Assuming I have a time horizon >10 years.
Edit: thanks for all the replies!!
Yes, and actually with low amounts of money to work with you can make your contributions very efficient. To best spend save for retirement, choose the first option from this list that applies to you (and if you are able to save more later, go down the list after exhausting each option):
- 401k up to maximum company match
- pay off high-interest (>4%) debt
- IRA up to the contribution limit
- investment-type HSA up to the limit
- max out 401k contribution
- personal investment account without tax advantage
For most people, it’s recommended to use a traditional 401k and a Roth IRA, but it varies by situation. As for what to invest in, I would recommend a popular low cost ETF or index fund, like Vanguard or SPY. You can also look into ESGs if you want to do good with your money, but your expected earnings may be lower. I’m in ETHO and TICRX.
You might check out fire@lemmy.ml or personalfinance@lemmy.ml if you have questions about getting started.
Yes. So much yes.
The others have made great points about how any amount adds up. Especially with compounding.
But the most important reason me just be making it a habit. If you are saving $50/month you have a place to put your savings and an investment strategy for that money. The next time you get a pay raise or get rid of some recurring spend it will be natural to start saving $60/month, then $100 and more and more. It is much easier to improve an existing habit than starting a new one. So as soon as you have the chance start that got habit.
Absolutely 100% yes yes yes.
Compounding is your friend. You can play with the values all you want, but this calculator showed me that if you deposited $50/month at 5%/year compounded annually, you’d end up making >$1800 in profit over ten years. Realistically, you should be able to get a better rate and shorter compounding periods once you’ve passed the threshold amount for a mutual fund or GIC.
And that’s assuming you never increase your deposits.
Realistically, whenever you get a raise you should assign some of it to increasing your monthly payments. Your goal should be to increase your payments faster than inflation. Get a $2/hr raise? That’ll probably add $250/month to your paycheque after taxes. You should be able to squirrel away $25/month from that at least.
Here’s a great piece of advice from The Wealthy Barber (Canadian financial dude): Pay yourself first. See if you can get your investment amount taken directly off your pay, and then you’ll never see it, thus be tempted to spend it.
His other advice is to set a goal of 10% of your income to invest for retirement. Seems like a lot, but it’s doable for most people who are talking about investing anything, like you.
Remember: The biggest factor in how much you make from investments over time is how early you invest. Invest now. Invest regularly.
Yes. Investing is always worth it unless you have credit card debit.
Set it up to automatically invest into the lowest fee index fund your broker offers.
The lowest fee ETHICAL index fund. Careless investing is how we got evil corporations.
Can you recommend a single ethical index fund? I’ve been searching for the past decade
Every time I find one, I look at their holdings and see companies like Google, Meta, Tesla, and for profit banks.
Unfortunately, there aren’t many ethics in the world when it comes to money.
Several funds in my bank have ESG in the name.
https://en.wikipedia.org/wiki/Environmental,_social,_and_governance
Other terms in their fund names: fossil-free, climate, forest, sustainable agriculture.Their claims about them:
in Finnish:
https://www.s-pankki.fi/fi/private-banking-ja-varainhoito/vastuullisuus-ja-vaikuttavuus/vastuullisuus-sijoittamisessa/
in Swedish:
https://www.s-pankki.fi/sv/private-banking-och-kapitalforvaltning/ansvarsfullhet-och-paverkan/ansvarsfulla-investeringar/
For machine translation, probably better use Swedish as the source because it shares the Indo-European language family with many of you readers’ target languages, and has more speakers so maybe better translation engine training too.ESG in the name
Place to start but once you dig into it, it’s not great either. A lot of the evaluations basically boil down to negative externalities, namely making sure that somehow whatever is problematic is NOT accounted for. That’s how plenty of ESGs end up with … other banks as stocks. They “abstracted themselves away” from problems whereas in reality they are funding the problems.
I wasn’t trying to say that ethical funds don’t exist, I’m well aware of them. I was saying that when money is on the line, loyalty and ethics often end up second place.
I’m in the sidelines and I didn’t know they existed and wanted to know more so I’m glad they posted it anyway
These are pretty cool and I didn’t know about them! I’m pretty me to investing, do you just look up ESGs or something?
The post didn’t ask for ethical requirements to be included in the advice.
Appending additional personal requirements turns the conversation towards one’s personal soapbox.
The post didn’t ask for ethical requirements to be included in the advice.
Right… everything does have ethical requirements though. As soon as a member of a society does make something that impacts themselves and others it has ethical requirements. Some examples :
- voting (obviously)
- buying a Xmas (avoiding slave labor)
- selecting toilet paper (limiting pollution)
- buying a coffee (fair trade)
- paying an electricity bill (source of the energy)
- posting on Lemmy (avoiding centralization)
Everything, literally everything we do, has ethical requirements. We don’t have to say it because it’s implied.
Now… if you are genuinely curious about the topic I can only recommend https://en.wikipedia.org/wiki/Ethics_in_mathematics showing that even in the most abstract field, there are ALSO ethical requirements. Nobody can avoid that.
Not funding companies that destroy the planet and kill people is basic decency, not personal taste.
100% anything you can do is great.
My girlfriend and I have each been putting $50/month into an investment account instead of paying for insurance for our dog, that way if she ever needs a big procedure I can pull money from there if I don’t have the savings for it. We’ve been doing this for 3.5 years and have now built up a good amount! I’ll divide the numbers roughly in 2 so you can see what you could be looking at:
Total $2750.
Deposits $2200.
Gains $550.That $550 will cover two vet visits if you’re lucky
Still better than pet insurance though, which is a scam (I mean all insurance is but especially pet insurance)
I don’t know about that. Both of my cats would be dead if not for pet insurance. One needed a $10k surgery this summer that I was able to afford because of my pet insurance. The other had $4k of surgeries the year before. Both instances my insurance covered 70%. Neither of my cats are much more than 5 years old, just bad luck with their health.
Right that’s about all they cover, the freak stuff that costs thousands. But for routine visits, vaccinations, and even small conditions that aren’t life threatening, they’re useless.
Correct, but thankfully that won’t be a surprise since it is evident when you are enrolling. It’s up to each pet owner to decide if that’s worth it.
In our case, a few hundred dollars per year to make ER visits financially bearable is a good value.
Pet insurance is a good thing for people with a large number of animals - particularly rescue animal boarding.
For most people though, no.
It would be worth it with even $10. Do it.
Yes, in 35 years with compound interest that would end up between 35-85k ;) sounds great to me
$50 per month for thirty five years saved with no interest at all is $21k, so I can absolutely understand the point of view that it’s not worth it if you’re currently struggling to scrape by to wait 35 years for what might be just an extra $14k
If that $50 has literally no other use to you, then great, if that $50 can provide fair value for you now, it’s a much tougher decision.
I blew a lot of my money when i was younger, something I don’t regret spending lots of money on is decent tools, they can last a lifetime if taken care of and can save you money in the long run if you learn to do your own work. Sometimes stuff now is a better investment but it can be super specific depending on your situation.
I absolutely agree. I used to have no choice but to buy budget and have to deal with it when stuff inevitably failed and broke. But now I’m much more financially stable, I made a commitment to buy quality when I can, the old “buy once, cry once” mantra.
With clothes I’m in the best of both worlds. I’m a proper hawk for charity shops and if you’re patient you can get both budget and quality. I bought a £100 shirt for £3 the other day and it looked like it had never even been worn, there’s no reason it won’t last me decades if I look after it. Good riddance to TK MAXX and fast fashion. Charity shops are especially good for suits and smart shirts as a lot of men only get them out for interviews and weddings, meaning they are usually in great condition and can be bought at a tiny fraction of the original price, you just have to be patient waiting for ones that are the correct size for you.
Taking a step further, if the last thirty five years are any indication, that future $21k would be worth less than today’s $10k.
Besides, to overcome inflation, you’d need to average double digit returns on your investment every year for half a lifetime.
Like you say, it’s a tough decision if there’s anything that can provide you value now. Not to argue against savings, but expecting it to grow exponentially with no effort is folly.
To overcome inflation you need returns higher than inflation. That’s it. Historically the markets outperform inflation. You’re saying things out of fear and not reality.
Funny how a mistake in a single sentence earns vitriol on the entire comment.
Despite what I’d mistakenly wrote, I meant that to overcome inflation and see a return of double to quadruple your investment - which is what the comment starting this thread suggests as the outcome - you’d have to beat the market by around 10%.
Regardless, my point was more to do with whether someone with only $50 to spare a month is truly in a position to invest in anything or whether they might be better off saving it for a rainy day or something like that.
If someone has a few dollars to spare come month’s end, but has found themselves skipping the odd meal, that money would probably be better spent on a small grocery trip than putting it into an ETF that’ll take years to turn a profit.
Regardless, my point was more to do with whether someone with only $50 to spare a month is truly in a position to invest in anything or whether they might be better off saving it for a rainy day or something like that.
True enough, but short-term or non-locked-in investments are available to most people.
If OP doesn’t have the starting funds to buy an investment vehicle of some sort, then they could put it into a zero-fee savings account and vigorously ignore it. This is, in fact, your rainy day fund.
Then when they have scrounged up the appropriate amount (likely $500 or $1k), they can buy a guaranteed investment certificate or the like, and get better interest rates while they continue to put money into their account.
When the term is up, they can buy a bigger one with their new savings. This way, they have both an emergency fund, and the starting point for a life of investing towards retirement, if nothing else.
(Of course your later point - if they’re struggling to eat - is still true as well.)
Specifically if for retirement, time is your best friend. Anything you can put aside will be multiplied down the years and be much more when you need it most
That’s 600/yr and a long enough horizon that most diverse portfolios are likely to be net positive (I’m seeing about 5,000 gained with 8% growth in a basic savings calculator)
I’d spend those 10 years trying to free up cash flow but time’s a powerful weapon regardless
8%? Thats 0 gains with inflation, right?
7-8% is the standard value used after taking inflation into account. It’s really 10%, but inflation eats 3% yearly, on average. Using the metric this way also conveniently means that the value you calculate for the end of compounding (in 35 years) is interpretable in todays dollars.
So 7% interest on 50$ monthly for 35 years means total principal of 21k$ and total of 83k$ (todays value).
See https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
As much as I hate to send you to Reddit, the r/personalfinance flowchart is hard to beat for most people. I’d recommend you start there to make sure you’re not overlooking something like your emergency fund.
This is awesome! Would love to see a version for EU too!
For the most part you can follow it. Pay down debts, save what you can, make a budget but it gets wonky when you hit 401K, IRA and healthcare
Problem is each country in the EU is different. What works for Germany may not work for the Netherlands or Denmark.
As an Aussie I substituted it’s and 401K with our pension equivalent called Superannuation. The healthcare is different in AU. Here in Europe it isn’t too different to AU, replace 401K and IRA are private pension or one offered through an employer.
I looked around a bit, and while I couldn’t find a drawn flowchart for the EU, r/EUpersonalfinance has a page on their wiki inspired by(links to it too) the US flowchart and accompanying text. I hate to plug reddit as well, but here is the link.
(I’m not near a desktop, so can’t really copy and paste the info here with functional hyperlinks.)
Link is broken for me over on infosec.pub.
Link is broken for me when I try opening it in a new tab. Something is up with imgur.
Is there a reason to focus on 401k (beyond the employer match) before HSA? Isn’t HSA more tax savings advantageous, even if just limited to health care expenses?
I’m not certain why they have HSA after 401k and IRA, but some possible things I can think of:
- HSAs can be harder to take advantage of of the triple tax benefit if you’re retiring early (that is, still younger and healthier)
- HSAs probably have worse investment options than an IRA
- Allowing the user to optimize their Roth vs Traditional mix
Again, I don’t really know because you’re right about the HSA triple tax advantage making it seem better than IRA or 401k, but I’m sure there was a reason given if you care to trawl the subreddit.
Not really if you exclude the employer match from consideration.
Can’t retire on it I guess
hard to beat for most people.
*Utterly irrelevant for most people
Sorted that for you. What the hell is 401k, Roth, medical debt?
Financial advice will always be intrinsically linked to fiscal advice, and that will vary with jurisdiction. Where I live we have no 401k or medical debt, but we have other debt and investment instruments with preferential tax treatment.
The main line of the flow chart is sound.
Hey… hey there, I’d let you know that there are 340M Americans and 8.2B people in the World so… that’s like 4% OK… it’s… definitely “most people” because we are number 1 OK! USA, USA… /s
It’s worth saving - investing (I assume you mean in the stock market/index/mutual fund) probably wouldn’t yield very significant growth but it is worth saving what you can.
Investing accidently helped me save. If I have money in an account, and I need to use it, I will, but by buying stocks and bitcoin, I don’t have that money, I have things that will increase in value that I can sell for money. And there have been a few desperate times that I had to do that, but my brain is far more unlikely to take a hypothetical future loss, than spend all my money today.
That’s what bitcoin really is: a commodity, not a currency.
Truth. Lots of money to be made in crypto but it’s basically gambling outside of eth and BTC. I make decent returns playing with memecoins but you have to watch it for awhile and know when to sell/buy etc… for example, now it’s a good time to throw money into Shiba Inu coin. It’s down a lot, which is normal, but it’ll go back to higher numbers soon, as it always does. Once you get a feel for what a normal low and high are you can just set auto buy/sell at those points and make decent profits.
Of course, when it comes to crypto, Bitcoin and eth are more like commodities and are generally safe. Shit coins are high risk but but $50 in a shit coin could be $150 overnight if you know what to look for.
Edit - don’t fuck with big money in crypto unless you’re willing to lose it, but $10 here and there can be fun and often profitable.
I am gonna take that as financial advice and dump my life savings in shiba inu, thanks.
Awesome. I’ll take the the standard 10% unless/until, you lose your ass. Then I’ll just pretend I don’t know you.
I remember back s decade ago and using it to buy a coffee. It was slow back then. Can’t think of the time it takes now.
Why would the absolute amount of money matter for investing vs. saving cash? Assuming he finds a broker for which absolute transaction fees are negligible, the only important factors should be time window and risk tolerance, both of which are independent of the absolute saving rate.
Compounding debts need to go first if their interest is higher than your savings.
Yes. If you can afford it, dumping that money into an ETF like VT, VTI, or VOO every month for the next 10 years is very likely to result in you turning a profit. Start with a Roth IRA and don’t bother with a standard brokerage account until you’re able to max out the contribution limit. If you want to do anything more complicated than buy big low cost ETFs study up first and go slow.
Do you have emergency money?
First start emergency fund, then take care of debt. Then build a savings for emergency fund, then invest.
For anyone with stable income, only debt who’s interest rate is at or above the potential interest you would earn investments should be paid down first. Any debt at a rate lower than you stand to earn, should be paid over time. Any debt lower than the rate of inflation should be paid as slow as the terms allow without penalty.
So my order of priority is: high interest debt>emergency fund>tax deferred investing>ira and investing>low interest debt>even more cash holding>debt below inflation.
Not everyone has stable income. And for them, attacking debt isn’t always possible, especially after they go to get their car inspected and have a $1000 bill to settle in order to get to work for their unstable income. That’s starting your emergency fund goes first.
You need your initial emergency fund to reasonably cover “a bump in the road”. You then get stable, attack debt, and build emergency fund to be 3-6months expenditures, in case of a serious emergency.
Only then do we begin gambling in the investment markets.
High interest debt is an emergency. Anything in the emergency category gets paid first. High interest debt is a trap, you can’t hope to meet any other goal in life if you don’t take care of that first.
Emergency fund money should be in a HYSA at least if not index funds.
Terrible advice.
Emergency money literally must be liquid or it is not, by definition, emergency money.
HYSA is liquid. Index is one step away from liquid
Not at minimum keeping it in a HYSA is losing 5% per year
The issue with keeping your emergency fund in an index fund is that the odds of your own personal crisis coinciding with a more widespread crisis is high. I got furloughed in April 2020. Had my emergency fund been in index funds, I would have had to realize all those market losses in order to use my emergency fund, which would have meant my emergency fund would have been a fraction of what it actually was since it was in a savings account.
