Comment by oscilloscope | Hacker News Reader

Comment by oscilloscope | Hacker News Reader

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It's important to start saving first and buy property only after you have a sustainable nest egg. The extra liquidity from saving helps in all scenarios: if you need to find a new rental, if you need a down payment, if tragedy strikes and you need to support a loved one.

If I had to list financial lessons for most Americans they would be:

1. Pay down high-interest debt. Nowadays that's 5%+. Anything above 10% is an emergency.

2. Save an emergency fund: 2-3 months living expenses. Put most of this in a high-yield savings account earning ~2% interest.

3. Look at retirement savings plans that are advantageous for your taxes. Tradtional IRAs, Roth IRAs and employer-match 401ks are a few places to start. Try to save at least 15-20% of your income this way.

4. Great job! Continue to build your emergency fund (to 4-6 months), pay down moderate-interest debt (3-5%), and contribute to retirement accounts.

5. Put extra cash in stock and bond index funds in a taxable account. You can use this money anytime but its value will fluctuate (hopefully growing long-term).

6. Saving for a house? Sock more money in that high-yield savings account to hit a 20% down payment for a home mortgage.

7. Now you're ready for OP's life lesson #1. Buy a house you can afford and keep saving.

This advice is only applicable to those who aren't in mountains of debt, which is pretty hard to do when you're younger than 40: $30,000 in student loans plus whatever other debt was acquired getting situated after college such as credit card and auto loans...

> 1. Pay down high-interest debt

sounds pretty applicable. As someone who found himself in precisely the described situation ($40K in student loans, a car loan, and some credit card debt resulting from living in the Bay Area on an entry level salary and not being disciplined enough to live within my means then, I can tell you that this advice is painful to execute, but actually the only thing that works.

If you're fresh out of college and have student debt, you probably shouldn't be taking on an auto loan of any notable value... and you shouldn't be racking up too much in credit card debt beyond maybe a security deposit on an apartment as a last resort.

Even if you have a six-figure job, everything you need should be acquired like you're broke, because you literally have negative money until that $30k debt is wiped out. In fact, if you live that way for a few years on a six-figure salary, you should be able to knock that $30k out in one year and save up the downpayment for a property in the following years. I understand this isn't fun and most people wouldn't do it, but it is the solution.

The banks have made us very comfortable living with debt, and we have to do everything we can to resist it. Credit cards are great for cash back but you shouldn't carry a balance -- set the limit to an amount that you can pay in full every month.

For someone making median wage after graduating (>= $55k) that $30k student debt should take no more than 5 years to kill - $10k taxes, $30k living expenses (and I'm being very generous with this), $5k savings, $10k loan payment (numbers are approximate). Someone who graduates college in their early 20s and has income comparable to their loan amount should not be entering their 30s with any student debt.

Auto loans - never buy a depreciating asset with debt. When starting out, save up for a few months and get a cheap used car for cash, then level up every few years as your circumstances improve, until you're satisfied with your car. Always pay cash - if you can't pay cash for a car, you can't afford it.

Credit card debt should not exist, period (one exception: life-threatening medical emergency for oneself or a loved one, and no savings). Credit cards are not meant for borrowing money; they are for getting rewards points and building a good credit score.

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