A few things I learned at a ‘Personal Finance Day’

The act of learning something I can use has maybe always been one of my favorite acts (that’s why I used to collect extra printouts from school printers). And the mysteries and vagaries of finance have perhaps intimidated me more than most — particularly as a business reporter.

It’s a system that benefits from its complication, making it easier to separate us from money. So I try to take as many opportunities as I can to learn and share to pick up and trade tips on personal finance. As a middle class kid, I had the privilege of being introduced to basic banking from an early age but the more complex instruments were ones I discovered as I pursued greater understanding through high school and college.

I’ve continued that learning and want to share some recent lessons here.

More recently, I’ve had a multi-year group text thread with two childhood friends who similarly try to better understand wealth creation and the systems of social classification. None of us are particularly interested in sports, and so personal finance became our small talk — all little tips on things like using credit card points and the very basics of options trading.

It started with an August 2013 night at one of their apartments, our host sharing his experiences doing small-scale equities trading with a retail stock giant. Then eager to make it an annual ritual, I brought them together for an inaugural Personal Finance Day, where we each gave a pair of presentations sharing something we had learned over the last year. We were goofy — we all dressed in suits — but the intentions were genuine: let’s learn something challenging together. Something that we know is important and beyond what our existing network and understanding allowed.

Find something you love and want to learn — storytelling, literature, magic or anything — and bring your friends together to get better in a group.

So we hosted our first Personal Finance Day, something I hope will become an annual affair (like the fantasy football drafts that other friend groups have). There wasn’t anything profound, mostly we traded ideas that might be familiar to you all, yet I still wanted to share a few lessons that stood out to me:

  • Don’t sleep on index funds — For all the fun we have talking about stocks and options trading as we try to understand our financial system that challenges even professionals, try not to forget the basic truth that it’s a fool’s errand to try to beat the market. So I allow for some experimentation but mostly I keep my modest retirement savings (and even some liquidity) in funds.
  • See debt as a reverse investment — It’s an over-simplified way of seeing things, but I liked the way my friend explained how he justified slow-paying his mortgage back (with an interest rate less than four percent and building equity) and fast-paying down his student loans (one had an interest rate higher than six percent) by seeing them as investments too. Look at the interest you’ll pay over the life of your loan and assess whether you could get a better return now or later. For example, I believe I can get a better rate of return than four percent over 30 years (his mortgage interest rate), so I’d rather use that money in the markets today, rather than fast-paying to have it later. By contrast, I’m less sure at the six percent level (his student loan rate), so I want to pay that down more quickly.
  • Credit scores cost money — If you’re going to buy a car, a house or make some other large purchase, your credit score can mean a real difference in the monthly rate you get. So be mindful of the inputs — use less than 30 percent of available credit, always pay down your credit cards monthly (because interest rates are high) and get store cards only when it makes sense — you’ll use it semi-regularly, you aren’t trying to refinance and it’s worth the cost (for savings of, say, $300 or more).
  • Use the sharing economy to maximize revenue — If you have spare space or spare time and can enjoy the output, make use of the sharing economy. I am gleefully renting out the top floor of my home via Airbnb because I enjoy doing it and intentionally bought slightly larger than I need presently with the expectation I would support that cost with renting out to guests. (I do love hosting guests, but still I quantified the hourly rate of doing the work to justify the investment).
  • Think through your order of operations — If you have a spare $1, what will you do with it? Pay down debt, keep basic liquidity, invest in your 401k and then index funds and other investments and philanthropy and the like.

Money can represent independence. I have great fear of losing that — I had a very challenging first few professional years — and so am always trying to educate myself (and share) to get better. I’d love to hear your tips and tricks. That’s one way to grow the middle class.

[Private slides.]

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