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Wealth inequality and student debt are on the rise, and there’s a lot of disagreement over who’s at fault. However, there’s one institution we can all agree to blame for at least a portion of this crisis: schools.
Over the last few decades, schools have gradually omitted more and more critical subjects from their curriculums, the most harmful of which is personal finance. In theory, we should all embrace personal responsibility and take our education into our own hands. But as new graduates increasingly find that their starting salaries barely cover rent, it’s time to acknowledge that schools are no longer properly preparing us for the real world.
Thankfully, thanks to the internet, it’s now easier than ever to learn on our own. With that in mind, let’s look at five basic money hacks school should’ve taught you. And if you’ve already graduated, don’t worry —I guarantee you’ll still find something applicable here.
1. To Get Rich, Make Investing A Priority
Building wealth isn’t about how much you make, it’s about how much you invest.
Here’s an example: in 2014, former janitor and gas station attendant Ronald Read passed away, leaving behind an $8 million net worth. When his family found out, they were shocked.
Read lived an incredibly frugal life — so frugal even those close to him had no idea how much he had in the bank. Instead of buying nice cars and big houses, he put every spare cent he had into the stock market. Thus, despite his humble salary, his commitment to buying and holding stocks made him rich in the long run.
The moral of the story is that becoming a multimillionaire is attainable for anyone — even if you make $35,000 a year. But to get there, you must prioritize investing. You don’t have to live like you’re homeless, but you will have to make lifestyle sacrifices. Think of it as giving up a little fun now so you can enjoy financial freedom later.
Note: Read never really used his wealth for personal enjoyment because to him, investing was his passion. But you don’t have to follow this path. By all means, vacation in Cancun every weekend when you’re a multimillionaire. But do yourself a favor and make sacrifices now so you can have that option later.
Now, all this sounds good on a big picture level. But what does it mean to invest?
2. Index Funds Will Make You Rich
Read built his wealth by carefully buying stock in individual companies, then holding for decades. But nowadays, that’s too risky. If a company goes under, your portfolio goes to 0.
Instead, it’s a better idea to put your money in a wonderful tool called the index fund. Index funds allow you to invest in the stock market as a whole. When the market goes up by 5%, your money goes up by the same amount. When it goes down by 5%, your money does the same.
Because the stock market as a whole always goes up over time (unless society collapses, in which case there are bigger problems at hand), this is one of the safest wealth building strategies available. In fact, contribute $350/month to an index fund and you’ll be a millionaire in 40 years (more on this here).
Thanks to a new concept called fractional shares, you can now buy shares with as little as one dollar. Here’s an example of how this works. I invest in the index fund $VTI, which tracks the 500 biggest stocks on the market. At press time, $VTI is worth about $190 per share. Just a decade ago, you couldn’t buy a share if you didn’t have $190. But many brokers now offer fractional shares, which means you can still buy 1/190th of a share if you only have $1. That allows you to get in on the market no matter how much money you have.
If schools taught this strategy, there would be far less income inequality.
3. Use This Template to Maximize the ROI of College
College isn’t the best way to land a high-paying job for everyone. Here’s how you can tell if it’s right for you.
Step 1: Identify your skills (i.e. writing, business, interpersonal communication, working with numbers, etc.).
Step 2: Make a list of strong industries with jobs that pay over $80,000 (it doesn’t have to be an entry level position — it just has to exist somewhere on the corporate ladder).
Step 3: Map your skills to one or more of these industries.
Step 4: Map those industries to a college major. That’s the major you should choose.
If this exercise yields a viable major, congratulations — going to college could be a great choice, and might just be the best way for you to secure your financial future. It’ll give you the potential to thrive, not just survive.
But if this exercise doesn’t yield any results, don’t go to college. The ability to identify this will save you money and put you on a more productive path.
The harsh truth is that it’s rarely a good idea to go to college for an arts or humanities degree, and I’m saying this as someone who identifies as an artist (or right-brain dominant, anyway). Taking out giant student loans to major in a subject with limited high-paying jobs is financial suicide. The last thing you want to be is the English major struggling to repay loans with your $35,000/year entry level job.
So if college is not a good fit, then what? Don’t worry, you’re not doomed. Read the next point for better options.
4. Make More Money By Skipping College
I’m a big fan of CNBC’s Millennial Money series, where they profile the personal finances of young professionals in their mid and late 20’s. Recently, while digging through their archives, I realized that some of the highest earners they’ve profiled work jobs that don’t require college degrees.
Two examples: Alex Sanchez, who earns $230,000 a year as a lineman for an electric utility company, and Alex Pardoe, who earns $280,000 a year running his own salon. These successful millennials contrast sharply with some of the other professionals they’ve profiled who went to college and are now making $40,000/year in their entry-level positions.
Schools brainwash us to believe that college is the only way to make it in the real world. This couldn’t be more wrong. As both of these Alexes prove, you can make more money working a blue and pink-collar jobs than some college graduates will make in their lifetime. Do you like working with your hands? Consider becoming a contractor (salaries can be as high as $144,000/year), oil rig worker (salaries as high as $100,000/year) or nuclear power operator (average salary: $94,000/year). Plus, you save yourself the headache of $30,000+ worth of student loans.
It’s not just blue and pink-collar jobs either. Now that the freelance economy has arrived, this has become true for many white collar jobs. When it comes to Upwork and Fiverr, clients don’t care if you have a degree — only that you can get the job done. This makes it completely feasible to build a copywriting or marketing career through freelancing alone.
5. To Build Credit Fast, Get Added As An “Authorized User”
Having a good credit score is critical if you want low interest rates, higher credit limits, cheaper mortgage insurance and a whole host of other financial benefits.
Thankfully, there’s a quick and easy way to build your credit score: ask your parents to add you as an “authorized user” on their credit card. By doing this, they build credit history for both you and themselves every time they make a timely payment — even if you don’t contribute a penny. Think of it as tagging along for the ride.
Then, when it comes time for you to step out on your own, you’ll have a nice history of on-time payments to vouch for you as you apply for loans or purchase your first house.
It goes without saying that there’s risk involved with this strategy. Obviously, if your parents aren’t good with money, don’t put yourself in this situation (however, do still consider finding a guardian or someone else you can trust). But for those with reliable family members, this is a simple credit-building method that requires almost no effort.
Just the Beginning
If you had to pick just one of these, putting money into an index fund every month is by far the most important. At the time of writing, it’s the safest path to wealth, and it’s criminal that many are still unaware it exists.
That said, the truth is that this is only the tip of the iceberg for money hacks schools should be teaching. Nevertheless, the good news is that thanks to the internet, everything you need to know to ensure a strong financial future is available for free.
Whether it’s through watching YouTube, browsing Twitter or reading blogs, it’s now completely possible to take your financial fate into your own hands. So after all is said and done, let’s move past what we should’ve been taught in school and focus on taking advantage of what’s available to us now.