20sMoney.com is a no-frills blog by a 27-year-old gent who calls himself, simply, "Kevin." The blogger started out in good financial shape and wants to help readers develop great financial fitness.
The blog doesn't try to be the most entertaining, or even most comprehensive, money site on the web; in fact, the writer states flat out that he's not trying to teach people how to get out of overwhelming debt or how to do things that are covered by scores of other sites, like diversifying their portfolios. Rather, he shoots for helping readers reach financial goals that will let them spend more of their time doing the things they love.It's a pretty bold claim, but this Gen Y-er thinks he might have boiled down the entire universe of personal finance into four simple rules that constitute financial success. Here's his list - to be fair, he does ask readers to weigh in on where he might be wrong, or missing something:
Fundamental No. 1: Zero Debt
Kevin writes for people like himself, who have no consumer debt. But here, he goes even further to state that the ultimate mission of financial success includes a life with zero debt of any sort, including a mortgage. Many financial experts would disagree, given the long-term wealth-building power of home ownership (last few years notwithstanding) and the mortgage interest deduction, but Kevin does clarify that the problem with mortgages is not the mortgages or the homes themselves, but the human tendency to overextend on housing expenses.
I agree that overextending is a massive problem, but today's lending guidelines are much tighter than they were during the subprime era. My view is that home ownership and a higher education are probably the two things that make sense for most people to go into debt for, but I take no issue with Kevin's advice that debt elimination is generally a step toward financial success.
Fundamental No. 2: Putting Money Away, Generating SOME Return
As Kevin sees it, it's less important to be fixated on trying to get large returns on small amounts of money (which is what most people do) than to save large chunks of money, generating any rate of return -- ideally toward a goal. It's hard to argue with his concern that most Americans save very little, if anything. Encouraging people to save or invest of larger chunks of money is a good thing.
Fundamental No. 3: Mitigating Risk
Kevin points out that most of us think we're minimizing the risk to our investment portfolios by simply spreading our traded assets across several industries. In fact, he argues, true risk mitigation involves spreading our investment holdings across asset classes. Rather than just having some tech stocks and some blue chip holdings, to truly minimize the full panoply of risks (e.g., currency risk, inflation risk, deflation risk, macroeconomic risk, to name just a few of the risks Kevin exhorts readers to manage) takes investing in asset classes ranging from stocks and bonds, to real estate and businesses, as well as a variety of alternative asset classes.
I've long thought many of my wanna-be day-trader friends were insufficiently protected against much more fundamental economic risks than the stock market ups and downs they follow so closely by not owning any real estate and having no business interests of their own. I have to agree with Kevin on this one, though I stop short when it comes to stockpiling gold in my coat closet. (Okay, so he didn't exactly suggest that, but he does echo those finance and self-sufficiency gurus who promote investing in precious metals.)
Fundamental No. 4: Steadily Increasing Income
Income from work or business is, to my mind, the most overlooked, highly impactful way to create financial stability or success. Everyday people are constantly talking about 401Ks and high-interest savings accounts, but pay much less attention to how they can (and should, according to Kevin) be on a lifelong mission to constantly increase their income, both through career advancement and by starting and growing a business. One word: amen.
Now - what do you think? What's young Kevin missing, and what does he have just right?
Four Fundamentals of Financial Success