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Financial Advice for Personal Finance Novices

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Very often the posts that you see on my site are generally about a single topic that I’ve recently dealt with (or read about) and so it’s difficult for someone who is new to managing their own finances to figure out what exactly it is they should be doing, especially if terms like Roth IRA, 401K, emergency funds, loans, mortgages, etc. aren’t entirely familiar to you. So, what I outline below is a step by step guide to what you should consider doing if you’re recently coming into control of your own finances, such as if you just started your first job, moved out of your parent’s house, etc.

Holy Grail of Personal Finance Advice: Spend less than you earn. That’s it, ask anyone anywhere and the only piece of advice you’ll ever need when it comes to money is that you should save more than you earn. How you save that money and where you save it, that’s where all the nuances come into play, but that is the most basic of basics.

Where To Save: (and in this order)

  1. Local Savings/Checking Account
  2. Emergency Fund
  3. 401K (if you have a match)
  4. Roth IRA
  5. 401K
  6. Education savings, child care savings, travel fund, etc. (Needs)
  7. Brokerage Account

The list is a product of a rationale I outlined in a post titled Your Financial Fortress in which I metaphorically outline one’s financial picture using the analogy of a medieval castle. In the above list, you can save towards any of the vehicles concurrently (don’t feel that you have to fund an emergency fund before your 401K) but the general order is generally accepted by most as the “right” order.

How To Save:

  • Re-evaluate your needs
  • Research how to reduce the cost of your needs
  • Learn to live on less (even if temporarily)

It’s like eating and losing weight, everyone knows how to do it, it’s the actual doing that is difficult and requires the most help. You might want employ tricks like putting less money in your wallet/purse, keeping credit cards in your desk drawer so you’ll have to take an extra step to spend money on it, or you might want to try zero dollar days – days where you spend zero dollars Think of those like the Atkins diet or the Miami Beach diet or the juice diet, the real savings come in real steps that you take to spend less but are obviously less gimmicky and fun. Take some time to re-evaluate everything you spend money on and think of ways to get away from spending it.

If you save $50 each month, that’s $600 at the end of the year and that’s enough for a last minute 4 day cruise to the Western Caribbean on Carnival if you book at the right time. Do you want a $5 coffee each day or save that $150 a month, $1800 year, and put it towards a much nicer vacation during the holidays?

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9 Responses to “Financial Advice for Personal Finance Novices”

  1. Save MORE than you earn? So if someone earns $50k/year they’re somehow supposed to $60k? Don’t you mean spend less than you earn?

  2. I would say the “holy grail” of personal finance is “know thyself.” Without intimate knowledge of your own strengths and weaknesses, you will be doomed to fail any budget, diet, or anything you strive to achieve. The “where to save” list from Blueprint is quite good. I would stress, however, that individuals need to acknowledge their own weaknesses, address them appropriately, then leverage your strengths to “spend less than you make” then go from there…

    Cheers…

  3. Jason says:

    I like and agree with how you prioritize things. I think I will reference you at some point.

  4. thomas says:

    I’d also mention any kind of stock discounts you can get with your company. Many public companies offer some sort of discounted price incentive to be a shareholder. Depending on your discount, you can get a pretty good return (10%+). You can then sell, or if you believe in your company, keep for even greater gains. I would say that this falls about 6th.

  5. Star Money Articles for the Week of July 30

    Here are some recent interesting posts from the MoneyBlogNetwork and beyond: Blueprint for Financial Prosperity gives some advice for money novices. Consumerism Commentary lists 50 credit cards with 0% interest. AllFinancialMatters covers credit card d…

  6. mommy says:

    I’m in a quandry as to what advice to give my mom. She is doing 1-4. She is 53 and just entered the work force after graduating from college in December.

    Here’s the question: Long Term Care Insurance… she has several health issues. Should she cut back on the retirement savings to funds the LTC or should she hold off on the LTC and hope she doesn’t become uninsurable?

    On the bright side, at least she owns her home…


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