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Comment by Moodles | Hacker News Reader

First aid is good. Also general investing in index funds like VTSAX and VTIAX. It is so simple, yet most people I run into on a regular basis just save their money in a checking account earning 0.01% APY. Follow the reddit personal finance flowchart. Learn about Roth and HSAs and ESPP and the benefits of diversification. We’re literally talking about multiples of your net-worth over your life if you invest compared to saving in a normal bank account. No, it is not gambling. It is riskier not to invest in the long-term.

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> reddit personal finance flowchart

Woa it's really good. Didn't even know that it existed.

For future wanderer: https://www.reddit.com/r/personalfinance/wiki/commontopics

It’s a good explanation for someone who is just trying to understand how personal finance works.

What I think would be more valuable would be to list college majors by future earnings perennial and also the idea of compound interest. So many people who graduate college still don’t have any idea about this. But as a society we’ve been drilling into everyone’s heads that going to college is a good idea when most people it is questionable at best.

"In the long term" is the important point there. Index funds are not a replacement for FDIC insured accounts. You should be using both.

I did not write that you should only use index funds for everything. In fact I wrote you should follow the Reddit personal finance flowchart.

Yeah, I wasn't disagreeing with you. I was reinforcing something you said.

My apologies for being too defensive.

Not USA, but if you have a KBC in your country (a Belgian bank, but you'll find them in other EU countries) they offer a quite easy way to start investing in index funds.

Essentially, each time you use your debit card, they round up the amount you owe the shop, and put that in a special account. For each 10 euro in that account - they invest it.

So for example, let's say I go to the shops and pay 9.30 for groceries. Then I'd end up paying 10 euro to the shop, and 70c will go to the investment account. Once the investment account reached a multiple of 10 - it gets invested.

It's a way to slowly build up owning more funds.

Of course, you can also just put X euro in it to start of instead of waiting for the initial 10 euro. :P

edit: typos

In the U.S. there is a company called Stash that does this.

https://www.stashinvest.com/

Also another one called https://www.acorns.com/

I wonder if this can have a detrimental effect for compulsive buyers: “Oh I shouldn’t buy this widget but a chunk of it will go towards my retirement anyway!”

Mh, that seems like a weak excuse because at most 99 cents would get "saved"

Do you have a link to the reddit flowchart?

https://i.imgur.com/u0ocDRI.png

Canadian version: https://i.imgur.com/zlGnuDO.png

What crowd are you in where most people have all their money in a savings account? That is borderline financial suicide.

The crowd that is saving for a downpayment for a house or similar short-term goal. You essentially need those funds to be risk-free. A flexible CD is another easy option.

The default best option isn't always to invest except for long-term goals like retirement. It depends on what you want to do. (Reddit flowchart agrees with this)

Also, some of us don't believe in retirement. It's a concept more applicable to blue-collar workers (whose decline in physical ability in old age prevents them from continuing) or people who want to kick-back and relax after a certain age, or be financially independent to pursue certain dreams.

But some of us (especially cerebral types) really love our jobs and are reinventing ourselves every decade or so in order to do new things within our professions. My learning rate is actually accelerating with age because knowledge pays compound interest and I've finally built up a large enough knowledge base for this to be happening at an appreciable clip. I'm in my 5th decade, and I'm no longer as quick with computational tasks but my knowledge acquisition and processing abilities are surprisingly much sharper than they were in my 20s.

I can't see myself ever retiring unless my health completely fails (in which case I have buffer funds for that, but I don't call it a "retirement fund"). My parents have been retired for years and in my opinion they are declining faster than if they didn't.

Probably most working class people in the US if they even have savings. In 2015, in the US, only 40% of the population spent less than they earned in a year and only 39% said that they could come up with $2k in an emergency: https://www.usfinancialcapability.org/downloads/NFCS_2015_Re...

Those numbers sound optimistic when I look at the rural, low income town that I grew up in where my family still lives.

If those numbers don't seem to match what you see in your social group, you probably live in a bubble.

They have all their money in checking probably because they don't have nearly enough money to invest.

Those people would be much better off learning to either spend less, earn more, and get out of debt instead of learning about how to invest hypothetical money that they'll never have with their habits.

I certainly didn't know a damn thing about index funds, investments, stock markets, etc until I actually had the extra money to invest. Now people come to me for advice.

I have multiple friends that spend their money on junk they don't need because "It's better than earning half a percent interest in a bank account." And since that is their benchmark, they justify it all as a prudent financial practice.

In many cases they have enough to invest something but don’t. I also recommended the flowchart in my post above, not just index funds.

If you have over $200 spare from operational expenses and the cushion then you can use Robinhood and buy the ETF versions of Vanguards mutual funds.

My family. Women I’ve dated. I’m back in my hometown for Christmas now and talking to people I knew from school. The average person doesn’t know about this stuff (though most likely has some proportion invested through the default option in their 401(k)). I mean damn, my aunt’s husband died recently and we had to bail her out of 10k credit card debt where she was paying interest.

The Hacker News crowd probably knows above average, though even then a lot of my colleagues could know more, e.g. haven’t heard of VTSAX, didn’t know our 401(k) does a mega backdoor Roth, etc.

If it ever comes up that you talk to them about it there are many sources of good information. But just to name one, https://www.iwillteachyoutoberich.com/ is pretty good, I think. (Not associated.) There is a book that I gave my kids.

Do they have 401Ks or pensions or other retirement accounts? Then they have stock or bonds.

FYI less than half of American workers have access to a 401K plan. Less than 60% have access to any retirement plan.

And for unfathomable (haha, well, is it really though?) reason retirement accounts are set up to mostly benefit people with very high wages whose employers (gotta have an employer, too, or arrange things so you're your own employer—man is this dumb, it's as if it's set up to disadvantage the poor and middle class) also provide a high match rate. Meanwhile most folks are lucky to get a 1 or 2% match, leaving them way under the max possible cap even if they put as much in as they can, personally, per year.

There are caps for contributing to tax-advantaged savings and pension accounts in the UK too.

I wouldn't say that that 'disadvantages the poor and middle class'. It's the other way around - it disadvantages the upper-middle and wealthy because they hit the limit and have to find other ways to accumulate wealth.

The way 401k retirement accounts are set up in the US, you can't get anywhere near the contribution limit on your own, you have to have huge amounts of employer contribution, beyond simple matching, even. It's like (cough) it's designed to mainly benefit top-tier professional class folks and non-owning-class upper managers while chaining people to traditional employment or complex personal tax arrangements. The other tax-advantaged account, the IRA, has a much lower total contribution cap.

[EDIT] to be clear it's not an absolute disadvantage to the poor and middle class versus having no such system, it's just that the way it's structured the overwhelming bulk of the tax savings goes to people who are already very well off, and those "beneath" them cannot possibly, no matter how frugal or responsible or fairly-well (but not excellently) compensated, hope to touch the level of benefit the very-well-off derive from 401k accounts. It's impossible, thanks to the way they're structured.

[EDIT EDIT] they're actually ideal for rich people who want to transfer ~$56k/yr to each of their kids (about $1.5m over 30 years), tax-free. I'd bet there's a further scheme one can work out to direct the investment of the fund such that the personal benefit is much greater than that, even (oh, kid of mine, you want to start a business? Funny, our 401k fund also "wants" to invest in it!). How? Employ them at one of your C or S corps (LLC or partnership won't let you get anywhere near the contribution limit, because... reasons? I dunno, it's a really dumb system if [cough] you're trying to make it broadly available to and useful for normal people) in one of the many positions near the top that're well-compensated but are so easy that lots of folks (stalk some from-money C-suite or "investor" types on Linkedin to see what I mean) seem to find time to hold one of them and also a few other "jobs" at the same time, so it won't look out-of-the-ordinary.

>you can't get anywhere near the contribution limit on your own,

That really seems like an overstatement. 401k contribution limits (without catch-up) are about $20K/year. That's no doubt more than most people save in a year but it's not that far out on the fringes of what mid-career professionals are/should be saving for retirement.

I don't completely disagree with your broader point. 401ks (especially with significant contribution match) and IRAs (and ESPPs such as they still are) do tend to most benefit workers who are fairly well-compensated. But they're actually less of a big deal for top execs etc. for whom the dollar amounts are relatively small.

> 401k contribution limits (without catch-up) are about $20K/year.

The GP may be referring to the $57K limit which is the total employee + employer contribution. The $20K/year limit is salary contributions. I think there's also a backdoor that lets the employee contribute more, but the real limit is $57K.

> But they're actually less of a big deal for top execs etc. for whom the dollar amounts are relatively small.

Indeed, few highly compensated execs rely on 401K. They cannot even get tax benefits for IRA's. The 401K and IRAs are designed for the middle class. The main problem is that you need an employer who provides a 401K. If my employer doesn't, I can't go and get one on my own (correct me if I'm wrong). On top of that, you are constrained by the funds provided by your employer's choice of 401K provider (e.g. may only have access to high fund fees).

>there's also a backdoor that lets the employee contribute more

I'm not sure about backdoors but there is a catchup contribution if you're 50 or over that lets you contribute about another $6K.

401Ks are really this weird little quirk in US tax law that, as I understand the history, came about almost by accident. And they're suboptimal in a lot of ways. Of course, they're now so entrenched as a middle class benefit that it would be political suicide to touch them.

Defined benefit plans would be better for a lot of people although they have their own issues--including underfunding and, at least historically, a very strong bias towards long-term employment at a single company.

> Defined benefit plans would be better for a lot of people although they have their own issues--including underfunding and, at least historically, a very strong bias towards long-term employment at a single company.

I came to the opposite conclusion: Defined benefit plans tend to be suboptimal. As you mention, underfunding is a problem. In the private sector what protections are there if the fund goes bankrupt because they overpromised? The safe thing is to make the defined benefits smaller so the account is always funded, but that's leaving money on the table. At least with my 401K (with decent low cost fund choices), I never have to worry about this. The money is mine and it cannot go bankrupt (unless the market dies, of course).

My state's employee pension is a defined benefit pension and everyone who is not a state employee agrees that we're heading for disaster. There's no bankruptcy escape clause - the Supreme Court has ruled that what has been promised must be paid out - even if it means raising everyone's taxes or shutting down all non-essential services. The fund doesn't have enough to pay what's been promised, so the state keeps borrowing money to pay existing pensioners. All the mayors in the city hate it, because pretty much any time they get extra money (via taxes, etc) almost all the money must be diverted to pay the existing pensions. Some smaller towns have increased in population quite a bit in the last decade, yet the cities cannot afford to increase the capacity of schools or increase police/fire presence because all the extra tax money from the new residents needs to be diverted to the pension funds.

Also, there is no cap to the benefit - and it is based on your income while you worked. So we have one retired person getting paid $80K/month from the pension because he was the president of a state university.

It's gotten to the point where many people automatically vote against any increase in funding in, say, schools etc because they know the money will simply be diverted to pay pensions. So legislators try playing games by adding riders to bills that say "None of the extra money raised by this bill can be used for pensions" - but of course that doesn't work because they simply shift the money from elsewhere.

For private pensions, there's the Pension Benefit Guaranty Corporation which is doubtless not perfect but makes things not entirely at the whim of the original company that created the pension.

Certainly public pensions in particular have been a big issue because of overpromising and underfunding. But, from the perspective of the worker, they do provide a level of (mostly) guaranteed retirement payments that lots of people end up not getting through a 401K. Sure, we can take the attitude as a society that's not our problem but it sort of is.

Personally I will have a somewhat nominal pension through a private employer in addition to savings but I understand why we may issues down the road where many people have nothing besides Social Security as opposed to more common defined benefit pensions as in times past.

Opening up the full contribution level for all employees and the self-employed, and simply mandating minimums of employer contribution (to keep them from withdrawing their contributions with this change and not simply adding it on to employee income, pocketing it instead, to avoid disrupting anyone's current retirement benefit) would do a lot to help. Though yeah, touching them in any way will be painted as "trying to take away your retirement", even if it's exactly the opposite.

The total contribution limit is ~$56k/yr. $19k is the limit on what you, the employee (or LLC owner or partnership member) can contribute, which is exactly what I'm talking about—most of the money has to come from your employer if you want the maximum possible benefit. It's pretty rad if your "employer" is your (or your rich parents') C corp, or you're an owning member of an S corp that's rolling in money, though.

There are also costs and various rules associated with administering 401k plans. I'm not an accountant or financial advisor so I'm not sure how effective using these sort of arrangements would be. (Of course, lots of money opens up a wide range of tax minimization and savings strategies.)

My point is basically that at minimum 50% of the taxes foregone to support the 401k system[SEE EDIT] is going to people who definitely would have had an awesome—not just OK, not good, awesome—retirement no matter what. Not the poor or middle class. Functionally no-one in the middle class is getting five figures of contributed funds per year from their employer, let alone the ~$36k it'd take to max it out. Who are? Top-end professionals who can be self-employed in such a fashion that they own their "employer" (and again, LLC or partnership won't cut it, because reasons) and very well compensated corporate folks (chiefly management-tier). Plus family of rich people who're just (legally, but clearly via Some Real Bullshit) dodging taxes.

[EDIT] OK so 50% is not necessarily right, obvious, I realized as soon as I posted, but the benefits are very disproportionately in the favor of people who aren't exactly the ones one might hope a government-supported retirement system would be mainly designed to help, and the best possible benefits aren't practically available at all to middle-class people even if they do somehow manage to put the actual total contribution limit away for retirement (they'll lose out on probably at least half the max benefit of the system, since they can only put ~$19k or $20k in tax-free themselves and probably only get low-thousands contribution from their employer at best, so the rest is getting taxed before being invested, and IIRC you can't even stack an IRA on top of a maxed-out 401k contribution)

I still don't see your point.

A poor person can put 100% of their wealth in. Someone who's well off can't.

I think you're just saying that a poor person has less money than a rich person.

Of course they do - that's what the words mean!

Yes, I know. They don’t understand what they’re doing very well though. Education will affect their net worth massively.

There’s a difference if you’re sitting on $100K in cash earning nothing or a few thousand to use for living costs. If the latter then investing in stocks is actually not very prudent.

Confirming. In college, I received what I thought was a decent windfall for a young adult (and what was roughly what people say should be enough to "get started" investing). I invested it. This was just after the rally post-recession had hit its apex. Fast-forward 3 years later, when I've been laid off. Well, now I need that money, but the stock is worth less than when I bought it. I don't make enough to itemize taxes, so I can't even do anything with the loss. Welp.

I'd have been better off just letting it sit in a bank. When you're a normal American - increasingly lower-"middle class," if that, these financial schemes are worthless to you. You're in perpetual survival mode.

But try to convince wealthy capitalists to pay the average worker enough to allow them to actually be in control of their financial destiny. You'll be laughed out of the room.

Start your own business and pay to your workers as much as you want. It's easy.

You don’t need to itemize to claim a capital loss

I filed with TurboTax that year.

Hence why I said to follow the flowchart.

I also think the reddit personal finance crowd is way too focused on how to invest their existing money when almost everyone would be better off figuring out how to make more money from their day job than worrying about whether they can make 4% here vs 5% there from their existing savings.

Perhaps less true if you have a large savings of over $1M already, but otherwise no.

Ok. It takes an hour though and it’s not particularly hard. I just wanted to answer OP’s question.

Or cutting extraneous expenses. It's cliche, but really, making your own coffee and packing lunch can save $20-25 a day. That adds up fast.

True, though I’m in the camp of “make enough money where I don’t have to feel guilty spending money on food”.

If you’re more income strained then yes though.

This is true, but it's also a good thing to go to lunch or have coffee with other people. You'll get personal enjoyment out of it, and if you are talking shop, the relationship you build could offset the savings of packing your own lunch.

For example it's common that you will regularly have lunch with a work colleague, and then later they will recruit you to work at another company. Or they will give you insight on how to get support behind your project at your current company.

That might work for some, but lunch is also one of the few blessed hours of the day that one can get the hell away from other people and be alone. It's an invaluable battery and sanity recharging time.

Is there a flow chart for figuring out how to make more money from one's day job? I've heard this line of thinking before but people are always frustratingly vague about the income side of things.

I know a few women that make $100k+ with $200k in a savings account. No equity in anything.

They are too scared to invest.

What if that account offers 2% interest?

Excellent for an emergency fund, not good for long-term savings or retirement.

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