# 💸 NOTES - PERSONAL FINANCE Prosperity Paradox says this: The more money we have, the more money we believe we need ## Remember * Most financial advice is for middle class people who make bad choices * Bank savings are for people who do not have credit card debt * Side hustles are overrated for people with means * Invest every dollar you don't plan on needing in the next 3-5 years in a brokerage account and let it start growing. * The average return on the S&P 500 is nearly 10%. The average inflation rate in the US over the past 60 years is 3.7%. The average annual growth of the stock market is about 7% after inflation. At that growth rate, invested assets double in value about every 10.5 years. * Inflation rate is 3.3%; 1% taxes; APY has to be higher than inflation plus taxes on interest like 4-5% * Red flag if debt is more than 10% of your gross annual salary. Typically 4.5x the annual household income is the most the average bank will lend you * 78% of American citizens live paycheck to paycheck; 40% do not have enough in savings to cover a $400 emergency * “The reason I say 45 is the turning point, or in your 40s, is because think about a career: Most careers start in early 20s and end in the mid-60s,” O’Leary says. “So, when you’re 45 years old, the game is more than half over, and you better be out of debt, because you’re going to use the rest of the innings in that game to accrue capital.” * You shouldn't borrow money to buy things that are likely to decrease in value [Reddit Thread Personal Finance](https://www.reddit.com/r/personalfinance/) - great advice; orders of operation flow chart solid; but it’s Reddit and people lie/boast — also remember comparison is the thief of joy ## Basics ### Budget You need a budget #### 50/30/20 budget rule: * NEEDS - 50% of your income to necessities like housing, utilities, transportation & food * WANTS - 30% for wants such as travel, entertainment, dining out, and other discretionary spending * MUSTS - 20% to financial goals like paying off debt and saving ### Orders of Operation Step 0: Budget & reduce expenses, set realistic goals Step 1: Build an emergency fund (3-6 months in High Yield Savings Account) Step 2: Employer-sponsored matching funds (MAX if TSP) Step 3: Pay down high interest debts (e.g., credit cards) Step 4: Contribute to IRA (ROTH if possible) Step 5: Save more for retirement Step 6: Save for other goals ### Good Goals * Keep 6 Months of Expenses in cash in HYSA * Invest at Least 20% of Your Income * Never Carry a Credit Card Balance * Drive Your Cars Into the Ground * Use Your Legs More Than Your Wallet ## Monthly Budget Housing: 35% - mortgage / taxes / strata / rent/ insurance / hydro Utilities: 5% - phone / cell phone / gas / cable / internet Food: 10 – 20% - groceries / personal care / baby needs Transportation: 15 – 20% - bus / taxi / fuel / insurance / maintenance / parking Clothing: 3 – 5% - for all members of the family Medical: 3% - health care premiums / specialists / over-the-counter Personal & Discretionary: 5 – 10% - entertainment / recreation / education / tobacco/alcohol / eating out / hobbies Savings: 5 – 10% Debt Payments: 5 – 15% The average household's monthly expenses in the U.S. are $6,545 as of 2024 ## Retirement The savings guideline states that for every $1,000 of monthly income you want to generate in your golden years, you’ll need to have $240,000 saved in your retirement account. $5000 a month income in retirement = 5 * $240,000 = $1.2m; $6000 * 240,000 =$1.44m Only 14% of workers max out their 401(k)s, with the vast majority of these contributors earning more than $150,000, according to Vanguard [SSA tools](https://ssa.tools/) Adjusted gross income for your household exceeds $180,000 a year, you will want to talk with a financial professional Retirement withdraw order Taxable -> Tax Deferred (401k/403b/TSP) -> Tax Free (Roth IRA) you need 25x your annual expenses in order to retire. Another way to look at this is that once you retire, you can withdraw 4% of your portfolio every year (accounting for inflation) and have a 98% chance of your money lasting you at least 30 years. Since 4% is 1/25 of 100, this is how we get the 25x number, also commonly referred to as “the 4% rule.” 15% of your annual salary toward retirement Average Retirement By Age 32-37 year $31,644 38-43 year $67,270 44-49 year $81,347 50-55 year $124,831 56-61 year $163,577 Retirement guideposts: * At age 35, you should have saved an amount equal to your annual salary. * At age 45, you should have saved three times your annual salary. * At 55, you should have five times your salary. * When you retire at age 67, you should have eight times your annual pay. Guideposts are just that... [Retirement Calculator](https://www.nerdwallet.com/investing/retirement-calculator) [Retirement Calculator - Playing With FIRE](https://playingwithfire.co/retirementcalculator/) The retirement-savings system in the United States has three pillars: Social Security, employer-sponsored pensions or retirement-savings plans, and individual savings. The average Social Security benefit is $1,461 per month in 2019. The maximum Social Security benefit is $2,861 for people who have reached their full retirement age. Social Security benefits rise by about 7% to 8% for each year you delay. The median savings in a 401(k) plan for people between the ages of 55 and 64 is currently just $15,000, according to the National Institute on Retirement Security Two-thirds of Americans don’t contribute any money to a 401(k) or other retirement account The average TSP millionaire takes 28 years The stock market has a long-term average return of 10%. Adjust that for inflation, and you’re looking at an average return of 7-8% per year 4%–6% for U.S. stocks. 7%–9% for non-U.S. stocks. 2%–4% for global bonds. Retirement at 62 (early reduced benefits), 65, or 67 Most portfolios include some mix of high-risk, high-return investments like stocks and lower-risk, lower-return investments like bonds. The balance you strike is called your asset allocation. For example, if you invest $500 a month from ages 25-65 at a conservative 7% return, your net worth will be well over $1 million dollars when you retire. However, if you wait to start investing at age 35, and invest $500 a month from age 35-65 at a 7% return, your net worth would only be just over $600,000. 3 Fund Portfolio US Stocks US Bonds International Stocks How to build a three fund portfolio with Vanguard US Stocks: Vanguard Total Stock Market Index Fund (VTSAX) International Stocks: Vanguard Total International Index Fund (VTIAX) Bonds: Vanguard Total Bond Market Index Fund (VBTLX) How to build a three fund portfolio with Fidelity US Stocks: Fidelity ZERO Total Market Index Fund (FZROX) International Stocks: Fidelity ZERO International Index Fund (FZILX) Bonds: Fidelity US Bonds Index Fund (FSITX) How to build a three fund portfolio with Charles Schwab US Stocks: Schwab Total Stock Market Index (SWTSX) International Stocks: Schwab International Index (SWISX) Bonds: Schwab US Aggregate Bond Index Fund (SWAGX) VTI - https://investor.vanguard.com/etf/profile/performance/vti Fund a Roth IRA at Vanguard. Use 70% of your money to buy VTI. Use the remainder of your money to buy VXUS. 49% of people with retirement accounts have withdrawn money before retirement age Roth IRAs are recommended for people who are in a lower federal tax bracket or below 25%. 80% C 20% S The G Fund (Government Securities Investment Fund) The F Fund (Fixed Income Index Investment Fund) The C Fund (Common Stock Index Investment Fund) The S Fund (Small Cap Stock Index investment fund) The I Fund (International Stock Index Investment Fund) The average retiree will spend about $157,500 on out-of-pocket medical expenses in retirement (for couples, it’s $315,000) Dental costs in retirement can range from $10,000 for basic needs to over $100,000 for bigger problems. Only 20% of people are able to rely on a pension when they retire. ## Stocks The annualized inflation rate from 2000 to 2025 was 2.56% S&P 500 return would be 10.9% annualized. Average annual return: Around 7.5% to 8.0% (nominal total return). As of 2024, 62% of U.S. adults, or about 162 million people, own stocks. 87% of upper-income Americans 65% of middle-income Americans 25% of lower-income individuals The U.S. stock market has experienced positive returns over nearly a century: 56% of the time on a daily basis 63% of the time on a monthly basis 75% of the time on a yearly basis 88% of the time on a 5 year basis 95% of the time on a 10 year basis 100% of the time on a 20 year basis. Average health insurance for two 45 year olds; $1736 Average health insurance for two 60 year olds; $2316 To spend $50,000 a year, you will need $1.25 million at retirement. To spend $75,000 a year, you will need $1.875 million at retirement. To spend $100,000 a year, you will need $2.5 million at retirement. 75% Vanguard Total Stock Market Index ETF (VTI) or VOO (S&P 500) 20% Vanguard Total Bond Market Index ETF (BND) 5% SPDR Gold MiniShares (GLDM) 60% VTI (Vanguard Total Stock Market Index ETF) or VOO 20% BND (Vanguard Total Bond Market Index ETF ) 20% VXUS (Vanguard Total International Stock Index Fund) ## FIRE FIRE number = Annual expenses x 25 Fat fire = $100,000 * 25 = 2.5m Lean fire = $40,000 * 25 = >1m Barista fire = Low stress job + healthcare $48,000 * 25 = 1.2m $88,000 * 25 = 2.2m 24,000 a year if we set aside 2k a month 36,000 a year 3k 48,000 a year 4k 60,000 a year 5k 72,000 a year 6k ## Emergency Savings 10% of salary as emergency Basics of a Tiered Emergency Fund https://www.reddit.com/r/personalfinance/comments/29k4rd/personal_finance_basics_the_tiered_emergency_fund/ One month’s worth of expenses is a good emergency fund if you have debt. Rather than increase the size of the emergency fund, you’re probably better off putting more money toward the debt. A three-month emergency fund is good if your only debt is a mortgage. Again, you’re likely better off maxing out retirement accounts and then putting extra toward the mortgage than building the emergency fund even bigger. A six-month emergency fund is good if you have no debt at all. It’s a nice-to-have, but not a need-to-have at the expense of paying off debt. ## Housing It’s Better To Be a Renter Who’s Saving For Retirement Than a Homeowner Who Isn’t According to the Federal Housing Finance Agency (FHFA), the average annual home price appreciation in the U.S. was 6.8% from 2015 to 2020. The average rent in Washington, D.C. is $1,899 a month. $ dollars per square footage ($40 cheap - $120 expensive) The typical age of a first-time homebuyer is 36 Average national down payment in 2024 is $63,900 A good rule of thumb for a house payment is 30/30/3: 30% of your income on the mortgage 30% of the home value in cash (for 20% down and 10% in case of emergency). 3x your annual income for house value. HOUSE - 28/36 rule Maximum household expenses shouldn’t exceed 28% of your gross monthly income. This includes everything within your home mortgage. Total household debt shouldn’t exceed more than 36% of your gross monthly income. This is also known as your debt-to-income ratio. Your house should be no more than two times your joint income if you have debt ($300,000) As of May 2022, median prices in D.C. for condos/co-ops was $499,900, townhouses were $940,000, and detached homes were $1.3 million. Median home value in Washington D.C. is $550,000 Median home value of $400,000 in the DC area, which works out to a 20 percent down payment of $80,000 (but of course, many starter homes in D.C. are more expensive than that) see https://dc.curbed.com/2018/7/18/17582866/down-payment-savings-dc Better Rent to Own - Apartment / House Ratio https://www.mashvisor.com/blog/best-real-estate-markets-price-to-rent-ratio/ Millennials are on pace to have more mortgage debt than any other generation. And it's particularly bad in the District. Millennials, currently between the ages of 23 and 38, held an average of $222,211 in mortgage debt during the first quarter of 2019, according to data from Experian. A home is not a closed financial system; it’s a complicated, risky asset For the vast majority of people, there are three reasons to buy a home: (1) You can afford it, (2) you want to be a homeowner, and (3) you’re planning to live in said home for at least five years, ideally more The average homeowner spends about $6,000 a year on home maintenance The cost of housing ranges from 31.6% to 39.4% of annual income. $20,000 and $60,000. Cost is often broken down by square footage, with the average cost per square foot coming in at around $300. If you are building your tiny house on a parcel of land, you may have to pay up to $20,000 to connect your living unit to existing septic systems, water wells, and utility lines, reports Read More: https://www.housedigest.com/846415/how-much-does-it-cost-to-build-a-tiny-home-from-scratch/ Median House price $500k 20% of total for downpayment to avoid PMI ($100k) 5% of total for closing costs ($25k) 1-4% of total for annual repairs ($5k-$20k) 6.77% mortgage rate (as of June 2025) https://www.nerdwallet.com/mortgages/mortgage-calculator 30% of take home income on rent ## Savings Money you need access to in the short-term (usually five years or less) should be kept in a high-yield savings account Saving 3% of your income for emergencies (every two weeks) National Average Monthly Expenses $5000 3 months - $15,000 (low risk) 6 months - $30,000 (high risk) ### Savings Guidepost: 57% of people have less $1000 savings 39% of people have $0 savings 4% have more than $1000 savings [When Americans Reach $100k in Savings](https://flowingdata.com/2019/10/29/when-people-reach-100k-in-savings/) [Savings Calculator](https://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx) https://www.reddit.com/r/personalfinance/comments/w0yor/what_exactly_is_an_emergency_fund_what_exactly_is/ https://www.reddit.com/r/personalfinance/comments/25qrbm/a_crash_course_in_risk_analysis_why_six_months_in/ https://www.reddit.com/r/personalfinance/comments/22s5iz/where_should_i_keep_our_6month_emergency_fund/cgptw4u/ ## Gold Recommends investing 10% to 20% of portfolio assets in gold to mitigate the risk of loss in a financial crisis. The well-known “All Weather Portfolio” includes a 7.5% gold position. ## Networth 10-15% of net worth in cash Average American household net worth is $68,828. Median net worth for householders over the age of 65 was $170,516, under 35 was only $6,676; with a professional or graduate degree, the median net worth was $240,750. The average net worth for U.S. families is $748,800. The median — a more representative measure — is $121,700. Top 1%: In 2025, the top 1% of households in the U.S. will have a net worth of $11.6 million. The top 1% of households earn over 22% of the total adjusted gross income (AGI) and just under 42% of all federal income taxes. Top 2%: The top 2% of Americans have a net worth of about $2.7 million. Top 5%: The top 5% of Americans have a net worth of about $1.17 million. Top 10%: The top 10% of Americans have a net worth of about $970,900. Top 50%: The top 50% of Americans have a net worth of about $585,000. Median: In 2022, the median net worth of all families in the U.S. was $192,900. Mean: In 2022, the mean, or average, net worth of all families in the U.S. was $1,063,700. ## Charity 3% - 10% of AGI to charity https://money.howstuffworks.com/personal-finance/budgeting/how-much-budget-to-charity.htm 65 percent of households in the United States donate to charity ## Dental Average costs for dental work: Teeth cleaning: $85 Complete series of X-rays: $124 Silver dental filling: $125 White dental filling: $149 Porcelain crown: $1,000 Front tooth root canal: $762 Bicuspid root canal: $879 Molar root canal: $1,111 ## Pets Cost of owning a cat http://www.ourfreakingbudget.com/feline-finances-the-cost-of-a-cat/ Estimates cat costs: $500 deposit $50 x month ($600) $200 vet/year $30 x month food ?? monthly allergy pills ## Automobile When to buy vs when to replace car https://lifehacker.com/should-i-repair-or-just-replace-my-old-car-484335393 https://cars.usnews.com/cars-trucks/best-used-cars-under-5000 https://cars.usnews.com/cars-trucks/most-reliable-used-cars-under-10000 ## Kids or No Kids Ask HN: For those who don't have children, what do you do during your free time? https://news.ycombinator.com/item?id=16666618 ## Misc HSA - Health Savings Account https://www.youngadultmoney.com/health-savings-account-guide/ Are You on Track? Financial Planning Goals for Every Decade of Your Life https://www.kiplinger.com/slideshow/retirement/T047-S014-are-you-on-track-financial-goals-for-every-decade/index.html The Math Behind Saving Your First $100k https://fourpillarfreedom.com/the-math-behind-saving-your-first-100k/ Divorce Is Destroying the Finances of Americans Over 50 https://www.bloomberg.com/news/articles/2019-07-19/divorce-destroys-finances-of-americans-over-50-studies-show There are a handful of things that separate the ultra rich from everyone else: research has shown they tend to exercise regularly, maintain a healthy diet, save 10% or more of their income, read books and manage their time wisely. VantageScore and FICO® create have the same goal: to predict the likelihood that a person will fall at least 90 days behind on a bill within the next 24 months. Taxable income is a layman's term that refers to your adjusted gross income (AGI) https://www.cnbc.com/2019/10/14/what-100-dollars-is-actually-worth-in-every-us-state.html Save for all other financial goals in a taxable brokerage account (VTSAX, VTIAX, VBTLX) Set up a taxable brokerage account - Vanguard LifeStrategy Growth Fund (VASGX) - $3000 mininum Investment peer-to-peer lending invest in collectibles start your own business ($30k) The average bank credit card balance was $4,817. The average American carries around $90,000 in debt, including all forms of debt from credit cards to student loans and mortgages. On average, individuals with college degrees carry an average of $8,200 in credit card debt. People who did not go to college have an average of $4,700 in credit card debt. Gen X has the highest amount of total debt—around $140,000 per person. Gen Z has the lowest total debt at just $16,000. The price of an "average" used car is now $29,000 2-3% to inflation 3.6% Ally savings rate ## APR - High-yield savings accounts 1-2% - Certificates of deposit (CDs) 1-3% - Money market funds 1-3% - Government bonds 3% - Corporate bonds 4-6% - Mutual funds 10% - Index funds 10% - Exchange-traded funds (ETFs) - Dividend stocks - Individual stocks - Alternative investments and cryptocurrencies - Real estate 4-9% [Chart: Every S&P 500 Bear and Bull Market in History](https://www.mymoneyblog.com/sp-500-bear-bull-market-historical-list.html) "The basic premise of F.I.R.E. is to cut expenses drastically and live off of 25-50 percent of your income," WifeFI - “Financially Independent, enabled by my wife who still works Total household balances in retirement accounts for those 55 to 64 years old are $413,814 on average Estimating Retirement Costs $4345 $1657 (ss benefit) $1834 (FERS?) Average monthly expenditures for those 65 and older — including rent, groceries and healthcare — stand at around $4,345 (2022) Average Social Security benefit is $1657 per money; meaning a retiree would have an annual income of $19,884; meant to replace 40% pre retirement income Retired workers under FERS receive a monthly average of $ 1,834. $541 average monthly health premium House maintenance costs 1-4% of purchase price annual New vans cost around $30,000-$45,000 while conversions can vary from $10,000-$20,000 if you do it yourself or upwards of $125,000 for a professional UBS conducted a study last year and it shares that only 20% of couples participate in financial decisions equally. Among more than 70% Millennial women (those born between the early 1980s and 1990s) deferred to a spouse for financial decision making. Almost 95% of Millennial men would welcome greater participation from a spouse in this area. The average person spends $273 a month on subscription services The modern mortgage system came about with the founding of Fannie Mae in 1938. Prior to that, ~55% of Americans rented. Of the Americans who owned homes, most used five-year mortgages, which they’d refinance if necessary at the end of the term. Nearly one in four millennials has at least $100,000 in their savings account — an increase from 16 percent in 2018 and 8 percent in 2015, according to a 2020 Bank of America report. Sample Retirement Target for Fed Gov Employee at age 67 https://www.fedsmith.com/2022/12/02/why-fidelity-is-wrong-about-your-retirement-plan/ FERS $2.7k month Social Security $3k For retirees able to accumulate $1 million in savings, the funds translate into inflation-adjusted income of $40,000 in the first year of a three-decade retirement using the 4% spending rule. With the addition of the average annual Social Security payment for retirees of about $20,000, a $1 million nest egg can replace about 85% of a $70,000 median household income. Many people approaching retirement don’t have $1 million, given households headed by people ages 65 to 74 have retirement-account savings of $426,000, on average, according to the Federal Reserve. The average millennial carries $28,317 in debt The average age of retirement is 62. For the average American, approximately $1.4 million should be sufficient for retirement. If you have $30,000 in annual expenses and plan for 25 years of retirement, for instance These are the annual returns for each from 1928-2022: Stocks: +9.6% Bonds: +4.6% Cash: +3.3% Inflation has averaged a little more than 3% from 1928 through 2022 which leads to the following real annual returns in that time: Stocks: +6.5% Bonds: +1.5% Cash: +0.2% The average American spends almost $10,000 per year on gas, maintenance, and car insurance The goal of retirement isn't merely to avoid running out of money. It's to avoid running out of life. 10 times pre-retirement salary by 67 Only about 9.3% have $500,000 or more in retirement savings 4% rule of 25 [American dream costs $5m](https://www.newsweek.com/2025-american-dream-cost-5-million-2123650) approximately 12-18% of U.S. households, or roughly 16-24 million households, have a net worth of $1 million or more, with many sources pointing to about 24 million total millionaires by 2023, including those with over $1M, $2M, and $5M, though a significant portion is tied up in homes and retirement accounts, not liquid cash. ## TSP 100% C Fund ~ S&P 500 live young and dangerous or… 80% in the C Fund 20% in the S Fund Household Financial Assets (breakdown by age) https://flowingdata.com/2023/12/14/common-millionaire-household/ https://usafacts.org/data-projects/retirement-savings In 2023, there were 131.43 million households in the United States As my colleague Annie Lowrey points out, the market could be bleak until the 2030s. Any money you need access to in the short-term (usually five years or less) should be kept in a high-yield savings account. Most retirement savings are accrued after the age of 35. Median retirement savings grow significantly every 10 years for Americans older than 35 years of age until they reach 75. 51% of Americans retire at 61 or younger. According to the US Census Bureau, just under 50% of Americans age 55-65 have no money saved for retirement. Only 25% of Americans aged 55-65 have more than $100,000 saved. average vehicle repair costs range from $500 to $600 annually average annual expenses—on top of a mortgage—that come with owning a single-family home in each state, including property tax, homeowners insurance, utilities (energy, internet, and cable), and home maintenance (calculated at 2% of median sale prices At $5,100 per month here’s how a retirement budget might look: $1,500 for housing $1,000 for food $750 for healthcare $750 for transportation $500 for discretionary expenses $500 for other expenses such as clothing ## Estimated Food Budget Weekly Food Cost for Two Thirty $88 Low Cost $113 Moderate $140 Liberal $175 Monthly Food Cost for Two Thirty $352 Low Cost $452 Moderate $560 Liberal $700 USDA Cost of Food https://www.fns.usda.gov/cnpp/usda-food-plans-cost-food-reports-monthly-reports Cut down on drinking (1 drink minimum) $3000+ a year (ave $10 a day) Cut down on buying coffee $1000 a year (avg $2 a day) Cup of coffee - $3 dollars, $60 a month, $720 a year If you've crossed the $1.9 million threshold in your 40s or 50s, you're solidly within the wealthiest tier of U.S. households. 29% of U.S. households held a non-retirement investment account ## Hedonic Shopping Motivation Given the increasing importance of entertainment as a retailing strategy, this study identifies a comprehensive inventory of consumers’ hedonic shopping motivations based on a six-factor scale consists of adventure, gratification, role, value, social, and idea shopping motivations. * Adventure shopping for stimulation and excitement * Gratification shopping to enhance mood * Social shopping to experience pleasure from interacting with others * Idea shopping to stay current with trends * Role shopping to gain pleasure from buying for others * Value shopping to gain pleasure from finding deals (though not necessarily acting on them) See [Hedonic Shopping Motivation](https://www.researchgate.net/publication/223829941_Hedonic_Shopping_Motivation) ## MISC Roth IRAs are recommended for people who are in a lower federal tax bracket or below 25%. VTSAX and chill - Just go 100% [VTSAX]( https://investor.vanguard.com/investment-products/mutual-funds/profile/vtsax)