Ask HN: How do you manage your financials?
Hey, Im wondering how do people go about managing their financials, between paying off loans, saving money and investing. Do people feel like they are making the best decisions when it comes to money?
- YNAB (You Need A Budget) - budgeting/tracking app, plus lots of great content on how to use the software and generally manage your budget/expenses
- /r/personalfinance subreddit - checkout their wiki [1] and flowchart [2] in particular for a really helpful overview
- For investments I use spreadsheets to track allocation, targets, etc.
- Bogleheads wiki - investing, heavy on index funds, low fees, etc.
- Whitecoat investor - a lot of good content, mostly aimed at high income earners plus some content specific to medical doctors [3]
- A variety of books - there are a lot of good ones out there
1. https://www.reddit.com/r/personalfinance/wiki/commontopics
2. https://www.reddit.com/r/personalfinance/wiki/commontopics#w...
3. https://www.whitecoatinvestor.com/new-to-the-blog-start-here...
https://www.bogleheads.org/wiki/Bogleheads%C2%AE_personal_fi...
* If you run out of money before getting to the employer retirement match, you are living beyond your means and you need to rectify that ASAP.
* Avoid credit card debt especially; the interest rates are not in your favor.
* If you're making tech sector salary, it's probably best to maximize Roth IRA early and hard--you're likely to hit the salary cap on Roth IRA before too long in your career ($120K is when the contribution is reduced; $137K is when it disappears entirely--although note that 401(k) contributions are excluded).
But the tech just isn't that important, as far as I'm concerned... What actually makes a difference for me is, every morning (except occasionally on weekends), I enter the previous day's transactions, balance my books, and commit the changes to a git repo. I think balancing daily is important:
1) Balancing accounts can be a massive pain, but when I do it every day, it generally takes me about 5 minutes (so maybe 2 hours a month), while balancing at the end of the month, even if it only takes the same 2 hours, is very tedious and I have no motivation to do it, so it doesn't get done.
2) I've caught multiple instances of fraud and the occasional bank error or paycheck error within 24 hours of their occurrence. Not strictly necessary, but helpful to get it sorted right away.
3) One of the best ways to remember things is to review the next day. I find I have a much better picture of my financial state, and how much I've been spending recently, when I'm taking 5 minutes to look at yesterday's numbers, every single day.
My wife and I have what I believe is a novel approach. Our requirements were low mental overhead, but effective.
99% of what you read says to make a budget and follow it. Well, that sucks and is zero fun. It also doesn't apply to people who's income is significantly higher than their expenses, or people who are paying off lots of student debt or saving for a house etc since it just measures monthly dollars (income statement) and doesn't focus enough on where you are and where you are going.
We use a balance sheet approach. Every quarter 12/31, 3/31, 6/30, 9/30 we go through all our accounts, and calculate total assets (401k, cash, kid's 529 etc) and total liabilities (we have a car loan for example). After a few quarters you can see how things are moving and you can talk about decisions in terms of how it will impact future balance sheets.
One discussion we will have again this quarter is whether to pay the car loan off or put the equivalent cash in the market, or CDs to some other choice. TBH, we may not even do anything for a few quarters because we don't have to, but the balance sheet approach means we will talk it through in March which forces us to make an active decision, and not just leave the cash in a zero interest account while simultaneously paying interest on a car loan.
We also take that quarterly time to review things like life insurance, trust for our kids etc.
Side note, anyone have a good article on how to buy long-term disability insurance for office workers?
Personally, didn't feel there was enough fluctuation to justify 3 month intervals.
After we buy a house, we will probably do it a year or so, then move to bi-annual.
Past that, I use a great credit union for liquid cash and mostly liquid emergency fund. The later we have pegged at 6 months of burn. Investments are across a couple institutions and consist of Roth IRAs and 401k stuff - that all goes in index funds.
for example- My wife and I have a joint brokerage account at Fidelity, and my wife also has a 401k at fidelity. She has a login associated with the brokerage account, and one associated with the 401k. However, via each login, all of her accounts are visible.
mint.com cannot understand that these accounts are duplicated. There are manual overrides to disable certain accounts, but these overrides work on some portions of the site (such as the overview page) and not other portions (such as the net worth tracker over time chart).
I feel that mint has already reached peak revenue per user and is now trying to glide through the rest of its lifecycle with minimal investment in the site, so these problems might not work out ever.
I highly recommend ledger for any (easily bored) programmer who wants to track their finances (and learn some basic accounting). Note other flavours exist too [2].
[0] https://www.ledger-cli.org [1] https://plaintextaccounting.org [2] https://hledger.org
1) We don't do debt. Certainly not for consumption purposes; we avoid it for capital purposes. We have a mortgage, but we saved and paid cash for the last car we bought; we might take a loan for a car... but even then we know the return we expect to get on the car would far out-weight the cost of the loan for the kind of car we'd entertain buying. A loan for education? Not unless a conservative expected rate of return justifies the debt: and I don't mean over a lifetime... but more like a decade.
2) A follow on to 1... We will avoid savings/investing (except for a very liquid, minimal emergency fund) if there is debt we can pay off early. Retirement savings are an exception because of tax law considerations. Our mortgage is low interest, and we might do better investing that money... but we might not and I know how much we save if we kill the mortgage early.
3) Don't spend what you don't have. Do your damnedest to not spend what you do have. Much of this goes back to 1. Many people create a budget as a means to give themself permission for otherwise unregulated spending on consumption goods... they'll budget a bit for savings and a bit for necessities... you know what's fair and "rational". But everything else is fair game and their budget, if they keep it, removes the guilt of what to me would look like over-spending. The default should be don't spend and justify each purchase. Yes, sometimes leisure is a worthwhile investment into yourself/family: but think through those decisions and alternatives that achieve the goal of leisure, but not at the cost.
Aside from that we use off the shelf software for tracking; but tools really are a minor consideration compared to having a healthy attitude to money and spending. We don't produce budgets because our default thinking is healthy. We do plan, but chiefly we just don't spend so that when crap does crop up we have the resources... or don't have the threats (debt)... as a default position rather than let-lose-spending with a minimum planned savings.
Note that none of this is investment advice. We're terrible at that side of the equation so I wouldn't offer it: but the first step is don't spend first what you might invest.... then you can worry what to do with your capital.
Finally... none of this comes from an philosophical anti-materialism or anything of the sort. It's all just being responsible for ourselves and our financial health.
The question should not be: do I have enough budget to make this pruchase. the question is: do I really need this thing I'm going to buy.
Budgets should be for estimating future spending or learning about your past spending behaviors. It's a tool for assessment, not a license to spend more.
My wife and I tend to spend about the same amount each month and there are rarely surprises. I check the statements before paying just to make sure no fraud went unnoticed, but I get emails for any charge over $50 so I usually catch things before that. My wife and I both allocate some of our own earnings for buying whatever we like without having to consult the other--I'm not paying for her clothes shopping, and she's not paying for my Steam library.
I think this works because we're both naturally frugal people. Saving isn't effortful for us, but rather is the default. Just this past weekend, I had to remind my wife that it probably wasn't worth the Herculean effort she was putting into repairing a piece of jewelry she got on AliExpress for $2. I am sure proper budgeting and other tools could help us eke out a bit more net worth, but only a bit. The marginal return of that activity would be low for us compared to those who tend more toward spending than saving.
If you're looking for advice, I recommend reading through the wiki[5] over at /r/personalfinance and deciding what's best for your situation.
[1] https://www.bogleheads.org/forum/viewtopic.php?f=10&t=288192
[2] https://www.bogleheads.org/forum/viewtopic.php?t=302218
[3] https://m1.finance/r3lww4aeQ
[4] https://www.alliantcreditunion.org/
[5] https://www.reddit.com/r/personalfinance/wiki/commontopics?u...
Whoever is implementing these strategies should also understand how daily rebalanced leveraged funds like UPRO and TMF work, rebalancing, and their tax implications in taxable vs non-taxable accounts.
These strategies generally perform well in up trending or downtrending markets vs. 100% stocks, but would not perform well in long term sideways markets(we haven't seen this in our history, but it could happen).
In periods of stagnant interest rates, the strategy experiences downside from from fees. NTSX will not be impacted by this as much as the fee for that ETF is 0.02%, but UPRO/TMF will lose 2% a year in these regimes.
In rising interest rate regimes, these strategies are even more impacted as rising interest rates will decrease the value on the bond side. If the federal interest rates are increasing during a period of stagflation, you will see very significant downside. What this strategy is doing is betting that the US won't run into a period of stagflation where both bond and stocks will drop at the same time. We are currently seeing a period of stagflation in Germany right now and if that were to happen here in the US, this investment strategy would perform poorly.
What I've posted is for informational purposes only, you should not construe any such information as investment, financial, or other advice.
"Banking" tracks current assets/loans/etc as a current picture as well as predicting saving/interest/tax/return rates and giving an estimated assets at age X.
"Budgeting" tracks how much money is earned/spent in various categories and if it's on track for the years estimates. It also keeps track of expected yearly savings/spending and I sometimes adjust based on my habits/needs/desires.
I at some point every Sunday (either when I wake up or go to sleep usually) spend an hour a week updating all my accounts/spending. It's a great habit I've built over about 5 years now and it's really empowering. It's not about tracking every last dollar but more about knowing generally where your spending is going and if you're okay with those choices. It doesn't have to be set in stone either, but it means that increased spending is a deliberate choice you have to consider and weigh the value of.
It's a bit manual but I find rolling your own is really the only way to get everything you want. No software will cut it for sufficiently complex categorization (for example, I know exactly how much I spend on toilet paper because I break it out separately in a household paper category with paper towels and tissues), and building it yourself in code is probably a waste of time. Sheets/Excel really shine here.
For reference, I have about 15 or so accounts I check between credit cards, banks, investment accounts, Venmo, etc.
I have a spreadsheet that has a row for each week. I have it set up so that whenever my wife or I get paid, it adds that to the balance. Whenever a fixed expense is due, it subtracts it. It also subtracts the average costs per week for each week, and accounts for yearly projected bonuses etc.
The spreadsheet also shows any loans/loan payments.
Every few weeks I pay off my credit cards, go and look at my bank account balances, and compare that to the expected values in the spreadsheet. If they don't match, I figure out why and note that on the spreadsheet (i.e., unexpected surgery on dog, unexpected car repair, etc.).
The spreadsheet has conditional formatting that shows green if my bank balances are above my reserve amount for each week (including in the future), yellow if close, and red if under. I can see what my bank balances should be out through 3037 or so, when all my kids should be in college.
With that kind of a spreadsheet, you can instantly see when any loans you have will be paid off, and whether you can afford any purchase you're thinking of.
I try to keep as little in my checking account as possible. I have enough in a high yield savings account to probably last me a year. I max out my 401k. I have some money in six month treasury bills that gets reinvested whenever they mature. I have a recurring monthly transfer into a brokerage account that I put in a high dividend index fund. The only debt I carry is a mortgage that I overpay on. Anything leftover at the end of the month I throw into a Betterment account.
I'm curious why you've made this choice.
There are plenty of other social things you can do in life, but I've noticed that there is a crowd where none of them count. Either you sit in your favorite bar and talk, or you don't socialize. My time spent camping with friends is interesting, but it doesn't count even though we spent plenty of time around the campfire (just to name one activity I do)
I use Personal Capital to manage my long term planning.
I invest via Robinhood, Betterment and Vanguard.
I use Ally's High Yield Savings as my long term savings such as a 6 month emergency fund.
I still use my credit union I had in Atlanta even though I am in Nashville. I prefer them because I've been a member there for almost 10 years, so I have a rapport with them. I rarely have cash, and when I do I just spend it. I go to Atlanta a few times a year so if I need anything, I can just pop in one of the branches.
That's really it.
The annual budget spreadsheet has a tab for every year, and every December I duplicate the tab and adjust for the coming year. It focuses on cash inflows (salary, equity grants, dividends) and outflows (expenses, taxes, investments). This is what I use to verify I can afford to max out 401ks and similar, as well as gifts/charity and maybe the occasional major purchase.
The other half of this equation is GNUCash. If the spreadsheet is a strategic plan, this is the tool I use to tactically manage cash flows and track assets on the ground. There are accounts for the typical double entry categories: income, expense, asset, liability, equity. It tracks in multiple currencies, including ticker symbols and custom currencies, and tracks conversion rates between symbols and my default currency. I have a variety of recurring transactions programmed in and created 90 days in advance, which is useful when paired with the 'minimum future balance' column -- if transferring money now would result in a future balance going negative (perhaps between a paycheck and rent being due or a CC being paid off), I can adjust.
What I don't yet have is a portfolio management layer. I have a few ideas in that space, but it gets complicated quickly with taxes.
https://ynab.com/referral/?ref=ASH303nViLPCKyr-&utm_source=c...
It suits my needs perfectly, and I find it very useful, but from what I know I'm the only user of my analysis app :-D
Understanding where your money goes is a first good step in managing your finances.
[1] https://play.google.com/store/apps/details?id=com.helloexpen... [2] https://plot.ly/dash/ [3] https://gitlab.com/rbauduin/dash-expenses-analysis
As far as travel expenses go I've been casually churning credit cards for a couple years now. A few new sign up bonuses on travel credit cards pays for most of my personal travel needs every year.
I spent at least 60% or more on Assets. And keep liability spening to an absolute minimum:
- almost never ever buy new clothes
- xmas gifts - we don't play this game. we spend time with each other and make our own gifts, or buy them super cheap at yard library book sales, etc.
- always buy used cars, at least 5 years old and keep them for at least 10 or 15 years.
- absolutely no subscriptions (monthly payments) except utilities (just electricity, water, internet, cell phone, HOA, insurance). if you have more subs than fingers then you've got problems.
- minimize car maintenance (there's these big myths that doing lots of extra maintenance will make your car last longer, not necessarily true)
- no frivolous spending - I never buy stuff, unless I absolutely need it.
- rarely eat out, here in CA. eating out is way too expensive around here. and you never know what they put in it.
- never buy stuff you can get for free. why buy tea, when there's a lavendar plant in the yard? Rosemary bush yields are enormous. if you know a neighbor that has one, they'll glad you give you all the rosemary you want. etc...
By all means, don't waste money. But before even that, don't waste your time. You can always earn more money, but you'll never earn back time.
And, I think 10 minutes spent getting to know the neighbors or hanging out with family to pick their rosemary bush is a much better use of time than yet another 10m working.
Investments are all automatic: max 401k, max hsa, auto deposit to vanguard into a few indexes. If cash balance gets too high, I'll do a manual deposit.
My wife and I aren't big spenders so I have never found much value in micro-managing individual purchases or categorization (YNAB or mint). I do skim the transactions a couple times a month to make sure there aren't any surprises.
wrt paying off loans vs investing: lots of approaches here, the emotionless take is to just allocate based on interest rate. If your loans are low interest, then just pay the minimums and invest the rest. If they're higher interest than you expect your returns from investing to be, then just pay them off aggressively and don't invest at all until they're paid off (the exception here might be tax-advantaged accounts like 401k or IRA if you qualify).
The key thing is the way all my accounts are set up. All money flows into the checking account, and then automatic deductions take the savings into different accounts for short term and long term. Money does not sit in the checking account for long (except for a small-ish cushion.) All spending is done on credit cards, which I pay off in full with automatic payments from the checking account. This way, I know when I'm over-spending, because I have to transfer money back into the checking account. This is key, because it means as long it's planned (for a vacation, for example), it's fine. But if it's unplanned, I know I need to be more careful.
I don’t have any debt at a rate that makes me feel like I’m in any hurry to pay it off.
I used Banktivity for personal finances. I make sure everything is categorized.
Finally, I have a spreadsheet that calculates our monthly expenses (which I get from Banktivity) and knows the amount of retirement savings.
From those - our all-time APY, our savings, and our expenses - I am able to project what happens to our savings if we retire today, or what date we can retire if we want to always keep our savings above zero. It has an accurate social security model that assumes the trust fund runs out and we get paid at 80% benefits.
It's been a great exercise. The numbers are different (and more conservative) than most articles and web calculators counsel. Keep saving, don't rely on good investment performance.
It does so much and the customizable reports and amount of info it gives you at a glance includes some things I don't see in other apps. Examples are savings rate (not present in any other app I've seen) and a calendar view of your finances (which is in a few apps, but not many)
Common sense/ things that I'm applying:
- Never spend more than what you earn
- Save at least 20-30% to create an emergency fund & personal savings fund.
You may also be interested to read a recent & related HN post / course on this topic (CS 007: Personal Finance for Engineers – Stanford University 2017-20) https://news.ycombinator.com/item?id=21631834
1. Learn to live below your means. This lets you build savings. The best tool here is a budget. Our family typically cooked at home, brought lunches to school or work, and bought staples on sale. Our kids had to choose activities that fit the budget. If it wasn't in the budget, we thought long and hard about buying it. If you need help, Dave Ramsey's books are good place to start.
2. Your next priority should be pay off high interest debt as fast as you can. If you have long term student loans, pay them down as best you can and start to accumulate (by saving) a six month emergency fund in an FDIC insured bank. The large percentage of families in the US where a $500 unexpected bill is a major problem is way too high. The emergency fund gives you breathing room.
3. Once you have an emergency fund, you should make sure to start saving for retirement and college for skill upgrades or for children. Someone once wrote that compound interest was the 8th "Wonder of the World". It is wonderful if we are talking about savings but is quite a taskmaster if we are talking about debt.
4. Become a self-directed learner. Invest time and focus in keeping your skills updated. Training budgets and travel to conferences were early casualties when my employer had major budget woes - that landed the company in bankruptcy. I paid my own way for critical training I could not get on-line. Some coworkers criticized me for this. I did what needed to be done. Those who didn't stagnated...
I wish you well. This will not be fun at the beginning and there will be times in your life you have to put up with things you don't like but can't afford to fix now. We had 2 kids in college, and our kitchen cabinets starting to fall apart. My wife hated them. That was the first thing we fixed after the kids graduated (same day, 1000 miles apart - we each attended one...)
If the itch you're trying to scratch is two parts "control" and one part "understanding", it's a scratcher like no other.
Since everything is text-based, you can slowly automate all the boring parts, as soon as they become boring.
At this stage, I have a scraper that downloads plaintext bank statements, payslips, and 401k transactions, a transformer script (mostly `awk`) that converts those csvs into ledger's format, a makefile that coordinates it all, and a git repository that all this crap lives in (raw data, processed data, ledgers, and code).
I use this to track investments, settle debts among friends and roommates, keep track of tax deductions, and maintain a birds-eye statistical view of my accounts. I check in about once every 3 weeks, I'd guess. I spend maybe 1 hour updating the ledgers and balance-checking, and another hour iterating on some module or another.
It's more work to maintain, but it's a labor of love, and I've learned a lot about accounting and programming along the way. It's like a meditation practice at this point.
Plus, if in the future I ever want to start a business, I'm very confident that I'd be able to keep track of my own finances without needing to hire someone or pay for accounting software, at least for the first couple years.
TLDR; vim + ledger + puppeteer + gnu utilities.
My approach started with Dave Ramsey, but has evolved a little based on "I will teach you to be rich" and some others. In general, I see my finances as a funnel - income comes in and flows to fixed expenses, then to retirement savings and kids education, then to short term savings.
* Tell incoming money where to go, don't live paycheck to paycheck. Doing this better is probably an area I could improve.
* Ensure a 1000 emergency fund in a savings account if you have none already. This is "lost my job" money.
* Ensure income > expenses. So much could be said about this, but it's simple math in the end. You won't get ahead if expenses > income. If this is not the case, focus first on income (ask for raise, look for second or better job, do side gigs), then on expenses (cut spending, get out of vehicle/credit card debt).
* Periodically review spending and see how you can spend less or increase income. I do much of my own car work (~3k this year) and work on some side gigs.
* Don't go into debt except for house. Pay credit card off each cycle. It is there ONLY to get the 1-10% reduction in spending via cash-back rewards. I don't personally feel chasing reward cards is worth it, just pick one that does cash back with minimal fuss. For us this was Amazon Prime's chase card.
* Ensure 3-6 months expenses in an emergency fund (Capital One Money Market). Example, if you average spending 3000/mo, you need 9000-18000. Now you have that long to look for a new job or float a huge emergency, etc.
* As long as that is maxed out, put as much as possible each month in tax-advantaged accounts. Max out IRAs/401ks/education savings/health savings/etc. Max out matched retirement accounts (401k, etc) first. Lest I sound rich, I'm not where I can do this every month yet.
* For IRA, use M1 because it's fee-free. Research a simple blend of ETFs in proportions relative to your risk profile. If you have a while before retirement, something like %90 Stock (VT,VTI), 10% Bonds (BND)
* Save any remaining in taxable stock account at M1 for short term savings (car/vacation/large projects/etc). Research a simple blend of ETFs in a lower-risk config. (ie 10% stocks, 90% bonds)
In terms of where I store money, I:
* keep an emergency fund in a checking account with 6x my monthly spending
* keep the rest in broad market index funds, currently 10% bonds, 35% international funds, 65% us funds. I put the maximum amount allowed into tax advantaged accounts (401k and roth ira), and the rest into a taxable account
I had some credit card debt that I just was able to put a huge dent due to my new job.
I manage my finances mainly through estimation of costs . So like for the first month of my new job I saw how much I used for personal expenses and calibrated to that.
I did splurge on some Apple stuff at the end of the year on credit .
My biggest problem is that I have been rolling over multiple 401ks over the years so I’m unsure of my return.
If anyone is interested, I'd love to get feedback, hit us up on LearnLux.com
I then take a look at my family's annual spending in mint from the previous year to help out together a new budget. It can be hard to predict some big things like home repairs, but overall I find using actual expenses keeps me honest about our spending.
The learning curve is a bit steep if like me you have to learn both the software and the concepts of double entry accounting. It took me a few iterations to get it right but now that it's rolling I couldn't be happier.
Since my girlfriend and I share some of our common expenses I developed a web app à la Splitwise/Tricount that can export transactions to GnuCash. It works very well but I never polished the thing, I wonder if it could be useful to other GnuCash users.
I have been thinking about writing an app to do the things like YNAB/Mint but better.
Would you like to see something like this? Would you pay for an app like this? What are some of the things you would like the app to do?
I started using the various tools the country I live in has for personal finance (it's France): Assurance Vie, PEA, Livret A, …
The forecasting strategies mostly came from "I will teach you to be rich"
This works good for us. Pretty manual, but works out well.
We also live within our means which means managing future costs to the extent that we can/could. We paid off student loans, cars, and credit card debt. Then saved for a down payment and bought a house. We track 100% of the money coming in and the money going out and categorize it in as many ways as possible. This sounded pretty anal retentive to some friends of mine but they had to admit I knew exactly how much money I spent on food, mortgage, utilities, entertainment, etc each month. And that knowledge was usually enough to keep things from getting out of hand.
We targeted saving 10% of our income every year. Early on that was a more aspirational target, but by keeping our burn rate as constant as possible, with raises the target became achievable. We typically reserved 50% of any "bonus" or unexpected money for spending foolishly (well on things that aren't normally budgeted) and saved the other half. Once our savings reached a point where we had enough for emergencies we bifurcated into savings for us and savings for the kids college.
Then we started getting stock options or employee purchasable stock from our companies and used that to start a brokerage account (today I'd probably just put it in e-trade or something and go long on the S&P 500.) We were fortunate (really, its all about luck) to have chosen some good companies where the stock had some value. We diversified stock to fund the college fund.
We were always "behind" our peers in terms of new cars, or fancy vacations because we chose not to go into debt on such things once we could save up for them.
Looking back at it though it didn't really matter what program we used, what mattered were three things:
1) Keeping the discipline to track every dollar. This avoids "burn creep" where you start spending more and more and don't know it.
2) Always minimizing variability in costs (going from renting which was variable to a mortgage which was fixed, going from credit cards as cash flow (having a burn rate that is not always met by your cash flow means the occasional finance charge) to credit cards as payment device (once you have a reservoir of cash for overages you can always pay 100% of the balance every month)
3) Re-evaluating and adjusting costs every couple of years (new phone plan, swap out cable for satellite, sattelite for over the air, swap out ISP providers, magazine subscriptions, Insurance, etc. Any recurring cost from vendors in a competitive market has opportunities on about a 24 month schedule)
The only other thing is that we started pretty explicitly associating lifetime costs with bits of gear. (accounts call it depreciation) Basically saving $25 a month for "phone instrument" means that in 24 months you have a $600 to buy a new phone) Once you are keeping track of costs long enough and go through a replacement cycle or two you can get a pretty good feel for what things should cost)
For investments I'm restricted at work for compliance/legal reasons so I'm limited to ETFs and similar products (no individual securities). I've heard great things about Robinhood and would probably just use them or another no-commission broker (there are a bunch now). The easiest way to get good returns is just use index fund products. They have low fees usually and aren't that risky. You don't way outperform the market unless you really just get lucky, but it's very simple and easy to do. Full disclosure - I work in this area of financial services, but it really is a far cheaper option than just about anything else. Unless you have a stellar financial adviser (top 15%), they aren't usually going to be able to justify their fees over the long haul.
I pay my credit card multiple times a week so that I never pay interest and never get tempted to do anything foolish. Every day on the way to work I log on and pay whatever has posted that morning. My card has 2% cash back on everything, no limits (Citi DoubleCash), so it's very simple and straightforward.
I contribute enough to max out the legal 401k contributions allowed by law. If you can afford that, you should definitely do it. At the very least, get the employer match if you have one.
I have free accounts with Credit.com and Credit Karma. Log in periodically when they update to see where it has moved and why. They give recommendations - sometimes they are silly or not-realistic. But at least you can see what's going on and monitor for free.
Your credit card also probably has an identity protection tool - highly recommend this as it is part of good personal finance. Register all your known accounts, IDs, etc. so that you can get alerts if that data is being traded on the black market.
As far as additional savings, it's a roller coaster because every time I up the checking account over a series of months some large expenditure is needed (home repair/improvement, car, medical, something). But I try to mentally have a bottom in my head that I don't want to see the account go under and if it does, I try to cut back on extraneous things until it goes up by a fair amount. Over time, I raise that bottom. That allows for some growth in additional savings without having to be micromanaging a budget.
I always buy used, cheap cars. Neither my wife or I are car people. We don't care. Just an A to B type of thing. Highly recommend that. Pay X up front out of pocket every 5-10 years and then only around $1,200 a year in maintenance. Far cheaper in the long run.
I'm in my mid 30s, from the Netherlands, and work remote as a software engineer for a company in the USA. My net income is about 4500 a month, rent in Amsterdam (NL) costs me about 1400 a month, then another 1000 a month for all other costs (insurances, food, electricity, car maintenance, parking, water, phone, etc.)
That sounds like I should save about 1600 Euros a month. In reality I also purchase things that aren't part of my fixed expenses. A brand new PC set me back 2000 Euros, a new floor in my home office set me back 600, finally getting a kick ass new wifi router will set me back 400, and I'd like Apple Car Play in my car that will set me back 400 as well.
My car is my own, though. No payments on those except the depreciation in value every second it gets older and every kilometer I drive it.
My biggest issue is my apartment. It's 100 square meters (1076 square foot), 2 bedrooms, an absolutely amazing view, and when I started living here 8 years ago I could rent it with a far lower income because of a financial crisis.
Now, the housing prices have caught up. I'm living in an apartment that I couldn't even rent anymore these days (they exact my net income to be 5x the rent). The value on the buyer's market would be around 500,000 Euros.
So, to get something in the same league of quality and comfort, I'd need to be able to purchase a house at around the 500k mark. I can't afford that and I don't really want to take a big step down when it comes to location, view, comfort, luxury, etc.
I don't buy new cars ever. My own car is a VW Golf from 2017 so the biggest blow of losing its value (e.g. driving it off the lot the first time) has been taken by the first buyer.
When I want something new I wait a minimum of 2 weeks before I decide. I've been wanting a VR Headset for a few weeks now, and just decided that, while I can afford it, I'd rather not.
I've been traveling a LOT in the past year and that ate up about 20k of my savings. Worth every cent. But I'm only left with about 20k in savings now. And I'm not sure what to do with it at all.
Of course I'd love to go into stock trading. I'd buy Apple, Microsoft, Amazon, Tesla, and just... I don't know, then what? They rise and... I sell? They lower in value and I buy? Is that it?
There's so much terminology going about in that industry. What's a "short" exactly? Yeah I can Google it but honestly, I don't understand it. Should I instead simply give my money to an Index Fund trading company? Sounds safe(r) at least.
Should I buy a house at half my max in a more rural area and live even cheaper for the next few years and save up about 200k?
Should I instead spend it all on traveling and experiencing life?
Honestly, I've known people in their prime who got the news: "You have cancer, you'll die in a year". Sucks to be rich then, doesn't it? (Note: Health care is fully taken care of here, you don't need money.)
Or what if I get hit by a car tomorrow? I've been in one major accident already that nearly killed me. I don't feel like planning ahead that much. I'm young and strong now and I might not be alive next year. Or in ten years. Or in 30 years.
I'll just apply sensibility in the sense that I don't want to waste all my money. I need a solid savings account. And if it doesn't make life boring, I should spend money working towards a more lucrative future.
But I have no clue as to how.
But I get your point. In the case of an older failing body I'd probably just go for the euthanasia route. Why suffer when I've already seen and done it all?
The result is a guaranteed growing savings which I periodically invest in various assets while trivially maintaining a buffer for emergencies.
The trick is to live modestly even if you have money. Also, stocks are basically equivalent to savings, since with modern tech liquidating funds and transferring them to your bank in an emergency can take as little as minutes.
There's so much uncertainty in money management that you're probably IMO wasting your time micromanaging. Pick a couple decent assets, or even an index fund, diversify with a little bit of gold or alternative market hedges, and leave the funds alone. There's no reason to overthink money management if you plan everything with a healthy buffer - but that requires self control. Less stress this way though.
You put it all on Pair.
I started keeping track of my budget so I can comfortably spend without the stress.
Say here's just an example (DO NOT QUOTE THIS): Most people don't know how much money they should have for retirement. The FIRE movement suggest Expense * 25 = Your Nest so you can take 4% annually. People don't have to follow the FIRE lifestyle but the calculation itself could give some deadline/goals to keep yourself "sane" because Mathematically it looks "sound" (better than NOBODY KNOWS!).
EDIT: One thing that helped a lot in doing so was to treat any bonuses, whether that is stock, years end bonuses or any variable salary elements, as just that. A bonus. Don't plan with it as part of your salary, put it aside. And only use it for stuff, like, a house. Or true emergencies.
Also, have a separate bank account at different bank. Put every month, even a small sum is enough, on that account. Every month. Every year. And never look at that account, ever. Until the world is to end and you need cash. Until that point, don't even think about that account, never ever. Forget it is there.
Trying to time the market is a bad idea. Picking individual stocks is a bad idea.
This is assuming your main goal is returns on your investment. Picking individual stocks or even 30 stocks is basically gambling.
Really recommend reading "A Random Walk Down Wall Street": https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/03933...
There's just so many variables that go into the price that something that causes the stock to go up/down 20% can be completely unforeseen.
A broad market index won't have these weird fluctuations. Almost every single market strategy underperforms broad market indices in the long run.
Even hedge funds that outperform the S&P in one period perform average in the next period. In other words, past performance of funds has no impact on future performance. On average hedge funds picking individual stocks consistently underperform compared to broad market indices.
Again, if you have no more than 5% of your portfolio in an individual stock then a 20% drawdown on that one stock is not going to significantly hurt you.
People should feel free to decide for themselves if they want to spend the time to actively invest vs throwing everything into an ETF and no one should be shaming them into thinking it's akin to going to a roulette table in Vegas.
As someone in tech, I've done quite well investing in high quality tech companies like Apple, Netflix, Amazon, and Nvidia over the years. I keep my 401K in a broad index fund but enjoy actively investing a part of my wealth.
I feel like I have a number of coworkers who make investments like this, that haven't really been burnt on this because of the bull market. And because they know tech better than most, that's what they focus on, and it becomes a huge sector risk, even though no more than 5 percent is invested in any particular symbol. If five years from now we learn that someone in big tech has been cooking the books (https://en.wikipedia.org/wiki/MCI_Inc.#Accounting_scandals) that could lead to a sector wide dip for a variety of reasons, far worse than a 5 percent drop.
What it comes down to for individual investors is that diversification is at odds with well researched investing. You just don't have the time to pour over 100 quarterly 10-Qs, build sales forecasts, or predict next year's return on the 10y treasury bond. It can be a fascinating hobby, and while I have a small trading account with the IEM, all my real money goes into VOO/AGG.
Again, I just thinking screaming “anything except index funds is stupid gambling and irresponsible” is untrue. I also think those who become truly wealthy in life necessarily have to do things that the average person is unwilling to do, like invest understanding there’s a risk involved.
Then how do you know you aren't over paying for stocks? Your plan is to buy high and sell higher?
> it’s worked out well for me
My unvested RSUs have more than doubled in value over the past year, and ESPP has done just as well lately. The market has worked out great for everyone, especially those of us in high tech.
> if I need to derisk I will make that decision at a later time.
To me this reads as 'I will sell when the market drops hard enough to make me anxious.' A ton of institutional investors (think pension funds and university endowments) did exactly that, and it made them worse off in the long run. David Swensen calls that institutional strategy out as 'buy high and sell low.' IMO, buying into a down market is the real step the average person is unwilling to do, even though it's incredibly easy implement: sell off your winners and buy more of your losers.
If you have something more complicated in mind, I just am not ready to believe someone unwilling to bother calculating the present value of forecasted future earnings is bothering with looking at their Sharpe ratio and deciding 'welp, time to buy some VIX to offset this risk.'
> Again, I just thinking screaming “anything except index funds is stupid gambling and irresponsible” is untrue.
Even if you don't accept the premise (I don't[1]), doesn't mean active investors are a priori smart. I have yet to speak with anyone upset by the index investing philosophy I consider prepared.
[1]: There are clearly people who make a living doing this who dig far beyond financial statements. Random example I know of from a lecture given at Yale by a trader (https://www.youtube.com/watch?v=DMbhgSBIUfk&t=3875s if you can stomach the umms and ahs) reading Bond contracts ("indentures") and looking for companies that were likely to delay financial statements and owed bondholders par immediately. One such notable source of delayed financials was backdated options, and this exact accounting irregularities even affected the tech giant you mentioned, back in 2007. You may recall another facet of this story from HN favorite 'Why I did not go to jail' (https://a16z.com/2014/02/06/why-i-did-not-go-to-jail/) as this was widely practiced at the time.
I consider active investing to be a hobby. I get a kick out of seeing earnings reports come in from companies I'm invested in. Again, I've dramatically outperformed SPY over 10 years and the gains have nearly secured my retirement as someone in his early 30s.
I occasionally hedge with SPY puts or gold calls if I think we are in an actual correction. If it's sustained I would do that over selling.
And then your gains are cut by transaction costs, opportunity costs and short term gains.
The Dow does not take into account market cap or float, and when a security comes off of it at $5 a share and a new one goes in at $105 per share, then the index jumps $100 in value.
The S&P is better, but managed funds are usually better.
https://www.cnbc.com/2019/03/15/active-fund-managers-trail-t...
Does anyone have specific data on this? Does anyone
Every index has a divisor, which acts to preserve the return. The general calculation for an index level is Level=MCAP/Divisor. With the Dow, the MCAP is simply the sum of the prices instead of the sum of all MCAPS for the individual securities. When you drop one security and add another, the divisor is calculated such that it offsets the change in MCAP. In this way, when the index opens the next day it opens at the exact same level as the previous close and then the real time feeds kick in and update based on the gap up/down of each security in the Dow. The same basic logic applies to all top level indices. The calc changes for gross/net returns, currency variants, hedge calcs, etc. But the same principal applies that there must be a way to preserve the day over day return so that adding and removing securities doesn't throw off the actual index levels and returns.
Your 401k and other investment accounts that report performance do the same thing behind the scenes - particularly 401k. With a 401k you are consistently adding money to your investment pool and placing small trades to obtain more shares of a pool of securities. This influx of money doesn't artificially inflate your personal return for the year because the way the calculation is done is very similar under the hood to how an index is calculated.