The Golden Rule of Personal Finance(bestinterest.blog)
bestinterest.blog
The Golden Rule of Personal Finance
https://bestinterest.blog/golden-rule/
113 comments
One piece that's missing from this essay is the role of one's friends and family. When I had to replace my car a few years ago, I chose a modest Subaru. I was asked repeatedly by people in my social circle why I didn't chose something flashier, like a BMW or a Mercedes, because I was a software engineer now and "you can afford it, so why not?" Or, equivalently, "What are you going do with all that money, anyway, if you aren't spending it, you should give it to me." The idea that someone else can choose to spend less than they earn is very alien to a lot of people.
While we certainly don't spend more than we make, the fact that I'm not entirely in control of the budget was in the back of my head when I read the article. "Okay, I'll just convince my wife that organic food and private schools aren't that important..."
"i don't give a shit about cars" is the answer to that
maybe you spend serious dollars on bespoke japanese mechanical keyboards or something!
anyway, if you think your SO's spending exceeds your comfort levels, you should talk to them and tell them that! and if your friends/family think you should spend more...well, give them a link to your local coding bootcamp!
maybe you spend serious dollars on bespoke japanese mechanical keyboards or something!
anyway, if you think your SO's spending exceeds your comfort levels, you should talk to them and tell them that! and if your friends/family think you should spend more...well, give them a link to your local coding bootcamp!
You can always imply that 'alimony' or something is taking the majority, most people will quiet down at that point.
> because I was a software engineer now and "you can afford it, so why not?"
If you can afford it yeah - also live a little, don’t be a miser
If you can afford it yeah - also live a little, don’t be a miser
If you are smart you will spend less than you earn over a long period
To achieve this you need a plan. The plan can be responsible and also contain periods of spending more than you earn.
This will allow you to invest in your life, and the lives of the people that you love. For example, go on holiday with your kids while they are kids. This could cement relationships (not just with you) that will be really important in their (and your) lives. Another example; do the job that's a spring board, but lower paid than the job you really need. Ok, so you run up some debt - but you get access to your future career.
Education is another (more controversial) one. I invested in my education when I was young, but I am from another era and I am well aware that what young people are asked to put in for a doctorate now is just unbelievable. It paid off for me, it may not pay for you.
To achieve this you need a plan. The plan can be responsible and also contain periods of spending more than you earn.
This will allow you to invest in your life, and the lives of the people that you love. For example, go on holiday with your kids while they are kids. This could cement relationships (not just with you) that will be really important in their (and your) lives. Another example; do the job that's a spring board, but lower paid than the job you really need. Ok, so you run up some debt - but you get access to your future career.
Education is another (more controversial) one. I invested in my education when I was young, but I am from another era and I am well aware that what young people are asked to put in for a doctorate now is just unbelievable. It paid off for me, it may not pay for you.
I would add birth circumstances to your pile, somehow.
For decades I spent wisely and executed on a plan while donating 10%+ of my gross to the megachurch into which I was born. Everybody in the church, including my parents, said it was an investment.
Spoiler: It was not
I still wonder how this could have been effectively communicated to me at an earlier age...the church teachings I received were designed to inoculate against outside opinions. When I joined the ranks of leadership myself, I also taught others to pay "God" before paying themselves.
By the time I stopped paying, I could have used my own donated funds to retire twice over.
For decades I spent wisely and executed on a plan while donating 10%+ of my gross to the megachurch into which I was born. Everybody in the church, including my parents, said it was an investment.
Spoiler: It was not
I still wonder how this could have been effectively communicated to me at an earlier age...the church teachings I received were designed to inoculate against outside opinions. When I joined the ranks of leadership myself, I also taught others to pay "God" before paying themselves.
By the time I stopped paying, I could have used my own donated funds to retire twice over.
Many religions include tithing as part of their teachings, and the Effective Altruist movement has adopted it. If the funds are directed well, it's an investment into the community and to charity. (And if a disaster befalls you, hopefully the church would come to your aid, so it's a kind of insurance...)
I'm a happy user of You Need a Budget. If the golden rule is "Spend less than you earn", the practical way to achieve that is "You Need a Budget".
I use YNAB because it works for me, but I've used paper and spreadsheets in the past. The key is having the budget so you can understand where your money is going. You aren't always going to stick to the budget, but by paying attention and classifying all expenses, you can better understand things going forward and then plan better.
I don't care if you make $35K a year or $350K a year, you need a budget.
I use YNAB because it works for me, but I've used paper and spreadsheets in the past. The key is having the budget so you can understand where your money is going. You aren't always going to stick to the budget, but by paying attention and classifying all expenses, you can better understand things going forward and then plan better.
I don't care if you make $35K a year or $350K a year, you need a budget.
>If the golden rule is "Spend less than you earn",
If that is the golden rule, then the platinum or diamond rule is to earn at least $x. There exists a lower limit under which certain parts of life are simply not affordable, such as saving for retirement, healthcare, education, children’s education, etc.
>I don't care if you make $35K a year or $350K a year, you need a budget.
At $35k, I imagine everything coming in is going out. You really just need to focus everything on increasing income. For people in the USA at least.
Actually, because of cliffs in the qualifications for government benefits, the rule might be earn less than $x or more than $y, but not in between.
If that is the golden rule, then the platinum or diamond rule is to earn at least $x. There exists a lower limit under which certain parts of life are simply not affordable, such as saving for retirement, healthcare, education, children’s education, etc.
>I don't care if you make $35K a year or $350K a year, you need a budget.
At $35k, I imagine everything coming in is going out. You really just need to focus everything on increasing income. For people in the USA at least.
Actually, because of cliffs in the qualifications for government benefits, the rule might be earn less than $x or more than $y, but not in between.
"here exists a lower limit under which certain parts of life are simply not affordable"
You do realize that like half the world lives in under a dollar a day right? It is expensive to live in the west, and technically you are right, but people even manage to have an apartment, etc, etc, etc, in NY city and live on $100 a month.
People spend money mostly to signal to others their wealth, and secondly to save the brain power it would take to find free alternatives. 35k is just so far below your income it is the furthest you can image or have acquaintances at that level. But if you make that, you would have some other arbitrary number where it was not affordable to live under.
You do realize that like half the world lives in under a dollar a day right? It is expensive to live in the west, and technically you are right, but people even manage to have an apartment, etc, etc, etc, in NY city and live on $100 a month.
People spend money mostly to signal to others their wealth, and secondly to save the brain power it would take to find free alternatives. 35k is just so far below your income it is the furthest you can image or have acquaintances at that level. But if you make that, you would have some other arbitrary number where it was not affordable to live under.
Increasing income is what you might be able to do in the future. Spending less than you earn is what you can do right now to keep the hole from getting deeper. The author is correct. It applies at all income levels. When I read the title of the article, I instantly knew what the golden rule was, because it's obvious.
If you make $35k, it is still possible. It might not be comfortable, and that seems to be the great success of capitalism in the 21st century: convincing people that they shouldn't ever be uncomfortable, or that they can't be without certain items or experiences that they most certainly can be.
Increasing income is great. Literally (almost) everybody wants this. There is high demand for increasing income. The supply is part of the issue, and the cost of increasing income is the next barrier. Bettering your situation takes effort, either to decrease your spending, or to increase your income. Doing both at the same time takes double the effort.
The last thing somebody making $35k (or $25k) needs is some provincial yuppie zoomer saying to them "Just make more money lul". It doesn't help anything.
If you make $35k, it is still possible. It might not be comfortable, and that seems to be the great success of capitalism in the 21st century: convincing people that they shouldn't ever be uncomfortable, or that they can't be without certain items or experiences that they most certainly can be.
Increasing income is great. Literally (almost) everybody wants this. There is high demand for increasing income. The supply is part of the issue, and the cost of increasing income is the next barrier. Bettering your situation takes effort, either to decrease your spending, or to increase your income. Doing both at the same time takes double the effort.
The last thing somebody making $35k (or $25k) needs is some provincial yuppie zoomer saying to them "Just make more money lul". It doesn't help anything.
>It doesn't help anything.
My advice is for those at 25 years old working in a fast food place who can read and write English. Their time excessively pruning their budget is better spent learning new skills and attempting to sell their services in a market that pays more.
>If you make $35k, it is still possible. It might not be comfortable, and that seems to be the great success of capitalism in the 21st century: convincing people that they shouldn't ever be uncomfortable, or that they can't be without certain items or experiences that they most certainly can be.
I do not know what this means. It is possible to live in the forest and forage and be comfortable, everyone was a few tens of thousands of years ago. But surely things like a safe neighborhood, healthcare for you and family, and opportunity for education are basic things that people can be expected to strive for, and that are not really achievable under a certain income in pretty much all populated regions of the US at $35k per year.
My advice is for those at 25 years old working in a fast food place who can read and write English. Their time excessively pruning their budget is better spent learning new skills and attempting to sell their services in a market that pays more.
>If you make $35k, it is still possible. It might not be comfortable, and that seems to be the great success of capitalism in the 21st century: convincing people that they shouldn't ever be uncomfortable, or that they can't be without certain items or experiences that they most certainly can be.
I do not know what this means. It is possible to live in the forest and forage and be comfortable, everyone was a few tens of thousands of years ago. But surely things like a safe neighborhood, healthcare for you and family, and opportunity for education are basic things that people can be expected to strive for, and that are not really achievable under a certain income in pretty much all populated regions of the US at $35k per year.
> Their time excessively pruning their budget is better spent learning new skills
Doing anything excessively isn't good. Nobody is saying budget "excessively". If budgeting is taking up all your time, may be you're budgeting excessively.
Doing anything excessively isn't good. Nobody is saying budget "excessively". If budgeting is taking up all your time, may be you're budgeting excessively.
You cannot out earn a spending habit. It will grow way faster than paycheck because it is nto held in check by reality.
At most you cannot make more than the GDP of the Earth, while your spending habit can be arbitrarily high.
At most you cannot make more than the GDP of the Earth, while your spending habit can be arbitrarily high.
Not to mention having a budget allows you to plan out _how_ to increase your income.
If you needed time off to study for a career change, you cannot do it without first having a budget, saved up and such.
So regardless of the desire to increase income, the first step is to have solid data about your expenditures; aka, a budget.
If you needed time off to study for a career change, you cannot do it without first having a budget, saved up and such.
So regardless of the desire to increase income, the first step is to have solid data about your expenditures; aka, a budget.
The wildest success of capitalism for me has been the continual smartphone treadmill. It almost seems like the less someone makes the more they feel compelled to spend money on smartphones, I guess it's likely symbolic of status these days. I live pretty comfortably, and I don't feel like I could afford a $1500 smartphone, and yet almost everyone I meet no matter their income seems to have a better phone than me.
I think it's an obtainable status symbol. They may never have a fancy car or a nice house or even a top of the line TV, but they can have a nice phone, and for some people I'm sure that's important to have SOMETHING to have status about. It's also the primary form of entertainment and socializing for some people so I can understand wanting to have a nice screen.
They've also perfected the "it's only $x a month!" sales technique - combine this with anyone who dares to try to use an older Android phone just absolutely being shit on (you need to be pretty technically savvy to pick one that can stay up to date) and most people will lean into "get the new one".
Thankfully I think most Samsungs are offering 5 years of updates now, so that's getting better (I assume most people are buying Samsungs as they really have become the face of high-end Android).
Do you own a computer or tablet?
It may be that those with lower incomes spends more on a smartphone because it is their only way to access the internet.
It may be that those with lower incomes spends more on a smartphone because it is their only way to access the internet.
Fair point of discussion, I do indeed own a computer and I loath doing anything on my phone that I could have done on my computer.
This is fair - since a personal phone is arguably required in today's society and most people will have one regardless of income. It does not satisfy me that you need the latest and greatest phone however.
I bought a Chromebook for $200 probably 5 years ago that my wife still uses for all of the things that she doesn't want to use the phone for. There are still decent computers that are available for far lower prices than top-of-the-line phones.
It all goes back to personal finance vs. capitalism. Big Business wants you to believe that only the best smartphone will do, no matter your budget (what budget, haha?).
If you don't make that much money and you want to escape eternal debt-hell, you have to overcome this mindset and find good budget options. And I maintain that it can be done. Move out of the city. Establish trusting relationships through your own hard work and good faith efforts. Swallow your pride and lean respectfully and gratefully on friends and/or family if you have to. And then be there when someone needs you for the same. Big Business also wants you to believe that it's every man for himself, but that doesn't have to be true either.
I bought a Chromebook for $200 probably 5 years ago that my wife still uses for all of the things that she doesn't want to use the phone for. There are still decent computers that are available for far lower prices than top-of-the-line phones.
It all goes back to personal finance vs. capitalism. Big Business wants you to believe that only the best smartphone will do, no matter your budget (what budget, haha?).
If you don't make that much money and you want to escape eternal debt-hell, you have to overcome this mindset and find good budget options. And I maintain that it can be done. Move out of the city. Establish trusting relationships through your own hard work and good faith efforts. Swallow your pride and lean respectfully and gratefully on friends and/or family if you have to. And then be there when someone needs you for the same. Big Business also wants you to believe that it's every man for himself, but that doesn't have to be true either.
I was thinking of smartphones in particular with that comment and I agree with you completely.
> I don't care if you make $35K a year or $350K a year, you need a budget.
That's a catchy thing to say but if someone is making $350K a year and easily saving / investing six figures annually without a budget, telling themn they need a budget sounds a bit absurd. I'd say the further you are from being able to invest / save sufficiently for your long term goals, the more a budget will help you. Admittedly, not nearly as catchy.
That's a catchy thing to say but if someone is making $350K a year and easily saving / investing six figures annually without a budget, telling themn they need a budget sounds a bit absurd. I'd say the further you are from being able to invest / save sufficiently for your long term goals, the more a budget will help you. Admittedly, not nearly as catchy.
If you have income automatically set aside for investments and savings, you already have a lightweight budget in the form of "I set aside X% or $Y every month and the rest is discretionary."
That’s the best way to live, I don’t like micro-managing myself.
I’ve dieted down to different weight classes for sports and tracking everything is pretty miserable. It works when there’s a single date up ahead. I can’t imagine micromanaging finances like that indefinitely. I’m with you: expenditures are about some number, savings for a house downpayment is about some other number, and that’s enough for me.
This is more than most people have in my experience, if this is all the budgeting prowess you can muster then you are potentially ahead of the pack already.
That works for you because nothing or anything would work for you. I am in the same boat, a budget would serve no purpose for me other than encouraging me to spend more.
For the people who need a budget, they would just run out of money completely before their next paycheck and either get kicked out of their apartment, or dip into their savings.
For the people who need a budget, they would just run out of money completely before their next paycheck and either get kicked out of their apartment, or dip into their savings.
this is literally the financial equivalent of "if it fits your macros"
I think it can be useful even if you're able to save / invest "easily".
I'm in that situation. I'm fairly thrifty and don't spend much. But after looking back over my spending, I've realized there was enough useless crap that I could cut out. For example, I realized I was spending an enormous (to me) amount on lunches at work, though it was nothing fancy. It's just that I was working in a rather touristy / "rich" part of town, so aside from a pastry, everything was above €10. I started packing my own lunch most of the time and the cost went waay down for no discernible loss.
Bonus points for eating less and losing some weight, but that's a different story.
I'm in that situation. I'm fairly thrifty and don't spend much. But after looking back over my spending, I've realized there was enough useless crap that I could cut out. For example, I realized I was spending an enormous (to me) amount on lunches at work, though it was nothing fancy. It's just that I was working in a rather touristy / "rich" part of town, so aside from a pastry, everything was above €10. I started packing my own lunch most of the time and the cost went waay down for no discernible loss.
Bonus points for eating less and losing some weight, but that's a different story.
You need a budget at any income level. Saving more early means early retirement because compound interests stack well over years and years.
Or can save some hardness as you reach 55plus, when getting employed becomes harder but state welfare is still 10 years down the line.
An habit to budgeting helps because people aren't always top dogs.
Or can save some hardness as you reach 55plus, when getting employed becomes harder but state welfare is still 10 years down the line.
An habit to budgeting helps because people aren't always top dogs.
You just demonstrated that a high earner has a budget to invest a certain part of their money. I don't disagree that as your earnings go up that the budget can become higher level.
Budgets are not needed if you pay yourself first (i.e., save towards your goals as soon as you are paid) and only spend the money you have left over. Then you can't go into debt and you are meeting all your goals.
Yeah, the reverse budget. I'm a fan of this. It might not be quite as efficient, but there's almost no mental overhead.
I think this misunderstands the point of a budget.
A budget is not primarily designed to develop a growing savings account, tho that is a very good side effect.
A budget is designed so that when the rent becomes due on the 29th, or you are hungry and you want want to consume food on the day before your paycheck comes in, you don't discover you have $2.50 to your name.
You could put money aside for food every day, and for rent, and utility, as well, and that would be called a budget. IN fact just paying yourself first, is just a really simplistic underdeveloped budget.
A budget is designed so that when the rent becomes due on the 29th, or you are hungry and you want want to consume food on the day before your paycheck comes in, you don't discover you have $2.50 to your name.
You could put money aside for food every day, and for rent, and utility, as well, and that would be called a budget. IN fact just paying yourself first, is just a really simplistic underdeveloped budget.
Plans aren't needed if nothing ever goes wrong. What happens on the day you can't pay yourself first? That's what the budget should answer for you.
That sounds like a budget.
You literally just described a budget.
For years I used YNAB and encouraged family to use it too
Then I got into FAANG and switched to buying whatever I want and fully pay off credit cards every month
UNTIL my wants got bigger and bigger - last minute vacations, concerts, a lot of “experience” stuff coming out of covid lockdowns
And now, RSUs are down , I spend more than I bring in each month, started drawing down on cash savings - YOLO - still driving a Camry though
I need a budget again
Then I got into FAANG and switched to buying whatever I want and fully pay off credit cards every month
UNTIL my wants got bigger and bigger - last minute vacations, concerts, a lot of “experience” stuff coming out of covid lockdowns
And now, RSUs are down , I spend more than I bring in each month, started drawing down on cash savings - YOLO - still driving a Camry though
I need a budget again
I can also recommend moneydashboard.com. I load in multiple banks and credit cards, it will update all my banking transactions via api into a central view. I can set a budget for each type of expense and it all just seems to work.
As a former user who switched to Amex credit cards for all spending, it’s key benefit of automation is ruined.
I don’t think it’s entirely YNAB’s fault. But having to manually input each credit card transaction doesn’t make me feel it’s worth the monthly charge. Then it just becomes a spreadsheet.
EDIT: that is— the lessons are excellent and the mindset is important. But it’s monthly cost is another issue.
I don’t think it’s entirely YNAB’s fault. But having to manually input each credit card transaction doesn’t make me feel it’s worth the monthly charge. Then it just becomes a spreadsheet.
EDIT: that is— the lessons are excellent and the mindset is important. But it’s monthly cost is another issue.
(I'm not here to promote YNAB, I promise I'm just a happy user and not affiliated).
I use my AMEX for 90% of all spending. No issues importing transactions to YNAB. Sometimes there is a 1-2 delay, but they do import.
I use my AMEX for 90% of all spending. No issues importing transactions to YNAB. Sometimes there is a 1-2 delay, but they do import.
Lucky! I love YNAB, but I'm glad that 95% of my spending is on my non-Amex cards and accounts, because the Amex accounts only sync successfully once in a blue moon, even after repeated reauthorizations. Any tips?
They have multiple import providers. I am set up to use Plaid. If you are using another it could be the cause of your issues.
Why does using Amex stop you using YNAB? Syncs fine for me.
Luck I guess. I originally stopped using it when I got an Amex card because of sync issues. Tried it again recently and it was still the same.
Maybe I was spoiled with near instant syncing on my debit card, I used to categorize the gas i just paid for before leaving the lot.
But again, at 15 a month, that’s a lot of effort for a gui on top of a spreadsheet.
The benefit for me was quick transaction logging and categorizing, then a weekly/monthly check up. But with sync issues, those check ups became categorizing sessions, and just took too much time.
Maybe I was spoiled with near instant syncing on my debit card, I used to categorize the gas i just paid for before leaving the lot.
But again, at 15 a month, that’s a lot of effort for a gui on top of a spreadsheet.
The benefit for me was quick transaction logging and categorizing, then a weekly/monthly check up. But with sync issues, those check ups became categorizing sessions, and just took too much time.
I feel like if I needed a budget, that'd be a sign that I'm probably being too careless with my money to begin with.
I feel like if I need to do any design work, then I must be too careless of a coder to begin with.
That's just... a poorly constructed, bad faith comparison. It's very easy to casually save money without budgeting, especially if you have a high income, which you specifically called out as fair game. For me, checking my bank app every non and then and confirming I've got a good looking net savings per month is fine.
You seem to be trying to imply that I must believe that any form or preparation is a sign that you can't execute. Which is dumb.
You seem to be trying to imply that I must believe that any form or preparation is a sign that you can't execute. Which is dumb.
As income levels go up, budgeting can be much more casual as you've described. You are still talking about budgeting. You are inferring that I believe all budgeting is an act of OCD.
> You are inferring that I believe all budgeting is an act of OCD.
I've said nothing of the sort. That's pretty rude to people who actually suffer from OCD.
I don't personally believe checking my net cash flow every few months counts as budgeting but if you do, sure, that's a semantic disagreement.
I've said nothing of the sort. That's pretty rude to people who actually suffer from OCD.
I don't personally believe checking my net cash flow every few months counts as budgeting but if you do, sure, that's a semantic disagreement.
I've had this discussion countless times and maybe we've got the same problem in just not thinking in budgets.
Then again I've often thought that I simply don't need a budget for X if my spending on X (as analyzed over a year, or five) is so much below of what I would put as a budget if you'd asked me to guess one.
Example: If I like buying music, I'd maybe give myself a budget of 30€ for music per month, that's 2 albums. Looking at how many albums I actually buy in a typical year, or in an excessive year - I've never even come close to buying 24 albums in a year. So that thought process might have happened once, 10 years ago and until I start to earn a lot less or albums get a lot more expensive, I'll just buy as many albums as I want, and usually end up with 5-10 per year.
Then again I've often thought that I simply don't need a budget for X if my spending on X (as analyzed over a year, or five) is so much below of what I would put as a budget if you'd asked me to guess one.
Example: If I like buying music, I'd maybe give myself a budget of 30€ for music per month, that's 2 albums. Looking at how many albums I actually buy in a typical year, or in an excessive year - I've never even come close to buying 24 albums in a year. So that thought process might have happened once, 10 years ago and until I start to earn a lot less or albums get a lot more expensive, I'll just buy as many albums as I want, and usually end up with 5-10 per year.
I would like to do better financially, but don't care for budgets. Often, I find that I'm unable to make a purchase, due to those pesky buggers.
For example, I'm about to take a trip to Europe, which would never have been possible if I had "budgeted".
For example, I'm about to take a trip to Europe, which would never have been possible if I had "budgeted".
I've taken many trips and budgeted for all of them. I plan in advance or if I feel like doing something spontaneous, I reallocate money from another budget item or from my discretionary bucket.
> I'm about to take a trip to Europe, which would never have been possible if I had "budgeted".
Curious why ? Sounds like the same thing
Curious why ? Sounds like the same thing
Hey, I might have missed the mark, but it was intended to be tongue and cheek. I don't "like" budgets because they force me to live within my means.
Ignore them, and you can do whatever you like! You do have a point though, I could probably bring the cost down and still manage it... this is what budgets are for.
Ignore them, and you can do whatever you like! You do have a point though, I could probably bring the cost down and still manage it... this is what budgets are for.
From David Copperfield, by Charles Dickens
Annual income twenty pounds, annual expenditure nineteen nineteen and six , result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery
Annual income twenty pounds, annual expenditure nineteen nineteen and six , result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery
You've reminded me that I need to watch the Armando Iannucci version of that again, it was such a good film with an amazing cast.
The Micawber principle. (It seems there are two; the other is "Something will turn up".)
My rules were:
1. Always pay off the credit card bill every month. Completely.
2. Mortgage payment < 40% of take home salary.
3. Buy the cheapest new car you can afford and run it as long as possible.
4. Never buy branded clothing unless on sale.
5. Maintenance costs less than replacement.
In summary be a cheapskate and ignore the neigbours with expensive doodads.
1. Always pay off the credit card bill every month. Completely.
2. Mortgage payment < 40% of take home salary.
3. Buy the cheapest new car you can afford and run it as long as possible.
4. Never buy branded clothing unless on sale.
5. Maintenance costs less than replacement.
In summary be a cheapskate and ignore the neigbours with expensive doodads.
I would add, if your city permits it, buy a bicycle, or take public transport. You can have a car too, but every single trip you don't do in it is money saved. Kids are calling this "low car", in contrast to no car. Car dependence sneaks up on you, one moment you're a teenager with no costs the next you've got thousands a year in running costs and you're wondering where all your money is going. Fuel costs become non-negotiable, and maintenance is both hidden and a Russian roulette as to whether or not something major breaks.
Every time you don't drive the car, you play the maintenance slot machine one less time, and the accumulated effect of lower maintenance costs and lower gas is non-trivial.
The other thing I would add is to be honest with yourself, add up the car costs, rego, gas, tires, the maintenance schedule (you have a schedule even if you don't follow it). Your $20,000 dollar car probably costing you thousands a year.
Every time you don't drive the car, you play the maintenance slot machine one less time, and the accumulated effect of lower maintenance costs and lower gas is non-trivial.
The other thing I would add is to be honest with yourself, add up the car costs, rego, gas, tires, the maintenance schedule (you have a schedule even if you don't follow it). Your $20,000 dollar car probably costing you thousands a year.
Even better, an e-bike. There won't be so much friction to getting yourself to use it, especially if you have hills that would be insurmountable to the untrained leg.
E-bike is the most life changing purchase I’ve made in the last few years. Besides all the financial and health benefits, the biggest benefit is all the fun. Even a boring errand run becomes a nostalgia-filled, wind-in-your-hair joyride. Plus you can park right out front of wherever you’re going.
Totally agree. I ride person-powered bikes all the time but my e-bike changed the game for me even still. I live in a fairly hilly part of Australia, and there is no direction that does not take a level of athleticism for me to do in a reasonable amount of time. Heatwaves also rule it out from time to time. Not so with an e-bike, it really takes the rough edges off any commute and because of that I use it way more often. Anything that gets you on the bike more often is a good thing.
My father was "low car" before it was cool.
He bought his vehicle new and put 144k km on it over the course of 22 years.
Of course that was only possible because there was a public transport network in place.
I, after an initial period of driving long distances, sort of followed in his footsteps via remote work and getting groceries delivered - the latter feels like cheating though, since that's just someone else driving instead.
In any case I can't recommend this enough. Cars are amazingly useful, but when used daily costs pile up quickly.
He bought his vehicle new and put 144k km on it over the course of 22 years.
Of course that was only possible because there was a public transport network in place.
I, after an initial period of driving long distances, sort of followed in his footsteps via remote work and getting groceries delivered - the latter feels like cheating though, since that's just someone else driving instead.
In any case I can't recommend this enough. Cars are amazingly useful, but when used daily costs pile up quickly.
Yes, "low car" is great -- if you live in a suitable place. Some weeks my car never leaves the driveway.
I feel like such a huge part of the cost in a car is completely upfront and if these "low car" people calculated how much they are spending per km driven, they would have a stroke and sell the car.
It's totally dependent on your own circumstances I guess. For me to drive to work it costs ~$30 a day, in fuel and parking, without adding in maintenance, rego and consumables. On the bike it costs $0
Yes, but I was talking specifically about framing your perception in a specific way.
Driving to work actually costs you something more like ~$30 in fuel and parking and ~$25 in owning the car ($55). Biking to work costs you $0 in fuel and parking and ~$25 in owning the car that it sitting in your garage ($25).
Fuel is a small percentage of the cost in owning a car, and even the most insane parking costs get anywhere near car ownership costs.
Driving to work actually costs you something more like ~$30 in fuel and parking and ~$25 in owning the car ($55). Biking to work costs you $0 in fuel and parking and ~$25 in owning the car that it sitting in your garage ($25).
Fuel is a small percentage of the cost in owning a car, and even the most insane parking costs get anywhere near car ownership costs.
Oh I see, yes if possible not having the car at all would be the best outcome. Even more so when you consider many people choose where they live based on it's affordances for cars, with a bit of approximation you could probably work out the figure for having a carpark/garage at where you live.
I am not sure that trying to fix modern appliances is really (or even on paper) cheaper than replacing them. Maybe for the expensive models, but the lower end units seem to be “use 5-10 and replace”. I worry that the fancy/modern car electronics will push cars into this category. Carmaker motivstions don’t align with mine.
Modern appliances are designed with parts that fail easily and are just slightly too difficult, or dangerous, enough to repair on your own. Usually it's a plastic connector of some sort that will have an easily calculable time-to-disintegration measured in years.
For instance, I just fixed a 2c plastic clip that pretty much made my microwave unusable by virtue of the door being un-openable. In order to do so, I had to have my fingers about 3 inches away from a bare wire transformer which near totally obstructs what should be a very simple fix.
Plenty scary and dangerous enough for me to have to call the manufacturer and find a certified local repairer...
For instance, I just fixed a 2c plastic clip that pretty much made my microwave unusable by virtue of the door being un-openable. In order to do so, I had to have my fingers about 3 inches away from a bare wire transformer which near totally obstructs what should be a very simple fix.
Plenty scary and dangerous enough for me to have to call the manufacturer and find a certified local repairer...
It depends on the appliance, and yeah, the cheaper ones are often NOT worth fixing if a major component breaks, but ARE worth fixing if it is a minor component/known issue. Youtube is great for this - search "model number" "problem" and if there's a video on how to fix it, it's common enough that the part is probably cheap (think ignitor for a dryer/oven, etc).
Friend had an older washer with a giant "timer dial" that was cheap to fix - the new dial cost like $50 and was simple to replace. A similar washer that I had had a single plastic part that held the dial in place break, and the only way to fix it was either bolt some metal strapping around it (which I did) or buy a new faceplate at $350 (+ shipping) - that's half the cost of a SpeedQueen (which I eventually bought when the pump crapped out. The SpeedQueens don't change year to year and they're basically laundromat machines so they're very repairable.
If you do decide to replace an appliance, there are people that will take away the old one for free, because they will repair and resell if possible.
Friend had an older washer with a giant "timer dial" that was cheap to fix - the new dial cost like $50 and was simple to replace. A similar washer that I had had a single plastic part that held the dial in place break, and the only way to fix it was either bolt some metal strapping around it (which I did) or buy a new faceplate at $350 (+ shipping) - that's half the cost of a SpeedQueen (which I eventually bought when the pump crapped out. The SpeedQueens don't change year to year and they're basically laundromat machines so they're very repairable.
If you do decide to replace an appliance, there are people that will take away the old one for free, because they will repair and resell if possible.
If your appliances are low-tech enough, and you have access to YouTube and don't have hand dexterity issues, you don't need to replace or even pay for a service visit. I've fixed a clothes washing machine when its belt seized. That was $17. My refrigerator was no longer staying cold: a $50 controller board clone from eBay works great.
I'm with you on all of these except the mortgage/rent payment. 25% should be the goal IMO. I know it can be tough, especially at lower income levels. My solution for that is, if your income can't afford it then you need roommates.
The housing market is cooling somewhat, but 25% is still pretty hard to hit today unless you're a high earner in a low COL area. I'm at 26% take home doing WFH in rural New Hampshire. Likely not practical if you live anywhere more urban than that. Rent or mortgage up to 50-60% is more common today.
What happened is the banks had a rule "total debt payments cannot be over 30%" years and years ago, based on their understanding of many customers and bankruptcies and such.
Over time this became "spend 30% on housing" which, if you think about it, is kinda insane. It's obviously a rule of thumb that doesn't fit directly to everyone (should Musk spend $720 million a year on housing? Should you buy a new house every time you get a raise/change jobs?).
It's like the "renting is throwing away money" - it's a marketing tagline that has become gospel truth somehow. There are times for renting and times for buying and each situation should be evaluated to the best of your ability with the knowledge you have.
Over time this became "spend 30% on housing" which, if you think about it, is kinda insane. It's obviously a rule of thumb that doesn't fit directly to everyone (should Musk spend $720 million a year on housing? Should you buy a new house every time you get a raise/change jobs?).
It's like the "renting is throwing away money" - it's a marketing tagline that has become gospel truth somehow. There are times for renting and times for buying and each situation should be evaluated to the best of your ability with the knowledge you have.
> mortgage/rent payment
These are not the same at all.
> 25% should be the goal
I think 70% should be the goal - why? Because I pulled it out of my ass. Do you have a sound financial explanation for this benchmark, because it sounds like arbitrary dick sizing.
60% of income on a mortgage in a relatively stable area without insane property taxes is likely a very prudent allocation of income, since you both have a good investment and a place to live. Spending 60% or even more of income on a mortgage may well be better than 25% on rent.
Another thing, 25% of income is very different at $30k then it is at $300k. This is something the budding personal finance advisor should understand.
> then you need roommates
Is that what you’re going to tell people in their 30s with kids?
These are not the same at all.
> 25% should be the goal
I think 70% should be the goal - why? Because I pulled it out of my ass. Do you have a sound financial explanation for this benchmark, because it sounds like arbitrary dick sizing.
60% of income on a mortgage in a relatively stable area without insane property taxes is likely a very prudent allocation of income, since you both have a good investment and a place to live. Spending 60% or even more of income on a mortgage may well be better than 25% on rent.
Another thing, 25% of income is very different at $30k then it is at $300k. This is something the budding personal finance advisor should understand.
> then you need roommates
Is that what you’re going to tell people in their 30s with kids?
Yes, if you are in your 30's with kids and not making enough to afford your bills, you need more jobs, higher paying jobs, or roommates.
> Yes, if you are in your 30's with kids and not making enough to afford your bills, you need more jobs, higher paying jobs, or roommates.
To meet some arbitrary 25% income metric - no thanks.
Notice you said nothing about “afford your bills” previously - but you have some very unsubstantiated definition for afford.
The idea that one should automatically consider roommates if they can’t keep housing below 25% of income is asinine.
Meanwhile still waiting for the derivation of “25%” in the first place.
To meet some arbitrary 25% income metric - no thanks.
Notice you said nothing about “afford your bills” previously - but you have some very unsubstantiated definition for afford.
The idea that one should automatically consider roommates if they can’t keep housing below 25% of income is asinine.
Meanwhile still waiting for the derivation of “25%” in the first place.
I'm not going to break down an entire budget for someone living on 40-50k, but if they are spending more than 25-30% on rent/mortgage they will have a real hard time making utilities, food, car, insurance, etc work.
> rent/mortgage
Again with that clueless equivocation.
> 40-50k, but if they are spending more than 25-30% on rent/mortgage they will have a real hard time making utilities, food, car, insurance, etc work.
And yet millions of families in the US alone are literally making this work. So that’s nonsense. I have literally lived this. There is no goddamn reason spending more than 50% of your income to own a nice home in a good location is necessarily a bad allocation - there are far worse. It’s not for everybody but it isn’t inherently irresponsible. So what value does an arbitrary rule like 25% have - especially considering differences in absolute income - none whatsoever.
Finding suitable roommates is also not something anywhere near as easy as you make it sound.
Have a nice day. I know I’m not going to stop you spewing your inane life advice.
Again with that clueless equivocation.
> 40-50k, but if they are spending more than 25-30% on rent/mortgage they will have a real hard time making utilities, food, car, insurance, etc work.
And yet millions of families in the US alone are literally making this work. So that’s nonsense. I have literally lived this. There is no goddamn reason spending more than 50% of your income to own a nice home in a good location is necessarily a bad allocation - there are far worse. It’s not for everybody but it isn’t inherently irresponsible. So what value does an arbitrary rule like 25% have - especially considering differences in absolute income - none whatsoever.
Finding suitable roommates is also not something anywhere near as easy as you make it sound.
Have a nice day. I know I’m not going to stop you spewing your inane life advice.
I've lived it as well. I have kids that live it. I have many friends that live it. Not sure why you need to resort to personal attacks, but, yes, it's obvious this discussion won't be fruitful.
> Is that what you’re going to tell people in their 30s with kids?
Kids are just roommates that never help with the rent. ;)
Kids are just roommates that never help with the rent. ;)
[deleted]
Also,
6. Learn to cook. https://www.bbc.co.uk/food/collections/1_dinners
And make your own coffee.
6. Learn to cook. https://www.bbc.co.uk/food/collections/1_dinners
And make your own coffee.
I am actually embarrassed by the amount I spent on coffee before getting a machine. At $5aud a coffee, 3 per day, $15 a day, 233 work days in a year, $3,495 per year for 10 years, $34,950AUD. My esspresso machine cost me $500AUD and a bag of beans that does 60-70+ coffees costs me $15. Idiot!
I went to a Star Bucks today after a gap of 13 years.
They're easily 5 times more expensive than the regular cafes here. INR 231 for a "tall Americano."
I think one should pop into these joints once in a while to appreciate being a cheapskate quantitatively speaking.
They're easily 5 times more expensive than the regular cafes here. INR 231 for a "tall Americano."
I think one should pop into these joints once in a while to appreciate being a cheapskate quantitatively speaking.
As a kid I felt my family was “poor”. My uncles and aunts had bigger and nicer houses/cars than my parents. My cousins had really cool toys and they rarely got a no when they wanted an expensive candy. My foolish child mind saw all that and thought we were “poor”. What I didn’t know was that my parents had bigger salaries than their relatives. They just didn’t give a damn about expensive stuff.
Later in life the same relatives struggled really bad when their incomes decreased, and they weren’t able to afford the lifestyle they were used to.
My family in the other hand never really went through economic struggle (at least it was not apparent to me and my siblings) even when my father lost his job and took him 6 months to get a new one.
My parents now live in a really nice house but they still have the ugliest and oldest cars ever lol. But that always reminds me to not fall for expensive stuff just because I can afford it.
Later in life the same relatives struggled really bad when their incomes decreased, and they weren’t able to afford the lifestyle they were used to.
My family in the other hand never really went through economic struggle (at least it was not apparent to me and my siblings) even when my father lost his job and took him 6 months to get a new one.
My parents now live in a really nice house but they still have the ugliest and oldest cars ever lol. But that always reminds me to not fall for expensive stuff just because I can afford it.
I would probably change 4 to "Never buy clothing because of the brand". If someone cares about clothing then buying high quality, well designed, and fashionable clothing makes sense. Unless the clothing is custom made, which is generally even more expensive, that means that the clothing will be brand name.
Most branded clothing is made in the same factories ("sweat shops") here as the no-name versions. I'm wearing a pair of jeans which cost me INR 500/- versus INR 2000/- on amazon (the retail price is INR 4000/-).
Oh gosh, I feel like a dirty peasant here. Those rules (to me) are a fair bit high living. For my personal tastes, I would edit it to:
2. < 25% of net pay
3. NEVER buy new, only buy used, drive it into the ground and smoking
4. NEVER buy new, only buy via a thrift store (except undies and socks, buy those cheaply)
2. < 25% of net pay
3. NEVER buy new, only buy used, drive it into the ground and smoking
4. NEVER buy new, only buy via a thrift store (except undies and socks, buy those cheaply)
Buying a used car could have the downside of unexpected repairs.
True, but that's why you get it inspected by your mechanic before buying. I'm also pretty handy with tools, so minor issues that I can flat-back I'll handle myself. Also, right now is a terrible time to buy new or used cars.
I'm really struggling at the moment. Ended a long relationship, went into a higher paying job, and realized how expensive it is to live on your own. My salery is about average in my country (not much, like 10%-ish), and I'm paying off debts. These debts are what's killing me at the moment. Roughly 20% of my net income go into paying them off.
Avoid debts as the devil avoids the church. Just don't.
Avoid debts as the devil avoids the church. Just don't.
That's the biggest problem with debt, it doesn't change when your situation changes.
At least you can cancel Netflix or whatever anytime, but you can't cancel existing debt without bankruptcy.
At least you can cancel Netflix or whatever anytime, but you can't cancel existing debt without bankruptcy.
Also, depending on your country and culture, filing for bankruptcy is an act that requires a lot of effort and (and that's maybe worse) may lead to stigmatization.
"If in doubt, spent nowt" is my principle.
You'll soon notice the discomfort of doing without a purchase you do need (so now you can buy it); you won't notice the lack of something you don't need.
You'll soon notice the discomfort of doing without a purchase you do need (so now you can buy it); you won't notice the lack of something you don't need.
I’m so bad at this game it’s appalling. I generally scapegoat my lavish shenanigans with the excuse that I’m single, no partner no kids. Live far away from family and in general I don’t think I’ll make it to retirement age anyway.
I scapegoat my over budget spending with the excuse I’m married and have kids :)
OK, three days have passed, so I'm leaving this comment to hang. This advice is similar to "if you want to lose weight, eat less energy than you can spend". It's true, but it's useless.
This is like "eat less than you burn". True but completely unhelpful.
Thanks for submitting my article, Rick. Much appreciated.
-Jesse
-Jesse
[deleted]
Don't pay fees.
Ironically for stuff like bank fees they require a minimum balance, so you're paying fees because you can't save as much and can't save as much because you're paying fees.
Sorry; this advice is not helpful.
(I originally said "this advice sucks" but realized that I came off too strongly.)
(I'm sure the OP is a fine person but I am allergic to advice like this and get a visceral reaction to it every time.)
The people I know that spend much less than they earn are either (a) homebodies that are perfectly fine with the "wake up -> work -> come home -> eat -> sleep" lifestyle, or (b) already have way more money than their lifestyle requires.
I'm not like the people in (a). I've never been like that. I can barely stay home as it is. And, at least in the US, everything outside of home costs money.
And while I get closer to (b) every year, especially now that I track all of my expenses and know where our annual spending baseline is, I'm not there yet.
I think there are a lot of people like me.
So financial blogger people or SJWs on /r/personalfinance saying "just spend less than you earn, bro" is exactly like people with like 10% body fat or whatever telling overweight people "calories in, calories out, bro; not hard!" (interestingly, many of those people have negative to very negative relationships with food)
I mean, you're not wrong, but it's also (a) not very good advice, (b) completely ignorant of people's personal preferences, and (c) makes me think the author is hiding something.
My advice is more practical: save progressively, make a goal, and track your spending. I acknowledge that this only works for people that don't already have runaway spending problems, but I think it's much more pointed than "just spend less!"
If you don't save, start with something small, like 1% of your income. Some amount that you won't miss. Increase that every month by a small amount. (I do like the idea of having a six month rainy day fund, though I think engineers can get by with less.)
By "make a goal," I mean this: you have infinite money. What does your life look like every year? Write everything down, no matter how outlandish, then actually do some homework and figure out how much living that life will cost. Sum everything up, divide that by 40%, and, boom, there's your number. Figure out how to get there, and get there!
If you track your spending while making minimal changes, then after a year, you'll know what your annual burn is. Then, over time, you'll know whether you (a) need to make more money to support that lifestyle, (b) whether your burn is increasing too fast relative to your income, and (c) have a better idea of what you need to save to guarantee your lifestyle without making any cuts.
You only live once. Why spend it constantly pinching pennies if you don't have to? So that your grandkids can spend your money after you die?
(I originally said "this advice sucks" but realized that I came off too strongly.)
(I'm sure the OP is a fine person but I am allergic to advice like this and get a visceral reaction to it every time.)
The people I know that spend much less than they earn are either (a) homebodies that are perfectly fine with the "wake up -> work -> come home -> eat -> sleep" lifestyle, or (b) already have way more money than their lifestyle requires.
I'm not like the people in (a). I've never been like that. I can barely stay home as it is. And, at least in the US, everything outside of home costs money.
And while I get closer to (b) every year, especially now that I track all of my expenses and know where our annual spending baseline is, I'm not there yet.
I think there are a lot of people like me.
So financial blogger people or SJWs on /r/personalfinance saying "just spend less than you earn, bro" is exactly like people with like 10% body fat or whatever telling overweight people "calories in, calories out, bro; not hard!" (interestingly, many of those people have negative to very negative relationships with food)
I mean, you're not wrong, but it's also (a) not very good advice, (b) completely ignorant of people's personal preferences, and (c) makes me think the author is hiding something.
My advice is more practical: save progressively, make a goal, and track your spending. I acknowledge that this only works for people that don't already have runaway spending problems, but I think it's much more pointed than "just spend less!"
If you don't save, start with something small, like 1% of your income. Some amount that you won't miss. Increase that every month by a small amount. (I do like the idea of having a six month rainy day fund, though I think engineers can get by with less.)
By "make a goal," I mean this: you have infinite money. What does your life look like every year? Write everything down, no matter how outlandish, then actually do some homework and figure out how much living that life will cost. Sum everything up, divide that by 40%, and, boom, there's your number. Figure out how to get there, and get there!
If you track your spending while making minimal changes, then after a year, you'll know what your annual burn is. Then, over time, you'll know whether you (a) need to make more money to support that lifestyle, (b) whether your burn is increasing too fast relative to your income, and (c) have a better idea of what you need to save to guarantee your lifestyle without making any cuts.
You only live once. Why spend it constantly pinching pennies if you don't have to? So that your grandkids can spend your money after you die?