Ask HN: Good resources to become financially literate
I would like to change my "paycheck to paycheck" way of life and am looking to learn about financial vehicles (US based) and investment basics, and anything else that "I wish I had known when I was 20 years old".
101 comments
[ 29.6 ms ] story [ 788 ms ] threadI have found the BogleHead guides [1,2] and wiki [3] the absolute best place to begin!
[1] The Bogleheads' Guide to Investing - https://a.co/d/ctdMwZj [2] The Bogleheads' Guide to Retirement Planning - https://a.co/d/19eZBsy [3] https://www.bogleheads.org/wiki/Main_Page
I'm big into Financial Independence as a concept and community, so I'm partial towards that. Some recommended reading (some which you may like and some you may not):
- /r/financialindependence sidebar/wiki
- https://www.mrmoneymustache.com/ - Bit more radical on the frugality side but a personal favorite
- https://www.madfientist.com/ - Podcast and blog. Bunch of stuff on tax advantaged vehicles
- Your Money Or Your Life - Incredible book (foreward by MMM referenced above)
- YouTube/general searching for investment vehicles. Big ones in the US are: 401k, IRA vs Roth IRA, 403b, 529 (if you have kids). Tax advantaged accounts have huge benefits, so definitely understand them. Only takes a little bit to read about the ones I listed.
- Dave Ramsey - Love him or hate him, if you really struggle with money and debt on a fundamental level, he has good advice. His advice isn't optimal for everyone if you don't have issues with debt, but something to consider.
- Depends on how you want to invest. A lot of people (myself included) are pretty straight forward with index funds and diversify in different types, such as US vs international or maybe a variety of focus on industry. Do you research and figure out what's best for you, but index fund investing is pretty safe and easy.
Some personal advice:
- Spend less than you make. Seems obvious but it really is the golden rule of personal finance. Easier to say than do, especially without knowing your financial/life situation.
- Reduce any debt you have. High interest is obviously a big one and some people have varying levels of comfort with low interest debt (like mortgages from the past few years). Find what you're comfortable with, but just get rid of any credit card debt immediately. The chances you beat that interest rate with an investment is basically zero, and the limit as it approaches zero over multiple years.
- Think about the depreciation in your assets. Buying a new car means you eat the bulk of depreciation. There's an optimal point to buy a car where you get the most life for the best dollar after the depreciation is lost.
- If you're in software like a lot of HN, we're very lucky to have careers that pay well in most cases. Take advantage of that. Live on less, invest more, and be generous with others.
2. Rich Dad Poor Dad
A) 99% of the book is fabricated
B) It's based on methods which are significantly harder to do in this day and age
The biggest takeaway from the book is the mental shift to assets and liabilities. But the anecdotal stories are pretty poor and, as I said, fabricated.
1. Buy 50 unit apartment complex for $10mln. Get investors to pay $4mln, loans for $6mln. Cash flow is $600k/year from avg of $1000/mo.
2. Slowly invest in the property, refurbish units by maybe adding in-unit laundry for example. Keep property well maintained.
3. After some time (3 years?), get property re-assessed and now its worth $15mln. Refinance the property to $15mln, pay off $4mln to investors, take $1mln from loan for renovation recovery/profit, tax free, pay off previous loan.
The eye opening part for me was that the goal is to not build and sit on the equity like a residential house but use the equity and increased property value to refinance and the extra money from the loan becomes essentially tax free profit. There is risk that something like a large employer leaves town/lays off people and now you have less renters and property value might decline and things like that. He had a real estate developer discuss how they would do this and do it well by researching areas, property values, etc. This also gives some insight into one element of why rents might be skyrocketing recently - loan rates are higher so developers/investors doing this re-assess/re-fi pattern have higher costs.
So what was portrayed in the YT video did not seem fabricated, he had an actual real estate developer talk through this process.
> Rich Dad, Poor Dad is one of the dumbest financial advice books I have ever read. It contains many factual errors and numerous extremely unlikely accounts of events that supposedly occurred.
> Kiyosaki is a salesman and a motivational speaker. He has no financial expertise and won’t disclose his supposed real estate or other investment success.
> Rich Dad, Poor Dad contains much wrong advice, much bad advice, some dangerous advice, and virtually no good advice.
- buy assets that generate profit, not liabilities
- keep a budget
- business is the way to money, not a salary
- he covers various aspects of business on a high level, and emphasizes the importance of sales
Having slack in your finances may not solve all your problems, but life is much better when you escape from the class of problems surrounding lack of money.
It takes a while, but when you get used to having enough money your time horizon can extend much further, and you can start to make decisions that will be likely to help you in the future.
I say this as someone with household income below the local median, but with thrifty habits and a financially compatible spouse, and who had the good fortune to buy a house before things got so crazy. If housing wasn't a mostly-solved problem for us life would be very different.
My friends live paycheck-to-paycheck and I got $300k stashed in cash and a mix of investments. I'm not living for the money, but this world is full of costly stuff you definitely do not need - and it really surprises me what people are spending money on.
Why?
I can understand if you're saving to buy a house outright for cash, or to invest in a startup that needs a chunk of capex at the beginning, or something, but just sitting on a pile of depreciating cash assets is silly in an economic market where retail inflation is running at ~10%. If you're literally just holding cash because you can't think of anything fun to spend it on then that's quite sad.
I don't think OP means 300k cash, but (cash + mix of investments) = 300k.
For all we know it could be 10k cash and the rest investments.
Could be, but regardless, it's very unlikely that his investments are beating inflation at the moment so the point still stands. By holding on to the money its value is shrinking.
You’re basically saying everyone should spend everything in a downtown, and if they don’t they are boring?
No, you don't want your entire "life savings" in cash stored in pillow-cases under the bed, but you do want enough cash where the value of "enough" varies depending your circumstances.
Probably $80K to $100K for that, plus extra for snacks. :)
Listen to his podcast episodes. It’s a quick way to get a feel for his advice and to hear how real people who call in benefit from it. Go back to 2020 or so before his co-hosts started taking more airtime.
He catches a lot of flak because the debt snowball that he advocates is mathematically inefficient (folks prefer to pay debts with the highest interest rates off first). Also his political views. Look past those things - there is so much valuable advice.
20+ years ago, he was one of a handful of well-known faces of personal finance, was nationally syndicated, books, etc. There were fewer outlets and fewer options than there are today.
His focus on debt and changing mindset around that will help some people, but if he's a turnoff (for whatever reason), you'll get 99% the same advice on most issues from dozens/hundreds of other personalities.
He strongly advocates against taking debt to buy real estate. He only recommends purchasing real estate in cash.
The recommendation to get a second job only applies as people are getting out of debt (baby steps 1 and 2). After that he doesn’t really recommend it.
The other thing I like about it is that the forums have lots of detailed personal scenario discussions that are helpful for getting real life examples of the application of the dogma.
I have read some insane upvoted comments in r/personalfinance and r/investing but bogleheads are generally on point.
This is a nice starting point
https://jlcollinsnh.com/category/the-book-the-simple-path-to...
also he is just a terrible person all around. One of his antics bringing a loaded gun to an all hands.
That basic flowchart has helped me set my goals for years, and to maximize my progress towards those goals.
It's very simple, a 10 minute read, and backed by most the books and advice you're likely to receive anyway, including basic stats about emergency funds, etc.
Unfortunately, it can seem mundane, as financial responsibility is about time in investment and good lifelong habits, not easy tricks.
https://old.reddit.com/r/personalfinance/wiki/commontopics
linking to:
https://i.imgur.com/lSoUQr2.png
And OP definitely said "paycheck to paycheck" which seems quite normal, and didn't mention anything too strange.
But yeah, there's no one-size-fits all, but as a philosophy, this flowchart is spot on: Cover your butt, then maximize money growth by optimizing paydown / investment by interest rates, and cover your butt more over time.
Bernstein has given permission for Cuffelinks to provide a complete copy of his 2014 booklet, ‘If You Can: How Millennials Can Get Rich Slowly’. It is his simple recipe for young people starting on an investing journey. It is linked here:
If You Can: How Millennials Can Get Rich Slowly https://gallery.mailchimp.com/34a7cea33f33e45eedceea223/file...
That said, it sounds like you have some financial foundations to build before investing is a realistic option.
https://www.youtube.com/watch?v=rJjKP8vYjpQ
[1]: https://en.wikipedia.org/wiki/The_Gambler_(2014_film)
https://pixeldrain.com/u/dsHN33xk
1) financial independence is great, but you could also die tomorrow. Make sure you understand what your most important values and priorities are, and don’t put them off in favor of more future wealth.
2) health is wealth, don’t ever sacrifice health for more savings. I promise it won’t be worth it.
3) relationships are wealth. Don’t sacrifice the people that matter to you for a little bit more savings. In my own life this meant going from spending very little on traveling to see old friends to quite a bit traveling to see old friends.
4) it’s often much easier and more enjoyable to increase your pay 25% than it is to decrease your spending 25%. Most people are actually not good at navigating “how do I get paid more per hour worked” and a little bit of brainstorming and long term planning in this department can take you leaps and bounds further financially than penny-pinching.
So much this. Raised by grandparents here. They have some strong regret how they didn't do certain things when they were young. I've seen it up-close for too long. They're kind of in a "part of your life was a lie" realization as they never challenged their beliefs.
I decided to become a digital nomad and am meeting cool people while sharpening my dating skills (my dating life is quite fun atm, took 6 months to get there - I got rusty after my relationship), while seeing cool cultures and learning languages. Truthfully, work is a welcome break (I work 4 days) to just mellow down the craziness, haha. I'm a normal looking guy, I put a lot of effort towards dating skills (20 hours per week at least, it's a second part-time job really, a fun humbling one, so many rejections, lol, ego dissolution can be achieved through psilocybin or through dating, lol).
So not even death, you might regret how you've lived it. I know I won't regret this. I am living paycheck to paycheck atm, but I have fairly good savings since this is the first time that I'm traveling this much.
It should of course be noted that you need to increase your pay by 25%/(1-tax rate) to have the same effect as reducing spending by 25% though.
For example, at a 30% tax rate, you'd need to increase your pay by 36% to have the same effect as reducing spending by 25%.
> If I offer you a 20% annual risk-free return, am I lying? The answer is yes, of course.
This has been greatly simplified by inflation being low for a very long period until the recent transient bump.
Let’s say an investment has a 20% return and your calculation gives a 0% default chance for the first four years. You can structure your investment to compound for the first four years and get back your initial capital after the fourth.
You are essentially now (4 years later) on a risk free 20% return. Your initial capital can be reinvested somewhere else.
If there is something I learned trading the financial markets is that structuring is the only thing that matters and what will bring your returns. The other thing I learned is that real 20% returns with little risk are abundant if you are looking hard enough and comfortable executing exotic trades.
Imagine you're lanky or fat and you want to build muscle and get in shape.
Saving is like going to the gym and lifting. You'll look and feel a ton better.
Putting together a budget is like going to the gym with a routine and maybe a rough diet plan. You'll get there faster.
Investing is optimising your routine so that you hit every muscle group once you're starting to plateau.
But it's all built on the basic mindset that you need to go to the gym. It's not optional, you just do it.
The main thing is to build the mindset of saving. You spend what you _need_ to, and perhaps a bit on top for fun. Money that comes in is saved by default.