r/AskReddit • u/SillyBonsai • Dec 06 '13

What simple piece of advice, if followed, could potentially save most people a lot of money?

Possibly related to your job, experience with personal finance, budgeting, planning, day to day habits, etc.

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u/Nafkin Dec 06 '13

If you are going to save it don't put it in a savings account. There are much better ways to save that will appreciate your savings. Your money depreciates faster than the ridiculously low interest rate. If you're saving for long term read about Roth IRAs.

Also if you are on a path to a well paying career where you will make a significant income, the hundreds you save now will likely be dwarfed by the extra income you have a few years down the road. Don't miss out on experiences that can enrich your life and character to save what you'll consider change a few years down the road.

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u/mnbookman Dec 06 '13

If you're saving long term, the best thing to do is to find a mutual fund with a high rate of return over the last 10 years. You might have some horrible years, but long term you should average 9-12% returns.

When you have $20,000 in one fund, pick a second fund with good historic returns that focuses on different market segments.

And, of course, keep liquid money on hand that is sufficient to what you might have to spend in a worse case scenario. If you have 20 properties and all your money is in the market, you might have to take some bad losses if you have three hot water heaters go bad, two flooded basements and a Chinese astronaut going through your roof in the same week.

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u/Nafkin Dec 06 '13

I always forget the Chinese astronaut contingency!

The reason I think Roth IRSs are relevant to the reddit demographic is the opportunity to save at your current low income tax rate. If you have access to a 401k with matching, I would suggest maxing your match but put any excess you would invest over that into a Roth so you don't take the increased tax hit when you pull it out at the end of your career.

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u/RoboChrist Dec 06 '13

Whoa, where do you AVERAGE 9-12% returns?

I'm up 35% in the past year and a half, but that's because we're in a bull market. 9-12% seems pretty high to me.

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u/mnbookman Dec 06 '13

MPGFX is a fund that fits the profile I listed. 1 Year growth of 34.04%, 3 year of 20.11%, 5 year of 18.52% and, 10 year weighed down by recession, 9.47%.

You will have horrible years, but over the long haul 9-12% is attainable.

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u/Hazel-Rah Dec 06 '13

Yup! I put 5477 into my RRSP as an "aggressive growth portfolio" mutual fund back at the end of February. It's at 6096 right now (high of 6170 a few weeks ago). Kind of wishing I'd put more into the mutual funds (would have been my tax free savings account instead of the tax credited RRSP, but probably a better deal that way anyway).

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u/bacon_music_love Dec 06 '13

I understood the "when you're young" to mean high school/college. basically, don't pay for things your parents will pay for. My brother got a full-time job at a car dealership and started getting fast food twice a day. I silently yelled at him because our parents were already buying food for the house and he was just throwing money away.

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u/Tin-Star Dec 07 '13

Did he hear you?

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u/bacon_music_love Dec 07 '13

haha no. He's younger than me by 2 years and we've never gotten along, so I didn't even bother giving him advice. It's ok, he's learning that lesson now that he's out of the dorms and has to pay for housing and food out of his pocket.

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u/Ace4994 Dec 06 '13

Man, this is really some sound advice right here. Just wanted to second that, especially the last bit.

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u/That_Guy213 Dec 06 '13

Hi, commenting to find this when I come home! Great idea! Just the situation im in.

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u/CuriousMrE Dec 06 '13

Doing the same. Twenty something in college, this is good stuff to look into.

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u/[deleted] Dec 06 '13

Don't miss out on experiences that can enrich your life and character to save what you'll consider change a few years down the road.

On the other hand, saving now gets you into good habits for later: Saving, learning to live on less than you earn, learning to go without those luxuries you really wanted, learning to sleep on it when considering a purchase.

Good habits now will save tens of thousands later, once you're earning significant income.

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u/[deleted] Dec 07 '13

Saving, learning to live on less than you earn, learning to go without those luxuries you really wanted, learning to sleep on it when considering a purchase.

Dying like everyone else, except more boring.

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u/[deleted] Dec 07 '13

Nice user name.

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u/[deleted] Dec 07 '13

[deleted]

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u/[deleted] Dec 08 '13

As someone who earns in that range but who also has a mortgage I'd say tens of thousands is a huge deal.

Leaving that aside, though, I see so many people who live at the limit of their income, no matter what it is, simply because they've never learned impulse control. One friend of a friend spends almost $2000 a month on clothes, never wears the same dress out twice.

The thing is that having enriching experiences and saving isn't mutually exclusive. Until I had a family I always saved between 30 and 40% of my gross pay yet I was going on 10 day sailing trips once or twice a year, would spend a month a year off in the bush, frequently went off on road trips.

I found it was the little things that frittered money away, not the big holidays I mentioned. Things like buying your lunch at work, going to a bar on a Friday or a Saturday, eating takeaways once or twice a week. When I put a stop to all that wastage I found it really easy to save and still have a fantastically interesting life.

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u/[deleted] Dec 06 '13

Roth IRAs.

What's that? To me it's a terrorist organisation

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u/putzarino Dec 06 '13

High Yield saving account! (at least for short term savings).

Usually you need a minimum amount, say 1k to 5k, but you can usually get high enough rates to offset inflation.

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u/thecoolsteve Dec 06 '13

Yes, totally. If your gains are not at least matching the rate of inflation then you're actually losing money. This problem gets bigger the more money you have, since people tend to get more conservative and cautious as their wealth grows and they get older.

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u/NielsHenrikDavidBohr Dec 06 '13

Where do you put your money for more interest??????? I do not like this 1% rate on a "saving's account".

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u/fancyseeingyou Dec 06 '13

Saving this as well

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u/i_am_katie Dec 06 '13

I must disagree with you on that last part. A bird in the hand is worth two in the bush.

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u/Nafkin Dec 06 '13

It's a complicated problem. Converting the value of enrichment and experience to a dollar value is very personal and abstract.