5 ms·

My adult life began with several years at a non-profit making $18k/yr. I've worked to avoid dramatic changes to my standard of living since then and it's helped

My adult life began with several years at a non-profit making $18k/yr. I've worked to avoid dramatic changes to my standard of living since then and it's helped me put money in the bank regardless of where I fell on the income scale. I also find that I need to "reset" my spending every 6 months or so, because it's trivially easy to start spending more than you realize, for no practical gain. Sometimes I get jealous of people at work who seem to have nicer things. Then a few days later they start to complain about not having money, and I'm reminded that I don't really need a TV, much less a 52-inch what-have-you. Nor do I need to replace my nearly 20 year old car with something newer just because I can. Or more realistically: I don't need to get a new car because someone else I know bought a Z3.

jasonkester 16y ago
The cool thing about this approach is how nicely it works with compound interest. Live like a college kid for the 5 years after you leave college, and I defy you not to put $10k per year into the market. Fresh out of school with my $32k salary, I'd regularly find month-old paychecks lying around undeposited because I simply didn't need the money to support my cheap apartment, used car, and 10lb sack of potatoes. With nowhere for your money to go but the market, you quickly discover what 10%/year (or even 5% per year) does to a stack of money. Eventually it's making more on its own than you're putting in. Financial security for life, sorted by age 30.
- roadnottaken 16y ago
  Boy I'd be happy with 10%/year or 5%/year right now. I think you're still living in 1998. Eventually it's making more on its own than you're putting in. This actually takes a long time.
  - jasonkester 16y ago
    In 1998, a reasonable expectation was 50% per year, though you'd usually beat that if you invested in anything starting with a lower-case 'e'. Naturally, it all went away if you left it in, but that's beside the point. Today, it's still not unrealistic to expect that money you put in today will make on average 5-10% per year over the next 40 years. If you're investing your money for a shorter period than that, it's not really retirement savings but speculation, which can be fun but is its own thing. Regardless, I don't think I'd discourage people from saving in their 20s because you don't think the market is going to continue doing its thing. It'll be back, and the few hundred K that you can set aside in your 20s will do some amazing things over the course of your life if you invest it in index funds rather than granite countertops.
  - benmccann 16y ago
    The S&P 500 was up 11% last year, the Dow was up 9.5%, and the Nasdaq was up 17.5%
    - roadnottaken 16y ago
      How 'bout the year before that?
      - benmccann 16y ago
        The year before that was much better. The S&P 500 was up over 25% in 2009 and the Nasdaq was up almost 50%.
- Retric 16y ago
  To really understand the situation start running the numbers of late life salary bumps. It is difficult to balance lifestyle, income, and savings as you start to ramp up your salary AND your lifestyle. If your salary doubles between 20 and 30 and then again between 30 and 40 your savings does not change. So even if your saving 20% of your income every year you are not going to be able to safely retire at 80% of what you make at 40. Unless, you get a salary bump and don't increase your lifestyle. Take it further; someone that sees a 3x gains from 30 is going to need to save ~40% a year to avoid a lifestyle drop. Meanwhile your friends are all raping up their spending and possible over extending.
- webwright 16y ago
  5% per year doesn't stack up very fast when you consider inflation (2.56% over the last decade was the average).
  - dhyasama 16y ago
    and capital gains
- eneveu 16y ago
  This is my exact situation. I'm 24, finished engineering school 2 years ago, and work as a web developer. My lifestyle has stayed the same (I even spend less on many things). I don't need/own a car and don't really care about buying expensive gadgets... I'm currently reading The Investor' Manifesto* and it seems I am very lucky to have money to invest in the market. A bear market is a boon for young investors. By the way, this book is awesome. I regret not reading it earlier. Derek Sivers plugged it on HN almost a year ago (http://news.ycombinator.com/item?id=1026296 http://news.ycombinator.com/item?id=1026296) and his reading notes are available online at http://sivers.org/book/InvestorsManifesto http://sivers.org/book/InvestorsManifesto.
bane 16y ago
My wife lost her job several months ago (bad economy and all) and for a while we were scrambling to figure out what to do with a near 50% loss in income. Turns out with her staying at home, working on a startup, and us eating a home-cooked dinner everyday...entertaining ourselves with trips to free museums we never went to before (mostly because we were too busy spending money on expensive bits of entertainment before) not only has made up for her salary, but we're actually saving more too. Crazy.

jasonkester 16y ago

The cool thing about this approach is how nicely it works with compound interest. Live like a college kid for the 5 years after you leave college, and I defy you not to put $10k per year into the market. Fresh out of school with my $32k salary, I'd regularly find month-old paychecks lying around undeposited because I simply didn't need the money to support my cheap apartment, used car, and 10lb sack of potatoes. With nowhere for your money to go but the market, you quickly discover what 10%/year (or even 5% per year) does to a stack of money. Eventually it's making more on its own than you're putting in. Financial security for life, sorted by age 30.

roadnottaken 16y ago
Boy I'd be happy with 10%/year or 5%/year right now. I think you're still living in 1998. Eventually it's making more on its own than you're putting in. This actually takes a long time.
- jasonkester 16y ago
  In 1998, a reasonable expectation was 50% per year, though you'd usually beat that if you invested in anything starting with a lower-case 'e'. Naturally, it all went away if you left it in, but that's beside the point. Today, it's still not unrealistic to expect that money you put in today will make on average 5-10% per year over the next 40 years. If you're investing your money for a shorter period than that, it's not really retirement savings but speculation, which can be fun but is its own thing. Regardless, I don't think I'd discourage people from saving in their 20s because you don't think the market is going to continue doing its thing. It'll be back, and the few hundred K that you can set aside in your 20s will do some amazing things over the course of your life if you invest it in index funds rather than granite countertops.
- benmccann 16y ago
  The S&P 500 was up 11% last year, the Dow was up 9.5%, and the Nasdaq was up 17.5%
  - roadnottaken 16y ago
    How 'bout the year before that?
    - benmccann 16y ago
      The year before that was much better. The S&P 500 was up over 25% in 2009 and the Nasdaq was up almost 50%.
Retric 16y ago
To really understand the situation start running the numbers of late life salary bumps. It is difficult to balance lifestyle, income, and savings as you start to ramp up your salary AND your lifestyle. If your salary doubles between 20 and 30 and then again between 30 and 40 your savings does not change. So even if your saving 20% of your income every year you are not going to be able to safely retire at 80% of what you make at 40. Unless, you get a salary bump and don't increase your lifestyle. Take it further; someone that sees a 3x gains from 30 is going to need to save ~40% a year to avoid a lifestyle drop. Meanwhile your friends are all raping up their spending and possible over extending.
webwright 16y ago
5% per year doesn't stack up very fast when you consider inflation (2.56% over the last decade was the average).
- dhyasama 16y ago
  and capital gains
eneveu 16y ago
This is my exact situation. I'm 24, finished engineering school 2 years ago, and work as a web developer. My lifestyle has stayed the same (I even spend less on many things). I don't need/own a car and don't really care about buying expensive gadgets... I'm currently reading The Investor' Manifesto* and it seems I am very lucky to have money to invest in the market. A bear market is a boon for young investors. By the way, this book is awesome. I regret not reading it earlier. Derek Sivers plugged it on HN almost a year ago (http://news.ycombinator.com/item?id=1026296 http://news.ycombinator.com/item?id=1026296) and his reading notes are available online at http://sivers.org/book/InvestorsManifesto http://sivers.org/book/InvestorsManifesto.

bane 16y ago

My wife lost her job several months ago (bad economy and all) and for a while we were scrambling to figure out what to do with a near 50% loss in income. Turns out with her staying at home, working on a startup, and us eating a home-cooked dinner everyday...entertaining ourselves with trips to free museums we never went to before (mostly because we were too busy spending money on expensive bits of entertainment before) not only has made up for her salary, but we're actually saving more too. Crazy.