101 Personal Finance Ultimate Guide in Financial Planning in Making Money 2020

Personal Finance 101 is the beginning steps you can take to really become self-sufficient with your money. It will include various areas like understanding expenses, how to create a budget, saving for retirement, investing basics, and more. 

Many of these concepts may appear difficult to manage or that you must be highly educated to do so on your own. But you — and anyone — can teach themselves to succeed with money. 

You don’t need to be an expert to manage your finances and you can have little to no previous background, but still improve your financial health. 

Below, I’ll share some of the steps I took to teach myself and hopefully you can apply this to your own personal finances. Will it be easy? No. But it’s certainly not extremely challenging either. 

Changing Your Money Mindset

Before we get into my Personal Finance 101 steps, I think a big gatekeeper to managing your money successfully is your mentality and mindset. 

Firstly, many times the media or financial experts make this stuff seem like complicated rocket science. Surely some aspects to finance can be, but the majority is really not.

This can mess with your financial literacy, mindset, and feelings towards money from day one. I know it did for me.

Other times, it’s easier to be in-denial about our financial situations. If you don’t pay attention to the problem, it doesn’t exist, right?

But as you know, that temporary “solution” will inevitably snowball in the future where it becomes a much more challenging problem. 

Another way your mindset might be hindered is maybe you are relatively on the younger side, say 20’s to early 30’s and your financial education is just not a priority to you. The “I’ll worry about it later” mentality creeps in because you have time on your side.

Whatever it is, your understanding of personal finances and dedication to managing money has to start with the right mentality. Otherwise, it won’t be a priority to you nor will you dedicate time to learning. 

I unfortunately can’t give you the magic “aha!” moment or steps to get on the right mental path. We are all unique in what works.

Personal Finance 101: Teaching Yourself About Money

Hopefully, the section about mindset made sense and did not come off has some “self-help” preaching. My intent is really to ingrain that mindset is the first key ingredient to determine your success with teaching yourself about money. 

We all know that you should save for retirement, have an emergency fund, and invest, yet so many fail to take any action. This includes myself until 2014. Why?

Nothing will change if your mindset is stuck and you lack the willingness to erase the misconception that personal finances is “too hard.” The cycle of change has to come from within.

Usually a moment in your financial life can be the motivation and drive you need, but even then there is no guarantee. 

If you don’t think you are there mentally ready yet, the steps below won’t be impactful in the long-term. And that’s okay!

Work on how you can motivate yourself and get in the right frame of mind to pursue teaching yourself about money.

I realized I needed to make changes in 2013, but it took me until 2014 to make a financial plan and feel ready.

But if you are stoked, truly motivated to make changes, and understand that it will take some dedication — then you are well on improving your financial wellness.

Create Financial Goals

Before you start to teach yourself, you must understand the reason why you want to learn about money.

What is it that you want to change financially? How will this benefit your life now and your financial future? Why is learning about money so important to you?

If you don’t know your financial goals, it might be hard to know where to start learning or why you are doing this in the first place.

The more motivation and understanding of the impact it will have, the better off you are when it comes to putting in the work to learn.

Numbers On A Spreadsheet

Okay, one more thing before we get into the learning steps. After your goals, it’s also a good time to put a bunch of numbers down in a basic spreadsheet. 

I’m talking your salary, monthly take home, total monthly expenses, what you have saved (if anything), what you have invested (if anything), etc. Nothing fancy needed, just a simple and organized data dump of this info. 

When I saw this all in one location, it helped me adjust my goals and make a spending plan. This was actually another wake up call when I realized how much I’d overspend on unnecessary things.

Start Reading Personal Finance Books Based On Your Goals

You want financial knowledge? Then reading books about money is crucial. The idea of reading books — especially about finances — may sound like a snoozefest to you.

But, there are tons of great books out there that are interesting and make learning about money easier. 

Dedicate 1-2 hours minimum each week reading a money book.

If you are afraid of distractions or that you’ll forget, mark your email calendar for reminders or set an alarm on your phone. 

There are plenty of books about money out there, so here are a few that I think are the best to start with (these combine things like mindset, banking, investing, saving, etc):

• I Will Teach You to Be Rich by Ramit Sethi
• Rich Dad, Poor Dad by Robert Kiyosaki 
• The Millionaire Next Door by Thomas J. Stanley and William D. Danko
• MONEY Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbins
• Your Money or Your Life by Vicki Robin and Joe Dominguez

Read Personal Finance Blogs

If you are reading this, then you already are making the right move! Wink wink.

But seriously, personal finance blogs can really expand your knowledge and viewpoints. 

However, let me put a caveat to this: not all personal finance blogs are completely accurate or have info that relates perfectly to you!

Meaning, if something resonates with you, make sure you do further diligence before blindly following any direct financial advice. Same goes for content you read from me! 

But early on when teaching myself about money, I found a handful of blogs that were really insightful and realizing it came from people like me was inspiring. 

These blogs can help you think differently and understand the personal finance basics from people who are not always authors or industry experts.

Open An Investing Account (Brokerage or IRA)

Wait, you’re telling me to open an investing account when I don’t know jack about that yet!? Don’t worry, hear me out here.

Whatever your financial institution of choice (I recommend Vanguard), you can open an account for free and not fund it right away. But, you can contribute a small amount to start learning too, like I did. 

If you are like me, I tend to be a better learner when I practice what I read at the same time. So opening an account got me familiar with investing terms, understanding fund types, how the account works, and more. 

Never put all your money in or risk investing in individual stocks to start. The goal here is to take steps to do something and begin learning how things work. 

Watch Interviews With Well-Known Financial and Money People

Similar to personal finance blogs, never blindly follow advice from well-known finance people either. Many will also have things you agree with and some advice where you won’t. 

But, you’d be surprised what you learn, how you start to speak about money, and where your mindset can go by watching interviews and discussions.

Dave Ramsey, Warren Buffet, and Tony Robbins are some popular names in the space. No they aren’t perfect, but you get exposure to different ideas, strategies, and steps with finances.

Same with any authors of financial books, listen to their interviews or watch them on Youtube. 

Talk To Someone Who Has Mastered Their Finances

Sometimes the best advice and knowledge comes from someone who really has a handle on their personal finances already.  Maybe it’s a colleague, a trusted family member, or even close friends. 

And no, not advice like the latest investment or comments from the Bitcoin bros who say, “go all in and get rich!” Not hating on Bitcoin, but you know the type of money advice I’m referring too.

You want someone who actually has a proven track record of knowledge and success. They can help you stay motivated and teach you what’s worked for their own finances. 

Some Money Tools to Help Your Journey

As you start to make better financial decisions, there are some tools that can help you manage your money effectively. Many of these will be useful for tracking important financial data, others will help you understand more about your money. 

YNAB: If budgeting and spreadsheets still scare or confuse you, there is a great solution to try. It’s called You Need A Budget (YNAB).  You can try it free for 34 days, but can be a financial game changer if you need some help while you become the master of Personal Finance 101. 

Personal Capital: Keep track of your net worth, cash flow, investments, and get advice all within Personal Capital. This free tool is vital to becoming more financially aware and ensure you are on the right path. Sign-up and use it for free!

Blooom: If you have a company 401k currently, but do not know or understand much about certain aspects, Blooom’s free analyzer can help. The platform provides insights, recommendations, and more about your retirement account. Get started for free here. 

Acorns: One of the best ways to get in better financial habits with saving and investing is to use an app like Acorns. The service uses your spare change to invest in different portfolios made up of ETFs. They also offer a lot of expert articles and advice to help you learn further. Sign-up for Acorns here and get a $5 bonus added to your account. 

Take A Finance 101 Course

While I’m a DIYer when it comes to learning, you may want additional support with your finances. The topics around money is broad and there are many categories you may want to learn about like:

• Budgeting
• Spending
• Saving
• Investing
• Retirement
• Insurance
• Credit Cards

A bit overwhelming, right? If so and you are unsure of how to organize your learning, then take a finance 101 course!

If you search for options you can find quite a few being offered by various universities. Of course, that can be fairly expensive and you don’t necessarily want a degree in finance (unless you do, then by all means go for it!).

The other option to become a financial success is taking lessons from experts on places like Udemy, Lynda, or Coursera. Now these are not free as you will have to pay for a subscription on these outlets.

But if you can afford it, these can be a great option and you’ll learn plenty if you need more structure. Plus, most offer a decent free trial (up to 30 days) that you can take advantage of as well.

Some Topic From you in Personal Finance

Topic 1: Debt

Even though debt isn’t the most popular article topic on this site, it’s easily the most common reason for people to even seek out Personal Finance websites and blogs.

Let’s face it – for many people the tenets of good debt management were never learned.  It takes a negative event – say, not having enough for a minimum payment, or a new milestone of debt (“an even $50,000 in credit card debt!”) for people to get serious.

Most debt blog readers have a significant amount of consumer debt and a newly minted degree which still hasn’t been fully paid off (read: student loans).  This lets us make a simple statement, assuming you can’t pay off every balance in a month… the mathematically optimal payoff strategy is to pay the minimum on everything except the highest yield (pay more).  Here’s a breakdown/order, with guesses for interest rates as of mid-July, 2019:

Gambling Debt & Debt from Loan Sharks – APR: Your legs.

Payday Loans – APR: as high as 50% to 1,000%.

Credit Card Debt – APR: 8% – 28%

Car Loan – APR: 2% to 12%

Student Loans* – APR: 3% to 7%

Home Loan/Mortgages* – APR: 2.75% to 4.5%

(Again, I can’t cover everyone, and some people might have random interest rates I didn’t cover… think medical debt or 0% interest financing.)  You can also do your interest rate ordering within categories – many people have two car loans or 3 or more credit cards, so order those based on interest.

So, quickly pay off things with a higher cost, and as you pay off more and more balances you’ll be able to dedicate more and more resources to each bill.  (Oh, and I don’t have enough space for a full accounting of the reasons here, but there is no need for you to have a recent year car if you’re in debt.  This is no time for vanity.  You might not even need a car.).

*Advanced: You’ll also note that two of the categories have an asterisk.  In the United States, it’s possible to receive tax deductions for student loans and mortgage interest, which reduces overall cost by lowering the amount of taxes owed.  Student loan interest phases out at a lower income, and mortgage  interest usually requires more income before itemizing is worth it.  If these apply to you, you can calculate something called Tax-Equivalent Yield.  It’s also somewhat outside of the personal finance basics realm.

Topic 2: Savings

Funnily enough, savings is a controversial subject in this little Personal Finance world where we find ourselves.  That said, let me set this section up: I’m not an expert, but I’ll share my priorities.  Feel free to mess around at the margins, but personal finance basics requires some thoughts for savings accounts.

Emergency Funds – My feelings have evolved on the so-called ’emergency fund’.  These funds are savings accounts for quick access where you put money in case of emergencies like car repairs.  Here’s the problem – when I advocated for EFs, you could find savings accounts which paid 6%, and teaser rates on credit cards for 0%, or limited time 7% rates.  Nowadays, it’s harder to find teaser rates if you have a lot of debt, and savings account are a fool’s game.  I now lean towards no EF due to that spread – it’s more important to pay down your debt.  Like people smarter than me have said, “having a lot of debt IS an emergency”… more-so than putting money in some account somewhere to stagnate.

Money Management – This will be a positive bullet, since it’s a topic we’ve covered before.  I practice something called the ‘Three Account Method“… some trickery where I use direct deposit on my paycheck to hit all my savings targets: First, money goes to a ‘fixed bill’ checking account – here’s where you put your bills that don’t change and you’re in no rush to pay off… like lower rate debt for mortgages and student loans.  Some utilities are also fixed – cable and internet bills, for example.  (No time now… but cable when you’re in debt?  Look hard at that bill…).  Second, money goes to a spending checking account.  Here are you varied expenses – like for buying food.  Last, I put some money in my savings account, which never gets too big (see above).I write a ton about the TAM elsewhere.

Savings Rates – Whatever your savings rate is now, plus more!  I’m not being facetious here – each year you’re alive is a year closer to when work will become difficult for you and you’ll want to retire.  That means you should pack away as much as you can, as quickly as you can.  Yes, don’t starve or sleep outside – but make a conscious effort to sacrifice.  Don’t worry – you can spend it later.  My co-writer has talked about the psychology of increasing savings rates, especially when automatic.  If you aren’t saving money now, start with 10% and increase it every year.

Advanced: Am I a good guide?  That’s for you to decide.  Here’s my recent savings rate history, based on a strict definition I made.  The most important part of money management is actually net worth increases though, not savings – so your numbers may be more impressive depending on what definition you use.

Topic 3: Investing

Section 1: What To Invest In When You Don’t Know Where to Start!

So you’ve got your debt squared away, and you’ve figured out your money management and savings strategy – it’s time to discuss investing.  Most people come into this cold – so this will purposefully be geared towards rank beginners.  When you’re talking ‘beginner’, that means an introduction to stock (a highly liquid asset which represents a claim on the future earnings of an underlying company), bonds (debt issued by said companies or governments), and treasuries (similar to bonds, but issued by the United States Department of the Treasury).

Picture of a factory.

Don’t worry about evaluating individual companies if you’re a beginner.  It’s not a part of the personal finance basics curriculum!

The biggest problem people run into when first looking at investing is analysis paralysis.  The universe of things you can invest in is so big – some estimates say there are 15,000 companies in the United States alone.  How do you decide where to start?  REITs?  MLPs?  Closed End Funds?  I’ve heard of Apple before, should I invest in that?  No, not at all.  The most important thing to remember is investing is a marathon, not a sprint.  The best time to start investing is yesterday – so even if you walk the first few miles (or the whole thing) it’s still possible to finish.

Assuming you’re a beginner and don’t have a keen sense of exactly what to invest in, there is a security for you.  Here’s what to invest in: something called a Target Date Fund.  These TDFs will take your age or approximate number of years until retirement, and automatically invest in a massive basket of stocks, bonds and treasuries – both in the United States and abroad!  They are the ultimate hands-off retirement accounts, where you literally will never have to touch them if you never go deeper in investing.  Some large providers (all with very good reviews) are:

Section 2: Where to Invest!

The first introduction many folks have to the investment world is in their 401(k).  Funnily enough, the 401(k) is actually a reference to a section in the tax code… which is the great irony when folks not-from-America call their main retirement accounts 401(k)s.

I digress.  The 401(k) is an account with a huge benefit – traditional 401(k)s allow you to defer taxes!  That’s right – money you put into your 401(k) is a deduction on your taxes.  There is another huge benefit – many companies incentivize 401(k) contributions, kicking in extra money just because you meet some savings target.  Common matching amounts?  50% up to 6% of your income, or 100% up to 4% of your income.

So let’s talk about priorities in investment:

401(k) up to the company match.  You’re looking at 50% or 100% returns just for playing.  You should usually do this even if you’re in debt – don’t leave this free money on the table, as the return is often more than your cost of debt.

IRA to max.  It is usually a safe bet to open a ‘Roth’ IRA – which works in the opposite way as the ‘Traditional’ 401(k), where you pay tax up front and not again when you pull money out.  The limit in 2013 is $5,500 per person (you need earnings at least equal to your contribution), so $11,000 for a couple.  If you are over 50, $6,500 per person is the limit.  Don’t have one yet? We suggest an account with(that’s an affiliate link). We have a TradeKing account; $4.95 trades is a solid deal.

Continue to invest in your 401(k).  That means up to $17,500, total.  Over 50?  You get an additional $5,500 added to your limit.

If you hit this point, you’ve advanced past Personal Finance Basics to PF 102 or 201 – which means you get to break the rules.  We’re biased, but you should start to read the archives of Don’t Quit Your Day Job’s Investment section.

Advanced: Rules are made to be broken, but when you’re new it’s best to stay safe.  If you are interested in the next step, you can start with this article on our investment returns, with links to a discussion of beating the market.  We’re also well known for our calculators, so try our S&P 500 Return Calculator or Treasury Return Calculator to start a bigger analysis.  We’ve also broken down historical returns on the S&P 500 by timeframe.

Topic 4: Insurance

Insurance is an interesting and wide ranging topic, and I am nowhere close to an expert.  However, I think my mix of insurance ideas works well if you don’t know where to start.  You need insurance wherever you have a downside risk which is too great for you to cover on your own.  Let me break it down by some common topics:

Health Insurance – Your downside risk here is a catastrophic medical crisis OR a chronic disease.  They differ mainly in how quickly they hurt your finances, and in the second case your ability to obtain insurance in the individual market (and at what cost).  All we can say on this one – get health insurance.  Being young and healthy doesn’t extrapolate to always being young and healthy, so at least get high deductible coverage here.

Car Insurance – It’s a law, first of all. Second, you can easily shoulder some blame for an accident even with the most careful of driving (my perfect driving record was marred when a lady stopped suddenly mid intersection on a left turn at a light… while I was driving into the sun with a pitted windshield and no anti-lock breaks.  Yes, it’s still my fault… even with the green arrow… and yes I’m still bitter).  When setting limits, remember new cars can cost $50,000 or more.  If you total a new luxury car, make sure you can cover it.

Life Insurance – Once you have the top two covered, you open the can of worms.  My philosophy on life insurance is to cover enough major debts that a surviving spouse or child can lead a ‘normal’ life.  If I die, my wife would receive enough money to pay off the mortgage… giving her plenty of time to decide her level of work . Read: she won’t have to go back to work the next day.  For me, that means Term Life Insurance – through my work, it’s cheap to get enough term to cover my mortgage.  Again, I’m not sophisticated on this topic, find someone who is if you have special needs.  Here’s some further details.

Home/Renter’s Insurance – If you have a mortgage or rent, you probably need to hold home and renter’s insurance. It’s worth it.

Topic 5: Responsible Use of Credit

So you weaned off your debts, you started saving 10% of your income, you’re investing monthly, and you’ve covered your risks.  Guess what?  It’s time to discuss ‘credit’.

Picture of a wallet with cash and credit for personal finance basics illustration.

I’m not warning you off the cards…

Note that we say ‘credit’ not ‘debt’.  In the grand philosophy of this site, credit is never a means to take on more debt, short of some exceptions – student loans for lucrative careers, or mortgages for property.  Credit, as in ‘credit cards’ have two features which are useful to us – liquidity (in that you can use them 24/7/365) and rewards.  (More discussion on credit cards strategy here.)

So, what am I saying, go wild with your credit cards?  No – not at all.  Credit cards are the financial equivalents of firearms – dangerous in the wrong hands, but useful used responsibly.  Or, perhaps a better example is alcohol – in moderation it’s useful as a social lubricant.  However, even a moderate amount of alcohol is dangerous to a past alcoholic.  You know how you are with credit – if credit cards are too much of a risk, stay away and pay in cash.

For the rest of you:

Get a (multiple even, with different bonus category) rewards credit card.  It must have no annual fee.

ONLY buy things you would buy anyway (be honest with yourself here!)

NEVER run a balance.  That means, never have a balance higher than you can pay off that month.  Don’t even think about it.

If you obey those rules?  You don’t even need to worry about the APR, since you will never pay interest.  In fact, you’ll make more money than paying in cash since you’ll have credit card rewards accumulating just by doing shopping you’ll do anyway.

Not Personal Finance Basics: As for other types of responsible credit use?  Unfortunately, you’ll have to read elsewhere.  I refer here to borrowing for education that will pay off (choose your Major wisely; failing that, keep it inexpensive), and borrowing to acquire property (mortgages).  Historically, these have been good ideas.  That doesn’t mean that they have always been (or will always be) good ideas, but I can’t with a straight face tell you not to buy a house with a mortgage or acquire a Degree with student loans… when I did both.

Topic 6: Taxes

It was Benjamin Franklin that popularized the quote “[I]n this world nothing can be said to be certain, except death and taxes”.  We already covered the ‘death’ part with the Life Insurance section… but let’s turn our mind now to taxes.

While all of these other topics (save insurance) are ‘Offensive’, taxation is a topic where you need to play defense in finance.  You aggressively pay off debt, you invest with gusto, you responsibly use credit to replace mandatory spending and acquire worthy assets… so it’s tax time.  So, just fill out the 1040EZ, right?  No!  As Judge Learned Hand once said, “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.”

What does that mean?  It means that you structure your affairs to pay the absolute legal minimum amount of taxes you can.  That may mean rate arbitrage – you should put investments which have non-qualified payments (like, say, bonds) in tax-advantaged accounts.  Stocks can have better rates than earned income when it comes to capital gains or dividends – and real estate can be better still.  Some careful management can minimize the payments on your investments simply by carefully considering which account to use.

Tax minimization also means taking advantage of IRAs, 401(k)s , and the like.  We also must speak here of tax diversification – since traditional and Roth style accounts act differently (either don’t pay tax now or don’t pay tax later), it’s nice to have a little of both to hedge the changes in future tax laws!  Remember, it’s hard enough to predict elections weeks in the future – do you really know how your rates will look when you retire?  Best to have a little of both styles of tax protection.

Taxes can also change your payoff calculations.  You may get a discount on your taxes for student loan interest or your mortgage – be sure to factor that discount (again, if it applies) into your debt payoff calculations.

And, again, due to politics ensuring we’ll never have an easy tax system… always keep your ear to the ground on new deductions and tax strategies.  It’s the nature of the beast for new things to become lucrative all the time.

Advanced: There are ways to increase the amount of money you shield from the drag of taxes – some basic ways are available to small business owners, such as self-directed 401(k)s and IRAs.  There are even ways for the majority of folks to shelter more – consider our method to vastly increase your Roth contributions or our experiments with Health Savings Accounts.

Topic 7: Putting it All Together

It may have only taken you a few minutes to read this… but in all honestly, it’ll probably take a few years to get it all together, especially if you need to get one aspect of your finances under control (here’s your reminder: bookmark this article!).  However, let’s clear up a few things:

Investing is the inverse of paying off debt.  Investments that pay more in interest than what debt costs in interest are okay.

Why the rule?  Many wonder if it is worth paying off a cheap mortgage before investing.  We have a longer answer here.  That means that getting everything under control should be done holistically – don’t wait to fund a 401(k) match (100% return, remember!) while paying off a 3% student loan.  That means you need to mess around with the order, which is:

Pay off high-interest debt

Crank up your savings rate

Invest

In the meantime, you need to work on protection from taxes and from expensive risk, with insurance.  Assuming you’re not a spendaholic*, your common expenses should be paid for with rewards credit cards with no annual fee.  (*I hate that portmanteau but it’s so perfect here)

Final Thoughts

Hopefully, you weren’t looking for any secret recipes when it comes to teaching yourself about money. The above is the exact method I took which helped me achieve the following in a few years:

• On my way to saving and having invested $100,000.
• Knocked out 95% of my student loan debt and fully paid off my car.
• Increased my full-time income by 120% and escaped the 9-5 cubicle life.
• Maintaining close to a 65% savings rate when the average American saves less than 5%!
• I’m self-managing all my investments and finances

Will you know everything about money? Probably not. But the goal is, you’ll become a Personal Finance 101 master, which is plenty to make huge strides in your life. 

And while I’ve taken control of my finances, I’m still learning to this day! I re-read books, I find new ones, I still chat with friends, watch documentaries related to money, etc. 

You should never stop learning, but you have to take steps and be consistent if you want real results. Good luck on your financial journey!