<p><pre><code> I would like to change my "paycheck to paycheck" way of life and am looking to learn about financial vehicles (US based) and investment basics, and anything else that "I wish I had known when I was 20 years old".</code></pre>
All of the comments so far have talked about mechanical things (researching investment vehicles, what percentage to save, etc), but in my experience to move beyond a paycheck-to-paycheck lifestyle the biggest change you need to make is psychological. You can do all the research you want, but if you don't change your mindset around money it won't make any difference.<p>In my case I was lucky. At the age of 25 I was also living paycheck-to-paycheck, and did an obnoxious 5 week trip around Europe which left me broke and unable to make rent. I had to ask my father for a loan to get me through, and the whole experience of that was humiliating. Especially because I had built up a self image of being financially independent. Within a week of that humiliation I had set up a planning spreadsheet and set up savings goals to never have to beg for money again (and it worked).<p>Point being that, for me at least, setting up the spreadsheet was the easy part - the hard part was deeply having the psychological shift of "I really need to save money".
Advice here seems generally good. I did start learning about finance and investing very young, and my views have changed a lot as I’ve gotten older. So take this advice as stuff after you learn investing basics.<p>1) financial independence is great, but you could also die tomorrow. Make sure you understand what your most important values and priorities are, and don’t put them off in favor of more future wealth.<p>2) health is wealth, don’t ever sacrifice health for more savings. I promise it won’t be worth it.<p>3) relationships are wealth. Don’t sacrifice the people that matter to you for a little bit more savings. In my own life this meant going from spending very little on traveling to see old friends to quite a bit traveling to see old friends.<p>4) it’s often much easier and more enjoyable to increase your pay 25% than it is to decrease your spending 25%. Most people are actually not good at navigating “how do I get paid more per hour worked” and a little bit of brainstorming and long term planning in this department can take you leaps and bounds further financially than penny-pinching.
The subreddit personal finance has straightforward advice, and a very nice algorithm for determining where to put your money (and an exit criteria after which you can do whatever you want).<p>That basic flowchart has helped me set my goals for years, and to maximize my progress towards those goals.<p>It's very simple, a 10 minute read, and backed by most the books and advice you're likely to receive anyway, including basic stats about emergency funds, etc.<p>Unfortunately, it can seem mundane, as financial responsibility is about time in investment and good lifelong habits, not easy tricks.
Matt Levine's most important lesson of "financial literacy," that is never taught in any "financial literacy" classes:<p>> If I offer you a 20% annual risk-free return, am I lying? The answer is yes, of course.
Understanding the Bogleheads philosophy is a great place to start. Along those lines, the book “The Simple Path to Wealth”, by J. L. Collins is great for developing an initial mindset on how your money can work for you.
I found this on r/fatfire. A poster there uses it to give their children a quick overview of personal finance.<p><a href="https://pixeldrain.com/u/dsHN33xk" rel="nofollow">https://pixeldrain.com/u/dsHN33xk</a>
/r/personalfinance has some solid stuff in their sidebar/wiki.<p>I'm big into Financial Independence as a concept and community, so I'm partial towards that. Some recommended reading (some which you may like and some you may not):<p>- /r/financialindependence sidebar/wiki<p>- <a href="https://www.mrmoneymustache.com/" rel="nofollow">https://www.mrmoneymustache.com/</a> - Bit more radical on the frugality side but a personal favorite<p>- <a href="https://www.madfientist.com/" rel="nofollow">https://www.madfientist.com/</a> - Podcast and blog. Bunch of stuff on tax advantaged vehicles<p>- Your Money Or Your Life - Incredible book (foreward by MMM referenced above)<p>- YouTube/general searching for investment vehicles. Big ones in the US are: 401k, IRA vs Roth IRA, 403b, 529 (if you have kids). Tax advantaged accounts have huge benefits, so definitely understand them. Only takes a little bit to read about the ones I listed.<p>- Dave Ramsey - Love him or hate him, if you really struggle with money and debt on a fundamental level, he has good advice. His advice isn't optimal for everyone if you don't have issues with debt, but something to consider.<p>- Depends on how you want to invest. A lot of people (myself included) are pretty straight forward with index funds and diversify in different types, such as US vs international or maybe a variety of focus on industry. Do you research and figure out what's best for you, but index fund investing is pretty safe and easy.<p>Some personal advice:<p>- Spend less than you make. Seems obvious but it really is the golden rule of personal finance. Easier to say than do, especially without knowing your financial/life situation.<p>- Reduce any debt you have. High interest is obviously a big one and some people have varying levels of comfort with low interest debt (like mortgages from the past few years). Find what you're comfortable with, but just get rid of any credit card debt immediately. The chances you beat that interest rate with an investment is basically zero, and the limit as it approaches zero over multiple years.<p>- Think about the depreciation in your assets. Buying a new car means you eat the bulk of depreciation. There's an optimal point to buy a car where you get the most life for the best dollar after the depreciation is lost.<p>- If you're in software like a lot of HN, we're very lucky to have careers that pay well in most cases. Take advantage of that. Live on less, invest more, and be generous with others.
You might accuse me of being glib in saying this, but this scene from the movie The Gambler[1] contains a lot of wisdom. The movie as a whole is moderately OK, but this scene really distills a lot of good stuff into a few minutes.<p><a href="https://www.youtube.com/watch?v=rJjKP8vYjpQ">https://www.youtube.com/watch?v=rJjKP8vYjpQ</a><p>[1]: <a href="https://en.wikipedia.org/wiki/The_Gambler_(2014_film)" rel="nofollow">https://en.wikipedia.org/wiki/The_Gambler_(2014_film)</a>
Dave Ramsey.<p>Listen to his podcast episodes. It’s a quick way to get a feel for his advice and to hear how real people who call in benefit from it. Go back to 2020 or so before his co-hosts started taking more airtime.<p>He catches a lot of flak because the debt snowball that he advocates is mathematically inefficient (folks prefer to pay debts with the highest interest rates off first). Also his political views. Look past those things - there is so much valuable advice.
I recently went through this myself after a long time of avoiding it due to the way I grew up (parents always argued severely about money - made me basically ignore it as it caused me extreme stress)<p>I have found the BogleHead guides [1,2] and wiki [3] the absolute best place to begin!<p>[1] The Bogleheads' Guide to Investing - <a href="https://a.co/d/ctdMwZj" rel="nofollow">https://a.co/d/ctdMwZj</a>
[2] The Bogleheads' Guide to Retirement Planning - <a href="https://a.co/d/19eZBsy" rel="nofollow">https://a.co/d/19eZBsy</a>
[3] <a href="https://www.bogleheads.org/wiki/Main_Page" rel="nofollow">https://www.bogleheads.org/wiki/Main_Page</a>
William Bernstein has written many finance/investing books, though most of them can get quite advanced. But he also wrote a much more approachable, 27 page booklet available for $1 called “If You Can: How Millennials Can Get Rich Slowly” that is a good intro to the space. I greatly appreciate the wit and no BS style of his writing.
I've figured out the following concepts. This is what worked for me:<p>- learn accounting especially cash flow accounting. Not at Deloitte partner level, the basics aren't hard, high school level understanding is enough.<p>Doesn't matter how "rich" you are are on paper; bad cash flow makes you insolvent and then the banks starts grabbing assets.<p>- Net Present Value and how future cash streams are discounted.<p>Very theoretical. Very important to understand<p>- compound interest.<p>This is of dubious utility for investments (who can guarantee a return? Who knows tomorrow's interest rate? And the inflation rate) but <i>fundamentally important to understand how nasty high interest rate loans are</i><p>- learn about the market portfolio and the basics of risk.<p>The market port. is built on dubious assumptions (a risk free non zero return asset, market efficiency, etc) but really drives home the importance of diversification and having a safe asset as a fulcrum<p>- Save at <i>least</i> 10% of your income (when you're very young). Better 30-40%.<p>Make sure its not all cash. But make sure you have >4 months cash on hand, or a roof repair which ever is greater.<p>My goal is to avoid insolvency while putting as much aside as I can. I invest in rental properties primarily because that's what <i>I like</i> to own (we have two), but I have a 401k to match my employer contribution (obviously).
1. An app called YNAB (You Need A Budget). They use the envelope system of budgeting and they have group classes you can join. Absolutely transformative.<p>2. Rich Dad Poor Dad
If you're living paycheck to paycheck I'd say learn to walk before you run. Keep it simple, open another account and transfer 20% or whatever you feel comfortable from every paycheck. After you save more than a year of living in that you can start to look into more advanced stuff.
The richest man in babylon - a book of parables about an ancient babylonian who accumulated wealth - is a fun read and a nice way to pick up some essential concepts in an entertaining way.
I’ve always heard people talk about how they were duped but I never thought it’d get to some point where I’d be in the same situation , after the sudden pandemic in 2020 I was fighting so hard to get back on my feet financially and that’s when I ended up in a pit instead , I came across this asset manager on Instagram , he explained everything I thought I needed to know about the crypto investment but got to a point where the whole scenario changed , I could not withdraw or even login to my account with the fake crypto company and that’s when I realised I have been duped , at first I was devastated and didn’t know what my next move will be , on telling one of my close friends what happened she was mad that I didn’t tell her at first but the good thing was that her cousin had been in the same situation and was able to recover her money with the help of a private recovery Agent “ Knighthoodbot @ gmail dot com “ , I didn’t hesitate to reach out to him and that was how the Long search on how to recover my hard earned money came to an end , within just 48 hours I was filled with joy after receiving my funds back to my wallet .. we texted more on telegram : @KNIGHTHOODBOT9
Lots of people talk about investment basics below (FIRE is a bit crazy for me, but worth evaluating for the underlying message).<p>For me it's about respecting money and saving like social security will be next to useless by the time you retire. To start, save for a 6-12 month runway, invest in ETFs (QQQQ - nasdaq100 / IVV s&p500) and take advantage of employer matched 401K (it's free money!). Don't pick individual stocks as you most likely don't have the time to invest in this.<p>I think it's too easy to buy crap you don't need using a credit card. Yeah I fancy that fancy-coffee and muffin for breakfast, click 25% tip and don't even look at the total, just click buy-now. It's magically gone from your mind.<p>TIP-1: Stop using the credit/debit card (yeah, yeah, everyone thinks this will be nuts, but it will work). Make it a pain to spend money. Going to the ATM because you keep burning all your cash makes you aware of all the crap one buys. Yeah, you could use spreadsheets and technology and all that to track, but nothing is more of a pain than going to your ATM. And really stop buying coffee and if you can, make your own lunch/eat leftovers.<p>TIP-2: Don't go into debt for crap you don't need. I hate debt (yeah, it's probably not cool). I don't have ANY. I pay of my credit-card in full and I get a massive sense of security that I don't have anyone chasing me.<p>TIP-3: Do you really need spotify/netflix/fancy iphone. Oh you'll be miserable you say. Well go to the library (yeah they still exist) and read some books.<p>TIP-4: Don't lease, as one tends to overspend. If you can't afford it, save up.
"The Richest Man in Babylon"<p>→ <a href="https://archive.org/details/RichestManInBabylon_650" rel="nofollow">https://archive.org/details/RichestManInBabylon_650</a><p>> The Richest Man in Babylon is a 1926 book by George S. Clason that dispenses financial advice through a collection of parables set 4,097 years ago in ancient Babylon. The book remains in print almost a century after the parables were originally published, and is regarded as a classic of personal financial advice.<p>> The parables are told by a fictional Babylonian character called Arkad, a poor scribe who became the "richest man in Babylon". Included in Arkad's advice are the "Seven Cures" (or how to generate money and wealth), and the "Five Laws of Gold" (or how to protect and invest wealth). A core part of Arkad's advice is around "paying yourself first", "living within your means", "investing in what you know", the importance of "long-term saving", and "home ownership".[1][2][3]<p>> The content is from a series of pamphlets distributed by U.S. banks and insurance companies in 1920–24; the pamphlets were bound together and published as a book in 1926.[4][5] The book is often referred to as a classic of personal financial advice,[1][2] and appears in modern recommended reading lists on personal financial advice and wealth management,[6][7][8] which has kept the book in print almost 90 years after its first edition with over 2 million copies sold.[9][10]<p>→ <a href="https://en.wikipedia.org/wiki/The_Richest_Man_in_Babylon" rel="nofollow">https://en.wikipedia.org/wiki/The_Richest_Man_in_Babylon</a>
To me it seems like a lot of people enjoy having things more than being free and not having to worry about getting paid. Also 'spend less than you earn'. As simple as that - yet people struggle to follow this. It also boggled my mind to find that someone with masters degree believed they had money - despite it being cash withdrawn from a credit card. When challenged why do they not pay back their credit card - I heard it's the feeling of empty account, and that money is for -just in case-. Yeah, you are paying % monthly on that just in case, that you could get from a credit card if it really happened. That $ on the account also was affecting that person's spending habits - thanks to the avoidance the feeling of being out of money. Crazy - money illiteracy is real.
This blog has clear information on how to be deliberate with money, and retire early on a fixed income. I also find his writing funny and enjoyable to read.<p><a href="https://www.mrmoneymustache.com/" rel="nofollow">https://www.mrmoneymustache.com/</a>
The Simple Path to Wealth by J L Collins<p><a href="https://jlcollinsnh.com/category/the-book-the-simple-path-to-wealth/" rel="nofollow">https://jlcollinsnh.com/category/the-book-the-simple-path-to...</a>
* r/personalfinance sidebar and flowchart (US specific)<p>* Modeling retirement/early-retirement using a 3% withdrawal rate (ERE analysis)<p>* The book Your Money or Your Life (updated edition) (good for getting out of paycheck-to-paycheck thinking)<p>* Applying "default dead" vs. "default alive" to yourself/your household (#5 <a href="https://www.ycombinator.com/blog/how-not-to-fail/" rel="nofollow">https://www.ycombinator.com/blog/how-not-to-fail/</a>)<p>* Buffet/Munger writings on "margin of safety"<p>* Knowing your monthly burn rate and using it to calculate how much time you have saved (vs money)
Have an analogy.<p>Imagine you're lanky or fat and you want to build muscle and get in shape.<p>Saving is like going to the gym and lifting. You'll look and feel a ton better.<p>Putting together a budget is like going to the gym with a routine and maybe a rough diet plan. You'll get there faster.<p>Investing is optimising your routine so that you hit every muscle group once you're starting to plateau.<p>But it's all built on the basic mindset that you need to go to the gym. It's not optional, you just do it.<p>The main thing is to build the mindset of saving. You spend what you _need_ to, and perhaps a bit on top for fun. Money that comes in is saved by default.
1. Spend less than you earn.
2. Learn about investing and develop an investing mindset. Investing can mean stock, but also a personal skill like cooking or a small business, a thing you can rent out, whatever.
3. Repeat.<p>My friends live paycheck-to-paycheck and I got $300k stashed in cash and a mix of investments. I'm not living for the money, but this world is full of costly stuff you definitely do not need - and it really surprises me what people are spending money on.
A Random Walk Down Wall Street is a real classic. First published in 1973, updated several times and still relevant today. Gives you a great idea of what investment is, how you should think about it, how the markets are structured and some practical advice that works for 90%+ of people.<p><a href="https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street" rel="nofollow">https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street</a>
Check out pensioncraft on YouTube. The guy is an ex UBS macro guy and is very good at explaining everything from the most basic financial stuff through to macro economics in a way that you can relate. The YouTube videos are obviously free and he has his own site which is about $200 per year to join. Part of that includes access to a Slack forum where you can ask anything you like.
Freakonomics recently did an episode about popular financial literature vs what academics say:<p><a href="https://freakonomics.com/podcast/are-personal-finance-gurus-giving-you-bad-advice/" rel="nofollow">https://freakonomics.com/podcast/are-personal-finance-gurus-...</a>
I wish I had known this when I was 20 years old:<p><a href="https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/" rel="nofollow">https://www.mrmoneymustache.com/2012/01/13/the-shockingly-si...</a>
If you're paycheck to paycheck, the first thing to do is cut spending.<p>Generally the biggest expense (after housing) is food and the easiest to replace is entertainment. Don't eat out and cancel all your non-utility subscriptions/recurring charges.
Paycheck to paycheck is vague though. If that includes having a secure job putting money into a 401k and paying down a mortgage maybe its a perfectly good strategy. If you aren't doing those things then you need to change.
I read an old book about a decade ago called “The Richest Man in Babylon” which was an easy read. I don’t know what it was about it but something clicked for me and things started looking up after that.
Here are two trivial but powerful facts:<p>- if you first gain 20% and then lose 20%, you're worse off than when you started.<p>- if you first lose 20% and then gain 20%, you're also worse off than when you started.
<a href="https://en.m.wikipedia.org/wiki/The_Index_Card" rel="nofollow">https://en.m.wikipedia.org/wiki/The_Index_Card</a><p>This is a nice starting point
Consistently spend less than you make is the most important part. Then always factor the risk in an investment according to your ability to handle risk.
The best book bar none on investing is "The Intelligent Investor" by Benjamin Graham. So if you want to learn about investing in a way that is a sustainable way to build wealth for the long term, that is the one to read. The original is pretty old, but the advice remains sound. The modern edition with the original text + chapter updates from Jason Zweig is the one to go for.<p>That said, it sounds like you have some financial foundations to build before investing is a realistic option.