I would like to change my "paycheck to paycheck" way of life and am looking to learn about financial vehicles (US based) and investment basics, and anything else that "I wish I had known when I was 20 years old".
Readit NewsReadit News I would like to change my "paycheck to paycheck" way of life and am looking to learn about financial vehicles (US based) and investment basics, and anything else that "I wish I had known when I was 20 years old".
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:
https://i.imgur.com/lSoUQr2.png
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.
Deleted Comment
> 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.
https://pixeldrain.com/u/dsHN33xk
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.
https://www.youtube.com/watch?v=rJjKP8vYjpQ
[1]: https://en.wikipedia.org/wiki/The_Gambler_(2014_film)