Boring munchkin technique #2: invest in tax advantaged index funds with low fees. Specifically, in the following order:
Max out your employer’s matching contribution, if available. It is near impossible to beat an immediate 50% or 100% return, even if you have to borrow money in order to take advantage of this.
Pay off credit card debt. Do not keep any high interest loans. Do not keep a revolving balance on credit cards.
Depending on circumstances (e.g. if you lose your job, is moving back in with your parents an option?) have a few months of living expenses available in ready cash.
Put as much money as you can afford into tax advantaged retirement accounts. In the U.S. that means 401K, 403b, IRA, SEP, etc.
Allocate all your investments except possibly your emergency fund into low cost index funds. 1% fees are way too high. Vanguard has some good funds with fees as low as 0.1%.
I could say more, but that’s the basics. Do that and you’ll probably be in the 90th percentile or higher of successful investors. If folks are interested in hearing more, let me know; and I’ll whip up a post on rational financial planning. If there’s a lot of interest, it might even be worth a sequence.
1% fees are way too high. Vanguard has some good funds with fees as low as 0.1%.
That number is a bit out of date; they recently cut fees for many (most?) of their funds. Now I’m only paying 0.05% on my main index fund. I’m pretty cheerful about this.
I made a post replying to the retirement suggestion.
It makes me very confused. I just don’t get why people care about retirement plans so much…
Elharo, if you can respond to my inquiry, that would be awesome…
Tax-deferred retirement accounts make sense if you expect your tax rate to be lower in retirement than now. I expect tax rates to increase, so would rather pay the tax now than when I take the money out. In US, Roth IRA allows that.
“Your Money or Your Life” is worth reading. Build up your savings and decrease your spending until earnings on savings equal spending. After that, you don’t have to work for money. Worthwhile work still enhances health and happiness, though.
Robert Frank’s books on economics make the point that relative income is more important than widely recognized. Two examples he may have missed:
1) it’s not just how much education you have, but how it compares to the competition. So the best-educated get the best jobs, but that doesn’t mean everyone would have a good job if everyone was better educated.
2) losing health insurance is a disaster if you are competing for health services with the insured. But if everyone loses health insurance (e.g., Medicare collapses), doctors will have to lower their fees.
I know someone who studied Organic Chemestry and such in college, and comes from a family of doctors and nurses, who has decided to take a quick and rough track to early retirement with at least a million dollars. His plan as he described it to me involves working in managerial positions at various places (mostly restaurants), not spending money on expensive luxuries like new vehicles, fancy houses or vacations, and investing in long-term funds (he’s looking at Vanguard as his primary investor, but is also researching others). He gets a lot of flack from his family, since working three restaurant jobs is low status compared to being a medical professional (My parents were also skeptical when I told them. Notice: my parents go to Florida every chance they get, in spite of all of their credit card debt and house/vehicle payments. And they just bought a freakin’ Hummer and new cell phones and… Are not as rich as those would imply. -_- ).
But I can’t do any of those things, and only have $1000 to work with at any given time (most of my money comes from disability benefits, which will end if I have more than $2000 in resources at the end of the month). My parents have implied that their assistance with student loans will end once I’m living on my own (Except that they know that my SSI payments are less than the total loan payments, and had better know that I’m stuck with them as gatekeepers and am not, in fact, going to learn Afghan languages to go work for the US government overseas).
All of which is to say that diverse investments and holding off on luxuries seems like a good idea, and is probably what I’d try if I actually had net positive income. Both of those require patience. Hopefully, not ten years type patience.
But this is just me and one guy I know. I’m sure there are cleverer strategies floating around here. I like that he’s using low status work cleverly rather than aiming for higher status work and amassing debt in status signalling games, at least.
Can you please elaborate on your friend’s plan? It sound interesting, and I’d like to see the details: how much he works per week, earnings, expenditures, expected net worth over time, etc.
I don’t remember most of those details off hand, but I’ll try to ask him and look for any that might be in some of our email correspondences (most of the details were in phone conversations, though). I know that his work schedule is pretty intense; I think one of the main reasons we don’t communicate more is because it’s hard to determine when opportunities will arise without us both knowing to look in advance. He still has time for recreation and exercise, from the sounds of it, but I can’t get more specific at the moment.
I think he has an approximate timeline in mind, but I don’t know off hand. I know he went with Vanguard because of the low risk and low commissions, and compared mutual funds to basic stock trading (stock being short term with high risk/pay off, mutual funds being lower risk, but longer term before a good payoff, on the order of years). I think he set a goal of having a million in about 5 years, and then did the math on the current rate of things and expects to meet or beat that, but I could be remembering wrong (that sounds absurdly high).
I know he isn’t afraid to pirate most of his entertainment, though; he’s paying relatively low rent, living with a middle-aged couple who has plenty of room in their house, and can afford food/gas/etc without difficulty. It’s worth adding that he lives near Littlerock, AR; I’m not sure how the cost of living there compares to the rest of the state, but it seems to be generally lower than in Silicon Valley or NYC. I also expect he managed to avoid amassing too much debt with college, but we haven’t discussed that in particular. The only real risk to his plan that came up in our conversations is that of car trouble (either mechanical or due to contract wackiness, since there’s some confusion there involving who’s paying what, since his primary vehicle came from his parents). I get the impression that he keeps his social circle small, but he’s still good enough at dealing with people in authority to get better-than-minimum-wage jobs with relative ease. … Come to think of it, I should probably try to harness his charisma for my own diabolical purposes at some point.
I found the original message, and I got a couple of his goals mixed up. He planned to have a stable emergency fund and financial security in 5 years, and the math works out so that he can actually have this by the end of one year. By the time he told me this, he already had 6 months worth of money in his emergency fund, no consumer debt, and was working on getting up to 5 figures in assets completely under his control. His new years resolution was to finish the emergency fund and start investing in mutual funds by the end of the year, which seems pretty well accomplished already.
He also resigned from a general manager position for a shift job when he found out about the difference in pay, something which his older brother (a successful nurse) took as a sign of failure in spite of the fact that he’s now making more than his bosses at a more satisfying job. Presumably, the advantage to staying at a lower-paying, higher-status higher-frustration job would be the opportunity for promotion (and the status benefits—except the status of the job actually interfered in him taking on another job, which he wanted to do to boost his short term earnings; considering that this would make it easier for him to make longer term investments sooner, I tend to think he made the better decision).
I don’t know when he plans on attaining millionaire status and retiring, but he did say he wants to retire with dignity, which I assume means before serious senescence. Incidentally, my father set those same goals when he was younger, and failed at them horribly, which I mostly attribute to him talking about investments all the time and never actually investing and instead dumping all his money into new vehicles/electronics/vacations/construction projects/that one time my parents tried to start a retail chain and probably have yet to recover from the ensuing debt. I’ve gotten so burned out on Disney World at this point that you’d need to pay me before I felt like going back (I started skipping Disney trips nearly ten years ago, and don’t plan on stopping soon). Well, and he aimed for higher status jobs—he worked for Delta at one point, then for an insurance company, etc—but the only job that wound up paying enough to support the lifestyle (and the ever-growing family) proved to be electrical work, and he recently took up occasional truck-driving to help pay off credit card debt. I think my dad did work in a factory and at restaurants even earlier, which I assume he left because he didn’t like them/wanted to move up. Today, he talks about stocks all the time, but doesn’t actually make any money with them (and plays the lottery and slot machines and talks about the Roulette wheel as low-status gambling). All of which is to say that I think he optimized for a high status lifestyle rather than financial success, and never quite managed to disentangle the two.
So I conclude that its difficult to optimize for both money and status. Successful software engineers might have an advantage on that front.
Boring munchkin technique #2: invest in tax advantaged index funds with low fees. Specifically, in the following order:
Max out your employer’s matching contribution, if available. It is near impossible to beat an immediate 50% or 100% return, even if you have to borrow money in order to take advantage of this.
Pay off credit card debt. Do not keep any high interest loans. Do not keep a revolving balance on credit cards.
Depending on circumstances (e.g. if you lose your job, is moving back in with your parents an option?) have a few months of living expenses available in ready cash.
Put as much money as you can afford into tax advantaged retirement accounts. In the U.S. that means 401K, 403b, IRA, SEP, etc.
Allocate all your investments except possibly your emergency fund into low cost index funds. 1% fees are way too high. Vanguard has some good funds with fees as low as 0.1%.
I could say more, but that’s the basics. Do that and you’ll probably be in the 90th percentile or higher of successful investors. If folks are interested in hearing more, let me know; and I’ll whip up a post on rational financial planning. If there’s a lot of interest, it might even be worth a sequence.
That number is a bit out of date; they recently cut fees for many (most?) of their funds. Now I’m only paying 0.05% on my main index fund. I’m pretty cheerful about this.
I made a post replying to the retirement suggestion.
It makes me very confused. I just don’t get why people care about retirement plans so much… Elharo, if you can respond to my inquiry, that would be awesome…
Tax-deferred retirement accounts make sense if you expect your tax rate to be lower in retirement than now. I expect tax rates to increase, so would rather pay the tax now than when I take the money out. In US, Roth IRA allows that.
“Your Money or Your Life” is worth reading. Build up your savings and decrease your spending until earnings on savings equal spending. After that, you don’t have to work for money. Worthwhile work still enhances health and happiness, though.
Robert Frank’s books on economics make the point that relative income is more important than widely recognized. Two examples he may have missed: 1) it’s not just how much education you have, but how it compares to the competition. So the best-educated get the best jobs, but that doesn’t mean everyone would have a good job if everyone was better educated. 2) losing health insurance is a disaster if you are competing for health services with the insured. But if everyone loses health insurance (e.g., Medicare collapses), doctors will have to lower their fees.
I would also be interested in hearing more about your take on financial planning.
I would be interested in hearing more about rational financial planning. :)
I know someone who studied Organic Chemestry and such in college, and comes from a family of doctors and nurses, who has decided to take a quick and rough track to early retirement with at least a million dollars. His plan as he described it to me involves working in managerial positions at various places (mostly restaurants), not spending money on expensive luxuries like new vehicles, fancy houses or vacations, and investing in long-term funds (he’s looking at Vanguard as his primary investor, but is also researching others). He gets a lot of flack from his family, since working three restaurant jobs is low status compared to being a medical professional (My parents were also skeptical when I told them. Notice: my parents go to Florida every chance they get, in spite of all of their credit card debt and house/vehicle payments. And they just bought a freakin’ Hummer and new cell phones and… Are not as rich as those would imply. -_- ).
But I can’t do any of those things, and only have $1000 to work with at any given time (most of my money comes from disability benefits, which will end if I have more than $2000 in resources at the end of the month). My parents have implied that their assistance with student loans will end once I’m living on my own (Except that they know that my SSI payments are less than the total loan payments, and had better know that I’m stuck with them as gatekeepers and am not, in fact, going to learn Afghan languages to go work for the US government overseas).
All of which is to say that diverse investments and holding off on luxuries seems like a good idea, and is probably what I’d try if I actually had net positive income. Both of those require patience. Hopefully, not ten years type patience.
But this is just me and one guy I know. I’m sure there are cleverer strategies floating around here. I like that he’s using low status work cleverly rather than aiming for higher status work and amassing debt in status signalling games, at least.
Can you please elaborate on your friend’s plan? It sound interesting, and I’d like to see the details: how much he works per week, earnings, expenditures, expected net worth over time, etc.
I don’t remember most of those details off hand, but I’ll try to ask him and look for any that might be in some of our email correspondences (most of the details were in phone conversations, though). I know that his work schedule is pretty intense; I think one of the main reasons we don’t communicate more is because it’s hard to determine when opportunities will arise without us both knowing to look in advance. He still has time for recreation and exercise, from the sounds of it, but I can’t get more specific at the moment.
I think he has an approximate timeline in mind, but I don’t know off hand. I know he went with Vanguard because of the low risk and low commissions, and compared mutual funds to basic stock trading (stock being short term with high risk/pay off, mutual funds being lower risk, but longer term before a good payoff, on the order of years). I think he set a goal of having a million in about 5 years, and then did the math on the current rate of things and expects to meet or beat that, but I could be remembering wrong (that sounds absurdly high).
I know he isn’t afraid to pirate most of his entertainment, though; he’s paying relatively low rent, living with a middle-aged couple who has plenty of room in their house, and can afford food/gas/etc without difficulty. It’s worth adding that he lives near Littlerock, AR; I’m not sure how the cost of living there compares to the rest of the state, but it seems to be generally lower than in Silicon Valley or NYC. I also expect he managed to avoid amassing too much debt with college, but we haven’t discussed that in particular. The only real risk to his plan that came up in our conversations is that of car trouble (either mechanical or due to contract wackiness, since there’s some confusion there involving who’s paying what, since his primary vehicle came from his parents). I get the impression that he keeps his social circle small, but he’s still good enough at dealing with people in authority to get better-than-minimum-wage jobs with relative ease. … Come to think of it, I should probably try to harness his charisma for my own diabolical purposes at some point.
I found the original message, and I got a couple of his goals mixed up. He planned to have a stable emergency fund and financial security in 5 years, and the math works out so that he can actually have this by the end of one year. By the time he told me this, he already had 6 months worth of money in his emergency fund, no consumer debt, and was working on getting up to 5 figures in assets completely under his control. His new years resolution was to finish the emergency fund and start investing in mutual funds by the end of the year, which seems pretty well accomplished already.
He also resigned from a general manager position for a shift job when he found out about the difference in pay, something which his older brother (a successful nurse) took as a sign of failure in spite of the fact that he’s now making more than his bosses at a more satisfying job. Presumably, the advantage to staying at a lower-paying, higher-status higher-frustration job would be the opportunity for promotion (and the status benefits—except the status of the job actually interfered in him taking on another job, which he wanted to do to boost his short term earnings; considering that this would make it easier for him to make longer term investments sooner, I tend to think he made the better decision).
I don’t know when he plans on attaining millionaire status and retiring, but he did say he wants to retire with dignity, which I assume means before serious senescence. Incidentally, my father set those same goals when he was younger, and failed at them horribly, which I mostly attribute to him talking about investments all the time and never actually investing and instead dumping all his money into new vehicles/electronics/vacations/construction projects/that one time my parents tried to start a retail chain and probably have yet to recover from the ensuing debt. I’ve gotten so burned out on Disney World at this point that you’d need to pay me before I felt like going back (I started skipping Disney trips nearly ten years ago, and don’t plan on stopping soon). Well, and he aimed for higher status jobs—he worked for Delta at one point, then for an insurance company, etc—but the only job that wound up paying enough to support the lifestyle (and the ever-growing family) proved to be electrical work, and he recently took up occasional truck-driving to help pay off credit card debt. I think my dad did work in a factory and at restaurants even earlier, which I assume he left because he didn’t like them/wanted to move up. Today, he talks about stocks all the time, but doesn’t actually make any money with them (and plays the lottery and slot machines and talks about the Roulette wheel as low-status gambling). All of which is to say that I think he optimized for a high status lifestyle rather than financial success, and never quite managed to disentangle the two.
So I conclude that its difficult to optimize for both money and status. Successful software engineers might have an advantage on that front.
Missing attribution.