Advice for beginners - in as few words as possible
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Re: Advice for beginners - in as few words as possible
In expected fashion, no simple answer will come from this forum so;
Advice for beginners - in as few words as possible = Join FWF
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Who do I send the bill to
Advice for beginners - in as few words as possible = Join FWF
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Who do I send the bill to
- parvus
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Re: Advice for beginners - in as few words as possible
Ask for a donation.
Wovon man nicht sprechen kann, darüber muß man schweigen — a wit
finiki, the Canadian financial wiki Your go-to guide for financial basics
finiki, the Canadian financial wiki Your go-to guide for financial basics
Re: Advice for beginners - in as few words as possible
My family's finances were a mess for 30+ years until I got fed up and started to trackincome, expenses, assets and liabilities, then periodically produce an income statement and balance sheet to see if we were winning or losing. In some cases we would look at an expense category total like Dining and our hair would stand on end, leading to a thought "maybe some room there for more saving". Despite this attention to detail we have never followed up with a 'budget'
Based on our experience, I conclude that the largest obstacle is that financial planning is a test of character for an individual and a test of relationship for a couple. In many cases people treat their finances like a tiger in the room - if they keep doing what they want and ignore the tiger, it won't eat them.
Over the past few years, an expanded view of financial planning is emerging which can be do-it-yourself with some reading, thinking and professional assistance from time to time. This includes developing and recording:
o Your personal (lfe) values, many of which have little or nothing to do with money per se
o Your financial goals - dreams with dollars and a target date, to be developed into plans as needed
o Five integrated plans driven out of the goals
(1) Financial - tracking as noted above, with an emphasis on savi;ngs
(2) Investment - creating added wealth from business, real estate, financial securities, pensions, etc.
(3) Tax - retaining wealth by minimizing income tax payable
(4) Risk - a range of insurance vehicles to protect assets against loss or damage; also identity theft protection
(5) Estate - power of attorney, medical directive, will, funeral plan, etc.
If you have this in place, then retirement planning becomes an exercise in which you examine each piece above while imagining the lifestyle you envision, identifying discrepancies, etc.
As mentioned above many times, there is no simple path for everyone - it depends on your life. However there is no reason to rush either. Do a bit at a time until you understand it well, then carry on.
The writers here are in better shape than most people around them. At least they are asking questions and thinking about this subject. Most financial planning seminars in my area are attended by less than 1/10 of 1% of the population.
Based on our experience, I conclude that the largest obstacle is that financial planning is a test of character for an individual and a test of relationship for a couple. In many cases people treat their finances like a tiger in the room - if they keep doing what they want and ignore the tiger, it won't eat them.
Over the past few years, an expanded view of financial planning is emerging which can be do-it-yourself with some reading, thinking and professional assistance from time to time. This includes developing and recording:
o Your personal (lfe) values, many of which have little or nothing to do with money per se
o Your financial goals - dreams with dollars and a target date, to be developed into plans as needed
o Five integrated plans driven out of the goals
(1) Financial - tracking as noted above, with an emphasis on savi;ngs
(2) Investment - creating added wealth from business, real estate, financial securities, pensions, etc.
(3) Tax - retaining wealth by minimizing income tax payable
(4) Risk - a range of insurance vehicles to protect assets against loss or damage; also identity theft protection
(5) Estate - power of attorney, medical directive, will, funeral plan, etc.
If you have this in place, then retirement planning becomes an exercise in which you examine each piece above while imagining the lifestyle you envision, identifying discrepancies, etc.
As mentioned above many times, there is no simple path for everyone - it depends on your life. However there is no reason to rush either. Do a bit at a time until you understand it well, then carry on.
The writers here are in better shape than most people around them. At least they are asking questions and thinking about this subject. Most financial planning seminars in my area are attended by less than 1/10 of 1% of the population.
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Re: Advice for beginners - in as few words as possible
I think the most effective, simplist teaching tool is a graph starting at $1 with average returns over 60 years, one line for raw return, and another with yearly investment expenses subtracted.
With that single graph, someone can see two critical things that are not intuitive, especially to the live-in-the-moment bias of our youth:
1) Dollars saved early are worth more than dollars saved later. A lot more. As in 10x more for a dollar in your 20's vs 40's (when most people start settling down and thinking about saving), and perhaps 20x more for 20's vs 60's, depending on ROR.
2) Costs matter. 2-2.5% investment overhead can reduce your nestegg by more than half of what it would have been at age 65 (and much worse than that for small ROR as is being predicted for the future).
With that single graph, someone can see two critical things that are not intuitive, especially to the live-in-the-moment bias of our youth:
1) Dollars saved early are worth more than dollars saved later. A lot more. As in 10x more for a dollar in your 20's vs 40's (when most people start settling down and thinking about saving), and perhaps 20x more for 20's vs 60's, depending on ROR.
2) Costs matter. 2-2.5% investment overhead can reduce your nestegg by more than half of what it would have been at age 65 (and much worse than that for small ROR as is being predicted for the future).
Re: Advice for beginners - in as few words as possible
This is why I think advice to crank up your risk while you're young is incorrect; losses at the beginning are much more detrimental.Dollars saved early are worth more than dollars saved later. A lot more. As in 10x more for a dollar in your 20's vs 40's (when most people start settling down and thinking about saving), and perhaps 20x more for 20's vs 60's
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
Re: Advice for beginners - in as few words as possible
Paper losses at the beginning are pretty much meaningless. The key is not to turn paper losses into real losses by selling low.BRIAN5000 wrote:This is why I think advice to crank up your risk while you're young is incorrect; losses at the beginning are much more detrimental.
Lifetime Sequence of Returns Risk
Wade Pfau wrote: In this example, someone earns a constant inflation-adjusted salary and saves a constant percentage of this salary each year over a 30-year period. In retirement, they withdraw a constant inflation-adjusted amount over a 30-year period. The lifetime investing cycle lasts 60 years. The analysis is based on Monte Carlo simulations with 100,000 60-year periods with returns averaging 7% with a 20% standard deviation.
What the following figure shows is how much each year's return impacts the financial planning outcomes. For the first 30 years, what we see is the percentage of the final wealth accumulation at the retirement date which can be explained by the investment return experienced in years 1-30. What we observe is that with wealth so low at the beginning, the early returns have very little impact on the final result. A given percent change in the portfolio value does not have much impact on the absolute amount of wealth accumulated at the end. It is the returns experienced at the end of the 30-year period which have the biggest impacts on the final wealth accumulation, as this is when a given percentage change in the portfolio value has the biggest impact on absolute wealth. Individuals are especially vulnerable to these returns as they approach their retirement date.
Re: Advice for beginners - in as few words as possible
I'll beg to disagree: in your 20's, the income is much lower than mid-career. The vast majority of the wealth a 25-year old is their earnings ahead; whether they lose a little or a lot from their savings is dwarfed by what they will earn in the decades ahead. As Dr. Pfau writes in the piece quoted, the situation is much different in the last part of their working career.BRIAN5000 wrote:This is why I think advice to crank up your risk while you're young is incorrect; losses at the beginning are much more detrimental.Dollars saved early are worth more than dollars saved later. A lot more. As in 10x more for a dollar in your 20's vs 40's (when most people start settling down and thinking about saving), and perhaps 20x more for 20's vs 60's
finiki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
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Re: Advice for beginners - in as few words as possible
+1adrian2 wrote:The vast majority of the wealth a 25-year old is their earnings ahead
ltr
Re: Advice for beginners - in as few words as possible
And there is only 3-5% that can do this, everybody on here maybe can. And once you/they have something saved the temptation is to spend it.In this example, someone earns a constant inflation-adjusted salary and saves a constant percentage of this salary each year over a 30-year period
Yes easier said then done. Lets jump right into the deep end with 75-100% equities and see how long a newbie can hang in there because I/you/we know the end result its posssible.Paper losses at the beginning are pretty much meaningless. The key is not to turn paper losses into real losses by selling low.
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
Re: Advice for beginners - in as few words as possible
Some can handle the volatility, but I would speculate most would panic 'at some time'. If one's personality is more inclined to be an aggressive investor, it would be better to experience that early in one's investing life than near retirement time (or worse, already into retirement).BRIAN5000 wrote:Yes easier said then done. Lets jump right into the deep end with 75-100% equities and see how long a newbie can hang in there because I/you/we know the end result its posssible.
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A simple pyramid
My pyramid suggestion is:
Invest the savings
Have no debts
Be frugal
The implication being that all debts should be paid off before one starts investing. There could well be time-compounding advantages to investing early, but it is better to KIS.
Invest the savings
Have no debts
Be frugal
The implication being that all debts should be paid off before one starts investing. There could well be time-compounding advantages to investing early, but it is better to KIS.
Re: Advice for beginners - in as few words as possible
Invest - in broad Index’s
Save - at least 10%
Plan & Persist* – Make a Plan, stick to it
I.S.P.P.
*Mike Grenby
Save - at least 10%
Plan & Persist* – Make a Plan, stick to it
I.S.P.P.
*Mike Grenby
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
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Re: Advice for beginners - in as few words as possible
Planning. Treat it seriously.... It is rocket science.
Live Rich, Die Broke (but not too soon).
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Re: Advice for beginners - in as few words as possible
(Almost) Everything Useful I’ve Learned about Personal Finance in Ten Sentences
It’s not really that complicated.
1. Spend less than you earn.
2. If you’re facing a pile of debts, make minimum payments on all of the debts but the one with the highest interest rate, then make the biggest payment you can each month on that high one.
3. Never expect that your “future self” or anyone else will bail you out of your dumb mistakes today and remember that only you can make better choices for yourself.
4. The quickest way to financial recovery is to get a grip on your spending impulses.
5. Life is going to hand you emergencies, so keep at least $1,000 in your savings account for those emergencies.
6. Be completely open with your spouse about every single dime that comes in and every single dime that you spend.
7. Buy items that will last for a very long time at the best possible price and you’ll rarely be unhappy with them.
8. If your employer offers matching on your 401(k), take as much of it as you can get.
9. When you’re deciding how to invest, remember that past performance does not indicate future returns and focus instead on the fees and expenses.
10. If you have dependents who rely on you, you ought to have life insurance, but ignore any salesperson who tries to sell you anything other than a term policy.
A final “bonus” life and career tip: treat every single person in your life as you would like to be treated, regardless of whether you’re in the workplace or in everyday life.
If you can handle all of these things, you’re going to be just fine.
Sedulously eschew obfuscatory hyperverbosity and prolixity.
Re: Advice for beginners - in as few words as possible
A true Financial Plan has to havemcbar wrote:financial planning for a broad audience in as few words as possible.
-Savings/Investing
-Debt management
-Insurance
-Tax planning
-Estate Planning
Re: A simple pyramid
Tell that to CanadiansBenchwarmer wrote:
Invest the savings
Have no debts
Be frugal
Re: Advice for beginners - in as few words as possible
A commissioned salesman on one endalingva wrote:A true Financial Plan has to have ..............................mcbar wrote:financial planning for a broad audience in as few words as possible.
I don't intend to offend anyone, that part is just a bonus.
Science flies men to the moon. Religion flies men into buildings.
Science flies men to the moon. Religion flies men into buildings.
Re: Advice for beginners - in as few words as possible
This is a good thread. My advice to a wide-eyed 25-year old looking for the secret to wealth and happiness would be as follows:
- Don't get divorced.
- Don't have kids.
- Get/stay healthy.
- Pay off debts and remain debt-free.
- Spend less than you earn.
- Buy used instead of new.
- Everything is negotiable.
- "Opportunity" is a code word for a scam.
- "Multi-level Marketing" is a code word for a pyramid scam.
- If a stranger claims he/she wants to help you make money, always consider what's in it for them. Nobody wants to help you for free. He's being nice to you because you're his meal ticket. You're just another commission to him.
- If it seems too good to be true, it is.
- Those little notepads at cash registers where you can enter to win a cruise/trip/whatever are a scam. Everybody "wins." You'll have to sit through a sales presentation or buy something. It's not a true contest.
Re: Advice for beginners - in as few words as possible
Definitely scratch that off your list, IMO.kombat wrote:This is a good thread. My advice to a wide-eyed 25-year old looking for the secret to wealth and happiness would be as follows:
- Don't have kids.
finiki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
Re: Advice for beginners - in as few words as possible
My advice to that 25 yr old would be:
Find your self a thrifty sensible partner (preferably of Scottish descent) and let them look after the day to day spending. Then learn how to invest the money they saved
Find your self a thrifty sensible partner (preferably of Scottish descent) and let them look after the day to day spending. Then learn how to invest the money they saved
Re: Advice for beginners - in as few words as possible
I found his list rather good. I agree that the first two items did not fit my list, having done both of them. I would modify the list as follows:adrian2 wrote:Definitely scratch that off your list, IMO.kombat wrote:This is a good thread. My advice to a wide-eyed 25-year old looking for the secret to wealth and happiness would be as follows:
- Don't have kids.
Marry well. The choice of partner will have an amazing impact on your wealth.
If you discover that you made a mistake because you were young and inexperienced, willingly give away half your wealth and get on with your life. It is better than living out your life with a mistake.
Recognize that the decision to have kids is a major financial decision. OTOH it is often one of the most satisfying accomplishments of your life. There is more to life than money.
Having pets is a strategic decision. By all means make it but address timing issues. They can enhance your lives but they are expensive and timing of their passing can have an impact.
For the fun of it...Keith
Re: Advice for beginners - in as few words as possible
And they can restrict your travel quite significantly. This is both a bad thing, reducing your options, and a damn good thing, eliminating many of the most expensive options.kcowan wrote:Having pets is a strategic decision. By all means make it but address timing issues. They can enhance your lives but they are expensive and timing of their passing can have an impact.
George
The juice is worth the squeeze
- parvus
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Re: Advice for beginners - in as few words as possible
At least they could make it interesting, instead of offering only trips to the Caribbean or Mexico. Now if it were a cruise down the Rhine, the Elbe, the Danube or the Volga, I might be interested.kombat wrote:[*]If it seems too good to be true, it is.
[*]Those little notepads at cash registers where you can enter to win a cruise/trip/whatever are a scam. Everybody "wins." You'll have to sit through a sales presentation or buy something. It's not a true contest.[/list]
Wovon man nicht sprechen kann, darüber muß man schweigen — a wit
finiki, the Canadian financial wiki Your go-to guide for financial basics
finiki, the Canadian financial wiki Your go-to guide for financial basics
Re: Advice for beginners - in as few words as possible
Nothing is free.
Re: Advice for beginners - in as few words as possible
Don't depend on others to succeed.
Give a man a fish, and that man knows where to come for fish. Teach a man to fish, and you've just destroyed your market base.
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