5 Rules of Money: How to Make It, Save It, & Be Smarter About It
Dive into the essentials of financial literacy with "The Mel Robbins Podcast," where Mel Robbins and her guest, financial educator Tiffany Aliche, tackle the "5 Rules of Money: How to Make It, Save It, & Be Smarter About It." In this episode, they explore the delicate balance between saving enough and oversaving, the vital components to improving credit scores, and the practical avenues to generating additional income through side hustles.
From budgeting effectively with a strategic money list to linking one's financial decisions with life's grander purpose, this podcast provides insights into leading a financially sound and value-driven life. Robbins and Aliche engage listeners with personal anecdotes and professional tips to help you navigate the often complex world of personal finance, emphasizing the importance of money management in achieving both stability and fulfillment. Whether you're looking to bolster your savings, optimize your credit, or find more meaning in your fiscal journey, this conversation delivers thought-provoking guidance for every listener.
This is a preview of the Shortform summary of the Mar 7, 2024 episode of the The Mel Robbins Podcast
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1-Page Summary
Saving Money
When discussing the concept of saving money, Tiffany Aliche warns against the pitfalls of oversaving and advises that anything beyond a year's worth of emergency savings should be put to better use. Oversaving can lead to diminishing returns, loss of value due to inflation, and missed opportunities for investment growth. Mel Robbins provides a tangible example with her daughter's propensity to hoard her earnings, suggesting that such behavior stems from a fear of scarcity and can prevent the enjoyment and utility of money.
Credit Score
Improving one's credit score is a multifaceted endeavor with significant advantages such as obtaining lower interest rates. Paying off credit card balances each month is a key strategy for boosting credit scores quickly, as illustrated by Mel Robbins, who transitioned from making only minimum payments to settling the full balance. Automating bill payments can also contribute to a punctual payment history, which is essential since it makes up 35% of a credit score. Tiffany Aliche and Robbins recommend methods like the snowball technique to lower overall card balances, thereby positively influencing the amounts owed component of the credit score, which is 30%.
Side Hustles
To generate extra income through side hustles, Mel Robbins suggests leveraging one's existing skills, whereas Tiffany Aliche emphasizes the value of utilizing qualifications already attained through one's education or career. Aliche underlines the importance of pre-assessing the profitability of a side hustle by considering costs and potential return on investment. They both advocate focusing on side hustles with direct impacts on income, rather than on peripheral aspects that do not significantly boost earnings.
Budgeting
Tiffany Aliche champions the creation of a money list to keep track of expenses and income, categorizing expenses for better management. By categorizing them as bills, usage-dependent, or discretionary spending, individuals can prioritize essential expenses and distinguish between needs and wants. Aliche posits that living expenses should ideally remain below 70% of income, which provides a framework for financial stability and the opportunity to save or reduce debt.
Life Purpose
Both Robbins and Aliche highlight the significance of aligning financial strategies with life goals and personal values. Allocating money towards what brings profound joy and meaning, such as transformative travel or quality time with family, is essential. They assert that the purpose behind learning finance should be to enhance life's value. Aliche reflects on using her finances not for further accumulation but to uphold a lifestyle that feeds her sense of purpose.
1-Page Summary
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Clarifications
- The snowball technique for lowering overall card balances involves paying off the smallest debt first, then using the freed-up money to tackle larger debts progressively. This method provides a psychological boost by achieving quick wins, motivating individuals to continue reducing their debt. It focuses on building momentum and gaining confidence in managing finances effectively. By prioritizing debts based on size rather than interest rates, it aims to create a sense of accomplishment and progress in debt repayment.
- Categorizing expenses as bills, usage-dependent, or discretionary spending helps individuals prioritize their spending. Bills are fixed expenses like rent or utilities, usage-dependent expenses vary based on usage like groceries or gas, and discretionary spending is for non-essential items like entertainment or dining out. This categorization method assists in managing finances effectively by distinguishing between essential and non-essential expenses.
- Living expenses should ideally remain below 70% of income for financial stability because this allows for a significant portion of income to be allocated towards savings, investments, and unexpected expenses. Keeping living expenses at this level provides a buffer for emergencies and financial goals without relying heavily on debt. It also ensures that there is room in the budget for discretionary spending and quality of life expenses. This guideline helps individuals maintain a healthy balance between spending and saving, promoting long-term financial well-being.
Counterarguments
- While Tiffany Aliche warns against oversaving, some financial experts argue that having more than a year's worth of savings can provide a greater safety net for unforeseen circumstances or long-term financial goals.
- The advice against oversaving may not account for individual risk tolerance and personal financial goals, such as early retirement, which may require a more aggressive savings strategy.
- Mel Robbins' view on hoarding money may not consider the psychological comfort some individuals derive from having substantial savings, which can outweigh the potential missed investment opportunities for them.
- Paying off credit card balances monthly is beneficial for credit scores, but it may not be feasible for everyone, especially those with high debt or low income; alternative strategies may be necessary.
- Automating bill payments is helpful, but it assumes that individuals always have sufficient funds in their accounts to cover automatic payments, which may not be the case for those with irregular income.
- The snowball technique for debt repayment is effective for some, but others may prefer the avalanche method, which focuses on paying off debts with the highest interest rates first, potentially saving more money over time.
- Side hustles leveraging existing skills are practical, but they may also lead to burnout if they are too similar to one's primary job; exploring new interests can provide a refreshing change and potential for innovation.
- Pre-assessing the profitability of a side hustle is important, but it can also be difficult to accurately predict market demand and success, which may discourage some from pursuing potentially rewarding ventures.
- The recommendation to focus on side hustles with direct impacts on income may overlook the long-term benefits of building a brand or creating passive income streams that may not yield immediate financial returns.
- The suggestion to keep living expenses below 70% of income is a good rule of thumb, but it may not be applicable in high-cost-of-living areas or for those with lower incomes, where essential expenses can consume a larger portion of income.
- Aligning financial strategies with life goals and values is important, but it may also be necessary to make financial sacrifices in the short term to achieve long-term stability or to invest in opportunities that don't immediately align with personal values.
- Allocating money towards what brings joy and meaning is subjective and may lead to different financial decisions for different people; what is meaningful to one person may not be to another, and vice versa.
- The idea that the purpose of learning finance is to enhance life's value may not resonate with everyone, as some may view financial knowledge as a means to achieve security or independence rather than as a tool for enhancing life's value.
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Saving Money
Why oversaving can lose you money
Tiffany Aliche discusses the concept of oversaving, explaining that when money is not actively being put to work, it’s effectively losing potential. She insists there’s a limit to how much one should save. Aliche advises that there should be no more than a year's worth of emergency savings; beyond that, money saved is not effectively growing.
Mel Robbins cites her daughter’s behavior as an example of excessive saving. She describes how her daughter works hard and hoards her earnings, which might indicate a fear of scarcity while paradoxically preventing her from enjoying the benefit of the money she has earned.
Aliche clarifies that savings are meant to provide safety rather than significant growth. Hence, any surplus funds above the advised one-year emergency threshold should be invested or put to wor ...
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Saving Money
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Clarifications
- The law of diminishing returns in economics explains how adding more of one input while keeping others constant will eventually lead to a decrease in the additional output gained. This principle highlights that there is a limit to the efficiency of adding more of a single factor in a production process. It does not mean overall production decreases but rather that the rate of increase in output diminishes as more of the input is added. This concept is crucial in understanding how productivity and efficiency can be impacted by changes in input levels.
- Opportunity costs represent the benefits foregone when choosing one option over another due to limited resources. It encompasses all potential gains lost by ...
Counterarguments
- While having more than a year's worth of emergency savings might seem excessive, some individuals may have personal or family circumstances that warrant a larger safety net.
- The concept of "enough" savings can vary greatly depending on individual risk tolerance, life stage, financial goals, and economic conditions.
- Robbins' anecdote about her daughter may not account for the psychological comfort and security that some people derive from having substantial savings, which can be a valid reason for saving more.
- The advice to invest surplus funds assumes that individuals have the knowledge and comfort level to engage in investing, which may not be the case for everyone.
- There are low-risk investment options that can still outpace inflation without exposing savings to significant market risk, which might be a suitable alternative for those hesitant to invest in more volatile markets.
- The law of diminishing returns primarily applies to investments and not necessarily to savings, as the primary purpose of savings is not to generate re ...
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Credit Score
Improving your credit score can have far-reaching benefits, from lower interest rates to easier approval for rental houses and jobs. Here are some strategies discussed by experts Mel Robbins and Tiffany Aliche for raising your credit score effectively and swiftly.
Tips for boosting your credit score quickly
Credit scores are influenced by a variety of factors, including payment history, amounts owed, and credit card usage. Here’s how you could potentially make quick improvements.
Pay off a credit card fully each month
One of the most effective strategies for boosting your credit score is to pay off a credit card in full every month. Mel Robbins speaks from personal experience, having transformed her financial habits from paying only the minimum on her credit cards to paying larger chunks and eventually the full balance. Robbins also suggests that after paying them off, it might be wise to cut up the cards to resist the temptation to overspend. Similarly, Tiffany mentioned that she faithfully paid off a card every month on her father's advice.
This approach demonstrates a pattern of reliability to credit bureaus. To utilize this strategy, use a credit card with a zero balance or pay a card off to a zero balance, and then choose an inexpensive recurring payment, like a Spotify or Apple subscription, to charge on that card. This ensures you have a manageable balance to pay off each month, showing consistent, responsible credit usage.
Automate bill payments from your bills account
Automation can be key to improving payment history, which is a significant part of your credit score, accounting for 35%. Tiffany Aliche advocates for using the automation of bill payments from a specific bills account. This habit helps avoid missed or late payments, which are detrimental to credit scores.
Furthermore, Aliche suggests using a credit card for recurring payments and then automatizing the pay-off of this card each month. This method ensures on-time payments and could potentially increase your score by confirming consistent, punctual payment behavior.
...
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Credit Score
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Clarifications
- The snowball method for reducing debt involves paying off smaller debts first before moving on to larger debts. By focusing on clearing smaller balances first, individuals can build momentum and motivation to tackle larger debts. This method can help create a sense of accomplishment and progress in debt repayment, leading to improved financial well-being over time.
- Credit scores are influenced by various factors, including payment history, amounts owed, length of credit history, types of credit used, and new credit inquiries. Payment history carries significant weight in determining a credit score, accounting for about 35% of the total score. The amounts owed on credit accounts, such as credit cards and loans, make up around 30% of the credit score. Other factors like the length of credit history, the mix of credit types, and recent credit inquiries also play a role in determining an individual's credit score.
- Managing credit card balances to improve your credit score involves strategies like paying off a credit card in ...
Counterarguments
- Paying off a credit card in full each month may not be feasible for everyone, especially those with high balances or financial hardships.
- Cutting up credit cards can prevent overspending but also limits the availability of credit in case of emergencies.
- Automating bill payments is generally beneficial, but it requires a stable income and careful account management to avoid overdrafts or insufficient funds.
- Using a credit card for recurring payments can be a double-edged sword if it leads to higher utilization and one fails to pay off the balance in full.
- The snowball method can be motivating, but some financial experts suggest the avalanche method (paying off debts with the highest interest rates first) may save more money over time.
- Focusing on the card with the smallest balance can provide quick wins, but it might not be the most cost-effective strategy if other cards have higher interest rates.
- While maintaining a history of time ...
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Side Hustles
Find side hustles utilizing your existing skills
Mel Robbins and Tiffany Aliche provide insight into leveraging one's existing skills to find profitable side hustles.
Robbins emphasizes the importance of understanding and asserting one's value when considering side hustles. She advises not to provide services such as coaching, real estate, haircutting, or dog walking for free, even to friends, as doing so can lead to feeling undervalued. Robbins encourages people who need extra income but cannot quit their jobs to look at side hustles.
Tiffany Aliche talks about making oneself valuable, much like Oprah, in order to command higher pay. She mentions that after losing her job, she looked for side hustles aligned with her degree or previous employment as a teacher. Aliche suggests using current qualifications, like a degree or certification, to command higher rates for your skills. Another tip is to choose a sideline connected to your current job to shorten the learning curve. Examples include a teacher providing tutoring services or a home health aide offering organizational services.
Do the math beforehand to calculate profitability
Aliche underscores the importance of calculating the profitability of a side hustle beforehand. This includes assessing potential costs such as initial i ...
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Side Hustles
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Clarifications
- Business cards are small cards bearing business information about a company or individual. In the context of side hustles, they are considered peripheral items because they are not directly related to the core service or product being offered. While business cards can be useful for networking and marketing, focusing on investments that directly enhance earnings, such as skill development or tools for the service provided, is often prioritized over spending on items like business cards.
- The strategic approach focusing on actions and purchases that visibly improve income means prioritizing investments and decisions that directly contribute to increasing earnings in a side hustle. This involves identifying and focusing on activities or expenses that have a clear and measurable impact on gener ...
Counterarguments
- While Robbins advises against providing services for free, there can be strategic benefits to offering free services initially, such as building a portfolio, gaining testimonials, or establishing a customer base.
- Robbins encourages exploring side hustles for extra income, but it's important to consider work-life balance and the potential for burnout when taking on additional work.
- Aliche's suggestion to align side hustles with one's degree or previous employment is practical, but it may not always lead to fulfillment or passion, which can be crucial for long-term success in a side hustle.
- Using current qualifications to charge higher rates makes sense, but it may not account for market demand or the competitive landscape, which could also influence pricing.
- Choosing a sideline connected to one's current job to shorten the learning curve is efficient, but it could also lead to over-reliance on a single industry or skill set, reducing diversification and potentially increasing risk.
- Calculating the profitability of a side hustle beforehand is wise, but projections can be inaccurate, and unforeseen expenses or mark ...
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Budgeting
Tiffany Aliche, known as the Budgetnista, stresses the importance of practical money management and budgeting for financial wellbeing. Mel Robbins echoes Aliche's sentiments and emphasizes the need for budgeting as a key aspect of personal finance mastery.
Create a money list: all expenses, amounts, income
Aliche advocates for the creation of a money list as the first step in managing finances. She advises listing all expenses to identify critical payments necessary for health and safety. The money list should also outline all sources of income, like jobs or alimony. Aliche emphasizes the importance of first listing out general spending categories, then assigning approximate monthly expenses using bank statements for a realistic view of one's financial situation. This is followed by tallying up all monthly income to provide a clear picture of financial inflow.
Categorize expenses: bills, usage, cash/choices
Expenses should be categorized to track efficiently, Aliche says. For instance, her father showed the family the light bill to encourage them to reduce expenses that were categorized based on usage. In controlling spending, Aliche recommends asking four questions: "Do I need it? Do I love it? Do I like it? Do I want it?" By answering these, individuals can priorit ...
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Budgeting
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Clarifications
- Tiffany Aliche, also known as the Budgetnista, emphasizes the importance of creating a detailed money list that includes all expenses and sources of income. She suggests categorizing expenses to track them efficiently, such as by distinguishing between needs and wants. Aliche recommends limiting living expenses to 70% of income to effectively manage finances and potentially allocate funds towards savings or debt repayment.
- To create a "money list," individuals list all their expenses and sources of income to understand their financial situation clearly. Categorizing expenses involves grouping them based on common characteristics like bills, usage, and personal choices to track spending efficiently. By asking key questions like "Do I need it? Do I love it? Do I like it? Do I want it?" individuals can prioritize their spending based on necessity and personal value. This process helps in managing finances effectively and making informed decisions about where to allocate funds.
- To use bank statements to assess one's financial situation realistically, you should review your statements to identify all sources of income and track your spending patterns accurately. By categorizing expenses and comparing them to your income, you can understand where your money is going and make informed decisions about budgeting. Analyzing your bank statements helps you see your financial habits objectively and adjust your budget accordingly for better financial management. This process provides a clear snapshot of your financial health and enables you to set realistic financial goals based on your income and expenses.
- Aliche recommends asking four questions when considering expenses: "Do I need it? Do I love it? Do I like it? Do I want it?" By answering these questions, individuals can prioritize th ...
Counterarguments
- The 70% rule for living expenses may not be feasible for everyone, especially those in high cost-of-living areas or with lower incomes.
- Categorizing expenses and creating a detailed money list can be time-consuming and may not be sustainable for individuals with busy lifestyles or those who struggle with organization.
- The four questions for prioritizing spending ("Do I need it? Do I love it? Do I like it? Do I want it?") are subjective and may not lead to the most financially prudent decisions for everyone.
- The advice provided may not fully account for the complexity of individual financial situations, such as variable income, debt obligations, or unexpected expenses.
- The emphasis on budgeting might overlook the importance of earning more income as a strategy ...
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Life Purpose
Align money systems to what provides meaning
Robbins and Aliche delve into the concept of linking finances with personal values and the quest for meaning in life. They recommend aligning money systems with what genuinely provides a sense of purpose, such as the ability to travel or to spend less time working and more time with loved ones. Aliche speaks about the importance of spending on "loves" which are expenses that bring deep joy and will be memorable long-term, like her meaningful trip to Johannesburg. The discussion highlights that money should be viewed as a tool for spending that resonates with one's personal values and facilitates lasting happiness.
Use money to enable connection, family, purpose
Tiffany Aliche stresses that the objective of learning about finance extends beyond accumulating wealth; it's fundamentally about finding and enhancing life's meaning. According to Aliche, it's crucial to focus on true ...
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Life Purpose
Additional Materials
Clarifications
- Robbins and Aliche are financial experts known for their work in personal finance and empowerment. They emphasize aligning financial decisions with personal values and finding meaning in how money is used. Aliche, also known as "The Budgetnista," focuses on helping individuals achieve financial w ...
Counterarguments
- Aligning money systems strictly with personal values may not always be practical, as financial stability and security are also important considerations that might require compromise.
- The concept of spending on "loves" could lead to justifying unnecessary expenses, potentially undermining financial discipline and long-term security.
- Viewing money solely as a tool for personal value alignment might neglect the importance of saving for unforeseen circumstances or investing for future needs.
- The emphasis on using money to enable connection and purpose may overlook the fact that some individuals find meaning in the pursuit of wealth or financial success itself.
- Focusing exclusively on true desires like quality time with loved ones might not be feasible for everyone, especially those in challenging economic situations who must prioritize basic needs.
- The idea that money should only support key elements in life could be seen as idealistic and not reflective of the co ...
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