Recently, a few articles posted on CNBC interviewed a few “rich people” who gave their advice to the graduating class of this year. The articles were retweeted by a long-time travel blogger which triggered what were most likely emotional responses from others. After all, all these people are debt-free or travelling, etc., but a look through any number of successful bloggers and you’ll see a few themes running through them: how they got fired or were made redundant, got divorced or broke up with a significant other, or simply hated working an office job and decided they only have one life to live and needed to do travel now.
What’s you’ll also see, however, especially among the money-making crowd, is just how much time and energy it took to build their platforms or their brand, efforts that the “rich people” in the articles could probably relate to. In others words, the criticisms being levelled at these “rich people” apply to just about everybody who wants to create something significant, if not just financially, then for their own pride.
But many of these responders had the benefit of hindsight, that is, they’ve spent years doing other things, but what about those who are about to graduate from university?
One of the “rich people” interviewed was Kevin O’Leary and I thought his advice wasn’t all that bad (which was “don’t take a gap year, get a job instead”) but it may need some qualification, and that’s what I intend to do below.
The first is about finances, particularly saving money, not just by not spending it, but by investing it. It’s only recently that central bank interest rates have risen and now sit at roughly 2.50% in Canada, lower in other parts of the world. Ask any “rich person” and they’ll say that 2.5% is pretty much useless. Why? Because inflation (the usual cost of the things you buy) generally goes up by 2% per year. That means that keeping money in the bank has seen only a negligible return. Yes, it does compound over time (which is what the “rich people” like) but at 2.5%, you’ll need to be putting a lot away at one time.
However, for the last few years money was better to be deployed, which is what the central banks wanted, and what “rich people” did. (You can also ask them about stock buy-backs, a topic that has popped up from time to time in the last few years.) Houses rose in value more compared to the markets and most other investments but, now, as you can see, if you try to buy a house, they’re insanely expensive.
Any smart rich person does a few things with money: puts it where it can grow best, borrows at low rates, and often uses other people’s money to fund big projects (again, look at how the stock market is structured and how other partnerships and join ventures are put together). This “zero interest savings” idea is a detail that takes some time to appreciate and runs in direct contrast to the “get out of debt” argument, which leads me to my second point.
Second, the idea of paying off debt is that the interest on that debt accumulates (usually much higher than the current savings rate) and, in theory, you could be doing something else with that money. This is true, but you’d have to ask yourself what else you would do with that money. Again, 2.5% compounded, yes, it’s a start, but you’re not paying off student debt with those savings.
If you told anybody (especially any rich person) that you are carrying a balance on your credit cards, they would gasp and tell you to immediately pay that thing off, stop spending, whatever you’re buying isn’t worth the 24% interest you’re being charged. Unless, of course, you aren’t being charged 24% and, instead, are being charged something lower, such as 0.99% (plus a 1-3% administration fee of the borrowed amount). These low-interest balance transfers, as they’re called, were made possible by the low interest rates of the last decade. They didn’t have this 30 years ago when a lot of these “rich people” were in their 20s. Having credit card debt by in the 1980s was a really big problem but now? It doesn’t seem like it so much of an issue (hey, even the banks got bailed out, right?)
Now, to be fair, learning about balance transfers, etc. does require some knowledge of how to move money around and to build credit at the same time, which is usually done during university and with that first credit card. Keep in mind, if you can’t pay off the whole balance at once, then you should be making more than the minimum payment that the card-issuer gives you.
So, to tie the second point with the first point, again, borrowing money at a cheap rate and deploying it where it will grow best. If you were to ask any of the “rich people” about their best investments, most if not all would at some point say they invested in themselves, whether it was a university education or job education. And that’s where this idea of a gap year can come in. So let’s look at that.
The third point, then, is that a “gap year” doesn’t have to mean a vacation. It can mean an opportunity to do a working travel visa in another country, the premise of which are that you are coming to the country to pick up odd jobs in order to see the country and experience the culture in an effort to enable young people to develop in a broad fashion, not just to make money. When I was in Australia it was the “tradies” and machine operators that found jobs quickly followed by women who could tend the bar (and keep customers buying).
So, borrowing money cheap (balance transfer) to invest in your yourself (plane tickets to Australia) to do something you both be proud of (seeing the world) and can make money (such as taking a course in a trade of some sorts or even an ESL certificate, such as the CELTA), and now this gap year is starting to make sense.
So what does O’Leary have against it?
O’Leary’s point is that he’s not going to fund and he certainly wouldn’t encourage anyone to take an extended vacation after they have just accumulated thousands of dollars in debt, especially if that degree isn’t going to get you a job right away, such is the case with the Arts. If you have no debt, then you’re ahead of the game, good on you, but you still need to get a job, which is true no matter what.
If you’ve ever read his books (which I’m assuming that just about none of the commentators had done so), he is quite frank about where to cut costs and how to pick jobs or careers. He tells of his own decision to move away from photography after he’s told they only make $20,000 a year, if that. He also encourages people to find jobs that they can learn something from (though maybe this is just sensible job advice, and not necessarily his). As for cutting costs, he says it outright that, if you want to make money, become a plumber or some sort of trade. They’re always in demand and you can work anywhere. These are also skills and jobs that can be done while travelling.
But do you have to become a plumber? No, but you could certainly look into it. Some people literally can’t deal with it.
So what should you do? Let’s look at that.
Our current world allows and enables us to work much further and from anywhere than for any other generation. If O’Leary’s kids had said something like “Dad, I’m going to travel for a year and work online to support myself,” he’d probably ask what sort of business they’d try to run online. If they said something like “travel blogging” he’d rightfully roll his eyes and say, “Oversaturated. And anyone can do it. How will you make money?” And then the conversation could go into the various ways of monetizing the blog:
- photography and videos (dime a dozen, everyone has a camera on their phone these days),
- courses (what will you say that can’t already be seen on YouTube?),
- an ebook (who’ll publish it?)
- self-published (margins are slim, at best),
- podcasts (not for money, it’s for marketing purposes),
- gig-work, such as on fiverr, etc. (doing what, and how will you stand out from the rest?)
- I’ll offer my own services (so then why start a blog and why can’t you do that where you are right now?)
And on the conversation would go until it would become painfully obvious that it’s not that easy to just set up a business online, make money and travel the world. If it was, everyone would do it. Sure, lots of people say they’re making money online, but they’re often picking up other work along the way or travelling off of savings until the blog generates cash flow.
But what about that plumbing idea, or becoming a “tradie” of some sort? Hmmm, so now we’re borrowing money cheap (balance transfer), investing in ourselves (taking a plumbing course), travelling (bucket list-life-is-too-short item), learning another skill (how to blog) as we go and making money not just from our own handy work (trade work), but from what we think, know and teach (through online content creation). It’d be tougher to say no to that sort of planning.
In the end, the idea is to get to work to start making money, not just loaf around. When you get to work (anywhere, for that matter), you start making money not just to have it, but to learn how to use it because it is a tool and a skill that you will use throughout your life. It’s not a one-off, it’s a life-long skill to develop.
So take the gap year, just make sure you’re making it worth your time, money and effort, in every sense of those words.
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Curious what the original article had to say? Now that you’ve read my take on it, go ahead and read it for yourself. What do you think?
https://www.cnbc.com/2019/05/29/shark-tanks-kevin-oleary-on-taking-a-gap-year-are-you-kidding.html
And if you’d like a bit more of an upbeat take on what Kevin O’Leary does, take a look at this video describing what he does on Sundays:
https://www.cnbc.com/video/2019/05/31/kevin-oleary-this-is-my-sunday-routine.html?
I’ve read O’Leary’s books and they’re great reads for general financial advice. I even wrote about them in my post about learning about investing. They’re not trading books (that’s a slightly different skill set) but they will get you thinking on how you’re spending your money and what you’re doing with the money you have.