Finances

Money is simple. The money industry makes it seem complicated because complexity is profitable.

This isn’t about getting rich. It’s about not being stressed about money. About having enough breathing room to make choices that aren’t purely financial. About not lying awake at 3am wondering how you’ll pay rent.

The basics are boring. They also work.

The fundamental equation

Spend less than you earn. Invest the difference.

That’s it. Everything else is detail.

This sounds obvious. It isn’t practiced. Most people spend what they earn (or more), save sporadically if at all, and invest poorly or not at all.

Getting this equation right changes your life more than any hack, tip, or trick.

Step 1: Know your numbers

Most people don’t know:

• How much they spend each month
• Where that money goes
• Whether they’re trending up or down

You can’t manage what you don’t measure. Track your spending for a month. Every coffee, every subscription, every random Amazon purchase. Just observe.

You don’t need fancy apps. A spreadsheet works. Even paper works.

The goal isn’t judgment. It’s awareness. Most people are shocked when they see where their money actually goes.

Step 2: Spend less (intelligently)

Not all spending cuts are equal.

High impact cuts (large, recurring):

• Housing (biggest expense for most people)
• Car (or lack thereof)
• Recurring subscriptions you forgot about
• Expensive habits (alcohol, cigarettes, daily Starbucks)

Low impact cuts (feels productive, doesn’t help much):

• Occasional treats
• Small one-time purchases
• Things that actually matter to you

Focus on the big categories. Obsessing over lattes while paying too much rent is backwards.

The question isn’t “how do I spend less?” It’s “what spending actually makes my life better?” Keep that. Cut the rest.

Step 3: Build an emergency fund

Before investing, before debt payoff (usually), build a cushion.

Target: 3-6 months of expenses in a savings account.

This sounds like a lot. It is. Start with one month. Then two. Build over time.

Why this matters:

• Job loss happens
• Cars break down
• Health emergencies occur
• Unexpected expenses are actually expected

Without a cushion, any crisis becomes a financial crisis. With a cushion, it’s just an inconvenience.

This money should be boring. In a savings account. Not invested. The point isn’t growth - it’s accessibility and stability.

Step 4: Handle debt

Not all debt is equal.

Terrible debt (pay off aggressively):

• Credit cards (15-25% interest)
• Payday loans (even worse)
• Personal loans at high rates

Moderate debt (pay consistently):

• Student loans (varies, often 4-7%)
• Car loans (typically 3-8%)

Tolerable debt (don’t rush to pay off):

• Mortgage (often 3-7%, tax deductible, builds equity)

General principle: pay minimums on everything, put extra money toward highest-interest debt first. This is mathematically optimal.

Exception: some people prefer paying off smallest debts first for psychological wins. That’s fine. Suboptimal math that you actually follow beats optimal math that you don’t.

Step 5: Invest simply

Once you have an emergency fund and high-interest debt handled, invest.

The investing industry wants you to think this is complicated. It isn’t.

For most people, the answer is: low-cost index funds.

Why:

• Professional fund managers rarely beat the market
• They charge high fees for underperforming
• Index funds give you the whole market at minimal cost
• Time in market beats timing the market

Practical approach:

1. If your employer offers 401k matching, contribute enough to get the full match (this is free money)
2. Beyond that, IRA or additional 401k contributions
3. Invest in broad market index funds (like total US market or target-date funds)
4. Don’t touch it. Don’t check it obsessively. Let it compound.

This is boring. Boring is the point. Exciting investing usually means losing money.

Step 6: Automate everything

Willpower is limited. Systems beat intentions.

Set up automatic:

• Bill payments (never miss a payment)
• Savings contributions (pay yourself first)
• Investment contributions (set and forget)

Money you never see is money you don’t spend. Make good financial behavior the default.

The lifestyle inflation trap

You get a raise. Your expenses increase to match. You get another raise. Expenses rise again. You earn more than ever but feel just as financially stressed.

This is lifestyle inflation. It’s insidious because each upgrade feels reasonable in isolation. But cumulatively, you end up needing a much higher income just to maintain your lifestyle.

Alternative: when income increases, increase savings rate before lifestyle. If you get a 10% raise, put at least 5% toward savings/investing. You still benefit, but you’re also building wealth.

The person earning $50k and saving 20% is often more financially secure than the person earning $150k and saving nothing.

What money can and can’t buy

Money can buy:

• Security (not worrying about basic needs)
• Freedom (options, flexibility, ability to quit)
• Time (outsourcing tasks, reducing work hours)
• Experiences (travel, activities, education)
• Better problems (rich people problems beat poor people problems)

Money can’t buy:

• Meaning
• Good relationships
• Health (directly - it can buy healthcare)
• Self-worth
• Contentment

Most people want money for what it represents: security, freedom, status. Sometimes you can get those things more directly.

How much is enough?

The amount of money you need is directly related to your lifestyle.

High expenses = need high income = less flexibility = more stress

Low expenses = need less income = more flexibility = less stress

The “right” amount of money is: enough to cover your expenses, with cushion for security, and some for the future.

Past that, more money has diminishing returns on happiness and significant costs in time and stress to acquire.

A minimal money philosophy

1. Track what you spend
2. Spend less than you earn
3. Build a buffer for emergencies
4. Pay off high-interest debt
5. Invest simply in index funds
6. Automate everything
7. Resist lifestyle inflation
8. Know when enough is enough

This isn’t exciting. It won’t make you rich quick. But it will give you something more valuable than wealth: financial peace.

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Related: Career (earning side of the equation), Habits (building financial habits), Anxiety (money stress)