The Downsides to ‘Extreme’ Personal Finance

You’ve seen the headlines:

One recent graduate repaid $100,000 in student loan debt by living off ramen noodles and selling plasma.

A young couple managed to retire at 35 by living rent-free in a camper and growing vegetables.

A family sold its belongings and traveled the world, using just credit card points and an app for working odd jobs.

There are dozens of blogs, books and articles dedicated to people who’ve used extreme methods to reach their financial goals. And while the stories and strategies these hardcore budgeters use can be inspiring, experts recommend thinking twice before mimicking their lifestyles. “These are sensational,” says Douglas Boneparth, president of Bone Fide Wealth in New York City and co-author of “The Millennial Money Fix.” “At the very worst, it’s clickbait.” In other words, they’re flashy headlines, not an illustration of sustainable and accessible financial lifestyles. Plus, he says, they may gloss over how certain privileges, such as parental help, make these goals possible.

But at their very best, Boneparth adds, these profiles can provide you with a few practical lessons for your financial life. So here’s how to separate out the valuable advice from the junk – and understand the downsides of extreme personal finance.

The strategies don’t tend to illustrate a balanced financial plan. Homing in on one aspect of your finances – debt, early retirement, extreme austerity – can come at the expense of the rest of your financial life.

“If you are laser-focused [on a financial goal], it does help you accomplish that goal faster, but it does cause you to lose track of everything else,” says Phillip Christenson, chartered financial analyst and financial advisor at Phillip James Financial in Plymouth, Minnesota.

For example, if you’re throwing every spare dollar toward your student loan debt, you might not be fully funding your emergency savings account. That could be problematic if an unexpected medical bill or job loss requires you to have liquidity. Perhaps you might have scored a better return investing that money in a retirement account while repaying your student debt on an income-driven repayment plan.

Or say you’re sewing your own clothes, working an extra 20 hours per week at a side hustle and refusing to go out for lunch with your co-workers in order to save money. That’s great for your budget, but you might be jeopardizing your ability to get a promotion at work.

Focusing on one part of your financial life without taking in the full picture is typically a misguided tactic, experts say. “I like recommending a more balanced strategy in all aspects,” says Roger Ma, certified financial planner and founder of lifelaidout in New York City. That includes considering retirement savings, insurance needs, emergency funding and other aspects of a well-balanced financial plan.

It might not fix the root of the problem. Sometimes these extreme stunts fix the symptom of a financial problem, but they don’t cure the underlying cause.

For example, if you’re trying to repay debt extremely quickly because you ran up a credit card bill, that’s a good first step. But don’t let a few months of intense debt payoff replace real, sustained change to how you use credit cards to avoid that problem in the future.

The same thing goes if you’re obsessively budgeting in order to retire at age 35. Consider whether this blinding focus is a reaction to working in the wrong field or for the wrong company, not a desire to leave work altogether. Perhaps a making career change or heading back to school is a more practical solution.

“Do the hard work now of figuring out what’s going to be a sustainable financial plan and start building those good habits,” Ma says. “You might not get these short-term wins that you can write about, but you’re going to be building long-term success for yourself.”

You may be asking your family to go along with you. Focusing on an extreme financial goal is hard enough, but remember that you may also be asking your family members to join you on this journey. Even if you have the stomach to eschew all luxuries for a few years in order to a meet a goal, question whether your spouse or children will be up for the challenge.

For example, research has shown that children form money habits as young as age 7, says Shannah Compton Game, certified financial planner and host of the podcast “Millennial Money.” “If a child is witnessing extreme personal finance at a young age, that influences them down the road,” she says. Do you want your kids’ views and understanding of money to be so extreme? Can you teach them moderation without sacrificing the experiences, trips and education they need to develop and learn?

Expect the unexpected. Consider what an unexpected pregnancy or illness might do to your extreme financial plan, experts say. Good financial planning requires accommodating for shakeups such as personal changes, market disruptions and political upheaval, which can impact your financial health.

For example, if you manage to retire from the job market at age 35, that’s a great accomplishment. But what happens if a family member’s illness causes you to need to work again at 45, and you’ve been out of the job market for 10 years? What if you don’t get the government benefits you were expecting? What if your investments take a hit? Experts recommend developing financial strategies that can continue to function even when your plans change.

Suss out the good advice. Experts note that there are valuable takeaways from these stories of extreme debt payoff, savings and other financial strategies. They tend to preach budgeting, show anti-consumer lifestyles and teach readers to understand the basics of personal finance. Take away those helpful lessons, experts say, and ignore the headlines.

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