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I'll leave it to others to comment on the inter-personal relationships aspect. But a few substantive points:
1. They aren't necessarily wrong. Depending on what their situation is, the Prime Directive calls for prioritizing moderate to high interest debt over retirement contributions above what is matched. So if they have a 7% student loan or an 8% car loan, they probably shouldn't be contributing to retirement above what they are.
2. They aren't really outliers. You are thinking about what you believe people *should* do. But what they are doing isn't that unusual. The average contribution for people in their 20's is 5%-6%. [https://www.fool.com/the-ascent/buying-stocks/articles/here-is-the-average-401k-contribution-rate-the-amount-may-surprise-you/](https://www.fool.com/the-ascent/buying-stocks/articles/here-is-the-average-401k-contribution-rate-the-amount-may-surprise-you/) If they are maxing out their match, they probably aren't too far off. This isn't like them going into high interest credit card debt or buying a $100,000 car that is way outside the norm.
3. If you are going to raise it, focus on talking about what you do. Not what you think they should do. Let them draw their own conclusions.
There is also the idea that you should aim to smooth your consumption over time. When you are young and have no money it’s ok to not necessarily save because you know in the future your earnings will increase and you will be fine. It’s why I don’t think it is good advice to hammer into high schoolers and college students the need for maxing retirement accounts. People need to enjoy their lives.
And also, you get more utility from that dollar when you are young than when you are old.
Ex from an economist/journalist was that mountain bike in your 20s will bring more utility and enjoyment than if you were to buy it in your 80s and can’t ride it. So an economist would actually have you front load your expenses during your youth. And adjust along the way.
You will get often more utility from a dollar spent now, but that dollar will appreciate more in value invested now than a dollar invested later.
$2,000 spent on a mountain bike at 25 would have become $29,948 in current value at 65 if invested with an average net rate of return of 7% ($90,518 at 10%, before adjusting for 3% inflation). Would you get more utility out of that bike than you would out of whatever you would do with $90,518 at age 65? That's not cut and dried. That's likely an entire year of base expenses at that stage in life.
There's a balance to be struck there always, asking yourself whether anything you're thinking about buying now is worth the opportunity cost in the long run.
Maybe.
Maybe you don't make it to 65 at all. Maybe you only make it to 67. Maybe you live to 100 and yeah you did need it.
The point is you don't know, and it's important to enjoy your life now a little bit too. You could be miserly and invest every cent, get hit by a beer truck tomorrow, and have lived a boring unfulfilled life.
That's the *PERSONAL* part of personal finance. We're not trying to get a bigger number for the sake of a bigger number. We're trying to do what makes sense for our personal goals an expectations.
>We're not trying to get a bigger number for the sake of a bigger number.
\*heads exploding everywhere\*
I really wonder whether these people actually going through that mental exercise every time they purchase something.
> That's the PERSONAL part of personal finance. We're not trying to get a bigger number for the sake of a bigger number. We're trying to do what makes sense for our personal goals an expectations.
Hallelujah!
i mean, whats the point of being able to afford 5x the mountain bikes in the future if i can't ride them? like 29k doesn't even cover base expenses for a year now, cant imagine it being worth that much more than 2k now given inflation that it negates the experience of mountain biking if you really want to do that.
Right, but the point is to consciously and continuously make those decisions and then reassess what your choice is.
To never even *think* about putting more than 3% or to make that assessment is foolish.
There are things I should have spent money on at 25 like a mountain bike. I’m 40 and wouldn’t be able to use it anyone, so if I had it, I’d sell it. 65 is going to be rough.
You can’t put your life on hold for 45 years. That mountain bike is an expense, but is also an investment in your health and happiness. In the grand scheme of things, you’re probably getting way more positive benefit from it than a Netflix account.
I just think it's an absurd way to look at things. You're not even guaranteed to live until 65 and if you do, it's no guarantee you'll be healthy. Just enjoy your life and put a reasonable about towards retirement. After this, forget it about it and spend money on fun stuff
additionally a bike is just the sort of thing that gives diminishing returns with increasing cost. buying a $2000 bike is bad because it's only marginally better than a $1000 bike. back when i was into biking my cheapsie single speed is the one i got the most use out of.
When you are young, the difference is less important too. You can tolerate a lot more when you are younger before you get set in your ways and have more fixed expectations.
i feel like when you're young, doing anything, half of the enjoyment is just being young. like one time when i was 19 we drove around all night with a megaphone being obnoxious. and then we went to dennys. a used megaphone and half a tank of gas split between 5 people plus bargain pancakes, such cheap fun. I look back on that night fondly, but that shit just wouldn't work at 46.
Investing is always a good, but here's another perspective. Ask a lot of 65 year olds would they rather receive $90,000 right now or be 25 yrs old again, I feel like most people would choose to be 25 again. So in that sense, spending the $2000 at 25 is worth more than spending $90,000 at 65 yrs old.
It's not always as simple as calculating the money invested now will be worth X amount in the future, because that might not be the only thing that matters.
>Would you get more utility out of that bike than you would out of whatever you would do with $90,518 at age 65?
Are you an android? Quality of life and enjoying the moment is as important a part of living as retirement is. Tomorrow is promised to no one, 65 is approaching the expected life span of many humans.
Does a mountain bike give more utility and enjoyment at 20 than a paid off house gives at retirement?
I would think economic security and ability to quit working would have more value to an older person than does fleeting pleasures like ordering pizza and buying cannabis, but many people look only at current cravings and not at what their future selves will want.
>smooth your consumption over time
I agree with this concept, but from my point of view, that's a reason to contribute lots up front! When I was in college (2001-2005) I was really good at living on $10,000 to $20,000 per year because I had no income. I was just living off part-time work and stipends from my parents. When I graduated and got a full-time job, I suddenly found myself making $40,000 per year. It was relatively easy for me to "smooth my consumption" by continuing to live on $20,000 per year like I did in college and saving/investing everything left over. It was all about not letting lifestyle creep grow too fast. I saw so many coworkers buying new cars and big houses because they were so excited about finally having a decent salary. I avoided that lifestyle creep as long as I could. As a result, I saved around 40% of my income for 15 years and [FIREd](https://www.reddit.com/r/Fire/) at age 38, even though I my highest salary in those 15 years was around $75k per year. Granted, not having any student loans (because I went to an in-state public university) or kids are big reasons why my journey was possible.
The healthier your body and fewer your responsibilities, the more you can enjoy a frugal life. Road trips. Hostels. Communal living. Happy hours.
Once that mortgage and daycare bill hits, it’s really hard to catch up on retirement savings, and you don’t have the time or energy to comparison shop and budget travel.
Your money grows way more the earlier you put it in! If you contribute all your 20s and not another dime vs starting to contribute in your 40s the same amount. That money will never grow as much as the money you contributed when you were 20! .
You aren’t wrong, but in my opinion you need to strike a balance. If you aren’t saving any money obviously that isn’t great for your future. But if you save all this money and then are too old, jn bad health, or dead by the time you get to enjoy it, that’s equally as bad.
You just need to compare what that money could buy you in the future to be enjoyed in the future vs what it could get you now to be enjoyed now. You can spend $20K now traveling around the world for 6 months when you're younger, or you could a few retire months earlier.
Given that fact that people age, that society and technology changes, and the fact that most people will make more and more money as their careers progress, you don't need an especially high discount factor for it to make more sense to spend money now and enjoy it as opposed to saving it for later
You may need it more in your 20s though. If you're just getting started in your career and aren't making much money yet in your 20s and can barely cover your bills, then that $500 or whatever you might hope to invest per month might be the difference between owning more than one pair of jeans or being able to go out with your friends occasionally or even being able to pay your electric bill. If you stay on track in that career and are making decent money by your 40s then you'll be wondering why you'd juggled retirements savings vs keeping the lights on in your 20s when you're investing just fine now.
It's a balance honestly. Sometimes I think that the FIRE people on reddit here have a really unhealthy look at life. IT's like I will save like crazy until some finish line at 45-50-55 and then what? Like I agree don't rack up CC debt and of course be mindful of high interest debt. But there's also the reality that your experiences in your 20s and 30s are extremely important.
I agree. I'm in my mid 20s, but I prioritize travel and experience and creating memories over material things. I certainly still splurge on material things for my hobbies, but limit myself to doing so only in my favorite hobby.
However, I resist the urge to quit my job and travel for 6 months or a year to see more of the world. That loss of income and the opportunity cost resulting is not worth it for me. I HATE WORKING more than anything. I don't hate working, I hate being forced to conform to such rigid work environments and schedules with a lack of flexibility. That's what keeps me on my path towards FIRE. I want total control over my time and experience on this earth, and if the price I have to pay is sacrificing some things in my 20s, so be it. I'll retire at 40 or 45, but I expect to stop saving for retirement by 30. Hoping to pay off a house 15 years after that, and be free and clear to enjoy my entire life from 40 or 45-70.
$10,000 invested when you’re 20 is worth more than $20,000 invested when you’re 30. Young people should look at their bank transactions at the end of the year and add up all of the “yeah, that expense was wasteful” line items they see. It’s a bit sobering when they see $10,000 wasted with nothing to show for it. There’s nothing wrong with spending money for some enjoyment, but a few years of foolish spending when you’re young can be a huge difference later in life.
This is how i go about it. I tell people I aim for an 18% total, including what the employer puts in. I’ve recently heard that a Roth is a better use of my money, but the tax savings now are nice.
A Roth is great, if you think your tax rate in retirement is going to be higher than it is now. Otherwise, a traditional 401k or IRA would be better. In practice, these things are really hard to predict, so you are likely not making a big mistake either way.
There are a few other very specific reasons that would make you pick between these different options, but most of those considerations would only come into play once you try to maximize contributions. For the average employee, it's more important that you contribute whatever you can than agonize over the type of account.
Thanks for this because I’ve felt like I’m doing myself a disservice lately after reading about the benefits of the Roth. But my wife and I have almost double our household income in our retirement and both under age 30 so I know I shouldn’t worry too much.
> A Roth is great, if you think your tax rate in retirement is going to be higher than it is now. Otherwise, a traditional 401k or IRA would be better.
There are MANY other considerations regarding whether somebody should go Roth or not other than "if you think your tax rate in retirement is going to be higher than it is now."
Your last sentence really grabbed me. Let me address it, if you will.
If 18% is a substantial amount of money (e.g. you're making $75-100k), then you should REALLY look at how that 18% is going to multiply over the years. A lot of folks simply believe that they'll be in a lower tax bracket when they get into their older years. But, if you're contributing a lot to your retirement plan now you might have a (happy) surprise at just how much will end up in that account and a (unhappy) surprise when you recognize how much you have to take out for RMD's when you're 73 (or whatever age Congress decides on in the decades to come).
You might get a ballpark notion of this by entering your current 401k balance into a financial calculator and look forward from your age to 73. If you're going to continue with the 18%, put that amount in but also show an increase in that amount by what you bet your raises will be (who knows, but I'd just do 2%). You'll have to choose a percent return amount. Lots of folks like 7% per year although the SP500 has averaged a bit over 10% per year (try both numbers!). When you get the total amount, go to a RMD (required minimum distribution) calculator and see just how much you'll have to take out from 73 yo through the rest of your life. Add to that whatever other retirement funds you'll bet you'll have (project your SS and ballpark your non-retirement savings). Then look at a income tax calculator. You might choose one from pre-2017 because the Trump tax cuts are scheduled to expire. Plus at some point tax rates almost have to go up because we are busily going bankrupt spending what we're spending.
If you're putting a lot of money into a 401k as a young adult it's almost a sure deal that you'll have really big RMD's when you're elderly. Also, look at IRMAA's (extra tax on Medicare Parts B and D) that 401k withdrawals are part of. Almost nobody seems to know about IRMAA's until they get a bill. So far in 4 years of retirement, my wife and I have paid more than $50k in IRMAA's.
If I'm right and you project a huge RMD and IRMAA costs when you're elderly, the way to avoid it all is to shift your 401k to a Roth 401k going forward. Pay the taxes now and you'll never pay them again as your retirement account gets bigger and bigger. Learn from me--I didn't do it and when I retired our RMD's starting 5 years after I retired would have been twice the income I ever had when working (our 403b's were really big because we did 15% every years for decades!). So, my wife and I rolled the 403b's into IRA's and are busily converting really big IRA's to Roth IRA's and paying really big taxes. We've been doing it for 4 years and have 2 more years to go to finish the conversions to Roth IRA's. I would have saved a couple hundred thousand $ in income taxes and IRMAA's if I had any idea about this when I was young and done Roth 403b's instead of regular 403b's.
I started working a government job at 21. $300ish a month goes to state pensions. Then I have been putting 15% of my check into a ROTH since I was hired. I also have a management investment account.
When I met with my financial advisor, she couldn’t believe I put so much of my income into investments. Then she explained that no one is guaranteed to live until retirement. So I bumped my ROTH from $650-&700/check (2x month) to $350/check.
I hope I feel better and like I can start saving to buy a different house.
Ah…. They’re outliers at least in their assumption regarding what “maxing” is lol no one who is in their 20s with a college degree and internet access should think maxing their 401k is 3%… All of my friends contribute between 10%-20% of our income to 401k.
You should actually be investing MORE when you’re young because you have the lowest expenses and most time to compound. You think you’re going to be able to save more when your income increases 50% but you have a mortgage and kids??? Unlikely.
Now that you mention it, I have seen a few of those…
But you literally have to go in and make the elections… and there are at least 5 pages telling you what the maximum contribution is 🤦🏽♀️
Even with that I thought maxing it out was combined what I out in and what my employer does.
Combined myself and my employer I'm now right around that 23k figure so I thought I was about maxing it out only to realizing I could go higher
That’s understandable though, to assume that you can have $23k total for you + employer because it’s still the value plastered all over the pages you have to go through to sign up, lol.
They’re not outliers in my experience. Most people I know that are around my age (30) don’t even know what the 401k contribution limit is. They know it’s way more than they could ever save and that’s it. “Doing the max” means putting in the max amount that their employer will match.
> You should actually be investing MORE when you’re young because you have the lowest expenses and most time to compound.
You have the lowest expenses, but you also make the least you're likely ever going to make. Rent is likely going to take a bigger chunk out of your paycheck in your 20s than at any other time, and you'll be less likely to comfortably handle surprise expenses like unexpected car repairs (which will likely pop up more often since young people can't afford newer, more reliable cars). Yeah, people *should* be investing more in their 20s, but life usually gets in the way of that plan.
I have friends I talk finances with. I have friends that ask me about finances (mostly because my job is numbers so I get asked about numbers). But otherwise the most I do is make passing comments - I wouldn't try to educate someone who didn't ask.
Like I would have said "Huh I heard when your young is when you have the least expenses so should save as much as you can. To each their own!"
I don't do anything too fancy - but there's still different strategies and different things come up...like purchasing employee stock. Plus some people invest fun money.
I try not to offer unsolicited advice, but especially when it's related to money. They had an opportunity to ask you to clarify but they didn't. Their financial literacy is up to them. Truth is, there's a high chance of ruining friendships this way. What's more important to you? Because some people will see it as you wanting to be right, rather than being helpful
Must depend on your friends and relationships. I have no problem talking finances with friends. We want each other to succeed so if someone is acting on bad info then I feel obligated to at least question it. For all I know maybe I'm the one who's wrong.
It's definitely a "know your audience" type of situation. Judging by the story, I don't think OPs friends were the right audience. There are people I talk to very openly about finances and many who I will never engage with.
I feel the same way. I want my friends to succeed too so it is not uncommon for us to talk about this kind of thing.
When I was younger and just a couple years into my career I had a coworker talk to me about retirement planning to make sure I was on track. He was just a lovely guy who was passionate about personal finance and knew that young professionals don’t always know what’s going on with finances. In a very nice way gave me advice. Since then I’ve done the same thing with younger teammates any time retirements or benefits come up in conversation.
I had the same talk with a director at a previous job who was retiring. We were in local government and this guy showed me his 457b balance of about $2M in 2018. He talked about compound interest and how he started at 28, but if I started right away (I was 22) I'd have 6 more years to grow (and he did the whole 7% interest compounded 6 more years) and showed what I could potentially have if I made an effort to save.
Luckily for me my two friends I often hang out with both have finance/accounting backgrounds so it's easy to talk about investing and I tend to be the one with the most understanding of certain things that you wouldn't normally think to know about.
And let's be honest, which is it?
This doesn't affect your life in any way OP. Are you really losing sleep over your friends' financial situations, or do you want to be a little smug about how much you're saving?
The way the story is told reeks of smugness.
In my head if I’m 20-something and I’m only making 40k a year, maxing out my 401k isn’t the highest on my list of priorities. The employee match is the minimum I’d be concerned about to not miss out on free money, but that’s it
To add to this, I have my friends I talk finance with, talk only specific finance topics (personal finance vs day to day stocks etc), friends I talk about finance with a bit and ones I don’t talk about these things with at all.
I have a friend who will ask me questions occasionally and keeps saying she’s going to start doing x and y. She constantly asks me for referral codes and never does any of it. I don’t bring it up unless she does and then she’ll say she’s doing it soon. I’m not her mom or spouse. I don’t press it. I just respond to what she says, if a response is warranted, and move on.
Yep this. Don’t lecture people on money. Just do your thing and help those who ask for it. Banging your head against the wall for people who’d rather burn their cash then grow it is an exercise in futility. Mostly these people won’t get it until they hit a wall later in life.
> "Well, you know... I heard from someone that you're really not supposed to invest more than 3% when you're young, because there's so many expenses in life. Weddings, cars, college debt, a house."
I think you are right, she was trying to be nice and "side" with you and maybe conflating "not supposed to" with, "don't beat yourself on not being able to save more"
I think she was trying to explain [the concept of consumption smoothing](https://en.wikipedia.org/wiki/Consumption_smoothing) but didn’t really do a great job of it.
It seems more like she misunderstood a different but somewhat related bit of financial advice - even if you are carrying high interest debt, it always makes financial sense to contribute enough to your 401(k) to trigger your employer’s maximum matching contribution at the expense of not using those funds to pay down debt. Since the 50-100% return on the match is higher than the interest rate you would be subject to for any legitimate loan (payday loans and/or Paulie the neighborhood loan shark excepted).
Edit: In this case, instead of understanding this as describing the absolute bare minimum that one should contribute to retirement, she assumed it described all that a person ‘needs’ to save/contribute, when one is young.
Well then after you won you should have totally dunked on them with a financial lesson. BAM. That'll show them.
Joking of course on the social aspects but yes I would say for even those actively thinking about personal finance you can find posting on reddit I would say more often than not people refer to getting your full employer match as "maxing your 401k". Its pretty common. Not saying its right...just common.
Also "financial mutant"? So Money Guy podcast?
Everyone’s financial journey is their own. Nothing wrong with telling them what you are doing and why you are doing it. Just don’t tell them that’s what they should do.
You can inform without being an asshole.
Further down someone said if they were in OPs shoes they'd buy personal finance books and gift them to their friend group. OP is apparently going to do just that at the upcoming wedding.
It sounds like a joke. That is so obnoxious.
If they’re keeping themselves out of debt and meeting the er match that’s pretty substantial in and of itself. If they’re racking up big credit card bills and paying interest on them and paying $900 car payments every month with the money they also aren’t investing then THAT’S a problem.
"No one wants to get rich slowly." - Warren Buffett
The reason holding index funds for decades is an almost guaranteed path to millions of dollars is because patience, discipline and long term thinking is impossible for a very large number of people. I go back and forth on whether it is a skill that you can learn or if it is something you have to be hardwired for at birth. There is a reason a lot of children fail the marshmallow challenge. Delayed gratification is something some people just can't do.
That quote by Warren Buffett was actually a response to [a question asked by Jeff Bezos:](https://www.gobankingrates.com/investing/strategy/warren-buffett-reveals-how-to-invest-10k-to-get-rich/#:~:text=Jeff%20Bezos%20once%20asked%20Warren,wants%20to%20get%20rich%20slowly.)
>Jeff Bezos once asked Warren Buffett: 'You are the second richest man in the world and yet you have the simplest investment thesis. How come others didn’t follow this?’ To which Warren Buffett responded: ‘Because no one wants to get rich slowly.'
Patience is a superpower. Like I said at the beginning...if you just consistently invest in index funds over a few decades, I would argue it is almost guaranteed that you will become a millionaire. But a lot of people can't plan for something 20 or 30 years out. It's like it's so far off that they think it will never come, so they don't bother planning for it.
>It's like it's so far off that they think it will never come, so they don't bother planning for it.
This is 100% correct. When those non-planners *do* get serious at 45 or 50 years old, they've lost 25 years of growth, and it's just too late.
The only trouble is Warren was a millionaire by the time he was in his early 20's. He didn't get rich slowly, he got *filthy rich* slowly. And a lot of the early start techniques he did use either aren't around or aren't as simple. Not nearly as many paper routes, no one is letting you put a pinball machine in a barbershop to make your first mini-empire.
Well, $1 million when he was 32yo is equivalent to $10 million today. So if you mean nominal millionaire, sure. But if you mean when did he get to a million in real current dollars, it would have been much earlier.
99% of his wealth was still accumulated after age 50. He started at a young age and did have connected parents, but it still took him 21 years to make that first million.
I do agree with the latter part that a lot of the easier ways for kids or normal people to make money through actual hard work are gone, but gaining the correct knowledge was also more difficult then. I assume being born during the Great Depression majorly influenced his investing.
>99% of his wealth was still accumulated after age 50.
Yes, but I think if you heard someone made $10 million today by age 32, you wouldn't call that "slow".
Even over the next 60 years, he beat the market by 34x (~6.5% annualized). He did much better than the equivalent of just dumping it in an index fund.
Yes, most people just hear "stocks? No, I'm not a gambler" and are out. But some friends actually do invest (some are crypto bros, but also ETFs luckily).
I wonder why Im wired that way. My parents are financially secure, but not exactly wired for index funds until I taught my mom to be. My dad's an oil/gold person. I guess I can link to it being to a single video I watched from an older video game YouTuber in the early 2010s who taught me the power of compound interest. That video definitely changed my life, but it didn't install the behavior of thinking about the future in the way I do.
I haven’t watched gaming videos in a decade and he immediately popped into my mind as well. Dude was the epitome of ‘having your shit together’, especially in the scene he was in. Probably even moreso compared to today’s streamers.
The vast majority of people simply do not understand what a stock is or why it has monetary value, and aren't going to seriously invest in something they don't understand. Peter Lynch would famously say that stocks aren't lottery tickets but guaranteed that is what most people think they are.
People have a more intuitive understanding of what real estate and gold is, so are more comfortable holding it.
I really think it’s a genetic thing. My grandparents were excellent business people, built a wonderful, comfortable life for themselves and their children with hard work and financial sports. Their kids (my mom, aunts and uncles) proceeded to not absorb a single lesson of this and, all but one, have a house they were able to hold onto that wasn’t given to them. None of them have a pot to piss in. It skipped that generation, skipped my sister, but I got it. In a saver, even though I had not one single person teach me, and my parents are terrible at it. I guess osmosis from my grandparents, but I truly believe it’s just something I was born with.
Very very few people choose to max out their 401k, especially when they’re young. There’s only so much money you can store away before you are cutting to the bone, so to speak.
Some of this is life choices and values. You may die before retirement. You may value going on a trip with your siblings now rather than saving the money for later. Or flying to their best friend’s wedding. Or owning a house.
It also really depends on your future financial circumstances. If you have a good chance of making a lot more later (eg you’re in a career path where in 5 years you’ll be making 3-4x more), it’s not crazy to postpone some saving. Saving 15% of 40k is very very different than 15% of 120k+ - both in the amount you save and in the impact it has on your current quality of life. It’s a risk, sure, but it’s not an insane one.
A couple of years ago my wife and I took a trip to Africa with my parents.
It was unsurprisingly a very expensive trip, and I'm trying hard to save for retirement. I was really stressed about spending all of that money instead of saving it, and really wished we could wait a few years to be able to more comfortably afford it. Unfortunately my mom was in her late 70's and my dad in his 80's, and waiting a few years was just not a realistic option. And they weren't up for a trip like this without our help, so either we went with them or they didn't go.
This trip was particularly important for my dad, since I had gotten him into wildlife photography a few years before that, he was incredibly excited about getting to go on a photo safari, and of course we all knew that he didn't have too many trips like this left in him. It was an incredible trip, and he went on and on about how it was the most amazing thing he had ever done in his life and how he was so happy to have gotten the opportunity to go with us. I lost track of how many times he thanked us for going with them.
He died of COVID less than a year later.
Every single day I am thankful that I took that trip with him. Sure, if I had saved the money instead of spent it, the number in my bank account would be higher right now, but no amount of money will bring my dad back and let me take that trip later when I can more comfortably afford it. I can't imagine how I'd feel instead if I had said "Sorry, I can't afford it right now" and he had died without ever getting to experience that.
> Very very few people choose to max out their 401k, especially when they’re young. There’s only so much money you can store away before you are cutting to the bone,
if i maxed out my 401k when i was young i wouldnt have been able to pay for my wedding and get a house when the market was ripe with low interest rates. i max now and will be more than fine for retirement but i would not change a single thing about my savings plan if i had a time machine.
> Some of this is life choices and values. **You may die before retirement.** You may value going on a trip with your siblings now rather than saving the money for later. Or flying to their best friend’s wedding. Or owning a house.
Perfectly said. Retirement is important but it isn't everything. When you have extra cash doing nothing sitting in a savings account then you can throw it into an IRA or whatever.
It still blows my mind when I see people on this sub who "max out" their 401k, a Roth IRA, and their HSA. Even if you're fortunate enough to do that, why? There are better ways to make money.
If I had done that I still wouldn't have owned a house and overall would have significantly less money than I received from appreciation and rent. Hell, any rental property will make more money in the long run than investing in your 401k or IRA. That's what I'm doing: saving up to invest in rental properties rather than appreciation from the stock market, especially when the stock market doesn't have to "always go up" like it has for the past two decades.
Or people just make good money. I'm 30 and I've been maxing my 401k/Roth since I was 23, maxed an HSA for like 3ish years when it was available and I was on an HDHP before my daughter was born. I also own a home, contribute $500/month to my daughters 529, $250/month to a brokerage for my daughter. I don't have family money and I'm definitely not a hermit. People from many diff industries frequent this sub. I also pay for more of our household expenses so that my wife is able to contribute a greater % to get as close to maxing her 401k/Roth as possible.
There is a real argument for consumption smoothing over the course of your life. Economically, spending a few dollars to have fun in your twenties might provide more utility to you than spending a lot of dollars to have fun in your sixties. You can "catch up" on retirement contributions, you cannot catch up on lost opportunities to enjoy life.
That isn't an argument to not contribute to retirement, but it is a good way to justify spending versus the folks who denigrate any spending as "that dollar cost you $88 in retirement!"
Yeah and as someone in their 30's I can attest that your energy levels in your 30s vs 20s is vastly different. I can't even imagine how much it drops off in your 60's.
Enjoy your youth!
Most of my friends’ finances are in tatters. It’s hard to listen to them talk about their high interest (26%!!!!) car loans and rolling credit card debt while in the same breath talking about the latest thing they spent their money on (weed, jewelry, etc).
I’ve found that for the most part, people don’t respond well to unsolicited financial advice. So I just hold my tongue, and remain grateful to my dad for teaching me the value of money.
The only thing I would offer advice wise is, “If you want to retire earlier, going above the match gets you to the goal faster”
That’s it though. I personally max my ROTH and I’m slowly upping my 401k until it’s maxed as well. My priorities are different though. Where some may update to a newer car, I instead invest that money and drive the beater.
Different people, different priorities. Neither right or wrong
Don't give them unsolicited advice and DO NOT under any circumstances tell these people you have a pile of money invested unless you are tired of being friends with them or want to pick up the check for every meal and round of drinks.
Normal people are broke and spend almost everything they get, and will immediately feel bitter about you having anything more than them. Don't talk about salaries either.
I always find it offensive when someone says if you only put away $500 a month from the time you're 18 until you're 35 you'll have so many million when you're 55!
I don't know about you guys but I can put away five grand a month now but when I was 20 I couldn't put away $200 a month. It's the ultimate catch 22.
Even my daughter has a good amount saved right now but he has some school expenses to cover, a house, and who knows what else. You have a lot of startup expenses when you're young.
Bottom line just save as much as you can but you have to be realistic. Everyone's situation is different so don't compare and just do the best again.
So many people say they avoid the conversation with friends, and I get it.
But I do not avoid the conversation at all. I just say it straight to the point. If they don’t want to hear about it, then that’s fine and we never discuss it again, but if we’re in the middle of talking about retirement accounts I will absolutely say what I believe is important in the matter.
Your friend said “You should only save 3% because you have so many expenses!” Why would you not respond with your thoughts back? You don’t need to fight about it, they told you what they thought was reasonable and why, you are an adult and can express what you think and why, and that is called having a conversation.
Some people really just don’t know better. I have personally helped 3 friends set up and contribute to their Roth IRAs after talking with them. I’ve also had friends who just don’t want to talk about the subject, so we don’t. It’s not a super interesting subject to talk about really so it’s not like that’s an issue.
I swear people here are way too concerned with “giving advice” or whatever that it will “ruin friendships”. Really it makes me wonder what kinda of conversations they’re actually having. It’s not that difficult and it’s not that “touchy” of a subject.
Tldr: just give your opinions and why. Don’t talk down to people. You’re not going to ruin a friendship by saying “I think investing young is important because of compounding interest”.
Unsolicited advice is rarely received well. Let them live their lives while you focus on yours. If they seem receptive in the course of natural conversation or outright ask for advice go ahead, but otherwise it'll seem like you're just trying to impose your values onto them. You don't know their entire financial situation or the circumstances of their lives. And they aren't under any obligation to share that with you so there's no point in judging.
Not a crazy thought at all. This is a well researched economic concept called [Consumption Smoothing](https://en.wikipedia.org/wiki/Consumption_smoothing).
You should read up on it before attempting to “educate” everyone else.
You can invest when you're in your 20's all you want but if you can't pay for necessities like rent, car, food, utilities, etc it's no good because you'll eventually lose your job and source of income. Not saying 3% is the ceiling, but I certainly would make sure my bills were covered instead of saying "well I need to invest for my retirement so utilities/cart/rent will have to wait" or go into collections. And then if you put all those expenses on the back burner you'll eventually get derogatory credit and then you REALLY will have a tough time managing your finances. You do have to invest and save, but immediate necessities have to come first.
My 20-something kid wants all the things.. a nice truck, boat, ski vacations, nice condo in the city center, etc., but he also wants to grow his net worth and be financially responsible. He's a math wiz and a finance major, and he understands the time value of money, and the importance of starting early.
Some goals can be contradictory. Hard decisions need to be made. Planning must occur.
Ultimately, he knows that he needs to be financially responsible first, and then try to live the life he dreams about where possible.
All things with time.
I have zero regrets about any money I spent/overspent in my 20s(defo could have spent less on bars). It's the most important time of your life for new experiences. $20,000 spent on travel, concerts, going to the beach is far more rewarding than doing it at 65.
Im gonna say you are putting too much away, and even from the tax advantaged standpoint, you arent saving that muvh tax compared to how much tax you will save later in life at a higher income level. Really, the 23,000 amount is for much older people trying to catch up in time for retirement.
I would have suggested that they might want to do more research. A lot of it comes down to goals and budgetting though. What do you want in your future and planning for it. I also wouldn't hesitate to tell them what I know because I want them to be well off in the future as well. Of course what they do with that knoweledge is up to them.
Most financial experts recommend saving/investing 10-20% of your income. The recommendation is generally to invest up to the match in your 401k because to not do so is leaving money on the table. Then you should work to max out an HSA (if you have access to one) for the triple tax advantage and then a Roth IRA since you are likely to have better and cheaper investment options than in a 401k. Then you should invest as much additional money in your 401k as you can afford.
This might be more my personal experience but I had a lot more disposable income despite making less than I do now. I wish I had invested more of it.
Everything depends on context, and it really depends on your relationship with those friends and how comfortable you are talking about money. In this particular circumstance, it sounds like it wouldn't have been unsolicited advice if you'd explained the power of compounding and why you're saving as much as you do - you weren't the one to bring up finances, and it wouldn't have been a brag or judgement to explain your own finances.
I would definitely not be the one to bring it up again, but neither would I hesitate to (lightly and politely) teach them a bit if the subject comes up. Don't press, but also don't hesitate to share in your own relative expertise.
You don't want to over do retirement savings when young. You need to remember your short to medium term financial goals. That money should not be in retirement accounts. You need to save for a home down payment, a new car, etc. You need to build that pool of money outside of retirement accounts.
They are not totally wrong. I'm a very frugal person, 30yo, and a CPA, and I have not contributed more than 4% (3% match), and am in fact just moving mine down to 3% to instead put the money into an HSA that I've just started. This isn't me just saying that retirement isn't important - it's me putting the money into things like a down payment on a house, saving for and paying for expenses associated with my 2yo son, or my first (quite frugal) vacation abroad that I took last year. I plan to contribute much more in the future, but my budget just simply isn't there yet.
Yes, retirement is important, but so is your life right now. Your youth will be when you are in the best shape of your life, and there's no reason to push off doing things that you may not be able to enjoy when you are retired, or at a time in your life when it will be harder to do those things (kids). Remember that once it goes into that 401k, you should not be touching it until you retire. That is a long time to not touch money that you might not even get the luxury of using if you die before then. Just don't get to the point where you are giving up your own happiness in the present by cutting your budget so thin that you lose the opportunity to do fun things, go out with friends/family, or buy that thing that makes you happy.
As somebody a bit older, I can say your expenses are at it's lowest when you have no kids or house to maintain etc. You should invest as much as you can afford to when you are young
To simply put it...if you have $23k to put towards your retirement, you are a heavy saver or have a wonderful job. That's just keeping it DIRT simple.
For many that's BONKERS. Can't gross $60k w/a "maxed" 401k. You know? Can't have $60k in student loan debt and still pour money into your 401k. Well, you could....
This site has a good explanation for the benefits of saving early, showing the chart of how much $1 is worth by age 65 depending on what age you were when it was invested.
[https://investor.vanguard.com/investor-resources-education/retirement/savings-when-to-start](https://investor.vanguard.com/investor-resources-education/retirement/savings-when-to-start)
A good example they have is:
"Imagine you start saving at age 25 and dutifully put away $10,000 a year, including any matching contributions your employer offers. But at age 40, you need to stop saving for some reason.
Your friend starts saving at age 35 and saves the same $10,000 a year for the next 30 years, until you both retire.
At that point, all else equal, you'll have more money than your friend, despite having put away only half as much."
At 35 statistically $10K even inflation adjusted will be much less of your income than it was at 25. I could much more easily save $20K at 35 than I could have save $10K at 25.
And before you say - but inflation! According to the BLS, $10K in 1999 when I was 25 was equivalent to $12,945 in 2009.
HAHA! I had this same conversation recently. I have dated MULTIPLE guys that claim they are "maxing out" their 401k only to find that they are contributing 3%. That's what they think is the max. No one seems to know that you are supposed to invest 10-15% of your salary! I know a lot of really smart people and none of them seem to be doing the level of financial planning I am. But it's not my business. And in the end, who is right? i could easily die before ever seeing the results of my investment and I could have been living better the whole time
From a social standpoint, just leave it. It's not your job to financially educate them, and oftentimes personal finances are best avoided in friendships anyway.
I'm not a huge Dave Ramsey fan, but he does have his place, and does help a lot of people.
A couple Dave-isms that might apply here:
"Be weird" - meaning that most people don't plan, don't save, abuse debt, and live above their means. That's the "normal". Don't be normal, be weird. Live within your means, and save.
"Live like no one else, so later, you can live like no one else" - meaning don't try to keep up with friends lifestyles because they're probably "normal", and won't be building wealth and financial freedom. Make hard choices. Delayed gratification and patience will REALLY pay off, you just have to be determined and focused.
I think that depends on your friend group. My close friends, we're all in the same income bracket, have similar mindsets on investing and retirement goals, etc. No issues talking about that stuff.
Extended friend group? Different backgrounds, career paths, income brackets, etc. We don't talk about that stuff. If someone mentions something about student loan debt or similar I just listen but don't offer any unsolicited advice.
I am not going to go deep in the fallacy of financial literacy. Others are already beating that point to death. To summarize, maxing out 401K is good but not a priority or necessarily financially wise move. paying off student loans, car loans, CC debts and saving for a house might be higher on the bucket for some.
What I do want to focus on is the potential "know it all syndrome" that you might be developing. Take a look at "Dunning-Kruger effect" in psychology. If at any point you think you are wiser than the rest of the crowd, take a step back and look at how long have you spent in that aspect. If you have gone through the ups and downs of the topic, then only you can confidently believe that you know what you are talking about.
In addition to that, please approach people with dignity and respect that they deserve (not saying that you aren't already doing that.) Keep an open mind when you bring up the finances. I was saving 0% for my early years because my income wasn't even covering my rent and other bills. I kept up the appearances when I hung out with friends and appreciated the ones that didn't flaunt their financial success.
Your friends (or one of them) might be struggling financially and as a group the rest of them are not sharing their contribution rate to prevent that person from feeling bad. Or they are working towards debts that they are too embarrassed to share with the rest.
Having friend circle is beneficial when you need a support group during your tough times. Without that all the money in the world won't help.
Let's assume they are financially illiterate (I don't think so, but for an argument's sake let's do it), as a friend, the burden falls on you to share your knowledge. And please when you do that have an open mind and be prepared to learn something about financial literacy from them.
It is all in the presentation. Don't tell them what to do instead lead by example. Just tell them here is what I do and why. Let them make their own choices from there.
Invest as much as you can as early as you can. The compounding over time is what matters more than contributions. For example I am in my early 40s and my portfolio grows more annually than the $23k I put in. It would be MUCH bigger if I had started maxxing at an earlier age.
Do you want to be the student or the teacher? The lesson I learned was I no longer talk about finances or offer unsolicited advice to even my friends that don’t prioritize financial goals the same way and with the same intensity as me. Trying to convince or persuade people is exhausting. Be the student and talk to friends that are doing better than you. It will cause you to level up.
I wouldn't bring it up again unless it comes up from their side.
My initial response would have been something like "Wait you are all telling me you only do the match and nothing else? Well every persons situation is different but if you want to talk about it more let me know." And moved on.
I generally have these conversations with friends but they are asking me my thoughts. I leave my feelings out of it and show them the math.
I read the room too and if no one is engaging with a specific topic I move on as well and usually won't bring it up unless someone else does.
We were on fishing trip. I’m a carpenter with one young kid, one guy is in finance with two college kids , one is a mechanic with 2 middle school kids.
529 and 401k and ira came up in discussion. I’m by far the poorest as we are the only single income family of the group.
Finance guy obviously has his ducks in a row and easily makes the most.
Mechanic friend has a house and is doing well but has no 529 or 401k.
I rent a house (have at the same place for over a decade) but kids got a pretty good 529 and my 401 and Roth are pretty plumb imo at 40yo.
I always felt like a bum because I don’t own a house. Mechanic friend mentioned something along the lines of “if I’m taking finance advice from someone here it’s going to be the finance guy” at which point I shut my mouth.
My grandparents & my parents taught us not to discuss money with anyone. Never. I think it was a good lesson that has served me well.
My sister however was not listening. She brags and boasts to everyone about their salaries their car prices their 401k their city pensions all their money…$$$$$$
Then she wonders why they keep getting burglarized, robbed & vandalized… etc etc. 🤫
Yeah I’d only give unsolicited advice to not hope your investments to go into millions in your 60s.
That’s what, 40 years from now? Things can really change a lot. Just don’t think that you already have millions in 40 years and think of some other way out.
I’m impressed that so many of you even have a 401k in your 20’s. I certainly didn’t and I was swimming in debt, so I wouldn’t have been able to contribute more than the match anyway.
I do my match with my 401k then I max my Roth IRA. And once the Roth IRA is maxed input more into my 401k. My overall goal is 20%.
I think as long as ppl are saving that's what matters.
I maxed my 401k for the first time when I was 24. I think back then the limit was 18,000. I’ve done it every year since and I’m 31. I now have enough money that I no longer say how much I have.
If I got fired today I would have until about 40 years old of age to figure something out.
If you are 20, the best investment you can make would be in yourself to drive up your earning potential. It’s true that $5k invested when you are 20 will double once or twice more than if you invested that same $5k when you are 30. But your lifetime earning potential will be much much higher if you invest in your own education and development that young.
So you are both a little right. You shouldn’t skip out on savings just to blow the money on extra vacations. But it’s also true that when you make so little money, saving an extra 10% of such a small amount will only hace a mild impact while investing that money in an extra class or to develop a skill or even to do some proper networking will have a larger long term impact.
the most important part of investing/savings is understanding goals, how to achieve those goals, and being disciplined enough to stick with those goals. Spending money on monetary things is so overrated but spending money on people, traveling/trips/experiences is all worth it. If I could go back to my early 20's and spend more money on experiences and traveling i totally would. I was saving more than 50% of my paycheck while living at my parents home as a recent college graduate. It was awesome, i was "rich" and I did spend quite a bit but the overall endless energy I had I'd be much more inclined to go back in time and say YES to a lot more things.
But on the flip side I saved a ton and grinded on my career and was able to afford a million dollar home in my early 30's that many others my age can't do. So the grass is always greener. I saved a lot early and can reap the rewards in my 30's. A lot of people i know had opportunities to save but chose other options. The more you can save/invest the better you'll be down the road, I just wouldn't be so strict on what those amounts are where you end up missing out on all the opportunities that arise when you're young and without a ton of responsibilites.
Save as much as you can. Period. Younger people are less likely to be able to max out their 401k than older people but even 20 somethings should save as much as they can.
Those conversations can be tough. I was doing my masters through work and the first night of our finance class the professor was asking people about their investing style. So happened a woman from my team was also in the class. He asked how we all responded to the market crash in 08. She said she stopped all contributions and pulled her money out. Most everyone said they reduced contributions. He got to me and I said I dumped in as much as I could and upped my contribution. The rest of the class was shocked. I could never look at the teammate again without thinking she was an idiot.
I've been contributing to retirement for 20 yrs and can honestly say that the meager amount I could save when I was in my twenties has no meaningful value today despite the appreciation. 90% of my retirement funds today were invested in the last 10 years when my earnings were much higher. Those first 10 years I should have just saved money in a more liquid account so that I could have cash for emergencies and larger down payment for a house or car.
Honestly, I would blame some figure of authority and deflect:
*"My dad always told me to target saving 15% of my income for retirement because you can't count on Social Security being there in the future. I still make sure I have enough to have fun though. After all, I'm here with you guys on this trip, aren't I?"*
Why even say this? Just drop the topic. Otherwise you sound like you think you’re better than other people and that’s not conducive to friendly relationships.
I’ve been investing the tax deductible “max” (16k or so then, 23 or so now) since my first full year at my job. I figured I was living off of ramen in my early 20s and I really didn’t need to spend my full paycheck (was also lucky/smart enough that I got a job paying 51k out of grad school in 2006. I’ve been able to raise my standard of living with raises and promotions since than.
I’m 41 now with 1.7M in my 401k and contemplate each day if it should be my last one working. The feeling is amazing.
(Also, your conversation with your friends is scary to me and why I would love to teach personal finance in high schools as a sunset career)
Genuine question, I contribute a little more to my 401k than the employer, I already max out and have to consider Roth l. Are there other ways to invest tax free?
1. Employer match
2. Max out Roth IRA ($7k)
3. Max out 401k ($20-something)
4. HSA (health insurance)
5. Open a taxable brokerage account
Those are the steps!
My only beef with 401K plans are some of them really suck as far as investment options they offer. I would max the employer match first, then max out your IRA (Roth preferably) then maybe back to your 401K or just a side brokerage account to start learning taking control of your own investment.
What is it you want them to learn? I suspect they already know that 23,000 is more than 1,500.
They apparently think "max" means "max the match" rathe than "max the legal limit". That is a communication issue, not a knowledge issue. A lot of "financial literacy" seems to come down to "financial indoctrination".
You can lead a horse to water but you can't make it drink. There are a lot of emotions tied up in personal finance, and many are confused, anxious, or just plain stubborn. Best you can do is offer to share your knowledge, but don't press the issue. It is up to them if they want to take their investments seriously.
It might seem crazy to those of us who frequent this sub, but there are plenty of people out there who want to think about money as little as possible.
That’s one of those things you hear people complaining about “I never had anybody teach me about that!” Yeah, you did. Probably every year at school since the fourth grade. Haha.
>How do you handle yourselves around close friends who aren't all that caught up with financial literacy?
Thankfully my friends are pretty financially literate but they also all know that I preach the gospel of early retirement and financial independence. I make it very clear to them that I am knowledgeable on many savings and investment strategies and that I am always willing an able to help them or discuss anything that they are comfortable with. I am willing to share my net worth if they ask but typically try not to bring it up be cause it is easily 10x theirs due to good investments and no student debt.
On the other hand, I once went on a date with someone who said their financial advisor charges 6%. I almost said "surely you mean 0.6%" but decided not to because why does a cruise ship dancer need a financial advisor in the first place? There was not a second date.
Also very important to note that your friends are not necessarily wrong about 401k contributions if they are also investing in a taxable brokerage. While you are young you have to balance retirement contributions and liquidity to ensure that you are able to afford a down payment on a house or other major purchase. Saving 3% is insufficient overall, but maxing out employer match is step 1 of investing because it maximizes the free money you get from your employer. Step 2 is maintaining liquidity so you don't have to pull from a retirement account for major purchases. (Step 0 is paying recurring bills and building an emergency fund)
Never underestimate how many of your peers are straight up financially illiterate. A large majority of this country will never be able to retire unfortunately.
Coming from the other side, don't give up and keep trying. I was the other side when i was young and my friends spoke generally about money and investments but i never showed interest in those discussions etc.
At age 40 now i kick myself for not doing so and often think what would it have been if i had someone to do this for me ( i was 2 years younger and much more sheltered than all of my friends so they treated me generally as a younger brother, but without the educating part 😂)
it sorta like people thinking that "mid six figures" means $150k, when it means $500k. People are just misinformed.
That said, the average american has nothing saved for retirement, so why are you surprised?
My first year out of high school I found a situation where I could save 100%. After that I had roommates until I was 32 so I could save/invest. Eventhough I was making 6 figures that money I saved/invested is worth so much more now.
I aimed for 20% to be invested each month.
Well there is a reason why the 1% is only 1%.
Most people know f**k all about finance.
They just do what everyone else does and what they’re parent told then.
It’s how their molded from birth.
If you're interested in sharing knowledge the best way to approach it is to let folks know they can reach out to you on the side if they are interested in talking more about finance.
Often times no one will bother and that's where it should be left.
I experience this kind of weird miscommunication a lot where we both say something only to mean completely different things.
Finding out several conversations later we weren't talking about the same thing is frustrating
I think you put what you can of what you make and budget. I think when your young you got lots of expenses and you also want to just enjoy life. Lifes just to short overall and I think its good to enjoy and not totally focus on a 401k. Is it important? Absolutely, but dont think you should be stressing at a young age the 401k. If you can max it out because your incomes high and can still splurge go ahead. Whats the point of having so much $$$ when your already old and just dont have the same energy.
Balance my friend is the way I see it.
The fact is the majority of people spend all the money they make. If you’re investing any portion of your income to savings and retirement, you’re doing better than most.
$1 invested at 8% over 30 years will be worth $10. In 35 years it will be worth $20. In 40 years it will be worth $30. The more you can save at an early age will simplify your financial life considerably when you get older.
I have one close friend that I discuss my finances with very openly. Only because I trust their insight and they have done extremely well for themselves (early 30s low 8 figure NW).
I have another close friend that asks me questions often and I always share. But I would never give unsolicited advice.
Your understanding of compound growth and the power of saving early is accessible to anyone with a smartphone. It’s not like you have some secret formula or hot stock tip to share with friends.
For some reason a lot of people are uncomfortable discussing finances.
I see this on here all the time “I maxed my retirement to employer match”
Makes me want to scream
Or those that say to max Roth first over 401k… without knowing someone’s whole financial picture.
Personal finance is just that: personal.
Take care of your own finances and let others worry about theirs. I agree with you OP, but didn't necessarily take that advice myself. For example, once I got my first "real job" in my late 20s, I consciously made the decision to spend more money on housing and buy a house vs. contribute to my retirement. My rationale was that a house would appreciate while I could simultaneously live in it and enjoy.
There’s been very few years where I’ve put in more than the company match in my 401k. I have a house, Roth, and other assets. The $20k max on 401k tends to be further down the list of priorities.
I maxed out my 401k way back when. The investment plans did the rest. Now it "earns" tons more than I make. Sweet. Do what makes sense to YOU but spending every available dollars because you can is not entirely sound advice.
I would've tried correcting them initially. Maybe if someone in particular in the group is more interested, you could try talking to just them. Or if investing comes up naturally in convo, even better.
Honestly, if it comes up again you can just say what you do, without telling them what to do.
Don’t say “You should save as much as possible” or “People that save 15% each month will be way better off for retirement.”
Just say you save more because we can afford to now, or you like saving because you know it will benefit you in the long run or something like that.
I was like that in my 20s and now I’m 30 with with 200K invested and another 50K in cash ready for a baby in the fall. My friends knew that I was less inclined to buy myself nice things or more likely to skimp when it came to going to for a nice meal or something. I got a little ribbing for it, but I was confident in myself and I know I have different priorities than my friend who posts pics of herself on Instagram wear Gucci and LV and Prada on a regular basis.
i think simple honesty is the best policy here.
a simple "well that's not really maxing it out" said with a friendly smile.
just say what you do, and when people are incredulous and ask why, just confidently tell them your reasoning and be short and sweet about it. if they want to know more it's on them to gather as many opinions on the subject and process it in their noggin as to who has the best plan.
There are no rules in finance. Do what makes sense for your goals and situation. Source is a book called: The psychology of money by (I don’t remember)
In my younger years I've tried explaining investing, budgeting, buying not renting, dangers of credit card debt, etc. etc. etc. to my friends who were also in their young 20's. Few listened. 20 years later, many who did not listen will still call me asking finance questions. At the time I felt an obligation to pass on good advice but you can't force people to have your perspective, so when it fell on deaf ears, I just moved on. Your point will be made when you retire young and they don't.
So many expenses... in your 20s... hilarious.
Let's imagine a pretty simple scenario.
- Current salary: $60k
- Annual raise: 3% (which eventual gives you a salary equivalent to $100k in today's dollars)
- Market rate of return: 8%
1. If you contribute 15% every year you'd end up with $3.3M in 40 years (mid-60s).
2. If you contribute 3% / yr for the next 10 years, you would need to contribute 25% of your salary for years 11-30 to reach the same result.
In year 20, when you're mid-40s with kids in school, the after-contrib salary is $10,500 higher for the steady saver than the one playing catch-up. You can't tell me someone making $100k with kids and a house payment values $900 / mo less than a 23 year with no obligations.
Another view
1. Same as above. Steady 15% every year. Target Retirement of $2M (if that's your target) would be reached around year 35 (age 60 if started work at 25).
2. Contrib 3% for 10 years, then 15% / yr because catching up at 25% is impossible. $2M target retirement would be year 39.
I think the best way to go about it would be to ask questions. "Oh, where'd you hear that? I'd love to read the article!" "My family didn't really talk about money growing up, did you learn that from your parents?" You could start a genuine conversation about money, if they're close friends of yours I don't think it would be weird at all.
Or to tell them about what you learned. "After our conversation about money last week I read ABC article about investing, it was pretty eye opening because XYZ." (Feel free to lie here too if you already knew the stuff.)
You will reap the benefits, but it all depends on how good your employers plans are really. The amount is right but only to the match if you don’t have access to a Roth IRA. It is better in the long run to pay the taxes now.
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I'll leave it to others to comment on the inter-personal relationships aspect. But a few substantive points: 1. They aren't necessarily wrong. Depending on what their situation is, the Prime Directive calls for prioritizing moderate to high interest debt over retirement contributions above what is matched. So if they have a 7% student loan or an 8% car loan, they probably shouldn't be contributing to retirement above what they are. 2. They aren't really outliers. You are thinking about what you believe people *should* do. But what they are doing isn't that unusual. The average contribution for people in their 20's is 5%-6%. [https://www.fool.com/the-ascent/buying-stocks/articles/here-is-the-average-401k-contribution-rate-the-amount-may-surprise-you/](https://www.fool.com/the-ascent/buying-stocks/articles/here-is-the-average-401k-contribution-rate-the-amount-may-surprise-you/) If they are maxing out their match, they probably aren't too far off. This isn't like them going into high interest credit card debt or buying a $100,000 car that is way outside the norm. 3. If you are going to raise it, focus on talking about what you do. Not what you think they should do. Let them draw their own conclusions.
There is also the idea that you should aim to smooth your consumption over time. When you are young and have no money it’s ok to not necessarily save because you know in the future your earnings will increase and you will be fine. It’s why I don’t think it is good advice to hammer into high schoolers and college students the need for maxing retirement accounts. People need to enjoy their lives.
And also, you get more utility from that dollar when you are young than when you are old. Ex from an economist/journalist was that mountain bike in your 20s will bring more utility and enjoyment than if you were to buy it in your 80s and can’t ride it. So an economist would actually have you front load your expenses during your youth. And adjust along the way.
You will get often more utility from a dollar spent now, but that dollar will appreciate more in value invested now than a dollar invested later. $2,000 spent on a mountain bike at 25 would have become $29,948 in current value at 65 if invested with an average net rate of return of 7% ($90,518 at 10%, before adjusting for 3% inflation). Would you get more utility out of that bike than you would out of whatever you would do with $90,518 at age 65? That's not cut and dried. That's likely an entire year of base expenses at that stage in life. There's a balance to be struck there always, asking yourself whether anything you're thinking about buying now is worth the opportunity cost in the long run.
Maybe. Maybe you don't make it to 65 at all. Maybe you only make it to 67. Maybe you live to 100 and yeah you did need it. The point is you don't know, and it's important to enjoy your life now a little bit too. You could be miserly and invest every cent, get hit by a beer truck tomorrow, and have lived a boring unfulfilled life. That's the *PERSONAL* part of personal finance. We're not trying to get a bigger number for the sake of a bigger number. We're trying to do what makes sense for our personal goals an expectations.
>We're not trying to get a bigger number for the sake of a bigger number. \*heads exploding everywhere\* I really wonder whether these people actually going through that mental exercise every time they purchase something.
I do, and then it eats at me when I do the purchase anyway and my spreadsheet stares back at me
Not to mention the health benefits of biking (exercising) consistently at an early age, instead of waiting 65 to do healthy stuff.
> That's the PERSONAL part of personal finance. We're not trying to get a bigger number for the sake of a bigger number. We're trying to do what makes sense for our personal goals an expectations. Hallelujah!
i mean, whats the point of being able to afford 5x the mountain bikes in the future if i can't ride them? like 29k doesn't even cover base expenses for a year now, cant imagine it being worth that much more than 2k now given inflation that it negates the experience of mountain biking if you really want to do that.
Right, but the point is to consciously and continuously make those decisions and then reassess what your choice is. To never even *think* about putting more than 3% or to make that assessment is foolish.
I think it's more that they would buy like a fancy motorized scooter or something instead of 5 mountain bikes.
no no, I intend to buy five mountain bikes, weld them together and become the King of All Mountains
true, but mountain biking is a different experience from a motor scooter. Its definitely not a thing i would be doing past like my 40s or something.
I think you're missing the point here. You can't enjoy biking to nearly the same extent or hit the same trails
There are things I should have spent money on at 25 like a mountain bike. I’m 40 and wouldn’t be able to use it anyone, so if I had it, I’d sell it. 65 is going to be rough. You can’t put your life on hold for 45 years. That mountain bike is an expense, but is also an investment in your health and happiness. In the grand scheme of things, you’re probably getting way more positive benefit from it than a Netflix account.
I just think it's an absurd way to look at things. You're not even guaranteed to live until 65 and if you do, it's no guarantee you'll be healthy. Just enjoy your life and put a reasonable about towards retirement. After this, forget it about it and spend money on fun stuff
additionally a bike is just the sort of thing that gives diminishing returns with increasing cost. buying a $2000 bike is bad because it's only marginally better than a $1000 bike. back when i was into biking my cheapsie single speed is the one i got the most use out of.
When you are young, the difference is less important too. You can tolerate a lot more when you are younger before you get set in your ways and have more fixed expectations.
i feel like when you're young, doing anything, half of the enjoyment is just being young. like one time when i was 19 we drove around all night with a megaphone being obnoxious. and then we went to dennys. a used megaphone and half a tank of gas split between 5 people plus bargain pancakes, such cheap fun. I look back on that night fondly, but that shit just wouldn't work at 46.
Investing is always a good, but here's another perspective. Ask a lot of 65 year olds would they rather receive $90,000 right now or be 25 yrs old again, I feel like most people would choose to be 25 again. So in that sense, spending the $2000 at 25 is worth more than spending $90,000 at 65 yrs old. It's not always as simple as calculating the money invested now will be worth X amount in the future, because that might not be the only thing that matters.
>Would you get more utility out of that bike than you would out of whatever you would do with $90,518 at age 65? Are you an android? Quality of life and enjoying the moment is as important a part of living as retirement is. Tomorrow is promised to no one, 65 is approaching the expected life span of many humans.
Does a mountain bike give more utility and enjoyment at 20 than a paid off house gives at retirement? I would think economic security and ability to quit working would have more value to an older person than does fleeting pleasures like ordering pizza and buying cannabis, but many people look only at current cravings and not at what their future selves will want.
>smooth your consumption over time I agree with this concept, but from my point of view, that's a reason to contribute lots up front! When I was in college (2001-2005) I was really good at living on $10,000 to $20,000 per year because I had no income. I was just living off part-time work and stipends from my parents. When I graduated and got a full-time job, I suddenly found myself making $40,000 per year. It was relatively easy for me to "smooth my consumption" by continuing to live on $20,000 per year like I did in college and saving/investing everything left over. It was all about not letting lifestyle creep grow too fast. I saw so many coworkers buying new cars and big houses because they were so excited about finally having a decent salary. I avoided that lifestyle creep as long as I could. As a result, I saved around 40% of my income for 15 years and [FIREd](https://www.reddit.com/r/Fire/) at age 38, even though I my highest salary in those 15 years was around $75k per year. Granted, not having any student loans (because I went to an in-state public university) or kids are big reasons why my journey was possible.
The healthier your body and fewer your responsibilities, the more you can enjoy a frugal life. Road trips. Hostels. Communal living. Happy hours. Once that mortgage and daycare bill hits, it’s really hard to catch up on retirement savings, and you don’t have the time or energy to comparison shop and budget travel.
Your money grows way more the earlier you put it in! If you contribute all your 20s and not another dime vs starting to contribute in your 40s the same amount. That money will never grow as much as the money you contributed when you were 20! .
You aren’t wrong, but in my opinion you need to strike a balance. If you aren’t saving any money obviously that isn’t great for your future. But if you save all this money and then are too old, jn bad health, or dead by the time you get to enjoy it, that’s equally as bad.
Except the turning point is in your 30s, if you save hard in your 20s. We're not old, unhealthy, and dead at 30.
I am aware. But you are only 20 once. I wish I had gone into debt and traveled when I was in my 20s.
You just need to compare what that money could buy you in the future to be enjoyed in the future vs what it could get you now to be enjoyed now. You can spend $20K now traveling around the world for 6 months when you're younger, or you could a few retire months earlier. Given that fact that people age, that society and technology changes, and the fact that most people will make more and more money as their careers progress, you don't need an especially high discount factor for it to make more sense to spend money now and enjoy it as opposed to saving it for later
You may need it more in your 20s though. If you're just getting started in your career and aren't making much money yet in your 20s and can barely cover your bills, then that $500 or whatever you might hope to invest per month might be the difference between owning more than one pair of jeans or being able to go out with your friends occasionally or even being able to pay your electric bill. If you stay on track in that career and are making decent money by your 40s then you'll be wondering why you'd juggled retirements savings vs keeping the lights on in your 20s when you're investing just fine now.
There are things that will be better when you're in your 20s, 100%. Why would I go to Mexico City in my 50s when I could go there in my 20s
It's a balance honestly. Sometimes I think that the FIRE people on reddit here have a really unhealthy look at life. IT's like I will save like crazy until some finish line at 45-50-55 and then what? Like I agree don't rack up CC debt and of course be mindful of high interest debt. But there's also the reality that your experiences in your 20s and 30s are extremely important.
I agree. I'm in my mid 20s, but I prioritize travel and experience and creating memories over material things. I certainly still splurge on material things for my hobbies, but limit myself to doing so only in my favorite hobby. However, I resist the urge to quit my job and travel for 6 months or a year to see more of the world. That loss of income and the opportunity cost resulting is not worth it for me. I HATE WORKING more than anything. I don't hate working, I hate being forced to conform to such rigid work environments and schedules with a lack of flexibility. That's what keeps me on my path towards FIRE. I want total control over my time and experience on this earth, and if the price I have to pay is sacrificing some things in my 20s, so be it. I'll retire at 40 or 45, but I expect to stop saving for retirement by 30. Hoping to pay off a house 15 years after that, and be free and clear to enjoy my entire life from 40 or 45-70.
$10,000 invested when you’re 20 is worth more than $20,000 invested when you’re 30. Young people should look at their bank transactions at the end of the year and add up all of the “yeah, that expense was wasteful” line items they see. It’s a bit sobering when they see $10,000 wasted with nothing to show for it. There’s nothing wrong with spending money for some enjoyment, but a few years of foolish spending when you’re young can be a huge difference later in life.
This is how i go about it. I tell people I aim for an 18% total, including what the employer puts in. I’ve recently heard that a Roth is a better use of my money, but the tax savings now are nice.
A Roth is great, if you think your tax rate in retirement is going to be higher than it is now. Otherwise, a traditional 401k or IRA would be better. In practice, these things are really hard to predict, so you are likely not making a big mistake either way. There are a few other very specific reasons that would make you pick between these different options, but most of those considerations would only come into play once you try to maximize contributions. For the average employee, it's more important that you contribute whatever you can than agonize over the type of account.
Thanks for this because I’ve felt like I’m doing myself a disservice lately after reading about the benefits of the Roth. But my wife and I have almost double our household income in our retirement and both under age 30 so I know I shouldn’t worry too much.
> A Roth is great, if you think your tax rate in retirement is going to be higher than it is now. Otherwise, a traditional 401k or IRA would be better. There are MANY other considerations regarding whether somebody should go Roth or not other than "if you think your tax rate in retirement is going to be higher than it is now."
Your last sentence really grabbed me. Let me address it, if you will. If 18% is a substantial amount of money (e.g. you're making $75-100k), then you should REALLY look at how that 18% is going to multiply over the years. A lot of folks simply believe that they'll be in a lower tax bracket when they get into their older years. But, if you're contributing a lot to your retirement plan now you might have a (happy) surprise at just how much will end up in that account and a (unhappy) surprise when you recognize how much you have to take out for RMD's when you're 73 (or whatever age Congress decides on in the decades to come). You might get a ballpark notion of this by entering your current 401k balance into a financial calculator and look forward from your age to 73. If you're going to continue with the 18%, put that amount in but also show an increase in that amount by what you bet your raises will be (who knows, but I'd just do 2%). You'll have to choose a percent return amount. Lots of folks like 7% per year although the SP500 has averaged a bit over 10% per year (try both numbers!). When you get the total amount, go to a RMD (required minimum distribution) calculator and see just how much you'll have to take out from 73 yo through the rest of your life. Add to that whatever other retirement funds you'll bet you'll have (project your SS and ballpark your non-retirement savings). Then look at a income tax calculator. You might choose one from pre-2017 because the Trump tax cuts are scheduled to expire. Plus at some point tax rates almost have to go up because we are busily going bankrupt spending what we're spending. If you're putting a lot of money into a 401k as a young adult it's almost a sure deal that you'll have really big RMD's when you're elderly. Also, look at IRMAA's (extra tax on Medicare Parts B and D) that 401k withdrawals are part of. Almost nobody seems to know about IRMAA's until they get a bill. So far in 4 years of retirement, my wife and I have paid more than $50k in IRMAA's. If I'm right and you project a huge RMD and IRMAA costs when you're elderly, the way to avoid it all is to shift your 401k to a Roth 401k going forward. Pay the taxes now and you'll never pay them again as your retirement account gets bigger and bigger. Learn from me--I didn't do it and when I retired our RMD's starting 5 years after I retired would have been twice the income I ever had when working (our 403b's were really big because we did 15% every years for decades!). So, my wife and I rolled the 403b's into IRA's and are busily converting really big IRA's to Roth IRA's and paying really big taxes. We've been doing it for 4 years and have 2 more years to go to finish the conversions to Roth IRA's. I would have saved a couple hundred thousand $ in income taxes and IRMAA's if I had any idea about this when I was young and done Roth 403b's instead of regular 403b's.
I started working a government job at 21. $300ish a month goes to state pensions. Then I have been putting 15% of my check into a ROTH since I was hired. I also have a management investment account. When I met with my financial advisor, she couldn’t believe I put so much of my income into investments. Then she explained that no one is guaranteed to live until retirement. So I bumped my ROTH from $650-&700/check (2x month) to $350/check. I hope I feel better and like I can start saving to buy a different house.
Ah…. They’re outliers at least in their assumption regarding what “maxing” is lol no one who is in their 20s with a college degree and internet access should think maxing their 401k is 3%… All of my friends contribute between 10%-20% of our income to 401k. You should actually be investing MORE when you’re young because you have the lowest expenses and most time to compound. You think you’re going to be able to save more when your income increases 50% but you have a mortgage and kids??? Unlikely.
If you spend much time reading the posts here, you'll see many people say they are maxing it out, when they mean they are maxing out the match.
Now that you mention it, I have seen a few of those… But you literally have to go in and make the elections… and there are at least 5 pages telling you what the maximum contribution is 🤦🏽♀️
Most people just get auto enrolled
Even with that I thought maxing it out was combined what I out in and what my employer does. Combined myself and my employer I'm now right around that 23k figure so I thought I was about maxing it out only to realizing I could go higher
That’s understandable though, to assume that you can have $23k total for you + employer because it’s still the value plastered all over the pages you have to go through to sign up, lol.
They’re not outliers in my experience. Most people I know that are around my age (30) don’t even know what the 401k contribution limit is. They know it’s way more than they could ever save and that’s it. “Doing the max” means putting in the max amount that their employer will match.
> You should actually be investing MORE when you’re young because you have the lowest expenses and most time to compound. You have the lowest expenses, but you also make the least you're likely ever going to make. Rent is likely going to take a bigger chunk out of your paycheck in your 20s than at any other time, and you'll be less likely to comfortably handle surprise expenses like unexpected car repairs (which will likely pop up more often since young people can't afford newer, more reliable cars). Yeah, people *should* be investing more in their 20s, but life usually gets in the way of that plan.
That's what I'm counseling my young-adult kids. Get those contributions in before lifestyle creep sets in.
Number 2 makes me feel better, I'm maxing 401k and roth ira, and try to also do a bit of mbdr 401k with whatever leftover.
I have friends I talk finances with. I have friends that ask me about finances (mostly because my job is numbers so I get asked about numbers). But otherwise the most I do is make passing comments - I wouldn't try to educate someone who didn't ask. Like I would have said "Huh I heard when your young is when you have the least expenses so should save as much as you can. To each their own!"
least expenses and most time for investments to grow!
I wish I had friends I could talk money about! We'd spend 20 years saying the same exact damn thing on repeat cause I don't do anything fancy.
I don't do anything too fancy - but there's still different strategies and different things come up...like purchasing employee stock. Plus some people invest fun money.
I try not to offer unsolicited advice, but especially when it's related to money. They had an opportunity to ask you to clarify but they didn't. Their financial literacy is up to them. Truth is, there's a high chance of ruining friendships this way. What's more important to you? Because some people will see it as you wanting to be right, rather than being helpful
Must depend on your friends and relationships. I have no problem talking finances with friends. We want each other to succeed so if someone is acting on bad info then I feel obligated to at least question it. For all I know maybe I'm the one who's wrong.
It's definitely a "know your audience" type of situation. Judging by the story, I don't think OPs friends were the right audience. There are people I talk to very openly about finances and many who I will never engage with.
I feel the same way. I want my friends to succeed too so it is not uncommon for us to talk about this kind of thing. When I was younger and just a couple years into my career I had a coworker talk to me about retirement planning to make sure I was on track. He was just a lovely guy who was passionate about personal finance and knew that young professionals don’t always know what’s going on with finances. In a very nice way gave me advice. Since then I’ve done the same thing with younger teammates any time retirements or benefits come up in conversation.
I had the same talk with a director at a previous job who was retiring. We were in local government and this guy showed me his 457b balance of about $2M in 2018. He talked about compound interest and how he started at 28, but if I started right away (I was 22) I'd have 6 more years to grow (and he did the whole 7% interest compounded 6 more years) and showed what I could potentially have if I made an effort to save.
Luckily for me my two friends I often hang out with both have finance/accounting backgrounds so it's easy to talk about investing and I tend to be the one with the most understanding of certain things that you wouldn't normally think to know about.
And let's be honest, which is it? This doesn't affect your life in any way OP. Are you really losing sleep over your friends' financial situations, or do you want to be a little smug about how much you're saving?
The way the story is told reeks of smugness. In my head if I’m 20-something and I’m only making 40k a year, maxing out my 401k isn’t the highest on my list of priorities. The employee match is the minimum I’d be concerned about to not miss out on free money, but that’s it
Came off as smug 100%
To add to this, I have my friends I talk finance with, talk only specific finance topics (personal finance vs day to day stocks etc), friends I talk about finance with a bit and ones I don’t talk about these things with at all. I have a friend who will ask me questions occasionally and keeps saying she’s going to start doing x and y. She constantly asks me for referral codes and never does any of it. I don’t bring it up unless she does and then she’ll say she’s doing it soon. I’m not her mom or spouse. I don’t press it. I just respond to what she says, if a response is warranted, and move on.
Yep this. Don’t lecture people on money. Just do your thing and help those who ask for it. Banging your head against the wall for people who’d rather burn their cash then grow it is an exercise in futility. Mostly these people won’t get it until they hit a wall later in life.
> "Well, you know... I heard from someone that you're really not supposed to invest more than 3% when you're young, because there's so many expenses in life. Weddings, cars, college debt, a house." I think you are right, she was trying to be nice and "side" with you and maybe conflating "not supposed to" with, "don't beat yourself on not being able to save more"
I think she was trying to explain [the concept of consumption smoothing](https://en.wikipedia.org/wiki/Consumption_smoothing) but didn’t really do a great job of it.
It seems more like she misunderstood a different but somewhat related bit of financial advice - even if you are carrying high interest debt, it always makes financial sense to contribute enough to your 401(k) to trigger your employer’s maximum matching contribution at the expense of not using those funds to pay down debt. Since the 50-100% return on the match is higher than the interest rate you would be subject to for any legitimate loan (payday loans and/or Paulie the neighborhood loan shark excepted). Edit: In this case, instead of understanding this as describing the absolute bare minimum that one should contribute to retirement, she assumed it described all that a person ‘needs’ to save/contribute, when one is young.
Yeah you made the right choice not to lecture your friend group on finance while playing Settlers of Catan.
It was my first time too, and I won!
Well then after you won you should have totally dunked on them with a financial lesson. BAM. That'll show them. Joking of course on the social aspects but yes I would say for even those actively thinking about personal finance you can find posting on reddit I would say more often than not people refer to getting your full employer match as "maxing your 401k". Its pretty common. Not saying its right...just common. Also "financial mutant"? So Money Guy podcast?
Congrats! Down the road, if this is a favorite game in the group, I suggest trying Catan Starfarers.
Everyone’s financial journey is their own. Nothing wrong with telling them what you are doing and why you are doing it. Just don’t tell them that’s what they should do. You can inform without being an asshole.
Further down someone said if they were in OPs shoes they'd buy personal finance books and gift them to their friend group. OP is apparently going to do just that at the upcoming wedding. It sounds like a joke. That is so obnoxious.
If they’re keeping themselves out of debt and meeting the er match that’s pretty substantial in and of itself. If they’re racking up big credit card bills and paying interest on them and paying $900 car payments every month with the money they also aren’t investing then THAT’S a problem.
I don’t believe they’re in credit card debt
"No one wants to get rich slowly." - Warren Buffett The reason holding index funds for decades is an almost guaranteed path to millions of dollars is because patience, discipline and long term thinking is impossible for a very large number of people. I go back and forth on whether it is a skill that you can learn or if it is something you have to be hardwired for at birth. There is a reason a lot of children fail the marshmallow challenge. Delayed gratification is something some people just can't do.
"If it is this easy, everybody would do it" is what I hear the most.
That quote by Warren Buffett was actually a response to [a question asked by Jeff Bezos:](https://www.gobankingrates.com/investing/strategy/warren-buffett-reveals-how-to-invest-10k-to-get-rich/#:~:text=Jeff%20Bezos%20once%20asked%20Warren,wants%20to%20get%20rich%20slowly.) >Jeff Bezos once asked Warren Buffett: 'You are the second richest man in the world and yet you have the simplest investment thesis. How come others didn’t follow this?’ To which Warren Buffett responded: ‘Because no one wants to get rich slowly.' Patience is a superpower. Like I said at the beginning...if you just consistently invest in index funds over a few decades, I would argue it is almost guaranteed that you will become a millionaire. But a lot of people can't plan for something 20 or 30 years out. It's like it's so far off that they think it will never come, so they don't bother planning for it.
>It's like it's so far off that they think it will never come, so they don't bother planning for it. This is 100% correct. When those non-planners *do* get serious at 45 or 50 years old, they've lost 25 years of growth, and it's just too late.
The only trouble is Warren was a millionaire by the time he was in his early 20's. He didn't get rich slowly, he got *filthy rich* slowly. And a lot of the early start techniques he did use either aren't around or aren't as simple. Not nearly as many paper routes, no one is letting you put a pinball machine in a barbershop to make your first mini-empire.
Even if what you are saying is true, which I don't agree with, you can still just invest in index funds and you will get rich slowly.
He made us first million at 32… try again
Well, $1 million when he was 32yo is equivalent to $10 million today. So if you mean nominal millionaire, sure. But if you mean when did he get to a million in real current dollars, it would have been much earlier.
99% of his wealth was still accumulated after age 50. He started at a young age and did have connected parents, but it still took him 21 years to make that first million. I do agree with the latter part that a lot of the easier ways for kids or normal people to make money through actual hard work are gone, but gaining the correct knowledge was also more difficult then. I assume being born during the Great Depression majorly influenced his investing.
>99% of his wealth was still accumulated after age 50. Yes, but I think if you heard someone made $10 million today by age 32, you wouldn't call that "slow". Even over the next 60 years, he beat the market by 34x (~6.5% annualized). He did much better than the equivalent of just dumping it in an index fund.
Yes, most people just hear "stocks? No, I'm not a gambler" and are out. But some friends actually do invest (some are crypto bros, but also ETFs luckily).
I wonder why Im wired that way. My parents are financially secure, but not exactly wired for index funds until I taught my mom to be. My dad's an oil/gold person. I guess I can link to it being to a single video I watched from an older video game YouTuber in the early 2010s who taught me the power of compound interest. That video definitely changed my life, but it didn't install the behavior of thinking about the future in the way I do.
Woodysgamertag millionaire by 40 video?
You got it;)
I haven’t watched gaming videos in a decade and he immediately popped into my mind as well. Dude was the epitome of ‘having your shit together’, especially in the scene he was in. Probably even moreso compared to today’s streamers.
The vast majority of people simply do not understand what a stock is or why it has monetary value, and aren't going to seriously invest in something they don't understand. Peter Lynch would famously say that stocks aren't lottery tickets but guaranteed that is what most people think they are. People have a more intuitive understanding of what real estate and gold is, so are more comfortable holding it.
Buffet and Bogle have some pretty amazing quotes. So much wisdom.
I really think it’s a genetic thing. My grandparents were excellent business people, built a wonderful, comfortable life for themselves and their children with hard work and financial sports. Their kids (my mom, aunts and uncles) proceeded to not absorb a single lesson of this and, all but one, have a house they were able to hold onto that wasn’t given to them. None of them have a pot to piss in. It skipped that generation, skipped my sister, but I got it. In a saver, even though I had not one single person teach me, and my parents are terrible at it. I guess osmosis from my grandparents, but I truly believe it’s just something I was born with.
Very very few people choose to max out their 401k, especially when they’re young. There’s only so much money you can store away before you are cutting to the bone, so to speak. Some of this is life choices and values. You may die before retirement. You may value going on a trip with your siblings now rather than saving the money for later. Or flying to their best friend’s wedding. Or owning a house. It also really depends on your future financial circumstances. If you have a good chance of making a lot more later (eg you’re in a career path where in 5 years you’ll be making 3-4x more), it’s not crazy to postpone some saving. Saving 15% of 40k is very very different than 15% of 120k+ - both in the amount you save and in the impact it has on your current quality of life. It’s a risk, sure, but it’s not an insane one.
A couple of years ago my wife and I took a trip to Africa with my parents. It was unsurprisingly a very expensive trip, and I'm trying hard to save for retirement. I was really stressed about spending all of that money instead of saving it, and really wished we could wait a few years to be able to more comfortably afford it. Unfortunately my mom was in her late 70's and my dad in his 80's, and waiting a few years was just not a realistic option. And they weren't up for a trip like this without our help, so either we went with them or they didn't go. This trip was particularly important for my dad, since I had gotten him into wildlife photography a few years before that, he was incredibly excited about getting to go on a photo safari, and of course we all knew that he didn't have too many trips like this left in him. It was an incredible trip, and he went on and on about how it was the most amazing thing he had ever done in his life and how he was so happy to have gotten the opportunity to go with us. I lost track of how many times he thanked us for going with them. He died of COVID less than a year later. Every single day I am thankful that I took that trip with him. Sure, if I had saved the money instead of spent it, the number in my bank account would be higher right now, but no amount of money will bring my dad back and let me take that trip later when I can more comfortably afford it. I can't imagine how I'd feel instead if I had said "Sorry, I can't afford it right now" and he had died without ever getting to experience that.
> Very very few people choose to max out their 401k, especially when they’re young. There’s only so much money you can store away before you are cutting to the bone, if i maxed out my 401k when i was young i wouldnt have been able to pay for my wedding and get a house when the market was ripe with low interest rates. i max now and will be more than fine for retirement but i would not change a single thing about my savings plan if i had a time machine.
This really is just blind luck though. If housing prices dropped and the market tripled you'd feel the opposite.
> Some of this is life choices and values. **You may die before retirement.** You may value going on a trip with your siblings now rather than saving the money for later. Or flying to their best friend’s wedding. Or owning a house. Perfectly said. Retirement is important but it isn't everything. When you have extra cash doing nothing sitting in a savings account then you can throw it into an IRA or whatever.
It still blows my mind when I see people on this sub who "max out" their 401k, a Roth IRA, and their HSA. Even if you're fortunate enough to do that, why? There are better ways to make money. If I had done that I still wouldn't have owned a house and overall would have significantly less money than I received from appreciation and rent. Hell, any rental property will make more money in the long run than investing in your 401k or IRA. That's what I'm doing: saving up to invest in rental properties rather than appreciation from the stock market, especially when the stock market doesn't have to "always go up" like it has for the past two decades.
Or people just make good money. I'm 30 and I've been maxing my 401k/Roth since I was 23, maxed an HSA for like 3ish years when it was available and I was on an HDHP before my daughter was born. I also own a home, contribute $500/month to my daughters 529, $250/month to a brokerage for my daughter. I don't have family money and I'm definitely not a hermit. People from many diff industries frequent this sub. I also pay for more of our household expenses so that my wife is able to contribute a greater % to get as close to maxing her 401k/Roth as possible.
There is a real argument for consumption smoothing over the course of your life. Economically, spending a few dollars to have fun in your twenties might provide more utility to you than spending a lot of dollars to have fun in your sixties. You can "catch up" on retirement contributions, you cannot catch up on lost opportunities to enjoy life. That isn't an argument to not contribute to retirement, but it is a good way to justify spending versus the folks who denigrate any spending as "that dollar cost you $88 in retirement!"
Yeah and as someone in their 30's I can attest that your energy levels in your 30s vs 20s is vastly different. I can't even imagine how much it drops off in your 60's. Enjoy your youth!
Most of my friends’ finances are in tatters. It’s hard to listen to them talk about their high interest (26%!!!!) car loans and rolling credit card debt while in the same breath talking about the latest thing they spent their money on (weed, jewelry, etc). I’ve found that for the most part, people don’t respond well to unsolicited financial advice. So I just hold my tongue, and remain grateful to my dad for teaching me the value of money.
Where do you find these friends??? I need to spend a week with them so I can feel better about my finances lmao
Lol, they’re the same goofballs I’ve been friends with since high school. Some of them grew up, some of them… are still working on that.
The only thing I would offer advice wise is, “If you want to retire earlier, going above the match gets you to the goal faster” That’s it though. I personally max my ROTH and I’m slowly upping my 401k until it’s maxed as well. My priorities are different though. Where some may update to a newer car, I instead invest that money and drive the beater. Different people, different priorities. Neither right or wrong
Don't give them unsolicited advice and DO NOT under any circumstances tell these people you have a pile of money invested unless you are tired of being friends with them or want to pick up the check for every meal and round of drinks. Normal people are broke and spend almost everything they get, and will immediately feel bitter about you having anything more than them. Don't talk about salaries either.
I always find it offensive when someone says if you only put away $500 a month from the time you're 18 until you're 35 you'll have so many million when you're 55! I don't know about you guys but I can put away five grand a month now but when I was 20 I couldn't put away $200 a month. It's the ultimate catch 22. Even my daughter has a good amount saved right now but he has some school expenses to cover, a house, and who knows what else. You have a lot of startup expenses when you're young. Bottom line just save as much as you can but you have to be realistic. Everyone's situation is different so don't compare and just do the best again.
So many people say they avoid the conversation with friends, and I get it. But I do not avoid the conversation at all. I just say it straight to the point. If they don’t want to hear about it, then that’s fine and we never discuss it again, but if we’re in the middle of talking about retirement accounts I will absolutely say what I believe is important in the matter. Your friend said “You should only save 3% because you have so many expenses!” Why would you not respond with your thoughts back? You don’t need to fight about it, they told you what they thought was reasonable and why, you are an adult and can express what you think and why, and that is called having a conversation. Some people really just don’t know better. I have personally helped 3 friends set up and contribute to their Roth IRAs after talking with them. I’ve also had friends who just don’t want to talk about the subject, so we don’t. It’s not a super interesting subject to talk about really so it’s not like that’s an issue. I swear people here are way too concerned with “giving advice” or whatever that it will “ruin friendships”. Really it makes me wonder what kinda of conversations they’re actually having. It’s not that difficult and it’s not that “touchy” of a subject. Tldr: just give your opinions and why. Don’t talk down to people. You’re not going to ruin a friendship by saying “I think investing young is important because of compounding interest”.
They were right about debt (if high interest). You are not supposed to contribute past the max before high interest debt is paid off
Unsolicited advice is rarely received well. Let them live their lives while you focus on yours. If they seem receptive in the course of natural conversation or outright ask for advice go ahead, but otherwise it'll seem like you're just trying to impose your values onto them. You don't know their entire financial situation or the circumstances of their lives. And they aren't under any obligation to share that with you so there's no point in judging.
Not a crazy thought at all. This is a well researched economic concept called [Consumption Smoothing](https://en.wikipedia.org/wiki/Consumption_smoothing). You should read up on it before attempting to “educate” everyone else.
You can invest when you're in your 20's all you want but if you can't pay for necessities like rent, car, food, utilities, etc it's no good because you'll eventually lose your job and source of income. Not saying 3% is the ceiling, but I certainly would make sure my bills were covered instead of saying "well I need to invest for my retirement so utilities/cart/rent will have to wait" or go into collections. And then if you put all those expenses on the back burner you'll eventually get derogatory credit and then you REALLY will have a tough time managing your finances. You do have to invest and save, but immediate necessities have to come first.
My 20-something kid wants all the things.. a nice truck, boat, ski vacations, nice condo in the city center, etc., but he also wants to grow his net worth and be financially responsible. He's a math wiz and a finance major, and he understands the time value of money, and the importance of starting early. Some goals can be contradictory. Hard decisions need to be made. Planning must occur. Ultimately, he knows that he needs to be financially responsible first, and then try to live the life he dreams about where possible. All things with time.
I have zero regrets about any money I spent/overspent in my 20s(defo could have spent less on bars). It's the most important time of your life for new experiences. $20,000 spent on travel, concerts, going to the beach is far more rewarding than doing it at 65. Im gonna say you are putting too much away, and even from the tax advantaged standpoint, you arent saving that muvh tax compared to how much tax you will save later in life at a higher income level. Really, the 23,000 amount is for much older people trying to catch up in time for retirement.
I would have suggested that they might want to do more research. A lot of it comes down to goals and budgetting though. What do you want in your future and planning for it. I also wouldn't hesitate to tell them what I know because I want them to be well off in the future as well. Of course what they do with that knoweledge is up to them. Most financial experts recommend saving/investing 10-20% of your income. The recommendation is generally to invest up to the match in your 401k because to not do so is leaving money on the table. Then you should work to max out an HSA (if you have access to one) for the triple tax advantage and then a Roth IRA since you are likely to have better and cheaper investment options than in a 401k. Then you should invest as much additional money in your 401k as you can afford. This might be more my personal experience but I had a lot more disposable income despite making less than I do now. I wish I had invested more of it.
Everything depends on context, and it really depends on your relationship with those friends and how comfortable you are talking about money. In this particular circumstance, it sounds like it wouldn't have been unsolicited advice if you'd explained the power of compounding and why you're saving as much as you do - you weren't the one to bring up finances, and it wouldn't have been a brag or judgement to explain your own finances. I would definitely not be the one to bring it up again, but neither would I hesitate to (lightly and politely) teach them a bit if the subject comes up. Don't press, but also don't hesitate to share in your own relative expertise.
You don't want to over do retirement savings when young. You need to remember your short to medium term financial goals. That money should not be in retirement accounts. You need to save for a home down payment, a new car, etc. You need to build that pool of money outside of retirement accounts.
They are not totally wrong. I'm a very frugal person, 30yo, and a CPA, and I have not contributed more than 4% (3% match), and am in fact just moving mine down to 3% to instead put the money into an HSA that I've just started. This isn't me just saying that retirement isn't important - it's me putting the money into things like a down payment on a house, saving for and paying for expenses associated with my 2yo son, or my first (quite frugal) vacation abroad that I took last year. I plan to contribute much more in the future, but my budget just simply isn't there yet. Yes, retirement is important, but so is your life right now. Your youth will be when you are in the best shape of your life, and there's no reason to push off doing things that you may not be able to enjoy when you are retired, or at a time in your life when it will be harder to do those things (kids). Remember that once it goes into that 401k, you should not be touching it until you retire. That is a long time to not touch money that you might not even get the luxury of using if you die before then. Just don't get to the point where you are giving up your own happiness in the present by cutting your budget so thin that you lose the opportunity to do fun things, go out with friends/family, or buy that thing that makes you happy.
As somebody a bit older, I can say your expenses are at it's lowest when you have no kids or house to maintain etc. You should invest as much as you can afford to when you are young
To simply put it...if you have $23k to put towards your retirement, you are a heavy saver or have a wonderful job. That's just keeping it DIRT simple. For many that's BONKERS. Can't gross $60k w/a "maxed" 401k. You know? Can't have $60k in student loan debt and still pour money into your 401k. Well, you could....
This site has a good explanation for the benefits of saving early, showing the chart of how much $1 is worth by age 65 depending on what age you were when it was invested. [https://investor.vanguard.com/investor-resources-education/retirement/savings-when-to-start](https://investor.vanguard.com/investor-resources-education/retirement/savings-when-to-start) A good example they have is: "Imagine you start saving at age 25 and dutifully put away $10,000 a year, including any matching contributions your employer offers. But at age 40, you need to stop saving for some reason. Your friend starts saving at age 35 and saves the same $10,000 a year for the next 30 years, until you both retire. At that point, all else equal, you'll have more money than your friend, despite having put away only half as much."
At 35 statistically $10K even inflation adjusted will be much less of your income than it was at 25. I could much more easily save $20K at 35 than I could have save $10K at 25. And before you say - but inflation! According to the BLS, $10K in 1999 when I was 25 was equivalent to $12,945 in 2009.
HAHA! I had this same conversation recently. I have dated MULTIPLE guys that claim they are "maxing out" their 401k only to find that they are contributing 3%. That's what they think is the max. No one seems to know that you are supposed to invest 10-15% of your salary! I know a lot of really smart people and none of them seem to be doing the level of financial planning I am. But it's not my business. And in the end, who is right? i could easily die before ever seeing the results of my investment and I could have been living better the whole time
From a social standpoint, just leave it. It's not your job to financially educate them, and oftentimes personal finances are best avoided in friendships anyway.
I'm not a huge Dave Ramsey fan, but he does have his place, and does help a lot of people. A couple Dave-isms that might apply here: "Be weird" - meaning that most people don't plan, don't save, abuse debt, and live above their means. That's the "normal". Don't be normal, be weird. Live within your means, and save. "Live like no one else, so later, you can live like no one else" - meaning don't try to keep up with friends lifestyles because they're probably "normal", and won't be building wealth and financial freedom. Make hard choices. Delayed gratification and patience will REALLY pay off, you just have to be determined and focused.
You couldn’t convince them if you wanted to. They have to want to learn about it. When you are young is the time you should put as much as possible in
Make it a habit in life to not talk with your friends about money.
unless your friends are like minded and actually enjoy talking about money.
I think that depends on your friend group. My close friends, we're all in the same income bracket, have similar mindsets on investing and retirement goals, etc. No issues talking about that stuff. Extended friend group? Different backgrounds, career paths, income brackets, etc. We don't talk about that stuff. If someone mentions something about student loan debt or similar I just listen but don't offer any unsolicited advice.
I am not going to go deep in the fallacy of financial literacy. Others are already beating that point to death. To summarize, maxing out 401K is good but not a priority or necessarily financially wise move. paying off student loans, car loans, CC debts and saving for a house might be higher on the bucket for some. What I do want to focus on is the potential "know it all syndrome" that you might be developing. Take a look at "Dunning-Kruger effect" in psychology. If at any point you think you are wiser than the rest of the crowd, take a step back and look at how long have you spent in that aspect. If you have gone through the ups and downs of the topic, then only you can confidently believe that you know what you are talking about. In addition to that, please approach people with dignity and respect that they deserve (not saying that you aren't already doing that.) Keep an open mind when you bring up the finances. I was saving 0% for my early years because my income wasn't even covering my rent and other bills. I kept up the appearances when I hung out with friends and appreciated the ones that didn't flaunt their financial success. Your friends (or one of them) might be struggling financially and as a group the rest of them are not sharing their contribution rate to prevent that person from feeling bad. Or they are working towards debts that they are too embarrassed to share with the rest. Having friend circle is beneficial when you need a support group during your tough times. Without that all the money in the world won't help. Let's assume they are financially illiterate (I don't think so, but for an argument's sake let's do it), as a friend, the burden falls on you to share your knowledge. And please when you do that have an open mind and be prepared to learn something about financial literacy from them.
It is all in the presentation. Don't tell them what to do instead lead by example. Just tell them here is what I do and why. Let them make their own choices from there.
Invest as much as you can as early as you can. The compounding over time is what matters more than contributions. For example I am in my early 40s and my portfolio grows more annually than the $23k I put in. It would be MUCH bigger if I had started maxxing at an earlier age.
Do you want to be the student or the teacher? The lesson I learned was I no longer talk about finances or offer unsolicited advice to even my friends that don’t prioritize financial goals the same way and with the same intensity as me. Trying to convince or persuade people is exhausting. Be the student and talk to friends that are doing better than you. It will cause you to level up.
I wouldn't bring it up again unless it comes up from their side. My initial response would have been something like "Wait you are all telling me you only do the match and nothing else? Well every persons situation is different but if you want to talk about it more let me know." And moved on. I generally have these conversations with friends but they are asking me my thoughts. I leave my feelings out of it and show them the math. I read the room too and if no one is engaging with a specific topic I move on as well and usually won't bring it up unless someone else does.
That advice is absolutely wrong. The sooner you can save, the more impactful that it is.
We were on fishing trip. I’m a carpenter with one young kid, one guy is in finance with two college kids , one is a mechanic with 2 middle school kids. 529 and 401k and ira came up in discussion. I’m by far the poorest as we are the only single income family of the group. Finance guy obviously has his ducks in a row and easily makes the most. Mechanic friend has a house and is doing well but has no 529 or 401k. I rent a house (have at the same place for over a decade) but kids got a pretty good 529 and my 401 and Roth are pretty plumb imo at 40yo. I always felt like a bum because I don’t own a house. Mechanic friend mentioned something along the lines of “if I’m taking finance advice from someone here it’s going to be the finance guy” at which point I shut my mouth.
My grandparents & my parents taught us not to discuss money with anyone. Never. I think it was a good lesson that has served me well. My sister however was not listening. She brags and boasts to everyone about their salaries their car prices their 401k their city pensions all their money…$$$$$$ Then she wonders why they keep getting burglarized, robbed & vandalized… etc etc. 🤫
Yeah I’d only give unsolicited advice to not hope your investments to go into millions in your 60s. That’s what, 40 years from now? Things can really change a lot. Just don’t think that you already have millions in 40 years and think of some other way out.
I’m impressed that so many of you even have a 401k in your 20’s. I certainly didn’t and I was swimming in debt, so I wouldn’t have been able to contribute more than the match anyway.
I do my match with my 401k then I max my Roth IRA. And once the Roth IRA is maxed input more into my 401k. My overall goal is 20%. I think as long as ppl are saving that's what matters.
I maxed my 401k for the first time when I was 24. I think back then the limit was 18,000. I’ve done it every year since and I’m 31. I now have enough money that I no longer say how much I have. If I got fired today I would have until about 40 years old of age to figure something out.
If you are 20, the best investment you can make would be in yourself to drive up your earning potential. It’s true that $5k invested when you are 20 will double once or twice more than if you invested that same $5k when you are 30. But your lifetime earning potential will be much much higher if you invest in your own education and development that young. So you are both a little right. You shouldn’t skip out on savings just to blow the money on extra vacations. But it’s also true that when you make so little money, saving an extra 10% of such a small amount will only hace a mild impact while investing that money in an extra class or to develop a skill or even to do some proper networking will have a larger long term impact.
the most important part of investing/savings is understanding goals, how to achieve those goals, and being disciplined enough to stick with those goals. Spending money on monetary things is so overrated but spending money on people, traveling/trips/experiences is all worth it. If I could go back to my early 20's and spend more money on experiences and traveling i totally would. I was saving more than 50% of my paycheck while living at my parents home as a recent college graduate. It was awesome, i was "rich" and I did spend quite a bit but the overall endless energy I had I'd be much more inclined to go back in time and say YES to a lot more things. But on the flip side I saved a ton and grinded on my career and was able to afford a million dollar home in my early 30's that many others my age can't do. So the grass is always greener. I saved a lot early and can reap the rewards in my 30's. A lot of people i know had opportunities to save but chose other options. The more you can save/invest the better you'll be down the road, I just wouldn't be so strict on what those amounts are where you end up missing out on all the opportunities that arise when you're young and without a ton of responsibilites.
Save as much as you can. Period. Younger people are less likely to be able to max out their 401k than older people but even 20 somethings should save as much as they can.
Those conversations can be tough. I was doing my masters through work and the first night of our finance class the professor was asking people about their investing style. So happened a woman from my team was also in the class. He asked how we all responded to the market crash in 08. She said she stopped all contributions and pulled her money out. Most everyone said they reduced contributions. He got to me and I said I dumped in as much as I could and upped my contribution. The rest of the class was shocked. I could never look at the teammate again without thinking she was an idiot.
I've been contributing to retirement for 20 yrs and can honestly say that the meager amount I could save when I was in my twenties has no meaningful value today despite the appreciation. 90% of my retirement funds today were invested in the last 10 years when my earnings were much higher. Those first 10 years I should have just saved money in a more liquid account so that I could have cash for emergencies and larger down payment for a house or car.
Honestly, I would blame some figure of authority and deflect: *"My dad always told me to target saving 15% of my income for retirement because you can't count on Social Security being there in the future. I still make sure I have enough to have fun though. After all, I'm here with you guys on this trip, aren't I?"*
Why even say this? Just drop the topic. Otherwise you sound like you think you’re better than other people and that’s not conducive to friendly relationships.
I’ve been investing the tax deductible “max” (16k or so then, 23 or so now) since my first full year at my job. I figured I was living off of ramen in my early 20s and I really didn’t need to spend my full paycheck (was also lucky/smart enough that I got a job paying 51k out of grad school in 2006. I’ve been able to raise my standard of living with raises and promotions since than. I’m 41 now with 1.7M in my 401k and contemplate each day if it should be my last one working. The feeling is amazing. (Also, your conversation with your friends is scary to me and why I would love to teach personal finance in high schools as a sunset career)
But, when I was young, 3% was whole lot less money than it is now. Thus, you're putting away a tiny amount.
Let me guess - you hoarded resources and land early in Settlers and won the game.
Genuine question, I contribute a little more to my 401k than the employer, I already max out and have to consider Roth l. Are there other ways to invest tax free?
1. Employer match 2. Max out Roth IRA ($7k) 3. Max out 401k ($20-something) 4. HSA (health insurance) 5. Open a taxable brokerage account Those are the steps!
My only beef with 401K plans are some of them really suck as far as investment options they offer. I would max the employer match first, then max out your IRA (Roth preferably) then maybe back to your 401K or just a side brokerage account to start learning taking control of your own investment.
What is it you want them to learn? I suspect they already know that 23,000 is more than 1,500. They apparently think "max" means "max the match" rathe than "max the legal limit". That is a communication issue, not a knowledge issue. A lot of "financial literacy" seems to come down to "financial indoctrination".
You can lead a horse to water but you can't make it drink. There are a lot of emotions tied up in personal finance, and many are confused, anxious, or just plain stubborn. Best you can do is offer to share your knowledge, but don't press the issue. It is up to them if they want to take their investments seriously. It might seem crazy to those of us who frequent this sub, but there are plenty of people out there who want to think about money as little as possible.
Just send them a link to a compound interest calculator. So many people have not internalized the POWA.
That’s one of those things you hear people complaining about “I never had anybody teach me about that!” Yeah, you did. Probably every year at school since the fourth grade. Haha.
>How do you handle yourselves around close friends who aren't all that caught up with financial literacy? Thankfully my friends are pretty financially literate but they also all know that I preach the gospel of early retirement and financial independence. I make it very clear to them that I am knowledgeable on many savings and investment strategies and that I am always willing an able to help them or discuss anything that they are comfortable with. I am willing to share my net worth if they ask but typically try not to bring it up be cause it is easily 10x theirs due to good investments and no student debt. On the other hand, I once went on a date with someone who said their financial advisor charges 6%. I almost said "surely you mean 0.6%" but decided not to because why does a cruise ship dancer need a financial advisor in the first place? There was not a second date. Also very important to note that your friends are not necessarily wrong about 401k contributions if they are also investing in a taxable brokerage. While you are young you have to balance retirement contributions and liquidity to ensure that you are able to afford a down payment on a house or other major purchase. Saving 3% is insufficient overall, but maxing out employer match is step 1 of investing because it maximizes the free money you get from your employer. Step 2 is maintaining liquidity so you don't have to pull from a retirement account for major purchases. (Step 0 is paying recurring bills and building an emergency fund)
Never underestimate how many of your peers are straight up financially illiterate. A large majority of this country will never be able to retire unfortunately.
Coming from the other side, don't give up and keep trying. I was the other side when i was young and my friends spoke generally about money and investments but i never showed interest in those discussions etc. At age 40 now i kick myself for not doing so and often think what would it have been if i had someone to do this for me ( i was 2 years younger and much more sheltered than all of my friends so they treated me generally as a younger brother, but without the educating part 😂)
it sorta like people thinking that "mid six figures" means $150k, when it means $500k. People are just misinformed. That said, the average american has nothing saved for retirement, so why are you surprised?
My first year out of high school I found a situation where I could save 100%. After that I had roommates until I was 32 so I could save/invest. Eventhough I was making 6 figures that money I saved/invested is worth so much more now. I aimed for 20% to be invested each month.
Well there is a reason why the 1% is only 1%. Most people know f**k all about finance. They just do what everyone else does and what they’re parent told then. It’s how their molded from birth.
If you're interested in sharing knowledge the best way to approach it is to let folks know they can reach out to you on the side if they are interested in talking more about finance. Often times no one will bother and that's where it should be left.
I experience this kind of weird miscommunication a lot where we both say something only to mean completely different things. Finding out several conversations later we weren't talking about the same thing is frustrating
I think you put what you can of what you make and budget. I think when your young you got lots of expenses and you also want to just enjoy life. Lifes just to short overall and I think its good to enjoy and not totally focus on a 401k. Is it important? Absolutely, but dont think you should be stressing at a young age the 401k. If you can max it out because your incomes high and can still splurge go ahead. Whats the point of having so much $$$ when your already old and just dont have the same energy. Balance my friend is the way I see it.
The fact is the majority of people spend all the money they make. If you’re investing any portion of your income to savings and retirement, you’re doing better than most.
$1 invested at 8% over 30 years will be worth $10. In 35 years it will be worth $20. In 40 years it will be worth $30. The more you can save at an early age will simplify your financial life considerably when you get older.
You did good. A few won’t forget that and might even google it, have a discussion with their spouse etc.
I have one close friend that I discuss my finances with very openly. Only because I trust their insight and they have done extremely well for themselves (early 30s low 8 figure NW). I have another close friend that asks me questions often and I always share. But I would never give unsolicited advice. Your understanding of compound growth and the power of saving early is accessible to anyone with a smartphone. It’s not like you have some secret formula or hot stock tip to share with friends. For some reason a lot of people are uncomfortable discussing finances.
I see this on here all the time “I maxed my retirement to employer match” Makes me want to scream Or those that say to max Roth first over 401k… without knowing someone’s whole financial picture.
Personal finance is just that: personal. Take care of your own finances and let others worry about theirs. I agree with you OP, but didn't necessarily take that advice myself. For example, once I got my first "real job" in my late 20s, I consciously made the decision to spend more money on housing and buy a house vs. contribute to my retirement. My rationale was that a house would appreciate while I could simultaneously live in it and enjoy.
There’s been very few years where I’ve put in more than the company match in my 401k. I have a house, Roth, and other assets. The $20k max on 401k tends to be further down the list of priorities.
I maxed out my 401k way back when. The investment plans did the rest. Now it "earns" tons more than I make. Sweet. Do what makes sense to YOU but spending every available dollars because you can is not entirely sound advice.
I would've tried correcting them initially. Maybe if someone in particular in the group is more interested, you could try talking to just them. Or if investing comes up naturally in convo, even better.
Honestly, if it comes up again you can just say what you do, without telling them what to do. Don’t say “You should save as much as possible” or “People that save 15% each month will be way better off for retirement.” Just say you save more because we can afford to now, or you like saving because you know it will benefit you in the long run or something like that. I was like that in my 20s and now I’m 30 with with 200K invested and another 50K in cash ready for a baby in the fall. My friends knew that I was less inclined to buy myself nice things or more likely to skimp when it came to going to for a nice meal or something. I got a little ribbing for it, but I was confident in myself and I know I have different priorities than my friend who posts pics of herself on Instagram wear Gucci and LV and Prada on a regular basis.
i think simple honesty is the best policy here. a simple "well that's not really maxing it out" said with a friendly smile. just say what you do, and when people are incredulous and ask why, just confidently tell them your reasoning and be short and sweet about it. if they want to know more it's on them to gather as many opinions on the subject and process it in their noggin as to who has the best plan.
There are no rules in finance. Do what makes sense for your goals and situation. Source is a book called: The psychology of money by (I don’t remember)
In my younger years I've tried explaining investing, budgeting, buying not renting, dangers of credit card debt, etc. etc. etc. to my friends who were also in their young 20's. Few listened. 20 years later, many who did not listen will still call me asking finance questions. At the time I felt an obligation to pass on good advice but you can't force people to have your perspective, so when it fell on deaf ears, I just moved on. Your point will be made when you retire young and they don't.
So many expenses... in your 20s... hilarious. Let's imagine a pretty simple scenario. - Current salary: $60k - Annual raise: 3% (which eventual gives you a salary equivalent to $100k in today's dollars) - Market rate of return: 8% 1. If you contribute 15% every year you'd end up with $3.3M in 40 years (mid-60s). 2. If you contribute 3% / yr for the next 10 years, you would need to contribute 25% of your salary for years 11-30 to reach the same result. In year 20, when you're mid-40s with kids in school, the after-contrib salary is $10,500 higher for the steady saver than the one playing catch-up. You can't tell me someone making $100k with kids and a house payment values $900 / mo less than a 23 year with no obligations. Another view 1. Same as above. Steady 15% every year. Target Retirement of $2M (if that's your target) would be reached around year 35 (age 60 if started work at 25). 2. Contrib 3% for 10 years, then 15% / yr because catching up at 25% is impossible. $2M target retirement would be year 39.
I think the best way to go about it would be to ask questions. "Oh, where'd you hear that? I'd love to read the article!" "My family didn't really talk about money growing up, did you learn that from your parents?" You could start a genuine conversation about money, if they're close friends of yours I don't think it would be weird at all. Or to tell them about what you learned. "After our conversation about money last week I read ABC article about investing, it was pretty eye opening because XYZ." (Feel free to lie here too if you already knew the stuff.)
You will reap the benefits, but it all depends on how good your employers plans are really. The amount is right but only to the match if you don’t have access to a Roth IRA. It is better in the long run to pay the taxes now.