When I was around 20, I started to be really really into reading about personal finance. I was fortunate enough to have come from a very comfortable middle class upbringing, where my mom started training us from an early age to balance a checkbook and use credit cards responsibly and that sort of thing. Probably the most important thing was the sense that money wasn't magic, and learning what to do (or not) with it was a reasonable and achievable task--basic math + skepticism of "too good to be true" situations + figuring out your own psychology (that's the hardest part).
So I was curious to learn more once I had to pay for my own stuff and over the years, I've developed the below set of recommendations (some specifics only applicable in the U.S. though). I wrote this up for an email to a co-worker a couple months back and have wanted to reference its contents since then, which is usually a good sign that I should turn something into a blog post so that I can be lazy :D Links below are affiliate ones, but I would look for them at public libraries first.
So I was curious to learn more once I had to pay for my own stuff and over the years, I've developed the below set of recommendations (some specifics only applicable in the U.S. though). I wrote this up for an email to a co-worker a couple months back and have wanted to reference its contents since then, which is usually a good sign that I should turn something into a blog post so that I can be lazy :D Links below are affiliate ones, but I would look for them at public libraries first.
I think Your Money: The Missing Manual is probably also good, I used to follow his Get Rich Slowly blog (until it was sold and the type of content changed). He had a series of 14 posts that went through his core principles about money (Tenet #1: Money is more about mind than it is about math, & so forth). Probably a good place to start if you're from a family without good role models for personal finances.
If you want to get into investing, I really enjoyed The Bogleheads' Guide to Investing -- I actually read this in its entirety during a cruise to the Caribbean! Their follow up book on retirement planning was all over the place though, I definitely don't recommend that. The tl;dr for the book is put your money into large index mutual funds with a brokerage that charges low fees, like Vanguard. I've been mostly putting my money into various "target retirement" accounts, where they'll adjust the ratio over time, with a bit extra into certain low-fee stock funds because I'm ok with having a bit more risk there.
Overall I put in effort up front to figure out a system for my money (this much towards savings each month, etc.) and then I can just lightly monitor that, rather than have to do stuff more actively. I shove as much as I can into the various accounts and then let it sit there to grow without fussing or worrying over it (more on this in the "misc" section below).
The order of operations that I consider the sensible order for getting a handle on your money is:
- Figure out where your money is coming/going currently: I have a rough budget set up in Mint, but mostly once a month I sit down to review everything and do a month-over-month comparison to see expenses by category and net income. You don't have to do it like that, you just want a sense of where your paycheck is going and what your debts are.
- Automate savings/bill payments: I dislike remembering due dates but also paying late fees.
- Emergency fund of at least 6 months of living expenses if you were to have no income at all. This should be in a savings account where you can withdraw this cash at any time; I have an account where I get slightly better savings interest rate if I use my debit card a certain number of times a month and do direct deposit, etc. I use Mint to track all my accounts, so I don't mind having a bunch of different ones to look at, and so I'll also take advantage of offers that are like "open a savings account with us and we'll give you $300" since basically that's just a different place to park some portion of my savings for a bit.
- Max out any company 401k matching: When I first started working, I poured all the for-retirement money I was diverting from my salary into a pre-tax 401k, because that meant I could max out the match while still having a bit more take-home pay. Nowadays I split it roughly evenly between a pre-tax 401k and a Roth 401k. There are differing philosophies on why you might choose one over the other, but there's guesswork involved in all of them so don't worry about the perfect solution all that much, we're probably all at least a little bit wrong.
- Max out a Roth IRA: there is an annual limit on how much you can put into these per fiscal year ($5500 for us millennials, more if you're older), based on a sliding income limit.
- Max out 401k contributions: the IRS annual limit is currently $18,000. In the past I've done it as either at max percentage at the beginning of the year until the cap is reached and the money can start (hopefully) growing asap, and I feel poor for awhile and then I feel really rich when my paychecks are full-size again, but it got annoying from a figuring out household budget perspective, so now I figure out a rough percentage that would spread out the contributions over the calendar year a bit more and then round up, to make sure I don't accidentally miss it before the end of the year.
- Pay down debts: any credit card, car loans, student loans, etc. This should be higher up on the list if you have a high amount and high interest rates though, as high as #3 imo. I put it lower because the 401k/Roth IRA stuff has limits on it per calendar year, so if your debts are mostly monthly car/student/mortgage types, that might take you awhile to pay off in any case. But credit card debt should be wiped out much more quickly, the benefits from compound interest in retirement/investment do not outweigh interest rates there.
- General brokerage investing: if you're going to invest directly in stocks, etc. I have a bit of this somewhere, but mostly the rest of any leftover money for me gets dumped into a general savings account that I'll eventually draw from for a house down payment. I've experimented with smaller targeted savings accounts, like a "just for fun whatever no guilt" and "vacation fund" etc. but that didn't work for me, I'd rather judge based on the expense rather than budget in that way.
- The "don't worry as much about where you're saving to, just save a ton" thing:
- "What describes most of those years when we aren't saving is normal life."
- "You are not going to beat seasoned, well connected professionals on an amateur basis."
- "You'll have to make up your own mind about what the future is likely to hold."
- You're entitled to a free credit report from each of Equifax, TransUnion, or Experian every year (use https://www.annualcreditreport.com/, not freecreditreport.com), which will tell you what their records say for what debts you have, the accounts you have open, and what condition they're in. I have a calendar reminder to myself to pull one of these 3, every 4 months, so I can spread it out through the year and make sure that the only reports they have are of accounts that I know I opened myself. This won't give you your actual FICO score, usually you have to pay for that separately or get it through a bank/credit card that gives it to you as a perk.
- My blog post on stuff I learned from considering buying a house.
- If you like to travel and don't find credit cards a temptation to overspend, I've gotten a lot into rewards credit cards over the past few years, to get more out of what I'd already be spending anyway. The simplest is pure cashback, the Chase Freedom or Amex Blue Cash Preferred are great for that. Then the next level are all-purpose rewards cards, like the Chase Sapphire, which has an annual fee of $95 but it's been worth it for me. My flights to South Africa earlier this year cost me something like $100 out of pocket, and same thing for my flights next year to Rio for the Olympics. milevalue.com is a good blog for this, and he recently published an ebook.
