Ask HN: What are your rules-of-thumb for personal finance and saving?
I am curious what kind of algorithms and rules you all follow to stay on top of your finances.
I pay off my credit cards in full each month, carrying no debt. (I was lucky enough to get a full ride to college, so no student loans.)
My finance automation strategy is largely based on Ramit Sethi's book "I Will Teach You To Be Rich", which I highly recommend.
Spending-wise, I do the Marie Kondo "Does this bring me joy?" about things that I'm going to spend money on. I will almost always spend money on food and experiences, but I am much more strict about stuff. I will happily spend $75 to go to a concert but will walk around Target with a $5 DVD in my hand for 45 minutes before putting it back on the shelf.
With the above strategies, I haven't run out of money in my checking in a long time. I am extremely fortunate to not have to think too much about money, but I credit at least some of that to automating away the necessities which limits the risk of spending money I don't have.
As for how to automate, I basically just have AutoPay on every service that allows it
I'm never in a position where I have to mentally keep track of the fact that some $Y out of my balance $X is unavailable to spend.
I would love to hear feedback from anyone that does sign up and decides to give it a go.
My sister in law started it as a spreadsheet and used to sit with friends/family for 8 hours and help people work out how to automate everything till she finally decided to take the dive and build it into an app.
Probably should list this as a Show HN sometime and give more background.
Fit your life into $10k/year. Or $20k/year. Whatever you can pull off in your comfort zone. Then when you get that big raise, don't change anything. Don't buy the new car you can afford now. Don't buy the big house you can afford. Don't buy anything.
Most people don't do that, and let their expenses rise to meet their income. Lots of people budget to have that happen. It's a recipe for never having any savings.
Losing everything from my house, car and lifestyle was the most painful thing I've ever had to go through, mostly because I knew I was letting down my partner and I had no control to stop it.
Now I'm too scared to buy anything because I don't want to lose it all again.
I've got an automated transfer to my spending account which transfers about 2 weeks worth of money for food and non-essentials etc. If I overspend then my debit card won't work and I'll get a reminder, so that I can think about where that money went. Once "dry" I'll SMS transfer another week worth of money from my buffer account.
I found this allows me to maintain some of the "sense of spending" that I got when using cash, without actually using cash. This avoiding the "oh my, where did all that money go" moments when the loan is due a week before payday, as I know that if I have to transfer for the third time that month I should be frugal for the rest of the month.
I also got some automated transfers to a savings account and into an index fund each month, about two weeks worth of spending money total.
Usually once every three months or so the buffer account has filled up a bit, and I'll put some more into my savings.
Me and my GF also found it helps to make a weekly dinner plan, so we can go shopping once a week, rather than doing it on a day-by-day basis. This saves time and avoids all those random impulse purchases (where a lot of unnecessary money disappears) from doing more frequent grocery shopping.
The blogs are fantastic. It's an electronic equivalent of making envelopes and putting cash into them
It's important that you work out roughly how much you're expecting for the month and you budget every dollar that you're expecting. 'Every dollar has a job'.
I budget all my yearly expenses. Place money aside every month for those, think license renewals, car registration, car insurance, rainy day funds. These are almost always direct debits. Car serving. Home maintenance and the like. Now it's important to state here that it's ok to not budget the exact value you're expecting for car serving, house maintenance and the like. But it's important to have cash put aside every month to contribute to those expenses if they're a lot greater than expected if you have a water leak or a break down in your as an example.
I then budget my monthly expenses which are groceries, new clothes, Netflix & Spotify subscriptions. Eating out\going out for drinks. Debt payments too.
I put 10-20% of my money away as savings. Anything left over goes into a seperate savings account for emergencies/rainy days.
Personally though I've not seen it recommended by others, I categories the full expense to the category. And then when I get income from my housemate or who ever, I categories that income against the same expense category which leaves me the net and true out of pocket expense that I incurred.
The biggest savers have been around food: eating out less, paying attention at the grocery store, and cooking in bulk.
That's practically my advice to everyone. You'd be surprised to see many people live paycheck-to-paycheck even when their salary grow double or triple.
Lifestyle inflation is very real.
Side note: Its funny you cannot get real time updates/SMS when money is deducted from your bank/credit card account.
Most major credit card providers have email and sms notifications for transactions. It's pretty much instant.
If you aren't reviewing your credit card bill each month before you pay it, you're doing it wrong. It takes less than 30 seconds a month and you'll avoid exactly this sort of problem ("hmm, I thought I cancelled that last year").
Actually, almost any bank in Romania offers this service. For both debit and credit cards. It's very useful.
The exceptions are things you strictly need or that serve as investments to help you earn more; and even then, choose the least expensive plan you can possibly get away with. (In this day and age, for most of us that means internet; phone; most basic plans for each; and no digital services.)
Subscriptions add up really quickly and will drain your income before you even notice.
- spend less than what you earn
- defer purchase, most of the time you’ll change your mind
- start to save early (compound interest!)
- don’t take a loan except absolute necessary. But when yes, pay back early.
- once saved enough, learn to invest in different markets
- consider spending as an investment and always compare with the h0 alternative.
Read the book The Simple Path to Wealth, or the basics in this blog post.
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
The only thing I do is occasionally review my subscriptions to see if there’s anything I can do without. All withdrawals and deposits over 500$ are sent as notifications and I can swipe them away quickly.
For instance, let's say you have some cash sitting in a brokerage sweep account paying 1.0% because you weren't paying attention. In <60 minutes over a few calendar days you can find an online savings account with high interest (say 2.2%), set up a transfer back and forth, and get a better rate. On 10K sweep, that's $120/hr gain annually. On $100K, it's $1200/hr annually. Although there, maybe you want to consider a bond at 2.5% and net $1500/hr.
Likewise, put expenses in terms of an annual rate. One less $5 coffee per week is $260/week annually. Then reframe in terms of your overall expenses. Over 10 years, that might get you 30 days closer to an early retirement.
The point is that you probably are overlooking very trivial opportunities to improve your lot. Convert the metrics into savings or earnings over time, and turn that into whatever future goal you have (early retirement, size of yacht, months of rent/mortgage, etc.) and you realize that with a very small amount of effort, you can have a huge compounding effect on your goal.
2. If available, contribute at least employer match to 401k
3. Pay off >8% debt
After this, options are more fluid depending on risk tolerance
4. Contribute max to tax advantaged space (IRA/401k/HSA/Backdoor Roth IRA etc)
5. Bump up emergency to x months
6. Pay down <8% debt
7. Contribute to passive taxable accounts i.e index funds
Other rules-of-thumb
Take care of your body, eat whole food, move quickly for short periods of time and lift weights
Consider disability and term life insurance. Avoid WHOLE life insurance.
Live below your means and aim to save 20% gross income
- cook your own meals.
- don't buy useless shit.
- if you have to buy something, buy good quality.
Unless you're really into the whole old-fashioned white picket fence kind of life, marriage is probably a bad idea.
Max out your 401k. Don't worry too much about an ordinary savings account.
If gov hit it’s target of 2% inflations for the next 30 years, you’d need $1.8 for every dollar today for purchasing parity.
1. Everything I want to buy I write down the best price I can find. For example a mouse at $48 or a game at $15. I will only buy at that price or better, which keeps me from falling for a "sale".
2. I set aside one spending account and debit card for all unnecessary purchases.
One day I was going home from a long day at work, I had some hard earned money I wanted to spend.
There was a gamer store. I just walked in, saw a mouse I had on my list for about 3 years. I didn't need it but it was under my budget. Swiped the spending account card and it went through.
Also once I had this large budget I didn't know what to use on. Took it all out from the ATM and gave it to my wife in cash. She was so surprised she suspected me of having an affair, lol.
― Charles Dickens, David Copperfield
You should really evaluate the current housing market at your city, the mortgage rates, your other investment opportunities, your income, your potential future income, plans for moving/marriage/children.
It's not as simple as buying being always better than renting or the other way around.
You have to set it up as a paid for equity if it's rentable.
Your returns from the market may not offset your living expenses unless you have >$500k invested if you are paying $3000 in rent. So don't give people investment ideas without doing the run rate.