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Personal Finance Book Suggestions?
luc13n asks: "I've seen others making requests for books or reading suggestions. I've been out of college and working professionally in the IT field for two years now. I have some money in the checking account and the savings account and I've started wondering... is there a better way to manage my money? Kinda the old adage 'make your money work fo you'. Does anyone have any good suggested readings to teach a 'young'n' how to 'make his money work for him'?"
Before you run off and start investing and "making your money work for you" in the traditional sense, have a look at this. It certainly doesn't fall into the traditional "more more more" mindset of most people - instead if focuses on "what is enough" and making you happy.
In the words of the late, great Douglas Adams - "these people were extraordinarilly unhappy and attempted to correct their problem by spending all their time moving small pieces of green paper around - which is odd because on the whole it wasn't the pieces of green paper that were unhappy."
Just a different perspective from the norm - but one that may do more for you than any book on the money markets ever could.
Suze Orman
Yes, this is that peppy blonde lady that you see on PBS.
She writes good, down to earth, easy to understand books on finances which clarify issues and simplify many financial concepts (which aren't actually that complex, once you think about them the right way).
Not a "make money fast" type of author, but she writes alot on "make and save money for retirement", or "How to save money for when you are laid off and can't find work for 8 months".
"Can of worms? The can is open... the worms are everywhere."
Check out the Motley Fool website. They have good advice on saving up based on your goals -- saving for that new car(dont lose principal) vs. saving for retirement (maximise returns). They also have a book and pretty decent advice in general. If you want one piece of advice, dont play the markets by buying individual stocks, just invest in an index fund.
.. Enron: An Insiders Guide
You work in the IT industry, it doesn't mean you have a ton of cash, but it's likely you're doing well. Hire yourself a money manager.
You probably work long hours, and the last thing you want to do is spend your weekends pouring over paperwork and crunching numbers. Pay someone else to do it, go enjoy your life.
I don't have one yet, but I will soon. I've signed up for paytrust.com and they handle all of my bills and such, I haven't even seen a bill in my mailbox for 3 years. It really helped a ton. Plus, you'll notice that your stress level goes way down when you don't have to worry about the stuff.
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"How to Make Money in Stocks" by O'Neill.
He's the guy behind IBD and http://investors.com.
Coupled with "Paper Money" by Adam Smith and you'll be a force to be reckoned with.
The opposite of progress is congress
First thing to do is lose your checking and savings accounts. Replace them with a single brokerage account from someone like Charles Schwab. You'll be able to get checks and a Visa check card for use with the cash in your brokerage account and can then store your savings in a mutual fund. The difference will be that the money you would normally have had in a checking account now earns twice as much interest as you current savings account and the money in the mutual fund should over time grow much better than a simple interest account alone could.
Read several books and talk to lots of people and you'll start to get a feel for what the right thing to do is. Ask someone, family/friend, that you trust.
The only specific book I'll mention is _Making the Most of Your Money_ by Jane Bryant Quinn. It is a good general monkey book which is probably the place to start rather than diving into the investing side of the equation.
I also like the general approach of the Motley Fool guys although I haven't spent much time at their site in a couple years.
and I'll start forwarding my spam to you instead of uce@ftc.gov.
There are lots of people who would like to manage your money. Most of them are in Nigeria. I know it all sounds too good to be true, by a friend of mine actually... <plonk>
Sock in the Stock Market! That thing never goes down!
It's 10 PM. Do you know if you're un-American?
It's not being stupid. I highly recomend Dave Ramsey. His advice has really helped me out.
Cheap storage VM.
The Art of Money Getting:
I am a devotee of Dave Ramsey. He has several books out on personal finance and has a daily radio show you should be able to catch in most parts of the US. His web site is at http://www.daveramsey.com/.
...you're on the right track. It appears you have learned the first lessons, grasshopper. You have apparently avoided the siren call of every consumer good well enough to save some money and you have started young. It is tough to overestimate the value of both of those.
My wife and several friends are fans of Rob Black (formerly on CNET radio until they ceased broadcast operations). I started to recommend some books but then noticed all of the ones I planned to mention plus many more were on his book list.
Start with "Beat the Street". Take a look at "Rich Dad, Poor Dad".
If you want something really chewy read "Intelligent Investor" - a classic but a dense and technical read.
~~~~~~~
"You are not remembered for doing what is expected of you." - Atul Chitnis
I also recommend The Only Investment Guide You'll Ever Need by Andrew Tobias. Both are excellent for people who have money, but don't want to spend a ton of time worrying about it.
I read one of Suze Orman's books, and it was really sort of a basket case type of book, that probably won't apply to a young person who has a steady job and manageable debt. Part of her advice was to cash in the old coin jar to get a head start. Another part was about how to recover financially from a divorce. Good to read for advice, but maybe not applicable.
Rich Dad, Poor Dad can be summarized up as work for yourself, not a company, invest in sweetheart real estate deals, and don't put money into mutual funds, just private companies.
I didn't like Your Money or Your Life, but that's probably because it was dated and a dull read. I didn't finish that one.
One easy bit of financial advice - borrow these books from the library, and save some cash!
Realistically, what most slashdotters probably need to know about are:
* How to pay off your credit card debt (if you have any)
* How to save up enough money for a down payment
* Buy a new car, lease a car, or buy used?
* Paying off student loans
* Basic tax information (itemize or take the standard deduction)
* How much money do you need to buy your first house?
* How do I invest the money I've put into 401k, IRA, or Roth IRA? What are the differences between these plans?
Kuro5hin ran a series of articles on personal finance that were pretty good.
Tips and Tricks for Mozilla
You get 3 "bangs for your buck":
NOTE that I didn't say a house was a tax break. True, you get to shave money of what you pay to Uncle Sugar, but look at it like this: if you are giving US$10K to the bank in interest payments to avoid giving US$3K to Uncle Sam, are you really coming out ahead?
Also note: If you aren't in a stable place (i.e. you think you may have to relocate in a couple of years) then buying a house is NOT a good idea - selling it and buying another costs you.
Just keep in mind the difference between "good debt" and "bad debt":
If the thing you went into debt to get will still have value after the debt is retired, that is good debt.
If the thing you went into debt to get will be worthless after the debt is paid off, that is bad debt.
Houses are good debt. Generally, cars and computers are bad debt.
Incur good debt as needed. Avoid incurring bad debt.
And make sure you can pay off your debts.
www.eFax.com are spammers
A great first book is A Random Walk Down Wall Street,... . If Wall Street, etc. seems dark & mysterious (and even if it doesnt) this is a great book. It starts by giving you a background in some of the mania that has surronded stock-markets, going all the way back to the Dutch Tulip bubble of several hundred years ago. If you're wondering how pratical something like that could be, just think of the dot-com boom of the late 90's. It proceeds to explain clearly & elegantly various things such as technical & fundamental analysis, the theory of efficent markets, and ultimetly, the value of index funds like the S&P 500.
After having started a few "HOW TO PICK STOCKS" books, this was probably the first solid financial book I found that made sense, was able to round out of my financial knowledge & give pratical advice at the same time.
If Random Walk seems to weighty, Rich Dad, Poor Dad: What the Rich Teach... isn't bad. The author, Robert T. Kiyosaki, has several books in this series, this one being the first. It's written in a non-intimidating way, with much of book conveying ideas easily as converstations between the author & his rich friend's father (aka Rich Dad). He compares his dad's common viewpoint on finacial matters (aka Poor Dad) to Rich Dad's method, and hence the title.
If you're only two years out of school, some of initial steps are just doing good math:
Credit cards are great & really convient, but they have an AMAZINGLY high interest rate. They're 2nd only to the QuickCash/PayDay Advance places for screwing over the average joe. Pay those suckers off!
If you reach that point -- no debt, regular contributions to 401k, an annual 3k contribution to your IRA, you're going to be in pretty good shape. Best of all, you're starting young, and in a down market, so you'll really give compond interest a chance to work it's magic on your hard earned cash.
-Bill
SlashSig Karma: Excellent (mostly affected by moderatio
You'll be glad you did when the stock market tanks again :-) (I'm glad I didn't get round to investing anything during the late 1990s.)
I'd actually recommend reading Burton Malkiel's "A Random Walk down Wall Street" for a good overview of how people try to pick investments, and why they don't always make a good job of it.
a.
some tips from a self-employed IT guy who likes finance:
.. when the market tanked, I was STILL making 7-8% year on that part of my portfolio. Love those REITs!!
.. but it's worth it for the returns in my opinion. Or just put them in your IRA and forget about it.
*) Always be aware of your finances. That means using a spreadsheet or software like GnuCash. You want to be able to see where your money is going. For instance, many people don't realize just how much credit card interest they pay in a year, or how much they spend on starbucks coffee or whatever. Get the big picture.
*) Always be emotionless. Don't buy stocks because you like the company's products. Don't keep credit cards around that you don't need. Don't think that the bank gives a shit if you have your mortgage with them or somebody else. It's hard to explain exactly what I mean here, but basically it means you should always focus on the bottom line and the big picture, rather than what other people think.
*) Manage your debt. Many people spend a lot of time managing their assets but leaving their debt in a disorganized pile. If you have five credit cards, examine the interest rate on each. Consolidate your debt (or better yet, pay it off) if the interest rate is more than 8-10%. Don't forget to consider any tax advantages to mortgage interest and student loan interest. Don't forget that you can borrow against your stock portfolio (margin) which can be tax-deductible and MAY be a good choice in some circumstances if you need emergency money.
If you're paying off debt, hit the highest interest and lowest tax advantage first and work your way down. Do this mechanically, just look at the numbers. Call your credit card company and ask for a lower rate, about 50% of the time they will do it just because you asked.
I personally have a big $5000 balance at 2.9% permanent on my Citibank card. That's an example of "good" credit card debt. Store cards at 22% are an example of "horrible" credit card debt. Burn any store charge cards you might have.
*) Have a "cash cushion". Be sure you always have 6 months of income sitting in your savings as cash. In other words, what do you make in a month? Multiply by 6 and have it in your savings account.
*) Don't invest until you've paid off your big debts and created the cushion mentioned above. It is PLAIN STUPID to invest in stocks when you have 12+% credit cards. Get an instant return on your money by paying off the cards.
*) Once you decide to invest, remember that the market has a long-term historical return of about 10% per year. If you leave your money in at least 10 years, you will most definitely see this return. Note: it will take HARD WORK to beat the market. Will you be able to spot the next Enron? Will you spot a company that's inflating it's quarterly earnings by moving stuff around ("borrowing earnings from the future")... can you spot a company that's in trouble because it can't keep the inventory moving? Do you understand the difference between positive cash flow and positive earnings?
The easiest thing to do is NOT try to beat the market. Just invest in an index fund (Vanguard has many great ones) or exchange-traded index funds (symbols like DIA, VTI, SPY). These all have tiny management fees (>0.5%).
*) Check out REITs (real estate investment trusts) these are GREAT instruments that pay big dividends and are fairly stable. They are like mutual funds in a way, but better. My favorite is FR (First Industrial) which I bought many years about when it was at 75% NAV (net asset value).. that was like finding a box with $10,000 worth of bills inside, with a price tag of $7500. Would you pass that up? I sure didn't.. this was during the boom
Note, REITs may give you a headache at tax time because they throw off so much non-income dividends (unrecaptured section 1250 gains and shit like that).
Remember this is just MY opinion, don't buy anything you don't understand. That means...
was the Complete idiots guide to Personal Finance in your 20's and 30's. It's really good for setting out the kind of things someone in their 20's can do to start saving money. Obviously it doesn't go into great detail, but sumarizes a lot of different areas pretty well. My two cents.
Try Getting Loaded by Peter Bielagus. It's specifically targeted at people in your situation.
- Put money away pre-tax. This means 401k's and IRAs. This lowers your income, meaning you'll pay less tax to the government. =)
- "Pay yourself first" Probably the cheesiest, but best line of advice I've heard. That means put money either by direct deposit or manually into a separate checking account just for your everyday things like rent, food, utilites, etc. Then figure out how much you have left for beer & porn. You don't really have to have a separate account, but if you have monetary discipline problems, this will allow you to eat at the end of the month.
- Make sure you pay off your credit cards. Pay them off in the order of their interest rates. If you can pay off your credit cards every month, you essentially have a free 30-day loan. That's twice as long as a pay-day loan!
- Don't bounce checks. It amazes me how many people I know will write a check knowing that they don't have the money in their account. Would you burn a $20 bill for fun? Why?
- If you can, buy a residence. If not, put money away so you can make a down payment in a few years. Now, instead of paying your landlord every month, you're investing in yourself. And, mortgage payments can be tax-deductible. Best long-term thing to do.
I guess the biggest thing is that investing is really slow. Putting $1000 away for a year at 2% will give you a whopping $20. But put it away for 10 and you get $219. 5% will get you $628, and double your money in 13.6 years. $100 a month for 10 years at 5% gives you $15,528. Change that to 40 years (work from age 20 to 60) and you get $152,602 (40*12*$100 = $48,000), or about triple your investment. Try it yourself: http://www.interest.com/hugh/calc/compound_js.htmOh, I'm 23 and renting (as I plan to move a lot over the next few years), but I know what I can afford (I just bought a new car, and put 1/4 of my salary away pre-tax) and what I want to do with my finances. With my new car, my computer budget is almost nil, but that's a choice I made.
Kurdt
I'm not anti-social. Just pro-technology.
- Pay off your credit card debt first. Seriously. There's no such thing as "money in savings" if you're paying 12% or more on credit card debt.
- Are you saving for something in the 5yr horizon (i.e. down payment on house)? If so, money goes right to money market. Nothing risky.
So many people ask for advice that goes like this, "I want to buy a house in 3 years, so how do I invest my money now to maximize my profit and minimize my risk?" Answer, you don't. You put it in a nice safe money market and get the best you can out of it.
- How's your emergency fund? Set aside a hunk of cash (estimates range from 3-6 months living expenses) and don't touch. Especially in this market. I felt stupid and too conservative for a long time doing that. Now I'm living off mine.
- Index funds are always a good start. Historically they are always going to go up (yes, even from where they are now).
- Magic words: automatic investment plan. The best thing you can do with your money is to invest small *now* and automatically invest a constant amount in the future, such as $100/month. This is called "dollar cost averaging" and is about a zillion times more valuable than just taking $5000 and throwing it into a single fund or stock all at once.
- Stocks are fun if you have a strong heart. Something a little less rollercoastery is mutual funds. Go to Morningstar and work with their risk assessment tools to decide what you might want to invest in.
- While you're looking at mutual funds, think about throwing some money in to a Roth IRA for retiremnet. It's a great vehicle where the profits grow tax free. I know that the younger you are the less likely you are to care about retirement, but now is the best time to get the money in there, it has more years to grow.
Much of that advice comes from "The Wealthy Barber". But most of it is standard stuff that any Finance 101 course will teach you.www.HearMySoulSpeak.com
Honestly you will never be as rich as you feel the first three months of gainful employment right out of college (assuming you can find a job.)
... have about $25 a month left over after bills, food, etc... to buy whatever you wanted - to a job bringing home $2250 a month after taxes, still living with 3 roommates still paying about $400 a month for bills and rent. All of a sudden you have 80x the amount of 'fun money.'
:
The reason for this is you go from the +/- minimum wage paying job you had taking home $425 a month so you could afford Ramen and Peanut Butter and Dr. Pepper and Bacardi Rum and live in a small apartment with three other roommates
Then you go out, buy a new car, rent your own place, fill it up with stuff (all charged on your MasterCard,) start running the air conditioner, eat out all the time, pay the entire set of bills yourself (not split 4 ways anymore), actually get full coverage insurance on your car, have pizza delivered 5 times a week and Bingo! you are right back to $25 a month left over after you pay all the bills.
I think my monthly liquor bill now runs more than my entire monthly living budget when I was in college (+/- $400 a month) Granted I have been out of college for a little while now, but still.
-:-
Another thing to note - if you take the above and stretch it a little, anybody making $20k a year more than you is rich simply because you would consider yourself rich if you had another $20k a year. Problem is if you start earning another $20k a year you actually only take home about another $1000 a month and within a few months your lifestyle grows to absorb that.
-:-
Original Poster
If your boss offers you a 401(k) and offers any matching whatsoever (ie matches $1 for each $1 you put in up to x% of your salary) be sure you are putting in as much as possible to maximize his matching funds. Even if the stock market is losing 10% a year, if your employer matches your contributions you are still earning 80% on your money the first year (which is AWESOME.)
Another thing, arrange credit NOW. While you have good cashflow look into overdraft protection on your checking account (no more bounced checks, not that you ever did that anyways, but having a $1,000 credit line attached to a checking account is one of the best things I ever did.) Build your good credit file, buy big work related items on your personal credit cards (travel works too) and pay them back in full at the end of the month (expense account.) In 5 years when you have awesome big credit and can buy a $250,000 house at 5% instead of at 8% you will really, reall thank me for this.
Find out what it takes to get the MBNA Quantum card. Do those things. Getting the card is less important than being able to get it.
Glonoinha the MebiByte Slayer
It's a philisophy, a way of life!
Part of the problem is we aren't thought how to think about money. I would recommend "Personal Finances for Dummies". It's a good book that teaches you the fundamental understanding of how to view your money, and how to view life in terms of spending your cash.
For example, do you go to starbuck's every morning for that cup of $3 coffee every working day? If so, you will spend $15 a week (assuming you purchase only one cup a day). You spend about $345 a year. You could go for the cheaper coffee of course. Once you understand the way of life when it comes to your money, you will understand. Do you buy the P4/5Ghz machine when it comes out, or do you wait 6 months when it's reduced in price. No matter, there's high likelihood that in either case, you will get the same return from the item, unless of course you're during real time 3d rendering or something computationaly intensive.
One thing to definitely learn early is "compound interest". Put your money into an IRA or something equivalent for retirement and watch your money grow. That's one of the greatest things about this country.
I'll leave it at that, the best thing for you to do is read up on it. Learn for yourself first hand.
"The Richest Man in Babylon" - Simple, timeless ways for getting ahead. An easy read, and short to boot.
"The Millionaire Next Door" and "The Millionaire Mind" - The results of a broad survey of millionaires. What they're actually like, how they got there. They may not be who you think.
"Rich Dad, Poor Dad" series - attitudes of the rich, educating yourself financially, and some strategies for doing.
-Uberhund
Check out Personal Finance for Dummies (3ed) by Eric Tyson. This is THE book about personal finance. Don't let the 'for Dummies' title fool you, it is a GREAT book.
Also, check out usenet: misc.invest.financial-plan. that group is great also.
Good luck, that book changed my life for the better.
-- bearclaw
Websites:
http://www.fool.comt p://www.canadianmoneysaver.ca
http://www.bylo.org
http://stingyinvestor.com
http://www.moneysense.ca
ht
Books:
Random Walk down Wall Street (by Walkel)
The Intelligent Investor (by Graham)
Any decent financial planner should be able to put together a simple investment plan for your for about $400. I had an American Express advisor do it for me. We met in person, exchanged information, filled out some forms. Over a few weeks of e-mails and simple questions, I had a solid plan to follow for several years. It was a good idea, as he knew way more than I did, and I could spend my time learning Python instead of every nook and cranny of the finance world.
This is the book I point my friends to when they ask this question - Get A Financial Life : Personal Finance In Your Twenties And Thirties by Beth Kobliner. Amazon link. They've all been happy with it. Slim, readable, complete, good advice. I believe Kobliner was a columnist for Money Magazine for many years. She now has her own website.
Other classics, good to move on to once you've read that one: A Random Walk Down Wall Street by Burton G. Malkiel. Good book to understand what happens when your money is in the stock market. Amazon link.And I like Jane Bryant Quinn's Making the Most of Your Money, though I don't think it's as generally well-received as the first two. However, it does a pretty good job of saying something about any financial situation you can think of. Amazon link.
Why not start with the fundamentals?
l ?
http://www.liberty-tree.org/ltn/penny-candy.htm
Stocks, money markets, etc are all different ways of doing that same thing: letting someone else use your money.
There is one and only one class of entities that will use your money and reliably give it back to you with interest. And that is a government based on the anglo-saxon tradition.
Look at these fucks telling your that the stock market reliably gives %10 on investment. What bull crap; the studies that say that ignore delisted stocks and anyway if it was so how come some big house doesn't offer a gauranteed 9.5% and spread their investments and losses over the decades and take teh spread ? Because things happen like the the 20 years it took the stock market to get back to 750 from 1929, or what is happening in Japan now. How do you know that the Japanese aren't just a decade ahead of us as usual, and just as they are spending two decades of non-growth absorbing a vast class of non-essential jobs disappearing, we aren't about to spend two decades absorbing the replacement of SBC and WorldCom with a few dozen routers ? SBC has a quarter million employees. All of them are going to hit the bread line in the next five years (except for Ed Whitacre who earns 80 million a year, but that's a separate issue.)
Off the rant and back to real advice: use http://treasurydirect.gov to lend your money to the US Federal Government. This is the only entity that will pay you back, and they will do so if it means bankrupting all your neighbors to do it. You set up a direct withdrawal / deposit system, and it's in increments of $1,000 dollars; the $1,000 disappears from your account for 90 days, then appears back with an extra bit of interest. If you put in a third or so every thirty days, they rotate and preserve a bit of your liquidity. You can check the box to have them automatically keep the money and keep paying interest, or you can just do it as a one-shot. It's a pdf you download, print, fill out and mail in.
The "auction" is set up so that all the big guys like Soros and Gates put in their bids on how much yeild they want, and the Gov. goes as steep as it has to to get all the money it needs for the next 30 days. It then gives everyone that rate, so you aren't screwed by being a small guy, you get the same rate as Soros or Trump.
George Bush is going to cut the governments income by several hundred billion with a tax cut, and then spend another 80 billion on patching up the new colony of Haliburtonia, so you can bet he's going to be borrowing a lot. God knows he won't be cutting spending anywhere, he's an American politician. This means the yeilds on bonds are going up.
As a side note, this also means that the banks will get a better deal in bonds than lending money to some poor shmoe who wants to buy a house. Except mortgages to tighten up and the inflated housing market to crater like a MOAB on an Iraqi bunker.
Glad someone finally recommended that book, rather than the overrated crap from Motley Fool and the like.
GCHQ Quantum Insert installed. If only our tongues were made of glass, how much more careful we would be when we speak
Some of his books are: Debt-Free Living, How to Save Money Every Day, Money Management for College Students, and Money Matters for Newlyweds.
Then there are the pocket guides. The World's Easiest Pocket Guide to ... Buying Your First Car, Renting Your First Apartment, Starting Your First Savings Plan, Creating Your First Financial Plan, Buying Your First House, and many more.
Stay away from mutual funds (and in fact the stock market as a whole unless you are willing to spend a lot of time researching individual companies, etc.). The market is still way over it's long term base line, and with a glut of baby boomers just waiting for the prices to rise a bit so they call sell (they're hitting retierment soon, if they haven't already), we aren't going to see a bubble like the 90's for another 20+ years--or if we do it will burst a lot worse than this one did at which point having your cash in a jar will turn out to have been the smart move.
I've made a profit in the market every year since I started (including the last three) but it's about the effort level of being a kernel hacker--if you don't do a lot of reading and a lot of thinking you're going to be in a lot of trouble.
--MarkusQ
P.S. The best advise I ever got about the market: ignore press releases. Turn off the sound and watch the money. (e.g. no matter how rosy a picture a company paints, if they are burning money fast enough to be broke in six months, they're in deep do-do. But you won't see this by reading the one line summary of their annual report. You need to read the report, and then research it (where does this number come from?), to figure out what they aren't telling you.)
Paying off high interest loans first is good math, but it might not be terribly good finance to pay off all your debt quickly.
If you've got access to a 401k, then that will almost automatically be the best investment you can make, if only because it's tax free until you retire. At that point, presumably, there will be things you can do to minimize your taxable income.
Even if you're in the 25% tax range, the interest/capGains that you'll get out of the 401k investment will FAR outpace paying off your student loans, if only because you're NOT losing the 25% taxation off the top. Even if your student loan is at 10%, your 401k would have to lose 15%APR over the life of the student loan (usu. 10 years) to match the return on the money you put into the student loan. That isn't likely, despite the lackluster returns we've seen lately.
Point being: debt isn't horrible by definition. My wife and I have about $50K in student debt (at about 5.25%) and $170K in house debt (at 6%), both of which we intend to pay off as slowly as possible. Even if we win the lottery.
The original poster is quite correct about credit card debt, which is horrific from a personal financial standpoint. Debt at acceptable rates, however, is OK.
If, however, you don't want to have to worry about defaulting on loans (i.e. are a contractor, and want to have as few month to month liabilities as possible), you could make a case for paying off the loans quickly from a mental health standpoint. It's just not a good financial case.
ceci n'est pas un sig.
I offer a contrary to most advice here:
Stay AWAY from credit, don't use it, ever, despite what almost everyone says, you honestly don't need it. If you need one small card for purchases online, that is different, you never spend what you don't have, just use the CC as a service, not a loan.
Land. Land is the oldest form of accumulated and stored and useful wealth. Pay for your property, then build as you go on it. When the structure is "good enough" move into it. Make sure it is rural property with good water onsite. And yes, this is totally possible. Give you an example, my sis and BIL did this while renting, paid cash for a few acres. Every month took what extra they had towards a home that would normally be a "payment" or two, bought materials,loaded up the pickup, went over, camped out, used up those materials. rinse lather repeat. I helped them with labor quite a bit on that one. Within 6 months (after foundation and well and septic obviously) the house was still rough but "dried in" and wired and plumbed, etc, and good enough to move into. they stopped paying rent then, and freed up even more cash monthly to put into materials. Two years later it was finished (two stories) and is quite nice. They saved many, many thousands of dollars, and have no mortgage, never paid one penny interest to anyone. Total time was a little over three years total to a paid off home on three acres, what's not to like? Ya, they had to live semi-rough for awhile, so what? You are still young, it won't hurt you. You'll look back and be proud of yourself, both from the way you did it and from the perspective of how much cash you saved.
Hard currency. If you want to gamble in the market, go ahead, but put a large portion of any "extra" you have into hard metals. Don't listen to the nay sayers, it preserves wealth. It's a long term deal, just get some coins once in awhile and forget about them.
Have a garden, grow a lot of your own food, you'll save money at the grocery store and also with doctor visits in the long run.
"Get into" alternative energy. Obviously you'll probably start with "normal" grid supplied electricity, but make a concerted effort to start making *some* of your own power while learning to use less power overall by wise decisions in purchases and how you use power. Keep adding to both sides of that equation, eventually you'll be independent, and have one more major important "bill" paid off rather than "financed" all the time.
Pay cash for used car, and keep it maintained well. Skip the flash, cars are transportation. One of my vehicles has well over 300 thou now on it, I changed the oil a lot, that's it.
Keep in mind anytime you can eliminate the transfer of "dollars" to get what you want it means less taxes and more of those dollars you get to keep, and less you have to make just for your day to day living. NEVER assume your "job" will always be there. Swell if it is and you keep getting "more", but it's nice to make that first layer of living as inexpensive as possible and as paid off as quickly as possible. In the long run then all you'll really have to sweat is property taxes and normal maintenance. Some of the exposure and risk can be mitigated by using what is called a family trust for that property,look into it, and a lot of the maintenance costs can be mitigated by building an INTELLIGENT home in the first place.
And don't forget the other monthly "bills", another random example, burning wood for heat (primary or very decent auxiliary) in the winter that comes off your own woodlot, starts to add up after a few years in savings and will always be there for you.
And you can do all this and more and still stay completely geeky and high tech, in fact, most of the alternative ways to live now are intimately tied to efficient use of high tech, think "amish with technology", it's that mindset that's important. They have really good alternative housing designs now, strawbale, cordwood/masonry, various domes, even the old "log cabin" techni
The only Investment guide you will ever need by Andrew Tobias (Covers more then just the investing stuff. Gets you in the right frame of mind).
Die Broke and Live Rich by Stephan Pollan and Mark Levine (An interesting whole life approach.)
Common Sense on Mutual Funds by John Bogle (Founder of Vanguard and big-time advocate, of no-load, low expense mutual funds)
Random Walk Down Wall Street by Burton Malkiel (the economic case in plain English for investing in broad index mutual funds over managed mutual funds and individual stocks).
I recommend for the actually money/investing part:
Checking Account
money market
low expense, no-load broad indexed mutual funds from Vanguard or Tiaa-Cref.
Remember Personal Finance involves more then investing.
A Simple Personal Finance & Investing Scheme:
1) Reduce your expenses. You are spending more then you need to. Look at every category you buy from (track your expenses for 3 months). Reduce your expenditures on everything. Find cheaper sources, buy less, use the internet to cut cost, buy used, and find cheaper replacements, whatever. Buy used cars (not new). You don't have to keep a budget forever, just think of this as a periodic audit.
2) Have a will made. Make sure you have the proper (not too much and not too little) insurance (auto, renters/homeowners, life, medical, disability). Shop around for good prices) and remember insurance salesmen are trickier then car salesmen.
3) Set goals down on paper ("I want to go on a nice vacation every year", "I want to retire in 20 years", "I want to buy a house in 3 years", I am getting married in a year", I want to buy a new computer in 6 months", "I will spend $300 on Christmas gift this year", etc. Put down a time frame and guesstimate money cost.
4) Have a pile of money for the next two or three months of expenses (rent, food, beer, entertainment, etc). Just have this in a checking account. Get you checked directly deposited into this.
5) Have a pile of money to cover minimal living expenses for six months to a year (think of this as your "oh shit I have been fired" emergency fund). This money should be liquid and safe. Think Money Market, CD's, Savings Account, maybe US Savings Bonds. If you can have some of your paycheck automatically deposited into a money market, go for it.
6) Have a pile of money for short-term expenses and capital expenses for within the next few years (think next used car, house, vacation, etc). This money should be liquid and safe, but don't intermingle it with your oh-shit contingency pile. Try to automate the deposits into this.
7) Have a pile of money for the long term and retirement. If you have a 401k type plan at work, max you pre-tax contributions into it. If you are self-employed, maximize your SEP-IRA. Open a Roth IRA at Vanguard or Tiaa-Cref. Put the $3k maximum in each year. Also put long-term money in a non-IRA or non-Roth-IRA account. Depending upon you age till retirement, your mix between bonds and stocks assets (this is called asset allocation) will vary. My suggestion is to look at the Vanguard Lifestyle Funds. These funds blend broad bond index funds, and broad stock index funds into one fund. They do not have a load (a fee as percentage of investment) to get in or out of the fund, and their expenses (the amount of money the operators consume for running the fund) are the lowest. Tiaa-Cref has similar stuff. Again, try to get the deposits into this automated, so you don't have to actively do it. Lastly, don't count on a company pension or Social Security for retirement. If you get that stuff, think of it as gravy, but don't depend upon it.
8) Stick to your plan, but to not obsesses about it. Don't worry how other people are doing relative to you. All that matters is meeting your plan's goals. Don't spend all of you time counting change or reading investing books.
First, I highly recommend you use Quicken/Money religiously. I only bank/etc with companies that I can download direct to Quicken. Watching your net-worth chart over months/years can be inspiring. Seeing each month if you made more than you spent is crucial.
Second, the best piece of advice is to invest at least 10% of what you make. To follow common advice, "pay yourself first"! This means making that 10% disappear from your paycheck before you even think of it as money to use to pay bills, buy pizza, etc. If you can put this in a 401k, great! If not, do it anyway.
Third, the vast majority of people investing should probably be using index funds. Yes, some people make money in the market, but it's probably just luck. (Really! There are some 30,000 or so mutual funds -- half don't beat the market each year. Imagine beating the market equal to flipping heads on a coin. Now watch 30,000 people flip a coin once a year for 10 years or so. You're still going to have some lucky few who flip heads 9/10 times. Ever wonder why mutual fund companies have so many funds? It's so they always have at least one or two that do well last year that they can advertise. If professional money managers can't do better than 50/50, why do you hear about so many successful individuals? You're not talking about 30,000, now you're talking millions. At 50/50 odds -- or worse -- you'll always hear about someone who made a lot of money.) My advise for anyone starting out is to open an account at Vanguard and stick your money is a broadly diversified index fund.
Four, make sure you have an emergency fund -- three months expenses is usually cited. Once that's topped up, you should think about investing most of the rest. Weight investments heavily towards stocks when you're young, and shift gradually towards bonds as you retire.
Books that are useful:
Random Walk Down Wall Street -- by the founder of Vanguard
Stocks For The Long Run -- a top academic perspective on investing
When I was very young (high school), I found that Smart Money, by Ken & Daria Dolan was a good overview. That's old, but they have more recents texts.
In the "funny story" model of teaching basics of financial planning, you might consider The Wealthy Barber (recommended by a friend of mine, though I found it too simple by the time I got around to it) and/or The Richest Man In Babylon (parables about money originally written in 1926 and still applicable -- see the Amazon reviews!).
For why not to confuse chance with skill, try Fooled by Randomness. It has a lot of snide commentary at industry insiders, but makes a good point about why humans mistake luck for skill, broadly.
I hope those are a helpful start. Best of luck!
-XDG
Well, I went the opposite way - I went from living alone paying all my bills alone to living w/ 3 room mates. Unfortunately I also moved from Illinois to San Francisco so my rent doubled even though I have room mates now. But my place is way bigger than my place in college and my room mates are really cool so it works out. Also: my income more than quadrupled which helps just a little bit. ;-) (my fun money increased by a factor of 100 as well; my cost of fun increased by approximately a factor of 4 (SF vs. IL) so I'm having roughly 25 times more fun. :-))
Anyways, to the original poster:
a) Read a Random Walk down Wall Street suggested by another poster. It is the best book on finance out there.
b) The key to finance is to match the duration on your income with your obligations. You'll understand what that means after reading a). But the point is you need to have money available when you need it. So: separate money by duration - or when it is available. The simple way to do this is to separate your short, medium & long term obligations.
short term: (this month) money to pay rent, credit cards & car payment.
medium term: (next couple months) put aside a couple months worth of expenditures so that when you are jobless in the next couple years you won't burn your credit too badly.
long term: Retirement is important. So is buying a house. So is having kids some day. They really do pay us pretty decent money these days to be an engineer so you should be thinking about how you can retire in ten years or at least not have to work. (which allows you to only do jobs you like)
conclusions: most people know nothing about finance or personal finance and get screwed when they lose their job or are forced into a job doing something they don't want to do. And money does not buy happiness but it certainly helps a whole lot.
I got The Wealthy Barber for Christmas one year and saw both TV specials the next. It is incredibly readable, and gives very common-sense advice.
The main advantage of the book, other than being told as a fictional story, is that it assumes you're basically lazy and don't want to have to be disciplined all the time. You don't have to.
Pay yourself first, i.e., put away 10% of your check over and above your maxed-out 401(k) contribution. I do this, and it's amazing how little I miss the money. Then I basically make sure I don't spend my way into debt, and let everything else ride. Most of my money is in stock mutual funds, and though they've been terrible lately, they'll be fine when I'm old and grey.
And this is despite having bought a mildly expensive car with cash and keeping my computer habit fed--and I don't miss meals, either (fortunately, I go to the gym).
Do that stuff, then relax and don't think about it, especially when a broker tells you to think about it. Let the money ride, reinvest, keep putting some away, stay away from non-house debt, and you'll be fine.
Peter Lynch managed to beat the market most of the years he ran mutual funds. There are a few other star managers who have managed similear feats. Many of the maganers who don't beat the average don't because their funds can't invest in anything. If utilities are down this year and a fund that invests only in utilities beats the market you should hang the fund manager for fraud. (Either the results are fiction, or they are real, but the money wasn't in utilities).
That said, beware of funds that claim a lot of performance one year. Many manage some gimics to get good results one year, at the expense of results latter. Most funds do not beat the market. Most don't even beat the simple index they most closely matches how they should invest. (The S&P index is the most common benchmark, but it doesn't apply to small cap stocks for instance)
Beware of fees. Those in the financial world are really good at charging you money. NEVER go to a advisor who offers you free advice, you will pay for it dearly! Get a "fee-only" advisor if you want professional help. The "no fee" ones still get paid, but they get the money elsewhere, often by taking 5% of whatever you invest. That is a lot of money, and those who charge it better make that money up faster than the fee-only advisor. They won't though. Watch the yearly fees. Anything over 1% is criminal in my opinion. (again in a few cases it really takes that much to achive results and returns outweight it. I haven't actually seen such a case though) I see no reason for any mutual fund to need more than .9% as a year fee, and the best (index) funds come in at .3-.4%
Finiall, even though funds are where all the action is, don't be afraid to invest a little money into "hot tips" that you have done your homework on. Not easy, and for most people this should be a small amount of the money you invest, but it can be fun, and nothing encourages paying attention to how a company is doing like owning it. And as an owner you can vote on what the company does. Your small voice might make a difference.
Warning, the above poster gave a lot of bad advice. Not all of it was bad, but some of it.
First of all, it is a fact that young people can risk more. Risk is NOT defined as the odds that you will lose all your money. Risk is defined as the odds that your money will grow any given year. Bonds are considered unrisky because you always know for any given bond exactly how much you will have in the end. When you buy a bond paying 10% you pay $1000, and get $100 every year until it "matures" and then get $1100. ($1000 you invested, but the last $100 interest) On a 10 year bond that means you have $2000 from your $1000 investment. Unfortunatly bonds are now paying a lot less than 10%, and historicly bonds rarely paid more. The only risk is that the company might to bankrupt.
Stocks by contrast don't have the gaurentied amount. If you put in $1000, the first year you might end up with $800, you might end up with $1200. That is what they mean by risk. Historicly stocks have gone up by more than 10% a year, but only when averaged over 20 year periods. So your risks with stocks is not knowing what your return is. However the bonus is you normally get more in the end. Note too that the 10% I refered to in the case of stocks is compounded rate of return, while bonds are simple interest (in most cases).
For an old person looking to retire, having to money in bonds with good returns every year is a good way to make planning easier since a big drop in the stock market (last 3 years for example) won't mean that suddenly you no longer have enough money to retire. For a young person you are better off riding out any storms that develop, hoping that when retirement is a possibility you have more money to work with. (meaning you either retire sooner, or latter and live a richer life, a risk itself)
Mind you I don't doupt that your finincial planner was an idiot looking to soak you for all the money you could get. However that fact doesn't change that your knoweldge of money managemnt is flawed too. I suggest you start manageing your money yourself, and compare how you do to the S&P500.
Not your enemy.
Simple.
Compound interest is a really nasty, evil concept that causes untold grief worldwide. I don't agree with it at all. However, it's a fact of life and since it's a fact of life, plan to be on it's good side.
Government of the people, by corporate executives, for corporate profits.
Buying a house is still the main way the average joe builds wealth in America.
First, you have to live somewhere, so you're better off paying into your own home equity than throwing the money out the window in rent. Second, with very few exceptions, real estate in most of the US has appreciated steadily over the last 30 years, and will continue to do so. Some places more (CA), some less (Cowfuck, TX) -- but for the most part, there has been an annual rate of raturn of around 4-7%. Even places like Orange County, CA, which everyone agrees are sickly overpriced, are *still* seeing appreciation over 10%! Show me a mutual fund that's doing that these days!
Furthermore, you get to *borrow* the money to make this investment with -- your mortgage! Wouldn't you just love it if someone gave you $150k to invest as you pleased?
A house is also forced savings. You usually have to pay more for your mortgage than you would for rent (but not so much that you can't afford it if you're gainfully employed). A big mortgage is a way of forcing you to put that money away every month.
It gets even better. As your equity and income grow, you can trade up houses almost indefinately, taking advantage of more and more appreciation. They say it takes money to make money, well now you have some, so go to it! To help you do this, when you sell a house you can keep the profit, tax free, up to $250,000 for yourself, or $500,000 if you're married. That's right -- you can get a lifetime captial gains exemption of half a million dollars, on your primary residence(es).
As an aside, that's not the only benefit of being married -- think two incomes, and one set of living expenses. For that reason, most of my friends really started getting ahead when they got married.
Real estate *will* continue to appreciate, and more reliably than in the past. First, with the stock market not doing so well these days, all the money's going into real estate, which is partly what's fueling the current boom. Second, look at demographics -- the population of the US is slated to reach over 400 million by 2050. So it's a simple case of supply and demand, with prime real estate rising faster than the rest -- like CA always has (climate, etc.) So think waterfront, nice mountain areas, nice neighborhoods in up-and-coming cities. There's only so much of that to go around. Third, this wonderful internet we're using, among other things, has helped make location less relevent. So people are able, more and more, to live where they want, and make a living there. Nicer small towns are already feeling this effect -- New England is seeing a long-overdue real estate boom from all those yuppies who always wished they could live upstate, but work required being in NY or Boston. Now they can.
Big, "happening" cities like San Francisco, LA, or NY are exciting when you'e young, and offer many career opportunities. But unless you really have a shot at being the next Marc Andreeson, you're probably better off going somewhere that you can buy a house sooner rather than later. You could beat your head against the wall for 5-10 years waiting for that to happen in San Francisco. But if you moved to Charlotte, that same 5 years might have netted you $50,000 in appreciation on a home that was more affordable than the crappy apartment you were renting.
Think about it.
Firstly, always pay off debt before you invest. This includes mortgages, personal loans, credit card debt etc. The saving is zero risk and usually a decent level of return compared with putting the money in bank deposits.
Secondly, learn as much as you can about the alternatives you ahve. You will need to know about the tax effects etc. as well as returns and risk. So do you want money in equities, a pension scheme or what?
Thirdly, remember proffessional investment managers will tend to be cautious. The presure on them (especially in the current environment) is to not risk underperformance, against whatever benchmark they use. What benefits you is high absolute returns. It is not worth paying high fees to mutual fund managers or brokers to have your money in a closet tracker, you may as well pay the smaller fees for a real tracker.
Finally, asothers have said, research, research, research.
I'll have to second any motions for Suze Orman. She's genuinely good person with the ability to help people boil down their complex money problems to the simple key issues.
Most financial books are crap. They talk about how to make money on the stock market, get rich quick, and appeal to the people "it's that easy" mentality.
There's also a class of books that really only relates to fairly rich people, but appeal to those who aren't rich, but wish to be. Kind of like reading magazines about Ferrari's when all you can afford is a Honda. It can be entertaining, but it's not going to help your financial siutation.
Suze Orman's books aren't going to get you rich in a hurry. She doesn't give stock tips. She doesn't give direct investment advice. She tells you the patterns.
Also, when talking to friends about money, there are two types: Friends that seem to have money and friends that seem to be always broke, regardless of income. The ones that are always broke seem to have a never ending supply of financial advice. Ignore them all.
Remember, the only way to get rich quick is to either be extremely lucky, be extremely well connected, or to be extremely good at what you do and lucky. If you're not extremely good or well connecting in the stock market, you're not going to get rich quick off of them unless you're extremely lucky.
...is the name of a great book targeted at people in their 20s and 30s, written by a lady of the same age.
She nets out a nice set of priorities and explains the impact of different decisions.
To have ambition was my ambition.