Ask HN: How do you plan your financial future? | Hacker News Reader

Ask HN: How do you plan your financial future?

14 pointshuevosabio6 comments

Hi HN,

I'm currently creating a sort mid/long-term financial plan for myself, setting up targets on the long run based on where I want to be in the next 2, 5, 10 years. I'm want this plan to be as realistic as possible (taking into account the uncertainty of life), and intend to leverage as much data as I have to make it (past expenses, cost of children, mortgages, etc.).

As an avid HN, I'm curious how you normally carry out this sort of financial plans, what costs I should be especially aware of, and so on.

Thanks!

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In order to invest, you have to have savings. Do a very thorough budget once a year and see where you really are spending your money, even the small things, they add up. Then set your lifestyle to spend less than you make and bank the difference. 10-20% is a good benchmark, if you can do it. 5% is still good.

There is no substitute for long-term compounding of returns. For younger investors, the better bet is to choose a good mutual fund, ideally a mid-sized fund that outperforms the S&P over time, and then just leave your money there for 20 years, reinvesting the dividends and capital gains.

I started out immediately with my first job by putting money into a 401k account and just letting it ride. The funds are withheld from your paycheck, so it's fire and forget. And that portion of your salary is not taxed until you take the money out (likely decades from now). I invested the funds in mutual in mutual funds that did a little better than the stock market over time. One day, which will surprise you by how soon it seems to arrive, you'll retire and have a sizable nest egg that you can move into fixed income investments and produce cash yields.

>> 10-20% is a good benchmark, if you can do it. 5% is still good.

I would say even if 10-20% is acceptably good by most people, don't limit yourself to 10-20%. If you can be comfortable saving 75%[1], and invest your savings into real estate or stocks, then do that.

[1] $30000 is a liveable wage, and if that's what you were living on before you got your $140k software engineering job, there's no reason to increase your living expenses, just because people say "10-20%" savings is enough.

Be very careful maximizing 401k. If you live in a crazy expensive area, make sure you have enough for a down payment on a house (if u aspire for one). You can get a loan from your 401k for home purchases but the amount is pathetically low .. like 50k or something. I kinda got screwed with this since I need 200k for a down payment on my first home :(

200k downpayment?? Must be in the Bay Area, right?

Here's some things I've jotted down which might help you:

1. I use YNAB (http://www.youneedabudget.com/) to track my expenses and budget. Focus for me here is on the approach or "rules" not so much the technology (app).

2. You might like to read some of these resources: - http://www.mrmoneymustache.com/ - https://www.reddit.com/r/ynab - https://www.bogleheads.org/wiki/Bogleheads%27_Guide_To_Inves...

3. I personally save about 40-50% of my paycheck. That is split over things that I am going to purchase - holiday, new bicycle - and for things that are otherwise re-invested (index fund for example). Priorities are building my emergency fund - aiming for 6 months salary as cash (in the bank earning 3.5%).

4. Consider reviewing your life style as well. I'm not going to tell you to do any of the below, but reflect on your life and make your own decisions. Do you drive a lot to work? Do you know how much this costs you? Could you ride a bicycle to work instead? Do you eat out a lot? Could you prepare ahead of time - i.e. bring lunches to work.

5. Long term planning - a mix of low fee index funds, cash in the bank earning interest, and potentially owning some property. The latter is difficult in Australia for those who have no wealth (Gen Y) due to the issues with housing affordability so, most likely, the first two will be my go to.

-- That was a pretty random few paragraphs put down. Hope it helps.

"in the bank earning 3.5%" Which bank are you using, I am getting only 0.1% or so.

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