
Stanford CS007: Personal Finance For Engineers - destraynor
https://cs007.blog/
======
indescions_2017
So you've completed CS007. And graduated Stanford. You've even managed to save
around $10K in cash from various summer jobs and gifts from relatives. The
consensus advice investment management professionals would offer is to sock it
away in a well-diversified set of Vanguard Funds. Which you keep adding to on
a monthly basis allocated from your paycheck. As well as re-investing any
dividends generated. Which will compound nicely over the next thirty years.
Leaving you with a $1M nest egg that will provide stable yearly income during
your golden years. As well as a decent inheritance left over for the next
generation.

But I have a really hard time giving this advice to a 22 year old. I certainly
didn't heed it myself. Instead I used the cash and spent 100% of it on my own
professional and personal development. So, naturally, since this is Stanford
and Silicon Valley. I'd include a section on Risk. Taking it. Managing it.
What are the rewards. As well as the costs. But with the emphasis the post-
graduation 5-10 year window may represent a unique opportunity in your life to
take it. And that there are programs such as StartX and YC available to assist
should you decide to go all in.

~~~
3pt14159
The advice I give to people on here is generally upvoted, except when it comes
to investing. If you're in the top 1% or 0.1% intellectually _and_ you're
active in the tech community as a software developer or other highly technical
skill you are very well situated to beat the market.

Pick any decade where this wasn't true. In the 90s it was buying web domains
or investing in personal computer companies. In the 2000s it was investing in
platforms and social networks or even just building a company in the mobile
space. In the 10s it was cryptocurrencies and AI.

All of these things were obvious and even if you didn't get in at the very
ground floor (buying sex.com or 50 bitcoins for a dollar) you still make
hyper, hyper gains.

100000% returns? Totally possible. Now go on and take all that knowledge you
hard fought for at MIT, Stanford, Harvard, or Waterloo (or even on your own!)
and use it too... Invest in low fee ETFs.

Great plan guys.

~~~
lmm
I'm a smart guy with a good degree. I still wouldn't represent myself in a
court, or diagnose my own medical ailments, or file my own accounts. Why would
I think I could pick stocks better than a professional?

~~~
mwexler
Because if you can pick an index fund with low fees, you are already beating
most professional stock pickers. Yes, you may find the one or a few active
investors who are amazing, but unlike law or medicine, there is a fallback
option that is consistently successful in both short and long term compared to
most stock picking, even professional. Note that you may all lose if the
market goes against you, even active stock folks with lots of "hedges against
the downside" and whatnot.

~~~
BHSPitMonkey
I don't think index funds are what the parent meant by "picking stocks". Going
with a fund, even an index fund, is still a form of delegating the low-level
work to financial professionals.

------
wil421
I think this is really great but IMHO college is too late for this. Personal
finance should be taught in middle and high schools just like health classes.

When I was 18 and a freshman in college I saw some crazy decisions including
using student loans to put a down payment on a car or taking out private loans
for spending money.

~~~
Uehreka
I was taught budgeting and basic finances in both middle and high school (I
went to public school in NJ) and whatever I learned evaporated immediately
because I had next to no use for it at the time. College (when people are
getting more independence than they’ve had previously) is a much better time
to teach people these skills.

In general, I chafe at the types of educational arguments that go “we should
teach kids more useful skills, like how to file a tax return!”. I think such
arguments would benefit from the knowledge that some students are already
being taught this, and need to relearn it when they get out into the work
force anyway.

~~~
zrail
> I was taught budgeting and basic finances in both middle and high school (I
> went to public school in NJ) and whatever I learned evaporated immediately
> because I had next to no use for it at the time.

Absolutely. This is why, as a parent, I'm going to teach my kids about money
early, letting them make consequential mistakes as early as possible, probably
starting around 2nd or 3rd grade. We'll fund the roof over their heads, the
food in the fridge, very basic clothes (shoes, socks and underwear, basic
shirts and pants, basic outerwear) but anything else they'll have to spend
their own money on. They'll get a fixed allowance plus they'll get extra money
for doing things around the house. Initially this will be in "the bank of mom
and dad" with a super high interest rate (like 5-10% per month) which will
hopefully help make the concept of compounding interest stick earlier. Over
time we'll transition to joint bank accounts with separate debit cards.

~~~
kyteland
My parents taught me (most likely inadvertently) all kinds of financial
lessons very early in life. I had a weekly allowance that was earned doing
generic chores. There was a list of bigger spring-cleaning-style chores that
had their own separate payouts. Most importantly, 50% of everything I "earned"
was required to be saved in the bank. The rest was mine. Paying taxes and
saving appropriately was never something I had a hard time doing as an adult.

~~~
zrail
Requiring 50% to be saved is a good move, I might steal that. I think I might
also do a "match" to a Roth IRA when they're older and actually earning
taxable income.

My mom never tied allowance to chores, we were just expected to do chores. The
problem with tying them together is that at some point the kid will just opt
out and you have no leverage. I had a bank account but we were never diligent
about deposits so saving was harder for me as a young adult.

~~~
dennisgorelik
> and you have no leverage

What leverage do you have in making children do chores in case if you do not
motivate them by earnings?

------
sbuccini
This is a class full of engineers from Stanford, many of whom are going to be
making $100k+ straight out of college. Yet 92% aren't going to be responsible
for any student loans.

Wealthy parents? Incredible student aid from Stanford's endowment? Both?
Either way, I have a feeling this is one of the biggest advantages they will
have in achieving a secure financial future.

~~~
leifaffles
Behavior determines successful outcomes far more than circumstances.

Saving $5.5k in an IRA every year for 40 years earning 7% ARR is a retirement
nest egg of $1.1M dollars.

Median family income is $60k, making this 9% of the budget. Even if you earned
say... $25k/yr ($12 per hour) for your entire life, you can afford to save
$5.5k per year.

There is zero excuse for most people not emerging a millionaire at retirement.

~~~
Y7ZCQtNo39
I feel like you haven't lived on $25k/yr, at least not without the help of
student loans or family.

You take FICA out, some federal/state taxes, you've got less than $2k a month.
That doesn't stretch too far in some places.

Also, since you're lower working class, you're not going to be buying in bulk.
You're not going to be avoiding late fees. You're not going to have economies
of scale available to you on a $100k annual income.

So, the ability to save $5.5k is much different for someone earning $25k vs
$100k. I'm not saying it's outright impossible, but it will have measurable
impact on lifestyle for the lower income worker, whereas not so much for the
higher income worker, since each marginal dollar you earn provides less and
less utility. But the first $25k you earn really is your lifeline to meet
basic necessities in life.

~~~
leifaffles
I live on 18k/year in a HCOL area. Don't tell me it can't be done.

~~~
Y7ZCQtNo39
So you earn 18k, save 5.5k, and live off 12.5k? Do you have any assets, such
as paid off home, that would significantly reduce your monthly expenses?
Context would be key here.

~~~
leifaffles
I mean my living expenses, including rent, utilities, food, transportation,
health care, etc, add up to $1.5k per month (or ~18k per year).

As in, I could make $25k (at a level where the tax rate is effectively near-0)
and still save > $5k per year.

~~~
Y7ZCQtNo39
Is this employer-provided health care? Sounds like you're receiving is
subsidized. Living on $18k a year would be rough. Are you splitting an
apartment? How much would you be paying if you had kids and needed another
bedroom? Again, context is key. For a single person in their 20s, who will
have the lowest level of responsibility and statistically the best health
situation of their life, it's possible. But for other people, $1.5k/mo in a
HCOL would not cut it.

------
bungie4
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.

~~~
whack
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-
aver...](https://www.forbes.com/sites/advisor/2014/04/24/why-the-average-
investors-investment-return-is-so-low/#6bf14d79111a)

[https://www.investopedia.com/ask/answers/042415/what-
average...](https://www.investopedia.com/ask/answers/042415/what-average-
annual-return-sp-500.asp)

[http://www.bankrate.com/calculators/retirement/investment-
go...](http://www.bankrate.com/calculators/retirement/investment-goal-
calculator.aspx)

~~~
bungie4
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.

~~~
gomox
The usual 7% long term figure for the S&P500 includes crashes and inflation in
that number. You don't crash at 30% and then grow back at 7%. You grow at 7%
on average at all times.

The only difference is volatility. If you need to cash out after the 30%
crash, you lost a lot of money. Most long term portfolios reposition
themselves towards less profitable but less volatile assets towards the end of
their expected lifetime.

For an example you can look at the Vanguard "target retirement $DATE" indexes.

------
amsb
Fantastic set of topics! As an engineering undergrad at UC Davis, I took a
course in engineering law which was incredibly helpful. It's great to see a
course in personal finance for engineers. As an entrepreneur building
financial services for STEM professionals, I see a distinct opportunity to
educate this demographic. While financial education for all demographics is
desperately lacking in the US, the STEM crowd has the mathematical training to
be presented with a more rigorous treatment of the topics. Moreover, STEM
professionals quite often have compensation packages that include complex
financial arrangements (e.g. deferred comp.) and/or derivatives (e.g. options)
that are difficult to value and/or manage.

------
shubhamjain
Is there any significant benefit of thinking tens of long-term/short-term
goals and planning, and managing different funds for them (emergency, travel,
house, card, kid's college education..). Why not just have a 1-2 funds to dump
your savings in and be smart about withdrawing from it? One could consist of
conservative investment vehicles, other could have more aggressive ones.

~~~
davidcbc
Because when you've got one big savings account it is a lot easier to look at
it and say "Oh! I can afford a new car now!" and cash out your entire savings
on one thing without taking the other things into account.

Having different accounts for different goals keeps a clean separation of
concerns. When your car account has enough to buy a car then you can buy it
and know you aren't taking away from what you have planned for your kid's
college education. If you decide to take money from one account to pay for
something else you have to actually think about what you are doing and are
more aware of the trade offs.

~~~
jk563
I've found de-coupling to be the key to altering this sort of behaviour. The
balance of my savings and investment accounts are separate from my budgeting.
I allocate funds at the budget level, the balance of my various accounts being
a secondary concern.

------
asafira
Question for hackernews: where did everyone else learn about this stuff?

Going through the material, I found I already knew 50-75% of it, but from bits
and pieces of information I learned over the years, not one consolidated
place. Is it the same for others?

~~~
alistairSH
None of this was covered directly at any level of school (well regarded public
school system in Northern VA).

I'd guess 50% or more I learned from my parents, 25%-ish from other school
work ("advanced" math in secondary school, economics major at university), and
25%-ish from experience (huh, how did I run up this credit card? I shouldn't
do that again!).

I had the impression that as an honors student, enrolled in primarily advanced
classes from middle school onward, and then attending a top-20 university, it
was just assumed I would know this stuff, or figure it out before getting into
financial trouble. That was mostly true, though it's hard to comprehend how
hard it can be to manage credit until you have a large credit line and a
stable income.

~~~
walshemj
I think that university still expects its incoming students to pick up stuff
from their parents - you can see this on sites like stack overflow where
graduates who are the first in their family to goto Uni - they don't seem to
know stuff that say mat parents taught me

------
amelius
Here's an interesting idea, a game environment for testing/building one's
personal finance skills:

[https://challenges.openideo.com/challenge/financial-
empowerm...](https://challenges.openideo.com/challenge/financial-empowerment-
challenge/ideas/the-sims-personal-finance-life-simulation)

~~~
corpMaverick
Perhaps one where you do bootstraping ?

[https://en.wikipedia.org/wiki/Bootstrapping_(statistics)](https://en.wikipedia.org/wiki/Bootstrapping_\(statistics\))

And you get to see the effects of random life events. You get cancer, you are
laid off, you sell your startup, etc.

~~~
amelius
Yes. And it would be nice if we could train a reinforcement learning algorithm
on top of it :)

------
JustPassinThru
I am neither a professional financial analyst nor a writer, but I wanted to
share what I've learned about financial management over the last 25 years with
my 18 and 20 year old kids, so I wrote a series of posts called Hacker
Finances. I take a lot of liberties with the Hacker notion, but all of the
advice is painfully learned and hopefully the kids will read it and profit, or
at least avoid major mistakes, when they are ready.

[https://hackernoon.com/https-medium-com-davisjames-hacker-
fi...](https://hackernoon.com/https-medium-com-davisjames-hacker-finances-
introduction-14b8283e8677)

------
maxro
This is really cool, albeit a bit high-level and leaves you with the question:
ok, what does this _actually_ mean for me?

I hate these startup plugs on random threads (genuinely), but here it actually
might be helpful for people. At Finimize, we're basically taking all the stuff
that Adam is talking about and we're putting it into an algorithm that will
tell _you_ what _you_ should be doing – from savings to investments to debt.

Like I said, not trying to pitch anything here, but feel free to check it out
www.finimize.com/mylife – or ping me an email to hello[at]finimize.com if you
want to get a demo (we're still in closed beta).

Peace!

~~~
Y7ZCQtNo39
Can you really boil down all financial decisions to an algorithm?

For example, should I pay off a low-interest mortgage earlier with higher
monthly payments, or should I invest each marginal dollar in a low-cost index
fund?

There's certainly a psychological benefit (for some people) to have the
mortgage paid off; it's one less bill to keep track of, but of course, over a
long period of time such as a 30 year mortgage, it's quite possible that it'd
appreciate more than your home (plus mortgage interest) will.

Or another question I see asked a lot: Should I take a year off work in my 20s
to travel abroad, not knowing how hirable I may be in twelve months, or how
the state of the economy might be for hiring early career individuals?

It seems half science and half art to me. You can graph and show what decision
X vs Y will look like for your finances, showing which will leave you with
more dollars in old age, but I do not think that is the difficult question for
younger savers today. They wonder, is this marginal dollar I have more
valuable spent on an experience today, or should it be invested for tomorrow?
It's the opportunity cost of saving.

One of your most valuable assets is time, and enjoying the present
sufficiently (but not gratuitously) is important for a balanced life. Saving
too much or too little will lead to serious imbalances either earlier or later
in life. Maybe an algorithm can hint you are savings are too low, or too high,
but it can't tell you exactly what to do.

~~~
alextheparrot
> There's certainly a psychological benefit (for some people) to have the
> mortgage paid off; it's one less bill to keep track of, but of course, over
> a long period of time such as a 30 year mortgage, it's quite possible that
> it'd appreciate more than your home (plus mortgage interest) will.

This is such a great point. I’ve been switching off between student loan
payments, investing in index funds, and investing in individual stocks I’m
interested in.

Objectively, an algorithm would tell me to invest in index funds only because
they are considered to have the best risk vs return ratio - my student loans
have a low interest rate (3-4%) and individual stocks are hugely variable for
an uninformed investor. You could imagine adding a couple more things into
this mix such as gold, crytocoins, and property as well.

I have started to rationalize this behavior as implicitly “buying the ability
to choose”. Choosing where and how to allocate my money is surprisingly
empowering and there is a hidden value associated with that which may be worth
more than the difference between the marginal gains. Does anyone else see
themselves rationalizig similar behavior that may be economically irrational
through this route? I wonder how this could be exploited in some sense by a
financial device that gives that same sense, but instead captures some of the
value left on the table normally.

------
the_gastropod
This is really an excellent intro to personal finance. I came to it expecting
to see the standard "save 10% of your salary" rule that's so pervasive. But
this is really thorough. I wish my school had a course like this. Great work!

------
josephdviviano
the key with money/investing is you want to stay alive long enough to get
lucky.

if you sock away money every month, make sure you have 6 months of living
expenses off to the side for emergencies, bet ~20% on crazy things with
unlimited upside and the remaining 80% in a very traditional way, you stand a
good chance over the very long term.

just make sure that when things get rocky you are one of the strong hands and
only sell when you want to.

as for the dollar values etc ... totally tied to city-specific cost of living
... totally impossible to compare between individuals (e.g., family vs.
single, country-specific tax codes, medium and long term financial goals).

------
hslayer
Is there a pdf version of the slides? slideshare blocked here.

------
juanuys
I've been interested in a household finance visualiser recently, but also
don't want to upload my bank statements to some random website.

This uses IndexedDB, and is pre-alpha and very buggy and feature-less still:

[https://github.com/opyate/fin](https://github.com/opyate/fin)

Just putting it out there if anyone's interested in Clojurescript/Hoplon and
personal finance.

------
i_cant_speel
Is there an audio lecture that goes along with this? I'm not seeing anything
but the slides.

------
voiper1
"Session 7: Good Investing is Boring" \-- excellent title!

------
k3a
Can't they use something better than SlideShare? I can't even display it
fullscreen on mobile. Even a stupid old PDF would be far better than promoting
this commercial crap.

------
golemotron
This is great but I think a personal finance course should be mandatory for
all high school students. It is much more important than the the other
curriculum.

------
manu-chroma
No lecture videos on the link. Just the slides for now.

~~~
e40
That's too bad. So other item courseware have videos?

------
satran
Question for HN: do you recommend any book for personal finance?

~~~
33W
For basics and a kick in the ass - Dave Ramsey's Total Money Makeover. (Or
listen to the Radio show for a bit)

Also, the Mister Money Mustache blog for a anti-consumerist viewpoint.

Beyond the basics, I haven't read much, but enjoy the Radical Personal Finance
podcast. It is a mix of really in depth content, like a multi-part series on
disability insurance, and the more "radical" bits, like strategies for living
out of your car.

------
burnt1ce
Looks like a fun bird course :)

------
aerovistae
Why is there nothing for lecture 9: Real Estate? That was the one I wanted to
read.

~~~
bdz
Not happened yet?

>The next seminar will be on Tuesday, November 28th at 4:30pm in Building 200,
Room 034.

~~~
aerovistae
i don't read so well apparently

------
Double_a_92
Step 1: Buy Bitcoins in 2010.

Step 2: Try not to cry because you failed at Step 1.

T_T

~~~
RationPhantoms
I've found the easiest way to battle FOMO is not to compare yourself between
then and now but more like what you would do if you DID purchase the coins in
2010.

More than likely, you would sell in 2010.2. There would be about 100 price
points where your body would say CASH OUT. Markets are all about taking money
from the inpatient and giving it to the patient.

------
stefek99
Did "CMD + F" to search for "Bitcoin" and "crypto"... Your government is
likely to fail, trust in numbers.

