Although my financial position has never been better, throughout my life I’ve been a poor manager of my financial well-being. I’ve paid a high price for some of my decisions. Rather than being a prudent manager of my financial health my focus has been on maximizing earning potential and technical range: 1. Develop key technical skills 2. Maintain a scarce consulting value proposition 3. Pursue career/technically enhancing/expanding projects rather than chasing job security with nondescript positions within large corporations.Why bother learning good financial habits?
Taking care of your finances makes life less stressful. If you have a decent-sized pile of money saved up, emergencies become way less frequent, you feel less inclined to put up with bad working environments, and you are in a position to help people around you. Your insurance won’t shell out to fix your car? No problem. You lose your job and can’t immediately find a new one? No problem. Want to buy a motorcycle? No problem.
If you have money, you don’t have to worry about it. And even Christ didn’t want us wasting our lives worrying about money. It takes about three months to build the habits and get on the right track.
What should anyone listen to you?
I’m by no means an expert, but I’ve done decently and I’ve learned from my own and my friends’ mistakes. I’ve been supporting myself since I was 18. Started with a couple thousand in the bank from summer jobs and a used car that I still drive. Between my bank accounts and investments, I had over $100k before my 23rd birthday, despite living in supposedly expensive places on moderate wages.
What are the basic steps?
1. Do not spend money you do not have.
This means no taking out a home loan, no buying new toys on credit, no going into debt for a degree. If you can’t pay cash for it, you don’t buy it. If you use a credit card, pay it off at the end of each billing cycle.
2. Track every penny you spend.
This might be the most important step.
I used to do this by using a credit card or checks for all purchases, then adding up everything on my bank statements at the end of the month. It worked, but daily tracking is better. Get an app that tracks your spending, and immediately after you purchase anything type in the dollar amount. This way, you’ll see how much you’re spending as you go, and you can use that information to guilt yourself into spending less. I like the “spending tracker” app because it doesn’t make you sign up, but there are a bunch that work.
By tracking like this, putting the information into excel at the end of the month takes just a few minutes, and you can see how your spending changes month to month. Treat it like a game and try to beat your score from the last month. Like golf, you’re trying to hit the low numbers.
3. Don’t waste money on anything that’s not important to you.
If something’s not important, quit spending on it! If you’ve got app subscriptions you don’t really care about, cut the subscription. I pay for spotify and simplypiano, because music is important for me. I use both of these like crazy. On the other hand, I started audible and got rid of it after two months because I didn’t really mind living without audiobooks.
Lots of little expenses add up really quickly, like coffee from coffeehouses, meals from restaurants, drinks at bars, cigarettes, any kind of subscription, vending machine food, and many other things you can probably go without.
4. Save on the big dogs.
Live in the cheapest place you can find that meets your needs, and shop around like crazy. Scour the internet and call rental agencies when you’re close to the end of your lease. Shop around like crazy. Same goes for buying a car. Many people I know could easily have more than a thousand extra dollars per month if they had a cheaper apartment and a used car. I cannot stress this step enough. You can buy all the Raybans and giant televisions you want if you live somewhere cheap and have a cheap car.
5. Buy and cook your own food.
Resturaunt meals are a special treat, not a daily event. And organic food is for millionares. Any food you need to buy, buy the cheapest version available. Only once you have built the habit of buying cheap food can you learn what to splurge on (I buy overpriced but infinitely tastier Jimmy Dean sausage, and pretty much everything else I get is store brand.)
And learn to cook. Start with simple recipes. The basics of cooking take a thread of their own, but it is not hard. Scrambled eggs, steamed rice and vegetables, and any type of crockpot meat is stupidly easy to prepare.
6. Buy quality.
While store brand food is usually exactly the same as name brand food, this is not the case for some items, particularly tools, electronics, guns, or jewelry. If you’re buying something that ought to last a lifetime, lay down the money and buy the version that will actually last a lifetime. Buying crappy stuff that you have to replace constantly is a financial liability and also contributes to the landfill, hastening the day when real life is like WALL-E. This is not to say you need to buy it all brand new; quality items abound in pawn shops, craigslist, facebook marketplace, and even thrift shops.
7. Have inexpensive friends.
If your friends want to do expensive stuff, suggest something else. Dinner and a movie will run you upwards of $30. You can watch a movie at home and cook homemade pizzas for a dozen people for the same price. And at home you don’t have to squeeze past a bunch of strangers to go pee, or hide your alcohol in your girlfriend’s purse. If your friends won't do anything that's not expensive, get new friends. Hiking, disc golf, home dinner parties, home movies, art shows, community events. You can hang out with friends without paying a bunch of money.
Rule 7.5. Avoid spendy women like the plague. Paying constantly for expensive dates will drain your wallet, and if you end up marrying her you are screwed financially for life.
Save up an emergency fund of $10k, then start looking for a place to invest your money. I like index funds, because they’re cheap and they work. If you want to buy individual stocks you can, but it’s a lot riskier. Do not trust anyone who claims to know how any particular stock is going to do in the future.
If your company has a retirement plan, contribute some to that, but keep in mind that money in an IRA is difficult to access before you’re 65.
If you do all of the above, and you make decent money, you’ll be set. I can clarify any of the steps if anyone has questions. In the meantime, you can learn a lot from these resources:
This blog shows is what real frugality looks like. The dude lives on four digits a year. I read it sometimes for ideas, but mostly to remind myself how extravagant my own lifestyle is.
A much more moderate approach than the above, but still very solid advice. Also has detailed recommendations for index funds, phone plans, etc.
I Will Teach You to be Rich by Ramit Sethi
Explains exactly what to do: how to open up a credit card, how to talk you your bank on the phone, etc. Extremely valuable especially for clueless 18 year olds.
These are some of the key mistakes I’ve made along the way: 1. Took on excessive consumer debt 2. Underestimated the disruptive impact of exogenous economic events 3. Failed to properly save 4. Depleted retirement savings to bridge voluntary gaps in employment.
Despite my prior mistakes, I’m now debt free with modest savings/investments and high earnings due to an ongoing commitment to technical development. The tax benefits of working as an expat should not be underestimated. One can rapidly improve one’s financial health when working abroad. It would take over five years to save as much money as I’ve saved in one year. Nonetheless, I don’t think financial health should be pursued at the expense of meaningful life experiences. Financial discipline can be applied in extreme and used as a justification for not living life to its fullest.