What personal finance tips do you have?

What personal finance tips do you have?

…asked by Sebastián Araos

Spend less

Spend less money than you earn. You can’t get ahead by spending everything you earn, or by spending more than you have; using credit cards to amass debt. Save as much as you can. Ideally you would save at least 15% of your earnings.

Pay off debt

If you have debt, especially credit card debt, pay that off as quickly as possible,


Most people are better off investing in broad-based index funds (i.e. S&P 500) as investing in stocks is too risky and requires too much in the way of time and skills. While investing in index funds light mean that you would never outperform the market — as you would be investing in the market — it also means that you would not be under-performing the market. Given that roughly four-out-of-five professional money managers under-perform the market in the long run, you are likely better off simply investing in the market itself.

Start early

The earlier you start investing, the more you will likely have. All things being equal — including the amount invested, someone who starts investing early will have more than someone who start later in life.

If Betty invests $5,000 a year from age 21 through 29, and then never invests any more money, assuming an 8% annual return, she would have $1 million when she reaches her 65th birthday

Conversely, if Bob starts investing $5,000 from age 30 through age 65, (assuming an 8% annual return), he would have about $930,000.

Betty only spent $45,000 — 9 years * $5,000 per year. She didn’t invest any more money after her 29th birthday. She simply let time and the magic of compoundingdo the work for her. Bob spent $180,000 — four times as much as Betty spent — and ended up with less money than she did, all because he started later in life than Betty did.

Start early, invest as much as you can, continue investing throughout your life. The more you invest and the more time your money has to grow, the more you will likely have. If Betty continued investing $5,000 every year until her 65th birthday, she would end up with about $2.1 million. Starting nine years earlier than Bob caused Betty to have more than twice as much money.

originally published on Quora

Have a question?

If you have any personal finance questions, please send them to info (at) dollarbits.com and we’ll try to get them answered as quickly as possible.

Add Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.