Ask HN: How to save/invest/deal with money?
I am a junior developer working at my first job as a software engineer. I'm studying in a part time model so I am studying 50% and working 50% of my time.
I get my salary every month but... What should I do with the money?
I am still living with my parents so I do not have to cover living costs, only pay them a little bit of rent. I never buy anything and I spend all my free time studying which I like. I have nearly 0 expenses. So I thought maybe it would be good to invest this "extra income" coming in every month. But where do I start?
I know nothing about finance or economy and whenever I try to look into it I don't even understand how to get started because the entry fees seem high.
I am in Europe, maybe that's relevant. I feel this money from my job is only a burden for me because all I do is have to pay the account fee to my bank... Highly appreciate any advice!
42 comments
Might be a bit US centric, but my recommendation is:
1. Read the reddit personal finance wiki https://www.reddit.com/r/personalfinance/wiki/index/
2. Read The Simple Path to Wealth by J L Collins
3. Read The Bogleheads' Guide to Investing
4. Read the Bogleheads' wiki https://www.bogleheads.org/wiki/Main_Page
5. Use a personal finance app to track budget and spending (I use Simplifi).
6. Track your Income, Expenses (just the broad category), Bills (per invoice), Assets, Debt on a spreadsheet with columns per month. I make it easy and put the hyperlink for the source of truth in the name of the row.
7. My general rule is that I need to have at least 50% savings each month from combined investments and income. This percentage is more defined by what year you want to "retire" and switch from capital accumulation to capital spending phases of your life.
8. This is the step I'm on now. I'm trying to learn finance in a far deeper capacity, so I'm spending time to learn accounting, finance, trading strategies. I'll run various accounts with different strategies and see how it goes. Those strategies will fall under the "speculative" part of my portfolio, which won't exceed more than I can afford to lose and still hit my retirement targets.
1. Read the reddit personal finance wiki https://www.reddit.com/r/personalfinance/wiki/index/
2. Read The Simple Path to Wealth by J L Collins
3. Read The Bogleheads' Guide to Investing
4. Read the Bogleheads' wiki https://www.bogleheads.org/wiki/Main_Page
5. Use a personal finance app to track budget and spending (I use Simplifi).
6. Track your Income, Expenses (just the broad category), Bills (per invoice), Assets, Debt on a spreadsheet with columns per month. I make it easy and put the hyperlink for the source of truth in the name of the row.
7. My general rule is that I need to have at least 50% savings each month from combined investments and income. This percentage is more defined by what year you want to "retire" and switch from capital accumulation to capital spending phases of your life.
8. This is the step I'm on now. I'm trying to learn finance in a far deeper capacity, so I'm spending time to learn accounting, finance, trading strategies. I'll run various accounts with different strategies and see how it goes. Those strategies will fall under the "speculative" part of my portfolio, which won't exceed more than I can afford to lose and still hit my retirement targets.
> 2. Read The Simple Path to Wealth by J L Collins
I loved this book, and it’s exactly what I do. I have every investment dollar in VTI (ETF version of VTSAX).
My other favorite book is The Wealthy Barber. That and The Simple Path To Wealth have be the wisdom to keep investing as simple and possible, and some insight on how to develop good investing habits. Paying myself first & dollar cost averaging are both incredible insights.
I also enjoyed The Richest Man In Babylon.
I loved this book, and it’s exactly what I do. I have every investment dollar in VTI (ETF version of VTSAX).
My other favorite book is The Wealthy Barber. That and The Simple Path To Wealth have be the wisdom to keep investing as simple and possible, and some insight on how to develop good investing habits. Paying myself first & dollar cost averaging are both incredible insights.
I also enjoyed The Richest Man In Babylon.
I recommend “If You Can”. It’s an short, accessible and entertaining guide to self-managed passive investing targeted to millennials.
https://www.etf.com/docs/IfYouCan.pdf
https://www.etf.com/docs/IfYouCan.pdf
let me guess, one of these "living poor dying rich" advice?
of so, I highly recommend to watch this video: https://youtu.be/Baw0N7B-jV4
of so, I highly recommend to watch this video: https://youtu.be/Baw0N7B-jV4
Not really. More living sustainably, retiring comfortably.
Start with something simple, like: https://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-...
You may have to adjust it slightly if you can’t buy Vanguard directly, and should probably have more domestic exposure to whatever economy you’ll be participating in most throughout your life, but the basics really are pretty simple.
Anytime someone tries to make it seem more complex, assume they’re reaching for a slice of your pie. You’ll be right way more than not.
You may have to adjust it slightly if you can’t buy Vanguard directly, and should probably have more domestic exposure to whatever economy you’ll be participating in most throughout your life, but the basics really are pretty simple.
Anytime someone tries to make it seem more complex, assume they’re reaching for a slice of your pie. You’ll be right way more than not.
I know we are having a bad year but it is funny see him say: 'put all your money in VTSAX' and you click the link and it says "YTD returns: -16.9%".
In a year like this only losing 17% might be considered doing really well though.
In a year like this only losing 17% might be considered doing really well though.
He addresses this exact thing in his list. It's a good time to buy even more, VTSAX is effectively on sale if you are in it for the long haul.
Time in the market > timing the market.
Time in the market > timing the market.
You can't simultaneously claim that timing the market is bad, but in the same breath claim "it's a good time to buy".
Sure you can when you are talking about staying in for the long haul. The market has always gone back up and if it doesn’t, we’ll have far greater problems to worry about than our 401k.
(My apologies for any america-specific advice here)
1. If your company has a 401(k) retirement account match it's worth using the program, match = free money. They often have target-date retirement funds, just do 100% to those. Otherwise an S&P500 index fund. This isn't likely for part-time work but worth remembering for the future. Also probably not called a 401(k) outside of the US, but if you ask the HR person at your job they'll likely know what I'm talking about.
2. Save up six months of expenses in a savings account. Check around for the highest interest rate you can find. When you've done that, calculate what local market rent is, pretend you had to pay that, and save six months of expenses with that amount.
3. Open up an account at a low-fee brokerage. Ally, TD Ameritrade, etrade...it doesn't really matter just check out their websites and pick the one which you like the best.
4. With any extra money, dollar cost average into a broad market index fund (SPY, VEU, VTI are all popular choices). People will probably weigh in on which one is best, honestly the broad market funds are all correlated >0.95, just pick the one with the lowest fees. DCA: https://www.investopedia.com/terms/d/dollarcostaveraging.asp. It's best if you can set this up automatically somehow.
5. Generally speaking, any money you put into the stock market you should avoid touching for at least 5 years. Which is why I harped on the 6-months savings above. Also the people that do best in the stock market are often people that check their accounts the least often. Buy-and-hold ftw. Which is why I mentioned making the DCA plan automatic.
6. If you feel like taking some risk (individual stocks, options, crypto), it's best to have a separate account for that stuff and it shouldn't be more than 10% of your main account.
1. If your company has a 401(k) retirement account match it's worth using the program, match = free money. They often have target-date retirement funds, just do 100% to those. Otherwise an S&P500 index fund. This isn't likely for part-time work but worth remembering for the future. Also probably not called a 401(k) outside of the US, but if you ask the HR person at your job they'll likely know what I'm talking about.
2. Save up six months of expenses in a savings account. Check around for the highest interest rate you can find. When you've done that, calculate what local market rent is, pretend you had to pay that, and save six months of expenses with that amount.
3. Open up an account at a low-fee brokerage. Ally, TD Ameritrade, etrade...it doesn't really matter just check out their websites and pick the one which you like the best.
4. With any extra money, dollar cost average into a broad market index fund (SPY, VEU, VTI are all popular choices). People will probably weigh in on which one is best, honestly the broad market funds are all correlated >0.95, just pick the one with the lowest fees. DCA: https://www.investopedia.com/terms/d/dollarcostaveraging.asp. It's best if you can set this up automatically somehow.
5. Generally speaking, any money you put into the stock market you should avoid touching for at least 5 years. Which is why I harped on the 6-months savings above. Also the people that do best in the stock market are often people that check their accounts the least often. Buy-and-hold ftw. Which is why I mentioned making the DCA plan automatic.
6. If you feel like taking some risk (individual stocks, options, crypto), it's best to have a separate account for that stuff and it shouldn't be more than 10% of your main account.
I agree with all of these points, and having followed them myself can report they worked out pretty well for me over the last 40 years.
One quibble, the 401k match offered by some employers is not "free money", it is part of your compensation, just like employer-provided group health insurance, etc. If your employer does not offer a match while similar employers do, then you should expect more direct pay to offset the lack of match. And on that topic, don't invest your 401k money into your employer's stock, too much risk from lack of diversification.
One quibble, the 401k match offered by some employers is not "free money", it is part of your compensation, just like employer-provided group health insurance, etc. If your employer does not offer a match while similar employers do, then you should expect more direct pay to offset the lack of match. And on that topic, don't invest your 401k money into your employer's stock, too much risk from lack of diversification.
Because you’re young, the “right” way to invest is to automatically put a portion of your monthly paycheck into an stock market index fund such as VTSAX and ignore it for 25 years. Over time, you can expect an average return of at least 7.5% per year, which will double your money every 10 years. Some years will see big gains; some years will see big losses; but it will average out. You need to have the discipline to ignore the ups and downs.
Start by going to vanguard.com and opening a brokerage account. Use the website to set up automatic investments into VTSAX.
Then you can investigate @robcohen’s advice at your leisure. The important thing is to just get started.
(I’m not sure if you can use Vanguard from Europe. It’s a good place to start, at any rate.)
Start by going to vanguard.com and opening a brokerage account. Use the website to set up automatic investments into VTSAX.
Then you can investigate @robcohen’s advice at your leisure. The important thing is to just get started.
(I’m not sure if you can use Vanguard from Europe. It’s a good place to start, at any rate.)
In addition to saving and investing, I would address the "deal with" question by recommending you begin now a life-long habit of tracking your income and expenses along with the balance sheet of your assets and liabilities. Even if it is just a once-per-calendar-quarter update, try to capture your spending in various basic classes (food, transportation, shelter, entertainment, clothing, health care etc). You can also track your ordinary (operating) income separately from your investing income, since the investing income will be much more volatile but also you have many more years to recover from shortfalls.
Your spending may be very simple and limited now, but moving out, getting married, having dependents, becoming a homeowner and so on will vastly complicate it. It's useful and comforting to have some history on file to see if you are going "in the right direction", whatever that is for you.
There are any number of software programs out there, both commercial and free, to help, whether gnucash, Quickbooks, YNAB, or others that have been discussed on HN over time.
Your spending may be very simple and limited now, but moving out, getting married, having dependents, becoming a homeowner and so on will vastly complicate it. It's useful and comforting to have some history on file to see if you are going "in the right direction", whatever that is for you.
There are any number of software programs out there, both commercial and free, to help, whether gnucash, Quickbooks, YNAB, or others that have been discussed on HN over time.
Invest them in a low cost global index fund and forget about them.
That's the simplest and best answer you can find.
That's the simplest and best answer you can find.
My favorite personal finance book in general is called The Psychology of Money but a summary of it is here:
https://collabfund.com/blog/the-psychology-of-money/
https://collabfund.com/blog/the-psychology-of-money/
As a young person living with your parents and having "0" expenses, you probably should keep most of your income liquid because at some point you are likely to move out and have both ongoing expenses, but also start up expenses (deposits, furnishing, household equipment, etc)
If you can put together a rough plan for the budget for that, you might cap your liquid savings at 6-12 months of ongoing expenses plus an estimate of your one time expenses. After that, responsible long term investments. Of course, it's not a bad idea to put some amount into long term responsible investing now.
Not knowing what country you're in makes it hard to recommend specifics. For your short term savings, you want something safe (government guaranteed if you live in a stable economy) but shop around to different banks and see if any give better interest than others. For your long term savings, you want some sort of brokerage and investing in a broad index fund of some sort; if you have access to Vanguard funds in a tax appropriate way, their index funds are more or less the benchmark for low cost index funds. Depending on your local tax laws, it may be better to have a locally domiciled fund, or an Ireland or a US domiciled fund. Ideally, you're able to use a brokerage that is low cost, but established. The US benchmark is zero fees for the brokerage account and near zero fees for trading ETFs, and a broad stock index expense ratio should be around 0.1% or less. That's not available in all countries, but look around and see. There's also plenty of US options with more fees and bigger expense ratios, but IMHO, those expenses don't get you anything worthwhile.
If you can put together a rough plan for the budget for that, you might cap your liquid savings at 6-12 months of ongoing expenses plus an estimate of your one time expenses. After that, responsible long term investments. Of course, it's not a bad idea to put some amount into long term responsible investing now.
Not knowing what country you're in makes it hard to recommend specifics. For your short term savings, you want something safe (government guaranteed if you live in a stable economy) but shop around to different banks and see if any give better interest than others. For your long term savings, you want some sort of brokerage and investing in a broad index fund of some sort; if you have access to Vanguard funds in a tax appropriate way, their index funds are more or less the benchmark for low cost index funds. Depending on your local tax laws, it may be better to have a locally domiciled fund, or an Ireland or a US domiciled fund. Ideally, you're able to use a brokerage that is low cost, but established. The US benchmark is zero fees for the brokerage account and near zero fees for trading ETFs, and a broad stock index expense ratio should be around 0.1% or less. That's not available in all countries, but look around and see. There's also plenty of US options with more fees and bigger expense ratios, but IMHO, those expenses don't get you anything worthwhile.
Hi,
I also live in Europe. Here some quick suggestions from person who is quite interested in trading and investing:
1. Save few months of cash reserves to have freedom if things goes south.
2. Start reading about investing and ETFs and Indexes.
3. Start invest in small sums in ETFs and or Bonds. There are two ways:
5. Happy and safe investing!
You can find more information about European ETFs on justetf.com [4]
[1] https://etfmatic.com/
[2] https://www.degiro.com/
[3] https://www.interactivebrokers.co.uk
[4] https://www.justetf.com/en/how-to/invest-in-europe.html
I also live in Europe. Here some quick suggestions from person who is quite interested in trading and investing:
1. Save few months of cash reserves to have freedom if things goes south.
2. Start reading about investing and ETFs and Indexes.
3. Start invest in small sums in ETFs and or Bonds. There are two ways:
3.1. If you want to transfer and forget, you can try some of the RoboAdvisors, which will buy ETFs/Bonds for you with assigned percentage. I personally use ETFMatic [1] for couple of years without any issues.
3.2. If you want to buy ETFs by yourself, you can open brokerage account. As I read that you are from Europe, we mostly use Degiro [2] or IBKR [3] here. I use IBKR personally. You will be safer with ETFs, rather than single stocks. One of the recommended ETFs, would be VWCE, which Tin short - tracks World economy. As my colleagues say, VWCE and Chill.
5. Happy and safe investing!
You can find more information about European ETFs on justetf.com [4]
[1] https://etfmatic.com/
[2] https://www.degiro.com/
[3] https://www.interactivebrokers.co.uk
[4] https://www.justetf.com/en/how-to/invest-in-europe.html
While most advice here is pretty standard, it may be in your best interest(pun intended) to read a variety of financial books to get a better understanding of what you can do with your money based on the amount of risk you’re willing to take.
Do some projections based on that risk and how long you plan to grow your money. Then build the habits and automate your investing to the point where you forget about your money while it grows.
If you have no idea what to do today, save it until you educate yourself enough to know what to do with it tomorrow.
Do some projections based on that risk and how long you plan to grow your money. Then build the habits and automate your investing to the point where you forget about your money while it grows.
If you have no idea what to do today, save it until you educate yourself enough to know what to do with it tomorrow.
Avoid speculative investments like single stocks, crypto or anything like that when you're starting out.
Depending on your risk appetite, you may want to consider index funds from Vanguard (very low fee) or government bonds (low yield, consider this if you're extremely risk averse).
Depending on your risk appetite, you may want to consider index funds from Vanguard (very low fee) or government bonds (low yield, consider this if you're extremely risk averse).
Thank you for your answer. But do you use any specific platform/website to do this? Again worth mentioning also that I'm not in the US.
If you are in Europe, Interactive Brokers is the most well-known and seemingly well established platform. I am still exploring it myself, but it has low purchasing fees and a lot of learning material to start from.
Use your bank
Be cautious with banks having crazy transaction fees for generic stock. Most of them have own funds and you can purchase them for low fees, while the rest can be even at 15 EUR per single transaction.
That's exactly what I noticed with my bank. They have high fees for investing and for withdrawing. And that's an issue for me since I would only invest a few thousand dollars every month whenever I get my salary paid... Perhaps I should compare the fees of all the local banks next.
Banks often have high fees for investing/stock related actions.
Depending on what European country you are in you could also have a look at brokers/online banks, these usually have more sane fees.
In central Europe flatex would be an example of such a broker. Though I am not sure in which countries these are available.
Depending on what European country you are in you could also have a look at brokers/online banks, these usually have more sane fees.
In central Europe flatex would be an example of such a broker. Though I am not sure in which countries these are available.
Don't waste your time on banks. Just use a known and trusted investment platform.
The specifics depend on the country you’re in. In the UK for example there’s a type of investment account (ISA) in which you don’t have to pay tax on any income from capital gains or dividends. There are also private pensions that have other tax benefits but require you to lock your money until a certain age. Both of these might be preferable to a general investment account. Similar tax-advantaged accounts might be available in your country. And then there’s the choice of actual platform, and that also varies by country.
> I never buy anything
Start buying some stuff. Yes, investing is good and savings are important. But at some point, you’re saving so you can have money to spend. So figure out what you enjoy spending your money on. Do you like things or experiences? Spend some money on a nice meal. Buy nice clothes.
People who are overly obsessed with saving money are very unpleasant to be around.
Start buying some stuff. Yes, investing is good and savings are important. But at some point, you’re saving so you can have money to spend. So figure out what you enjoy spending your money on. Do you like things or experiences? Spend some money on a nice meal. Buy nice clothes.
People who are overly obsessed with saving money are very unpleasant to be around.
For beginning, just read A Dog Called Money by Bodo Schäfer. Other things you could add later.
Spend less than you make.
End of story.
End of story.
I do, that's why I made the post.. the difference is just sitting in the bank idle. What am I supposed to do with it now?
Keep saving and you'll figure it out.
I know somebody who worked 8 years saving whatever he could, and he finally opened a shisha shop.
I know somebody who worked 8 years saving whatever he could, and he finally opened a shisha shop.
It is an absolutely horrible idea to "invest" the money you have coming into stocks/ETFs. Literally. You make it sound like you are under 25 years old, and the best thing you can come up in terms of using your hard earned money is to (from your perspective) put it in some magic box that will grow your money at X% per year?
1. Contribute whatever you need to contribute to your local pension.
2. Save the rest of your money.
3. Deploy your money when needed by either investing it in yourself(health, skills, whatever else) or into an area where you have an edge(so computers). At worst, if you have some idea for a startup later in your life you can use this as startup capital.
My general advice in this regard: Passive "income" for people under 25 is a pure financial trap. You need to be making active "income" and saving otherwise. All your money you earn right now should ideally be spent on developing and honing whatever edge you have in the area that interests you. And it obviously isn't the financial markets.
1. Contribute whatever you need to contribute to your local pension.
2. Save the rest of your money.
3. Deploy your money when needed by either investing it in yourself(health, skills, whatever else) or into an area where you have an edge(so computers). At worst, if you have some idea for a startup later in your life you can use this as startup capital.
My general advice in this regard: Passive "income" for people under 25 is a pure financial trap. You need to be making active "income" and saving otherwise. All your money you earn right now should ideally be spent on developing and honing whatever edge you have in the area that interests you. And it obviously isn't the financial markets.
Just for context, I am under 25 and I am in education and as mentioned in the post I have barely any expenses.
The thing is, isn't having the money in the bank an investment too? I just thought if I'm already keeping it there (which is risky although maybe less so) then why not at least try to educate myself about maybe what more I could do with it. I'm already doing the things you mention but I'm purely talking about the leftover money that is just sitting there...
The thing is, isn't having the money in the bank an investment too? I just thought if I'm already keeping it there (which is risky although maybe less so) then why not at least try to educate myself about maybe what more I could do with it. I'm already doing the things you mention but I'm purely talking about the leftover money that is just sitting there...
This seems very contradictory.
When you pay into a pension, what's the money held in? It will be either cash or some fund (actively mangaged, passive index fund, ETF, a bond fund etc).
When you save (point 2), what's the money held in? Cash? How much and for how long? If it isn't cash, then it will be invested in something, and if it cash, how is that less of a financial trap than investing in stocks?
You either spend 100% (or more) of what you earn, or you have an investment decision to make when it comes to any leftover money. Keeping your money as cash in the bank might not seem like an investment decision but it is and it comes with its own set of risks and rewards.
When you pay into a pension, what's the money held in? It will be either cash or some fund (actively mangaged, passive index fund, ETF, a bond fund etc).
When you save (point 2), what's the money held in? Cash? How much and for how long? If it isn't cash, then it will be invested in something, and if it cash, how is that less of a financial trap than investing in stocks?
You either spend 100% (or more) of what you earn, or you have an investment decision to make when it comes to any leftover money. Keeping your money as cash in the bank might not seem like an investment decision but it is and it comes with its own set of risks and rewards.
Well when I say max out pension it isn't really an investment decision more than it is "this is how much money the government said I need to pay them for them to take care of me when I'm 70", which is really not even about investing. If you want to treat it like an investment, IMO it is like a tail hedge in case you don't acquire appreciable wealth during your work career.
Cash is less of financial trap because you are in charge of it. the investment decision with regards to being in cash is very simple: I don't have a great investment to make, so I will keep the cash until it comes. Passive income only works for really wealthy people.
Cash is less of financial trap because you are in charge of it. the investment decision with regards to being in cash is very simple: I don't have a great investment to make, so I will keep the cash until it comes. Passive income only works for really wealthy people.
So 100% cash (if possible)?
> Well when I say max out pension it isn't really an investment decision more than it is "this is how much money the government said I need to pay them for them to take care of me when I'm 70"
Depends on what you mean by pension. In the UK most modern workplace pensions and all self-invested personal pensions are similar to 401k in the US - all the money is contributed by you and/or your employer, you can access the money after a certain age, and you have control over how that money is invested in the meantime.
And for something like state pensions, once you have contributed for 10 years, you get the same pension; you don't have the option to contribute more so you can get paid more in retirement.
> Passive income only works for really wealthy people.
Investing doesn't necessarily mean passive income, and passive income doesn't need to be complete replacement for any other income to be a good idea. If you can put $5000 in stocks and get 4-8% a year return (unless it's your only $5000) that might be better than keeping it as cash and losing 8-10% to inflation. The percentage return you'll get will be the same as the percentage return a wealthy person investing millions in the same fund would get. And the returns you'll get from investing don't need to be lifechanging to make investing a better option than the alternative.
Depends on what you mean by pension. In the UK most modern workplace pensions and all self-invested personal pensions are similar to 401k in the US - all the money is contributed by you and/or your employer, you can access the money after a certain age, and you have control over how that money is invested in the meantime.
And for something like state pensions, once you have contributed for 10 years, you get the same pension; you don't have the option to contribute more so you can get paid more in retirement.
> Passive income only works for really wealthy people.
Investing doesn't necessarily mean passive income, and passive income doesn't need to be complete replacement for any other income to be a good idea. If you can put $5000 in stocks and get 4-8% a year return (unless it's your only $5000) that might be better than keeping it as cash and losing 8-10% to inflation. The percentage return you'll get will be the same as the percentage return a wealthy person investing millions in the same fund would get. And the returns you'll get from investing don't need to be lifechanging to make investing a better option than the alternative.
> My general advice in this regard: Passive "income" for people under 25 is a pure financial trap. You need to be making active "income" and saving otherwise. All your money you earn right now should ideally be spent on developing and honing whatever edge you have in the area that interests you. And it obviously isn't the financial markets.
I think this is very true, although I'd go one step further and say that saving really isn't that important when you're young. I honestly think the smartest things I did in my twenties were to eat takeaway food for almost every meal and pay a bit extra to live really close to work. People told me I was wasting my money, but all the extra study I got done helped me 5x my salary by the time I reached my thirties.
I think this is very true, although I'd go one step further and say that saving really isn't that important when you're young. I honestly think the smartest things I did in my twenties were to eat takeaway food for almost every meal and pay a bit extra to live really close to work. People told me I was wasting my money, but all the extra study I got done helped me 5x my salary by the time I reached my thirties.