Ask HN: Good resources to become financially literate |
Ask HN: Good resources to become financially literate |
My friends live paycheck-to-paycheck and I got $300k stashed in cash and a mix of investments. I'm not living for the money, but this world is full of costly stuff you definitely do not need - and it really surprises me what people are spending money on.
Why?
I can understand if you're saving to buy a house outright for cash, or to invest in a startup that needs a chunk of capex at the beginning, or something, but just sitting on a pile of depreciating cash assets is silly in an economic market where retail inflation is running at ~10%. If you're literally just holding cash because you can't think of anything fun to spend it on then that's quite sad.
No, you don't want your entire "life savings" in cash stored in pillow-cases under the bed, but you do want enough cash where the value of "enough" varies depending your circumstances.
I don't think OP means 300k cash, but (cash + mix of investments) = 300k.
For all we know it could be 10k cash and the rest investments.
Probably $80K to $100K for that, plus extra for snacks. :)
https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
https://freakonomics.com/podcast/are-personal-finance-gurus-...
https://www.mrmoneymustache.com/2012/01/13/the-shockingly-si...
Generally the biggest expense (after housing) is food and the easiest to replace is entertainment. Don't eat out and cancel all your non-utility subscriptions/recurring charges.
- if you first gain 20% and then lose 20%, you're worse off than when you started.
- if you first lose 20% and then gain 20%, you're also worse off than when you started.
This is a nice starting point
That said, it sounds like you have some financial foundations to build before investing is a realistic option.
Could be, but regardless, it's very unlikely that his investments are beating inflation at the moment so the point still stands. By holding on to the money its value is shrinking.
You’re basically saying everyone should spend everything in a downtown, and if they don’t they are boring?
In my case I was lucky. At the age of 25 I was also living paycheck-to-paycheck, and did an obnoxious 5 week trip around Europe which left me broke and unable to make rent. I had to ask my father for a loan to get me through, and the whole experience of that was humiliating. Especially because I had built up a self image of being financially independent. Within a week of that humiliation I had set up a planning spreadsheet and set up savings goals to never have to beg for money again (and it worked).
Point being that, for me at least, setting up the spreadsheet was the easy part - the hard part was deeply having the psychological shift of "I really need to save money".
1) financial independence is great, but you could also die tomorrow. Make sure you understand what your most important values and priorities are, and don’t put them off in favor of more future wealth.
2) health is wealth, don’t ever sacrifice health for more savings. I promise it won’t be worth it.
3) relationships are wealth. Don’t sacrifice the people that matter to you for a little bit more savings. In my own life this meant going from spending very little on traveling to see old friends to quite a bit traveling to see old friends.
4) it’s often much easier and more enjoyable to increase your pay 25% than it is to decrease your spending 25%. Most people are actually not good at navigating “how do I get paid more per hour worked” and a little bit of brainstorming and long term planning in this department can take you leaps and bounds further financially than penny-pinching.
So much this. Raised by grandparents here. They have some strong regret how they didn't do certain things when they were young. I've seen it up-close for too long. They're kind of in a "part of your life was a lie" realization as they never challenged their beliefs.
I decided to become a digital nomad and am meeting cool people while sharpening my dating skills (my dating life is quite fun atm, took 6 months to get there - I got rusty after my relationship), while seeing cool cultures and learning languages. Truthfully, work is a welcome break (I work 4 days) to just mellow down the craziness, haha. I'm a normal looking guy, I put a lot of effort towards dating skills (20 hours per week at least, it's a second part-time job really, a fun humbling one, so many rejections, lol, ego dissolution can be achieved through psilocybin or through dating, lol).
So not even death, you might regret how you've lived it. I know I won't regret this. I am living paycheck to paycheck atm, but I have fairly good savings since this is the first time that I'm traveling this much.
It should of course be noted that you need to increase your pay by 25%/(1-tax rate) to have the same effect as reducing spending by 25% though.
For example, at a 30% tax rate, you'd need to increase your pay by 36% to have the same effect as reducing spending by 25%.
That basic flowchart has helped me set my goals for years, and to maximize my progress towards those goals.
It's very simple, a 10 minute read, and backed by most the books and advice you're likely to receive anyway, including basic stats about emergency funds, etc.
Unfortunately, it can seem mundane, as financial responsibility is about time in investment and good lifelong habits, not easy tricks.
https://old.reddit.com/r/personalfinance/wiki/commontopics
linking to:
And OP definitely said "paycheck to paycheck" which seems quite normal, and didn't mention anything too strange.
But yeah, there's no one-size-fits all, but as a philosophy, this flowchart is spot on: Cover your butt, then maximize money growth by optimizing paydown / investment by interest rates, and cover your butt more over time.
> If I offer you a 20% annual risk-free return, am I lying? The answer is yes, of course.
Let’s say an investment has a 20% return and your calculation gives a 0% default chance for the first four years. You can structure your investment to compound for the first four years and get back your initial capital after the fourth.
You are essentially now (4 years later) on a risk free 20% return. Your initial capital can be reinvested somewhere else.
If there is something I learned trading the financial markets is that structuring is the only thing that matters and what will bring your returns. The other thing I learned is that real 20% returns with little risk are abundant if you are looking hard enough and comfortable executing exotic trades.
This has been greatly simplified by inflation being low for a very long period until the recent transient bump.
I have read some insane upvoted comments in r/personalfinance and r/investing but bogleheads are generally on point.
The other thing I like about it is that the forums have lots of detailed personal scenario discussions that are helpful for getting real life examples of the application of the dogma.
I'm big into Financial Independence as a concept and community, so I'm partial towards that. Some recommended reading (some which you may like and some you may not):
- /r/financialindependence sidebar/wiki
- https://www.mrmoneymustache.com/ - Bit more radical on the frugality side but a personal favorite
- https://www.madfientist.com/ - Podcast and blog. Bunch of stuff on tax advantaged vehicles
- Your Money Or Your Life - Incredible book (foreward by MMM referenced above)
- YouTube/general searching for investment vehicles. Big ones in the US are: 401k, IRA vs Roth IRA, 403b, 529 (if you have kids). Tax advantaged accounts have huge benefits, so definitely understand them. Only takes a little bit to read about the ones I listed.
- Dave Ramsey - Love him or hate him, if you really struggle with money and debt on a fundamental level, he has good advice. His advice isn't optimal for everyone if you don't have issues with debt, but something to consider.
- Depends on how you want to invest. A lot of people (myself included) are pretty straight forward with index funds and diversify in different types, such as US vs international or maybe a variety of focus on industry. Do you research and figure out what's best for you, but index fund investing is pretty safe and easy.
Some personal advice:
- Spend less than you make. Seems obvious but it really is the golden rule of personal finance. Easier to say than do, especially without knowing your financial/life situation.
- Reduce any debt you have. High interest is obviously a big one and some people have varying levels of comfort with low interest debt (like mortgages from the past few years). Find what you're comfortable with, but just get rid of any credit card debt immediately. The chances you beat that interest rate with an investment is basically zero, and the limit as it approaches zero over multiple years.
- Think about the depreciation in your assets. Buying a new car means you eat the bulk of depreciation. There's an optimal point to buy a car where you get the most life for the best dollar after the depreciation is lost.
- If you're in software like a lot of HN, we're very lucky to have careers that pay well in most cases. Take advantage of that. Live on less, invest more, and be generous with others.
Listen to his podcast episodes. It’s a quick way to get a feel for his advice and to hear how real people who call in benefit from it. Go back to 2020 or so before his co-hosts started taking more airtime.
He catches a lot of flak because the debt snowball that he advocates is mathematically inefficient (folks prefer to pay debts with the highest interest rates off first). Also his political views. Look past those things - there is so much valuable advice.
20+ years ago, he was one of a handful of well-known faces of personal finance, was nationally syndicated, books, etc. There were fewer outlets and fewer options than there are today.
His focus on debt and changing mindset around that will help some people, but if he's a turnoff (for whatever reason), you'll get 99% the same advice on most issues from dozens/hundreds of other personalities.
He strongly advocates against taking debt to buy real estate. He only recommends purchasing real estate in cash.
The recommendation to get a second job only applies as people are getting out of debt (baby steps 1 and 2). After that he doesn’t really recommend it.
I have found the BogleHead guides [1,2] and wiki [3] the absolute best place to begin!
[1] The Bogleheads' Guide to Investing - https://a.co/d/ctdMwZj [2] The Bogleheads' Guide to Retirement Planning - https://a.co/d/19eZBsy [3] https://www.bogleheads.org/wiki/Main_Page
Bernstein has given permission for Cuffelinks to provide a complete copy of his 2014 booklet, ‘If You Can: How Millennials Can Get Rich Slowly’. It is his simple recipe for young people starting on an investing journey. It is linked here:
If You Can: How Millennials Can Get Rich Slowly https://gallery.mailchimp.com/34a7cea33f33e45eedceea223/file...
- learn accounting especially cash flow accounting. Not at Deloitte partner level, the basics aren't hard, high school level understanding is enough.
Doesn't matter how "rich" you are are on paper; bad cash flow makes you insolvent and then the banks starts grabbing assets.
- Net Present Value and how future cash streams are discounted.
Very theoretical. Very important to understand
- compound interest.
This is of dubious utility for investments (who can guarantee a return? Who knows tomorrow's interest rate? And the inflation rate) but fundamentally important to understand how nasty high interest rate loans are
- learn about the market portfolio and the basics of risk.
The market port. is built on dubious assumptions (a risk free non zero return asset, market efficiency, etc) but really drives home the importance of diversification and having a safe asset as a fulcrum
- Save at least 10% of your income (when you're very young). Better 30-40%.
Make sure its not all cash. But make sure you have >4 months cash on hand, or a roof repair which ever is greater.
My goal is to avoid insolvency while putting as much aside as I can. I invest in rental properties primarily because that's what I like to own (we have two), but I have a 401k to match my employer contribution (obviously).
2. Rich Dad Poor Dad
For me it's about respecting money and saving like social security will be next to useless by the time you retire. To start, save for a 6-12 month runway, invest in ETFs (QQQQ - nasdaq100 / IVV s&p500) and take advantage of employer matched 401K (it's free money!). Don't pick individual stocks as you most likely don't have the time to invest in this.
I think it's too easy to buy crap you don't need using a credit card. Yeah I fancy that fancy-coffee and muffin for breakfast, click 25% tip and don't even look at the total, just click buy-now. It's magically gone from your mind.
TIP-1: Stop using the credit/debit card (yeah, yeah, everyone thinks this will be nuts, but it will work). Make it a pain to spend money. Going to the ATM because you keep burning all your cash makes you aware of all the crap one buys. Yeah, you could use spreadsheets and technology and all that to track, but nothing is more of a pain than going to your ATM. And really stop buying coffee and if you can, make your own lunch/eat leftovers.
TIP-2: Don't go into debt for crap you don't need. I hate debt (yeah, it's probably not cool). I don't have ANY. I pay of my credit-card in full and I get a massive sense of security that I don't have anyone chasing me.
TIP-3: Do you really need spotify/netflix/fancy iphone. Oh you'll be miserable you say. Well go to the library (yeah they still exist) and read some books.
TIP-4: Don't lease, as one tends to overspend. If you can't afford it, save up.
→ https://archive.org/details/RichestManInBabylon_650
> The Richest Man in Babylon is a 1926 book by George S. Clason that dispenses financial advice through a collection of parables set 4,097 years ago in ancient Babylon. The book remains in print almost a century after the parables were originally published, and is regarded as a classic of personal financial advice.
> The parables are told by a fictional Babylonian character called Arkad, a poor scribe who became the "richest man in Babylon". Included in Arkad's advice are the "Seven Cures" (or how to generate money and wealth), and the "Five Laws of Gold" (or how to protect and invest wealth). A core part of Arkad's advice is around "paying yourself first", "living within your means", "investing in what you know", the importance of "long-term saving", and "home ownership".[1][2][3]
> The content is from a series of pamphlets distributed by U.S. banks and insurance companies in 1920–24; the pamphlets were bound together and published as a book in 1926.[4][5] The book is often referred to as a classic of personal financial advice,[1][2] and appears in modern recommended reading lists on personal financial advice and wealth management,[6][7][8] which has kept the book in print almost 90 years after its first edition with over 2 million copies sold.[9][10]
also he is just a terrible person all around. One of his antics bringing a loaded gun to an all hands.
One go-to I used for awhile was hamburgers - does the price of this thing please me more than the equivalent number of good burgers would?
I think one way to combat this is to setup some rules- e.g. add non-urgent purchases to a 'cart' where you consider them for a week before actually buying, and don't ever buy non-essential things when you aren't feeling well emotionally.
This is why when you get deep into ideas about responsible money use, it ultimately ends up focusing on concepts like Stoic philosophy and Cognitive Behavior Therapy (CBT), where you can work on reprogramming the internal narratives that lead to buying things you don't really need or possibly even want.
https://jlcollinsnh.com/category/the-book-the-simple-path-to...
* Modeling retirement/early-retirement using a 3% withdrawal rate (ERE analysis)
* The book Your Money or Your Life (updated edition) (good for getting out of paycheck-to-paycheck thinking)
* Applying "default dead" vs. "default alive" to yourself/your household (#5 https://www.ycombinator.com/blog/how-not-to-fail/)
* Buffet/Munger writings on "margin of safety"
* Knowing your monthly burn rate and using it to calculate how much time you have saved (vs money)
Imagine you're lanky or fat and you want to build muscle and get in shape.
Saving is like going to the gym and lifting. You'll look and feel a ton better.
Putting together a budget is like going to the gym with a routine and maybe a rough diet plan. You'll get there faster.
Investing is optimising your routine so that you hit every muscle group once you're starting to plateau.
But it's all built on the basic mindset that you need to go to the gym. It's not optional, you just do it.
The main thing is to build the mindset of saving. You spend what you _need_ to, and perhaps a bit on top for fun. Money that comes in is saved by default.
A) 99% of the book is fabricated
B) It's based on methods which are significantly harder to do in this day and age
The biggest takeaway from the book is the mental shift to assets and liabilities. But the anecdotal stories are pretty poor and, as I said, fabricated.
1. Buy 50 unit apartment complex for $10mln. Get investors to pay $4mln, loans for $6mln. Cash flow is $600k/year from avg of $1000/mo.
2. Slowly invest in the property, refurbish units by maybe adding in-unit laundry for example. Keep property well maintained.
3. After some time (3 years?), get property re-assessed and now its worth $15mln. Refinance the property to $15mln, pay off $4mln to investors, take $1mln from loan for renovation recovery/profit, tax free, pay off previous loan.
The eye opening part for me was that the goal is to not build and sit on the equity like a residential house but use the equity and increased property value to refinance and the extra money from the loan becomes essentially tax free profit. There is risk that something like a large employer leaves town/lays off people and now you have less renters and property value might decline and things like that. He had a real estate developer discuss how they would do this and do it well by researching areas, property values, etc. This also gives some insight into one element of why rents might be skyrocketing recently - loan rates are higher so developers/investors doing this re-assess/re-fi pattern have higher costs.
So what was portrayed in the YT video did not seem fabricated, he had an actual real estate developer talk through this process.
> Rich Dad, Poor Dad is one of the dumbest financial advice books I have ever read. It contains many factual errors and numerous extremely unlikely accounts of events that supposedly occurred.
> Kiyosaki is a salesman and a motivational speaker. He has no financial expertise and won’t disclose his supposed real estate or other investment success.
> Rich Dad, Poor Dad contains much wrong advice, much bad advice, some dangerous advice, and virtually no good advice.
- buy assets that generate profit, not liabilities
- keep a budget
- business is the way to money, not a salary
- he covers various aspects of business on a high level, and emphasizes the importance of sales
Having slack in your finances may not solve all your problems, but life is much better when you escape from the class of problems surrounding lack of money.
It takes a while, but when you get used to having enough money your time horizon can extend much further, and you can start to make decisions that will be likely to help you in the future.
I say this as someone with household income below the local median, but with thrifty habits and a financially compatible spouse, and who had the good fortune to buy a house before things got so crazy. If housing wasn't a mostly-solved problem for us life would be very different.
