Not exactly Warren Buffett
July 2, 2007 12:15 AM Subscribe
What is some of the best financial advice you have ever received?
I'm kind of naive when it comes to handling money, and I want to work on that. I'm looking for ways to improve my financial knowledge and use my money wisely--so far I've been relying on things like buying things on sale and avoiding bad credit, and I'm also looking into taking an intro economics course. What are some things you wish you had known when you were young?
I'm kind of naive when it comes to handling money, and I want to work on that. I'm looking for ways to improve my financial knowledge and use my money wisely--so far I've been relying on things like buying things on sale and avoiding bad credit, and I'm also looking into taking an intro economics course. What are some things you wish you had known when you were young?
I wish I'd started saving for retirement when I was young.
posted by happyturtle at 12:48 AM on July 2, 2007
posted by happyturtle at 12:48 AM on July 2, 2007
If you have received ISOs from a company you work for, you have 30 days to buy what you have vested so far when you leave the company.
It's not in the company's interest that you buy the ISOs when you leave, so usually they don't make much publicity about it.
posted by NewBornHippy at 12:52 AM on July 2, 2007
It's not in the company's interest that you buy the ISOs when you leave, so usually they don't make much publicity about it.
posted by NewBornHippy at 12:52 AM on July 2, 2007
Live within your means.
With the exceptions of a house and your education, never buy anything that you don't have the money for.
posted by chrisamiller at 12:53 AM on July 2, 2007 [2 favorites]
With the exceptions of a house and your education, never buy anything that you don't have the money for.
posted by chrisamiller at 12:53 AM on July 2, 2007 [2 favorites]
A broad index of stocks, like the S&P 500, will yield good results over ten years or more. If you are saving for an event and don't need to touch the money for that long, invest it.
Pay off credit cards before doing any investing. Why? A credit card debt with an 18% interest rate is the equivalent of a guaranteed 18% return investment. There is no more reliable, better investment than paying off your high interest debt first.
If everyone is buying a stock, it's almost always no longer a good idea / already too expensive.
If you like doing serious research and are capable of looking at basic financial numbers without falling asleep, you should learn about value investing. It's the quantification of "buy cheap, sell dear." Very simple in practice.
posted by zippy at 12:53 AM on July 2, 2007 [1 favorite]
Pay off credit cards before doing any investing. Why? A credit card debt with an 18% interest rate is the equivalent of a guaranteed 18% return investment. There is no more reliable, better investment than paying off your high interest debt first.
If everyone is buying a stock, it's almost always no longer a good idea / already too expensive.
If you like doing serious research and are capable of looking at basic financial numbers without falling asleep, you should learn about value investing. It's the quantification of "buy cheap, sell dear." Very simple in practice.
posted by zippy at 12:53 AM on July 2, 2007 [1 favorite]
My personal finance instructor at UC Davis gave me the best piece of financial advice ever:
"Marry well, divorce is expensive."
Chrisamiller's advice above is the surest route to becoming a millionaire assuming a half decent income, and not piling all your investment money into one high risk basket.
posted by BrotherCaine at 1:03 AM on July 2, 2007
"Marry well, divorce is expensive."
Chrisamiller's advice above is the surest route to becoming a millionaire assuming a half decent income, and not piling all your investment money into one high risk basket.
posted by BrotherCaine at 1:03 AM on July 2, 2007
If you're working work out roughly what you're spending on bills (electricity, phone, rent etc) every month.
Open a second account and on pay day transfer X + 100 (say) into that second account. Set up any direct debits from that second account.
After a couple of months you'll have started to build up a little buffer in the second account which can help with any surprise bills that turn up, but it also means that whatever remains in the first account is more or less (within reason) "spending money" as the bills are all taken care of, no matter what date they arrive during the month.
It takes a little effort to set up, but I really felt the benefits of doing this.
posted by jontyjago at 1:06 AM on July 2, 2007 [4 favorites]
Open a second account and on pay day transfer X + 100 (say) into that second account. Set up any direct debits from that second account.
After a couple of months you'll have started to build up a little buffer in the second account which can help with any surprise bills that turn up, but it also means that whatever remains in the first account is more or less (within reason) "spending money" as the bills are all taken care of, no matter what date they arrive during the month.
It takes a little effort to set up, but I really felt the benefits of doing this.
posted by jontyjago at 1:06 AM on July 2, 2007 [4 favorites]
"the essence of economy lies not in savings, but in selection."
-edmund burke
posted by bruce at 1:20 AM on July 2, 2007 [2 favorites]
-edmund burke
posted by bruce at 1:20 AM on July 2, 2007 [2 favorites]
Work out a monthly budget. Track your spending to make sure it really does reflect your outgoings. Then stick with it. If you suddenly earn more, don't blow it all straight away.
Start your pension saving as early as you can.
Save a 'rainy day' slush fund of 3 to 6 months' living expenses.
Don't buy on credit.
Buy generic whenever there's no genuine reason to buy branded.
Live within your means and learn to say 'no' to shiny new toys. (I know that's mean, what with the iPhone coming out and all, but...)
And what Bruce said. Learn by trial and error, and by reflecting a bit, what matters the most to you, and focus your spending on the things or experiences that give you the most satisfaction.
posted by dowcrag at 1:36 AM on July 2, 2007
Start your pension saving as early as you can.
Save a 'rainy day' slush fund of 3 to 6 months' living expenses.
Don't buy on credit.
Buy generic whenever there's no genuine reason to buy branded.
Live within your means and learn to say 'no' to shiny new toys. (I know that's mean, what with the iPhone coming out and all, but...)
And what Bruce said. Learn by trial and error, and by reflecting a bit, what matters the most to you, and focus your spending on the things or experiences that give you the most satisfaction.
posted by dowcrag at 1:36 AM on July 2, 2007
"Pay yourself first." I have a regular transfer set up from my checking account to my savings account that occurs every month, right after payday. I transfer 1/3 of my take home pay into that account, and it enabled me to set up a nice nest egg in just a few years. Get the highest interest savings account you can for this, though!
posted by hazyjane at 2:06 AM on July 2, 2007
posted by hazyjane at 2:06 AM on July 2, 2007
Gambling & betting is the stupidest way to spend your money.
posted by arrowhead at 2:07 AM on July 2, 2007
posted by arrowhead at 2:07 AM on July 2, 2007
If you're on a budget ask yourself "Do I need it? Can I afford it?" If the answer to either of those questions is "No" then don't buy it.
posted by essexjan at 2:18 AM on July 2, 2007
posted by essexjan at 2:18 AM on July 2, 2007
Be sure you max out your employer's 401(K) match (or equivalent).
posted by printdevil at 2:36 AM on July 2, 2007
posted by printdevil at 2:36 AM on July 2, 2007
Love don't pay the bills.
posted by pieoverdone at 3:18 AM on July 2, 2007
posted by pieoverdone at 3:18 AM on July 2, 2007
Read The Only Investment Guide You'll Ever Need by Andrew Tobias. An entire book may seem like overkill, but Tobias packs a lot of useful financial wisdom into a pretty short read.
posted by backupjesus at 4:20 AM on July 2, 2007
posted by backupjesus at 4:20 AM on July 2, 2007
Best answer: I once had a 7000%+ return investing a few thousand dollars in a friend's business, but that was a lucky lark, rather than advice.
Scott Adams (of Dilbert fame) has a nine-point plan in "The Way of the Weasel" that he says is "everything you need to know about personal investing" that's just about right:
posted by commander_cool at 4:33 AM on July 2, 2007 [13 favorites]
Scott Adams (of Dilbert fame) has a nine-point plan in "The Way of the Weasel" that he says is "everything you need to know about personal investing" that's just about right:
1. Make a willThat 70/30 ratio is probably a bit conservative if you're young. And I don't listen to him all the way, either: I invest in individual stocks, but probably shouldn't, even though I outpace the market by a percent or two.
2. Pay off your credit cards
3. Get term life insurance if you have a family to support
4. Fund your 401k to the maximum
5. Fund your IRA to the maximum
6. Buy a house if you want to live in a house and can afford it
7. Put six months worth of expenses in a money-market account
8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement
9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio
"Everything else you may want to do with your money is a bad idea compared to what's on my one-page summary. You want an annuity? It's worse. You want a whole life insurance policy? It's worse. You want to invest in individual stocks? It's worse. You want a managed mutual fund instead of an index fund? It's worse. I could go on, but you get the point."
posted by commander_cool at 4:33 AM on July 2, 2007 [13 favorites]
I'm not advising you to do this, but this is what I regard as the best investment advice I ever received, despite the obvious risk, because it can enable very big tax-free gains (at least in the UK):
In a rising market, gear up as much as you can when you buy your house. For example: if you put $100,000 down and borrow $400,000 on a $500,000 house, and the house then rises to $600,000 next year, you have doubled your money (100k > 200k); if it rises to $1,000,000 in five years you have multiplied your money 6x (100k > 600k).
posted by londongeezer at 4:59 AM on July 2, 2007
In a rising market, gear up as much as you can when you buy your house. For example: if you put $100,000 down and borrow $400,000 on a $500,000 house, and the house then rises to $600,000 next year, you have doubled your money (100k > 200k); if it rises to $1,000,000 in five years you have multiplied your money 6x (100k > 600k).
posted by londongeezer at 4:59 AM on July 2, 2007
Marry well.
I keed, I keed! Don't ever let credit card debt accumulate. If you use them (and nearly everyone does these days), PAY THEM OFF EVERY MONTH.
posted by chuckdarwin at 5:00 AM on July 2, 2007
I keed, I keed! Don't ever let credit card debt accumulate. If you use them (and nearly everyone does these days), PAY THEM OFF EVERY MONTH.
posted by chuckdarwin at 5:00 AM on July 2, 2007
Charles Dickens's Mr Micawber: "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
I wouldn't do economics for financial acumen. It has little to do with budgeting, investing, etc
posted by TrashyRambo at 5:16 AM on July 2, 2007
I wouldn't do economics for financial acumen. It has little to do with budgeting, investing, etc
posted by TrashyRambo at 5:16 AM on July 2, 2007
Yeah, I say skip economics and take intro accounting (or small business accounting) or a personal finance course if you can find one.
posted by Lyn Never at 5:36 AM on July 2, 2007
posted by Lyn Never at 5:36 AM on July 2, 2007
Pay yourself first. As in, when you get your paycheck every week/month/whatever, put a portion of it -- even just $25 -- in a savings account somewhere and forget that it exists.
posted by SpecialK at 5:53 AM on July 2, 2007
posted by SpecialK at 5:53 AM on July 2, 2007
Live under your means. When you get a raise or better paying job don't think "cool, now I can afford to get a better apartment / car / furnishings / vacations / etc...". Living on what you can afford at the time gets you into financial holes when unexpected expenses or pay cuts happen.
posted by hungrysquirrels at 6:03 AM on July 2, 2007 [1 favorite]
posted by hungrysquirrels at 6:03 AM on July 2, 2007 [1 favorite]
Best thing my wife and I ever did was take out a debt consolidation loan after college to remove our credit card debt. If you can't pay more than the minimum now, then consolidate that SOB and be done with it.
posted by caution live frogs at 6:38 AM on July 2, 2007
posted by caution live frogs at 6:38 AM on July 2, 2007
Seconding printdevils suggestion about maxing out your employer's 401k match. Many people will tell you to put the maximum allowable money in a 401k or Roth, but that may not be realistic if you are younger.
But do see what your employer's match is. It might be a match of a certain percentage, or a flat dollar amount, or a combination of both. Then try to put in at least that amount because it is FREE MONEY.
posted by kimdog at 7:32 AM on July 2, 2007
But do see what your employer's match is. It might be a match of a certain percentage, or a flat dollar amount, or a combination of both. Then try to put in at least that amount because it is FREE MONEY.
posted by kimdog at 7:32 AM on July 2, 2007
Don't take financial advice from your parents.
nthing maxing out your 401K and IRA asap
wise up on how death tax work.
Another great and easy to read/ understand resource is Die Broke.
If you're serious about learning economics, I can't recommend this course highly enough. (Note: these courses go on sale once a year so if you wait a bit you'll be able to purchase it at approx 25% of the current price. These courses are also sold on ebay, and you can often find them in your local library.)
posted by forallmankind at 7:32 AM on July 2, 2007
nthing maxing out your 401K and IRA asap
wise up on how death tax work.
Another great and easy to read/ understand resource is Die Broke.
If you're serious about learning economics, I can't recommend this course highly enough. (Note: these courses go on sale once a year so if you wait a bit you'll be able to purchase it at approx 25% of the current price. These courses are also sold on ebay, and you can often find them in your local library.)
posted by forallmankind at 7:32 AM on July 2, 2007
Best answer: - start investing young
- keep 6 months savings for emergencies
- stay insured health-wise
- pay off your credit card every month
- never buy new cars
- don't live outside your means, save as much as you can
- don't watch TV, don't be brand conscious where it's not helping you solve a problem
- don't work for friends for cheap, charge them full price or just do it for free
posted by jessamyn at 7:42 AM on July 2, 2007
- keep 6 months savings for emergencies
- stay insured health-wise
- pay off your credit card every month
- never buy new cars
- don't live outside your means, save as much as you can
- don't watch TV, don't be brand conscious where it's not helping you solve a problem
- don't work for friends for cheap, charge them full price or just do it for free
posted by jessamyn at 7:42 AM on July 2, 2007
Understand time value of money. Once you get this, you will pay off your credit cards every month and be motivated to save.
Don't buy stuff on sale other than groceries. You don't need that junk.
posted by yohko at 7:52 AM on July 2, 2007
Don't buy stuff on sale other than groceries. You don't need that junk.
posted by yohko at 7:52 AM on July 2, 2007
Another idea that has worked for me is direct depositing into a credit union account about $35 a week and yearly putting half the tax return check in. Then ignoring it until it's time to buy a car. Every 5 or 6 years there is more than enough $$ to buy a decent car (10K - 12K) for cash.
What I wish I had done is made the first real estate purchase a two or three flat, live in one unit while renting the other, keeping costs down. Try to work so the rental income is close to the mortgage payment. Then put aside some money each month to buy a single family home when the kids are bigger and need more space. Keep the rental property as an investment. Friends did this through their twenties, buying a small rental property, fixing it up. About every two to three years they did the same thing. Now the kids are in college, they own 7 rental units and a house.
Never get into credit card debt and NEVER open a home equity line of credit.
posted by readery at 8:11 AM on July 2, 2007
What I wish I had done is made the first real estate purchase a two or three flat, live in one unit while renting the other, keeping costs down. Try to work so the rental income is close to the mortgage payment. Then put aside some money each month to buy a single family home when the kids are bigger and need more space. Keep the rental property as an investment. Friends did this through their twenties, buying a small rental property, fixing it up. About every two to three years they did the same thing. Now the kids are in college, they own 7 rental units and a house.
Never get into credit card debt and NEVER open a home equity line of credit.
posted by readery at 8:11 AM on July 2, 2007
Watch your hidden costs. Identify the hidden profits.
For hidden profits you have to look no further than a 401k. Putting $1 into a 401k costs you less than $1, assuming you pay taxes, and the profit level is the HIGHEST tax amount you pay.
Look at a tax chart. If you made over 31,000 in taxable income that year then your 401k contribution shaves off the top and that $1 you put in means you didn't get $0.75 in your check. That's an instant 33% profit to you, a profit that will start compounding immediately. Even if you're taxed at the same rate when you withdraw it's worth it.
For hidden costs you can look at everything purchased with credit. That $20 dinner on your credit card could end up costing you $25 or more if you carry any balance. That $15,000 car at 10% interest over 3 years actually cost you $17,425.
If you saved that $484 payment every month into a 4% interest bearing account while driving your old car you could afford to buy it outright after 31 months instead of owning it after 36 and paying almost $2,500 in interest. You'll also have only contributed $14,500 - a $3,000 total difference in cost.
So I guess I'd add one more: planning ahead pays notable profits.
posted by phearlez at 8:17 AM on July 2, 2007
For hidden profits you have to look no further than a 401k. Putting $1 into a 401k costs you less than $1, assuming you pay taxes, and the profit level is the HIGHEST tax amount you pay.
Look at a tax chart. If you made over 31,000 in taxable income that year then your 401k contribution shaves off the top and that $1 you put in means you didn't get $0.75 in your check. That's an instant 33% profit to you, a profit that will start compounding immediately. Even if you're taxed at the same rate when you withdraw it's worth it.
For hidden costs you can look at everything purchased with credit. That $20 dinner on your credit card could end up costing you $25 or more if you carry any balance. That $15,000 car at 10% interest over 3 years actually cost you $17,425.
If you saved that $484 payment every month into a 4% interest bearing account while driving your old car you could afford to buy it outright after 31 months instead of owning it after 36 and paying almost $2,500 in interest. You'll also have only contributed $14,500 - a $3,000 total difference in cost.
So I guess I'd add one more: planning ahead pays notable profits.
posted by phearlez at 8:17 AM on July 2, 2007
Best answer: IMHO, finance is an insanely complicated field, and yet it all boils down to a few simple things that so many people don't do...
- Don't spend more than you earn / more than you have/more than you have to. And if you have debt, pay it off as rapidly as you can manage. (Debt accrues interest at rates that should be illegal, except that they got themselves exempt from usury laws... So even if you're not incurring more debt, it's piling up ridiculously quickly against you.)
- Once you're out of debt, start socking away some money, mostly for retirement. The graph on this page [fool.com] continues to amaze me. (As yohko says, understanding TVM explains the graph, but it's still impressive: interest is basically time and money, so even if you don't have a lot of the latter, the former can help.)
- Set up an account for emergency expenses. Some people keep just a couple hundred dollars for a surprise expense, some people like to keep about six months' expenses in case they lose their job. Just have something so that when your furnace randomly breaks down in the middle of the summer leaving you showering in frigid water every day, you don't run into financial trouble when you call the oil company to come screw it up worse three times in a row and then sell you some new expensive parts that don't fix the problem.
- Compare rates at banks for saving your money. You'd be a fool to do what I did for the longest time and have a decent sum of money saved, but let it sit in an account that pays 0.82% annual interest. Let your money work for you by having it earn interest. I now make 2.5% interest in a money market account, but even that isn't a lot compared to what I could be earning elsewhere. If I didn't have some big expenses coming up, I'd be keeping my money in a CD where it could be earning upwards of 5%. (In my opinion, investing it in an index fund / mutual account is too risky for shorter-term stuff: being fairly young, I'm willing to take risks on my retirement account, but I'm not willing to take risks with my savings account!)
This seems really long, but it really boils down to just a few simple steps as a good framework.
Oh, and a few random tips I've been given:
- Don't buy the 'extended warranties' on all the gizmos you buy. They're a losing proposition. Instead, set aside the amount that you would have paid, and do that for all the gizmos you buy: if something ever breaks, you can replace it from that fund, but statistics show that your fund will just keep growing and growing... That's why the companies love selling them.
- Don't do your own investing, and don't buy mutual funds. Index funds (e.g., S&P 500, DJIA, etc.) tend to be much safer than people investing on their own, and so many people get burned when they buy their own stocks. And the thing with mutual funds is that they take a lot of money out for management and whatnot. (The financial industry gives out some of the most ludicrous bonuses to its employees!) I'd still be tempted to invest in some of the mutual funds with incredible returns, but a lot of wise people have told me to just go with index funds.
- I've been meaning to read these tutorials, though I haven't gotten far... But since you were interested. I found economics dreadfully boring, but Naked Economics caught my eye the other day, so I may pick that up. It looks very readable and helpful. Completely unlike my textbooks which were... jibber-jabber.
posted by fogster at 8:31 AM on July 2, 2007 [3 favorites]
- Don't spend more than you earn / more than you have/more than you have to. And if you have debt, pay it off as rapidly as you can manage. (Debt accrues interest at rates that should be illegal, except that they got themselves exempt from usury laws... So even if you're not incurring more debt, it's piling up ridiculously quickly against you.)
- Once you're out of debt, start socking away some money, mostly for retirement. The graph on this page [fool.com] continues to amaze me. (As yohko says, understanding TVM explains the graph, but it's still impressive: interest is basically time and money, so even if you don't have a lot of the latter, the former can help.)
- Set up an account for emergency expenses. Some people keep just a couple hundred dollars for a surprise expense, some people like to keep about six months' expenses in case they lose their job. Just have something so that when your furnace randomly breaks down in the middle of the summer leaving you showering in frigid water every day, you don't run into financial trouble when you call the oil company to come screw it up worse three times in a row and then sell you some new expensive parts that don't fix the problem.
- Compare rates at banks for saving your money. You'd be a fool to do what I did for the longest time and have a decent sum of money saved, but let it sit in an account that pays 0.82% annual interest. Let your money work for you by having it earn interest. I now make 2.5% interest in a money market account, but even that isn't a lot compared to what I could be earning elsewhere. If I didn't have some big expenses coming up, I'd be keeping my money in a CD where it could be earning upwards of 5%. (In my opinion, investing it in an index fund / mutual account is too risky for shorter-term stuff: being fairly young, I'm willing to take risks on my retirement account, but I'm not willing to take risks with my savings account!)
This seems really long, but it really boils down to just a few simple steps as a good framework.
Oh, and a few random tips I've been given:
- Don't buy the 'extended warranties' on all the gizmos you buy. They're a losing proposition. Instead, set aside the amount that you would have paid, and do that for all the gizmos you buy: if something ever breaks, you can replace it from that fund, but statistics show that your fund will just keep growing and growing... That's why the companies love selling them.
- Don't do your own investing, and don't buy mutual funds. Index funds (e.g., S&P 500, DJIA, etc.) tend to be much safer than people investing on their own, and so many people get burned when they buy their own stocks. And the thing with mutual funds is that they take a lot of money out for management and whatnot. (The financial industry gives out some of the most ludicrous bonuses to its employees!) I'd still be tempted to invest in some of the mutual funds with incredible returns, but a lot of wise people have told me to just go with index funds.
- I've been meaning to read these tutorials, though I haven't gotten far... But since you were interested. I found economics dreadfully boring, but Naked Economics caught my eye the other day, so I may pick that up. It looks very readable and helpful. Completely unlike my textbooks which were... jibber-jabber.
posted by fogster at 8:31 AM on July 2, 2007 [3 favorites]
1. Budget monthly. (You Need A Budget and Pear Budget are good options.)
2. Move your savings account online. (Emigrant Direct or Ing will give you around 5% returns, compared to the fraction of a percent the bank gives you.)
3. Invest in a Roth IRA index fund for retirement. (Vanguard has very low-cost, reliable funds.)
posted by designbot at 8:43 AM on July 2, 2007
2. Move your savings account online. (Emigrant Direct or Ing will give you around 5% returns, compared to the fraction of a percent the bank gives you.)
3. Invest in a Roth IRA index fund for retirement. (Vanguard has very low-cost, reliable funds.)
posted by designbot at 8:43 AM on July 2, 2007
Best answer: Decide that you determine your own salary. Many people accept that their employer gets to set the terms of employment. That's only partly true.
Think of your career as a longterm investment. You'll invest 40 hours a week for at least 40 years. Your career is your biggest asset. Maximize that investment by choosing wisely and consistently assessing your own market value. Need more education? Get it. Being paid under market? Renegotiate or change jobs. At risk of being off-shored? Get crossed trained into a more stable job. People are afraid of change or hassle, but consider how long a little boost in salary or marketability will pay-off over the course of your working life.
You should never follow a career you don' t enjoy simply for a high paycheck. However, you can have an enjoyable job that pays you what your worth.
posted by 26.2 at 8:48 AM on July 2, 2007 [3 favorites]
Think of your career as a longterm investment. You'll invest 40 hours a week for at least 40 years. Your career is your biggest asset. Maximize that investment by choosing wisely and consistently assessing your own market value. Need more education? Get it. Being paid under market? Renegotiate or change jobs. At risk of being off-shored? Get crossed trained into a more stable job. People are afraid of change or hassle, but consider how long a little boost in salary or marketability will pay-off over the course of your working life.
You should never follow a career you don' t enjoy simply for a high paycheck. However, you can have an enjoyable job that pays you what your worth.
posted by 26.2 at 8:48 AM on July 2, 2007 [3 favorites]
It's less than 150 pages, and the paperback is $7. You can find it on Amazon, or probably any local bookstore.
Keepng in the spirit of the OP, check it out from the library;)
posted by Challahtronix at 8:51 AM on July 2, 2007
Keepng in the spirit of the OP, check it out from the library;)
posted by Challahtronix at 8:51 AM on July 2, 2007
Seconding stynxno's advice. Buying lunch is for chumps. Coffee too.
posted by teem at 8:59 AM on July 2, 2007
posted by teem at 8:59 AM on July 2, 2007
Best answer: One more piece of advice that is more of a koan. My parents always made a big distinction between figuring out what problems were money problems and which problems needed an application of something other than money (emotional investment, time, a fresh perspective, a helping hand, a million phone calls). The line in my family was "This is a problem money can solve."
I used to think this was a weird bourgeoise thing to say (still do, sort of) but it's helped me make some distinctions that have been helpful. Obviously, this line changes depending on how much money you have to apply to your problems. However, not getting excessively wrapped up in problems that, at their root, mostly require money to solve (plumbing problems, car problems, broken stuff problems) can help you save your heart and brain for problems that require them. You may not like that you have to spend money to solve the problem, but keep that issue separate from solving the money part of the problem and treat the two problems separately.
Also, if you wind up having lots of problems that require money to solve and you don't have that money, then lack of money is your problem and needs to be dealt with accordingly by increasing supply of money or reducing demand for money; everything else is just the math of how you get there.
posted by jessamyn at 9:04 AM on July 2, 2007 [7 favorites]
I used to think this was a weird bourgeoise thing to say (still do, sort of) but it's helped me make some distinctions that have been helpful. Obviously, this line changes depending on how much money you have to apply to your problems. However, not getting excessively wrapped up in problems that, at their root, mostly require money to solve (plumbing problems, car problems, broken stuff problems) can help you save your heart and brain for problems that require them. You may not like that you have to spend money to solve the problem, but keep that issue separate from solving the money part of the problem and treat the two problems separately.
Also, if you wind up having lots of problems that require money to solve and you don't have that money, then lack of money is your problem and needs to be dealt with accordingly by increasing supply of money or reducing demand for money; everything else is just the math of how you get there.
posted by jessamyn at 9:04 AM on July 2, 2007 [7 favorites]
Like many of those above "Pay yourself first" is also the best advice I ever received.
The other best advice was about the overall superiority of index funds, versus mutual funds and active trading.
posted by jamesonandwater at 9:27 AM on July 2, 2007
The other best advice was about the overall superiority of index funds, versus mutual funds and active trading.
posted by jamesonandwater at 9:27 AM on July 2, 2007
I could never get a hold of my budget until I went to a simple cash budget. I figured out how much rent, utilities, and other fixed expenses were and added some extra for unforseen things. With what was left, I took 70% out in cash each payday. Spend from that and avoid using the credit cards and it was really easy to know how much money you had left. No cash? Better make a sandwich instead of buying lunch. I've lowered my cash allowance over the past few years to let myself build up more savings and whatnot, but the process really helped me control how much I spent on useless junk.
posted by advicepig at 9:31 AM on July 2, 2007 [1 favorite]
posted by advicepig at 9:31 AM on July 2, 2007 [1 favorite]
Keep financial statements and transaction records for seven years.
posted by euphorb at 10:25 AM on July 2, 2007
posted by euphorb at 10:25 AM on July 2, 2007
From a person who worked in credit card customer service:
Live within your means. Don't pay CC companies interest. However, if you know you have the self-control to make this possible, utilize many bank services within the same bank if you can, including credit cards. If you pay off every month, you're not paying interest -- and yet with a lot of interchange with going to the gas pump, the grocery store, etc, you've bought more than the goods: you've bought bargaining power with the company as a good customer. That way, if something does happen with you and you miss your first payment in 5 years, we want to give you the late fee back.
If you do have a revolving balance, but it's under control and someone is telling you to consolidate your credit card debt to an unsecured term loan, and you can afford not to, I generally wouldn't do it. With most credit cards, you get a "grace period" between the date you purchase something and the date the first payment is due, whereby you don't get charged any interest. With an unsecured term loan, that grace period goes away.
Oh, and if for some reason your credit card doesn't have a grace period, you need to call your CC company now and ask why. Most people have a grace period. Either your credit is terrible, or you got the card as a young person with virtually no credit history, and you've earned the grace period option and just haven't asked for it.
I have a program on my card that usually goes by names like "credit insurance" or "credit protection." The charge is x cents per every x dollars of balance, depending on the creditor you buy it from. I feel it's a good choice for me because I am young and have plenty of time for some of the events to happen to me. Also, I don't have many expenses so my balance stays low, and I pay it off every month. It doesn't make sense for Johnny Halfmilliondollarhouse, and it doesn't make sense if you're already retired, have sufficient savings and health insurance. Some people really love these programs and some people are really set against them, but it really depends on your personal situation. Sometimes people get turned off about them by unscrupulous reps. The customers I usually suggested enrolling to were young people who just got their card, like, last week, and weren't planning on using it just yet. That way I could send out the information and enroll the person. If they didn't like it, they could cancel -- and would not have been charged a thing, because they never had a balance yet.
posted by RobotHeart at 10:35 AM on July 2, 2007
Live within your means. Don't pay CC companies interest. However, if you know you have the self-control to make this possible, utilize many bank services within the same bank if you can, including credit cards. If you pay off every month, you're not paying interest -- and yet with a lot of interchange with going to the gas pump, the grocery store, etc, you've bought more than the goods: you've bought bargaining power with the company as a good customer. That way, if something does happen with you and you miss your first payment in 5 years, we want to give you the late fee back.
If you do have a revolving balance, but it's under control and someone is telling you to consolidate your credit card debt to an unsecured term loan, and you can afford not to, I generally wouldn't do it. With most credit cards, you get a "grace period" between the date you purchase something and the date the first payment is due, whereby you don't get charged any interest. With an unsecured term loan, that grace period goes away.
Oh, and if for some reason your credit card doesn't have a grace period, you need to call your CC company now and ask why. Most people have a grace period. Either your credit is terrible, or you got the card as a young person with virtually no credit history, and you've earned the grace period option and just haven't asked for it.
I have a program on my card that usually goes by names like "credit insurance" or "credit protection." The charge is x cents per every x dollars of balance, depending on the creditor you buy it from. I feel it's a good choice for me because I am young and have plenty of time for some of the events to happen to me. Also, I don't have many expenses so my balance stays low, and I pay it off every month. It doesn't make sense for Johnny Halfmilliondollarhouse, and it doesn't make sense if you're already retired, have sufficient savings and health insurance. Some people really love these programs and some people are really set against them, but it really depends on your personal situation. Sometimes people get turned off about them by unscrupulous reps. The customers I usually suggested enrolling to were young people who just got their card, like, last week, and weren't planning on using it just yet. That way I could send out the information and enroll the person. If they didn't like it, they could cancel -- and would not have been charged a thing, because they never had a balance yet.
posted by RobotHeart at 10:35 AM on July 2, 2007
A wise millionaire couple I know once told me that they had one governing financial premise: DDE -- debt-free, diversify, and enjoy.
In other words, as has been said in various ways here, don't accrue any debt that isn't planned and carefully controlled for best effect... don't put all your eggs in one investment basket... and you can't take it with you.
I'm not in a position to live by DDE yet, but when I have cleared the debts and am ready to invest, I will.
Regarding retirement: I wish I'd fully grasped at a young age that saving a little bit early on will always accrue more than saving a lot for just a few years at the end. Seconding the Motley Fool graph in fogster's post.
I wish I'd come earlier in life to understanding the Actual Value of Things. When I was in my teens and twenties, I assumed that "when I was a grown-up," it went
1. Get primo job
2. Buy fancy house and new car
3. ???
4. HAPPINESS!
Now that I can get those things, I'm finding that I don't want to. I don't want to exchange the depreciation value for new-car smell... I don't want to "work for my house" in order to get into a McMansion... I don't want to get upside down on a bunch of stuff.
If I'd taken more time when I was younger to understand how loans, financing, interest and mortgages work, I believe that I would have been equipped to weigh the perceived value of stuff against the actual value. It would have clarified my long-term goals, and affected other decisions I made -- such as what jobs to take, what salaries I would demand from those jobs, how to manage my credit.
I also wish I'd taken time to fully understand my state and federal tax liability then, and made the best choices to save myself money where possible. Until a couple of years ago, I had a very nebulous perception of the IRS and what April 15 meant to my pocketbook: I filled out a form, sometimes I got money back, sometimes I didn't. Today I micro-manage my tax liabilities, but I shudder to think of the hundreds or possibly even thousands of dollars I could have kept if I'd been smarter.
posted by pineapple at 10:35 AM on July 2, 2007
In other words, as has been said in various ways here, don't accrue any debt that isn't planned and carefully controlled for best effect... don't put all your eggs in one investment basket... and you can't take it with you.
I'm not in a position to live by DDE yet, but when I have cleared the debts and am ready to invest, I will.
Regarding retirement: I wish I'd fully grasped at a young age that saving a little bit early on will always accrue more than saving a lot for just a few years at the end. Seconding the Motley Fool graph in fogster's post.
I wish I'd come earlier in life to understanding the Actual Value of Things. When I was in my teens and twenties, I assumed that "when I was a grown-up," it went
1. Get primo job
2. Buy fancy house and new car
3. ???
4. HAPPINESS!
Now that I can get those things, I'm finding that I don't want to. I don't want to exchange the depreciation value for new-car smell... I don't want to "work for my house" in order to get into a McMansion... I don't want to get upside down on a bunch of stuff.
If I'd taken more time when I was younger to understand how loans, financing, interest and mortgages work, I believe that I would have been equipped to weigh the perceived value of stuff against the actual value. It would have clarified my long-term goals, and affected other decisions I made -- such as what jobs to take, what salaries I would demand from those jobs, how to manage my credit.
I also wish I'd taken time to fully understand my state and federal tax liability then, and made the best choices to save myself money where possible. Until a couple of years ago, I had a very nebulous perception of the IRS and what April 15 meant to my pocketbook: I filled out a form, sometimes I got money back, sometimes I didn't. Today I micro-manage my tax liabilities, but I shudder to think of the hundreds or possibly even thousands of dollars I could have kept if I'd been smarter.
posted by pineapple at 10:35 AM on July 2, 2007
bank your raises.
posted by twistofrhyme at 10:43 AM on July 2, 2007
posted by twistofrhyme at 10:43 AM on July 2, 2007
Lost my wallet on holiday, had some money wired to me as I was literally stranded abroad without a penny and borrowed money from my fellow travellers until I could get to a Western Union agent... but the experience turned out to be an excellent reminder of what constitutes a budget constraint - on the plane back to London this morning I counted my remaining holiday cash resources and counted the grand total of $2.14!!!
And whilst I bought less souvenirs etc than I would have done had I not lost my cards I had an extremely enjoyable holiday and I won't be paying for it for months to come...
So don't lose your wallet - lots of hassle for a start - but try not to use credit for a while. It might prompt you to reassess what you need to be happy - you may surprise yourself and find that it is very little indeed!
Nthing the packed lunch btw - bought lunch is extremely costly in the long-run...
posted by koahiatamadl at 11:04 AM on July 2, 2007
And whilst I bought less souvenirs etc than I would have done had I not lost my cards I had an extremely enjoyable holiday and I won't be paying for it for months to come...
So don't lose your wallet - lots of hassle for a start - but try not to use credit for a while. It might prompt you to reassess what you need to be happy - you may surprise yourself and find that it is very little indeed!
Nthing the packed lunch btw - bought lunch is extremely costly in the long-run...
posted by koahiatamadl at 11:04 AM on July 2, 2007
Best answer: - Budgeting. I live by You Need a Budget.
- A lot of the stuff you think you need? Guess what, you don't really need it.
- Put a set amount into savings each month via direct deposit or auto transfer. You can also do this for any additional long term goals, like a vacation, car, or house.
- Load up the 401K. Finding a company that will match or give you retirement money is a plus.
- Don't buy it because it's cheap/on sale. Buy it because you really like it or really need it.
- Every time you leave the house for a store, make a list. You are WAY less likely to buy a bunch of stuff you don't need.
- Use coupons, bring your lunch, make your coffee, go to the library. Use Craigslist and Freecycle. Swap with friends. Ask for samples (I use this one with beauty products all the time, you'd be surprised how many people will give you samples and it saves you the hassle of buying something you don't like).
- Don't hang around people that spend money like crazy. This one is a little harsh, but has really made a difference in my life. I stopped shopping with the friend that dropped a ton of cash each time we went out, for example, because I'd drop a ton of cash too each time. There's a social pressure when you're out and spending money. If you surround yourself with people that make choices similar to those you'd like to make, it will be much easier to hang onto your cash.
Don't take economics, unless you want to learn about elasticity and supply and demand (interesting, but not wholly relevant). Try to take a personal finance course. I took a business finance course and while it wasn't completely applicable personally, for the first time I was able to actually understand what I was reading in Money magazine. Good luck!
posted by ml98tu at 11:26 AM on July 2, 2007 [3 favorites]
- A lot of the stuff you think you need? Guess what, you don't really need it.
- Put a set amount into savings each month via direct deposit or auto transfer. You can also do this for any additional long term goals, like a vacation, car, or house.
- Load up the 401K. Finding a company that will match or give you retirement money is a plus.
- Don't buy it because it's cheap/on sale. Buy it because you really like it or really need it.
- Every time you leave the house for a store, make a list. You are WAY less likely to buy a bunch of stuff you don't need.
- Use coupons, bring your lunch, make your coffee, go to the library. Use Craigslist and Freecycle. Swap with friends. Ask for samples (I use this one with beauty products all the time, you'd be surprised how many people will give you samples and it saves you the hassle of buying something you don't like).
- Don't hang around people that spend money like crazy. This one is a little harsh, but has really made a difference in my life. I stopped shopping with the friend that dropped a ton of cash each time we went out, for example, because I'd drop a ton of cash too each time. There's a social pressure when you're out and spending money. If you surround yourself with people that make choices similar to those you'd like to make, it will be much easier to hang onto your cash.
Don't take economics, unless you want to learn about elasticity and supply and demand (interesting, but not wholly relevant). Try to take a personal finance course. I took a business finance course and while it wasn't completely applicable personally, for the first time I was able to actually understand what I was reading in Money magazine. Good luck!
posted by ml98tu at 11:26 AM on July 2, 2007 [3 favorites]
If you are female, and you know you're going to want to have kids some day, figure out early in life how you're going to deal with motherhood's impact on your finances.
For example, if you presume that at age X you will have Y kids and become a stay-at-home mother for the following Z years, you need to realize that you will not be earning social security points during those years at home, you will not have an employer-matched 401(k) for those years, you may have to pay more out of pocket for health care insurance and miscellaneous costs that were previously covered by a employer-provided Flexible Spending Account, etc. Your eventual savings will be significantly affected compared to someone who stays in the workforce. And if/when you return to the office, you will have missed several crucial years of career development that your peers didn't, so they may be in a higher income bracket or more advanced career-wise than you are, which will in turn affect how much you can contribute to your savings and financial security and retirement compared to someone else your age who chose not to have kids or who chose not to be a stay-at-home parent.
In other words, if you are now a 24-year-old female who thinks you'll probably start having kids at age 30, you only have SIX YEARS to be maxing out your 401(k), with employer contributions, and an IRA, and savings, and think long-term about budgeting (buy a car, don't lease; what about a mortgage?), and so on, in a way that a 24-year-old guy your age probably doesn't have to. Too many women don't think about these issues and later end up dependent on their partners for all of their income, or feel enormous financial pressure to return to work right after having a child, when they would really rather make a choice to stay home but simply can't afford to do that. And how many stories do you know where a middle-aged mother has to start her financial life from scratch following a divorce because she didn't really have any assets of her own or plan for her retirement while raising the kids?
In short, you need to budget for motherhood way before you even think about actually getting pregnant. Of course, Guys should budget for fatherhood too, if they also know they'll be wanting to have kids, but in most cases this issue really affects women disproportionately.
posted by Asparagirl at 11:40 AM on July 2, 2007 [5 favorites]
For example, if you presume that at age X you will have Y kids and become a stay-at-home mother for the following Z years, you need to realize that you will not be earning social security points during those years at home, you will not have an employer-matched 401(k) for those years, you may have to pay more out of pocket for health care insurance and miscellaneous costs that were previously covered by a employer-provided Flexible Spending Account, etc. Your eventual savings will be significantly affected compared to someone who stays in the workforce. And if/when you return to the office, you will have missed several crucial years of career development that your peers didn't, so they may be in a higher income bracket or more advanced career-wise than you are, which will in turn affect how much you can contribute to your savings and financial security and retirement compared to someone else your age who chose not to have kids or who chose not to be a stay-at-home parent.
In other words, if you are now a 24-year-old female who thinks you'll probably start having kids at age 30, you only have SIX YEARS to be maxing out your 401(k), with employer contributions, and an IRA, and savings, and think long-term about budgeting (buy a car, don't lease; what about a mortgage?), and so on, in a way that a 24-year-old guy your age probably doesn't have to. Too many women don't think about these issues and later end up dependent on their partners for all of their income, or feel enormous financial pressure to return to work right after having a child, when they would really rather make a choice to stay home but simply can't afford to do that. And how many stories do you know where a middle-aged mother has to start her financial life from scratch following a divorce because she didn't really have any assets of her own or plan for her retirement while raising the kids?
In short, you need to budget for motherhood way before you even think about actually getting pregnant. Of course, Guys should budget for fatherhood too, if they also know they'll be wanting to have kids, but in most cases this issue really affects women disproportionately.
posted by Asparagirl at 11:40 AM on July 2, 2007 [5 favorites]
Put 5% of your pre-tax pay into a retirement fund. Put another 5% into bank account/cash savings. Every time you get a pay increase, split the extra money between retirement and savings until 10% of each is going toward savings and retirement. When you have enough savings to live off of for six months (or enough for the downpayment on a house, if you prefer), start putting 15% toward retirement and 5% toward savings, and reward yourself with something really fun.
posted by croutonsupafreak at 11:54 AM on July 2, 2007
posted by croutonsupafreak at 11:54 AM on July 2, 2007
bank your raises
This is so important. Hardly anyone can happily lower their standard of living. The corollary is don't borrow from the future to pay for today. When you are starting out and don't have a couch or TV or whatever, it can be really tempting to *rightfully* think that you'll be making a lot more cash in 2-3 years, so you may overspend. But things happen, and they will happen to you.
Save for retirement. If your employer matches, use the company 401(k). If they don't match, or if the vesting schedule to get the match is crazy, a Roth IRA is probably a better bet [it tends to be better for anyone who is going to be in a higher tax bracket when they retire, which is most of us in the early phases of a career.]
Negotiate your initial salary on a job. Studies show that women tend to accept the salary offered, and this costs them thousands over the course of their career. This doesn't apply in all situations, but it is worth keeping in mind.
I tell my friends who aren't married but are seriously dating that they should elope in Vegas [or other place] when they get married. Weddings are crazy expensive. When I think of what I spent on one day... I don't exactly regret it, but I wish I had been thinking more about the long-term. We got married in one day, but our marriage is for years. Years! We could have bought a house 4 years ago if we hadn't done the traditional wedding thing. And we live in LA, so the fact that we didn't buy a house then means that we won't be able to, possibly ever.
posted by Mozzie at 12:34 PM on July 2, 2007 [1 favorite]
This is so important. Hardly anyone can happily lower their standard of living. The corollary is don't borrow from the future to pay for today. When you are starting out and don't have a couch or TV or whatever, it can be really tempting to *rightfully* think that you'll be making a lot more cash in 2-3 years, so you may overspend. But things happen, and they will happen to you.
Save for retirement. If your employer matches, use the company 401(k). If they don't match, or if the vesting schedule to get the match is crazy, a Roth IRA is probably a better bet [it tends to be better for anyone who is going to be in a higher tax bracket when they retire, which is most of us in the early phases of a career.]
Negotiate your initial salary on a job. Studies show that women tend to accept the salary offered, and this costs them thousands over the course of their career. This doesn't apply in all situations, but it is worth keeping in mind.
I tell my friends who aren't married but are seriously dating that they should elope in Vegas [or other place] when they get married. Weddings are crazy expensive. When I think of what I spent on one day... I don't exactly regret it, but I wish I had been thinking more about the long-term. We got married in one day, but our marriage is for years. Years! We could have bought a house 4 years ago if we hadn't done the traditional wedding thing. And we live in LA, so the fact that we didn't buy a house then means that we won't be able to, possibly ever.
posted by Mozzie at 12:34 PM on July 2, 2007 [1 favorite]
Response by poster: Thanks everyone--there's a lot of awesome answers here! I might see about taking a personal finance course also, if I can find one in my area.
posted by elisynn at 3:05 PM on July 2, 2007
posted by elisynn at 3:05 PM on July 2, 2007
Best answer: I think all the advice above about saving and so on is really superb.
What I would add is that the other side to the saving and budgeting and planning is that you should not be afraid to spend money and time when it really matters. The saving and being prudent should give you opportunities that you would not have otherwise; it is important, I think, to not be so fixated on the process of saving that you fail to enjoy life (the "E" of Pineapple's DDE). Take vacations, quit a job to travel, buy dishes that you like to look at every morning. There's always a trade-off (vacation or new car; big wedding or buy a house), but maximizing your long-term pleasure in life is a great way to balance that trade-off.
By that token, there are times to pay a professional to do something that you don't enjoy (like repair your car, or do your taxes, or clean your house), as long as it makes sense within your budget, and you are comfortable with what you might have to give up to make that transaction possible.
posted by Forktine at 8:08 AM on July 3, 2007
What I would add is that the other side to the saving and budgeting and planning is that you should not be afraid to spend money and time when it really matters. The saving and being prudent should give you opportunities that you would not have otherwise; it is important, I think, to not be so fixated on the process of saving that you fail to enjoy life (the "E" of Pineapple's DDE). Take vacations, quit a job to travel, buy dishes that you like to look at every morning. There's always a trade-off (vacation or new car; big wedding or buy a house), but maximizing your long-term pleasure in life is a great way to balance that trade-off.
By that token, there are times to pay a professional to do something that you don't enjoy (like repair your car, or do your taxes, or clean your house), as long as it makes sense within your budget, and you are comfortable with what you might have to give up to make that transaction possible.
posted by Forktine at 8:08 AM on July 3, 2007
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The real best advice is to pay off all your credit card balance every month.
This is a HUGE saving, and when you are really stuck for cash you have the full balance of your card to fall back on.
Of course, when last Xmas things got tight in our house and I carried half January's balance into Feb, and saw the almost $100 interest they charged it was great motivation to never let it happen again.
The other piece of advice I never got was "open a damn business while you are young!"
You have nothing to lose, and if it fails you can start again, or get a job or whatever - no consequences. When you are 40 with kids and a mortgage it is a lot harder to take risks, and you need to be successful straight away to pay all your bills.
When you are at school or just started working you can take a lot of chances because your income needs are so low.
posted by bystander at 12:41 AM on July 2, 2007