Money is naturally a factor that drives our professional and personal life. 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 a professor of economics at Boston University. He is also the president of Economic Security Planning and author of bestsellers 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 more.
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 25 most influential economists in the world.
His advice is based on real expertise and deep reflection built up over several years. All of these principles will not necessarily resonate as obvious with you, but it is still important to have guiding principles at your fingertips 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 far 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. Just search for scholarships and apply to less expensive, though usually 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 have as much debt to finance their higher education. In addition, many scholarship schemes allow students to find funding alternatives.
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2. Become an owner instead of a tenant
According to Laurence Kotlikoff, you have to become an owner and not a tenant. Investing a good portion 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 and you’ve found the place of your dreams. By renting for the rest of your life, you run the risk of a rent increase without the possibility of increasing your fixed income. On the other hand, if you are a homeowner, house prices can skyrocket or crash, but you will be sheltered and it will not affect you. »
It is not necessary to acquire a house costing a million dollars, it is enough to have a solid structure and to buy in a promising region.
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3. Choose 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 present any of these disadvantages. Economists call this additional compensation a “ compensating differential“. To take advantage of it, you have to find a job that you are passionate about and, ideally, that others do not like.
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4. Start your own project
Working in a company that is not yours can be compared to being a tenant. Like if you were renting an apartment or a house and the rent was more than the landlord’s refund credit. Results ? Your employer is much better off than you. If you pay a rent of 500 euros and the owner repays a credit of 400 euros per month, he earns 100 euros per month and in addition he owns the apartment. You thus contribute to enriching the projects of someone else.
To be employed in a company is not only to sacrifice what one has most precious, his time, against the least efficient way of earning money, but it is also to help build something which does not belong to us, in a structure from which we can be ejected overnight, without benefiting from all that we have brought to this company, apart from the experience that 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. Moreover, he paid the price, since he made a mistake that cost him 400 billion dollars. 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 aim is not to make people envious. Do not confuse the cost of living with the standard of living. » It’s very hard to imagine, but, despite the fact that Warren Buffett is one of the greatest riches in the world, he has always insisted on living below his means in order to favor investment. It is a winning strategy, since he will be sure to increase his wealth and never declare bankruptcy. Moreover, Warren Buffett lives in the same house he bought in 1958 for the modest sum of 31,500 dollars.
Warren Buffett and Bill Gates are not the only ones to follow this strategy. Mark Zuckerberg also values his money and leads a minimalist life. We thus remember that the greatest wealth in the world is that which spends the least. Numerous studies show that these people in particular prioritize frugal living and are not fun buying designer brands. Perhaps this is precisely why they maintain their fortunes.
Read also: The ranking of the 20 richest men in the world in 2022