Fatal money mistakes you might be making

On The Agenda

1. The 4-day work week is here to stay

2. The who, what, when, where, and how of life insurance ^LUMINARY

3. How we measure inflation really matters

4. All the sources of inflation in one chart ^LUMINARY

5. Fatal money mistakes most people are making

6. HYSA Leaderboard and a complete Personal Finance Flowchart ^LUMINARY

This Week’s Breakdown

Jon explains why the 4-day work week is getting support from an unlikely place, Nate rants about the insurance scams that are running rampant on TikTok, and Bennett breaks down inflation to understand where we’re feeling the squeeze most.

The 4-Day Work Week is Here

From Jon Scott, Lead Author 

Will America see a 4-day work week? Well, nearly 900 school districts will. Thanks to a national teacher shortage, school districts—especially rural ones—are struggling to find enough teachers to staff schools.

Why does this matter?

Schools that announced the switch to a 4-day work week saw their applications dramatically increase. Apparently, workers are much more willing to apply to a job requiring only 4 days per week—who would have thought?

In fact, a study in the UK on employees working a 4-day work week found a 71% decrease in worker burnout, a 39% reduction in stress, and workers reported a 73% percent increase in satisfaction with their lives.

For any business owners listening, the companies in this study found revenue largely stayed the same and even grew in some cases compared to before adopting the 4-day work week.

The switch to a 4-day work week and schools also presents the fact that someone needs to take care of these children, and adopting a 4-day work week to match a 4-day school week due to the fact that parents are footing the bill for additional childcare caused by the day off.

Jon Luminary  ^{LUMINARY SECTION}

While an Indexed Universal Life Insurance Policy is likely not the best policy for most of us (as Nate explained in the Video Breakdown this week), there is a benefit to having some sort of life insurance that provides benefits for you and those around you in the case of a tragedy.

Figuring out exactly which policy and how much coverage is appropriate is the challenging part.

In this article, we break down the who, what, where, and how of choosing the right life insurance policy.

Measuring Inflation: PCE vs CPI

From Bennett Fees, Economic Research Associate

I have written about specific and widely used measures of inflation like CPI, PCE, trimmed-mean variants, and Jerome Powell’s preferred measures but it’s easy to forget the key differences between the two primary indexes of prices paid by consumers to measure inflation: the Consumer Price Index (CPI), released by the Beaurau of Labor Statistics and the Personal Consumption Expenditure (PCE) price index released by the Bureau of Economic Analysis (BEA).

The BEA differentiates them in four effects:

Formula - CPI and PCE use different index formulas with the PCE better reflecting consumer substitutions given relative price changes

Weight - The weights of CPI and PCE categories come from different sources. CPI from a survey of consumer expenditures and PCE from business surveys.

Scope- CPI measures expenditures of households while PCE includes goods and services consumed by households and on behalf of households (think employer-financed health care)

Other- All remaining differences in measurements of specific categories, seasonal adjustments, and more.

All these differences are compiled in the following chart:

So what should you remember?

• PCE inflation is typically preferred by academic economists

• “Core” PCE or “Core” CPI removes the more volatile food and energy categories

• The biggest areas of difference come in specific categories like owner’s equivalent rent and hospital services

• Inflation is in the eye of its index, and to never take for granted its construction!

5 Fatal Money Mistakes You’re Probably Making

From Nate Hoskin, Founder & Lead Advisor

1. Living On Borrowed Money

The most common mistake people make is living on borrowed money. Most Americans only have $1,200 a month they can spend after all of their basic expenses, but the average car payment is $725, credit cards are $181 a month, and student loans are $393 a month.

So just like that, most Americans are $99 behind every single month because of their relationship with debt.

2. Paying Off The Wrong Debt

If you’re already in a debt spiral and want to get out as quickly as possible, it’s tempting to start just throwing money at your debt, but it’s essential to avoid the second money mistake: paying off the wrong debts.

Not all debt is made equal and some debt can actually be helpful. A good paydown strategy means having a priority list. If you want to start small and build up speed, you can use the Snowball Method to get some quick wins and free up even more money to use towards your other debts. If you have some debts with higher interest rates than others, you can use the Avalanche Method instead. This will prioritize debts with higher interest rates first.

Regardless, focusing on one debt at a time while paying the minimum on everything else is the best way to go.

3. Keeping Too Much Money In Cash

Cash is not king. Cash has lost 95% of its value since 1930 while the stock market has gone up 615,041%.

Now that doesn’t mean you shouldn’t have ANY cash, the rule of thumb is to have 3-6 months of expenses saved in a High Yield Saving Account (HYSA). The rest of the money that is saved can be invested in a number of ways, this is a general priority list for how that money can be saved instead.

i. Emergency Fund (3-6 months of expenses)

ii. 401(k) Match

iii. Roth IRA or Backdoor Roth

iv. 401(k) up to 10% of salary

v. Taxable Brokerage Account

vi. 401(k) up to the maximum

4. Not Taking Taxes Seriously

If you could get a 10% discount on life, that would probably help way more than getting good returns on investments or trying to save every penny. That’s why taking taxes seriously is one of the best ways to set yourself up for financial success.

This can take a lot of forms. Whether it’s claiming your student loan interest as a tax deduction, using your 401(k) to turn $22,500 into tax-free money, or putting credit card cashback into your Roth IRA so it goes in tax-free.

These little changes can turn into thousands of dollars saved every year, which is money that can now work for you.

5. Not Having a Plan

The easiest way to ruin your finances is by pretending they don’t exist.

Avoiding looking at your bank account, or credit score, or not opening mail can keep you in this loop of owing too much money and making too little.

Money avoidance can also prevent you from asking for a raise or looking for a better job, which causes you to miss essential opportunities to make more and have a fulfilling career.

Having a financial plan and someone to hold you accountable makes the hard work you’re already doing that much more effective. Instead of living for your next paycheck, you get to buy back your time and peace of mind.

We write this newsletter to give everyone the building blocks of a sound financial future, but we provide comprehensive financial planning for those who are ready to master their finances.

Subscribers get $100 off financial plans!

Using Reddit to Chase Financial Freedom ^{LUMINARY SECTION}

For this week I have two essential tools you can use to work towards financial freedom and I found them on Reddit.

If you want to know exactly where your next dollar should be saved or spent, you’re going to love the complete Personal Income & Spending Flowchart we have this week.

If you want the absolute best High Yield Savings Accounts and what it takes to get a 5.50% interest rate on your cash, you’ll want to see the HYSA Leaderboard.