MONEY STUFFS: Personal Finance Basics

Who is this Post for?

Anyone who only has money in a traditional bank account or stashed away at home. Anyone who doesn’t have any retirement accounts. Anyone who isn’t maxing-out their 401k/403b. Anyone who isn’t actively contributing to their retirement savings. Anyone who doesn’t have any investment accounts. Anyone who doesn’t have auto-purchases set up for any existing investment accounts. To all those who are wondering, “Am I doing all I can or should be doing with my money?”

Note: I have Referral Links posted throughout this piece, and spell out exactly what we each get if you click on them (usually just a bone), and I will not be offended if you don’t utilize the very same services I do! I provide them in case you are curious what personal choices I’ve made and find it convenient to use the same.

Must-Do’s:

• Read This Book: I Will Teach You to be Rich by Ramit Sethi. It’s a NYTimes best seller, written by a relatable millennial, and provides you with a basic six week program which will ensure you have the most foundational personal finance bases covered. I thought I was in fine shape, read it one weekend a couple years ago just to make sure, and picked up a few new things myself. Most of all, I felt confident that what I was doing with my money was the best-enough I could be doing. I love Ramit’s simple approach to budgeting (namely: automate your bills, saving, and investing - then spend what’s left over, that’s it!) and his main goal of getting you to set up a personal finance system once, then forget it, only checking in once a year or so to check in and tweak as necessary. He wants you to live your life outside the spreadsheet.
• Sign up for a Personal Capital Dashboard: This is an online portal where you can link all your financial accounts and see all your monies in ONE place. You log in to ONE site, and see all your numbers and trends, you can overview credit card expenses, savings updates, investment performance, and most exciting of all: see your net wealth. They also have a higher priced investment service that charges a bigger fee, but I would recommend starting with one of the simpler / cheaper robo-investors (more below on that) first.

Referral Link: PERSONAL CAPITAL - if you sign up to use their free tools and link even just one account, we each get $50 (woot!)

Must Do-Not’s:

First: never accumulate a credit card bill over the monthly payment you can afford!

Also:

• Do not mess with crypto.
• Do not purchase individual stocks until you are ready expert-level.
• Do not day-trade.
• Do not confuse any of the above things here with “INVESTING” or saving for retirement.

These listed things are pretty much gambling. Fancy gambling. These things are for fun only, if they are fun for you. And if you want to spend a ton of time learning up on them and keeping track of all kinds of detailed information and watching the tickers all day every day. They are fine things to do, if you know what you are doing and you have properly assessed your exposure and your risk tolerance. YES, you should be afraid of the stock market, if these are the only ways you are interacting with it.

What I’m talking about in the rest of this post is investing for your future retirement. I’m going to be recommending maxing out your 401k/403b and INDEX FUNDS (and sure, ETFs are cool too), which are a TOTALLY different ball game than the lot above. Do not simply dismiss the market entirely, learn the difference between different kinds of market interactions, and play safe, make the market work for you.

THE PATH, ACCORDING TO TAY

First Things First

Okay, first of all, you need to pay off your debt and have an emergency fund (~6 months worth of basic living expenses). I’m going to gloss over these things here because I really want to talk about investing for your future. But Ramit’s book (recommended above) speaks in detail to these foundational points. At least have a certain plan to have those things covered before you proceed to investing. A lot of financial pros say you can start investing some evenbeforeyou have your debt (past-focus) and emergency funds (present-focus) covered, as a way to future-focus and set habits. So read up on that and decide for yourself and your own situation. Either way - if you still have debt and don’t have an (adequate) emergency fund - start there first.

A Note: Savings vs. Investment: These are different things with different purposes.

Savings: is stashing money away somewhere safe to save it for a future date, has low interest rates, what you put in is what you get out, good for immediate use and emergency funds.

Mostly, savings are available in very low-interest, typical bank accounts - there are also online high-yield savings accounts that are GREAT places to put your emergency fund, or other shorter-term savings goals (travel, holiday purchases, a new car, etc.).

Referral Link: I use Marcus by Goldman Sachs online savings. If you sign up there, we both get double their interest rate on our savings for 3 months.

Investments: is using your money to make more money for you by purchasing market-based assets so that you get access to market returns, is more risky but less so over long periods of time since while the market goes up and down every day, it trends upward over time.

OK - Let’s Go!

It’s actually really simple, and will just take a weekend to set up, in summary, you’re going to:

1. (As mentioned above, you should already have an emergency fund and no debt or solid debt-repayment plan set up.)
2. Determine how much you typically spend in a month on average, so you know how much money to keep available to you in your checking account each month.
3. And with the extra money leftover:
4. 1. Max out your 401ks/403bs, and
   2. Invest in index funds if there is still money leftover!

THAT IS IT Y’ALL! THAT IS SERIOUSLY IT.

Okay, more details on each below!

Be Familiar with your Monthly Spending

Research your own spending habits.

Determine your Fixed Costs, this is what you need to live off of and cannot go without. (Tip! You can use this number too to come up with a target for your emergency fund - have at least this monthly number times six month’s worth in your emergency fund). Fixed costs include:

• Rent / Mortgage
• Bills
• Insurance payments
• Debt & loan repayments
• Groceries

Next, the Fun Stuff: count up any other somewhat typical / expected expenses that contribute to your quality of life. These are items that, in a pinch, you could ditch - but also if you don’t neeeeeed to, you’d really like to have presently. These could be things like:

• Eating out X times a month
• The occasional trip home / vacation away
• Going out with friends to a bar or shows
• Netflix subscription
• Treating yourself to something
• Etc.

Keep the numbers separate, but combined this is the number that you will aim to have available to you in your checking account every month, and not go above it, because the rest we’re gonna save! So take your expected monthly income minus this number and THAT’s what we are gonna put into your retirement and investments!!

Pro-Tip on Calculating: If you pay for everything with a credit card (that you automatically pay off in full every month, of course), you can get some pretty accurate numbers off the bat. You can usually export the data from your credit card’s website, import it into Google Sheets then categorize your expenses and take the monthly average of each category over six months or a year’s worth of spending. Even better - Personal Capital does this for you in a cute little pie chart if you signed up and linked your account already. Maybe your own bank’s website does too, check.

Or honestly, you can wing it with numbers that sound right to you. Seriously! This is a work-in-progress. Yes, the goal is to set it and forget it, but sometimes it takes a few times to set it just right. And anyway, every time your financial situation changes (lose a job, get a new job, get a raise, get a side gig, whatever), it will warrant a re-look and re-set. So if you don’t wanna do the whole spreadsheet analysis (fair), you can guesstimate conservatively, see how it goes for the first month or first few months, then simply adjust the numbers if you have too much or little money leftover!

Sad Side Note: Now... if you’ve done the math and there isn’t anything left over to save/invest… I’m sorry to say but, you might need to reconsider this current lifestyle. Typically, a good baseline should be something like - no more than 50% of your take-home income goes to fixed costs, you can put 30% towards the “Fun Stuff”, and hopefully have at least 20% to put towards savings/investing. If you don’t have at least that breakdown, here are some options:

• Get a new, higher-paying job - maybe the hardest but most impactful option.
• Ask for a raise - seriously, unless you JUST did it, why the fuck not?
• Move into a less expensive place, probably the most impactful option on the spending side.
• Re-evaluate the Fixed Costs, anything you could lessen?
• Re-evaluate the Fun Stuffs, anything you can totally cut? Anything you can lessen? Or just hold off on for a while?
• Start a side hustle, the hardest option IMO, especially if you’re already working full time.

Anyway you get it, you need to make some changes: bring in more income, spend less, or both. Seriously, consider it, not saving for your future is not sustainable.

Max Out your Retirement Account

You are going to start savings here: Max out your employer provided 401k/403b! If you don’t have any retirement savings yet, here’s why you should: Social Security isn’t enough to be relied upon (and isn’t even guaranteed!), you don’t want to be a burden on your children (if you have them), and saving yourself will give you access to compounding interest that means you’ll get way more than what you actually save.

Ok so, there is a federally imposed limit on how much you can contribute in a year, in 2022 this limit is $20,500. If you can’t quite afford to max it out, a good rule of thumb is to at least plan to contribute 10-20% of your income to this account. At the very least, you need to know if your company provides any matching contributions (if you don’t know, ask!! right now!!), and try to contribute enough to receive the match. That is free money, yo, I’m not kidding.

If you’re self-employed, I know less about options here, but check out this post: (what is IRA link for self employed??) look here.

Once you start doing this, if your employer offers this distinction, you’re likely going to get confused about the whole Pre-Tax or Roth option. Generally the advice here is: if you are making more now than you think you’ll be receiving in retirement - go for the traditional pre-tax 401k option, and if vice versa (you think you’ll be in a higher tax bracket when you’re in retirement), go for Roth. Honestly, it’s kind of minutiae and doesn’t matter much - you could just split your contributions into both if you don’t know or want to think about it. Just pick something, and if you read more later you can come back anytime and change it.

More info here: https://www.betterment.com/resources/traditional-401k-vs-roth-401k/

INDEX FUNDS! Investing:

WORK IN PROGRESS!!! CALL ME IF YOU GOT HERE AND ARE LIKE WTF WHERE IS THIS SECTION!!!

Finally: Set it and Forget it / Rinse and Repeat!

Again - you do not have to do each step here perfectly or get it just right the first time. Again - it’s a work in progress!Do not wait to get started because you think you might get one thing not quite right.The main pain point will be just doing this first-step work of coming up with some initial numbers, actually opening the investment accounts, filling out the information to get them digitally connected to your bank, and setting up auto-deposits for the first time. Once that is all done, if you need to change something, you just log in somewhere and update a number on a web form - EASY. Meanwhile, it all keeps working and growing for you behind the scenes!

Why am I Writing This?

Well, mostly: I want to spend money in my retirement and I want you to have enough money to spend with me! Let’s go on expensive vacations together, of course we’ll need nonstop flights and luxury hotels for our older bodies, and why wouldn’t we try some of the nicest restaurants in town? Also though: I just want you to have enough money for the rest of your life to not be stressin’ about it, to afford all the best health care and fun experiences you need and want and deserve.

I’m really lucky, I grew up in a financially savvy family. My Grandpa was very successful in business, and it was one of his proudest accomplishments to be able to put me, my brother, and all my cousins through college. He staunchly believed in education, “it’s the one thing no one can ever take away from you”, and went on to support me in graduate school, and later coding bootcamp, as well. I contributed during this time as well, working part-time through much of my higher education, but being able to start my adult life completely debt-free was such an incredible, invaluable gift. One I hope to emulate one day with my own family, or maybe even starting right now with you by getting you on your own strong financial path!

Additionally, my mom was a Financial Planner for much of her career, so well before I even got my first job, she taught me how to budget (ask me about my atypical allowance sometime!), and the importance of making investing part of one’s adult life. And once I started my career, she instructed me to put as much as I could possibly afford into my 403b/401k, and invest a little extra into mutual funds on the side. She guided me in picking funds, and promptly made certain I set up brokerage accounts and had deposits automatically deducted from every paycheck. She knew it was a game, and she knew the rules, and she started me on GO!

Naively, through my 20s, these are things I thought everyone had and knew. It’s only as I started arriving in my 30s to a place where I could pause and look around a little, in a society that finds talking about money taboo, that I started to realize how exceptional this financial background is. More concerning, every day now as I see my little stater savings / investments grow to become much bigger, badder savings and investments - I notice a little gap appearing between my wealth and my perceived wealth of my peers. A gap that is only going to become a bigger, badder, ugly gap as the years pass on. And nationally, the finance industry is replete with exclusionary jargon and terrible diversity statistics, not to mention the racist, sexist pay and wealth gaps that keep people financially out and lacking. So, frankly, FUCK THAT!

Let this be a bridge - come and join me on the monied side, and bring all your friends. You will not get wealthy without investing. In fact, it will literally cost you hundreds of thousands of dollars and more, if you do not just start NOW.

Also, please note: I’m a typical full time worker with a standard bimonthly paycheck, and much of this advice comes from that vein. If you are a freelancer or starting your own business, you might need to find some more specialized advice.

Did you Like Reading This?

Ok, I know reading long, technical information isn’t everyone’s cup of tea. But if you LIKED reading this actually, try out Ramit’s book - you’ll love it.

Or could you barely get through it? Maybe sign up for a free intro class or commit to a more thorough course that will walk you through. Maybe watch a YouTube series. Listen to a podcast? Follow some finance pros on Instagram? Whatever works for you! Go find out! Make it a priority to learn about personal finance in a way that appeals to you, and start taking good financial care of yourself and your life. This shit is NECESSARY. Put it on your agenda! Love you!