I’m a complete financial newbie. How do I get started?

You’ve come to the right place. In addition to this website, we recommend you read the Bogleheads wiki.

Without further ado, here are some “pearls” that will apply to many and are a good starting point for action and discussion:

  • Spend less than you make. This should be obvious.
  • Pay off your credit cards in full every month. Interest rates of 28% are crazy!
  • Some types of debt are tolerable and some debt is less bad than other debt, but there is no such thing as “good” debt.
  • Buy and live in it. As with everything, don’t buy more than you need.
  • Get the 30-year fixed. The additional financial flexibility is worth the extra interest.
  • At a minimum: Take your monthly mortgage payment. Divide it in half. Pay it every two weeks.
  • First house and first spouse. Keep them both.
  • Working is something you do so you can retire.
  • Money is a tool. It’s the means, not the end.
  • If you want to retire earlier, spending less is much more important than earning more. By far.
  • Bring lunch.
  • Buy used. Drive it till it dies.
  • Diesel for highway, hybrid for city. [We wrote this a long time ago. Nowadays it’s probably hybrid for highway, electric for city.]
  • Calculate how much you spend a year. When your savings equal 25-33x, you are ready to retire. This is because you can draw down on 3-4% of your nest egg in perpetuity.
  • We are trying to teach our kids the difference between “need” and “want.” Many of us would benefit from learning the distinction.
  • Automate your savings. “Pay yourself first.”
  • If you’re Christian, don’t forget >= 10% (of gross, not take-home) to the Church.
  • Save a bare minimum of 10% of your gross salary. We recommend 20-33%. See the table here.
  • Before you contribute to retirement savings, bulk up your emergency fund: 6-12 months of necessary expenses.
  • Contribute to a 401k if your company has one, and especially if there is a match. At least contribute to an IRA if you qualify.
  • Max percent of stocks in your portfolio should be “120 – age.” The rest should be bonds.
  • Asset allocation: KISS. Bonds and equities as above. Of equities, 50-67% US and 50-33% international, depending on your risk tolerance. Buy Vanguard mutual funds (VTSMX, VGTSX, VBMFX).
  • Rebalance once a year. Maybe twice a year, if you’re doing it manually.
  • For tax-deferred and tax-“free” accounts, rebalance by selling high and buying low. For taxable accounts, consider rebalancing by adding to underperforming assets.
  • The 1/3 rule: Keep 1/3 of your savings in a taxable account, 1/3 in a tax-“free” account, and 1/3 in a tax-deferred account. [This will be difficult to achieve for most of our readers.]
  • Even if you can’t directly contribute to a traditional or Roth IRA, you can and should to a traditional or Roth 401k. You can also backdoor into a Roth IRA.
  • If you have kids, don’t put money in their names (UTMA). Put it in a 529. Start with one in your state for state income tax purposes. Also consider the NY, Utah, and Vanguard 529s. If you think they’ll go to a private college, you’ll need about $1000/mo starting at birth.
  • Encourage your kids to go to college and to finish college.
  • 529s can pay for grad school, don’t forget.
  • Have your parents reduce their taxable estate by helping pay for your kids’ education. And remember, it’s not a taxable gift if you pay the school directly.
  • Everyone knows about life, but don’t forget disability. Individual > group. And if you’re a physician, get “Own Occ.”
  • 95% of you don’t need permanent life insurance.
  • It’s better to have control than to have ownership.
  • If you’re married and your state lets you, T/E can be a good option.
  • Trusts can bypass probate. They are just one method. Also look at POD and TOD. Note that these are state-dependent.
  • LLCs for rental property. Never an S corp. Ever.
  • Retirement accounts should go to the spouse (primary) and then to kids (contingent) unless you have a properly established retirement trust. Emphasis on properly.
  • When possible, leave money to kids directly instead of your spouse, lest your kids be hit with estate taxes after #2 goes.

Will you add more questions to this FAQ?

Yes. We’re just getting started. If you have a question to add, contact us!