For someone who recently graduated and quite clueless about financial planning, do you have some resources to get started?
- Maximize every retirement vehicle offered to you (max 401k, HSA, etc).
- Pretend that any money you sock away for retirement doesn't exist. This is best done with automated withdrawals so you never even consider it money in your checking account.
- Learn to cook. This doesn't actually save much money at the individual level but is huge for families.
- Set up separate accounts for expenses and savings. Most payroll setups allow you to automatically divert funds to multiple accounts. This lets you automatically put $X in your expense account and $TOTAL - $X in the savings account. Again, the idea is to never consider that money spendable. It goes into a lock box.
- Shoot for a 50+% after tax savings rate. It sounds nuts but it's actually easier than you think. The key is to not bump up your expenses as your income increases. You might not be there when you first start out but if you're increasing earnings 5-10% per year you'll get there quite quickly (particularly in tech).
- Never buy a new car. They're for chumps.
- Never lease a new car. That's for the biggest chumps.
- Once you've built up an 8 to 12 month nest egg of reserve cash, start allocating the rest in a diversified portfolio. Pick securities from the trading company that don't have transaction costs (large discount brokers usually have in house mirrors of popular ETFs for this).
Stick on this path and you'll eventually be sitting on a decent nest egg. Plus if you've reined in your expenses, if you decide to go the founder route you'll have plenty of runway to pursue your ideas.
I'd say it can save a ton of money at the individual level and is likely much healthier, and often time as well (probably biased because I can passively cook because I understand the science of cooking)
My example meal that is paleo friendly is grilled chicken breast and frozen vegetables; my dinners cost ~ $3/day that way. Add in rice or quinoa for about $0.30/day.
If you're cooking more complex meals the savings or nutrition might not be as much - or if your grocery store is far away or expensive.
Some tools come in handy
- George Foreman cooks both sides and shuts off at a temperature. A little experience teaches you when a chicken breast is juicy or drill
- Oven cook timers (i mostly use the oven for fish/potato trays) are one of the most underrated and underused "automated" things that we've had for 50 years.
- Typically hard to mess up covered or steamed vegetables or potatoes; they have a "natural" alarm; is the water overflowing or do you smell at all (the water is low). Use enough water that'll it'll evaporate as you turn the burner down.
A new inexpensive Toyota Corolla will have cheaper financing, fewer miles, and a longer warranty and fewer years at the starting to get expensive to maintain stage.
You also have to price in the true cost of an old car once it reaches the age of unreliability if you intend to drive into the ground. Just one failure on a road trip can result in expensive alternate transportation, towing fees, expensive and unreliable repairs, your time etc. Having a young reliable car has value and how much value it has depends on whether you have more money or time.
Used cars are over priced IMO. There is an argument to be made RE trading in cars at 100k before you need to do the tires, brakes, plugs, transmission fluid either the first or second time. So many things aren't priced into cars correctly. Depending on how much you pay for mechanical work it's overall cheaper and lower risk and requires less of your time.
As long as you have 1 car that someone doesn’t absolutely need, or at least everyday, then you have time to shop around when your oldest one breaks down.
(Only speculating. Out of personal preference I only live in places where you don't need a car.)
Buying a new car every other year is for suckers. IMHO, buying any car every 3-4 years is for lesser suckers. Part of how you get to the comfortable decade on a car is to buy new and take care of it.
.. and, of course, this all goes out the window if you find cars interesting or exciting, and therefore want to buy nicer cars more frequently just because you enjoy cars.
https://www.robinhood.com/ Robin hood is a free stockbroker. They make money from loaning money and collecting interest on leftover funds.
https://www.mrmoneymustache.com/ Mr. Money Mustache is a blog about saving. He mirrors many of the above points and has a lot to share about how he reached an early retirement at 30.
> - Never lease a new car. That's for the biggest chumps.
Disagree on the leasing if you have your own company. The lease payments are all interest and deductible from your income. Sure, you don't end up with a car but if you do a 36 month lease, your new car is under warranty the whole time.
I've seen too many people suffer from the false economy of used cars. If you are lucky (or a skilled mechanic), you can benefit, but if not, the repair expenses and vehicle breakdowns become a large drain.
I agree that financing a new car is just a depreciation hole, but you need your wits to avoid being screwed over when getting a used car. You just never know what's been done to it.
Just get a 1-2 year old low-mileage CPO vehicle. It should still have the original warranty active. Ideally you should also target brands with great warranties like Hyundai (100k miles/10 years). This is as far as I can tell close to the optimal financial strategy for car ownership.
Personally, though, I do buy new, and I pay cash so I never, ever have a car payment. I hate the feeling of paying off a car over years as it depreciates. I really prefer to just get it over with and then enjoy knowing that I totally own it, no strings attached.
Optimizing your taxes can mean investing in your own home. That's the opposite of diversified, but in a lot of countries the tax advantages are just too big to ignore.
To follow up this point:
> - Once you've built up an 8 to 12 month nest egg of reserve cash, start allocating the rest in a diversified portfolio. Pick securities from the trading company that don't have transaction costs (large discount brokers usually have in house mirrors of popular ETFs for this).
Here are a couple of simple, low-cost all-in-one options that get you that diversified portfolio without you having to think about it. Pick one:
https://investor.vanguard.com/mutual-funds/target-retirement...
https://www.fidelity.com/mutual-funds/fidelity-fund-portfoli...
There are plenty of others, but those are two that I'd recommend in a heartbeat.
Note the item about hiring a fee-based financial advisor. I hired one starting a few years ago even though I am pretty good at this stuff, but I think they're especially helpful for newbies to establish good expectations and habits.
As it happens, Scott Adams appears to have meant the exact opposite of how he’s been quoted! Scott specifically meant to warn people off financial advisers who charge a percentage of assets.
Fee-based as a label appears to exist purely to confuse unsophisticated consumers, by sounding so similar to the (good) fee-only label.
With that said, be realistic about the trade offs you make, you can spend $30 on food and $10 on coffee every day if you want or you can buy a $30k car in cash in three years if you eat on $10 a day[0]. Good financial planning allows YOU to make informed decisions about YOUR money.
[0] ($30 (expensive food) + $10 (coffee) - $10 (cheap food)) * 365 (days in a year) * 3 (years) = $32,850 That is almost a Tesla Model 3 ($35k standard)
Granted, I got probably like 10-15 hours of gameplay out of it, but there went $60 + tax. Is the $4-6 an hour to play it worth it to me? I honestly have absolutely no idea. During the game, I had fun and lost track of time, but I didn't better myself or anything, and mindlessly passed time. I guess the philosophical debate of what is worth doing is left to another conversation..
Don't mind the corny title. It's full of practical and solid advice. And unlike many books, he gives you actionable steps to follow through with the advice. That's what makes the difference.