Personal Finance: The Basics
Before you read any further, a warning: I AM NOT A FINANCIAL ADVISOR so take everything with a grain of salt. Everything I talk about here is based on my own learnings by reading books, researching articles, listening to podcasts, and watching Youtube videos. Everyone has their own opinions about what to do with money. In fact, when I first started my search 4 months ago, I kept hearing different opinions about what's right and what's wrong. I didn't know what to do with my earnings, let alone how to save it. So as I began my personal finance journey, I started with a clean plate. Throughout my research, I've learned a formula to set yourself up for a stable financial future:
Pay your debt
This one's pretty obvious - paying your debt comes before anything else. Pay off your student loans, pay off your credit card debt, pay off your car loans, just pay it off!! To make any significant progress in your financial plans, debt needs to be cleared off. At the bare minimum, create a plan to go about it. Try Googling: "pay off debt" and read the first few articles to get started!
401k
If you are with an employer that does a 401k match, then I highly recommend matching that percentage or amount! This is the first step to setting yourself up for a stable financial future. To be completely honest, I've had my doubts about 401k as a 20-year old because 65 just sounds SO FAR away but this is almost like getting free money! If your employer matches 5%, contribute at least 5% of your paycheck towards 401k! If you can do more, keep reading :)
* p.s: there's more to this such as picking "roth 401k vs. traditional 401k" (Try Googling this!) so be mindful and do your research!
Roth IRA
Okay so step #3 is setting up your Roth IRA account. Financial experts and industry research shows that this is a HUGE benefit for anyone that can afford to do it. You'll first need to set up an account through a investment company. Remember, there is a max amount that you can contribute towards this, for 2020, it was $6000. You're able to pick your investments through this so be sure to have a diverse portfolio including stocks, bonds, and ETFs of all kinds
401k: AGAIN
Now that you've matched your employer 401k and contributed towards a Roth IRA account, I would now try to put as much money as possible in your 401k. Again, the limit for this changes every year, for 2020, it was $19,500.
Other Investments
If you still have money left over that you'd like to put towards investing, you can now open a brokerage account through which you can pick different stocks, ETFs, mutual funds, etc!
Check out my article on investing in stocks and investing in real estate to learn more.
*p.s: I like to flip step 4 and 5 around. It all depends on what you are looking for!
Some last bonus tips:
If you still live in the stone age and get paper paychecks, then please please set up direct deposit. It will save you so much time.
Automate your credit card payments. If you are able to, set up automatic payments for everything: cable, water, electricity, wifi, spotify, etc. But especially make sure to set up auto recurring payments to pay your credit line. This is step 1 in establishing a good credit score!
Set up a savings account! If you are young and just started working, the one concern I've constantly heard is "I don't have enough to open a savings account". Even $20 is enough! Set up a plan for yourself to save $X per paycheck or per month then again: set up a recurring payment from your checkings to your savings so that you are automatically saving without even thinking about it. Start with $20 per month, then maybe $50, then $100.
That is all for now my friends! I want to let you know: I follow every single one of these tips and even though it's only been a couple of months, I already feel like I am in control of my money. It's awesome!! I only wish the same for you :) Let me know if you'd like me to talk about other financial topics, or if there are any tips + tricks you use in your financial journey that have helped you grow!