget to use the code TFD100 for a $100 credit toward your first few months of investing.

And today, we are going to go a little bit old school and do a type of TFD video that we haven't done in a while, but is one of our favorites to do and I think some of you guys' favorites too. One of the most popular videos we've ever done here at TFD is this old video about responsible decisions that secretly waste you money. And today, we're going to do the exact opposite and share with you guys some bad or irresponsible money decisions that may actually be the right one for you.

So without further ado, let's jump on in. Number 1 is investing before you pay off all your debt. So in the hierarchy of saving and spending, paying off debt is often at the very top of people's lists.

And depending on the school of thought you follow financially, you may be someone or listened to someone who is pretty universally debt phobic, meaning it doesn't matter the kind of debt, it doesn't matter how much, it doesn't matter the interest, get rid of all debt. And if you follow a personal finance media, you're often seeing stories about people who paid off a crazy amount of debt in a short amount of time. And usually, yes, of course, there is some massive privilege hiding right behind that story, like a deceased relative who left a large inheritance or just having rich parents in the first place or getting really lucky in the housing market or some combination thereof.

And that can compound the impression that not only is paying off large amounts of debt the right thing to do before investing, but that it's realistic to do before investing. But the reality is, unless you have a lot of high-interest debt, you're almost always going to be missing out on greater returns by not getting into the investing game sooner. According to Fidelity, a good rule to follow is the rule of 6%. "For many people, it generally makes sense to first pay down any debt with an interest rate of 6% or greater.

This assumes that you have at least 10 years before retirement, that you're investing in a balanced portfolio with about a 50% allocation to stocks, and that you're investing in a tax advantaged account, such as a 401(k) or an IRA." "If the interest on your debt is less than 6%, and again, based on our set of assumptions, it likely makes more sense to invest those extra dollars instead. That's because at a lower interest rate, there's a greater chance that your long-term investing returns will beat the bang for your buck you'd get by paying off debt faster." Now, of course, you still want to make sure that you're paying off the minimum payments on any debt you owe because, obviously, if you don't, you're going to go into default, and that has all kinds of other problems associated with it. And if you do have really high interest debt like let's say, a credit card, you're going to want to prioritize that basically, before anything else.

We'll link you to a calculator on that to make the best decision for your particular situation. And lastly, if you're able, you may want to consider refinancing some of your debts. You can do this to get a lower interest rate so that you can justify taking longer to pay off your debt and allocate more toward investing, and we'll dive into that at a later point.

But first number 2, is spending on short-term wants. One fairly well-known quote from my all-time nemesis, Dave Ramsey, tells us that, quote, "If you're working on paying off debt, the only time you should see the inside of a restaurant is if you're working there." Now, not only is this incredibly shaming, it also, for many people, doesn't make sense because for a lot of people who situations might apply to my first point, where they have fairly low-interest debt like federally subsidized student loans or mortgages, et cetera, are not going to be out of debt for a very f-ing long time and are not just going to never enjoy themselves ever again until they've finally paid off all of this and are now basically, entering retirement. It also sets up the expectation that people whose finances aren't perfect, basically, should just have to suffer indefinitely and never enjoy themselves.

It's the same thing as shaming people for getting some ice cream with their SNAP benefits or daring to own a smartphone, even if in the case of many lower income folks, that is their only computer. But more psychologically, one of the biggest issues I take with people like Ramsey or some of the more intense members of the FIRE movement is that it makes a savings and debt payoff and long-term wealth building all about sacrifice and really framing enjoying yourself as something you are only allowed to do once you have earned it and in many cases, earned it in an extremely limiting sense like, for example, having absolutely zero debt or having enough money to retire at any time. And I say psychologically because we have a lot of data that shows that for most people, this doesn't work and is actually super counterintuitive to overall long-term, sustainable, good decisions.

And it's the same reason that restrictive dieting, in general, doesn't work According to family medicine specialist, Sarah Walter, M. D. "You're setting yourself up for failure. If you're told not to eat things that you like, maybe for the first few days you can resist eating them.

But then your brain will start taking over, and you're going to want what you can't have." And similarly, when you set up a paradigm that you have to deprive yourself of basically all fun spending, it becomes incredibly hard to sustain that same level of discipline. And plus, it puts you in a mentality where once you mess up, you might as well just say screw it and keep overspending or overeating or whatever the non-restrictive thing might be because you've already sinned, so might as well have a party now that you're going to hell. This is why a healthier long-term strategy is to create a budget that builds in the ability to have these shorter term pleasures, to spend on things that bring you joy, and to truly reward yourself along the way for overall making better decisions.

Because sometimes, satisfying our inner child is good for our inner grown up. Number 3 is holding more than you need in cash. So the general rule from experts for an emergency tends to be somewhere between three and six months of minimal living expenses, and it tends to be on the higher end if you have things like dependents or are in a very volatile industry, et cetera.

Anything more than that or beyond saving for shorter term savings goals like paying for travel or holidays, et cetera, and a lot of money experts will tell you that you're basically just throwing money away. Because by keeping it in cash, even in something like a high-yield savings account rather than investing it, you're missing out on a lot of potential interest, and you're losing a lot of the value of that money over time to inflation. According to a UBS analysis in Kiplinger, someone with a $5 million all-cash nest egg who has annual expenses of $250,000 that increased 2% per year due to inflation would only have $2.5 million left after 10 years after drawing down the cash to pay bills.

The same portfolio invested in stocks could be expected to rise in value to $7 million over the same period. However, while it's true that investing your money is usually more appropriate for long-term expenses, there are many arguments to be made for keeping more than six months of expenses in cash, especially in our current economic situation. From one recent column in The Seattle Times, making a case for holding more cash during times of high inflation, "Holding cash hardly feels like a winning strategy when every dollar you set aside today is likely to have less than $0.95 worth of buying power a year from now.

But if consumers, savers, and investors learned anything from the financial offshoots of the pandemic, it was the value of an emergency fund. And while the current inflationary pressures are not remotely the same kind of crunch that a potential job loss or work stoppage is, they are presenting a serious problem, especially for anyone who actively lives off their investments." So as our writer mentioned, a bear market is going to be more worrisome for people who are closer to retirement age, who are either living off investments currently or are going to be withdrawing from them soon. So this is an advice to sell off investments in order to build up cash to potentially ride out the market, but rather to focus on building up cash savings.

At least for the time being, while it's still pretty unclear how things like this current inflation rate is going to affect the job market, in general, having more of a cushion in uncertain times is going to be a better move. Now, again, that shouldn't mean just hoarding cash at the expense of future compounding interest in the stock market, but it does mean things like erring to a more robust emergency fund than you otherwise might. Number 4 is focusing on earning more instead of spending less.

Again, financial gurus like Dave Ramsey will often focus on spending less and less as a primary means to financial solvency. And in general, once you've hit a certain point, this isn't very good advice because at the end of the day, there's only so much you can cut from a budget. And as we addressed in a previous point, being hyper restrictive often completely backfires when it comes to long-term decision making.

So much financial advice boils down to the tired old stop buying avocado toast and lattes, and yet, we know by now that the answer is like, OK, I'm already not buying those things and I still will basically never own property, so what do I do now? The reality is for most people, earning more money is going to be a more viable long-term option than simply spending less. And while that can seem like an, OK, but how kind of question, for many people in the workforce due to a combination of being at a job for a long time where you're starting with a lower more entry-level salary, not negotiating, which statistically most people don't do, only being given relatively small raises year after year are, in general, being underpaid at their primary employer.

And while it's not an option for everyone to overnight go to a different company where, statistically, people will earn their largest increases in pay, it is something that we should regularly be checking in with ourselves and putting first and foremost in our financial strategizing before even cutting out more spending. And here are some other suggestions for increasing your earnings from due.com. Increase income by taking on extra hours at work.

You might ask for overtime or extra shifts to make more money, even temporarily. And for more of a long-term change, talk to higher ups about a potential for a promotion and figure out how to actually qualify one. If there's a higher level of management in your company, for example, that would almost certainly merit a significant pay raise or just ask for a raise anyway because many of us forget that that always is an option.

You can also raise your income and increase financial freedom by starting a small business or side hustle, which may or may not be related to your full-time job. And however temporary a side hustle may be, it can make a real difference in your finances. You can also train for a new better paying career.

And of course, this requires time and probably some money, but may be worth that return on investment. So be sure to analyze that the return on investment actually makes sense, even if you're talking about adding only a few hours a month of side hustling or starting to work more aggressively about making sure that you're being paid fairly, according to industry standards in your job and looking at other potential employers and/or negotiating with your own, it's important that we look at our careers and at our earning potential as being as important, if not more so, than our ability to scrimp and save. Because depending on what you do, one single raise at your primary employer could be worth more than years of hard work cutting out things like Netflix subscriptions.

Number 5 is putting every expense you can on a credit card. So not to bring it back to Dave Ramsey, but he is the worst, so let's just get into it. He has always advocated for what is, in my opinion, very unhelpful and pretty misleading advice to never put anything on a credit card or to even have a credit card in the first place.

So I should be clear here to say that we would never advocate for misusing a credit card-- that is what got me into so much financial trouble all those years ago-- and to follow the general rule of thumb that anything you cannot afford to pay off in full at the end of the month should never, ever see a credit card. This is also why we have emergency funds. But using a credit card isn't just helpful for things like building your credit score, which is very important to keep healthy for things like getting a future mortgage, or negotiating car payment terms, or basically really anything that has to do with credit and lending.

Not taking advantage of savvy credit card use can often mean leaving a lot of free money on the table. Now, it's important to check in with yourself about how you can realistically afford to use a credit card and to what extent you can really trust yourself to be responsible with it. And there are other ways to make sure that you're keeping it out of the realm of temptation, while still getting the benefits such as never having it registered in your web browser, never taking it with you when you leave the house, or even asking a loved one to help keep your credit card safe so that you can't be tempted by it.

But if you are someone who can trust yourself to use a credit card responsibly and only use it in so far as you can pay it off in full every month and therefore, most importantly, never pay a dollar of interest-- and by the way, it's a total myth that it's better for your credit score to leave a balance on the card every month. That is a myth. I bet it was invented by the credit card companies because that means you're paying interest on it.

If you can trust yourself to never pay a dollar of interest on your card, well then you should use the hell out of a credit card and funnel, basically, every purchase you possibly can through it because then you're getting all kinds of cash back, airline miles, hotel points, dining points. Basically, any kind of perk that aligns with your lifestyle, you can get through intelligent and savvy credit card usage. And there are entire blogs and YouTube channels and places even like NerdWallet or the Points Guy, where you can find tons of information on how to do this successfully.

I basically don't pay that much for airline tickets anymore because I'm so aggressive about using all of my various Delta cards. And I basically, almost always get upgraded when I travel also because of this. Not to brag, but I just got put in first class on a flight to North Carolina.

Not the most glamorous plane, but I'm happy to have it. I will be enjoying my little actual glass container of orange juice on my morning flight. Point being, there are a lot of ways to save on things you would otherwise already spend on by using your credit card to funnel purchases you would already be making.

It's the shift from using it to buy what you can't afford to using it to buy what you can and already do afford in a more intelligent way. Number 6 is missing out on investing opportunities. So in your lifetime, you will probably hear stories about that one amazing investment opportunity that you missed out on, but maybe someone's uncle got in on early, and now they're a multimillionaire because they invested in Apple or Nike or whatever back when it cost almost nothing and no one had heard of it.

And if you go to a lot of different financial websites and gurus, you will often see a list of stock picks with what they think that should be buying and betting big on for the year. And in fact, with many of them, there's actually been pretty funny results in terms of how off these stock picks can be in a given period of time. Some of the most famous financial media personalities have had such comically wrong stock picks over the years that people have actually created funds that literally just bet against the stock picks of these gurus.

So we a TFD always advised against individual stock picking because while, yes, it can occasionally result in really amazing outcomes, on average, it does not outperform the market. Investing in a diversified portfolio via low-cost ETFs and mutual funds is a better option for most people in the long term, according to an article in the Balance published in March of this year. Quote, "While investing in funds may not sound electrifying, historical data shows that it's the most successful approach.

For example, Morningstar publishes a semi-annual report that measures the performance of active funds against their passive counterparts." "In the short term, the investment research fund has found the results don't seem that negative for stock picking. In 2020, for example, just shy of half of the active fund managers outperform their passive peers. However, the numbers lean far more heavily toward passive investing when you look at longer periods." "The most recent Morningstar report found that over the 10-year period preceding June 2021, only 25% of actively managed funds beat out their passive counterparts.

And remember, that the Morningstar study looks at the performance of professional fund managers, meaning those whose career is to pick individual stocks. The results for individual investors may be even less positive." Investing early, often, and consistently in diversified, low-cost funds is just the best approach for the vast majority of people. It may not be sexy and you may hear a lot about how you're missing out on big opportunities, but in the long term, that is almost always the best approach.

Lastly, number 7 is taking out an unnecessary loan. Often, financial gurus will advocate that outside of a mortgage, basically, all debt is bad debt. But sometimes, you can strategically use other kinds of debt to help make you better off financially in the long run.

As I mentioned in point 1, you may want to refinance a debt so that you either have a lower interest rate or a lower monthly payment. For example, a personal loan can be used to consolidate and/or refinance credit card debts, and the higher your credit score, the more options and better interest rates you'll have available. And while some personal loans have higher interest rates, if you have a great credit score, you may be able to find one with an interest rate as low as 2.5%, and we'll link to a list of personal loans for refinancing credit card debt.

Another example where taking out unnecessary debt might make sense is making improvements on a home you own, like if it's something that improves your day-to-day life and increases the resale value of your property, it may be worth considering. Also, there are times where going into debt to further your education or get certifications and skills offers, on average, a better return on investment than the initial debt itself. There are some degrees, which have extremely positive associations with earning potential compared to the loans they require.

There are also a lot of certifications that require fairly low debt, but can make huge impacts on your earning potential, even in the shorter term. It's important, in my opinion, to not be debt phobic, but to be very debt critical, to really analyze the value of potential debt as a business would. I'm a business owner, and we often do look at things like taking on working capital, which is often shorter term debt, which allows you to invest in the business and just meet the day-to-day needs of the business while you're waiting to be paid on invoices.

And there are many times where the strategic taking on of debt, depending on all the particulars of that debt, can actually be in the best interest of the business. And it's not that difficult to do an assessment of what the potential payoff is. There's no reason that individuals shouldn't take that same approach when it comes to using debt on their own individual level, it's just a question of understanding that not all debt is created equal and that debt should only be used as an investment.

At the end of the day, everyone's financial decision making is going to be different and based on their needs and their personality and what works best for them. But it's important to remember that a lot of the stuff that we hear is kind of a universally bad move, is often not the case. And being more thoughtful about what superficially might seem like a good or bad decision financially is key to making the right decisions for you long term.

And as always, guys, thank you for watching, and don't forget to hit the Subscribe button and to come back every Monday, Tuesday, and Thursday for new and awesome videos. Bye, guys.