I don’t know anything about this stuff. How do I get started?

We get this question all the time. Sometimes it’s from people just coming out of school. Other times it’s from people who’ve been working for a number of years, making a pretty good salary. (That leads us to a side point: Just because someone is good at making money, don’t assume he is good at saving or investing his money.)

Okay, great. So… what do I do?

Without further ado, here’s a step-by-step guide to help you get on your feet.

  1. Get interested in personal finance. You can’t begin to fix something if you don’t care about it. If you’re reading this guide, then you’re already looking to get your house in order, so congrats on taking that first step!
  2. Read. Start with our FAQ and our rules of thumb. There are a number of books that we recommend [https://www.richtowealthy.com/recommended-reading/] as well.
  3. Assess your financial standing. Compile a list of your assets (bank accounts, stock accounts, 401ks, IRAs, real estate, life insurance, annuities, etc.) and your liabilities (credit card balances, student loans, mortgages, and your monthly subscription fees). Calculate your net worth (assets – liabilities). Write this down and the date. Plan to start logging this every year, either on January 1 or on the anniversary date of today, the day you got serious about your financial future.
  4. Figure out your budget. First, figure out how much money you have coming in each month. If you have a steady job with a fixed salary, calculate how much after-tax money you get. (Don’t figure in bonuses.) This is what you’ve got to work with. Next, figure out how much money you spend. Start to log everything you spend. We recommend signing up for YNAB (if you don’t mind paying) or Goodbudget (if you do) to assist in this task. Keep track of cash purchases, listing the date, how much you spent, and on what. Comb through bank/debit card and credit card statements for the past 3-12 months (good software can help with this) to assess what typical monthly outflows are.
  5. Allocate money. Using concepts from what you’ve learned in step 2, decide what your plan of attack will be. How much are you paying towards debt each month? How much will you save towards retirement? Assign these amounts towards your different buckets.
  6. Assess the size of your emergency fund. This is the fund you have in easily accessible monies in case you lose your job or have a large, unexpected repair bill — that sort of thing. Some people might get by on 3 months of normal expenses. Some might need 12 months. Consider if you are a one- or two-income household, how cautious you want to be, and how long it would take you to find another job of comparable salary to help figure out how many months you want to save up.
  7. Automate the allocation. You’ve heard the term “pay yourself first”? That means from any paycheck, first take a portion to put into your retirement accounts (or to pay down debt). The best thing you can do is to make this automatic. Figure out the proper amounts and set automatic payments or bank transfers to the appropriate accounts. This is one of David Bach’s favorite concepts and it can really help a lot of people.
  8. Once you’re ready to start investing money in the stock market (which includes IRAs, 401ks/403bs, and taxable brokerage accounts), read about the three-fund portfolio here and here. Determine how you want to allocate towards the three-fund split (separate entry to follow on this topic). Then go to Empower’s Personal Capital to get an idea of where your money is now (% in stocks vs bonds, % in US market vs international market, % in small, medium, and large cap stocks, % in cash or alternative investments, etc.). Put weekly, bi-weekly, or monthly investment purchases towards these allocations. We like Vanguard mutual funds, and will explain why mutual funds vs. ETFs as well as how to set up a Vanguard account in a separate entry to follow.

That was helpful. Thanks! Now that I’ve done all this, what else can I do?

The main thing is to stay interested and to keep reading and learning more. Check out the Bogleheads forums. Read our encylopedia entries. (Admittedly, it isn’t complete yet, but more are being updated and added every week. In addition, you can also read the outline we have set up for ideas about what other topics to explore and research.)  Look up stuff that you come across. Suggest things to us to write about. Keep plugging along on this personal finance journey and you’ll not only grow but also evolve. If your views are the same a year from when you first started, we’ll be utterly shocked. So just keep on keeping on. We’re on this ride together!