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The Five Biggest Myths About Saving Money, According to a Millennial

47 points by lujim 11y ago

humbleMouse 11y ago
This guy's advice applies to people who have a higher risk tolerance. The advice is given in an off-the-cuff manner that really only applies to a small sub-set of the population. TLDR; "You don't need to save money, just fund your 401k. If crap hits the fan, just pull money out of 401k. Just wait until your start-up is successful, then you will have cash and an emergency fund!"
- venomsnake 11y ago
  > This guy's advice applies to people who have a higher risk tolerance And resources to spare. For the people that entered the workforce after 2004 - the economy has not been generous. And the spoils of growth has rarely got to them. We in tech are so far in position to extract almost fair value for our labor, but not all sectors of the economy are like that.
- ghaff 11y ago
  Yeah. One can debate the specifics of how big an emergency fund a given person should have but he seems awfully cavalier about tapping the 401k for unexpected expenses. I suspect, given that he doesn't offer dollar amounts, that he assumes that having $5K or so around to cover an emergency car repair doesn't rise to the level of emergency fund. The bit at the beginning about the latte is also pretty silly. Sure if you can afford it and get great pleasure out of your Starbucks, go for it. But this is exactly the sort of money leak that causes a lot of people to wonder where their money all went at the end of the month.
polartx 11y ago
This kind of generic financial advice is dangerous, and pretty irresponsible for someone in his position (and supposed expertise). I bought my first house while I was still in college. I patiently waded through the 8 month process of buying a short-sale property. I invested maybe $5k over 2 years (and a lot of elbow grease) in making improvements and netted $40k when I sold it. Home ownership carries risk and responsibility, but leasing is restrictive and will never provide any kind of returns. In my case I was basically paid to live in my house, vs the $28k in rent it would have cost me
chris_va 11y ago
+1 to index funds for saving, but you are already into a better off market when you look at optimizing savings. Debt is where most people fall down, and most folks in the US don't manage debt well. For example, there is a phenomena where people will take additional expensive debt (e.g. credit card) to keep their savings/401k contributions high. Irrational from an ROI standpoint, but very common. I like all of these startups that try to optimize your spending/savings (e.g. Even, Acorn, Betterment), but I haven't seen anyone doing this well on the debt side.
- tedivm 11y ago
  It's not completely irrational to take on additional debt to maintain 401k contributions, especially if you're in lower income brackets. You can't lose your 401k to bankruptcy, which in some ways makes it a more stable investment than not taking on the emergency debt. There are tax benefits as well. There's also the budgeting and discipline aspect- if you make yourself work inside of a budget (one that's comprised of your money after your retirement savings) you're much more likely to stick with it in the long term. Once you start allowing emergencies to alter your retirement plans you may end up doing it again in the future. It's much better in that case to take on the additional debt and take paying that down out of another part of your budget.
sp332 11y ago
Did he say you can pay off college loans in three years?
- zwerdlds 11y ago
  No, he said that you shouldn't worry about paying them for the first three years - presumably because this is the period of time for which all student loans can be deferred due to unemployment in the United States. https://studentaid.ed.gov/sa/repay-loans/deferment-forbearance https://studentaid.ed.gov/sa/repay-loans/deferment-forbearan...
  - deleted 11y ago
    [deleted]
  - crpatino 11y ago
    What kind of interest do you pay in the US for student loans, anyways? Completely forgetting about your credit card debt, or even your mortgage, for any extended period of time sounds like an amazingly stupid decision. Ignore compound interest at your own peril.
    - zwerdlds 11y ago
      Typical rates are between 4 and 7 percent. Agreed about the issue of compound interest, but everyone's case is different. I think that's all he's saying: "Take the time to be unemployed and figure out what you want to do. Three years of CI is less important than knowing what you want to spend your life making money at." Now one might argue that this decision should be made prior to going to university in the first place...
- pilom 11y ago
  Are you surprised by this? Median student loan debt of graduates is around $15k. Is it really that hard to expect some people to prioritize their debt to the tune of $6k/year?
  - 11y ago
seibelj 11y ago
Puff piece by a guy trying to get people to use his startup. I think it's actually way worse to use his technology to automatically move money around your accounts. I like to be on top of where my money is. And "emergencies" happen several times a year. In a few month span I had to replace a water heater, then a dishwasher, then tires on my car. Several thousand bucks of expenses in a couple months. Having to withdraw from a 401k for life's unexpected issues is insanity.
- Sleaker 11y ago
  Replacing tires on a car is not an emergency unless you happened to blow a tire, and even then that's usually covered under warranty unless you screwed something up and like drove your car over a curb causing the damage.
  - sliverstorm 11y ago
    Err... running over a nail, for example, is not generally covered by warranty.
    - Sleaker 11y ago
      really? Every tire I've purchased has included free flat fixes. I've had nails and screws pulled. All covered no charge.
  - superuser2 11y ago
    Many people, particularly those interested in personal finance, wouldn't dream of buying a car new enough to be under warranty.
    - Sleaker 11y ago
      Tire warranty != Car warranty. Tires include their own warranties up to a certain number of miles, they also (in my experience) cover many types of damage.
  - crpatino 11y ago
roymurdock 11y ago
Here are the 5 "myths" and his advice to save you a click through: 1. It's important to get a job and start saving for retirement the minute you're out of college. >It's more important to spend time thinking about what you want to do (surfing in South America?) than to start working and paying off students loans immediately. 2. Getting a credit card right out of school is dangerous. >Get a credit card with a small limit ($500) and set it on autopay. 3. The American dream involves buying a house. >Rent rather than buy and don't get attached to anything while you're young. 4. Once you graduate, immediately try to build up a cash emergency fund. >Use 401k as an emergency fund, even if you have to take the tax hit. Long-term benefits outweigh short term risks of doing this when you're young. 5. Investing is difficult, and stocks are sexy. >Avoid managers/fees and just put money into an index fund. Nothing too radical.
- Someone1234 11y ago
  Rent Vs. buy is the most "radical." I think it really boils down to what the relative costs are. There are many renters who pay as much or more as someone with a mortgage, and the person with the mortgage is obviously building up capital within that property (value Vs. current mortgage).
  - ghaff 11y ago
    Most sage advice about buying vs. renting boils down to "run the numbers but there are a lot of tradeoffs, many of them non-financial." The "Don't buy" sentence is deliberately provocative I think. The rest of what he says boils down to don't buy a house because you think you're supposed to. Which sounds like very sensible advice to me. I certainly held off buying for a fairly long time because I didn't want to be locked down in that way. In retrospect I might have done things differently but hindsight is 20-20 and all that.
    - byoung2 11y ago
      I certainly held off buying for a fairly long time because I didn't want to be locked down in that way. In retrospect I might have done things differently but hindsight is 20-20 and all that. In my case foresight was 20-20 since I bought in 2012 and I knew that when interest rates on a 30 year fixed were the lowest they had been in 30 years that this was the time to lock in a mortgage. At the same time, housing prices in my city were the lowest they had been in 15 years so it made sense to buy. I knew if we didn't make a move then that we'd regret it once interest rates and prices started to rise.
smrtinsert 11y ago
The housing piece is so much more complicated than his bumper sticker finance approach. Forgetting you heard his name is probably a good first step into smarter personal finance.
deleted 11y ago
[deleted]

47 points by lujim 11y ago

This guy's advice applies to people who have a higher risk tolerance. The advice is given in an off-the-cuff manner that really only applies to a small sub-set of the population. TLDR; "You don't need to save money, just fund your 401k. If crap hits the fan, just pull money out of 401k. Just wait until your start-up is successful, then you will have cash and an emergency fund!"

venomsnake 11y ago
> This guy's advice applies to people who have a higher risk tolerance And resources to spare. For the people that entered the workforce after 2004 - the economy has not been generous. And the spoils of growth has rarely got to them. We in tech are so far in position to extract almost fair value for our labor, but not all sectors of the economy are like that.
ghaff 11y ago
Yeah. One can debate the specifics of how big an emergency fund a given person should have but he seems awfully cavalier about tapping the 401k for unexpected expenses. I suspect, given that he doesn't offer dollar amounts, that he assumes that having $5K or so around to cover an emergency car repair doesn't rise to the level of emergency fund. The bit at the beginning about the latte is also pretty silly. Sure if you can afford it and get great pleasure out of your Starbucks, go for it. But this is exactly the sort of money leak that causes a lot of people to wonder where their money all went at the end of the month.

polartx 11y ago

This kind of generic financial advice is dangerous, and pretty irresponsible for someone in his position (and supposed expertise). I bought my first house while I was still in college. I patiently waded through the 8 month process of buying a short-sale property. I invested maybe $5k over 2 years (and a lot of elbow grease) in making improvements and netted $40k when I sold it. Home ownership carries risk and responsibility, but leasing is restrictive and will never provide any kind of returns. In my case I was basically paid to live in my house, vs the $28k in rent it would have cost me

chris_va 11y ago

+1 to index funds for saving, but you are already into a better off market when you look at optimizing savings. Debt is where most people fall down, and most folks in the US don't manage debt well. For example, there is a phenomena where people will take additional expensive debt (e.g. credit card) to keep their savings/401k contributions high. Irrational from an ROI standpoint, but very common. I like all of these startups that try to optimize your spending/savings (e.g. Even, Acorn, Betterment), but I haven't seen anyone doing this well on the debt side.

tedivm 11y ago
It's not completely irrational to take on additional debt to maintain 401k contributions, especially if you're in lower income brackets. You can't lose your 401k to bankruptcy, which in some ways makes it a more stable investment than not taking on the emergency debt. There are tax benefits as well. There's also the budgeting and discipline aspect- if you make yourself work inside of a budget (one that's comprised of your money after your retirement savings) you're much more likely to stick with it in the long term. Once you start allowing emergencies to alter your retirement plans you may end up doing it again in the future. It's much better in that case to take on the additional debt and take paying that down out of another part of your budget.

sp332 11y ago

Did he say you can pay off college loans in three years?

zwerdlds 11y ago
No, he said that you shouldn't worry about paying them for the first three years - presumably because this is the period of time for which all student loans can be deferred due to unemployment in the United States. https://studentaid.ed.gov/sa/repay-loans/deferment-forbearance https://studentaid.ed.gov/sa/repay-loans/deferment-forbearan...
- deleted 11y ago
  [deleted]
- crpatino 11y ago
  What kind of interest do you pay in the US for student loans, anyways? Completely forgetting about your credit card debt, or even your mortgage, for any extended period of time sounds like an amazingly stupid decision. Ignore compound interest at your own peril.
  - zwerdlds 11y ago
    Typical rates are between 4 and 7 percent. Agreed about the issue of compound interest, but everyone's case is different. I think that's all he's saying: "Take the time to be unemployed and figure out what you want to do. Three years of CI is less important than knowing what you want to spend your life making money at." Now one might argue that this decision should be made prior to going to university in the first place...
pilom 11y ago
Are you surprised by this? Median student loan debt of graduates is around $15k. Is it really that hard to expect some people to prioritize their debt to the tune of $6k/year?
- 11y ago

seibelj 11y ago

Puff piece by a guy trying to get people to use his startup. I think it's actually way worse to use his technology to automatically move money around your accounts. I like to be on top of where my money is. And "emergencies" happen several times a year. In a few month span I had to replace a water heater, then a dishwasher, then tires on my car. Several thousand bucks of expenses in a couple months. Having to withdraw from a 401k for life's unexpected issues is insanity.

Sleaker 11y ago
Replacing tires on a car is not an emergency unless you happened to blow a tire, and even then that's usually covered under warranty unless you screwed something up and like drove your car over a curb causing the damage.
- sliverstorm 11y ago
  Err... running over a nail, for example, is not generally covered by warranty.
  - Sleaker 11y ago
    really? Every tire I've purchased has included free flat fixes. I've had nails and screws pulled. All covered no charge.
- superuser2 11y ago
  Many people, particularly those interested in personal finance, wouldn't dream of buying a car new enough to be under warranty.
  - Sleaker 11y ago
    Tire warranty != Car warranty. Tires include their own warranties up to a certain number of miles, they also (in my experience) cover many types of damage.
- crpatino 11y ago

roymurdock 11y ago

Here are the 5 "myths" and his advice to save you a click through: 1. It's important to get a job and start saving for retirement the minute you're out of college. >It's more important to spend time thinking about what you want to do (surfing in South America?) than to start working and paying off students loans immediately. 2. Getting a credit card right out of school is dangerous. >Get a credit card with a small limit ($500) and set it on autopay. 3. The American dream involves buying a house. >Rent rather than buy and don't get attached to anything while you're young. 4. Once you graduate, immediately try to build up a cash emergency fund. >Use 401k as an emergency fund, even if you have to take the tax hit. Long-term benefits outweigh short term risks of doing this when you're young. 5. Investing is difficult, and stocks are sexy. >Avoid managers/fees and just put money into an index fund. Nothing too radical.

Someone1234 11y ago
Rent Vs. buy is the most "radical." I think it really boils down to what the relative costs are. There are many renters who pay as much or more as someone with a mortgage, and the person with the mortgage is obviously building up capital within that property (value Vs. current mortgage).
- ghaff 11y ago
  Most sage advice about buying vs. renting boils down to "run the numbers but there are a lot of tradeoffs, many of them non-financial." The "Don't buy" sentence is deliberately provocative I think. The rest of what he says boils down to don't buy a house because you think you're supposed to. Which sounds like very sensible advice to me. I certainly held off buying for a fairly long time because I didn't want to be locked down in that way. In retrospect I might have done things differently but hindsight is 20-20 and all that.
  - byoung2 11y ago
    I certainly held off buying for a fairly long time because I didn't want to be locked down in that way. In retrospect I might have done things differently but hindsight is 20-20 and all that. In my case foresight was 20-20 since I bought in 2012 and I knew that when interest rates on a 30 year fixed were the lowest they had been in 30 years that this was the time to lock in a mortgage. At the same time, housing prices in my city were the lowest they had been in 15 years so it made sense to buy. I knew if we didn't make a move then that we'd regret it once interest rates and prices started to rise.

smrtinsert 11y ago

The housing piece is so much more complicated than his bumper sticker finance approach. Forgetting you heard his name is probably a good first step into smarter personal finance.

deleted 11y ago

[deleted]