Opinion: Everything wrong with Graham Stephan’s financial advice
Graham Stephan, 30-year-old financial guru on YouTube, impulsing a wave of financial freedom across millennials. Is his advice any good though? I don’t think so
Graham promotes a frugal, simple lifestyle. He is known in fact, for his extreme frugality. Roth IRA’s, 401k’s and credit cards are among his favorite financial instruments. Investing in the stock market and cryptocurrency’s are two of the newest additions to this list.
Let’s demystify Graham Stephan
Frugality, defined as the “careful management of material resources and especially money”. Now granted, this sounds sensible. Avoiding unnecessary, especially lavish purchases such as Gucci or Louis Vuitton $1000 purses while in thousands of dollars of credit card debt, might not be the smartest decision. However, frugality to the extent Graham promotes and lives by, involves not going out to dinner for fear of spending money, waiting for the fridge to be empty to go grocery shopping, buying only the ‘Manager’s Special’ — 25% discounted food at Ralphs due to close expiry date — or not buying trash bags and instead using free plastic bags given at the supermarket. I have to admit, that these are handy tricks for someone who is struggling to reach ends meet or is trying to save money to pay down debt, but Graham Stephan’s net worth is $6.5 million dollars! Surely he can afford $2 trash bags.
In one of his recent videos titled, “Millionaire Reacts: Why ‘Money Disorders’ May Be Ruining Your Budget” posted on his second channel 'The Graham Stephan Show', Graham admits that his obsession with cost-efficient spending fits the described money disorders by CNBC.
As a concept, I am not against frugality and cost-efficient spending. I am a fan of it and try to practice it in my day-to-day life, however, Graham is at a whole other level. He has pushed it too far to one side, and as a viewer, you should be aware of that and not feel guilty for a Starbucks coffee here and there. There is no space to enjoying life within Graham Stephan’s frugality.
Debunking Roth IRAs, 401k’s, credit scores, pension funds, etc.
I’d venture to say that most of Graham’s viewers are financially responsible people, or those aiming to be, who found an energetic young guy who looks like he has his sh*t together to give them advice. That’s how I found him. I would say that these financially responsible, motivated people strive to improve their financial situation and have financial freedom.
Let’s not forget that as an influencer and real estate investor, Graham is basically an entrepreneur. He does not have a 401k plan since he is not employed by a firm. Retirement plans and 401k’s are instruments for people locked in the system. A system that encourages life-to-work, 9–5’s, and enjoyment of life during the last decades of your life after 40+ years of slavery and devotion to the system. By indirectly encouraging people to invest their hard-earned dollars into such instruments, Graham is financially strapping his viewers to the system. The more money tied up in such instruments, the less financial freedom.
The viewers watching financial channels on YouTube, already have the seed planted in them to become entrepreneurs, to strive for financial freedom. Graham has the platform to ignite that in them and push them to become their own boss. Instead, he encourages that you lock your savings into Roth IRAs and 401k’s so that sometime in the future you’ll get to enjoy retirement.
Why not encourage people to instead of dumping their savings into the hands of bankers who will loan it out to families at crazy interest rates, invest this into their dream business? Become entrepreneurs, work for yourself, travel, see what opportunities there are around the world and find your place, your people, and your entrepreneurial journey?
Grahams real estate investing journey
I have to give it to him, he’s a successful guy when it comes to real estate. Starting at 18 with no help or college education and finding himself 12 years later with an amassed fortune in real estate, sure sounds like anyone’s dream.
Many think that Graham Stephan, Kevin Paffrath, and others, have created a new, revolutionary borrowing formula to invest in properties and earn passive income. Untrue. Robert Kiyosaki, you may have heard of him, is the father of buy-to-rent borrowing and the principles behind it. His book titled “The Real Book of Real Estate: Real Experts. Real Stories. Real Life” is full of tales, tips and principles to succeed with his formula. So far, Graham and other millennials following Kiyosaki’s footsteps are doing alright, but it is widely unknown that Kiyosaki’s formula has brought bankruptcy to millions.
How does it happen?
The basic idea is going to the bank and borrowing to buy a property which you will fix up and rent. Let’s say you buy a $100,000 home that is beat up. Market value once it is fixed could reach $150,000, and it will cost you $20,000 to fix it up to a good standard. You estimate based on rents in the area that you can get $1600 a month, and your mortgage is $1300 a month. Sounds like a good deal right? Costs are $120,000 and you gain on appreciation value $20,000+ and $300 monthly on rents.
Things get messy when a market crash like the one in 2008 brings the home value down to $80,000. Rents fall and you are now getting $900. You are now struggling to cover the extra $400 mortgage that rent is no longer covering, on top of your own home mortgage and expenses. You can’t afford it. You decide to sell the house and manage to get an offer for the asking price of $80,000, but you bought it for $100,000. The result is that you’ve lost $20,000 and gone into debt. Not great.
In cases such as Graham’s, where this scenario multiplies by 10 properties and many thousands of dollars, things could go really wrong.
I still think Kioysaki’s formula is valid, and could work to get many people off their feet and start building real wealth, but you must be aware that his can happen and does happen.
My conclusion on Graham Stephan
I am a real fan of his. Most of his advice, transparency, and bluntness about finance I love, but it gets me to think that there are a few important things that if followed could get people into real trouble.
At the end of the day, money and one’s financial situation is very different from case to case, and whatever you think is right to do with your money, is right, because it is your money, and neither Graham nor anyone can say otherwise.
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