The Best Personal Financial Advice I've Ever Gotten!

reading time 2 min

The best financial advice I ever got:

Pretend you didn’t get that raise.

Every time you get a raise, pretend you didn’t get it. Wait until the next paycheck to see how your “take home” amount changes, and put that delta (the increase) in your retirement savings. Set up an automatic payment so you don’t “see” the increase.

For example, let’s say your paycheck increased by $100. You’re already used to not having that $100, right? So it does no harm to start putting an extra $100 towards your retirement. Thanks to compound interest, that $100 you save could be $1,000 or $10,000 when you retire.

If you don’t have a financial advisor and aren’t sure where to “save for retirement” here’s the basic plan:

  1. If you haven’t maxed out your 401(k), put it there.
  2. If you have maxed it out, put it in a mutual fund: something relatively safe, like an index fund.

Why a 401k? Because if you aren’t maxing it out, you are leaving money on the table.

Which mutual fund? My advice is to get a financial advisor to help pick one. That can take a long time, so while you are waiting, a safe thing to do is use a “targetted mutual fund”. These are funds that are named after the approximate year you will retire. They do the safe and typical thing that someone your age would do with their investments. (i.e. riskier things when you are young, safer things as you get older). For example: The Vanguard Target Retirement 2040 Fund (VFORX) does the typical things a financial advisor would do if you are going to retire in 2040.

I am not a certified financial advisor or planner. I’m just passing along something that worked for me. I have no skin in the game if you go with Vanguard or anyone else.

In summary:

  • Pretend you don’t get raises. Put the increase in investments.
  • Have a financial advisor
  • While you are procrastinating about getting a financial advisor, fake it by using a target fund.

I’ve written more advice in my Tom’s Finance Guide (which, again, is not nearly as good advice as a certified financial planner could give you)

Tom Limoncelli

Tom Limoncelli

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