5 ms·

Let me make this as simple as possible. The most important thing in personal finance is the delta between how much you net, and, how much you spend. Period. In

Let me make this as simple as possible. The most important thing in personal finance is the delta between how much you net, and, how much you spend. Period. Increase the former, or decrease the latter. Preferably both. You will 'earn' far more in savings by the money YOU contributed than the amount paid to you in interest; unless you have much money over a long enough period of time, and you likely won't.

tabeth 9y ago
Pretty much. I think people really want a silver bullet. Spend as little money as you're comfortable with. Invest the rest in an index fund. Wait. That's pretty much it. EDIT: I also should add that the "spend as little money" part does not mean you should necessarily become homeless, or that you shouldn't experiment with things that might help you that cost money.
corporateslave3 9y ago
This is a middle class (no offense intended) view of wealth. You wont retire early or get rich from cutting down on 5$ lattes. Investments do accrue over time, but the idea that one should strive to save every dollar will not really help you in the long run. That extra 25k a year does almost nothing for you in the scope of your life. To expand further, what is that saved money really getting you? Over the course of a decade, lets say you have an extra 200k in your pocket, then what? You have the comfort of knowing you can lose your job, but beyond that, what do you get? You will still retire at the same age, you are still locked in the daily drudges of going to work.
sillysaurus3 9y ago
And yet it's not at all simple. If you want to avoid sugar and corn syrup, you'll be paying 3x as much on food. You have to remember to cancel all of those superfluous monthly charges. If you get parking tickets, you're set back. If you don't check your physical mail for too long, you'll discover you accidentally ran a toll road and now they're billing you $150. Whenever you get a phone or internet plan, they never tell you what the final bill is, so you have to remember to add +50% to whatever price they're saying. If you live with someone, you have to get them interested in managing finances too, or else you'll discover you're hemorrhaging money. The list goes on and on. If you live in the US, it costs ~$400/mo to have health insurance under the ACA. If you can't afford that and go to the ER for any reason, your credit is screwed.
- clay_to_n 9y ago
  Sorry, what's your point? People do have many unpredictable expenses. But managing the ones you can (like food costs, and bills, and housing costs) does a lot to reduce your monthly spending, which is half of the equation.
  - sillysaurus3 9y ago
    Just that it's easy to fall into a spiral. Also, if you can't move and don't eat out, your food and housing costs are mostly immutable.
    - clay_to_n 9y ago
      There is no doubt that managing expenses is very difficult on a minimum-wage or close to it job in most cities in the U.S. But when you start getting closer to the median income in the U.S. (and engineer salaries), expense management and lifestyle inflation become very important IMO. Increasing earnings gives you more money today. Decreasing spending gives you more money today, and more money every time that you act on that same habit. Cutting your rent doesn't just put cash into your wallet now, it also decreases the amount you need to save to live (or retire) at your current lifestyle.
- loco5niner 9y ago
  You are listing problems that are easily avoided by doing normal life activities (i.e. responsible, adult things). - Don't park illegally (or if you prefer: "stop breaking the law") - Check your mail regularly - Track monthly expenses (so you can change things if needed) - Check the price of something before you buy it. - Don't entangle yourself with financially irresponsible people (this is good life advice, but difficult to always get right) - Good point on insurance: medical coverage in the US is broken. However, you should still make sure you are covered.
  - sillysaurus3 9y ago
    Your comment can be summed up as "Just have money." If you can't afford health insurance, you can't make sure you're covered. The only option is to not have it and to go to the ER whenever there are problems. Cities find ways of ticketing you. They make $20M/yr from parking violations. If that revenue drops, they'll change the rules until it goes up again. https://www.youtube.com/watch?v=0UjpmT5noto https://www.youtube.com/watch?v=0UjpmT5noto For example, there are tow traps that don't look anything like tow zones. I've seen at least five cars fall into it, myself included. The city won't change it, and you can't fight it. Another example: Street cleaning. It's a euphemism for "Move your car or we'll ticket you." No one shows up to clean the streets, ever, but they're there at 8AM to write you a ticket. When you're forced to park on the street, you can't get away from this. And the notifications for street cleaning often appear between midnight at 8AM, meaning you can end up late to work or with a $150 ticket if you don't pay rapt attention every day.
theodorton 9y ago
Another habit that rich people have over "poor" people is that they invest in assets and not liabilities, and their ability to categorise investments into these two buckets. An asset as in something that contributes to your net value vs a liability that deducts from your net value. I've been using YNAB to solve my personal finance problems and it's been the best solution to my problem. Doing zero-based budgeting (you only budget money you have) is a superior approach to the traditional budgeting where you set it once. The only three things I need in YNAB to make sure my personal finance in check is: - Giving every dollar a job - Making sure my net value increases each month - Making sure the money I spend is as "old" as possible Tracking my assets and seeing what part of my mortgage goes out the window (the interest) and how some of my funds move from my bank account to my apartment each month changed how I understand the flow of money. I know this might sound like a commercial, but I've come from a situation of having a hard time handling my money to being fairly financially literate in my personal life. Edit: formatting
- thanatropism 9y ago
  Wrong. A liability is a source, an asset is a sink. You take debt to buy a house: the debt is a liability, the house is an asset. What's neither an asset nor a liability is your (net) income (i.e. wages, returns on capital, etc. minus spending). So: assets = liabilities + net income. From this equation you could erroneously deduce that net income = assets - liabilities but I hope I don't have to explain why this is a stupid conclusion.
  - beambot 9y ago
    > From this equation you could erroneously deduce that... Please elaborate. My basic arithmetic is apparently erroneous.
  - sokoloff 9y ago
    > assets = liabilities + net income That's a non-equation, of course. Assets and liabilities are in dollars and net income is in dollars-per-unit-time. Naturally, any conclusion arising from algebraic rearrangement of that non-equation will also be non-sensical.
whack 9y ago
Person A saves $1000 from each paycheck. She invests it in index funds, and nets ~8% returns over a 30 year period. Person B saves $2000 from each paycheck. She behaves like the average investor, and nets ~2.5% returns over a 30 year period. Who do you think is going to wind up with more money? Person-A by a long shot. The amount of money you save every month is undoubtedly important, but it's only half the story, and it's somewhat common knowledge. The way you invest your money is the other half of the story, and this is where most people seem to trip up. Personally, my parents saved a ton of money because it's common sense that it will lead to future prosperity. However, their investment strategy and track records are abysmal. They buy near the peak, sell during the recession, and sit out of the markets entirely during the recovery. They could have easily ended up with a retirement portfolio that's 2-4x larger than what they ended up with. I've tried telling them numerous times to approach investing differently, but they still refuse to listen. If there's anything people need to be educated on, it's on investment strategy. https://www.forbes.com/sites/advisor/2014/04/24/why-the-average-investors-investment-return-is-so-low/#6bf14d79111a https://www.forbes.com/sites/advisor/2014/04/24/why-the-aver... https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp https://www.investopedia.com/ask/answers/042415/what-average... http://www.bankrate.com/calculators/retirement/investment-goal-calculator.aspx http://www.bankrate.com/calculators/retirement/investment-go...
- bungie4 9y ago
  You left out the part where the market 'corrects' every 7-10 years and you lost 10-30% of your portfolio. It'll likely take you several years to recoup your lost investment at 8%. You had a 100K invested, you lost 30K of it, leaving you 70K. At 8% interest it'll take you 5 years to just get back to where you were. Thats a full 20% of your investment life span. Count on this happening to you at least every 10 years. Ya ya, I know. But it's happened to me personally at least 3 times in my adult life. Just how much risk is a person is willing to take is a personal question. If your shooting for an 8% avg return. You're a stuntman in real life.
  - whack 9y ago
    The 8-10% returns are the long term average, after all crashes are accounted for. You don't have to be a stuntman to attain those numbers. Literally all you have to do is put your money into an index fund and sit on it for 20+ years

tabeth 9y ago

Pretty much. I think people really want a silver bullet. Spend as little money as you're comfortable with. Invest the rest in an index fund. Wait. That's pretty much it. EDIT: I also should add that the "spend as little money" part does not mean you should necessarily become homeless, or that you shouldn't experiment with things that might help you that cost money.

corporateslave3 9y ago

This is a middle class (no offense intended) view of wealth. You wont retire early or get rich from cutting down on 5$ lattes. Investments do accrue over time, but the idea that one should strive to save every dollar will not really help you in the long run. That extra 25k a year does almost nothing for you in the scope of your life. To expand further, what is that saved money really getting you? Over the course of a decade, lets say you have an extra 200k in your pocket, then what? You have the comfort of knowing you can lose your job, but beyond that, what do you get? You will still retire at the same age, you are still locked in the daily drudges of going to work.

sillysaurus3 9y ago

And yet it's not at all simple. If you want to avoid sugar and corn syrup, you'll be paying 3x as much on food. You have to remember to cancel all of those superfluous monthly charges. If you get parking tickets, you're set back. If you don't check your physical mail for too long, you'll discover you accidentally ran a toll road and now they're billing you $150. Whenever you get a phone or internet plan, they never tell you what the final bill is, so you have to remember to add +50% to whatever price they're saying. If you live with someone, you have to get them interested in managing finances too, or else you'll discover you're hemorrhaging money. The list goes on and on. If you live in the US, it costs ~$400/mo to have health insurance under the ACA. If you can't afford that and go to the ER for any reason, your credit is screwed.

clay_to_n 9y ago
Sorry, what's your point? People do have many unpredictable expenses. But managing the ones you can (like food costs, and bills, and housing costs) does a lot to reduce your monthly spending, which is half of the equation.
- sillysaurus3 9y ago
  Just that it's easy to fall into a spiral. Also, if you can't move and don't eat out, your food and housing costs are mostly immutable.
  - clay_to_n 9y ago
    There is no doubt that managing expenses is very difficult on a minimum-wage or close to it job in most cities in the U.S. But when you start getting closer to the median income in the U.S. (and engineer salaries), expense management and lifestyle inflation become very important IMO. Increasing earnings gives you more money today. Decreasing spending gives you more money today, and more money every time that you act on that same habit. Cutting your rent doesn't just put cash into your wallet now, it also decreases the amount you need to save to live (or retire) at your current lifestyle.
loco5niner 9y ago
You are listing problems that are easily avoided by doing normal life activities (i.e. responsible, adult things). - Don't park illegally (or if you prefer: "stop breaking the law") - Check your mail regularly - Track monthly expenses (so you can change things if needed) - Check the price of something before you buy it. - Don't entangle yourself with financially irresponsible people (this is good life advice, but difficult to always get right) - Good point on insurance: medical coverage in the US is broken. However, you should still make sure you are covered.
- sillysaurus3 9y ago
  Your comment can be summed up as "Just have money." If you can't afford health insurance, you can't make sure you're covered. The only option is to not have it and to go to the ER whenever there are problems. Cities find ways of ticketing you. They make $20M/yr from parking violations. If that revenue drops, they'll change the rules until it goes up again. https://www.youtube.com/watch?v=0UjpmT5noto https://www.youtube.com/watch?v=0UjpmT5noto For example, there are tow traps that don't look anything like tow zones. I've seen at least five cars fall into it, myself included. The city won't change it, and you can't fight it. Another example: Street cleaning. It's a euphemism for "Move your car or we'll ticket you." No one shows up to clean the streets, ever, but they're there at 8AM to write you a ticket. When you're forced to park on the street, you can't get away from this. And the notifications for street cleaning often appear between midnight at 8AM, meaning you can end up late to work or with a $150 ticket if you don't pay rapt attention every day.

theodorton 9y ago

Another habit that rich people have over "poor" people is that they invest in assets and not liabilities, and their ability to categorise investments into these two buckets. An asset as in something that contributes to your net value vs a liability that deducts from your net value. I've been using YNAB to solve my personal finance problems and it's been the best solution to my problem. Doing zero-based budgeting (you only budget money you have) is a superior approach to the traditional budgeting where you set it once. The only three things I need in YNAB to make sure my personal finance in check is: - Giving every dollar a job - Making sure my net value increases each month - Making sure the money I spend is as "old" as possible Tracking my assets and seeing what part of my mortgage goes out the window (the interest) and how some of my funds move from my bank account to my apartment each month changed how I understand the flow of money. I know this might sound like a commercial, but I've come from a situation of having a hard time handling my money to being fairly financially literate in my personal life. Edit: formatting

thanatropism 9y ago
Wrong. A liability is a source, an asset is a sink. You take debt to buy a house: the debt is a liability, the house is an asset. What's neither an asset nor a liability is your (net) income (i.e. wages, returns on capital, etc. minus spending). So: assets = liabilities + net income. From this equation you could erroneously deduce that net income = assets - liabilities but I hope I don't have to explain why this is a stupid conclusion.
- beambot 9y ago
  > From this equation you could erroneously deduce that... Please elaborate. My basic arithmetic is apparently erroneous.
- sokoloff 9y ago
  > assets = liabilities + net income That's a non-equation, of course. Assets and liabilities are in dollars and net income is in dollars-per-unit-time. Naturally, any conclusion arising from algebraic rearrangement of that non-equation will also be non-sensical.

whack 9y ago

Person A saves $1000 from each paycheck. She invests it in index funds, and nets ~8% returns over a 30 year period. Person B saves $2000 from each paycheck. She behaves like the average investor, and nets ~2.5% returns over a 30 year period. Who do you think is going to wind up with more money? Person-A by a long shot. The amount of money you save every month is undoubtedly important, but it's only half the story, and it's somewhat common knowledge. The way you invest your money is the other half of the story, and this is where most people seem to trip up. Personally, my parents saved a ton of money because it's common sense that it will lead to future prosperity. However, their investment strategy and track records are abysmal. They buy near the peak, sell during the recession, and sit out of the markets entirely during the recovery. They could have easily ended up with a retirement portfolio that's 2-4x larger than what they ended up with. I've tried telling them numerous times to approach investing differently, but they still refuse to listen. If there's anything people need to be educated on, it's on investment strategy. https://www.forbes.com/sites/advisor/2014/04/24/why-the-average-investors-investment-return-is-so-low/#6bf14d79111a https://www.forbes.com/sites/advisor/2014/04/24/why-the-aver... https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp https://www.investopedia.com/ask/answers/042415/what-average... http://www.bankrate.com/calculators/retirement/investment-goal-calculator.aspx http://www.bankrate.com/calculators/retirement/investment-go...

bungie4 9y ago
You left out the part where the market 'corrects' every 7-10 years and you lost 10-30% of your portfolio. It'll likely take you several years to recoup your lost investment at 8%. You had a 100K invested, you lost 30K of it, leaving you 70K. At 8% interest it'll take you 5 years to just get back to where you were. Thats a full 20% of your investment life span. Count on this happening to you at least every 10 years. Ya ya, I know. But it's happened to me personally at least 3 times in my adult life. Just how much risk is a person is willing to take is a personal question. If your shooting for an 8% avg return. You're a stuntman in real life.
- whack 9y ago
  The 8-10% returns are the long term average, after all crashes are accounted for. You don't have to be a stuntman to attain those numbers. Literally all you have to do is put your money into an index fund and sit on it for 20+ years