Comment by fefifofu | Hacker News Reader

Comment by fefifofu | Hacker News Reader

This article and the book is exactly what's wrong with personal finance education. There is no special wisdom, clever tricks or golden rules in finance. Chicken soup for the soul won't help.

Personal finance should be taught as a math problem. Figure out the cost of the lifestyle you want, and work backwards from there. If your fancy house, car, and dinners out cost $100,000 then you can figure out if your choices make sense... does you career choice match up? does taking on school debt make sense? etc.

Or if you are older and made these life choices already and make $50,000, your math problem is a bit different. Does the honda or tesla fit? You can very easily see if credit card interest of 20% will help or hurt you achieve your goals/lifestyle if you do the math.

None of this generic "avoid debt" or "house are the best investment" (garbage) advice helps and only confuses the matter. I think the only area that has more confusion and bad advice than personal finance is nutrition. In the letter, grandma says "go for a fixed rate mortgage"... what!?

I'm mixed on your views, I agree with your math problem analogy, but I think there is general advice - just as there are general properties of numbers - that can always lead to better financial outcomes if people abide by it.

For instance, what I've always done and it has worked very well for me is the following:

1. Maintain constant revenue stream, even if work is part-time or all you have is just an investment paying dividends.

2. Never purchase anything you can't pay for in cash at that moment.

3. Try to save 10% of your income every month - even in low income months.

4. Don't be wasteful and don't blow money on "small crap" you don't need. i.e. junk food, fast food, trinkets, taking unnecessary trips or riding first class, leaving devices/lights on in your house, gym/any memberships or monthly recurring fees you don't absolutely need.

5. Finally, don't purchase things on a whim.

I've tried to live by these rules my whole life, learned them from my Dad, and they've worked very well for me. I spend money, but usually only for high quality things I research into for a long time before purchasing, like a piano, a plot of land, tools, etc.

I have zero knowledge of actual research into personal or home finance so this example is just my gut intuition based on personal experience, so just view it as a biased anecdotal opinion :)

Anecdotal opinions don't bother me :), but in the case of personal finance, the rules can easily be followed up with math.

Your general rules are fine and make sense, but sometimes when you do break them, it becomes difficult to see the effect or know when to stop. If you didn't save 10% this month, without the math you don't get any immediate negative feedback. So then maybe a 2nd month with no saving is OK. In fact, with credit cards the feedback will be positive!

I've had a corporate finance career for 10+ years and here's my "math". I take the amount in my accounts today, then add and subtract my expected income and expenses out daily until I'm 80. Tada! Addition and subtraction. Nothing a basic spreadsheet can't handle. I know what my balance will be when I'm 40, 50 or on June 19, 2017. Anybody's well intention advice can be inputted and evaluated.

It's not a budget per se because I don't restrict myself like a budget. It's also a longer term look in detail, instead of just monthly numbers out a few years. I see what my daily overpriced coffee will do to me and I can decide if it's OK. (The daily walk to the coffee shop with the cute baristas is well worth it haha.)

"Dad or Mom advice" does have its spot, but I think it should stay values-based. Many years ago I got a lot of criticism when I bought my expensive new car. Everyone threw out these general rules to me, but I knew it was fine and I really enjoy driving it. I've had it for 9 years now. When it hits 10 years I planned to hand over the keys to my nephew (free). The "Dad advice" kicked in appropriately here when my brother said no way to giving my 16 year old nephew the car with its horse power and tinted windows etc.

So I understand family should teach you the appropriate values and such, but with all the mis-information in the personal finance industry, I wish people would do the math instead of following rules.

It's also more than just math, there's the psychological side of money & investing. When even taxi drivers start giving out stock tips, how obvious it is that it's time to sell? ;)

Some of the other examples from those letters gave advice (paraphrasing here) like:

- If you can't understand what you're investing in, don't.

- If Alan Greenspan or other experts are not explaining economic concepts clearly, there's probably an ulterior motive.

One bit of advice that I think is pretty critical, that most people are missing is:

Don't live beyond or even at your means. For each dollar you make, you don't need to spend that dollar. Consider a 50% savings rate, or if you can't do that, then 20%.

> You can very easily see if credit card interest of 20% will help or hurt you achieve your goals/lifestyle if you do the math.

Is there any scenario where paying 20% interest on credit card debt (or, rather, getting into a scenario that requires that) would help you achieve your financial goals?

Don't know about "financial goals", but goals: If your utility gain from the 20% interest is lower than the utility gain from the instant availability of that money.

I can think of various situations where, if there were no better products available, this might end up making sense.

Short term bridging of a company (or real estate portfolio). It's not so much the 20% APR that kills you; it's the length of time that you pay it.

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