The Golden Rule of Personal Finance
bestinterest.blog
bestinterest.blog
maybe you spend serious dollars on bespoke japanese mechanical keyboards or something!
anyway, if you think your SO's spending exceeds your comfort levels, you should talk to them and tell them that! and if your friends/family think you should spend more...well, give them a link to your local coding bootcamp!
If you can afford it yeah - also live a little, don’t be a miser
To achieve this you need a plan. The plan can be responsible and also contain periods of spending more than you earn.
This will allow you to invest in your life, and the lives of the people that you love. For example, go on holiday with your kids while they are kids. This could cement relationships (not just with you) that will be really important in their (and your) lives. Another example; do the job that's a spring board, but lower paid than the job you really need. Ok, so you run up some debt - but you get access to your future career.
Education is another (more controversial) one. I invested in my education when I was young, but I am from another era and I am well aware that what young people are asked to put in for a doctorate now is just unbelievable. It paid off for me, it may not pay for you.
For decades I spent wisely and executed on a plan while donating 10%+ of my gross to the megachurch into which I was born. Everybody in the church, including my parents, said it was an investment.
Spoiler: It was not
I still wonder how this could have been effectively communicated to me at an earlier age...the church teachings I received were designed to inoculate against outside opinions. When I joined the ranks of leadership myself, I also taught others to pay "God" before paying themselves.
By the time I stopped paying, I could have used my own donated funds to retire twice over.
I use YNAB because it works for me, but I've used paper and spreadsheets in the past. The key is having the budget so you can understand where your money is going. You aren't always going to stick to the budget, but by paying attention and classifying all expenses, you can better understand things going forward and then plan better.
I don't care if you make $35K a year or $350K a year, you need a budget.
If that is the golden rule, then the platinum or diamond rule is to earn at least $x. There exists a lower limit under which certain parts of life are simply not affordable, such as saving for retirement, healthcare, education, children’s education, etc.
>I don't care if you make $35K a year or $350K a year, you need a budget.
At $35k, I imagine everything coming in is going out. You really just need to focus everything on increasing income. For people in the USA at least.
Actually, because of cliffs in the qualifications for government benefits, the rule might be earn less than $x or more than $y, but not in between.
You do realize that like half the world lives in under a dollar a day right? It is expensive to live in the west, and technically you are right, but people even manage to have an apartment, etc, etc, etc, in NY city and live on $100 a month.
People spend money mostly to signal to others their wealth, and secondly to save the brain power it would take to find free alternatives. 35k is just so far below your income it is the furthest you can image or have acquaintances at that level. But if you make that, you would have some other arbitrary number where it was not affordable to live under.
If you make $35k, it is still possible. It might not be comfortable, and that seems to be the great success of capitalism in the 21st century: convincing people that they shouldn't ever be uncomfortable, or that they can't be without certain items or experiences that they most certainly can be.
Increasing income is great. Literally (almost) everybody wants this. There is high demand for increasing income. The supply is part of the issue, and the cost of increasing income is the next barrier. Bettering your situation takes effort, either to decrease your spending, or to increase your income. Doing both at the same time takes double the effort.
The last thing somebody making $35k (or $25k) needs is some provincial yuppie zoomer saying to them "Just make more money lul". It doesn't help anything.
My advice is for those at 25 years old working in a fast food place who can read and write English. Their time excessively pruning their budget is better spent learning new skills and attempting to sell their services in a market that pays more.
>If you make $35k, it is still possible. It might not be comfortable, and that seems to be the great success of capitalism in the 21st century: convincing people that they shouldn't ever be uncomfortable, or that they can't be without certain items or experiences that they most certainly can be.
I do not know what this means. It is possible to live in the forest and forage and be comfortable, everyone was a few tens of thousands of years ago. But surely things like a safe neighborhood, healthcare for you and family, and opportunity for education are basic things that people can be expected to strive for, and that are not really achievable under a certain income in pretty much all populated regions of the US at $35k per year.
Doing anything excessively isn't good. Nobody is saying budget "excessively". If budgeting is taking up all your time, may be you're budgeting excessively.
At most you cannot make more than the GDP of the Earth, while your spending habit can be arbitrarily high.
If you needed time off to study for a career change, you cannot do it without first having a budget, saved up and such.
So regardless of the desire to increase income, the first step is to have solid data about your expenditures; aka, a budget.
It may be that those with lower incomes spends more on a smartphone because it is their only way to access the internet.
I bought a Chromebook for $200 probably 5 years ago that my wife still uses for all of the things that she doesn't want to use the phone for. There are still decent computers that are available for far lower prices than top-of-the-line phones.
It all goes back to personal finance vs. capitalism. Big Business wants you to believe that only the best smartphone will do, no matter your budget (what budget, haha?).
If you don't make that much money and you want to escape eternal debt-hell, you have to overcome this mindset and find good budget options. And I maintain that it can be done. Move out of the city. Establish trusting relationships through your own hard work and good faith efforts. Swallow your pride and lean respectfully and gratefully on friends and/or family if you have to. And then be there when someone needs you for the same. Big Business also wants you to believe that it's every man for himself, but that doesn't have to be true either.
That's a catchy thing to say but if someone is making $350K a year and easily saving / investing six figures annually without a budget, telling themn they need a budget sounds a bit absurd. I'd say the further you are from being able to invest / save sufficiently for your long term goals, the more a budget will help you. Admittedly, not nearly as catchy.
For the people who need a budget, they would just run out of money completely before their next paycheck and either get kicked out of their apartment, or dip into their savings.
I'm in that situation. I'm fairly thrifty and don't spend much. But after looking back over my spending, I've realized there was enough useless crap that I could cut out. For example, I realized I was spending an enormous (to me) amount on lunches at work, though it was nothing fancy. It's just that I was working in a rather touristy / "rich" part of town, so aside from a pastry, everything was above €10. I started packing my own lunch most of the time and the cost went waay down for no discernible loss.
Bonus points for eating less and losing some weight, but that's a different story.
Or can save some hardness as you reach 55plus, when getting employed becomes harder but state welfare is still 10 years down the line.
An habit to budgeting helps because people aren't always top dogs.
A budget is designed so that when the rent becomes due on the 29th, or you are hungry and you want want to consume food on the day before your paycheck comes in, you don't discover you have $2.50 to your name.
You could put money aside for food every day, and for rent, and utility, as well, and that would be called a budget. IN fact just paying yourself first, is just a really simplistic underdeveloped budget.
Then I got into FAANG and switched to buying whatever I want and fully pay off credit cards every month
UNTIL my wants got bigger and bigger - last minute vacations, concerts, a lot of “experience” stuff coming out of covid lockdowns
And now, RSUs are down , I spend more than I bring in each month, started drawing down on cash savings - YOLO - still driving a Camry though
I need a budget again
I don’t think it’s entirely YNAB’s fault. But having to manually input each credit card transaction doesn’t make me feel it’s worth the monthly charge. Then it just becomes a spreadsheet.
EDIT: that is— the lessons are excellent and the mindset is important. But it’s monthly cost is another issue.
I use my AMEX for 90% of all spending. No issues importing transactions to YNAB. Sometimes there is a 1-2 delay, but they do import.
Maybe I was spoiled with near instant syncing on my debit card, I used to categorize the gas i just paid for before leaving the lot.
But again, at 15 a month, that’s a lot of effort for a gui on top of a spreadsheet.
The benefit for me was quick transaction logging and categorizing, then a weekly/monthly check up. But with sync issues, those check ups became categorizing sessions, and just took too much time.
You seem to be trying to imply that I must believe that any form or preparation is a sign that you can't execute. Which is dumb.
I've said nothing of the sort. That's pretty rude to people who actually suffer from OCD.
I don't personally believe checking my net cash flow every few months counts as budgeting but if you do, sure, that's a semantic disagreement.
Then again I've often thought that I simply don't need a budget for X if my spending on X (as analyzed over a year, or five) is so much below of what I would put as a budget if you'd asked me to guess one.
Example: If I like buying music, I'd maybe give myself a budget of 30€ for music per month, that's 2 albums. Looking at how many albums I actually buy in a typical year, or in an excessive year - I've never even come close to buying 24 albums in a year. So that thought process might have happened once, 10 years ago and until I start to earn a lot less or albums get a lot more expensive, I'll just buy as many albums as I want, and usually end up with 5-10 per year.
For example, I'm about to take a trip to Europe, which would never have been possible if I had "budgeted".
Curious why ? Sounds like the same thing
Ignore them, and you can do whatever you like! You do have a point though, I could probably bring the cost down and still manage it... this is what budgets are for.
Annual income twenty pounds, annual expenditure nineteen nineteen and six , result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery
1. Always pay off the credit card bill every month. Completely.
2. Mortgage payment < 40% of take home salary.
3. Buy the cheapest new car you can afford and run it as long as possible.
4. Never buy branded clothing unless on sale.
5. Maintenance costs less than replacement.
In summary be a cheapskate and ignore the neigbours with expensive doodads.
Every time you don't drive the car, you play the maintenance slot machine one less time, and the accumulated effect of lower maintenance costs and lower gas is non-trivial.
The other thing I would add is to be honest with yourself, add up the car costs, rego, gas, tires, the maintenance schedule (you have a schedule even if you don't follow it). Your $20,000 dollar car probably costing you thousands a year.
He bought his vehicle new and put 144k km on it over the course of 22 years.
Of course that was only possible because there was a public transport network in place.
I, after an initial period of driving long distances, sort of followed in his footsteps via remote work and getting groceries delivered - the latter feels like cheating though, since that's just someone else driving instead.
In any case I can't recommend this enough. Cars are amazingly useful, but when used daily costs pile up quickly.
Driving to work actually costs you something more like ~$30 in fuel and parking and ~$25 in owning the car ($55). Biking to work costs you $0 in fuel and parking and ~$25 in owning the car that it sitting in your garage ($25).
Fuel is a small percentage of the cost in owning a car, and even the most insane parking costs get anywhere near car ownership costs.
For instance, I just fixed a 2c plastic clip that pretty much made my microwave unusable by virtue of the door being un-openable. In order to do so, I had to have my fingers about 3 inches away from a bare wire transformer which near totally obstructs what should be a very simple fix.
Plenty scary and dangerous enough for me to have to call the manufacturer and find a certified local repairer...
Friend had an older washer with a giant "timer dial" that was cheap to fix - the new dial cost like $50 and was simple to replace. A similar washer that I had had a single plastic part that held the dial in place break, and the only way to fix it was either bolt some metal strapping around it (which I did) or buy a new faceplate at $350 (+ shipping) - that's half the cost of a SpeedQueen (which I eventually bought when the pump crapped out. The SpeedQueens don't change year to year and they're basically laundromat machines so they're very repairable.
If you do decide to replace an appliance, there are people that will take away the old one for free, because they will repair and resell if possible.
Over time this became "spend 30% on housing" which, if you think about it, is kinda insane. It's obviously a rule of thumb that doesn't fit directly to everyone (should Musk spend $720 million a year on housing? Should you buy a new house every time you get a raise/change jobs?).
It's like the "renting is throwing away money" - it's a marketing tagline that has become gospel truth somehow. There are times for renting and times for buying and each situation should be evaluated to the best of your ability with the knowledge you have.
These are not the same at all.
> 25% should be the goal
I think 70% should be the goal - why? Because I pulled it out of my ass. Do you have a sound financial explanation for this benchmark, because it sounds like arbitrary dick sizing.
60% of income on a mortgage in a relatively stable area without insane property taxes is likely a very prudent allocation of income, since you both have a good investment and a place to live. Spending 60% or even more of income on a mortgage may well be better than 25% on rent.
Another thing, 25% of income is very different at $30k then it is at $300k. This is something the budding personal finance advisor should understand.
> then you need roommates
Is that what you’re going to tell people in their 30s with kids?
To meet some arbitrary 25% income metric - no thanks.
Notice you said nothing about “afford your bills” previously - but you have some very unsubstantiated definition for afford.
The idea that one should automatically consider roommates if they can’t keep housing below 25% of income is asinine.
Meanwhile still waiting for the derivation of “25%” in the first place.
Again with that clueless equivocation.
> 40-50k, but if they are spending more than 25-30% on rent/mortgage they will have a real hard time making utilities, food, car, insurance, etc work.
And yet millions of families in the US alone are literally making this work. So that’s nonsense. I have literally lived this. There is no goddamn reason spending more than 50% of your income to own a nice home in a good location is necessarily a bad allocation - there are far worse. It’s not for everybody but it isn’t inherently irresponsible. So what value does an arbitrary rule like 25% have - especially considering differences in absolute income - none whatsoever.
Finding suitable roommates is also not something anywhere near as easy as you make it sound.
Have a nice day. I know I’m not going to stop you spewing your inane life advice.
Kids are just roommates that never help with the rent. ;)
6. Learn to cook. https://www.bbc.co.uk/food/collections/1_dinners
And make your own coffee.
They're easily 5 times more expensive than the regular cafes here. INR 231 for a "tall Americano."
I think one should pop into these joints once in a while to appreciate being a cheapskate quantitatively speaking.
Later in life the same relatives struggled really bad when their incomes decreased, and they weren’t able to afford the lifestyle they were used to.
My family in the other hand never really went through economic struggle (at least it was not apparent to me and my siblings) even when my father lost his job and took him 6 months to get a new one.
My parents now live in a really nice house but they still have the ugliest and oldest cars ever lol. But that always reminds me to not fall for expensive stuff just because I can afford it.
2. < 25% of net pay
3. NEVER buy new, only buy used, drive it into the ground and smoking
4. NEVER buy new, only buy via a thrift store (except undies and socks, buy those cheaply)
Avoid debts as the devil avoids the church. Just don't.
At least you can cancel Netflix or whatever anytime, but you can't cancel existing debt without bankruptcy.
You'll soon notice the discomfort of doing without a purchase you do need (so now you can buy it); you won't notice the lack of something you don't need.
-Jesse
(I originally said "this advice sucks" but realized that I came off too strongly.)
(I'm sure the OP is a fine person but I am allergic to advice like this and get a visceral reaction to it every time.)
The people I know that spend much less than they earn are either (a) homebodies that are perfectly fine with the "wake up -> work -> come home -> eat -> sleep" lifestyle, or (b) already have way more money than their lifestyle requires.
I'm not like the people in (a). I've never been like that. I can barely stay home as it is. And, at least in the US, everything outside of home costs money.
And while I get closer to (b) every year, especially now that I track all of my expenses and know where our annual spending baseline is, I'm not there yet.
I think there are a lot of people like me.
So financial blogger people or SJWs on /r/personalfinance saying "just spend less than you earn, bro" is exactly like people with like 10% body fat or whatever telling overweight people "calories in, calories out, bro; not hard!" (interestingly, many of those people have negative to very negative relationships with food)
I mean, you're not wrong, but it's also (a) not very good advice, (b) completely ignorant of people's personal preferences, and (c) makes me think the author is hiding something.
My advice is more practical: save progressively, make a goal, and track your spending. I acknowledge that this only works for people that don't already have runaway spending problems, but I think it's much more pointed than "just spend less!"
If you don't save, start with something small, like 1% of your income. Some amount that you won't miss. Increase that every month by a small amount. (I do like the idea of having a six month rainy day fund, though I think engineers can get by with less.)
By "make a goal," I mean this: you have infinite money. What does your life look like every year? Write everything down, no matter how outlandish, then actually do some homework and figure out how much living that life will cost. Sum everything up, divide that by 40%, and, boom, there's your number. Figure out how to get there, and get there!
If you track your spending while making minimal changes, then after a year, you'll know what your annual burn is. Then, over time, you'll know whether you (a) need to make more money to support that lifestyle, (b) whether your burn is increasing too fast relative to your income, and (c) have a better idea of what you need to save to guarantee your lifestyle without making any cuts.
You only live once. Why spend it constantly pinching pennies if you don't have to? So that your grandkids can spend your money after you die?