A friend of mine asked me for some very basic advice on personal finance. Generally, here are my thoughts:
- Spend less than you earn. If you follow just this one rule, you’ll at least stay out of trouble.
- Practice conscious spending. For the things that bring you low levels or happiness, or that don’t make you happy at all, stop paying for them (or at least stop paying so much for them). For the things that make you REALLY happy, go all out. Money can’t buy you self respect or emotional security, but it can enable you to grow into a better person (if properly spent). Don’t lie to yourself when it comes to money and spending.
- Know your why. What does money mean to you? What will it enable you to do? What are your dreams involving money? If you love your job, your lifestyle, your spending habits, etc., then just keep doing what you’re doing. If not, maybe consider learning how to earn more and spend less. Maybe consider diving into that hardcore group of financial independence, retire early (FIRE) tribe (just don’t be a frugal jerk).
- Have some cushion when things go wrong (because they will go wrong). This could be your emergency fund. I have a stupid mistakes fund (because everyone makes stupid mistakes, including, one year, a $10K+ tax bill…ouch). You need to be able to access this money FAST, so keep it in a checking account.
- Invest in index funds at Vanguard. Fees are bitch, mutual funds can’t beat the market, KISS (keep it simple, stupid), compound interest will make you rich, inflation erodes cash, etc. etc., so just invest in Vanguard’s total stock market index fund and call it a day.
If you do all of these things consistently for a few decades, you’ll be in a good spot and your future self will thank you.
If you want to optimize even more (because what is more fun than figuring out ways to make your money work for you???), here are some useful resources to start with:
- Ramit Sethi’s I Will Teach You To Be Rich
An introduction to Personal Finance, targeted at people in their 20s, great overview of everything important to know, with specific action steps and scripts. I use his automation system to funnel money to my various accounts, pay credit card bills, invest, etc.
- Generally Useful Personal Finance Topics by Age Group a la Reddit
Guides for 18-25yos, 25-35yos, 35-45yos. Good overview of important topics relating to life events like school, debt, mortgage, house, health insurance, etc. Worthwhile to skim all 3 guides even if you think some of them won’t apply.
- Jim Collins’ Stock Series (blog posts)
Series of posts explaining why passive investing beats active investing, what your investing options are and optimal order in which to invest/save, asset allocation basics, with some financial independence stuff thrown in as well. Extremely comprehensive and possibly too in depth, so skip around as needed. Collins lands on the more extreme end of the FIRE (financial independence retire early) movement so you can disregard whatever extreme frugalism/savings bits he advocates if that’s not your cup of tea.
- Bogleheads Wiki on Investing
Overlaps with Jim Collins series above, possibly more detailed than his stuff. I like the asset allocation discussion and the tax efficient fund placement page, but this might be too in depth. Start with the getting started guide. This is a very deep rabbit hole to go down…
- Mr Money Mustache Blog
One of the most popular personalities in the personal finance blogosphere, and possibly the most popular embodiment of the FIRE movement. His blog is a mix of philosophical articles in support of minimalism, highly conscious consumption and cutting out lots of extraneous expenses, being environmentally friendly, DIY/MacGyvering (he built a radiant heating system in his house and started his own construction company for fun after he retired), and articles about how he and his wife retired early, how other readers can restructure their income/expenses to do the same, etc. I’d read a few of his most popular posts and see if you like him. He tends to be a bit polarizing, but I find him quite funny and engaging.