I have a knee jerk reaction against posts like this, mostly because of the reference to $4 cups of coffee.
While the point is true, I think your time is best spent worrying about other things.
90% of money problems seem to come from a few things:
* Expensive cars - bought with debt.
* Expensive housing - again bought with debt.
* Expensive schooling - even more debt.
I've never bought (pun intended) the argument that dining out in any form (including coffee) even comes close to these other items. Even if you're eating out 3-5 nights per week, it's just not expensive enough. I guess if you're always feeding a family of 5 and buying expensive bottles of wine while you eat, then maybe.
I also think that time spent worrying about trivial stuff like coffee would be better spent trying to make more money.
> 90% of money problems seem to come from a few things: * Expensive cars - bought with debt. * Expensive housing - again bought with debt. * Expensive schooling - even more debt.
Nick Maggiulli made a good observation in a 2020 weblog post:
> All the expense tracking and goal setting in the world cannot make up for an insufficient balance.
The bottom 40-50% of US households can either barely or not-at-all cover the basic necessities: housing, food, transportation, healthcare. Note that this doesn’t include any money for education, clothing, or any form of entertainment.
> That’s why the biggest lie in personal finance is that you can be rich if you just cut your spending. And the financial media feeds this lie by telling you to stop spending $5 a day on coffee so that you can become a millionaire.
[…]
> Instead of trying to convince everyone that they can be rich, we should be trying to convince everyone that they can be not poor. Now that would be a start to undoing the biggest lie in personal finance.
It depends on whether you see a $500 ($4 * 21 business days * 12 months - exaggerated $500 for drinking coffee at home) a year in saving as big of not. For some people it can be an emergency fund, for others it's 2-3 expensive dinners for 2.
The issue is that you also mentioned dining in general, which takes that $1k of coffee to a completely level.
Bottom line is drinking coffee at home and cooking save you a lot of money.
Cooking definitely do. My groceries bill is around 150€/month. You'd need about 750€/month to eat out twice a day. The difference is 7200€/year, a pretty hefty chunk of your post-tax income.
Yes! I did not eat in a restaurant for 15 years. It helped my family never did so I did not miss it. Perhaps a tip for people trying to future-proof their kids for economic depression.
Just out of curiosity how and what do you eat to fit in 5 Euros a day?
I'm thrifty as well but that is stretching it.
I mean, I eat meat and only buy organic free range stuff if I can, which is of course, more expensive, but as long as I make a dev salary, why would I eat lower quality stuff to save a few bucks if I can afford the best quality?
I feel like when it comes to what you put inside your body you should not make compromises if you can. There are other areas in your life you can save money(car, subscription services, eating out, fancy clothes), but food is not one of them, as long as you can afford it.
We now have a list of maybe 20-25 recipes we rotate between, cooking takes a bit of time but that's something I really like to do to relax. I personally do not eat the morning and my life partner eats some simple cereals + joghurt + fruits. Food like chili sin carne or a curry is something ridiculously cheap to do and is very easy to do in huge quantities. Also we really like to eat wraps filled with salad for lunch as you can see :). If you alternate the filling and salad sauces that's not too boring and doesn't result in an after-lunch food comas!
We buy almost everything at Lidl and do not eat meat.
I cook everything myself. Basic ingredients are cheap, so I don't need to be careful. This budget includes lots of wine and cheese. No compromises there.
5 euro comes to about 4.34 a head, in my house there is me, my partner and her son so assuming ~£13 a day - we probably don't even go that high most days.
As for diet - A typical day would like this.
Breakfast.
(them) Home made pancakes for breakfast with a drizzle of honey.
(me) Muesli.
Lunch, Salad Wrap/veggie heavy (other half is vegetarian) or KaposztáS TéSzta (cabbage/noodles).
Evening Meal - Spaghetti Carbonara or Tuna Steaks/veggies.
My other half loves cooking (she's hungarian) and it's completely the norm that for her/where she is from to just do everything from scratch.
Lots of fresh seasonal veggies, lots of soups, noodles, pasta etc - it's a good diet tbh and seems to suit my health issues.
> Cheap supermarket budget brands full of chemicals, hormones and preservatives? Yes. Quality stuff, no.
This is in the EU, regulation basically prevents excesses like that in most cases.
Furthermore, price doesn’t have to be a predictor of quality. E.g. LIDL/Aldi (budget chains) commonly win awards for best vegetables.
I used to spend ~150-200 on food per month when I was living by myself and wasn’t strictly managing it for low cost. Now with a family of 3, we spend 300-400€ a month on groceries (incl bread and meat) and are never holding back on anything because of price.
So, 5€ per day doesn’t sound unreasonable even in the Netherlands. Note: we eat vegetarian 5 out of 7 days, without that we’d probably spend 100-150 more.
Edit: I get that this doesn’t work everywhere. When I lived in the US (NYC) and tried to cook my own meals I couldn’t believe 1) how few supermarkets there were and 2) how high prices for basic food were. Eating out was basically cheaper :/
Portion of rice / pasta / bread or derivates /other cereal with veggies => endless variations and very cheap.
During this season it’s also soup time. Our favorite is butternut two oignons a bit of butter and cream or coco milk. Super cheap. Makes 2 to 4 servings depending on dilution and veggie size. Add 1€ for bread (for 2). And bit of cheese and / or fruit.
>I eat quite well on 5€ a day. Eating out would cost me about 25€ a day. That's a 7k€ per year difference.
But the thing is, a lot of people could easily make additional 7k€ if they switched jobs / renegotiated their salary / tried out other ways to make more money. Especially if you enjoy eating out from time to time, it's probably not worth the effort to try and save a few thousand not doing it when there are other, much more impactful choices to be made.
Underrated point. There are people for whom investing energy into saving money has a decent ROI, but if you are reading HN that’s probably not you.
Instead it’s far more likely the most efficient way to get more money is to work on your career and not learn how to cook well, fix your own car, or extend your commute way out into the country.
That doesn’t mean you can’t have a hobby of cooking, if that’s what you love—go for it, but be honest with yourself. If it was about getting to FIRE you should order in a pizza and working on leetcode.
It's not easy but it's not that hard either. My girlfriend is up around 20K/year this year simply from changing job and negotiating firmly. This coming from a previous salary of maybe 20K. (Lisbon, Portugal where 40K is a pretty good wage)
> - Health insurance is another big expense. At one point I paid more for insurance than rent, because I'm self-employed.
Health insurance is also really expensive as an employee, but people dont notice because half of the cost is completely hidden for them ("paid" by the employer) and the other half also never reaches their bank account but is on listed in the monthly payroll notification.
Death insurance is not compulsory and I'm not sure why the OP pointed out health insurance. I was just pointing out that it is expensive, independent whether you are self-employed or not.
I think quality food is a no-brainer, but convenience eating, like you calculated, is an easy bad habit to develop. If you're deliberate about when, where, and why you're eating out, than it seems unlikely to be a problem though.
I'm curious, what role does health insurance play in Germany? I'm been curious about the prospect of at least temporarily living in Germany (from Canada), but don't have a great sense of that yet. Here we have socialized medical, but you'd get insurance to cover out of country emergencies, regular cost of drugs, and dental, among other things.
I'm not very careful with what I buy. If you cook from scratch, it's really cheap. You don't have to change your diet or anything.
Snacks can be a bit more expensive, but it's still (literal) peanuts in the budget.
I do shop at Lidl, and I do pick the store brand most of the time. However, I don't consciously try to save money on groceries. Good food is good living.
€5 gets me a typical breakfast with a little to spare. Coffee is around 75c per cup * 2 (good beans and oat milk). Avocado is €1 and 3 eggs also €1. That's already €3.50. Then add some olive oil prob just 20c but it adds up and maybe some dark chocolate and you're close to €4 already.
Unless you’re really special, your grocery bills at the end of the year will dominate your takeout and restaurants bills combined.
This was an eye opener to me, after meticulously tracking my finances for a year.
There’s two takeaways. (1) on the days where you don’t feel like cooking, do not feel bad about ordering take out or dining out. (2) consider how you can minmax your staple grocery items, by buying in bulk, joining a food co-op. Etc
You win a lot more by shaving dimes off every pound of oatmeal, integrated over a lifetime. And it’s recurring returns on a one-time investment of finding the best source in your neighborhood.
Buy the coffee every once in a while if it brings you joy. Everything in moderation, of course.
> Unless you’re really special, your grocery bills at the end of the year will dominate your takeout and restaurants bills combined.
You'd be surprised at how much a lot of people eat out. As of 2016, total spending among all Americans was higher on restaurants than on groceries. The average American (although not necessarily the median one) spends more on restaurants than groceries.
> your grocery bills at the end of the year will dominate your takeout and restaurants bills combined.
Only if days you cook for yourself (heavily) dominate days you order a takeaway.
Also, 'groceries' probably accounts for a lot more alcohol (assuming you drink of course!) really tilting the balance. Not least because if you order a takeaway you're probably still drinking something from your grocery order.
It doesn’t need to heavily dominate! Especially in WFH days, where you eat breakfast and lunch at home.
If you eat three meals a day and have staple breakfasts and lunches (for us it’s oatmeal/muesli in the morning with fruits, sandwiches for lunch) and only ever order in for dinner, at least ⅔ of your meals each day automatically come from “groceries”. And home cooked dinners are usually the most expensive meal of the day (if they feature the typical dinner meats).
Trading off for takeout, many restaurants are overjoyed to give you two servings in the name of one, and that makes at least one meal for the next day! At least this is how it works for us.
Alcohol is a good point though! It can definitely make groceries look more expensive than they are.
This thread made me go check, since I obsessively track my expenses in Quicken. My grocery bill has been consistently 4-5X my restaurant spending for basically as far back as I have data (over 20 years). So at least this anecdote supports OP's anecdote!
Is alcohol not considered a grocery? I don't spend that much on alcohol, maybe it's 2% of my grocery spending. But even if it was 10%, I don't see myself keeping a separate mental account for it.
Maybe let me add, when I buy a bottle of wine, it's a $5 bottle.
> your grocery bills at the end of the year will dominate your takeout and restaurants bills combined
I spend 150€/month on groceries. Reducing that would be really difficult, and involve changing my diet and buying cheaper ingredients. Even then, I wouldn't save enough to make a difference.
Most people aren’t spending so little. My wife and I are at like $150-$200 per week if you are including alcohol. And we are cooking almost every dinner from raw ingredients.
Like any problem you should always start by tackling the big low-hanging fruit. Then work your way up as far as you can be bothered.
For most people the biggest thing is a car. If you can not own a car at all then you're laughing. But if you have to then I recommend buying old, undesirable cars from good brands like Honda, Toyota or Ford, but always research the model first as every brand has made stinkers over the years. You can drive these cars until they are scrap and pay a fraction in depreciation that you would have on a newer or more desirable car.
Of course, if you want to own a car then by all means do it. But just be honest with yourself that it's not an essential thing and you'll be making sacrifices elsewhere for it.
It's totally possible that the lowest hanging fruit on some people's trees is things like coffee. But the important thing is to record your expenses and budget so you can identify what the lowest hanging fruit it.
Also, just because something is a bigger expense, doesn't mean it's a lower hanging fruit. Most people spend most of their money on housing. But you need a roof over your head. You don't need coffee from your local hipster outlet.
I agree. I retired at 35 by saving 90% of what I made and lucked into living in Toronto at the beginning of the property ladder in the 90s. Like a diet, it's more about the determination to live with what seems like privation but really it is just being free of all kinds of crap - furniture, creams, soaps, appliances, clothes, decor - that provide social acceptance but ends in indentured servitude.
> I've never bought (pun intended) the argument that dining out in any form (including coffee) even comes close to these other items.
Well it's easy to know if that argument holds true or not... just track your expenses. It holds true for me.[1] Once I started WFH during COVID my weekly expenses got in much better shape.
[1] Edit: combined lunch + coffee + snacks during the work week were equivalent to about 15% of my rent (and rent is high where I live). I did not include weekend dining out with friends/family in that figure, or it would have been even higher. (The reason is that during the work week I always get food or coffee from the same merchants so it was easier to track, but during weekend it varies more).
Edit 2: solution was to pack lunch/snacks, and use the office coffee maker. Packed lunch is less than half of the previous amount, and office coffee is free. Now the figure is about 5% of my rent.
Edit 3: a positive side effect is that my snacks started consisting more of things like an apple or an orange, rather than the crappy processed-food sugary snacks I was buying at the cafe.
Haha in the original draft of this post I had "make more money/work on yourself" as one of the points but took it out - most people seem to know the big stuff like don't make big purchases you can't afford. What seems to be less common knowledge amongst my friends at least is how much little things like eating out often has a financial impact on them since it's harder to see. We aren't programmed to understand compounding very well so I wanted to highlight that in the post somehow. This could just be my very young self talking since I haven't seen very many different financial profiles out there.
Edits I'm with you totally. It doesn't feel right or valid. why worry about a coffee? ( I don't!). But that feeling could be worth challenging...
If there's 2 of you and you eat out 5 times a week for the length of time you would own a car... then it might be equivalent? There's that old paradoxical saying about how the rich are rich because they don't buy anything.
That's a good point. The only thing I can think of adding is that in some markets, housing is just plain expensive, and people don't have as much wiggle room there unless they can make more relative to lower housing costs in some other area and are willing/able to move there.
Don’t forget the cable (or cord-cutting channel), mobile, game, music, news, and magazine subscription bills, to which now we have to add apps. Large ones can often be cut to 1/10th by rethinking, switching, etc.
I treat Netflix/Primevideo/Hulu & friends like this. It takes a bit of thinking but I usually have only one subscription at a time and cancel as soon as I close in on the end of whatever show I'm watching, then re-subscribe to whatever I need to. Some services (not necessarily the streaming ones) allow you to re-trial after a few months (love that), others will cut your subscription fee if you try to leave after a few months. So try to leave after a month or so anyway, even if you don't want to, then take the better offer.
Yea, I live in the US and I came from a poor immigrant family. The arguement about the true price of your 4 dollar coffee is lost on people. That's why poor immigrants typically rise in economic classes in the US and the folks who defend their poor purchasing habits stay locked in.
You buying the occasional overpriced, poorly made coffee doesn't hurt in the grand scheme of things. The compounding habit does. For whatever reason, a majority of Anglo saxons and anglo culture just dont understand compound interest in general. Maybe it's because western culture adopted Protestant ideals more than they think. My half jewish, half catholic background doesn't jive well I guess. Anyways, let's get into examples, shall we? And no, I won't get into the Lamborghini/Ferrari endgame. Italian cars are crappy anyways. They catch on fire too often.
3 dollar coffees a month, that's 90 bucks. I go through about a bag of coffee a month, at $15 a bag of BRCC, I only save 75 a month. That's only 900 a year extra I have by being slightly snobbish about my coffee routine (french press or cowboy coffee it). Let's also do your eating out example, because habits are not in a vacuum, they're holistic and systemic. Most things I would want to eat at a restaurant are 15 to 20 bucks. I won't get into a decent steak or seafood because that's too easy to prove my point. Let's do, I dont know, chicken alfredo, I made that a week ago while babysitting my buddies kids. I spent like 25 bucks, but that included popcorn and icecream. So 20? This fed a toddler, 6 yr old, preteen and my own fat ass, with enough left overs for lunch the next day for everyone. If we went out, that's 15 for me and then 15 for the preteen and then another 15 to split between the younger ones. So 45 bucks. 25 dollar savings. However, there would have been no left overs. So let's say an extra 20 in savings, 45. Alright, to get just me on the savings, I'm thinking about 6 adult portions. 7.50 in savings per meal for myself when I want a fully proper dinner on average. You say 3-5 times you eat out a week. 4 for an easy average. That's 30 a week, 120 a month, 1440 a year. My average savings for not eating out and drinking crappy coffee is $2,340 a year as a single guy. $195 a month. Thats the advertised payment of a new Jetta. Choosing to be at the whim of someone who brews coffee like shit and people who over charge for super simple meals or doing things myself.
Let's nix the car. Let's think opportunity cost. Are you really maximizing your extra 10 minutes saved ordering dinner? Are you reading earnings reports or geopolitical negotiations? Maybe the latest white paper for next 5 minute programming fad? No. You're watching netflix. Stfu. I watch netflix and cook. Well, that and audible and curiosity stream. I also buy lots of books. And I do the occasional masterclass and random course online.
That extra 2k a year isnt enough to be a market mover. It is however enough to invest in yourself pretty well. Which goes all the way back to my immigrant comment. Your philosophy is investing in the market. That's dumb as hell especially when you're young. My philosophy, and most immigrant families that pinch pennies, is about investing in yourself. I think most people agree that a person's greatest investment is themselves, not outside endeavours. So yea, is that overpriced cup of coffee worth not investing in yourself?
This list leaves off the most important thing -- emergency fund. You should have enough to cover expenses for a sudden loss of employment (3 months is usually recommended, but in this climate I wouldn't feel comfortable with anything less than 6). And esp. if you own a home, you need enough to cover things that pop up without depleting your emergency fund too much. For example I had to spend 9k recently to have a sewer line replaced in the yard.
Yes, you have better return on investments if you pay off that 20% interest credit card. But if you become unemployed, it is better to be able to have that fund so you can keep your house and the lights on.
Once you have more than about two years worth of salary invested in a brokerage account, you don't need a cash emergency fund anymore. You can withdraw cash from a brokerage account instantly, up to a large percentage of your total balance, without selling anything.
This creates a margin loan, and then at your leisure you can sell your investments to pay the loan, only paying a few days worth of interest at most. Or you can keep the loan. The rates are far better than credit cards and there's no minimum payment or required repayment schedule. Interactive Brokers' current margin rate is 1.57%!
1.57% is a lot compared to the ease of just leaving a couple grand in a high-yield savings account. Maybe it's just me but it feels wrong to take out a loan against my portfolio everytime I have to replace my MacBook.
that's not an emergency! And having a few thousand dollars of liquid cash in a bank account is no brainer.
A real emergency might be like a roof collapse, where you need 10-20k to fix. Or a medical emergency, or a family issue where a fair chunk of change is needed. Using margin is a good way, and is much lower interest than a credit card, provided you have the witherall to pay it back.
You can withdraw on margin?! I suppose in a way that's arguably lower risk, but still seems weird. Also think that's quite nation/broker specific, pretty sure that's not an option with T212 or IG in the UK (which provide margin for trading CFDs and the latter limited options too).
Also shouldn't discount overdrafts, pretty sure mine (as in, available to me) is <1.57% equivalent, and 'arranged' I believe they tend to be cheaper or at least much bigger.
Yup. You can buy a house on margin if you like. With Interactive Brokers' rates as low as 0.75% for large balances it doesn't look like a terrible option vs. an adjustable rate mortgage, if your account balance is high enough that you're not risking a margin call.
If the house is an investment, the margin loan interest may even be tax deductible, without the 750k limit that the mortgage interest deduction has.
Sitting on tens of thousands of dollars of cash (six months of income!) in a zero interest rate environment is a mistake that really compounds over the years -- to the point of a few $100k in lost appreciation over your career.
Equities are no longer hard to turn into cash in an emergency. You can pull money out of your investment account the same day using a debit card if need be, no need to even sell your equities.
Keeping access to credit, but not using it unless it's needed, is the better plan. But after several years of saving you won't need it anyway.
Emergency funds are for emergencies, and you never know when an emergency is going to happen. Stock market tanks and you lose your job, bet having all your money in stocks will feel real smart at that point.
It’s about balancing risk management and wealth. That balance is going to be different for everyone, but you always need to be a little cautious.
I like to think of different tranches of emergency too, and keep different emergency funds in different vehicles for each type of emergency. General cooling off of the market? Hold Series I bonds or some security that's pretty much as good as cash but has a small amount of growth. Sudden unemployment? Cash in a money market account. Natural disaster like an earthquake that may limit your access to financial institutions? Cash stuffed in the mattress. The zombie apocalypse? Ammunition and bottled water.
Have a little bit of your emergency fund in each of these.
It's only potentially outdated advice for people that are already financially sound, have a large amount invested, and understand the risks. "Don't keep an emergency fund, just sell your stocks or use credit" is really bad advice for people trying to get ahead for the first time.
If you're trying to get ahead, sitting on six months of cash that could be put to productive (and compounding) use over the course of your entire career is even worse advice.
The 'productive' use of six months living expenses in an account is being easily accessible in times of crisis.
Like, my whole department got let go not long after Covid hit. Had I kept my savings in stock, I'd have sold them at a major loss, because stock market falls and job losses tend to happen at the same time. By keeping some savings separate, you can decouple these things, to an extent. You don't want your emergency money to rely on a good economy.
On the flip side, if you have six months or more of expenses in a brokerage account, you don't need to sell all of it day one. And if you sold a little at a time over six months during the covid crash, it wouldn't have been as bad of a loss.
And you need to compare that loss to what you would have had if you sat on cash for all of the time leading up to the crash too.
I'd be willing to bet keeping it cash would have been worse in most cases (depending on specific amounts and time frames and monthly expenses).
No, it's not. Investing that money would be about the long term horizon. Like, 10-30 years at least. If you're trying to get ahead, your current goals should be getting and staying out of debt, and preparing for emergencies. What happens if you throw that emergency fund in the market, there's a crash, and then you lose your job in six months?
Get out of debt. Build an emergency fund. Start investing. Then re-think your emergency fund strategy if you really want.
If you lost your job April 2020 and all your spare cash was in stocks you'd be forced to eat a massive loss. Given a downturn makes unemployment more likely this isn't an improbable scenario.
Only if you liquidate all your stocks to cash at what is obviously a very disadvantageous time.
In reality, your rent/mortgage and other commitments would continue to fall due at a very predictable monthly schedule.
So you sell down only as your liabilities fall due. The majority of your holding stays invested so you can capture the rebound over the following months.
This is an assumption that some people might say is unreasonable. There have been many times in the past where the rebound takes years.
Although, one might be able to make the case that the political winds have changed to ensure the rebound happened in months. But it’s still a riskier assumption than assuming a rebound in a few years.
I think emergency often means the next financial crisis (at least statistically). During which, you lose your job but also your access to credit. As worsening credit conditions are often the cause of crisis.
Other than that you're right. Maintaining an emergency fund is expensive in term of opportunity cost. Like the cost of any insurance. There is no free lunch.
If it’s only for an emergency, the interest rate doesn’t matter much. Many banks and credit unions offer 90% or even 100% LTV HELOCs at a rate a couple percent higher than the usual 80% LTV.
Yes, this is very true. Emergency funds will make your life so much less stressful.
I will say that his recommendation to buy in bulk is in some way an emergency fund (or an aspect of it) because you're saving money on things you know you'll buy in the future.
One thing I did when I lost a job was move some of my retirement account (roth IRA) to money market funds (from short term bonds). Basically moving some of the bond portion of my retirement from slightly risky to not risky/cash.
Roth IRAs let you pull out your contribution. This was basically to augment my emergency fund, just in case finding the right new job took longer than I thought. (I was lucky, it didn't, and I was able to convert the money market funds back to short term bonds).
Not a fan of pulling from retirement, but if I had to, better to take from the tax penalty free, stable portion of it.
You're a 100% right - having an emergency fund is extremely important and I'd like to add an appendix that mentions it - do you have any good resources for learning about what goes in to building one?
I didn't comment on it because I'm living at home right now and am young/commitment-free enough to move back in with my parents if I ever need to - I don't have one so I feel I'm not qualified to discuss it.
It's simply just putting money into a checking or savings account that you use to cover unexpected expenses. The amount varies by your life situation and risk tolerance, but a couple months salary is a good start.
Think of the sort of "adult expenses" your parents have - refrigerator failed and too expensive to repair, need to buy a new one - that will be $2,000, right now. My teeth need to be fixed - that will be $3,000. It's winter and the furnace broke - that will be $7,000. You want to be able to have the money on hand to deal with those situations. Those were not random examples - those are things that have come up for me in the last two years
You probably shouldn't have more than a few hundred dollars in an emergency fund if you're paying off high interest loans (10%+)
Typically it’s as simple as saving cash enough to cover 3-6 months or unexpected expenses. Fixed income investments are almost so low as to be ignorable but you can put it in a high yield online savings account. The key is for it to be liquid.
"In our financial plan, you will never find the one staple item that every financial planner calls the cornerstone of a responsible financial plan: the emergency fund. We have none. Zilch. Nada."
https://earlyretirementnow.com/2016/05/05/emergency-fund/
If you get fired you can live off severance and liquidate some of your investments.
If you have a contract that includes severance and if you have investments then the ERN plan makes sense. If either of those things is false it’s a much shakier argument.
> Then you can hire a family member, deduct home office expenses and even if you lose money operating the business, you'll save money on taxes.
This entire sentence is “top things the IRS has seen before and will not be amused by.” Sure, you can put this stuff on your Schedule C and get more money in your refund, but just wait until the IRS audits you in 5 years and determines that your family member is not engaging in activities that make them a legitimate employee, your living room is not a home office just because you have a desk in the corner, and since you’re making continuous losses and not operating in a “businesslike manner” your ‘business’ is actually a hobby; and then sends you a bill for back taxes plus interest and penalties.
(Sure, those are all actual deductions, but if your mindset is “legal tax evasion” and not “this is a business expense” you’re probably not qualified to take them.)
100% agree, I started getting very suspicious of this article at that point, and then gave up completely when they said 30% of their assets were "invested" in virtual NBA trading cards. This is not good advice.
> Pay down any debts greater than 7% per year (7% is the average yearly return for the stock market)
Pretty poor advice imo, it's comparing a risky versus a risk-free return. Paying off a 7% interest nets you that return, guaranteed. Investing in a 7% stock market nets you that return on average, but it could be -30% that year, too. Volatility and risk requires compensation for it to simply be accepted. Where the threshold lies is hard to say, but I think it's much more sensible for example to pay off a 5% interest in lieu of investing in a volatile asset class that does 7% on average.
> If you have the space, buy products you're guaranteed to use in bulk on sale
That's true but, space comes at a cost, too. A square metre in a city costs about $6000. I'm not interested in buying 'years of supply of toilet paper' on sale and getting into the business of storage at the most premium price (residential real estate) level. Not a bad suggestion but shouldn't be in the top 50 I think, let alone as point nr 2.
Alright the rest is kinda of mediocre, not really worth going into. There's so much much better personal finance advice out there, even one-pagers out there, that this isn't really worth discussing.
> Pretty poor advice imo, it's comparing a risky versus a risk-free return. Paying off a 7% interest nets you that return, guaranteed. Investing in a 7% stock market nets you that return on average, but it could be -30% that year, too. Volatility and risk requires compensation for it to simply be accepted. Where the threshold lies is hard to say, but I think it's much more sensible for example to pay off a 5% interest in lieu of investing in a volatile asset class that does 7% on average.
You'd be right, but also consider than 7% is the real, not nominal, long-term return of the S&P500; the nominal (pre-inflation) return is 11%, and that's what you should compare to interest on debt.
That’s the view of people who have grown up during an ever rising market like the last 12 years and think that’s just the way it always is. The picture changes once there is a huge drop in the market like 2000 or 2008. Then the debt may come to haunt you. Especially if you have lost your job during that period.
This may be even fine if you have a well off dad that can support you during hard times. If you don’t have that yi7 will regret the debt for a long time.
The picture changes again on even longer time frames. Stock growth rates have been remarkably consistent over the past couple hundred years. Even the Great Depression is barely visible when you look at the largest sample we have. (Although, obviously one must discount a little for Keynes' objection about the long run.)
Most people didn’t have a timeframe of 100 years. More likely something like 30 or less. If there is a downturn during that time and you don’t have enough cash to avoid touching your principal you can quickly have a problem. For example let’s say stocks have a downturn and you have a serious health issue it’s very possible that all your proceeds are gone and you don’t have any money to reinvest when the market goes up.
> That’s the view of people who have grown up during an ever rising market like the last 12 years and think that’s just the way it always is.
No, which number is the right pcomparison to be apples to oranges before considering risk has nothing to do with that.
Interest rate on debt is directly most comparable to nominal return on investment, not real return.
I haven't discussed at all what the correct risk premium to assign to stock market investment based on its historical volatility and what interest rate that would suggest is appropriate to consider equivalent on a risk-adjusted basis, either for some presumed generic investor (which would be meaningless in concrete terms) or in any concrete investment scenarios.
If somebody is actually new to personal finance or investing, I would be careful with a lot of the stuff in this post. You're likely better off reading the r/personalfinance wiki, the r/financialindependence wiki (even if you're not interested in FIRE, there is a lot of extremely useful advice), and the Bogleheads wiki.
I read most of this article and this person is young and single. Even given that, there is some astoundingly bad advice in here (eg, the “I recommend 30% in crypto + individual stocks”).
I think a better analysis would be to compare their personal strategy against a baseline one: ie, if they had invested everything from the beginning (including their NBA cards!!) in a total market index fund.
I think it is fine to engage in lots of strategies, including investing in individual stocks, but that should not be included in a portfolio recommended to others.
> Get used everyday (Ex. Nice pants, laptop and phone).
> Come in between you and the ground (Ex. Mattresses, chairs, winter tires).
Lately I've been hearing from friends and marketers "you use your mattress for 8+ hours a day so you should spend $2k on it" or something ridiculous like that. But I can't help feeling that it's bad advice.
You should decide to spend money when the marginal benefit that you get out of those extra dollars is higher than some threshold, that's it.
If you spend an extra $1500 on a mattress that isn't any better than a $500 one, then you've wasted $1500, regardless of how much time you spend sleeping on it.
On the other hand, maybe it's a good idea to spend an extra few thousand dollars on safety equipment for your woodsaw that you use for your occasional weekend hobby, if it means you don't lose a finger one day.
I think this goes together with the "don't buy cheap" rule. If you spend $100 on a mattress after a year or two it'll be ruined (and probably not very comfortable to begin with), so it's better to invest say $500 (random number, I have no idea how much you should spend on a 'good enough' mattress) to get something better quality.
But yeah as you say, after a certain point it's diminishing returns. A Corolla will get you to work just as well as a Porsche, but that's not why people buy Porsches.
I may, in less experienced earlier years, have bought a needlessly semi-expensive >$1000 mattress. Even then, after sleeping on it for almost 10 years now, it has amortized pretty well. $100 a year isn't really something to worry over much, and saving half of it makes less of a difference than reducing coffee consumption for example. The cost per year still keeps falling.
Even a $2000 mattress wouldn't be a giant expense compared to frequent & more expensive discretionary spending that people casually indulge in, such as new flagship smartphones or desktop CPUs/GPUs after 2-3 years, more than a single streaming video service or (God forbid) a car if bike+transit is a viable choice in your area.
Nowadays I'd go about mattresses a little different, but in the grand scheme of things? Not even a blip.
$400 to $600 is the price Hilton/Marriott/Hyatt/IHG negotiated with Tempur Sealy and Simmons for their hotel mattresses. They come with pillow tops and don’t need to be flipped.
There's a pretty fun subreddit satirizing this mindset. Eat lentils, drive a 2003 Corolla, save every penny for retirement. https://www.reddit.com/r/PFJerk/
Also, just in case anyone needs to hear this, starting your own company is not carte blanche to deduct all your living expenses, hire your spouse, etc. There's a lot of folk beliefs around this circulating on the internet, and following such advice without doing the legwork is a good way to get yourself into hot water with the IRS, or your local equivalent.
Personally I never set up auto pay. Why? Because it hits a little harder (and you pay more attention) when you're actually typing it in every month.
Sure, there's a risk I might miss a payment and get dinged, but you're guarding against Comcast quietly raising your bill $25/mo, or not realizing how much you're truly spending on your credit card every month. Otherwise I agree with the list.
Once you have eight different things you need to pay a month it becomes way too time consuming to manually pay bills. Easier to just set up a mint account and check your finances once a month.
I'm calling BS, I have more than 20 credit cards, a mortgage, and utilities and I don't find it time consuming to manually pay everything (and my mortgage has no escrow)
I call bs on the fact that you don’t think manually paying 20 bills every month is time consuming. Set a timer next time then multiply to see how much of your life you are going to waste doing that.
Also, in adverse circumstances, harm can pile up faster and higher if you have your bills set to auto-pay. In the US, banks typically charge an overdraft fee for every transaction that overdraws an account, so unless you keep a generous liquid cushion in your checking account, one mistake on anyone's part (perhaps yours, or ACH, or your payee's autopay sytem, or your employer's payroll, or your other bank, or the person who stole your debit card) could put you hundreds of dollars in the hole.
To avoid this, you need to know that you have enough at the correct time in the correct place, and if you're doing that, you might as well click through each payment yourself.
If you're in a tough spot, this also gives you the option to make partial payments against credit cards and incur some interest, which is almost universally a smarter choice than incurring an overdraft charge against your bank account.
Should have clarified I meant regular recurring priced bills power/water/internet/phone/investing.
I definitely missed it when Verizon upped my bill by $10 a month. But on the other hand I've never had a late fee and I get an hour back a month. So on net I'm positive money and time ymmv.
May I suggest auto pay with notifications? I’m a forgetful person, so this lets me avoid late charges while keeping me up to date on my payments. Most banks will let you set a threshold for transactions, above which it will send you an email or SMS alert.
Some nits to pick (well a few of these are bigger than nits, to be honest):
The gains available via #1.2 are probably not all that significant, depending on your household income. Maybe you can eke out $1000 in bulk purchase savings per year, but probably not even that much. Regarding TP, buy a bidet for $20 on Amazon instead, and spend insignificant money on toilet paper for the indefinite future. This is actually a great example of how this advice could be substituted for a better one: find ways to consume less that don't hurt your wellbeing.
#1.3 is fine, but the graph is misleading because it uses far too optimistic a rate of return -- at least twice as good as you can expect to get in the market after you factor in inflation.
The point about giving gifts in #2.1.1 is incorrect, as far as I'm aware. Actually gifts are normally not a good investment, because most times people don't get that much out of them. Maybe you have a friend that really loves receiving gifts, but even then, this shouldn't be a significant fraction of your annual spend. Economists have done research on this subject, and gift giving is pretty inefficient on average.
Likewise, travel is great, but it is not automatically on the list of things you should spend on. It depends on how you value it. I see no reason to believe that travel falls into the category of things that "make you better." It's a conspicuous consumption good, at least the way most people do it.
#3 The term for this is tax avoidance, not legal tax evasion.
#4 It's good to see you are divesting of the riskier aspects of your portfolio, because these positions are nonsensical. For most investors, it's probably best to stick only with whole market ETFs. Tech sector has been doing great for the last twenty years, but there is a lot of regulatory risk for the sector currently. Past performance is not necessarily indicative of future performance.
> If you have a company, incorporated or not, you can write off lots of things as business expenses like transportation, buying new equipment or rent for co-working spaces.
Is this accurate? From what I've learned, unless you make some acceptable amount of revenue, constantly expensing "business expenses" is considered very suspect by the IRS, and is illegal... please correct me if this I'm wrong here...
(US-specific) You're correct, particularly if the business continues to declare a loss year after year (which it would if it was created as an excuse to itemize business deductions). While making a profit is not required, the activity must be "engaged in for profit," ie, you must be genuinely trying: https://www.irs.gov/pub/irs-utl/irc183activitiesnotengagedin...
More practically, if a business continues to declare a loss, especially with little or no revenue, it will stand out. In an audit, the IRS considers 9 factors. Quoting:
1. the manner in which the taxpayer carried on the activity,
2. the expertise of the taxpayer or his or her advisers,
3. the time and effort expended by the taxpayer in carrying on the activity,
4. the expectation that the assets used in the activity may appreciate in value,
5. the success of the taxpayer in carrying on other similar or dissimilar activities,
6. the taxpayer’s history of income or loss with respect to the activity,
7. the amount of occasional profits, if any, which are earned,
8. the financial status of the taxpayer, and
9. elements of personal pleasure or recreation.
A profit-seeking motive is presumed if a profit is declared in 3 of 5 consecutive years.
That ninth factor covers something called a "hobby loss":
"(9) Elements of personal pleasure or recreation. The presence of personal motives in carrying on of an activity may indicate that the activity is not engaged in for profit, especially where there are recreational or personal elements involved. On the other hand, a profit motivation may be indicated where an activity lacks any appeal other than profit. It is not, however, necessary that an activity be engaged in with the exclusive intention of deriving a profit or with the intention of maximizing profits. For example, the availability of other investments which would yield a higher return, or which would be more likely to be profitable, is not evidence that an activity is not engaged in for profit. An activity will not be treated as not engaged in for profit merely because the taxpayer has purposes or motivations other than solely to make a profit. Also, the fact that the taxpayer derives personal pleasure from engaging in the activity is not sufficient to cause the activity to be classified as not engaged in for profit if the activity is in fact engaged in for profit as evidenced by other factors whether or not listed in this paragraph."
tl;dr: If you have meaningful revenue relative to expenses, it's probably a business. If you don't have meaningful revenue, then the other factors should be in your favor instead.
I'm a voracious reader of personal finance tips and they seem to break down into 3 categories:
* Focusing on selling you something: books, training, high commission investment vehicles etc
* Telling you what worked for them: usually it's lucking into a good property market or options. This article firmly belongs here, but that was a fun twist -- 35% invested in beanie babies... er virtual basketball cards
* and tax advice
Why would you but ZQQ with expense ratio of 0.39% ? Its basically just a bunch of tech stocks, which one could buy themselves. Someone who is beginning into this journey, I strongly recommend learning from boggleheads [1] forum.
For me, any non-trivial purchase I put on a list. If I'm still thinking about buying it a week or two later then I'll buy it. This not only saves money but saves clutter as well.
I don't think Ray Dalio has ever given much investment advice beyond "diversify into everything". I think his next book is supposed to cover some of that though.
This is bad advice from a person who appears to have no success or real experience as an investor at all.
It’s not even the good kind of bad advice, like presenting a unique or novel alternate perspective. It’s just a mishmash of ideas that don’t make much sense.
Why it’s on the HN front page is a bit of a mystery.
> Pay down any debts greater than 7% per year (7% is the average yearly return for the stock market)
Don't even think about investing until you do this, not being charged 15% a year in interest and penalties on credit card debt gives you a 2x higher return than the average investor
I feel like this should include inflation. Granted, low rates have become the standard, but I think people should be aware of how higher rates can really change things. If the inflation rate is at 10%, and you can get 7-8% from a Cd, then that debt isn't looking so bad.
When comparing interest rates to market returns, I think the fact that markets have returned net negatives for some ~5-10 year periods, and have returned net nothing for I believe some ~15+ year periods, should be included. Only compare interest to debts to the market over multi-decade time periods, and keep in mind that some long tail events may still not be captured.
Msc Finance + CFA chartholder here. The advice in this post is not that bad. However over years of speaking to friends and sometime strangers about their money problems, I would like to share a few things.
In order of magnitude, here is a list of factors which can have an bad impact on your personal finances
1) Mental Health. Any addiction or any other mental health problem with a low impact on your budget will, at some point, explose and affect your life negatively. Ex: you have a burnout and don't manage it well, you become irritable with all your colleagues and make your professional network smaller. If that 4$ coffee makes you happy and gives you the opportunity to chitchat with the CEO every morning, it is a good investment.
2) Toxic relationship. A female friend of mine wasted 4 years of her romantic life with an alcoholic based on the belief that "she must take care of him in order to be a good person". When she finally left, she went on party mode order to be busy and not go back with him. Five month later, she could not understand where this 10k on her credit was coming from.
3) Understanding the hidden expenses related to your work. Do you want to become Mr. Big Short on wall street? I mean if it's really what you want, go for it. But the money you will make can become a prison. In order to climb up the rank of your firm, you will have to network with specific people, go to the same expensive gym, purchase luxury items and lifestyle to impress them, get a trophee girlfriend to increase your status, etc. You have to spend a lot to make a lot. I view it as a hidden tax.
4) Stupid debt. Debt in itself is a way to raise capital for an investment. A rule of thumb is that the duration of your debt should match the duration of your asset. Ex: you take a 25y mortgage to be in a house where you plan to raise your family for 25y. Ideally, your asset gives you an economic benefit and helps you pay the debt.
If you are in your twenties, I recommend you to learn...
a) ... to take care of your mental health. Manage anxiety, meet a psychologist, start to meditate, choose your friends carefully. Down the road, it will compound much more than a lucky jackass who made a few $$$ gambling with Gamestop or bitcoins.
b) ... the fiscal rules of your country. Compound investment is nice, *if it isn't taxed*. In the US these are 401k, in Canada RRSP and TFSA. Also, different contry treats the interest payment on some assets differently. Ex: in the US interest payments on mortgage are tax deductible, in Canada they are not.
c) ... the impact of employment benefits. Some employers will give you a defined benefit plan, while others will not. It completely change your investments and saving needs.
Best strategy with a >10yr timeline is 100% S&P 500 in a free or low cost index fund combined with minimizing taxable income and backdoor ira if applicable.
Then Just about anyone can retire with >=1.5MM and be doing ok. Of course double this number if you are in VHCOL but otherwise it’ll work just about anywhere.
Awhile back I wrote a short series describing my own system. It is radically simpler than the system described here and might actually be useful to some people.
> generally look for quality items with lifetime warranties, 1 coat that costs $1000 but lasts 30 years has better ROI than buying a $100 coat every other year. Plus it's less mental strain since you don't have to think about replacing it and you'll get to use something you actually like.
This is a common thing I hear, e.g. the rich man/poor man parable about boots, but I have never been able to give it real credence. It just isn't a realistic choice, whether we're talking about coats, boots, beds, knives, or whatever.
First, I cannot assess the value of a good I do not yet possess to a sufficient degree to determine if it will really last, and will be something I'll 'love' for >5 years, and I wouldn't trust any company to actually honour a "lifetime guarantee" on a meaningfully expensive purchase. Very few of those are even advertised.
Second, trying to make that sort of assessment for most purchases sounds extremely stressful. What if I go wrong? A lot of business depends on tricking un-knowledgeable consumers into spending big money on perceived-but-false "quality". One mistake puts you way in the hole overall in this cost/benefit analysis, and the internet is full of shills.
So rather than trying to find the coat that's "really worth" $1000, and hoping beyond hope it'll last 30 years without any way to tell, I will spend ~$150 on a coat, and it should last ~2-3 years.
I learned how to mend buttons and sew small tears, and my actual coat that I bought for ~$150 lasted almost a decade before it was done. I spent 5 minutes at the first store I found in the mall, way back in college, and just asked for something warm. Last year, I did a lot of research and I spent $700 on a new coat, and it had lost a button and gained a hole in its pocket within a month.
I have a more controversial take overall:
Wealth is, unfortunately, only really available to the lucky, so most of this just doesn't matter.
I'm comparatively lucky, (I was born in North America! I have a ton of majority privilege! I liked computers!) but I don't have connections to anyone from any top 10 schools, and I am unlikely to even ever work for a FAANG.
Living frugally and intelligently investing will likely make the difference between whether or not I can take vacations during retirement, and maybe move the retirement date around by 5-7 years, provided I don't actively throw my money away on things (like GME).
But becoming "wealthy"? That would require a lottery-type win. The literal lottery, or the startup lottery, or similar. As a ~30-something, (hopefully) competent, privileged urban software engineer, with a decent scholastic and vocational pedigree, actual wealth just probably is not in the cards, no matter what actions I take.
So (again excepting learning not to throw all my money away), I just can't make myself feel like personal financial advice really matters overall. Either I win the lottery someday, or I don't.
I'm curious though, to anyone still reading, what makes it matter to you?
Plenty of people create wealth in the second half of life. But not by going to a regular 9-5 job. Typical middle class behavior leads you to average middle class wealth (i.e. very little). People amass wealth by creating businesses that scale (not necessarily software, either) and focusing on the accumulation of income producing assets. May or may not be possible for you, but it’s not because of your age.
I don't think I was very clear because I agree with you, but I'm also confused by you -- my age wasn't meant to be a key part of the post. It is there to show that I should still 'have time' to create wealth, but doing so is not assured, even if I'm very frugal.
Mere work and knowledge are not sufficient to create wealth, regardless of how they are applied. Many people work, and even work intelligently, and also save, but they never make or have wealth. To your point, many smart people start and work very hard on businesses, but they still do not succeed beyond a normal salary's value. Luck remains necessary, and I would argue, is often sufficient. Even just avoiding the bad luck (health, family crises, economic downturns) that can derail a nascent business.
The luck surface area concept definitely comes into play here, but I feel the money habits touted by r/personalfinance and similar don't really have much impact on wealth-luck, only on slightly nicer retirements.
With a few hours to think about it more, I have softened in the view a little, though: I think they help with creating a cushion. If you're going to do something stupid, doing some smart preparing first may really help you recover.
But I still don't think it's worth trying to find a 30-year coat.
I feel awkward posting again but I couldn't help but point this out once I had noticed: if you spent $1000 on a coat that's good for 30 years, in 30 years you'll just have one very old coat.
But if you spend $100 on a crappy coat today, and invest the other $900?
Assuming you can swing a 6% average return over 30 years, you'll get ~$108 interest every 2 years. Buy a new coat with that and repeat, and in 30 years you'll have a new coat, 15 old ones (to sell?), your original $900, and ~$120 extra!
Hedging against inflation buy purchasing an unproven hype currency that very few people use as a currency (it’s more like a tulip) makes little sense imo. Buy crypto if you dig the hype and get fomo, but if you actually wanted to hedge against inflation you’d starting hoarding gold or silver.
If somebody told me they have a third of their assets in virtual trading cards I would either guess that their net worth is max $1000 or conclude they are completely nuts and won't take this person seriously.
Two days ago there was an article on people spending hundreds of thousands on digital cryptoart, from Beeple[1]. It's just like the art you already downloaded/saw, but with crypto & rights to it. It's a mad world.
I have a hard time taking the coinheads world seriously. Humanity though persistently finds idols to attach itself to, and once people begin professing their belief/dedication via dollars, it's incredibly hard & there seem to be extremely few checks on these snowballs rolling down hill. Things just grow. The cost to keep them alive & rolling is zilch. More and more folk eventually get rolled into the snowball every day. Humanity has a really weird sense of value these days. Some severe decoupling from the physical world about us seems the norm. Very Ballard-ian, a recursing into the virtual, escape from the real, ever the ascent of the symbols/symbolic, only occasional check-ins with what actually is.
If he spent $1k on this because he truly enjoys it and it went up 100x is that reason to not take him seriously? It’s a good list. Yes this allocation of assets stands out and needs more explanation... but it doesn’t invalidate the rest.
Yeah totally fair point - bought those cards half because I'm an nba fan, half because I thought they'd pump - I def don't think this makes me a good investor I just got lucky. I put in less than 10% of my net worth in for fun - it just ended up growing. Verify here if you don't believe me: https://evaluate.market/accountValuation?externalUserName=aa...
As for the rest of the portfolio, don't emulate it! Do what works for you, that's what the section below is for - I'm just being transparent. Most definitely consider more credible people, I just hope my suggestions might save people from the devil that is inflation.
It makes you a terrible investor - 10% was already a bad move - but holding them now that they are 35.5% of your net worth is insane. Yes it might work out again but so does playing the lottery.
A. They are young, that makes all the difference in the world. You should take more risk when you are younger.
B. You don’t immediately sell your risk bets when they start making you money, it completely mitigates your upside. Knowing when to say when is hard, but the general philosophy of removing the risk bets when they are making money is a bad one methinks.
Sell half once it doubles. Then you can tell yourself you're playing with the houses money and you never sell unless you realize it's a bad investment.
This doesn’t add to your credibility :). Your net worth is peanuts right now but as long as you are thinking about it this hard you will have a whole truckload of peanuts in 20 years.
> This portfolio was made when I was young and stupid. I do not recommend this for anyone and am slowly selling off my more risky positions [...] Do as I say, not as I do.
My money is resoundingly on yes. I'm deeply cynical about NFT's the same way I'm cynical about Beanie Babies and Pokémon & MtG cards. It's not for me, but I get it, and they'll likely do quite well in terms of investment returns.
To me, participating in these markets is akin to telling people you have a hot tip on a game of musical chairs where you know when the music is going to stop.
I've played those games successfully, a la GME and BTC. But I don't feel good about the proposition. I feel more and more that Charlie Munger is mostly right on this one.
You say you don't like hold inflation and then suggest 20% cash levels...hold no cash.
Also, and this is something that I have say every time these days: hold more quality stocks, and diversify geographically.
The mistake with not holding quality stocks is a weird one. I worked in financial advice (research, not an adviser), and there was this adviser who was 20-30% in EM stocks...the logic being back then (in ~2012, before EMs really started underperforming) that you want to own volatile stuff because volatile stuff outperforms in the LT. Now this isn't true, I knew this wasn't true then but people automatically think that volatility=returns. It doesn't, the opposite is true. Volatile, high-beta stuff will underperform. The point of my example is that even people who should know better don't know this.
Everyone owns too much US tech. If you are 100% equity and leverage constrained then geographic diversification is a genuine free lunch. Maybe we are seeing some secular change in equity ownership akin to the financialisation of savings in the 80/90s...we are not...and even if we are, you can own other countries going through the same change, no reduction in upside, more diversification.
Also, you should consider options. No need to do anything crazy like selling options but volatility is, generally, pretty cheap and a way to reduce your downside without reducing upside (in fact, you have actually been paid to reduce risk...people really love picking up quarters in front of steamrollers...let's assume this won't continue though). This isn't for everyone though, some people don't care about volatility, and this strategy is only very profitable if you can lever up your beta (although I know a fund that finished the year up 20% unlevered, running zero market risk because they had a put-buying strategy). There are very few ways to reduce risk in this environment, options is one (bonds are another, you need to go quite far out to hedge out equity properly though).
Also, the long-term real return from stocks is ~300bps. I think you say 6-7%, that is really best-case imo (it is not self-evident, to me at least, that the US just hockey-sticks forever).
Granted, it could be that the SP500 or the US over the past half century is not representative of equities over a longer time period, like a century, but in that case I don't know what is.
Yes, all of those things aren't representative. I have no idea why people use the last fifty years, that is roughly your investing life-time, and you are using that as your only sample. That isn't investing, that is rolling the dice and hoping to get lucky.
Dimson, Marsh, Staunton is the only representative long-term study of global returns. One, that sample still has selection bias (a couple of years ago, they found an issue with calculations for a market that went to zero, that knocked 10% off their estimates). Two, very bad events happen infrequently so you have a sample of a few thousand years across many countries: German hyperinflation is one year, Austro-Hungary is two years, China is a few years, etc. So there isn't a huge sample of very bad things given that capital markets have existed inconsistently for two centuries only. Three, there is a discontinuity between how finance professors look at the past, how investors today percieve the past, and how the past actually was. As an example, after WW2 equities did very well...one problem, the US had to issue a tons of govt debt, and forced everyone to own bonds. The sample doesn't really show that most people couldn't own equities. Equally, transaction costs are often not well understood (i.e. the assumption is that you can produce a market-cap weighted portfolio, and these effects are correlated to returns: when you can't produce a cap-weighted portfolio, returns are high because participation is low). But yes, their number is ~300bps real...I would emphasize though that you should actually read about market history, and understand the risks.
Are you sure about that? Summary Edition Credit Suisse Global Investment Returns Yearbook 2020, by Dimson, Marsh, and Staunton have (page 23) world mean real returns from 1900 to 2019 for equities at either 5.2% or 6.6%, depending on whether you look geometric or arithmetic mean.
I could see 300bps real for a mix of equities and bonds, but equities alone appear to be much higher.
I would Google Equity Risk Premium. I believe your estimate is correct but that assumes a risk-free rate of more than zero. The risk-free rate is close to zero, which is why DSM forecast ERP of 350bps (and I believe their data still has survivorship bias). Also, remember that we are quite near the top in a market that is 50-60% of world share, so I would be conservative about projections when the end year is favourable (as an example, Stocks for the Long Run had a very big estimate of long-term returns in the late 90s...that fell in the subsequent years).
While the point is true, I think your time is best spent worrying about other things.
90% of money problems seem to come from a few things: * Expensive cars - bought with debt. * Expensive housing - again bought with debt. * Expensive schooling - even more debt.
I've never bought (pun intended) the argument that dining out in any form (including coffee) even comes close to these other items. Even if you're eating out 3-5 nights per week, it's just not expensive enough. I guess if you're always feeding a family of 5 and buying expensive bottles of wine while you eat, then maybe.
I also think that time spent worrying about trivial stuff like coffee would be better spent trying to make more money.