Ask HN: What personal finance advice would you give your 25yo self ?
Or if you could go back in time, what would you have done differently, what lessons have you learned ?
- save 25x your annual spending and never work again
- start by saving at least something (even 1%) and save 50% of all future raises
- long commutes are for fools. So are new cars--buy used.
- spend on things that you value. I've given myself a tech budget for years because good tools matter to me
- host a dinner party instead of eating out (most of the time)
- If you have a gamblers mindset to investing, carve out a small portion (10%?) of your money and use it for risky investing. I call mine the 'casino fund'. Track your returns.
- read voraciously about finance and early retirement. You only need about 20 books or so to gain a background that is easily more valuable than your college degree. This is a good start: https://www.reddit.com/r/financialindependence/wiki/books
Buying new, inexpensive cars are a much better investment if you plan on owning them for a long time.
Used cars don't last as long, and they carry more risk. The amount of money spent on repairs can be unpredictable.
I favor buying used cars under 3 years old that still have like 75K or more of manufacturer warranty in place.
Think of it this way, is the depreciation between a new and lightly used car enough that you can afford a major maintenance event like engine or transmission repair? If so used is fine.
The type of used car matters too though. Think Toyota Corolla and not bmw 3 series...
And yes the thing about frequent repairs could happen with the older car.
Those look like very significant savings to me. And what does "Win" mean? As far as safety goes I agree a 2017 corolla is demonstrably better than a 2000 one.
A 2010 Corolla will save you $10000 over a 2017 one.
My core premise is most new cars are of much better quality than those from 20+ years ago when it made sense to buy new because that 36k warranty and 60k power train warranty was critical. These days most cars will not fail that early unless it is on petty cosmetic things.
My wife had a 1999 Corolla that made it > 300000 miles on it. IIRC all she did was oil changes and occasional maintenance like brakes. The biggest repair I was involved with was when the starter motor wire shorted to the chassis and burned up the wiring harness. That would have been an expensive repair to do "right" by pulling the entire harness but I instead replaced the wires with burned insulation one by one with correct gauge soldered and shrink wrapped and as far as I know is still alive and well with a relative. I think the repair cost me a few $100 but that car had no major work done over its life span AFAIK. There's my anecdata...
Also, do regular maintenance. Change the oil (or have it changed). Change the transmission fluid. Change the timing belt. A good car can last a decade or two with good maintenance.
Buying something 1 or 2 years old at 75% of the price with less than 20k miles just feels new to me. But maybe I've trained myself for that.
How does that work out? I'm a bit skeptical about this. At 25, people have much lower expenses than when they have a family and kids, mortgage, etc. Also you're living longer than to 50, so I assume there's some investing involved.
Thanks
Once you've accumulated enough cash, if you begin to withdraw around 4% per year and invest the rest, it is unlikely you will run out of money.
The 25x rule relatively decent estimation.
I'm more nervous, so I'm aiming for 40x annual spending. The stock market growth of the last 100 years might have been an anomaly. Healthcare costs may cause my annual spending to increase as I age.
In my experience, seeing and hearing of people's general retirement goals and savings; they simply don't have enough to not feel it when they're done.
A mindset like the OP or yours makes that stage in life much more enjoyable and worry-free.
I should expand on this. The historical returns of the US stock market are about 7% annually over the long haul. The US GDP has grown about 2% annually over the last 150 years. There were a few decades when it was about 3.5% and we felt pretty good, but that's been done for a while now.
So... economic growth is at 2% and capital returns are 7%. As Thomas Piketty pointed out, this is probably unsustainable. I suggest a healthy skepticism when someone uses the last 50 years to predict the next 50 years.
Yes having a confortable life is a nice goal and achievement. But there are many others things I would do in parallel otherwise you'll get unhappy and stuck in your mindset.
I mean these are all good advice points if you want to increase the zeroes in your bank incrementally, but they are also the same tips that lead to a mundane, average, uninspiring life.
The op asked for financial advice not how to be fulfilled.
They are inextricably linked, so you can't give financial advice without understanding the motivations and desires of the individual. The OP left that out because he probably doesn't realize that your finance situation should work for your motivations. Having financial goals without life goals is a great way to make sure you're not broke but no meaningful life.
A fulfilled life can be so many things to so many people. It can be about fitness/sports, or knowledge/learning, children, marriage, family, friendships, religion, travel, material things, music, career, social good, art, inventions, etc. Some of those things are linked to money and some aren't.
Financial health can help enable some of these things but a bad financial situation can completely hamstring you too.
I do agree that a good financial situation does not always make you happy or even less stressed. Not that long ago I had more or less zero savings due to some early setbacks, recession, etc. I don't know if I ever will think I have enough until I could pay for my parents' failing health costs, help my nephew pay for college and various other things. I suspect this is true for many. Before I was just hoping to not have to eat cat food when I'm old. Now I want to do more for my family and my wife's family and also not eat cat food when I am old.
I will also say knowing I can survive without a job for a year or more gives me comfort when I am stressed or not engaged.
And this advice is from older person to younger self, so it's obviously from someone who struggled with debt and spending as a young person.
And my #1 advice: READ THIS BOOK!!! Get a Financial Life: https://www.amazon.com/Get-Financial-Life-Personal-Twenties/...
Even if you know a lot, its tone, its rules of thumb and its great summaries really help you evaluate where you are as a young adult. Well worth the money.
Point by point:
-- CC Debt is slavery, pure and simple. If EVER one carries a CC balance, it should be for an emergency (a true one) or a short-term, well defined need with a known plan and payoff date. I speak as someone who has almost $2000 a month in CC debt bills for the next two years, if I can keep myself under control.
I have to add: I don't know where the $50,000 in debt I racked up in the past 10 years went. I can look around and see some stuff. A lot of books, some guns, furniture, and a few computers. I have a well furnished abode. But so much of it was liquor, food, and beer that it's infuriating to think where I could be now if I hadn't done that.
-- General advice on how to budget for retirement. Protip, get a 401k or Roth IRA.
-- Once you are CC debt free and have a retirement plan built, make sure your emergency fund is built up. Try to increase contributions each time you get more money. Note: Roth IRA principal contributions are available for withdrawal penalty-free at any time, so again, take care of that first IMO.
-- Long commutes... this is tough! All things equal, it's true they're a burden, esp. if you're driving. Time, gas, safety, money, all used to go to and from work. On the flip side, it may be worth it if you can live in an area that truly brings happiness when you're not at work. So ideally... you would work and spend your leisure time in the same general area, by this advice.
-- Spend money on durable and/or resellable things, if you like to spend money. The idea being, if you have a personality that likes spending money, at least you can spend it on something from which you can get your money back.
-- People who like eating out often do it in order to be around people and socialize. If possible (aka if you have friends who like the same food) one good idea for saving money and satisfying the social need is to bring people over.
-- Try to put a fence around blowing your money on gambles.
Most people are more similar to others than many would like to admit. You think you're a unique snowflake, but it turns out you're just human.
> average
The recommendation of saving 25x annual income is far above average. Very few people save enough for true retirement. Further, a more conservative suggestion would be to save 40x annual income.
> uninspiring
What you do with your day has very little correlation with what portion of your income you save.
A good piece of advice I picked up from Rami Sethi (when it was still worthwhile reading his blog) was think about how much of your free time per month do you spend on various activities (Facebook, Gaming, etc). How much of that free time is devoted to thinking about your personal finance? If it's less than you think you should be doing, schedule it in.
Also starting reading https://www.reddit.com/r/personalfinance/ regularly.
Index funds are usually a good idea in the long term, but right now (June 2017), I would not put a penny in the stock market - it is ridiculously overpriced.
Stock markets in the developed world have risen too much, Robert Shiller, economics professor at Yale, told CNBC Thursday.
On Wednesday, the Dow bounced above and below the psychologically-important 12,000 for much of the session. But stocks look expensive, Shiller said.
"I would say the market is overpriced based on fundamentals … I'm talking about the US and probably Europe," he said.
[The market has almost doubled since then.]
Thus you can't time the market.
Don't trust experts telling you to enter and exit.
Your spouse should have a career or should think of having a career of his/her own. Its not about having a lot of money, its to eventually have someone as a financial backup in case things go wrong. Works for both partners.
I love my wife but financially I am in trouble. I make enough money but she has no career aspirations. Her family is quite poor and I had to get mortgage for a house for her parents. In future I will also need to worry about their health expenses.
This effectively means I can never get out of the rat race.
You married your wife or her parents? Why would you do such thing.
Seems to be a very self centered view, and not respectful the relationship he is in with his wife. When you get married, you take on some responsibility in caring for members of their extended family as well.
And I certainly don't think that anyone from a younger generation should be buying anyone from an older generation an entire house. The parents or parents-in-law can have a bedroom, pay you rent for it, and as long as they're living under your roof, they can live by your rules. Isn't that what they told you when you turned 18 and you couldn't afford your own house?
Read this: https://www.amazon.com/Boundaries-When-Take-Control-Your/dp/...
If you can get past the frequent Bible quotes, it's a great book.
But if I could go back to age 25, before I was married, I'd have told myself to travel to more far-flung places. Being married, I have to:
A) Agree with my wife on where we want to travel
B) Have time to travel that works for both of our schedules (which is difficult to find... plus we have to spend at least some of our time off going to visit our respective families, and now I have two families to visit instead of one)
C) Have the money to travel. In our case, we have two incomes, but still, it was much cheaper when I'd travel with friends and cram four people into a cheap hotel room.
I'm not complaining here. I'm fortunate to have spare income that let's me travel quite a bit with my wife and it's really a fantastic experience to travel with your partner. But there are trade-offs that I simply didn't have as a 25 year old. So those places that are far away and hard to get to? See them while you're young.
Now I make sure I have a year's living expenses available outside of my investments. If I get tired of my job, I can just quit knowing that I have the cash to float myself for a while.
A year may be more than you need but at least six months is a good minimum. You'll have the cash to cover a job loss, car troubles, most medical expenses, etc. on hand without going into debt. And an emergency fund should be liquid and save, not invested and at risk. You may only get 1% in a savings account but view the low returns as the cost of insurance, since that's effectively what an emergency fund is—self-insurance.
Meet and keep in touch with as many people as possible. Switch jobs, travel the world, volunteer and always _always_ make new connections.
The best financial (and personal) gains you will make in life will come from the right connections.
Experiences will turn into knowledge which could possibly turn into opportunities.
Consider the fact that S&P 500 is made up of 500 companies, there will be a top 100 and a bottom 400. There are some sectors that grow better than others. e.g For the past couple of years the entire Tech sector has done phenomenally well.
I like picking stocks, learning about companies, their products, competition, reading financial statements, P/E ratios and speculating. Its fun!
It does feel like a gamble at times so I do a 50%/50% split. Half goes to a wide index, and the other 50% is split into smaller chunks that goes to stocks I have picked after a lot of reading and thought.
For the past 3 years I've beat the market but 3 years is a very small sample so I may as well very much lying to myself. In anycase I enjoy it.
I like the idea of also investing in funds. AI and professionals are already watching and picking these for you; it feels like investing as well, may have lower returns but typically much safer.
A mix of both seems very healthy and what a lot of able-bodies are doing right now.
1. Reduce all bills/belongings to bare essentials to live minimally.
2. Pay off all debt while maintaining $1,500 emergency fund.
3. Save 6 months living expenses.
4. Invest in yourself with excellent groceries, gym membership/local park visits, medical/hygiene care and other healthy habits.
5. Invest in Vanguard's Total US Stock, Total International Stock and Total Bond ETFs (% as age) and don't touch it.
6. Invest in building your own business - tech or otherwise.
> Reduce all bills/belongings to bare essentials to live minimally.
depends what you mean by living minimally. if you want to be responsible for the fewest things you could live somewhere that doesn't have a kitchen, and own no equipment for cooking, but eat out every meal. in some sense this will be "simple" but also relatively expensive. if you want to really focus on reducing costs then there will be a business case to invest in "stuff" like cooking equipment. for example you could buy a large a freezer so if you see something you like to eat marked down by 80% you have enough capacity to buy in bulk and store for the next 6 months.
> 4. Invest in yourself with excellent groceries, gym membership/local park visits, medical/hygiene care and other healthy habits.
keeping yourself in good mental and physical health for the long run is a great idea, but avoid falling into the trap of spending money for things that are not actually necessary. be careful about using the word "invest" for things that wont actually generate income.
e.g. instead of paying for a gym membership maybe you could switch from driving/public transport to cycling. in that way buying a bike could be an actual investment if it reduces your transport costs (probably hits break even point in 0.3-1 year) and has the side bonus of incidentally filling some of your need for exercise at no cost.
For most people, their capacity to work is the only significant income generating asset that they have. Keeping yourself in good working condition is one of the best income generating investments that you can make in a situation like that.
Anyway, my advice would be:
Start meditation sooner.
I would give myself many other advices about risks, people and self-acceptance, but I would have not being able to listen to them at that time.
That's the problem with advices, you must be in a place in your life where you can actually use them.
But I would be able to meditate and figure it out, since that's how it happened.
Replace that with any tool that helped you develop yourself.
If you don't have such a tool, find one quickly that suit you.
Oh, and yes, travelling help, so do so. But you'll reach a limit in what it brings to the table. You need to find a better tool on the long run. Just like money helps, but has a max amount after which it won't make you happier.
If you can manage to get that one done, you can actually act on the rest of the financial advice in this thread. If not, you will have to be in unanimous agreement to do anything wise with money (i.e. keep emergency fund, plus six months living expenses in liquid savings), whereas foolishness may be undertaken unilaterally.
Also, if you plan to have kids and are likely to be both the higher earner and not the primary child carer, the potential downsides of marriage are enormous.
It would have been a whole lot easier to just not get married in the first place. If you can't stand being single, at the very least, make the other person's debt situation a deal-breaker before getting too involved with them.
Contribute more to an index fund.
Save harder for a deposit. High rent/shared housing is horrible.
Don't try to keep up with the Joneses. There'll always be someone richer, with a nicer car – you can't win that game. You weren't born in to money, don't even attempt to act like it. Live below your means.
You need to treat yourself far less often than marketing companies would have you believe.
Also, start mining bitcoin.
Starting mining bitcoin on the other had, is hindsight bias, and may well not be a good recommendation anymore. Depending on where you live, electricity costs makes it hard to break-even, especially after you consider hardware purchase.
Bottom-line: run the number and think hard before joining the hype.
I know some super financially conscious folks who purposely stay one "Game system behind". Nintendo Switch is coming out? Buy a Wii U and collect games for super cheap. Hour of entertainment at a fraction of the cost.
although i think you aren't being serious, this is genuinely poor advice.
> The reader can see my unusual notion of alternative accounting: $ 10 million earned through Russian roulette does not have the same value as $ 10 million earned through the diligent and artful practice of dentistry. They are the same, can buy the same goods, except that one’s dependence on randomness is greater than the other.
- Taleb, Fooled by Randomness
This is absolutely fantastic advice. If my 25y/o self had started mining bitcoin, and held on to that btc, I would be a millionaire right now.
Remember, this advice is for myself when I was 25, not for people that are currently 25. Obviously, mining btc right now would be a waste of time/energy unless you have a btc mining factory in your back yard.
It cannot be translated easily, but more or less it amounts to:
Do the (financial) math often, limit your cravings, spend less than you can gather.
- Go get yourself a savings account and a checking account. Fill only enough amount in your checking account that you need to get by the month. Remaining goes into savings.
- Buy a home as quickly as you can, in an affordable place in the outskirts. By the time your kids arrive necessary infrastructure will be in place. Also rent is just another form of tax. And having your own home also means some place to rest without financial implication when you are old.
- Take the 401K plan seriously.
- Max out other instruments such as the IRA and Roth IRA.
- Buy a durable, long lasting car. And stick with that as long as it lasts.
- Healthy life style. Nothing pays as well as good health. Buy a bicycle or play a sport. Ensure your heart is healthy and you are not obese. There are other things to this, like learning to cook healthy food. Remember bad health too will account for a big chunk of your earnings in a place like the US.
- Be frugal. Frugality means making decisions that pay on the longer run. $5 may buy you burger combo in McD but trust me it will cost you on the longer run. You don't want that kind of frugality. Which is why the learning how to cook makes even more sense on the longer run.
- Be productive, in all ages. Have free time to network and develop new skills. Never be afraid to start from the beginning or learn and do something new.
- Lastly save. Save a lot.
Keep your cost of living the same when you see large pay bumps or raises. This means the big things like car, house/rental, etc. Don't just go get a new car and increase your spending or move to a "nicer" apartment or buy a house because you have the money available. Keep the car, stay in the apartment and save the extra money.
People will stay that owning a home is an investment - maybe in some areas it is - but not all. If home values are relatively flat in that area or grow very slowly then it is a losing proposition. You will be paying property taxes, school taxes and all the other "taxes" of owning a home: maintenance, repairs, accumulating "stuff" to fill it, etc. If the growth in that area is slow then that is all money down the drain - you won't get it back when you sell.
The more money you make, the more nice things you acquire, and the harder it is to imagine living without them. At the furthest reach, it's a private jet--the crack cocaine of travel.
Develop these appetites with great caution.
There, you never need to buy another TV again!
I don't understand why everything else that has a speaker doesn't have this feature.
Not stupid: Books you really read, long term investing, making experiences.
Today I have a monthly "Make-your-live-lighter-day" where I give away/throw away things.
I buy a lot of books I don't really read, but I will hopefully one day. I still think it is good! Books retain their value. It's not like giving them away is bad at any point.
Oh yeah, you don't need to save that internship money, I'm good now. Besides, I make like 5-6 times what you are making.
Best financial decision i've made was to buy some ETH (Ethereum) last year.
Understand buying vs renting before doing either.
Keep monthly (recurring) expenses low.
If you absolutely need a car, keep your ego in check and look at mileage & reliability.
Think long term.
- Always take into consideration mental health cost. Your commute, your work, the people you choose to surround yourself with. Debt in this area is unpredictable and therefore dangerous in the long run.
- No one has it figured out. Youth will always be wasted by the youth.
Good luck.
Rent. Home ownership only starts making sense on a 5+ year time frame, in some markets 10+ years. Having the ability to move for a better job will reap huge financial benefits, and moving for a short commute will allow you to have so much more free time.
Save vigorously, but not so much that you have a dreadful life now, pining for the future when things will get better once you have "retirement money."
What are your personal goals in the next 5, 10, 30 years? What do you plan on doing that requires money? How much money does that require?
Without knowing anything about your goals then any advice you will get (as demonstrated in this thread) will steer you toward structuring your life around saving money and getting safe but modest returns. Is that what you're asking for?
Here is a question you should ask yourself probably every 6 months:
"If I had infinite resources (money/whatever) what would I do?"
Take that answer and then figure out how to accomplish that without infinite resources.
Everything that you will ever plan on doing will require money.
2. Be highly skeptical of most of the financial services industry, especially those selling load funds, insurance, annuities, and who want to manage your money.
3. Enjoy simple cars, or no car if you can manage. The amount of money I've seen friends and family dump into vehicles over 25 years is staggering. I don't even see cars at this point. I don't care what others drive, and I don't care what I drive so long as it's reasonably comfortable, safe, economical.
Ideally, you'll come to realize that trading is a waste of your time, and you should set and forget a regular investment flow into the Wilshire 5000 or something equally diverse.
Lastly, don't let FOMO lure you into into investing in the new hotness of your age. For me, it was Internet stocks in 98-99. By the time you're hearing about it and it's productized in a way consumers can get involved, it's too late.
But don't rely on it, and don't overextend yourself. Traditional investment strategy is still a very good, solid one.
Move closer to your office. Even if the rent is a little more, the price is worth it if you don't have to use your car all the time.
In that scenario I would recommend this priority: 1) Put enough into your 401k to get your full company match. If you don't you're throwing away free money 2) Max out your Roth IRA. They have more investment options than 401k plans. 3) Max out your 401k.
If I had all the money lost from 'stock market corrections' on my investments, I could retire comfortably today.
Stop being a little fishy swimming with big fishies.
The interest paid today is a pittance compared to the risk. Save your after tax money in something with near zero risk until the interests rates rebound to make the reward worth the risk.
Honest question. I'm quite young (27), so most of my impressions of the market have been post-subprime-crisis.
Imagine, your investments being 'adjusted' by a market correction. Lets say, you lost $10K. How long, at 3% or 4% would it take to recoup that loss, without additional investment. Basically, you can't, at least not in your lifetime. Those corrections happen, and your losses, after a while will be greater than $10K. Big fishy has to eat.
Doubt it. When the average savings account is <1%. I think that became permanent.
It doesn't matter. If the bank pays you 10% on a savings account it's because inflation is high as well. In my opinion, bungie4 is giving you advice from a rather cynical world view. I understand it (sounds like bungie4 has taken some bumps and bruises in the market), but I don't agree with it.
A savings account will never give you more than about 1% real (inflation adjusted) returns because it's completely safe.
To both of you, I would say don't sell during a correction. You need to stick with the plan when times get tough. Paper losses are scary, but they are only on paper.
(Funnily enough, folks love volatility when it's in the right direction. Home equity is great, right? But for some reason paper losses send us into panic selling mode.)
Yup, been burned many times, losing half of your net savings tends to make one cynical. But this post was about what you would tell your 25 year old self. That would be my number one thing. You can choose to ignore it or not. Sounds like you've got this figured out, so you should be golden.
Also, lots of folks who lost out on the last recession would be in an equal place post-recession had they left them money to recoup the losses. It wouldn't have been gains, but it wouldn't have been the kind of losses they experienced either. Much easier said than done, though. I don't blame them.
The only advices missing are predictions that are possible only with actually observing the future (e.g. buy GOOG/AAPL/AMZN).
Also, put some money aside for savings.
- dont waste money on tv subscriptions
- play less videogames
- take greater care of your friends and relations
Im building my start up ejgiftcards.com. Its generating revenue with about 20-30% margins. Current revenue is about 50-60k per month.
1. Max out employer's 401k match. 2. Build emergency fund to 3-4 months expenses 3. Max out Roth IRA 4. Pay off low interest loans (if you have high-interest loans, which I don't/haven't then this becomes #1 and pay them off first).