Hey, guys. It's Chelsea from The Financial Diet, and I'm coming at you this week extremely caffeinated, kind of sleep deprived, and ready to talk controversies. Because one of the things that we really like to acknowledge here on TFD is that so much money advice comes down to individual circumstances, your own subjective values and goals, and just a general sense of what you feel more comfortable doing. What may be right for a certain person could be totally wrong for you. And the strategy to achieve various goals can be completely different depending on the person's personality type, their risk tolerance, their habits. Basically, creating a solid financial foundation comes down to understanding yourself, understanding what you're capable of and what you're not, and leaning into your best habits. There are certain rules that are going to be basically universal in personal finance. Things like spending below your means, having clear goals, analyzing your own spending habits and prioritizing savings, even those savings can come in all different forms. But even in those various universals, there are going to be variations about how people approach them.

 And one of the things that I am extremely bothered by in the personal finance space is how many gurus can speak about these things as if they are universals and shame people who don't conform to their beliefs. There is a whole sub-genre of personal finance media out there that's like millennials spent what on student loans? Or like, idiot 25-year-old has $1 million in debt. Or how this millennial managed to save $200,000 in two years. Spoiler alert-- their grandmother got hit by a car and left them $200,000. At TFD, we are simply not interested in the extremes. We're not interested in black and whites. And we're certainly not interested in shaming people. So all of this to say, it's important to remind yourself on your own personal finance journey when you may often feel like you're doing something wrong or you don't know what is the, quote, unquote, right answer or have potentially made mistakes that there are many fundamentals that even the experts themselves can't agree on. And also, let's be clear. A lot of self-identified experts in personal finance are self-appointed. It is not regulated the way medicine is, baby. So let's get right into it with the four controversial money decisions that even experts can't agree on.

Number 1 is paying off debt versus holding a larger emergency fund. Now, if you listen to certain financial gurus like [BEEP],, all debt is toxic, including things like mortgages, or student loans with low interest, or various other vehicles that people use to possibly ascend in class and better their circumstances. And you should combat this inherent debt toxicity by putting 100% of your funds towards debt repayment except for a $1,000 emergency fund that you leave yourself in case of emergency. On the other hand, there are some experts like our friend Tasha Cochran of One Big Happy Life who advises building up a much more robust emergency fund and investing in things like insurance before getting more aggressive about paying down debt, the rationale being that if you find yourself in a dire position and have left yourself basically cash-free by putting all of your money toward debt repayment, you may not even be able to access things like credit cards or loans or lines of credit that could allow you to help yourself.

Now, what does this mean for you? Ultimately, what it means is that you have to make this decision based on the factors of your life and the nature of the kind of debt you have. For example, if you are in a dual-income household with no dependents and feel confidently that your significant other could help get you through something like a job loss if absolutely necessary, you might want to prioritize aggressive debt repayment over saving up that huge personal emergency fund. Or if you have someone like a family member who you know could help you or house you or do a lot of things to help carry you through a difficult time, that's a huge privilege and also a factor to keep in mind. Conversely, if you feel that you do not have a lot of job security, if you're living on your own and don't necessarily have someone you could turn to, if you are someone who is prone to a lot of illness, if you are potentially going to have to move in a toxic relationship or living situation or in any circumstance that leaves you a little bit more vulnerable and don't have those resources, you may want to really consider boosting up a super robust emergency fund and keeping as many options open as possible. You also have to consider things like your interest rates. All debt is not created equal. And there are very simple calculators out there that will allow you to weigh against each other, for example, the possible returns on investment over a certain amount of debt repayment versus putting all of that money towards your debt. This is especially relevant for things like subsidized student loans or other super low interest forms of lending. It's also something to keep in mind when doing something like paying a mortgage, which is also building equity in that home on top of just repaying that initial debt.

The point being once you've decided that your money is going to debt repayment in some form, there's also questions to be asked about that debt itself, how they are being prioritized against each other, and how they're being prioritized against your other financial goals. But when it comes down to just emergency fund versus debt, make the decision that is based on your own life and what you believe to be reasonably possible in the near future.

Number 2 is budgeting by category versus simply automating savings. Tasha Cochran who I mentioned earlier has a strong opinion that budgeting by category-- breaking things down into stuff like food, clothes, entertainment, et cetera-- is extremely important. That each spending must have its own category and must be tracked and analyzed as its own discrete unit. But then there are other financial experts such as Paula Pant who herself only focuses on an automated savings goal, and once she meets that goal, allows herself to spend the rest of the balance as she will. What does this mean for you?

 It means that you need to understand your own habits and your own worst tendencies and use your budgeting method to counteract them. If you're someone, for example, who has an extremely hard time getting control of or understanding your own budget, one of the best first steps you can take is getting an app or some program that will help you understand and analyze your budget. I have personally used Mint for this purpose for about seven years now. And challenge yourself for the first few months to not even make yourself change a single thing about your budget. Just analyze it closely. And you'll often find that in doing that and an understanding all of the various mistakes or overspending you might be doing in various categories, you will be naturally incentivized to spend less and get more control over that budget.

And if you are someone who has trouble maintaining that control, having a category-based budget can help keep yourself in check and help keep a closer eye on all of your potentially bad habits, as well as set specific challenges for different spending categories. But if you're someone who leans toward the frugal hoarding mentality with money and can often find yourself unable to spend on things that otherwise might provide great value or joy to your life, perhaps the simple automated savings and the rest is yours method would be better for you because it would release you from that feeling that you have to work down every category as much as possible to save the absolute maximum amount at the expense of what could otherwise be a really rich life. Generally speaking, people tend to fall into two categories-- spender and saver. And each of these methods can be really useful in making sure to counteract the potentially extreme versions of those respective habits.

Number 3 is cutting expenses versus growing income. For years, the narrative in personal finance was essentially cut back, cut back, cut back, with advisors such as the author of the famous Latte Factor basically encouraging us to cut every frivolous amount of spending possible starting with that morning coffee that, for some reason, boomers hate so much. However, other experts such as Farnoosh Torabi have taken a different approach and basically posited that many people don't have a spending problem. They have an income problem. And that for many people both mentally and logistically, it can often be easier to find ways to expand your streams of income than to radically limit the kind of spending you're doing. Because for a lot of people, there's just not that many more places to cut back, and the places you could cut would really take a huge chunk out of the joy and richness of your life. Now, which is the right one for you?

It's a complicated question. And frankly, a lot of it has to do with privilege. It can sometimes feel tone deaf to tell people to earn more money in an economy where it is infinitely easier for the wealthy to get wealthier than the poor to slowly and painfully upgrade their living circumstances. But many of us find ourselves somewhere in the middle. And it's easy to forget that growing your income doesn't always mean things like side hustles. For many of us in 9 to 5 salaried jobs, the most effective way to get a relatively large increase in your salary is going to be in going to another company rather than trying to do incremental raises in your own. Remembering to always negotiate with your employers and to at least attempt to increase your own income at your main source of employment is always important and not something we can ever leave to chance.

That said, if you're in an industry with extremely regimented income, long hours, little chance for movement, and simply not the time or resources to take on extra side income, cutting expenses could be the better approach for you. And trying to integrate more things in your life that can bring joy and fulfillment while not costing money, or at the very least, costing a very minimal amount. The important thing is to remember though that it's never one or the other. That for many of us, it could often be a combination, even if it's something as small as adding $50 a month extra stream of income or cutting out a $50 a month expense. Neither answer is right. It depends on what is right for you.

Number 4 is rules of thumb versus more nuance. Financial news is basically like any other kind of news. The bold, black and white headlines tend to get the most attention. So reporters and journalists and bloggers can often defer to those super bold rules of thumb in order to get attention, and in many cases, get yelled at for days at a time on Twitter for being tone deaf. You've probably heard some of the ones about how you should have one year of salary saved for retirement by the time you're 30, or you should be saving at least 10% to 15% of your income yearly for retirement, or that you should never spend more than 30% of your income on housing. These always and never and must and can't kind of language are attention-grabbing, but they're also, in an economy that is not working as well for every individual, extremely tone deaf, and for many of us, totally inaccessible.

And it's also important to remember that national averages do not account for all of the wildly different kind of living circumstances we all might be in, some of which can counteract those rules of thumb. For example, in New York City, it is highly likely that you'll be spending more than 30% of your annual income on housing. But for most of us, that also means things like you don't own a car and pay radically less for yearly transportation than someone who's living in a suburban area where their home costs may be much lower. Also, if you're someone who had very extended higher education, someone going for their JD, their PhD, their MD their masters, you may be really behind on the savings before your 30 goals. But you may also have radically increased your lifetime earning potential by choosing those paths. Ultimately, this is one of the few where I'll take a pretty hard stance and say that generally speaking, you can feel free to glance at the rules of thumb but to largely either tune them out or only use them as a very general guide for your life and not something you should ever feel bad if you're not meeting exactly. What you should do, however, is generate your own rules of thumb for what is possible in your own life and what aligns with your own goals, and judge yourself by those standards, not the arbitrary standards you saw in some article getting dunked on on Twitter.

Ultimately, the path to a financially healthy life is going to look different for everyone, and as unfair as it may be, not be as easy for everyone. But one of the best gifts you can give yourself is permission to tune out the noise and accept that for every really harsh piece of advice you might be getting on one side, there is almost certainly some other self-proclaimed expert giving you the opposite. And as with all things in life, the truth is often somewhere down the middle. 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.