I knew almost nothing about money and personal finance when I was younger. As a result, I made almost every single mistake in the book:

  • I had money anxiety and felt guilty every time I spent money on myself

  • Despite earning well, I invested almost nothing

  • Living in California at the time, I paid taxes at the highest tax rate

  • I never used any tax-advantaged accounts like an IRA or a 401k

  • I had no credit score

It was only when I sold my startup at the age of 31 that I spent the next year taking a crash course in personal finance and taxes. And I learnt so many things that I wished I knew when I was younger! So I’m writing this guide for 21 year old Ankur:

Navigating the streets of NYC right after college

He has just graduated college and is now earning money for the first time in his life. He hasn’t learnt a damn thing about personal finance but reading this post will put him ahead of most of his peers.

Full Disclosure: I’m writing this as myself, not as some investment adviser or broker-dealer representative. This is just educational stuff and my personal thoughts – not investment, legal, tax, or professional advice. While my startup Carry owns an investment advisor and broker dealer, this is not meant to be an advertisement and nothing here represents them. Financial decisions involve risk, including losing money. Taxes are complex. Please do your own research or talk to a licensed pro before acting on anything you read here.

Table of Contents

1. Get in the habit of taking debt when you are young

Let’s kick it off with the exact opposite advice that you may hear from most personal finance “experts” like Dave Ramsey. But, I wish I had taken out more debt when I was younger. I only moved to America at the age of 17 and I was completely unfamiliar with how the financial system worked over here. I prided myself at the time on “not being like the average American” and went through most of my 20’s with zero debt of any kind – no mortgage, credit card, student loans or anything. But it turns out, that was a dumb financial move in the US system! When I finally tried to apply for a nice credit card many years later, I immediately got rejected for having no credit score. While irresponsible debt can eat you alive, there is a reasonably large category of “good debt” in America where you are given financial and tax advantages to take out debt. Things like:

  • Mortgages that let you lock in a fix rate (and potentially deduct the interest payments from taxes)

  • Credit cards that give you free rewards

  • Student loans to subsidize the cost of an education

The “never take debt” advice is oversimplified because it’s easier than explaining the nuance between good debt and bad debt. Good debt can be things like mortgages or student loans, or debt that does cost you any money — like using a credit card but always paying it off in full. Bad debt is actually falling behind on your credit card payments, or taking out payday loans or anything that costs materially more than the prime rate to borrow money. Good debt is powerful, but you cannot access it in large quantities without playing into the system and building a credit score. If I were to do it all over again, here is what I would do:

  1. Get my first credit card as soon as I was able to

  2. Start putting a percentage of my expenses on the credit card while keeping my utilization under 30% of my credit

  3. Set the card to auto-pay so I’m never paying any interest or fees

  4. Learn how to take full benefit of credit card points so I’m subsidizing the cost of my travel

And then, when I need the money for anything at all, I would have a great credit score to fall back on.

2. Instead of trying to budget, reverse budget

When I first moved here, I felt guilty every time I bought anything for myself. My parents worked really hard to save enough for me to be able to study in America, and it felt irresponsible to spend money on anything that was not a necessity. I tried to stick to elementary forms of budgets, but they always left me feeling like I was denying myself of things that I wanted. It was only many years later that I first heard of the concept of a “reverse budget” and I have come to find it to be a far superior system. Here’s how to implement a reverse budget:

  • Pick an “investment percentage”: This is the amount of your paycheck that you are allocating towards paying off debt, building an emergency fund and investing.

  • Automate this amount directly going to your investments: Ideally, your checking account never sees this money and it’s immediately directed to your investments or savings.

  • What’s left over is yours: Spend the money that reaches your bank account guilt-free on whatever you want.

Psychologically, this feels a lot better and the act of automating paying off your investments first is the foundation of being good with money. Pay special attention to your investment percentage and try and increase it with time. A rule of thumb I like to aim for is to shoot to allocate the same percentage to your investments as your age — so at 25, see if you can save or invest 25% of your paycheck. And every single year, you invest more both as a percentage and in absolute amounts.

3. Investing is not easy, but it is simple

Like most people, I used to believe investing was a dark art — something reserved for people that were “good at investing”. Completely untrue! It turns out that if you did nothing but invest in the S&P 500 — which is an index of the 500 largest companies in the US stock market over the last 100 years, you would return 11% annually. Even accounting for inflation, that’s an annualized return of 8% or doubling your money every 12 years. Lately, its growth has been even more meteoric. I graduated college almost 15 years ago and the S&P 500 has grown almost 6 times since!

Not investing young was a very expensive mistake for me

The best part is that anyone can purchase a single fund that tracks the entire stock market, while paying incredibly low fees and access these returns. By doing this, you are likely to perform the majority of so-called “professional investors” and over a long period of time should protect and grow your wealth considerably. You may be wondering… this sounds simple, why is this not easy? The hard part comes down to two things:

  1. Setting up the systems in place to actually do it Everyone knows they should invest, yet most people don’t follow through. The solution here is automation and setting up a system to make this happen without any action on your part.

  2. Keeping your cool when things are tough While the stock market has historically grown over the long term, it can and will experience short-term fluctuations. If there a 20% reduction in the market and you see your net worth shrink, it’s very hard to balance your emotions and stay invested in the market.

Investing in the stock market is not without risk as you could have material drawdowns in the short term. But the benefit of starting to invest young is that you have a very long time horizon, so you can afford those drawdowns more so than someone close to retirement who may need to hold a more balanced portfolio. Your entire investing playbook in your 20s could one step: Automatically allocate a percentage of every paycheck to buying a single fund that tracks the market. And then leave the money alone! An important investing adage to remember: Time in the market always beats timing the market.

4. Use tax-advantaged accounts when you are young

One of the biggest learnings I’ve had over the last few years: The best way of growing your net worth is not by making better investments. It is by learning how to be smart about what you pay in taxes, so that you have more dollars to invest in the market. In the words of finance people, the real “alpha” (which is differentiated performance from the market) lies in tax optimization, not investments. Two people could make the identical amount of money, and allocate the exact same percentage to investments — yet, the person who is smart about using tax-advantaged accounts will end up with millions of dollars more. Here is my quick guide on how to maximize the power of tax-advantaged accounts:

  • Always get the full employer match Always contribute enough money to your 401k to get the full match from your employer. It’s the closest thing to free money in the world of personal finance.

  • Start a Roth IRA as early as you can Contribute to a Roth IRA as early as you can afford to to let the magic of compounding take over. A Roth IRA is a very flexible account that let you pull out your contributions penalty and tax-free if you need it for any reason. If you make too much money to directly contribute to a Roth, learn how to do a backdoor Roth IRA.

  • An HSA is the most tax-advantaged account out there If you have a high-deductible health plan, start an HSA and try and contribute to it every year. It’s the only triple tax-advantaged account that allows you to get a tax deduction when you contribute, have tax-free growth and the ability to spend money on qualified expenses at any time

If you truly want to go down a rabbit hole of tax optimization, here are some other articles and resources to look through:

5. Nothing you can buy will feel as good as spending money on people you care about

Anyone who says money does not buy happiness is lying. The trouble is people who say that are typically looking for happiness in the wrong place. Spending money on more material possessions for yourself has a rapidly diminishing utility. My personal experience has taught me that money has actually made me happier, but not in the ways I initially imagined. The two most powerful things I was able to “buy” that have given me lasting joy:

  1. Freedom Money allows you to be “free” in that you can walk away from things that would otherwise make you money, but diminish your feeling of freedom. This can be an unfulfilling job, a lousy relationship or partner or creating separation with people you would rather not be involved with.

  2. Experiences with people I care about No amount of money I spend on myself will ever feel as good as spending it on people I care about. This is heightened if it is a shared experience that you likely otherwise would not have been able to afford.

A very real example in my life: After selling my last company, I have been able to prioritize spending so much more time with my parents and brother. We can afford to take far more family vacations than before and have experiences we otherwise would not have been able to.

The Nagpals take CDMX

And that to me, is lasting happiness.

6. Start a business

One of the most valuable things you can do to be good with money is to start a business. It doesn’t matter whether it’s a venture-backed startup or simply freelancing on the side for a few extra dollars. Starting a business or side hustle is the best path to mastering money for two important reasons: Reason 1: Owning a business is a crash course in the lesson that it is easier to earn more money, than to spend less money. You can only cut your expenses by a certain amount, but there is no limit to how much more you can make. When you have a full-time job, your salary is relatively fixed. If you want to have more money, you need to cut your expenses. But when you start freelancing or running a business on the side, you start to see how the act of earning more money is very much in your control. Reason 2: The US tax code favors business owners over everyone else You can tell a lot about a country by who the tax code is written to favor. In America, the majority of our the tax code is for the benefit of anyone that starts and operates a business. You can see this reflected in the list of the richest people in the country — almost every single American on the Forbes list is a business owner If you want to be wealthy, the best risk-adjusted path is to start a business and sell it for a lot of money. And hey, you may not owe a single dollar of taxes on it.

7. Money is a tool to help you live the life you want. Your life is not a tool to make the most amount of money possible.

In the last five years, I have been fortunate enough to meet with and speak to some of the wealthiest people in the world. Every one of these people has more money than they could reasonably spend in a lifetime. Yet, I was amazed at how many of them still carried tremendous anxiety around money or are in some way still preoccupied with the constant pursuit of more. Some anonymized examples based on real people:

  • An individual whose mood and disposition fluctuated with the value of their investments and how the stock market performed on a given day

  • Someone with a net worth of ~$200M who felt inadequate because she was not worth $1B+

  • A person worth ~$100M who lived in constant anxiety that it would all be gone tomorrow

This seemed very problematic to me! I’m not blaming anyone here. When you dive a level deeper, you find that most of these attitudes are shaped when you are young — and are somewhat outside your control. But, I quickly identified the role I wanted money to play in my life. The pursuit of more money is no longer that motivating for me. I love having money so that I don’t have to spend much time worrying or stressing about it. To me, money is simply a tool to enable me to live the life I want. My life is not a tool to make the most amount of money possible.

Thank you for reading! If you have any lessons you have recently learned about money and personal finance, reply to this email and let me know. If you know a young person in your life that would benefit from learning this, please forward them this email.