Why being a millionaire should never be your goal

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Most personal-finance gurus sell bad, all-or-nothing solutions that have little bearing to reality.

Eliminating coffee is not realistic. Canceling your credit cards is not realistic. These sorts of things help people form an unhealthy relationship with money.

As for leading a stress-free financial life, there are two main sources of stress: debt and risk.

The core of my message:

• The goal is not to be a millionaire, but to lead a stress-free financial life.

• You get there with a handful of big decisions, not a million small decisions.

This leads to happiness.

Becoming a millionaire is not realistic for a lot of people, and if they try really hard to get there, they will be unhappy in the process. Because most personal-finance gurus tell you that you can cut your way to being a millionaire. And that is what people do.

In my experience, the problem of not having enough money is usually solved with … more money.

So I have a different focus than most personal-finance gurus. My advice is to concentrate on the top line, not the bottom line. Sure, cutting expenses is still important, but not to the point where you are setting your thermostat to 86 degrees in the summer.

A lot of people think that once they get to a million dollars, all their problems are solved. Frequently, having a million dollars creates more problems than it solves.

Different kinds of problems, of course. It’s not a magic number. The James Bond theme doesn’t play when you get there.

One thing that bothers me is people who spend their entire lives accumulating assets, but get into the second half of their lives and never decumulate assets.

Yes, I’m a fan of saving money — in the first half of your life. And then I’m a fan of enjoying it. I don’t think there’s a guru out there who tells you to spend money. Under certain circumstances, you should. In fact, as I discussed recently, there are some pretty big macro reasons why you should have a bias to spend, rather than to save.

As for leading a stress-free financial life, there are two main sources of stress: debt and risk.

Debt is to be avoided at all costs. As for risk, well, stock markets SPX, -0.13%  do occasionally go down, so the key is to not have so much exposure that you would do something stupid if it did.

Nearly everyone has too much exposure for their risk tolerance. I spend a lot of time talking about our nation’s obsession with stocks and our complete failure to understand how volatility affects decision-making.

A few big things

People get themselves in trouble with money in three big ways:

1. Mortgages

2. Car loans

3. Student loans

If you get a $350,000 mortgage instead of a $250,000 mortgage, you will spend about $80,000 more over the life of the loan.

That’s a lot of coffee.

If you get an $80,000 Chevy Silverado with 100% financing, that is a lot of interest. Same if you lease a BMW.

That’s a lot of coffee.

And, of course, if you’re 18 and you sign your life away to pay for college, you’re in even bigger trouble.

If you don’t do those things, you will be in pretty good shape.

The personal-finance gurus talk about this mythological person who runs up their credit cards at department stores, and yes, that exists, but it is less common than people think. People are better about credit cards these days. And most people pay way more in car loan or mortgage interest than they do in credit card interest.

I am a big-picture guy. I have always focused on the big picture.

I also have an understanding of human nature. People can easily give up big luxuries — they can drive a cheaper car — but they cannot give up small luxuries. It is asking too much.

Common sense

I recommend common-sense solutions. This is America. Usually there is no shortage of common sense, except in personal finance, where people propose insane things all the time.

I grew up lower-middle class and do pretty well financially today. Mostly, this is because I focused on the revenue side and kept the big picture in mind.

Jared Dillian is an investment strategist at Mauldin Economics and a former head of ETF trading at Lehman Brothers. Subscribe to his weekly investment newsletter, The 10th Man.

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