Money is naturally a factor that drives our professional and personal lives. In some cases, it can even become obsessive. Fortunately, there are simple and effective ways to get rich without jeopardizing your savings and without entering a spiral of unhealthy obsession. A Harvard economist reveals his golden rules for better managing your money.
The rules of Laurence J. Kotlikoff to better manage your money
Laurence Kotlikoff is professor of economics at Boston University. He is also the president of Economic Security Planning and a bestselling author published in the New York Times. His columns, articles and books cover personal finance, climate policy, inequality, tax reform, Social Security, banking, robotization, growth and many other topics.
His company produces the most powerful personal financial planning tools in the world. He wrote the book Money Magic: An Economist’s Secrets to More Money, Less Risk, and a Better Life. In 2014, The Economist named him one of the world’s 25 most influential economists.
His advice is based on real expertise and deep reflection built over several years. Not all of these principles will necessarily resonate with you, but it is still important to have guiding principles on hand to help you manage your money and ensure your financial security. Without further ado, here are the golden rules to apply according to Laurence Kotlikoff to better manage your money.
1. Avoid going into debt for your higher education
It’s tempting to go into debt to finance your studies, but according to Laurence Kotlikoff, it’s not a very good idea. He explains : “It’s way too risky and expensive. I’m not saying it’s easy though. I am a professor at the university. But you can get a good education without mortgaging your future and potentially ruining your career plans. Simply research scholarships and apply to less expensive, although generally less prestigious, institutions. »
Compared to the United States, where the total amount of student debt reached $1.5 trillion in 2018, French students do not carry as much debt to finance their higher education. In addition, numerous scholarship schemes allow students to find financing alternatives.
2. Become an owner instead of a tenant
According to Laurence Kotlikoff, you must become an owner and not a tenant. Investing a good part of your money in real estate is a way to shelter it from taxes. The finance expert details another reason: “Let’s say you’re 70 years old and you’ve found your dream place. By renting for the rest of your life, you run the risk of a rent increase with no possibility of an increase in your fixed income. On the other hand, if you are a homeowner, house prices may skyrocket or collapse, but you will be protected and it will not affect you. »
You don’t need to buy a million dollar home, you just need to have a solid structure and buy in a promising area.
3. Choosing a job that everyone hates except you
People who work in unpleasant or stressful jobs are generally better paid than those who, with equal skills, work in jobs that do not have any of these disadvantages. Economists call this additional compensation a “ compensatory differential“. To benefit from it, you need to find work that you’re passionate about and, ideally, that others don’t like.
4. Start your own project
Working in a company that is not yours can be compared to being a tenant. Like if you rented an apartment or a house and the rent was more expensive than the landlord’s repayment credit. Result ? Your employer is much more profitable than you. If you pay rent of 500 euros and the owner repays a loan of 400 euros per month, he earns 100 euros per month and on top of that he owns the apartment. You thus contribute to enriching someone else’s projects.
Being employed in a company not only means sacrificing the most valuable thing you have, your time, for the least efficient way of making money, but it also means helping to build something which does not belong to us, in a structure from which we can be ejected overnight, without benefiting from everything we have brought to this company, apart from the experience we have acquired. It is best to follow an entrepreneurial approach, even if it involves certain risks.
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How do the biggest billionaires manage their money?
Money is a subject that inspires a large number of businessmen. If Bill Gates firmly believes that it is important to invest like an optimist and save like a pessimist, it is because at any moment, life can be turned upside down. He also paid the price, given that he made a mistake that cost him $400 billion. His advice is therefore well-founded and is not the result of chance.
We can also take the example of Warren Buffet who underlines: “I’m not interested in cars and my goal is not to make people envious. Don’t confuse cost of living with standard of living. » It’s very hard to imagine, but, despite the fact that Warren Buffett is one of the richest people in the world, he has always insisted on living below his means in order to prioritize investing. This is a winning strategy, since he will be sure to increase his wealth and never declare bankruptcy. Furthermore, Warren Buffett lives in the same house that he bought in 1958 for the modest sum of $31,500.
Warren Buffett and Bill Gates are not the only ones to follow this strategy. Mark Zuckerberg also values his money and lives a minimalist life. We therefore conclude that the greatest riches in the world are those who spend the least. Many studies show that these particular people favor frugal living and don’t go out of their way to buy designer brands. Perhaps this is precisely why they maintain their fortunes.
