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Ask HN: Personal Finance Advice for a 21 yo
15 points by sujayk_33 8 months ago | hide | past | favorite | 46 comments
Hi guys, HN has a great community with people from all age ranges, I would like you to open up about your personal finance experiences

Please share the practices that you did to manage your finances, the ones that worked and also those which didn't and what you learnt from it.

What was it that you learnt later in life and wish to have known a little sooner?

Feel free to share any of your thoughts




I think most of the advice here is great, but it's not the advice I needed at 21. Here's what worked in my life:

- Think about liabilities vs investments. Early on, I would invest in yourself. Gain new skills, education. Keep your teeth pristine. Spend money on well-fitting clothes and other things that will help your confidence. Things like cars, toys, etc are liabilities. They cost money, and don't generate any.

- Develop frugal taste. Don't spend on name brands and luxury unless it's really important. Sometimes it is, though.

- Buy nice stuff: when you buy stuff you think you will own a long time, buy nice stuff. Tools are a good example. I have a socket set I bought 25 years ago. (Related: take care of your stuff!)

- If they suit you, find hobbies that can earn you money. The big winner in this category for me was poker, but I've also made some money at photography, programming, and pool, all of which were hobbies originally.

- Just make a plan. If you don't make a plan, you don't know where the money goes. Your plan will be fine. Don't listen to any one of these comments too closely. Decide for yourself. You are the only expert on your own life.


I agree with almost everything said here.

But I can't disagree enough with the sentiment that you need to find hobbies that can earn you money. In my world, hobbies should keep you sane, grounded and serve as a reminder that there are things worth doing just because. Instead, find a job that you somewhat enjoy that can earn you money and then have some hobbies that you do just for the sake of it.

The moment money gets involved in hobbies, expectations start to creep in, and you will begin judging your own performance. Which is fine if you're doing a job but it's also nice to have things you do without judgement :)


I swear people just end up turning their hobbies into side hustles lol.


I turned two hobbies into main hustles (poker and programming). It went well in both cases. I enjoy them both as hobbies again now.


You do not get rich from income. You get rich from wealth. Income can help you acquire wealth.

Early in your career, aim to change jobs every 3-5 years. Your income and career will rise much faster and you will gain more experience.

Take on debt when it is cheap, so long as it goes towards durable goods or personal investment. Loans where the interest rate is lower than inflation is free money.

Talk to a loan officer before you start saving up for a house. You may not have the right savings goals in mind.

Nothing will eat away at your finances worse and more quietly than a car payment. For the monthly cost of a new Camry, you could buy an old running Camry every 5 months.

Nothing will save you money more than roommates.

Know yourself. If you chase side-projects and have ambition, don't stick all your money into retirement - set aside money for direct investments. If you just want to work the bare minimum and play video games, then squirrel away at a steady rate.

Having cash or savings when entering a recession is how people get wealthy.

The best investments are in private businesses, followed by real estate, followed by stocks, followed by bonds. But it is also directly proportional with risk and effort.

You may come to a point in your life when your time is worth more to you than your money. Don't become accustomed to wasting either.


> You do not get rich from income.

You do not need to be rich.


Having a partner (wife etc) which generates money and not just spends yours is preferred.

Spend less than you make. Lots of things are free. Don't let people dictate what you need to buy to show off.


Those are some great advices to follow thanks


I was lucky to be given/earnt some money before I was 21. Basically enough at the time to buy a mid range new car. I invested it into an Index Fund and didn't spend any of it, even when later I'd had 4 kids and times were tougher. 25 years later it has quadrupled in size and by the time I retire I am hopeful it will fund my entire retirement.

Appricate the power you have in your youth.

"Compound interest is the eighth wonder of the world."


https://www.reddit.com/r/personalfinance/ and their wiki https://www.reddit.com/r/personalfinance/wiki/young_adult/ are a great resource


One of, if not the most important financial decision you will make, is who you marry. If you decide to get married, take your time and do not make this decision lightly. Find someone whose financial goals are similar to your own. Mismatched financial philosophies (spender vs saver) and divorce are extremely costly especially as you gain wealth.


Going along with this, take the question of marriage seriously and don't delay. Your prospects will mostly get worse from 22yo onward. If you're in a relationship that you don't see progressing toward marriage, get out. If you end up without prospects by 24 or 25, seriously consider going to grad school, just for the dating market. Anticipate that it's way harder to join lives with someone who is already set in his ways, which is what happens when you live out of college and without roommates for years.


I managed mine very badly during my 20's and 30's (lots of consumer debt). I'm 55 now, mortgage free in single digit years, healthy investment accounts for retirement and no debt.

There are few secrets, just common sense really:

  - Live within your means (spend less than you earn), avoid debt.
  - Corollary: Have a good paying job (tech is handy for this) 
  - Save early put 10% (at least) of your gross salary into investments such as low MER ETFs, re-balance every 6 months - or use a Robo Advisor that does it for you.
  - A partner/spouse helps immensely (and you both need to be aligned wrt goals and spending habits!)
  - Balance savings and the future with enjoying life
(edited for formatting)


"A partner/spouse helps immensely (and you both need to be aligned wrt goals and spending habits!)"

Or they can be immensely destructive. Even if you align now, marriage can be a future financial risk due to possibility of divorce. Overall, considering goal alignment/spending habits and divorce, it seems like a 50/50 chance you get one that actually helps vs one that hurts or is neutral.


YMMV.

- When you are in school, money is more valuable than time.

- After graduating and starting your career, time is more valuable than money.

- Don't scrimp on your mental health and physical health. Sometimes, you just need to re-energize and do absolutely nothing.

- Keep only one credit card. You can have backup card, but don't use it. Pay the credit card off every month and don't carry a balance.

- For the average person, cars and automobiles are an endless financial headache. Buy a reliable car that doesn't break down. People who buy expensive cars to show off are throwing their money in the dust bin.

- Take advantage of your employer's 401K match. It is literally free money. Put it all in an index fund that mirrors the S&P500 for example.

- Buying a house is the American dream, however beware of some of the gotchas. Be careful of HOA dues which can be expensive. Also beware of expensive repairs to HVAC, foundations, and roofs. Also watch out for issues your realtor will never tell you, like potential flooding and (lack of) cellular/internet providers in your area. Also most Home Warranties are worthless.

- Once you have children, you should buy term-life insurance policy in case you die. I bought a 50 year term-life policy that is independent of my employer and the monthly payment amount is locked in.


> you just need to re-energize and do absolutely nothing.

some theories support this statement and some contradict this, but for every advice, there is a counter-advice. it's too baffling


Yeah. I have heard some say they need to keep busy or their mind dwells on past trauma. If whatever you are doing removes stress, then do it.


some things that have served me well for 20+ years since exactly your age

1)start investing the federal maximum pre-tax into your 401K. if you can't do the max, invest at least a minimum of your company's match. if there is no match, try to do at least 5-10K. 1a) put it all into an SP500 fund, or at least never put it into the age 20## type funds. 1b) if your work offers anything else that can be purchased through them such as vacation, insurance, etc., do it all through them as that's typically all pre-tax.

2)if you need a car, never buy a car that's more than 3x your yearly salary. if you can make it 4x even better.

3)don't rush to buy a property, expecially at today's rates. if it does come to a point that you're buying a property don't buy a property, don't go above 4x your yearly salary. i suspect that won't be much at 21 and i suspect the bank advisor will tell you the good news that you're pre-approved for much more, but until you (and your eventual spouse) can meet the 4x level, don't buy a property. 3a) this advise is worth exactly what you've paid for it. there are a gazzilion nuances such as do you need a car if you have a house/condo in a place where you can walk/take bus to work and everywhere else, what are the property taxes? it's one thing to have 2000$ mortgage and it's another to realize that you're paying another 1000$ in taxes before utilities, etc.

4)work-life-balance: it's extremely important to use all your vacation and have overall balance when you can get away from work and recharge.


> never put it into the age 20## type funds

Why not? Especially with Fidelity and Vanguard, the expense ratios are often very low, and for a 21 year old the fund is going to be mostly stocks anyway.


Rates today shouldn't be a big deal. The bigger deal related to rates is the constrained supply from people not wanting to lose their current rate. The current rates are close to historical averages, and you can refinance if they go down. Just don't get a big house or adjustable rate assuming it will go down.


Become a life long avid reader. Asking people online is fine; but there is nothing better than educating yourself by reading the world's most recommended books.


Early on, ROI on active income is >>>> passive income. Passive income will give you 10% annual returns max (let's not count crypto). So you need a lot of cash set aside before it's worth it.

Can you get from say, $50k to $55k income? Invest in that first. Buy books, pay for expensive courses, even some of the shadier ones. The average ROI for shady classes is often better than investing in a blue chip stock.

Until you're probably at some point where you can't go from $400k to $440k or so. And in some cases the cost isn't financial - the path forward becomes several steps backwards spiritually and morally. Then you stop and start investing in passive income.

Active income isn't just salaries though. I make more per year from hackathons than bonuses. Running a business is a form of active income, and at some point it's easier to transition to that.


Can you kindly suggest me any expensive courses that have high ROI which is marketable in the relatively near future?


It's hard to give a generic suggestion, because it's related to whatever you're plateauing on.

Obvious one is anything related to your job. If you do front end, then animations, architecture, etc. If it's back end, then algorithms, etc. There's plenty on sales, marketing, copywriting, and so on.

Or if you don't have a good job, then a bootcamp and such. Certs are more of a starting point for people with no experience but need to prove their competence. The AWS certs are all very safe bets.

A lot of people like to do free stuff on YouTube or articles only, but the downside is that most of these are half-assed. I've taught classes for years and writing good material requires a lot of effort. It takes about 3 hours of prep and iteration to teach a technical class for 1 hour - stuff can be further simplified, code can be improved and shared, new things updated, and so on.

A level above that is hiring a mentor. Which mentor again depends on what your plateau is on. Most aren't hired directly; you pay in labor and such. Universities are an institutional form of this, but there's plenty other options once you get there.

The most generic suggestion is MasterClass. Watch it past specific things like tennis and chess, and you'll see the principles. Kasparov doesn't open with openers, he begins with the principle that you should attack two pieces at once. A lot of people there have been doing things naturally that they don't even realize what they're doing wrong. One interesting example is David Mamet is one of the best dialogue writer of all time, but he can't explain what makes it good. But there's one by Aaron Sorkin who analyzes his idol Mamet, and he goes into it in a way that us regular people can understand.


One I saw is courses to become a certified phlebotomist. It takes a certification; they don't just take random people off the street. That means it pays reasonably well. The courses cost something like $500.

Note well: I have not independently verified any of this.


The important bits have already been shared. Definitely check out /r/personalfinance and read their guides.

Remember that anything that sounds too good to be true very likely is. There are a lot of people out there trying to scam you out of your money. Be smart and don't try to get involved with get-rich schemes. Definitely don't pay for courses that claim they'll teach you how to become rich.

Don't get into dropshipping or MLMs (pyramid schemes). Don't take advice from anyone who recommends "Rich Dad, Poor Dad" or related books.

Be exceptionally cautious with crypto. If you must participate, keep it at a small percentage of your overall assets. Don't get involved with "meme stocks."

Only lend money you're ok with losing.


3 things I wish someone had told me:

- don't buy a new car. there's plenty of reliable vehicles between 5-10k that will serve you well for many years

- most banks will let you set up as many checking accounts as you want. figure out your monthly budget for bills, and automatically deposit that amount + a little extra to a separate "bills" checking account. autodraft all your bills from that account

- be careful with credit cards!


I would like to recommend "I Will Teach You To Be Rich" by Ramit Sethi. It's a 6 week program to automate your finances. There's a lot of really good advice in there, and there are some viewpoints that he'll point out that maybe you haven't thought of. (Buying a house, for example, is not always the best idea.)


Start creating an ownership interest in good companies by buying their shares. This is one mistake that I made in my 20s - not investing. By a stroke of luck, I had managed to buy a few shares in a blue chip comment where I worked. And, they have given me handsome dividends regularly and significantly appreciated in the value as well.


Some advice personally worked for the person. Some advice works for everyone. Part of the trick is telling one from the other. Here's my list. Ymmv.

First up; spend less than you earn. Which means being cautious with debt. I've bought houses with debt. I've bought cars with cash.

Second; build up a primary fall-back, liquid, fund. About 6 months of salary. This gets you through "life happens" events. Returns on this will be lowish, that's OK. (My mortgage allowed for extra cash yo be stored there, reducing my interest each month).

A smaller general savings account for big-ticket items I need from time to time. Like the car. Or fridge or whatever.

Once all that's settled to can talk to a financial advisor about long-term investment options. That's usually a mix of things that balance your appetite for risk, age, circumstances etc.

Always remember. Money exists to serve us. If you develop the habit of living within your means it will. Conversely if you develop the habit of spending tomorrow's income today (aka monthly payments on xxx) then you start existing to serve the money. And that's not a fun place to be.

Some of this advice is personal. Some is universal. You figure out which is which. Good luck.


1. Live below your means.

2. Save more for retirement than you think you need. Leverage 401K matching and be critical about the performance.

3. Minimize your debt.

4. Always negotiate.

5. Have an emergency fund.


> 4. Always negotiate.

In what context?


In all contexts. Negotiate for higher salary, price on a car, etc. It never hurts to ask for a better deal.


I can’t find it now but there was some guy who asked for a discount every time he made a purchase for like a year. He said it worked way more often than you’d think and that you just have to get over the self-consciousness of asking.


Right but what's the strategy when they say no? Ask another shop? Buy anyway?


Yeah, I think you’ve got it. Either you buy it or go to a different store.

I’m pretty sure it was part of the book “Rejection Proof: How I Beat Fear and Became Invincible Through 100 Days of Rejection” by Jia Jiang.


Contribute as much to your retirement plan as possible.


Read the Incerto by Nassim Taleb.

Every Answer is in that book.


What are the questions?


What risks should I take? (How to choose a career decisions)

What risks should I not take? (How to ignore or not persue a career)

How should I structure my finances? (Investments, Savings)

How should my finances affect my life? (The benefits of wealth)

How should my finances not affect my life? (The limits of wealth)

How to make friends.

How to get married.

How to drink alcohol.

How to do scientific research.

How to exercise.

How to eat.

Many other questions.

Just ask me any question and I will give you a reference to the Incerto that has a solution. (But philosophical questions, don't ask me how to successfully create nuclear fusion :D )

My entire life is designed around that set of books.


That would teach out to live like Nassim Taleb. He's okay but I don't envy his lifestyle to the point of living by his standard.


Just curious.

Is there any person whose living standard your aspiring to living to (dead or alive)? I like studying anyone other find worth studying.

One thing I can't copy from Nassim is the way he attacks people on social media.

You don't have to follow anyone's work 100%. I take what I find useful & ditch what I don't like.

But the core concepts he shares have been very illuminating and become more important as I age.

I like Elon's approach to business for example. But I wouldn't want 10 kids and several divorces.

I like many rappers. But I can never willing live even 1% of thier lifestyle.

Take want you want ditch what you don't like.


any money you want to spend on booze, put in savings!!!


Don't get married and don't have kids. Yes, there may be emotional benefits etc, but financially it's a bad move. Even if you want kids, you're often better off living together but staying unmarried from a financial perspective in most cases. Some tax provisions are easier to claim independently rhan as a couple, and you can shift around who claims the kids based on who would benefit most from the tax breaks. If you don't get married, you're more likely to be equal partners financially and you carry no risk of alimony.


This is kind of like saying "only eat rice and beans. Even if you want to eat steak, just eat spam cause it's cheaper."

Marriage and/or starting a family is a decision that you'll make outside of finance. If you're making it solely based on financial reasons then you're doing it wrong.


On a per ounce basis, spam is likely more expensive.

"Marriage and/or starting a family is a decision that you'll make outside of finance."

It should absolutely include financial planning.

"If you're making it solely based on financial reasons then you're doing it wrong."

I'm not saying to make the decision solely on finances - I certainly didn't. But they asked for advice relating to finance. Even if we are factoring in other issues, there's generally little reason to get married. Most things you can do as a married couple, you can do as an unmarried couple. You save on the typical expensive wedding, you're more likely to be financial partners, there no risk of alimony, and there's potential tax benefits.




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