
The ABCs of Personal Finance (2014) - whack
https://outlookzen.com/2014/08/10/the-path-to-wealth/
======
hervature
Looks like an ad for Vanguard and ETrade. You should never pay $10 per trade.
Included in this cost is the privilege of placing a market order at no
penalty. Use Interactive Brokers instead and place limit orders at nearly no
cost. For someone who espouses "1% can make you a millionaire" and then
advocates spending $10 on a $1,000 order is just stupid. By their own
definition, this alone will make you a millionaire.

Another thing I hate, the 10% return on average of the stock market. Since the
inception of S&P 500 in the 50's, it's almost 8%. In fact, the average rate of
return over any 40 years (the typical investing age) is something around 6.5%
[0].

The single greatest thing you can do to save for retirement - negotiate for a
2% salary raise when you start your career. This will literally beat every
piece of advice in this entire document combined.

[0] [https://dqydj.com/sp-500-historical-return-
calculator/](https://dqydj.com/sp-500-historical-return-calculator/)

~~~
andrewvc
There's no reason for the average investor to trade ETFs at all when no load
mutual funds exist. You can use vanguard directly or etrade (or a billion
other companies) for that.

~~~
throw0101a
You're not wrong, but with mutual funds you may be stuck with dealing with
whatever offerings your employer-sponsored plan has to offer.

ETFs are available from any place that has access to the stock market.

~~~
astura
My employer-sponsored plan doesn't offer any ETFs.

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chatmasta
These guides tend to assume the reader makes a consistent paycheck more than
their expenses every month. There are two big assumptions in there: one, that
the paycheck is _consistent_ ; two, that the amount is _sufficient_ to cover
the expenses of the previous month.

All too often, for many people, these two assumptions are false. What good is
advice like "pay your credit card in full every month" when you have no money
left after paying rent? Or if you have just enough money to pay it off, but
you're not sure how much you will have next month? How do you choose whether
to save cash or pay debt?

The article strikes a tone that seems naive and slightly patronizing, by
failing to consider a situation that many people face on a monthly basis.

~~~
EpicEng
If you have no money left after paying your bills then what sort of personal
finance advice would be useful? This article is about using your capital to
make more of it. Obviously that doesn't apply to everyone, and to say it's
"naive and slightly patronizing" is ridiculous.

Should we also avoid writing new car reviews? What if I can't afford it? Can I
talk about my new phone? It may make some people feel bad, right?

------
astura
I'm not a fan of this "dump a whole crap ton of semi-relevant information at
once with no context" style. Personal finance should have discrete steps that
complete newbies can master and you shouldn't move onto the next step until
you've mastered the previous step(s) and shouldn't assume you have any prior
knowledge. This article deal with specifics of trading ETFs yet doesn't
contain the words "debt" and "emergency fund."

This is my personal opinion coming from a background where my personal finance
knowledge started out as "I have a bank account" and is now more advanced than
most people. I also came from a poor family.

IMO the very basic first steps anyone needs to take when getting the
foundation of personal finance down are:

1) Either increase income or reduce spending so the money coming in is greater
than the money going out. This can come with serious lifestyle changes, maybe
you have to sell or downgrade a car, for example.

2) Aggressively pay off any high interest debt (credit card, subprime auto
loans, etc.).

3) Build emergency fund. Use only for emergencies, not planned expenses.

4) From here, do everything in your power to not end up with high interest
debt.

After you get the foundation then there's a lot of flexibility based on your
goals and life situations and this is where the "personal" comes in.

Many people haven't mastered foundational steps, and mastering those steps are
more important than meandering around about CDs, charitable giving being tax
exempt, micromanaging credit scores, and tax loss harvesting. Not to mention
it doesn't have the important caveat that you have to itemize to take
advantage of the specific tax deductions mentioned.

I actually know a guy who is trading individual stocks while also paying 20%+
interest on thousands of dollars in credit cards.

------
zrail
I wrote a little series a few months ago detailing how my own system works and
my reasoning for my decisions. My aim was to help people starting out set up a
reasonably automated hands off system.

[https://www.petekeen.net/automatic-
finances](https://www.petekeen.net/automatic-finances)

~~~
open-paren
I just want to say thank you for your posts on ledger and CLI accounting. I've
been trying to port my personal book-keeping from Mint recently and your blog
posts have been extremely helpful (even if I have chosen beancount over
ledger/hledger because I was struggling with the Haskell ecosystem).

~~~
zrail
You’re welcome! Glad to hear they were helpful.

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telaelit
I realize this article was written in 2014, but a $600 rent + utilities is
insane! I'm easily paying 3x as much.

~~~
ac29
I'm curious if there is anywhere in the US that cheap that you can actually
make more than $35-40k/year (locally, remote work is obviously different).

The median income for a man with a Bachelor's degree in the US is ~$51k [0] -
which means a full half of reasonably well educated men make less than that
(the numbers for college educated women are much more grim). I'm assuming
there is substantial overlap between less expensive places to live and people
making below median income.

[0]
[https://en.wikipedia.org/wiki/Household_income_in_the_United...](https://en.wikipedia.org/wiki/Household_income_in_the_United_States#Education_and_gender)

------
40acres
Given a time frame of 5 years from today, what's the best type of account to
store funds for a down payment on a house? 5 years seems like a long enough
time frame to place in the market, albeit not at a 90/10 split favoring
stocks. Yields are low right now, but so is inflation so on net am I losing
anything by using as HYSA?

~~~
ryandrake
If you are in the USA look into Series I savings bonds. They both earn
interest and are protected from inflation. Minimum term ownership: 1 year. No
early redemption penalty after 5 years. Earnings exempt from state and local
taxes but subject to fed tax. The only drawback is you can only buy $10k of
them per year per SSN. Much of my E-fund is I-bonds.

~~~
ac29
Not a bad idea if you are worried about runaway inflation, but otherwise
yields aren't great. There aren't any i-bonds issued in the past decade that
are currently earning over 2%, which is less than a savings account or money
market currently yields.

[https://www.treasurydirect.gov/indiv/research/indepth/ibonds...](https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm)

~~~
ryandrake
Yea, I don’t keep I-bonds for the yield, I keep them for the inflation
protection and tax advantage. High yield CDs are fine too but the interest is
taxed.

------
vinceguidry
The basic budgeting formula given does not allow for debt repayments, my
suggestion is to split the leftovers after your bills are paid, including
credit card monthly minimums on the bills column, three ways. Save a third,
pay off debt with a third, and spend the last third.

Some people will suggest that paying off debt with two thirds is more
advantageous due to the interest rate difference. However psychological
effects of watching a savings balance grow are more powerful than the tiny
monetary amount you recoup by paying off 20% interest debt twice as fast.

You want your finances to be as much 'set and forget' as you can possibly get.
I've switched to fixed payment amounts over paying off the balance every month
on my regular card. So the spendy months are offset by the lean months. And my
head can wrap itself better around the fixed $1400 I have going out rather
than having to constantly check balances, not that that really stops me, lol.

Occasionally you need cash, such as if you're saving for a down payment or
want to quit your job. In this case you can drop all your monthly payments
down to the minimum, let your credit and cash balances pile up. If your credit
is good, then once the dust settles and you're back to normal you can get a
fixed interest loan to cut down on the interest-rate pain. $6k in credit card
debt costs about $200/month. Cutting that interest rate in half saves you a
hundred bucks.

You can't plan everything, and you can't always tame the little inner demon
wanting you to spend more money. Some years are just spendy. Distinguish
between capital spending, recurring spending, and incidental spending. It's
the incidental stuff that will kill you if you don't rein it in.

Don't worry too hard about capital purchases like buying furniture, buy good
stuff so you don't have to replace it every few years and just pay it off.

Don't worry about running up a few hundred bucks coming out of your account
every month for Patreon donations or cloud services. Just run through your
bank statements every six months or so and cancel stuff you don't use anymore.

It's those incidentals that will kill you. I probably have $3k in debt for
frivolous purchases over the last few years that I really should have been
better about. Key here is to recognize the psychological need they're filling.
I used to go to the bar a lot because I'd get bored. Nowadays I spend a lot
less money comparatively on cheap tech toys and hobbies. Retail therapy can be
cheap or it can wreck your long term goals. Start paying attention before it
goes so far you're paying $500+/mo just to finance your previous life.

~~~
lotsofpulp
If you’re paying credit card interest rates, you’re already far off the
optimal path.

~~~
vinceguidry
"Optimal" is a moving target.

~~~
lotsofpulp
Unless you’re starving or about to be homeless, I can’t imagine something
yielding more return than the 20%+ interest it’s costing.

~~~
vinceguidry
I like to tell people that the only people who should be investing in the
stock market are those for whom single-digit differences in yield are
meaningful. Practically speaking, this means at dollar values of $1MM and up.
If you don't have that kind of capital then you need either leverage or time.
The only two financial investments ordinary mortals should be making are a
retirement portfolio and buying a house.

The house makes sense because it's an accessible form of leverage and the
retirement portfolio makes sense because of the time scale involved makes the
return on investment vs just putting it under the mattress meaningful.

Otherwise it's just not worth your time. Obviously you can do active trading
on the market and make more money with less capital but that's not investment.

Similarly, you can use the same logic to determine that paying 20% interest on
small amounts of money, i.e. under $10k, just isn't worth worrying about in
the grand scheme of things. It's like $300/month. I'm not going to waste sleep
over that. I mean, I'll happily take it if someone's giving it for free,
otherwise it's just another bill.

And I've already got lots of other bills in the range of $1-300 a month. I'd
rather have the things I bought with the $10k right now than to save up for
them, just to save a few hundred per month.

The problem comes in when you're spending that money on stuff that's not
providing meaningful quality of life benefits. That's a leak in your bucket.
Whereas $10k in debt in a life that's working is more like poking holes in an
airship. You'd need a whole lot of them to bring it down.

------
RickJWagner
Lots of awesome advice there.

This should be universally taught in about sixth grade. People would be much,
much better off (in general).

Glad to see an article like this.

------
britch
Pay your taxes.

Just pay them. If you are wealthy enough to worry about and have to time to
game the tax system, you should just pay them. Don't over-itemize to save
yourself a few hundred dollars.

The attitude of avoiding taxes baffles me. We are the government. We all use
roads and rely on the infrastructure, the idea that is it normal to not pay
your fair share angers me to no end.

I understand using a 401K, getting exemptions for some things are built into
the system. I am not talking about those. If you are truly struggling, I
understand why you would need to game the system a bit.

I am talking about wealthy and middle class people who deliberately abuse the
tax code. Be a good citizen, pay your goddamn taxes.

~~~
lotsofpulp
What is this comment in response to? The linked article does not advocate
evading taxes in any way.

What is the definition of “deliberately abusing” the tax code? If it’s legal,
it’s legal.

~~~
Kluny
Probably the headline in the article,

"Minimize your Taxes".

~~~
lotsofpulp
Doesn’t make any sense to me to say “pay your taxes” to someone who is paying
their taxes. Minimizing the amount one pays does not change the fact that they
paid, what they owed.

