April Expenses and Bloomberg Personal Finance

Another month in the books. I’m going to make the financial update brief, because it was a typical month with nothing super exciting money-wise. Then I’ll talk about something more interesting. As for the future of these financial updates, I think I’ll go through a full 12 months, which should happen at the conclusion of July, then I’ll write up a big one year summary and then probably call it. There are probably more interesting things for you to read than what I spend money on each month.

With that said, here’s what I spent money on this month:

Brief thoughts

Hahaha. Sorry, couldn’t help it. Anyway, income was nicely supplemented with a few random things. Honestly tutoring might be the best way to make easy side income with minimal effort. Running turns out to be way more expensive when you’re injured and can’t run. Groceries were artificially low because my mom visited and bought me some groceries. Thanks Mom. Everything else was pretty standard. Here’s the summary table:

Categories  April March Rolling 9 month Average 
Saving rate  36.9% 47.5%1I forgot an expense last month, which is why this value is different from what I originally posted.   31.3% 
Time to Financial Independence2Based on this. Assumes a starting net worth of $0, so actual numbers are a little better than what’s shown.  23.4 years 17.8 years  26.9 years
Monthly Expenses  $1758.86 $2186.72 $1863.98 
$ Required to be Financially Independent3Multiply the above by 300 $527,658  $656,016 $559,193 

Personal finance advice from Bloomberg

Earlier this week my friend (and future guest-poster) Ryan forwarded me this email from Bloomberg to show me the light-hearted/funny Personal finance section. Of course I hated it and so I’ve decided to blog about it. Here it is below:

Personal finance

The important rules of personal finance are:

  1. Make a lot of money. (This one is key!)
  2. Spend less than you make.
  3. Don’t invest in scams.

Meanwhile most actually available personal finance advice seems to come down to these considerably less helpful teachings[2]:

  1. Don’t spend any money on coffee, food, cars or other nice things.
  2. Compound interest!

Here’s a CNBC story about financial literacy at Wharton:

When it comes to money, most people lack the know-how to make smart moves on their own. Even at Wharton, one of the nation’s top business schools, financial illiteracy is widespread.

To address the problem, a few MBA students in 2016 founded Wharton Common Cents to shed some light on personal finance topics that aren’t often taught in the classroom. …

Surprisingly, it’s the first-ever club of its kind at a business school, according to current President Anuj Khandelwal, 28. The club hosts nearly weekly programs for graduate students on topics such as the difference between credit and debit cards, saving now versus later and how to talk about money with a significant other.

Yeah, I am not surprised that it’s the first of its kind. If you are at Wharton probably someone has explained to you how to calculate compound interest. Certainly you are not immune from investing in scams, but compared to the general population you are probably far better equipped to avoid them. (Like, you probably learn about the capital asset pricing model in your finance classes, which is a decent inoculation against scams; at some level avoiding scams is just a matter of knowing that “earn 20 percent a year risk-free” is a lie.) And—and I really cannot stress enough that this is the most important lesson of financial literacy—if you are getting a Wharton MBA you will probably make a lot of money, which makes a lot of personal finance questions a lot easier. I was an investment banker for four years, and I spent exactly zero seconds of those four years worrying about the difference between credit and debit cards.[3] Either is fine! You can buy a latte too! The key issues of personal financial are not these sorts of micro choices and trivia tidbits, but basic questions of how you choose to structure your life and what options are available to you. If you have the sort of life where you were able to get into Wharton and you decided to go, I am going to go ahead and say that you’re financially literate enough.

Anyway elsewhere, “After languishing for a few years, support for teaching money-management skills to high school students has reignited, financial literacy advocates say,” blah blah. “Mr. Pelletier said the instruction should include bedrock financial concepts, like the effect of compound interest on savings and investments,” oh yeah.

Oh boy, where to begin! First of all, the number one rule is definitely not to make a lot of money. Income is only loosely correlated with net worth. In other words, people have a pretty impressive ability to spend all or most of their money no matter how much they make. Income isn’t going to matter much if the corresponding lifestyle inflation results in blowing through most of it. The provided rules number 2 and 3 are more just obvious statements of fact than really rules, so that’s not very helpful.

The rules he makes fun of, not buying lattes and compound interest, are really just a bastardization of the actual truth. But they still come much closer to the real rules than the ones he made up. So, let’s review the rules that actually matter.

  1. Saving rate is the most important number in your financial life. Period. End of blog post (just kidding). As guest poster Robbie so elegantly described, if you’re new to the game this is the one thing you should focus on. All the rest will follow. And if not buying lattes is part of increasing your saving rate, then go for it! These seemingly meaningless micro decisions are all part of having the right ATTITUDE about money.
  2. Invest your savings in the stock market and don’t waste your time and money with a financial advisor.
  3. Utilize retirement accounts to decrease your taxable income (and thus your tax burden).

Those are the essentials for people at ALL income levels. In fact, I might argue that the Wharton students have even greater need to understand these rules than the general population, since their potential for waste is so much greater! The point of financial wellness is not simply to get to the point where you’re doing slightly better than barely scraping by. I agree, the Wharton students probably don’t need a club to reach that level. Money is a tool, and there are better ways to utilize it than wasting it on lattes ;).

Don’t know what those ways are? Come back next week and we’ll talk about an excellent use of all your extra money!

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