Personal Finance Lessons for Technology Professionals(troyhunt.com) |
Personal Finance Lessons for Technology Professionals(troyhunt.com) |
But you don't want to be rich as much as you want to be wealthy. And that isn't just about money. My friends in other industries didn't make as much in their twenties, but the are relatively wealthy in their thirties. Their career, prospects and family life is generally better than my friends in the tech industry.
The whole article is basically all the other things you should do and manage to try to become successful. Most of it unrelated to technology. That isn't wealth in my book, nor is it happiness.
From my experience, the happiest people I know never show off their wealth or put a lot of value on materialistic things, because they just see them as a way of means, not the end goal itself. Troy has a more traditional/conservative/old school outlook on life where the wealth is the end goal itself and the definition of happiness (to him).
A person with modest material desires can feel very wealthy with only a modest amount of money. It is more than they ever need to be happy. They may be inspired to donate the excess to help others.
Another person can be making silly amounts of money but it is never enough, never feels like an abundance to them. They grasp for more, become ever greedier, needier. Despite having vast amounts of material things they are actually the opposite of weathy.
The only thing money can really do is buying opportunity, and it is extremely subjective which opportunity makes one happy. An old person coming from a different time finds the opportunity to drive a loud car which makes a lot of noise and burns a lot of fuel to accelerate quickly from 0 to 100 a "pleasure", whilst other people find the opportunity to drink a Colombian coffee and eating an avocado sandwich a pleasure and someone else finds the opportunity to spend an evening playing board games with their family extremely enjoyable. You only need as much money in life as it requires to get the opportunities which make you happy. Beyond that you are wasting time and energy chasing something which doesn't buy you much. That is the advice we should give young people.
Who is really richer here?
Don't get me wrong, I do absolutely have friend in tech that are doing exceedingly well both financially and personally. But mostly because they did something else that wasn't part of "the deal".
> Which leads me to the "but money can't buy happiness" position so many people have repeated over the years. Bull. Shit. Anyone who has ever said that simply doesn't know where to shop.
If happiness for you is about things you buy in shops, then you are a shallow person, and you are missing out. A lot. In fact you are poor, but in a spiritual sense. The next statement: "money spent on physical items can bring people a huge amount of pleasure" reinforces the impression that you have some concepts confused.
It's great to have cool stuff, and thanks for the probably sound advice on how to achieve that. You don't have to try to convince (yourself?) that this equates happiness.
The real takeaway: don't waste your money, don't get into too much debt, invest your money and invest in yourself. Every motivational speaker/guru/life coach will say the same thing.
The opportunity cost of making a sub-optimal choice when it comes to employment is huge, both financially and in terms of your career. Taking a hit on a few months pay is a complete no-brainer if it means you can take a job that you find intellectually stimulating, gets you out of bed in the morning, and offers better long term compensation.
DJIA-30 has risen from ~9000 in early Jan of 2009 to ~24000 now, a gain of ~167%.
That is a CAGR of only 10.3%, which is fairly inline with historical price appreciation of the S&P-500 index (10% total return and ~8% price appreciation). To damp out some of the short-term gyrations, taking the same index and average close prices for all of 2018 vs all of 2008, implies a CAGR of 10.9%.
The S&P-500 index is more representative of the overall large cap market than the DJIA-30, IMO. That index is up ~200% in 10 years, for a CAGR of 11.5%.
These returns are not stratospherically higher than historic norms.
In a printing money environment (which I am similarly concerned about), you want to be invested in something other than money. Real estate and equities are hedges against deflating money. (Gold bugs would argue that precious metals are as well.)
No other takeaways for the general public here.
This statement is false. The truth is that "investments have grown over time". It's not necessarily true that they will continue to grow over time. The efficiency benefits of corporate growth have been reached long ago and are on the decline. Corporate growth today relies on crooked government policies, stock buybacks and other methods of wealth concentration without value creation - There is no guarantee that it will stay like this; people are already wising up to this.
Dividends (broadly construed) are the original reason an investor placed money into a firm. If you outlaw all forms of dividends, you end arms-length investing, which surely harms people more, IMO.
Not OP, and I think his ire is misplaced here... but MY ire against share buybacks is because the flexibility is misused.
Setting aside taxes - share repurchases benefit stockholders more than dividends when a company's shares are undervalued; the converse is also true. However, management's incentive tends to be to maximize their comp (particularly stock options) by juicing the stock as it rises. Companies usually buy high, and suspend share repurchases when the stock is low.
There are exceptions; AAPL corporate finance does a great job. But as a rule, company treasuries do a lousy job of trading in their own shares because of poorly aligned incentives.
What have we become?
1: Money Buys Choices
2: The Money You Earn Young is the Most Valuable Money You'll Ever Earn
3: Invest in Financial Literacy
4: Learn the Tax System
5: Know Good Debt from Bad Debt
6: Diversify Earning Potential and Risk
7: Prepare for Luck
8: Put a Price on Your Time - and Your Family
9: Have a Goal
10: Financial Prosperity is a Partnership
Theres also this "Bad debt is the likes you have on a credit card. It's almost always accrued on a depreciating asset (for example, a new TV) and it's very often at a high interest rate"
Why is depreciation always mentioned as a problem of bad debt? My house will depreciate if I don't maintain it.
Surely bad debt is a combination of interest rate, and whether you actually need, and can afford the thing you're buying on credit.
In general, debt is good if having it is cheaper than the alternative. The way that often happens is if the asset you buy with the debt is worth more, in income or appreciation, than the cost of the debt service. If the alternative also requires you to spend time or money, though, that alone can make debt worthwhile.
You need a house, so an affordable house would be fine, one that you cant afford isn't.
Yes an appreciating asset shifts the balance somewhat, but doesn't inherently make bad debt good.
I suppose its best to look at where each outlook ends up? The appreciating asset = good view would suggest you buy the absolute most expensive house you can get. I would suggest you look at what you need and actually can afford.
Edit: Spelling
Conversely, if you have bad debt, every penny that goes towards paying it back could instead go towards the kinds of purchases he endorses using "good" debt for.
There's no principled distinction between the two.
Most of the "lessons" are not groundbreaking, they are rather things that are obvious and most of us know about. The value for me came from having them all written down in an organized way. It's much easier to refer to something more tangible than your memory.
One thing that bugs me and puts me off is the financial literacy that Troy mentions. I try to translate some terms to my mother tongue only to find that, even then, I still don't really understand them.
Does anyone has any pointers on how you can start improving on this like finances 101 or something?
Especially for those working in tech, there are ways to put the odds of becoming wealthy greatly in your favor. It's our choice to act on it or ignore it.
Money is important. But I hope I never get to the point where my mind is as anxious and clinical as this.
"Since I was a boy, 10,000 new laws have been passed, and the country isn't any better. The new laws that have been passed are just for the sake of it, and you take away someone's freedom every time you pass a new law"
This sounds a lot like the Trumpian:
"If there’s a new regulation, they have to knock out two. But it goes far beyond that, we’re cutting regulations massively for small business and for large business"
Yes, there exists duplicitous and over-zealous legislation, but most of it is written to protect the rights of people. Since Mr Packer was a boy, Australia has new rights for gay people, aboriginal people, a great deal more environmental protection, and so on and so on.
The "rich person appeals to common sense by saying they shouldn't be regulated" meme needs to die a death.
Just gotta love how this white, Australian born cis-male was educated in a public school, going there every day over public roads, in a town kept safe by public police, in a house that never burned down because of public firefighters, never fearing saying the wrong thing in a free constitutional democracy protected by judges, politicians and a military — lecturing everyone about that TAXES ARE THEFT, BADLY SPENT and he did it ALL BY HIMSELF.
Smart boy, bravo you combined the vulnerabilities of three dozen international laws to get down to 1,3% combined tax rate.
I don't even have a word for people like this.
Here's my take:
youtube.com/watch?v=4K5fbQ1-zps
He didn't bring sex or race into it. His points are just as valid regardless of your sex or race. You're the only one here discriminating based on sex or race.
I love my universal healthcare and pensions and am happy to pay a good tax rate for that, but many people seem to assume that it's just OK for governments to tax, and tax, and then tax some more.
Also, a motivated person is going to find loopholes in the tax code. That is essentially the result of being able to structure your own affairs the way you want, unlike, say, an employee. Don't blame the person understanding the rules well -- he's playing by the book after all.
You’ll get all those public services regardless of how many taxes you pay. And if somehow everyone else decides to do it as well, you can be sure the politicians will rapidly figure out a way to finally make it illegal.
I would agree with Troy's conclusion that "money buys happiness," but take a different tack. Money buys financial security, and financial security buys avoiding many kinds of hardship and grief.
You can have money and be unhappy, and you can be evicted because you can't meet rent and be happy, but it's probably easier to be happy when you aren't worried about paying the bills.
I'm not sure about that, there seems to be plenty of research that shows people never really feel financially secure, no matter how much they have. Clearly there is a minimum standard you need to reach but I don't think that's what we are talking about here.
Money can buy you opportunity, but not every opportunity makes people equally happy. Some people love to travel the world and see places for which you need very little money, some people like to drive their kids to school with an expensive car so they can dick measure with other parents and get a boost of self esteem when people look at their cars. Mostly the insecurities and desires in our lives determine which opportunities make us happy.
Money buys the ability to follow expensive hobbies. e.g. skiing, travel, anything that requires lessons to pick-up as a skill.
Money affords the ability to travel at convenient times instead of cheaper off-peak schedules, so that you ultimately spend more time with your family and friends.
Capital investment can help creative pursuits, such as a well-stocked kitchen greatly increasing the amount of joy you can have when cooking, or the benefits of being able to relax with a home cinema/gaming/sound system that you can be truly immersed in.
Most importantly, it brings peace of mind. In my opinion one of the greatest freedoms is not having to worry about the future. Something you don't appreciate until you gain it, and something you could never imagine giving up once you've experienced it.
Don't kid yourself that you can't buy happiness. It won't dig you out of a hole if you have deeper issues, but it's definitely a significant platform to stand upon.
And I'm not even talking about objects. For most people having something good to eat and a warm cozy place to live is already happiness. A happiness most people in the world can't afford BTW.
That last sentence isn't true. The first sentence defines a standard of extreme poverty or below[0], which is happily far less than "most people in the world" in 2019.[1]
[0]: https://en.wikipedia.org/wiki/Extreme_poverty
[1]: https://en.wikipedia.org/wiki/File:World-population-in-extre...
Money doesn't lead to happiness, but no money can quickly lead to unhappiness.
Dunn, Gilbert, Wilson - If Money Doesn't Make You Happy Then You Probably Aren't Spending It Right
https://scholar.harvard.edu/files/danielgilbert/files/if-mon...
TL;DR:
1. Buy experiences instead of things
2. Help others instead of yourself
3. Buy many small pleasures instead of a few big ones
4. Buy insurance that's worthwhile
5. Pay now and consume later
6. Think about what you're not thinking about
7. Follow the herd instead of your head (sometimes)
8. Beware of comparison shopping
https://www.sciencedirect.com/science/article/abs/pii/S10577...
From memory, 4. is "Buy Less Insurance", at least they suggest that most insurances we want are not worth it, is this what you meant?
It doesn’t take a lot of creativity to imagine how money connects to important things in life, such as buying opportunity and safety for children. Or having someone who spent years in medical training and debt hover over your loved ones (does anyone have a prerogative to a doctor’s time?).
Opportunity isn’t shallow. Choice and freedom aren’t shallow. Will your loved ones never experience tragedy or malady?
That's a fair point. From my understanding he was talking about "buying happiness" in a broad sense. Sure he did mention material goods. But also the ability take out time out and being with family and friends and not having to worry about making ends meet.
* the concept of savings rate, and relationship with time until retirement. e.g. https://www.mrmoneymustache.com/2012/01/13/the-shockingly-si...
* good books about investment. William J Bernstein has a reading list here: http://www.efficientfrontier.com/reading.htm
* Bernstein also has some advice for a younger US audience here: "If you can", very short book, free download: http://efficientfrontier.com/ef/0adhoc/2books.htm
* the other useful discovery, which wasn't a book, was randomly finding out that i could double my annual revenue for doing the same or easier (but more frustrating) development work by switching to contract work for large orgs rather than being a permanent employee at a small business. this will be very location / market dependent i guess, but perhaps the general lesson might be something like "consider if you could sell your skills in a slightly different market" & being open to exploring opportunities
Possibly. Looking at figures for unsecured household debt where I live I'd say these things are not that obvious. The other point is that fundamental truths don't always seem groundbreaking. E.g. spend less than you earn. Not groundbreaking...but I wonder how many people violate that principle...
I agree with those basic ideas! You're not disagreeing with me there. In fact, I already made a similar remark in my concluding sentence:
> You can have money and be unhappy, and you can be evicted because you can't meet rent and be happy, but it's probably easier to be happy when you aren't worried about paying the bills.
The piece you're either not considering or ignoring — which my comment spoke to — is that, controlling for local cost of living, the higher your income is, the easier it is to spend below your income. Necessities don't scale with income. Lifestyle choices can, but by definition, they are choices and can be reigned in. It's hard to choose between rent and food, though.
So I think your response, "money doesn't buy financial security," mostly comes from inaccurately interpreting an intentionally simplistic subclause of a larger argument and taking it too literally and without context.
The latter is more subject to the hedonic treadmill of "financial security means I don't have to change anything about my current standard of living" as opposed to "I don't have to live on the streets or worry about where our next meal will come from".
I could stop working today and we'd eat and live for the next 50 years just fine. It would absolutely be at a dramatically reduced standard of living. I think I have basic financial security, but many people (myself included) would answer a survey that they don't feel totally financially secure.
Also security. Imagine something happened and you got no income for the next 6 month. How big a deal would that be to you financially? is it "I would definitely default on my mortgage and lose my house" or "It would eat up a bit of my savings and perhaps I'll have to skip that one vacation I was planning"
Also, it would make sense to cultivate hobbies and things to be happy with that don't need a lot of money.
Earlier in life is also a great time to experiment with lots of such things, as a parallel with Hunt's article. You can seek out new experiences at any age, but it's just easier when you're young and don't have a lot of responsibilities.
It obviously should, but a casual observation of the world around me seems to indicate that it doesn't.
You can’t blame a smart business owner for minimising their tax bill. They’re in competition, they have to do what is possible to stay competitive. But you can blame the regulators for creating an unfair system.
I did buy basically the most expensive house we could afford (slightly less than the most expensive we could qualify for) in 2007 in a desirable city. That decision (vs continuing to rent or buying a $500K condo in that city) has likely added more to our net worth than our working for the last decade did. We bought it as a place to live and raise a family, but the financial upside (as yet still an unrealized gain) is large enough to not ignore.
Were you thinking the same in 2009?
On the money side, I continued to believe throughout the GFC that Cambridge, MA was going to continue to be a desirable place to live and work. I don't think the Zillow guesstimate on our house ever fell more than 5% below our purchase price, which was vastly better than our 401(k)s and brokerage accounts. (I changed my personal finance tracking spreadsheet in 2013, so I don't have records of house price estimates prior to then to confirm and Zillow only seems to go back 10 years.)
As long as the numbers work out, though, It does seem entirely reasonable to take a loan to buy a house with the intent of renting it out for income. If the rent you receive can cover the maintenance and loan interest, you can sell it on again any time you need your capital back and bank the appreciation (or lose the depreciation, prices move both ways).
