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In this episode, Chelsea dissects various pieces of money advice that have gone viral on TikTok, Reddit, or other platforms, and how they range from unhelpful to downright dangerous.

Short squeeze: https://www.investopedia.com/terms/s/shortsqueeze.asp#:~:text=What%20Is%20a%20Short%20Squeeze,pressure%20on%20the%20stock's%20price
https://www.disnat.com/en/learning/trading-basics/stock-basics/what-causes-stock-prices-to-change#:~:text=If%20more%20people%20want%20to,and%20the%20price%20would%20fall

Lack of disclaimers on stock advice: https://www.techradar.com/news/tiktok-influencers-exposing-millions-to-misleading-stock-tips-and-financial-advice

TikToks referenced:

https://www.tiktok.com/@justhomesgroup?referer_url=https%3A%2F%2Fwww.vox.com%2F&referer_video_id=6907256262279318790
https://www.tiktok.com/@justhomesgroup/video/6907256262279318790?referer_url=https%3A%2F%2Fwww.vox.com%2F&referer_video_id=6907256262279318790&is_copy_url=0&is_from_webapp=v1&sender_device=pc&sender_web_id=6919527603696354822
https://www.tiktok.com/@iamcurtisray/video/6890646356289965318
https://www.tiktok.com/@ceowatchlist/video/6903696044417207558?lang=en

IRS on business expenses: https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses

S corporations: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations
https://bench.co/blog/operations/s-corporation/

Fidelity on debt: https://www.fidelity.com/spire/investing-paying-off-debt

Living off debt: https://www.bloomberg.com/news/articles/2020-12-04/viral-tiktok-videos-with-personal-finance-advice-may-not-be-the-most-trustworthy

Credit card interest: https://www.creditkarma.com/credit-cards/i/how-does-credit-card-interest-work

Being your own boss: https://www.forbes.com/sites/carolinecastrillon/2019/01/22/five-signs-its-time-to-be-your-own-boss/?sh=4a5a9fc42a2a

Self employment stress: https://academicworks.cuny.edu/cgi/viewcontent.cgi?article=1277&context=gc_pubs

FIRE subreddit: https://www.reddit.com/r/financialindependence/

FIRE during COVID: https://www.forbes.com/sites/jrose/2020/05/19/did-coronavirus-destroy-the-fire-early-retirement-movement/?sh=3f683d0b555d

Watch more of The Financial Diet hosted by Chelsea Fagan here: https://www.youtube.com/playlist?list=PLD30V46E07RR99cC0gCjKUbt-BKoDUcnc

The Financial Diet site: http://www.thefinancialdiet.com

Facebook: https://www.facebook.com/thefinancialdiet
Twitter: https://twitter.com/TFDiet
Instagram: https://www.instagram.com/thefinancialdiet/?hl=en
Hello everyone. I'm coming to you before the video starts with something very, very important. I would never pre-empt myself if it weren't important.

And that is to tell you that on May 15th, that's a Saturday, I, the TFTP team, and tons and tons of our best career experts are coming together for our all day conference career day at TFD. It is a full day of all kinds of workshops, mentorships, activities, exercises, all around the topic of transforming your career. If you're just coming out of college, if you're looking to change jobs, if you're applying for a new industry, if you're thinking about becoming an entrepreneur, if you want to take control of your professional life, learn how to negotiate, get paid what you're worth, side hustle, all of that stuff, it is all happening may 15th on career day.

In addition to the day's activities, you're going to be getting a digital goody bag full of all kinds of great stuff to use to better your career and a 60-plus page workbook to continue all of your professional development exercises and really make the most of all of the day's learnings. I will be there, the experts will be there, and so will you. Tickets are just $29 and they are at the link in our description.

Space is limited, so go, go, go, go, go, bye. Hey guys. It's Chelsea from The Financial Diet.

And today, I want to talk about some of the viral pieces of financial advice that you may have been seeing come across your various feeds if you frequent places like TikTok, or Reddit, or Instagram, or Twitter. In the past year, there has been a rise of money management content on these platforms that are bite size, easily shareable, easily digestible, and in many ways not that considered. It shouldn't be a shocker to most of us that culturally we've been thinking more about money and how to manage it in the time since the Coronavirus struck, and had a huge impact on our economy.

Many of us might be out of jobs for the first time, suddenly, working remotely, perhaps leaving more time for things like a side gig or furthering our education. We might be changing industries, either because we wanted to or sort of against our will, and just generally, the extent to which our personal financial situation can impact all of our choices, has probably become more acutely familiar in recent times. And of course, content creators have been capitalizing on that by making all of these various viral clips, videos, TikTok's articles, et cetera, that teach you how to manage your money in a way that you might not have thought of.

And it's not to say that some of this advice can't be good or to say that these bit-sized pieces of advice can't be integrated into more holistic and far reaching financial lifestyle changes, but it's important to take viral advice with healthy doses of skepticism. And it's also important to remember that most of these platforms, especially ones like TikTok cater to a younger demographic. In tech stocks case, between 14 and 25 on average.

These younger demographics might have less experience with money or less familiarity with common sense money management skills and therefore be more susceptible to the, sounds good, type of advice. Number one is buying specific stocks or day trading. Now, why should this claim that this specific piece of advice is usually centered around the idea of buying specific stocks in order to turn a profit, usually in the shorter term, not as a form of financial activism to support specific companies or industries you want to see grow and prosper.

And just to disclaim, this type of advice is usually centered around picking specific stocks with the interest of turning a profit, usually in the shorter term. On platforms such as the subreddit Wall Street Bets and acrostic TikTok people were advising buying specific stocks, such as AMC, with the hope of artificially increasing the value of a cheap stock due to sudden demand. And then to sell when it has grown exponentially in price.

This is often combined with trying to short squeeze, buying up cheap stock that has been shorted by hedge funds, forcing the hedge funds to buy that stock at an increased value instead of that cheaper one. In order to get a meteoric rise in value though, the early buyers will need later buyers to opt in when the value of the stock is already artificially high as the demand of people wanting to buy it is what drives up the cost. So later adopters of buying the stock are at a much higher risk of losing significantly.

It's almost like a stock market MLM or a game of stock potato. And the problem is the people giving this advice, often on places like Reddit and Tik Tok, specifically don't always give the necessary disclaimers either. About 14% of videos, failed to give any kind of Warning or disclaimer about the risks associated with trading specific stocks, which, if you're a TFD fan, you know that we advise against as a rule because timing and predicting the market is extremely difficult.

And even qualified individuals are on average outperformed by just following the market through the use of diversified funds. And only 10% of these accounts even offered any qualifications for giving financial advice. I've always been transparent at TFD that I am not a certified financial professional of any kind.

But our financial advice comes heavily sourced from a variety of financial experts. It's unclear that these content creators are sourcing themselves even in a remotely similar way. Now, some people will get in early, make the right investment, and turn a profit in a very short time.

But most people, on average, who are engaging in the buying and selling of individual stocks, will at best make moderate gains but more often than not, suffer some kind of loss. And it is worth noting that there are more reputable sources who do advise in the purchasing of individual stock. Financial websites, like the Motley Fool, will regularly suggest individual stocks in which to invest.

But the important difference here is that you are being advised to invest in them over the long term. We're talking about the value likely rising in a span of years, not days I'm still of a very specific opinion when it comes to individual stock picking. If you can afford to do it with a very, very small percentage of your portfolio and want to engage in a little bit of that fun Casino atmosphere, why not, it's up to you.

Or if you want to support individual stocks and industries and as a kind of financial activism, that's also a totally valid thing to do. But if your goal is long term financial stability and predictable solid returns, you are best off following the market. Which on average will almost always outperform an assembly of individual stocks.

Combine that with utilizing tax advantaged retirement accounts and you have got the secret sauce recipe for boring but reliable wealth building. Number two is jumping through hoops to avoid paying taxes. According to a realtor on TikTok using the handle just homes group, starting an S corporation lets you count everything you own as a quote company expense and avoid paying taxes on it.

She goes on to say that you can hire your kids to work for you for $12,000 tax free, go on a corporate vacation that is tax free, and pay yourself a low salary to pay fewer employment taxes. And if you do it correctly, you end up with 0 taxable dollars. This was in response to the prompt, what's a piece of information that feels illegal to know.

This account also has other pieces of advice about avoiding or minimizing taxes. And some of her advice may be valid as she is ostensibly an expert regarding rentals and real estate. But unfortunately for her, this response that went viral, 10.5 million views compared to her usual two to 30,000 is not great bob to clarify.

Business expenses are defined by the IRS as quote, the cost of carrying on trade or business. It must be ordinary and necessary. If you're self-employed or work from home, you actually can deduct part of your home expenses and car or transit expenses, but only if it's directly related to your business.

A drive to pick up a friend from the airport is not a business expense. A drive to pick up a client however, could be counted as one. And as with all things that sound too good to be true, it is simply not true that setting up an S corp gets you out of paying taxes.

According to the IRS, and S Corporation is a corporation that elects to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. That does not mean tax free, you are still paying taxes but you're not paying corporate income taxes at the top level. But instead, paying individual taxes when filing personal income tax.

Additionally, S corps are under particularly intense IRS scrutiny. And if the IRS finds that your S corp is violating any of the strict regulations, it will immediately revoke your S corp status and tax you as an LLC instead, which could be financially devastating. But just as a general rule, it's not really a savvy financial strategy to focus on avoiding paying your taxes.

As the saying, I love goes, the only thing rich people get thrown in jail for is not paying their taxes. Gaming the tax system is truly the financial definition of playing with fire. And though you may be able to skate by manipulating the system, do you really want to live with the fear of getting audited by the IRS over your head, I certainly don't.

Also, paying your taxes is the cost for living in a functional society. Your taxes go to pay to make basically every part of your day to day life functional and livable, trying to not pay them is not cool. Number three is underpaying outstanding or carry debts to invest the difference.

This advice has been viral for pretty much since virality is a thing. And generally centers around the idea of intentionally paying the minimum on your outstanding debts to invest the difference. Now, there is good and bad debt.

According to Fidelity, good debt is something that is tied to an investment, a mortgage on a home, or a student loan, although that being an investment is debatable. It has a low interest rate and manageable payments and is meant to be paid off over time. If this is the bulk of your debt, then it could be worthwhile to pay only the absolute minimum on it and let the money you would spend on chipping away at the debt grow as an investment.

But here's the thing, if you want to figure out to what extent you should be prioritizing debt repayment versus investing the difference, there are easy calculators to do that, which we'll link you to in the description. If the interest on a specific debt you're carrying is going to be lower over a certain period of time than the standard market returns that you might see where you to invest that money, it could be a good idea to re-channel that difference. But there is plenty of bad debt out there, things like credit card and consumer debt.

We're talking about debt that did not necessarily go to finance and investment and is often saddled with very high interest rates. Obviously, if you're going to invest at standard market returns and divert that money away from repaying a credit card on which you're paying 19% interest, that's not going to be a good deal. And it's also important to consider who is the source of this kind of financial advice, especially if they're encouraging you to underpin your debt in order to invest in something that they are selling.

Such as in the case of viral TikTok entrepreneur Curtis ray, he encourages his followers to open an MPI account or maximum premium indexing using his company. He's essentially selling life insurance that's costly and risky if you can no longer make payments, all well packaged as a get rich easy method. Source being his TikTok videos, which are kind of insufferable.

Number four is leaving off debt perpetually. One of the more dangerous sides of viral financial advice is when the advice in question was actually never meant to be taken seriously, such as in the case of TikToker Tommy zipler, who posted a TikTok about the quote, perfect life hack of opening multiple credit cards with different payment dates and cycling through them to pay off the balance, thereby living entirely on debt. He claims to Bloomberg that he knew this was impossible but also knew that people would believe it, scummy.

The obvious problem with this is that when you carry a balance on a credit card, it accrues interest daily, meaning that the moment you're keeping a balance on your credit card, it begins accruing interest. Very quickly, the amount that you owe will be more than just the balance of one card, leaving you in a cycle of credit card debt. And the thing is, people do live off debt but it is not a life hack.

It is because they're living beyond their means, either by choice or by necessity. And there are, quote unquote, life hacks for using credit cards which involve utilizing them to maximize things like their rewards, cash back, miles points, et cetera. But all of them operate on the principle that you never carry a balance on your card, you pay it off in full before each month is due so that you never accrue interest.

Otherwise, you're just paying the credit card company. And you pay it using your actual money not another credit card. Number five is becoming your own boss.

Now, this one is decidedly the realm of Instagram. And it usually comes with a fancy packaging about being your own boss and girl bossing. And it's often bundled with multilevel marketing which we've done many videos about in the past, we'll link you in the description, and usually market themselves with the deadly combination of being in control of your own income and female empowerment, which is effective when 62% of Americans want to become their own boss and work independently according to Forbes.

Now, there are very good reasons to want to become your own boss. I have followed that route myself and I'm glad every day that I did it. But it is by no means a shortcut to financial success and for many of us, entails years of less financial stability than we would have had at a primary job.

Self employment can also be isolating all consuming and exhausting. It basically dissolves all boundaries between work and life, especially at the very beginning. And usually comes without the built in support of people like colleagues or mentors.

But when it becomes predatory, is often when these viral pushes to become your own boss are wrapped up in these ethically dubious claims about getting rich quick. Usually, shared by someone who's part of one of these multilevel marketing schemes. This rhetoric is easy to recognize as it elevates hustling/boosbab es/girlbossculture.

Things like, hustle until the people you couldn't reach start reaching out to you. Or you have the same Number of hours in the day it's Beyonce. It glorifies working yourself constantly and even makes it seem glamorous and obscures the fact that most people who engage in these schemes end up losing money.

It can also tend to downplay or even glorify the idea of having to spend money to make money, which when done in the context of a healthy and responsible business can sometimes be true. Certainly, it does not apply to these predatory recruitment schemes which require new recruits to buy tons of products or sign themselves up for expensive programming in order to join the club. But like I said, we've done several videos deep diving just into MLMs that are worth checking out on their own.

We'll link you down in the description. Lastly, Number six is one size fits all financial advice. Some viral advice goes viral because it's so definitive, do this and you'll get rich.

But that's a huge red flag. One of the ways that this can manifest on places like TikTok or Twitter, or Facebook, is via the advice that you should copy the investments of CEOs and other wealthy individuals, all of which is publicly available information filed with the SEC. Now, this can work but it can also often fail in large part because CEOs are often investing at massively different scale than the average individual, which means that they have more room to fail.

In the sense that they have enough money that they can make bad bets and recover from them, the average person looking to explore day trading does not. Another example is the fire community, which espouses saving as much as you possibly can more than 50% of your income ideally while cutting all possible costs so that you can save invest and retire early, hence the name. This advice is particularly common on Reddit where there are multiple sub-Reddits dedicated to it and advice to adhere to it pops up frequently in other financial Reddits.

This financial system and advice can work. But it's important to understand that it's so easily becomes popular and even trends in a viral way because what's different or extreme is going to be attention grabbing. For most of us, the average sustainable savings that we can afford to make while balancing with our life needs and desires is simply not going to be sexy enough to make it to the front page of Reddit.

But stories about people radically whittling down their living cost to 20% of their take home pay, aside from the fact that, that implies that they make enough money that they can live on 20% of it, is going to be attention grabbing. But modeling ourselves off of extreme examples isn't just for most of us financially impossible, it's also a way to feel easily discouraged when we can't live up. Sometimes, it can be interesting or enjoyable to read about these extreme stories, but it's important to remember that what goes viral on the internet tends to do so for a reason.

If you're interested in learning more about personal finance, and I assume you are if you're watching this channel, it's important to be able to suss out the good from the bad when it comes to advice. If there's one golden rule about the advice that will generally work to help most people gain a healthy and sustainable level of control over their money, it's that it's not going to be the really sexy attention grabbing stuff. There are no get rich quick schemes, there is no one size fits all advice, and what works for someone else may not work for you.

But we can talk in averages. We can talk in what are generally good decisions versus generally bad ones. And we can also frequently encourage the use of things like calculators to figure out individual situations, as well as plenty of asterisks and nuances for more general pieces of advice.

The kind of stuff that works at scale when it comes to financial management is not going to be the stuff that goes viral on TikTok sadly. And while some of it can be entertaining, when it comes to something as important as your money, nothing is more important than keeping your bullshit meter perfectly honed. As always guys, thank you for watching.

And don't forget to hit the Subscribe and join buttons to go to the financialdiet.com and to come back every Monday, Tuesday, and Thursday for new and awesome videos. Bye bye.