Basic financial literacy 101 - Or things I wish I knew 15 years ago.

[CharlesFosterOffdensen]

my only financial advice is this:
do not use a credit card, ever. they're literal bait, designed to trick people into overspending and getting fleeced by interest.
do not take out loans for consumerism. a holiday trip, a wedding ring, a fancy car, whatever it is, do NOT go in debt for these things. only take out loans for the purpose of long term investments that have real value and yield real returns, such as buying real estate or starting/expanding your own business.

i've seen people get fucking ruined over these things. debt can be very insidious and do some real serious damage.

Got to disagree about credit cards.. Credit cards are essential for building credit (which controls damn near everything today) and the miles I get from rewards pay for at least 2 airline tickets every year.

I typically just put all of my automatic bill payments (utilities, insurance, etx.) on my card as well as any groceries or home goods (with which I maintain a strict budget).

However, given the average American is about as intelligent as MovieBob, I think your advice would be beneficial to the vast majority of the population, who exercise zero willpower.

 

[John Titor]

my only financial advice is this:
do not use a credit card, ever. they're literal bait, designed to trick people into overspending and getting fleeced by interest.
do not take out loans for consumerism. a holiday trip, a wedding ring, a fancy car, whatever it is, do NOT go in debt for these things. only take out loans for the purpose of long term investments that have real value and yield real returns, such as buying real estate or starting/expanding your own business.

i've seen people get fucking ruined over these things. debt can be very insidious and do some real serious damage.

There's nothing wrong with using a credit card for daily expenses if you have the discipline to not run up a balance that you can't pay off in full.* In fact by using your credit card and paying it off every month, your credit score will increase, which allows you to qualify for better credit cards with cashback rewards or points programs. It also makes it easier to churn credit card signup bonuses. Plus, when/if you want to buy a house, having an established credit history helps in getting better deals on mortgages.

* This is not including privacy/data collection issues which is a whole other can of worms.

One of the most useful thingsI learned in high school is credit cards are not your money.
Having said that, it is a good idea to have one to build up a good credit score because you never know when you'll need to borrow a huge sum of money.
Source: Needed something important done, was turbofucked by not enough money in the bank or available cards.

 

[HOMO FOR LIFE]

I divide my credit card spend and usually get back 2% in points and cash back. That is pretty good imo.

Also credit card and auto loan is a great way to build your credit score as so many others have stated here.

In my opinion, I feel that debt is the greatest financial asset you can have in this day and age.

Make sure to take out a mortgage as fast as you can and save up for downpayment. If you can't do that, invest your money in business or securitiea because interest rates are so low and it cant go any lower.

Remember. Your money loses purchasing power as well as value over time. It loses something like 2% - 5% a year.

You know the saying. Savers are losers.

Just have enough for rainy day to keep you protected for a few months if something does happen but keep all your money invested in your business and side income. Do not let it sit there.

Also live like a poor motherfucker. Don't buy expensive shit to reward yourself. Buy a shit car. Don't travel. Make your 100000 as soon as you can and don't stop.

 

[Overly Serious]

Great idea and a good post. Not much sense in me doing my own from scratch when it exists so I'll just list some of the things I think would add to it or I would have done differently.

• There is good debt and bad debt. "Bad" debt is debt that doesn't bring a return and which funds depreciating assets. If you borrow money to pay for a lavish holiday or a high end gaming PC, these are bad debts because what you've purchased is gone or devaluing but the debt you acquired to pay for it remains. It's bad because you end up with less than you would have. That doesn't mean it will necessarily be wrong for you - maybe you will enjoy the Hell out of that gaming PC or treasure the memory of that trip up Mt. Kilimanjaro for the rest of your life. But you take my point - you've borrowed just to cast the money away. Good debt is that which brings a return on investment or buys an appreciating asset. Getting a car that lets you get a job that lets you earn more, a student loan that lets you get a degree (UK style student loan, not US style student loan!) and thus a better job or the classic example a mortgage (that you can afford). These are good debts. The value of the house rises, the car makes you richer in the long run. Whenever you borrow money ask yourself if it is good debt or bad debt and think carefully. And f it's necessary debt - i.e. your family can't eat this week unless you use your credit card, then take action to rectify your situation urgently and seek help.
• If you can, buy a house. If you can't, at least work out what would be required to buy a house. If it's feasible to do so work towards it. This doesn't apply to everyone - maybe you move around a lot, maybe you want to spend a few years backpacking around the world. Up to you. But if you're at all interested in having a "normal" life then look into this.
• Learn to identify moochers. There are people who want solely to live off others and they will try to shame you into spending money, guilt you into spending money sometimes even bully you into spending money. Moochers are not the same as poor. Some people are poor through misfortune or an error of judgement - it happens. Being generous when you can is a good thing. But not to moochers. Learn to tell the difference.
• If you have a savings plan formalise it somehow by making a separate savings account, a premium bonds or ISA (or whatever your country's equivalents are), etc. and then unless it's putting you in actual jeopardy make the payment to that at the start of the month. Assuming you get paid at the end of the month and the start is when you have the money. If you wait until the end of the month and just put in what you have left, you will not put in much. Stick to your commitment unless your circumstances change by paying yourself first.

I got some of this from a book called The Meaningful Money Handbook. It belabours things a bit and is slightly UK focused in its terms but is full of good, easily understandable advice and I wish I'd had it when I was a kid.

A lot of budgeting involves also learning what and how to buy and getting the most value out of a purchase. Sometimes the problem is not knowing how to save but not being good at buying.

Ex. You can spend 10 bucks buying 1$ lightbulbs that will all burn out or you can spend 5$ buying a single long duration one that will last longer than the 10 other ones. Sometimes buying cheap is more expensive in the end,

Conversely, that something is expensive doesn't mean its also better quality, You can buy fancy "gamer" headphones with a famous rap nigger on the box but then you look into it more, ask people who know about audio and they'd recommend you something with more fidelity that cost a fraction simply because its not as hyped. I also see this with clothing, people pay premium prices for third rate clothing that lasts very little and is not practical at all simply because its hyped and it has a really high advertising budget.

"planned obsolence" and "fast fashion" are a thing, you should know if you are paying too much for something that is planned to become obsolete anyways. Marketing plays with people's ego and emotions, that's how you get people who make decent money and should be in the clear financially still raking up debt to buy shit that is way above their income, no one wants to settle for the "poorfag" choice, like buying an android instead of an iphone or sticking to the same phone for more than one year, "oh no, my friends and coworkers will think i am a loser that struggles financially, better to go into debt so i actually get to struggle, as long as everyone think i am killing it" . Discipline kills the publicist, marketing wants you to go "YOLO" and not think about it.

You've just given the Vimes' Boots Theory of Socioeconomic Unfairness from Terry Pratchett's Guards Guards. This book is where I first got some real sense of financial responsibility believe it or not. The book reads as follows:

The reason that the rich were so rich, Vimes thought, was because they managed to spend less money. Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet."

Reading that at however old I was really stuck with me and, genuinely, after reading this book I started to try and save up for a better version of whatever it was I needed even if it meant I had to wait a bit. That attitude eventually permeated my entire attitude to spending money. So I'll add one more to my list:

• The cheapest version of anything is a bad purchase. The middle priced version is best value S. The upper-middle priced version of is better if you are financially stable and it's a small part of your income. The highest priced version of anything is a con. So in short, if you need a table, don't buy the cheapest you can find - it wont last, it will look nasty and perform poorly. Go a bit above that and buy that table. If you are financially stable and a table isn't a large part of your income then buy the one that is a bit more expensive than the mid-range. It will be better quality and it will hold its value if you ever want to sell it and your home will look nicer. Don't buy a super-expensive table. It wont me much better (if at all) than the upper midrange one but will cost you far more than you need to spend. Apply this principle less to things you know will not last - i.e. cheap air travel seats - and more to things you know will, like furniture. Or boots.

 

[HOMO FOR LIFE]

Low rate debt is the best debt. Like 2%. Consider that free money because you are effectively paying no interest due to inflation.

 

[NPC2580]

Nice to find something useful and constructive on kiwifarms I wasn't expecting that. Thanks to everyone who contributed to the thread so far.

 

[Bussyking7]

All this shit is basic common sense that any 4 year old kid would already know. Kiwis truly do possess an IQ of 5.

 

[RussianMozart]

This is the bucket strategy from Barefoot Investor. It's a good strategy, but his terminology is a little autistic.

EDIT: The 'fire extinguisher' is for financial emergencies. And the grow bucket includes any investments as well as your super. The percentages given are also guidelines. How much you can save is finite. How much you can earn is theoretically limitless.

 

[guidmaker]

The biggest thing I see is unnecessarily pre-paying taxes aka over-withholding, especially W2 earners.

You should withhold as little in taxes as possible due to the time-value of money. Also, file your tax return as late as possible.

Oh, but you're expecting a refund? Well, if you're like most people that just means you fucked up by basically giving the government an interest-free loan. You're leaving money on the table due to inflation and opportunity cost.

 

[RussianMozart]

Here's a detailed explanation of the Barefoot Investor's strategy:

I plan to start using this strategy (with some minor modifications) but I'm going to run it by a financial advisor first.

 

[melty]

Honestly sometimes the best advice is to just make more money, if you can even kind of restrain your spending it solves a lot of problems

 

[Polyboros2]

Do use credit cards, and don't pay them off immediately.

I know it seems like stupid advice, and most people are too stupid to do this with out financially ruining themselves.

I developed good credit pretty early in my twenties, by putting my community college tuition on a card a paying it off over the course of the semester. I didn't pay 20% more on my tuition, I paid a few hundred dollars for good credit.

Then dealing with girlfriends that have no credit, who have to use their father's to finance a car or mine for an apartment.

By the time I financed my first car I got the lowest available APR(something like 1.6% from a credit union), I sure as shit got my money back that I paid in that credit card interest.

I support the idea of making a big reasonable purchase that you could easily save up for on card, and pay it off with in a year. I heard that the companies value it less if you always pay off at the end of the month. I don't know if that's actually true, but it seems to make sense with my experience.

 

[Spasticus Autisticus]

Do use credit cards, and don't pay them off immediately.

I know it seems like stupid advice, and most people are too stupid to do this with out financially ruining themselves.

I developed good credit pretty early in my twenties, by putting my community college tuition on a card a paying it off over the course of the semester. I didn't pay 20% more on my tuition, I paid a few hundred dollars for good credit.

Then dealing with girlfriends that have no credit, who have to use their father's to finance a car or mine for an apartment.

By the time I financed my first car I got the lowest available APR(something like 1.6% from a credit union), I sure as shit got my money back that I paid in that credit card interest.

I support the idea of making a big reasonable purchase that you could easily save up for on card, and pay it off with in a year. I heard that the companies value it less if you always pay off at the end of the month. I don't know if that's actually true, but it seems to make sense with my experience.

I've never got a straight answer as to whether carrying a balance actually does boost your credit score more than paying it off in full. I've heard that advice even from bankers, but I've also heard the opposite. Even if carrying a balance does boost your credit score, I doubt the extra points you get are worth the interest charges. I've never done this and my credit score is around 820.

 

[I can't imagine]

I've never got a straight answer as to whether carrying a balance actually does boost your credit score more than paying it off in full. I've heard that advice even from bankers, but I've also heard the opposite. Even if carrying a balance does boost your credit score, I doubt the extra points you get are worth the interest charges. I've never done this and my credit score is around 820.

The effect is mostly the same, whether you charge money every month and pay it off immediately, or carry a small-moderate balance for a few months gradually paying it off. The important part for credit score is using the product and making on-time payments, not how long you carry the debt. It's advice that had a bit more relevance decades ago, when major credit cards were more difficult for young people/people with no credit history to get, so it was easier to establish a credit history with buying something on credit from a department store or jewelry store or something and maintain a balance for 6-12 months.

 

[mindlessobserver]

Introductory offers of no interest for X months are the best for building that credit history. You can also look out for introductory pricing when you get a store card. Great way to start building a credit history and pay less for something. Considering the target demographic here, seriously. Buy that awesome gaming rig. Even if you dont have 1500 dollars, if Best Buy, Wal Mart, Target or whoever is selling it for no interest on your first purchase for the first 12 months, go for it. 125 bucks a month and its paid for. Or you could do less and start incurring interest charges after a year but so long as you keep ahead of those monthly minimums it wonts bite very noticeably.

 

[Ugandan discussions]

Mainly lurker, first time posting...

In a UK context, credit cards have a useful secondary purpose, under S75 of the Consumer Credit Act 1974. That legislation essentially makes the credit card provider jointly liable with the retailer if something goes wrong on a purchase of between £100 and £30,000. This is essentially free insurance against retailers going out of business, failing to deliver goods, goods being faulty, etc.

The major benefit though is that you get coverage for the full value of the transaction, even if you only pay for a small proportion on the card. So for example, £50 on credit card and £9,950 by another payment method for your new kitchen will still give you £10,000 of S75 coverage if the supplier goes bust in the meantime; your credit card provider is jointly liable for every penny. It doesn't matter if you've paid off the card balance either, so generally if you're in the UK you should pay for at least part of every major purchase with a credit card.

Note, S75 applies only to credit cards, and not Amex (though Amex provides the same cover voluntarily) or debit cards (ie cards linked to a checking account).

 

[Fliddaroonie]

Education is never worth reaming yourself for. Ever. If needs be, take a year off to work and earn before college,if doing a 4 year degree see if you can do 3 at community college ad the 4th at a big college.

Know what you want to do. Research it properly and for yourself. Loom up regulatory bodies, speak to local professionals in the field and give up the complete lie that "a degree,By degree, even shit tier soft subject from degree mills with retard level entry requirements" is a golden ticket to a gold job.


It's not. A car and a home? Sure. But a useless degree with no tangible career path is really not worth it.


Oh and credit cards? Someone up thread rightly pointed out, it's not your money. This means they can be used for making big purchases and if it goes wrong, through the charge back system. The bank cares cos its their money.

 

[Pee Wee Herman]

Best OP thread currently on this site.

There is nothing wrong with using credit cards but there is a problem with not understanding credit cards.

Credit cards are a convenience to not use cash at that moment or where you cannot. They are NOT to expand your income.

I never buy something I cannot pay off at the end of the money with a card.

Do not obtain them unless your goal is to build credit. They are tools. Like many have met jones here before, never miss payments. Stay in the 700 FICO range.

 

[georgyjobe]

Education is never worth reaming yourself for. Ever. If needs be, take a year off to work and earn before college,if doing a 4 year degree see if you can do 3 at community college ad the 4th at a big college.

This was being shared by my peers this morning. Tl;dr author leaves grad school to be a writer with $80k in debt, can't pay monthly bills, is an absolute retard and stops paying so Sallie Mae starts adding all the interest she should be paying off to her principal. I'm glad being a poorfag led me to community college when I was young.

Also, credit cards can be useful if you have the self control. I keep a rotation of cash back/mileage credit cards that I don't carry a balance on. In lean times, I've applied for long 0% interest cards (I also helped my mom reapply for these every time her last one has started accruing interest; she transferred her balance and went from $17k in debt to $0 on a <$30k salary).

The credit reward system basically isn't like this anywhere else in the world outside of America because the retards who carry massive amounts of credit card debts subsidize high-end rewards, and a lot of other countries are more debt-averse than Americans. I say take advantage of it if you can master it.

 

[Ugandan discussions]

Education is never worth reaming yourself for. Ever. If needs be, take a year off to work and earn before college,if doing a 4 year degree see if you can do 3 at community college ad the 4th at a big college.

This advice is pretty Country-specific!

Depending on where you are, it can be well worth it. In the UK context, student loans don't operate in the manner of any other line of credit. Instead, they're only repaid at 9% once/while you're earning USD3100 per month, and they're written off if not repaid within 30 years. So in practice you're never reaming yourself, because if you don't earn enough you'll never pay back a penny.

Education is still one of the surest ways to break out of a cycle of generational low pay. Granted, your average council estate kid won't have the same connections or level of preparation as a peer from a public (ie private) school or a top state school. But going to university does open up a vastly wider range of options, especially now a degree is needed in far more contexts than 40 years ago.