I am no financial advisor, but, I believe, I do quite a few things right when it comes to finances. I have had few major financial goals in my life: education, travels, and cars. I managed to attain all of them successfully. In this post, I share some of the ideas that shape my approach to finances.
Teaching Myself about Finances
I had never been into business- and economics-related education. Somehow, I was able to plow through advanced mathematics, quantum physics, and computer science research, but studying economics was incompatible with my brain. One day, however, I discovered Macroeconomics lectures by Krassimir Petrov. Finally, something that I enjoyed studying. The lectures got me interested in economics and embedded the idea of financial responsibility very deeply in my heart. Since then, I have been reading (mostly non-mainstream) financial articles and news every day. I consider it time very well spent.
I have never believed in get-rich-quick schemes. Solid, steady growth and wise long-term planning is what I admire. Let me give you some examples of my life choices here.
- In 2009 I received grad school offers from four world-class universities. In the end, I was debating between University of Waterloo (Canada) and Cambridge University (UK). All things being equal (quality- and research-wise), I finally decided on Waterloo. The latter also offered a way better financial support. As a grad student, I lived a very moderate lifestyle and I was able to travel the world. I also finished the school debt-free and full of ideas.
- As I was about to graduate, I was doing a lot of research as to where I would like to live and work. I created a spreadsheet that compared various countries in terms of the weather, social life, safety, travel, work, and financial opportunities, etc. Besides the opportunities, the US offered unparalleled disposable income among the contenders. Although there are places that are a way more fun than the US, I still think it was a very reasonable decision to start my career here.
Priorities: Frugal on Things, Rich on Experiences.
I have a very simple test that determines what I spend my resources on. I strive to limit my spendings on things that do not make me happy. I mostly pay for the experience, not for the thing per se. For example, my room is almost empty. I asked myself the questions. Would buying a piece of furniture make me any more happy? The answer was negative. Would traveling make me more happy? The answer was positive. This is how I channel my resources.
I found one method particularly effective when it comes to saving. First, I set up a goal to keep myself focused. I make it so important that whenever I am to pay for something, the goal is in the back on my mind. Then, I create a spreadsheet that lists pay days for the next few months. For each pay day, I specify the exact figures for gross income, disposable income, planned expenses, (realistic!) planned savings, and emergency funds. On the next pay day I compare the planned savings with the actual savings. It keeps me on track. I found the spreadsheet very effective as I know how well I am performing and how far I am from reaching the goal.
I have had small successes in investing in stocks, but I consider it mostly by luck. Investing does take a lot of effort and requires a good understanding of the overall economy and businesses. For me it makes most sense as a long-term vehicle. I found Robinhood a useful platform for commission-free investing on the stock market. Other than that, I regularly invest in mutual funds to secure my retirement.
Going Debt-Free (Unless It Is Profitable)
I feel uneasy about debts that one cannot afford. I use credit/charge cards a lot, but always pay them off in full before the deadline. Additionally, I use cards to collect points that I can then use for cheap traveling. Sometimes, however, it is OK to take a long-term loan, e.g., to partially finance a car. Let’s say the loan has the APR of 1.5%, but the stock market offers 5% returns per year. It simply is a good deal: I can buy the car (and enjoy it while I’m still young and healthy) while simultaneously investing the money and profiting from the loan.
I hope that you will find some of these ideas useful. Again, I’m no financial advisor. I know people who fare much better than myself. I’m just a regular guy who knows his priorities and, probably, manages his finances a little bit better than the average.