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I cannot stress this enough. Planning ahead allows you to craft an optimal future. Leaving your future to chance leaves possibility for failure. The entire reason I made this site was to craft my own optimal future and enable others to do the same.
Net worth is arguably the best measure of your financial success. Getting that number as high as possible is ideal. Coincidentally, our service is the best one currently available for min-maxing your financial situation to accomplish this task.
Income is the backbone of your finances. Without a fair consistent income, you will have trouble improving your current state. This is generally accomplished by going to college (or some equivalent) for an in-demand well-paying field.
Every financial decision you make comes at the cost of wasted opportunity elsewhere. A great baseline to check is if the return on your decision will exceed the annual 10% (8% after inflation) compounding interest that an index fund for the S&P 500 grows by.
A funny quote supposedly attributed to Einstein is this: "Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it". Investing uses the market to exponentially return your invested funds. This allows your money to work for you.
Use debt as a proactive tool to improve your future financial state. Reactively using debt to cover overspending is a financial pitfall. See the debt section for details.
Expenses tend to snowball in this era of financing and subscriptions. Unless you keep note of your subscriptions and other general expenses, you can easily end up with nothing left. See the Expenses section for details.
Assets (like cars or houses) are true assets if and only if they are useful. There is no point in having assets, especially large ones, if their value to you is less than the opportunity cost of owning them. Similarly for liquid assets, there is no point in having them uninvested if they aren't useful.
Generally, non-liquid assets (like cars) depreciate over their lifetimes. Minimizing your expenditure in assets like these is crucial since they are essentially funds stuck in a state of financial uselessness. The financial opportunity cost of owning them should be outweighed by the asset's utility in some other way.
Use assets to their maximum potential. For instance, renting out an unused part of your house would be considered maximized utility of that asset.
Cars tend to depreciate over half of their initial value within the first 5 years of being used. You can use this curve to your advantage. Buy a car that has a cost-to-lifespan ratio more optimal than that of buying new.
If you have extra funds sitting around that you don't need for the immediate future, investing is almost always the answer. If you aren't making above a 2% return annually on your money, then you are losing purchasing value to inflation.
If there was no risk to investments, there would be no returns. Imagine one day the entire stock market tanks, or the U.S government defaults on their bonds. You don't want to be one of the many people to go down with them.
Don't expect to become rich in a day off of investments. Compound interest builds momentum from total time spent invested. For instance, after 40 years an initial sum of $1,000 compounding at an 8% annual return becomes $21,724.52.
The foundation of investing comes from your income. If you are required to invest a large chunk of money in yourself to increase your future income, it is often worth the risk.
Basics: Low risk (low returns) - bonds/high interest savings/annuities. Medium risk (medium returns) - stock index funds. High risk (high returns) - trading stocks, real estate, cars, etc. Only get into the high risk market if you are well-versed in the field.
Over the past 100 years the S&P 500 has risen ~8% annually (after inflation of 2%). This is despite any recessions or depressions we've experienced during that time. Out of everyone invested, only the people who got spooked and sold at low prices lost money in the long-run.
Don't invest in things like stocks when using borrowed money. The risk far outweighs the reward.
These often offer benefits such as deductions on your income or avoiding capital gains tax when you liquidate. This is far more optimal than investing without using these. Keep in mind, some of these plans lock away your funds almost entirely until you retire.
First rule to remember: we're all human. If you hate your job, you're unlikely to retain that job or advance in your field. Unlike what everyone might tell you, few people find a job they truly love. Finding a job you like is great, but if that isn't an option, at least find one you don't hate. Having a neutral position or better in regards to your job is optimal for mental health and future advancement.
Income is the backbone to everything else. High income means more opportunities to invest and create more income.
Income takes work. If you can minimize the work involved, you can scale to more income at minimal effort. (Ex. investments are usually passive income)
Look at almost every wealthy individual and examine how they got there. Did Bill Gates get rich off of working at a call center 9-5? No. That is not a scalable venture. He created an operating system that could easily be sold to an infinite number of people at little cost to him. That is perfect scalability.
Minimize expenses to what is necessary to live, improve yourself, and be happy.
Everything you buy is using money that could be working for you. Make sure your expenses are worth more to you than the wasted investment opportunity.
You tend not to notice what monthly costs can be minimized until you list them out. Even if you don't intend to make a true budget, it's still useful to know where your money is going. Ex. Still paying for Amazon prime despite not using it? Cancel it. Paying monthly for PSN? Buy it yearly to save money.
Everyone has different needs and desires. Working off a pre-set online budget might work for you, or it might not. Stick to the basic tenets of minmizing your expenses and accounting for opportunity cost. Everything else will fall in line.
This tool can either be used to maximize your efficiency (like a car) or increase your future income in some way (like college). Don't use it as a fall-back option after budget failure.
As long as you use it intelligently, debt is an exceedingly useful tool. Always remember opportunity cost. Having to pay off debt is using money that could be invested. Your reason for going into debt should outweigh the possible investment return of that money.
If you have multiple debts, completely pay off debts starting with the highest interest rate first and move down from there. Any other way of doing it is mathematically suboptimal. Click for an example. This in mind, read the stipulation below.
If the debts have different compound terms, optimal payment strategies can get complicated. You can use our service or your own mathmatics to figure out the optimal strategy if this is the case.
(This point is only for people who have few and non-life affecting debts. Otherwise, get your debt under control before considering this point)
If you want to minimize your opportunity cost when paying off debt you can one of the following:
All said and done, money is just a tool. There isn't a point to any of this if you become insanely rich when you retire by depriving yourself until then. Ideally, you can follow these practices while still spending enough to live your life. Find your personal balance.
As long as you attend a state-run college for an in-demand well-paying field, college is well-worth the ~$30,000 debt you'll find yourself in. If this investment is handled correctly, the return on your funds will vastly exceed the possible risk.
A quality bank will match the 2% inflation rate even in a simple savings account. This is where you can keep your liquid assets. A good general practice is to keep at least 3 months worth of expenses here in case of some emergency.
When first starting out it's extremely important to start earning as much money as possible early on. This will enable you to start investing sooner in order to take maximum advantage of compound interest.
Look at the Assets section for more details.
It is essential to start building credit early in life if you want low loan interest rates later on. If used correctly, you can profit off these via rewards/cashback. Don't go into credit card debt. Very few situations can justify the ~20% interest you'll need to pay on a credit card debt.
Look at the Expenses section for more details.
Look at the debts section for more details.
Invest funds to keep your quality of life at a stable level even after retirement. 401ks or IRAs are generally some of the best (tax-efficeint) ways of accomplishing this goal. See the Investing section for more details.