Hacker News Reader

Comment by throwaway2037 | Hacker News Reader

throwaway2037

    > You can avoid the sell low situation by having 3-6 months of expenses saved in an emergency savings account.

I see this (3-6 mos savings) constantly quoted in basic personal mgmt blog posts, but it seems unrealistic for most. Seriously, what percentage of people in OECD can do this? Surely, less than 5%. I am not sure it is great advice because it is discouragingly unrealistic for most. The average person has out of control expenses and 632 reasons why they cannot change anything. If you read any personal finance Q&A, they all eventually descend into this pattern. It gets boring. And most people who do save a lot have a much higher income than is average in their area.

View on HN

Most people can without much trouble. Income follows a statistical distribution. It follows that most people could choose to live the lifestyle of someone earning 10% less than them and save 10% of their income per month, building a buffer that grows by about one month per year.

You are right in that they have 632 reasons they couldn't possibly do that, but they are clearly wrong since other people are. The correct thing to do is to realise that having a little bit of financial stability is a higher priority than those reasons in the majority of cases.

Or option B, which is figure out a way to earn more and keep lifestyle inflation in check. In theory, everyone should be able to take that path.

> And most people who do save a lot have a much higher income than is average in their area.

Cause or effect? Because if you save consistently you are going to automatically have a higher income than your more average peers. You all have the same average income but savers supplement that with passive income.

> I see this (3-6 mos savings) constantly quoted in basic personal mgmt blog posts, but it seems unrealistic for most. Seriously, what percentage of people in OECD can do this

Also worth noting that in most of the OECD, 3+ and even maybe 3 months depending on the situation is quite high, bordering on the wasteful. Americans have to worry about healthcare and crappy if present unemployment payments if they lose their jobs; in most other developed countries (of course your mileage will vary), you cannot be fired on the spot with no notice without compensation. And if you do, you don't lose your healthcare. Also, you can't be fired for being sick/unavailable to work for medical reasons, and at least some countries have medical provisions for burnout too (you get months of paid sick leave to recuperate, while your job is being kept).

Therefore, in most of the OECD (at the very least the EEA + UK + Australia and NZ), there are very few, if any, situations which can leave you with zero income with no notice. Therefore the safety cushion you need is much lower than an American that might lose their job tomorrow and then need to pay tens of thousands in medical bills.

Why is this being downvoted? There are lots of great points in this post. I never considered that most of the advice that I am reading is aimed toward US people, where the labour laws and social safety net for working people is awful, compared to the rest of OECD.

Probably because of the narrative that people are routinely fired out of the blue and that there is no recourse to also suddenly having tens of thousands of dollars in medical expenses also out of the blue.

It doesn't really matter how regularly it happens, only that it does happen and that there is zero recourse in that case. So people need to build their own safety nets in the US.

I know it happens less frequently in tech, where people get compensation, but what % of workers are in tech? The median worker has no such luck.

And how comfortable are people in Europe and elsewhere when they don't have an income coming in?

As discussed, there is much less of a chance that you'll suddently find yourself with no income when you live in most of the EU+UK+Aus+NZ.

And if you do, you're still less uncomfortable because your healthcare is not tied to your employer. Unemployment and other related aids/insurances/benefits will vary wildly between countries, but I'd still bet the majority do it easier than in most US states.

Possibly. As you say there's a lot of variance. I don't generally assume that you can get quality healthcare, housing, and food in Europe with no source of income outside of government programs.

And certainly many countries have lower salaries and higher unemployment that the US does in general.

> I don't generally assume that you can get quality healthcare, housing, and food in Europe with no source of income outside of government programs.

And what's the issue with government programs? If someone without employment or revenues can get healthcare or food, that's good.

> And certainly many countries have lower salaries and higher unemployment that the US does in general

Higher unemployment yes, absolutely. Lower salaries you can't really compare because you need to adjust for a lot of things (quality of life, cost of living, things like the safety cushion one needs, etc.)

I remember reading about a woman working at Amazon that was put on a PIP because she was missing to much work for her cancer treatments.

Coming from a family that has a frugal culture, it’s always been easy for me to save a substantial part of my income, even when I had to downsize my lifestyle after losing a relatively high paying job. Looking at how people around me spend their money, it can feel they’re actively trying to get rid of their entire salary.

> it can feel they’re actively trying to get rid of their entire salary.

They probably are, in a literal sense. Most people play status games and identify that money is a resource that can be used to buy higher status. They then work out how to spend all their money on status-boosting activities because they don't want money. They want status. And they want it ASAP because their instincts are confident that status now is more important than later.

It is a bit sad because it means they are less comfortable and prosperous later on, but there is not much that can be done. Human nature is a real obstacle; it isn't calibrated to understand exponential returns or capital investment.

More than currently do. Rates are low in higher income countries.

We never really teach these things, which is a shame because I think they have such value over time.

I've spent a lot of time helping people with budgets and I've found a few things to be common. To make this easier I'll just say "people" as a general thing of those coming for help.

1. People don't get why they're running out of money

2. They don't know what they're spending

3. They've not connected the idea that knowing what they're spending money on is important to figuring out where their money is going

This isn't a slight, it's just interesting to see that this connection has never really been made. Money is treated as an emotional thing rather than a mathematical thing.

And this is those who get to the point of seeking help - they're actively asking for help and have never tried just tracking their spending. It's an entirely new concept.

The next big thing is that people talk about unexpected costs coming up and have never stepped back to look at the issue more broadly.

Some find birthdays an "unexpected cost" but they're not actually a surprise if you are able to look ahead more.

More unexpected are repairs and replacements. But stepping back although your tires were a surprise this year and your brakes a surprise last year, the idea that something would need dealing with on your car isn't.

The 3-6 mo savings is really a goal before suggesting moving on to riskier investments rather than "oh just have this". One day of spending is better than none. A week is better, a month better and 3-6 is better still. Beyond that the benefit drops massively, so you can start putting away money for much further in the future.

It's boring but that's imo because there's not much to basic personal finance.

If you spend more than you earn you are screwed.

If you earn more than you spend, you can build up savings.

If you are right on the line, you're either statistically shocking or your spending should move one way or the other.

It's unrealistic for people who have no money to invest.

But the top 5% in the US make 300k+. If you can't save anything making 300k you have a spending problem. Honestly I'd you're making 100k can can't save you have a spending problem.

It is interesting that you cofounded two points from my point to assume that I meant the top 5% of earners in the US. No, I have see personal finance Q&A from all income levels where people have out of control spending. I think this is the norm in the US.

The confounding is natural - If you even think about investing, then having a financial cushion is the best investment to de-risk your life.

If you don't, you are screwed either way.

It may be unrealistic for many people, but it should not be unrealistic for the subset of people who have available funds to invest in the stock market, which is who the GP's advice is for. Putting money into stocks before you have an emergency fund is bad prioritisation.

> Seriously, what percentage of people in OECD can do this?

Far more than those that actually do.

Check out https://earlyretirementnow.com/2021/05/26/the-emergency-fund... from Early Retirement Now. He also links to other posts debunking the need for emergency savings.

Worth noting that they're not saying you don't need that kind of value on assets available to you. They are simply advocating for keeping that money invested rather than as cash and they have access to immediate fairly large loans (via credit cards and something about their mortgage).

Reply on news.ycombinator.com