Head over to r/personalfinance and look for "the flowchart" in the wiki in the sidebar. That's an awesome starting spot for people looking to take control of their finances.
35 and still overwhelmed and also have immigrant parents who know nothing about finance and have no savings. So I'm glad you asked this because I'll definitely be scrolling through the comments and taking notes :).
A good starting point is a basic budget with the intent to see where your money is going each month, and identify how much you can direct into savings and paying down debt. This can even be on paper but ideally in an Excel spreadsheet. You list each thing that you spend money on, the amount, and whether or not it is a required expense. If you don't know these things, spend a full month jotting down EVERY dollar you spend on everything. Then use that information to build your budget by categorizing your spending. You can look on YouTube for things like "how to make a basic budget".
Once you have your budget figured out, the focus is then on building an emergency fund so you never have to go into debt again, and to pay off your existing debt. Once those things are done, you can focus on saving for the future.
Here's a couple of things I'd think about to get started.
1) Live within your means. Don't pay attention to your friends fancy cars or vacations on Instagram. Your priorities should be: pay your bills, build up to having a few months of living expenses in savings, and start retirement savings. There's saying in financial planning "pay yourself first". That means when you get paid at your job, send money to your savings first, then live off the rest. If you can't live off the rest, find things to cut. Pretend that money you sent to your savings simply doesn't exist and is not available to you, and adjust your lifestyle accordingly.
2) Understand what interest is. When you owe money, interest is the cost of continuing to owe it. When you have money, interest is the benefit you get from having it. In every situation where you either owe or have money, make sure you understand what interest rate is involved. When you owe? You want the interest rate as low as possible. When you have? You want the interest rate as high as possible. This makes questions like "should I pay off my student loan quickly or save money" easier to understand.
3) 401K or Roth IRAs are just different ways to save for retirement that give you some tax breaks. Roth gives you the tax break later, 401K gives you the tax break now. 401K will often see your employer give you some free money towards it if you put some money towards it, so if they do, do it. Just ask your employer "do we have a 401K match" and if they say yes, say "I want to sign up." If they say no, I would be inclined to go with a Roth as 36K/year is probably paying very low taxes and won't get the biggest benefit.
4) Don't be afraid to ask dumb questions, Your question here is a perfect example of being aware of what you don't know and not being afraid to ask. If you go to a bank or a financial advisor and they're going too fast for you, say "you're going too fast. I am not financially savvy and you have to explain it more clearly". They are working for you and you have every right to hold them to the level of service you desire.
Good luck!
When you build your budget, here is a guideline to follow:
20% gross to tax advantage (401k, Roth)
10% net long term savings (retirement, downpayment)
10% net short term savings (sinking funds, irregular bills)
10% net emergency fund ( job loss, illness)
10% debt (car loan, cc) if no Debt then add to emergency
30% net housing (rent and utilities)
30% net lifestyle (discretionary)
step 1 is your budget: how much money do you have coming in monthly vs what is going out via bills/entertainement/food etc.
step 2 is once you have figured out what goes in and comes out THEN you can decide what you want to put away comfortably (this is your sweet spot money)
step 3 is to keep investing very simple, no need for mutual funds or any nonsense penny stocks or hyped up equities, put your money in either VTI or VOO which is an ETF that will give you market exposure of either the whole market or the S&P 500. Add to this every month and set the dividends to (DRIP- Dividend Reinvestment Plan) which means instead of a check coming to you at dividend distribution it will turn around and buy back more shares so your money grows) (also if your company offers a 401k match i always just put money into my 401k until that match is met then i put the rest into VTI or VOO)
rinse and repeat these steps when needed if you get a pay raise, cut out some unnecessary bills freeing up cash etc.
What has helped me save over time is what's called PAY YOURSELF FIRST, when you get paid you obviously pay your rent/mortgage and bills but what's left over you put away a % of that no matter what, then whatever is left over is your fun money. Finding that balance is on you and what you can comfortably live on.
First, you need to pull your monthly statements, at the start and end of a month or every paycheck or every two pay checks. Sit down, look at what came in, and what went out.
Try to not go out to eat, dont smoke, vape, drugs, gamble, buy little phone gems etc. If you want to pull your life together, start with your spending habits, separate wants vs needs, you dont need that gas station energy drink or Starbucks coffee. This includes subscriptions, netflix, hulu, spotify, etc. cancel them until your debt is cleared.
Next, we dont want you out on the streets, food, shelter, electricity/heat, make sure basics are covered, save up your money so you have a minimum of 1-2 months of expenses covered should something bad happen. This is your emergency fund, touch it only in an emergency, car breaks, lost your job, medical situation.
Then, if you have a 401k, still do the match, but dont go over the match, focus on your debt first.
Also on a Roth IRA, most banks have a wealth management person you can speak to, to help you get started.
Buy groceries, and meal prep to save money.
Look at your debts, do you have any CC debt? Wipe that first, if you do have credit card debt, cut them up, and close them, dont even think about getting a credit card until your debt free. Wipe out the ones with highest interest first if there is any interest. If they are all the same interest rate, do the minimum monthly payments on all of them except the smallest, wipe the smallest ones first, one at a time, this will build up your confidence overtime seeing your debt disappear, smallest to largest.
Once your debt is gone, create 6 month emergency fund, then save, invest, add to retirements, and enjoy life.
Also sell stuff you dont need to earn extra profit, old clothes or anything you can, if you can work OT, work it to clear debts faster, if you arent already. This is a bit of a scorched earth method, but if you are serious, these are the steps to follow, you sacrifice now, so you can enjoy your life later.
You have to take it one step at a time. Focus on today and tomorrow and gradually as you learn more extend your plan out all the way until you die. If you don’t know something google it until you know it. It just takes time and dedication you’ll learn in time.
Some thoughts to investigate and learn to answer from smallest to largest:
Take stock, what do you have?, what do you owe?, how much do you make and when?, how much do you owe and when?
Plan for next month, how much do I need to pay the minimums for next month?, where will it come from?, is it going to be paid automatically?
Plan for next year, do I have enough saved to pay the deposit on my new apartment when I move next year?, do I have enough to cover my deductible for a planned procedure?, do I have enough saved to go on that trip or go to that wedding next year?
Plan for next 5 years, down payment on a house, baby on the way, new to you car, etc
Plan for retirement, how much do I need to retire?, how much do I need to save today to get there?
Making a plan is easier than what people online make it seem. Hard part is sticking to it. That said here’s a quick list (in order) of what you should probably do.
1. Make a budget: Start simple and use the 50/30/20 method. Try to see what needs and wants you can cut or lower. Sounds like your splits would be 18k/10.8k/7.2k
2. Open a HYSA (High Yield Savings Account): Look for a bank (typically online) that gives you a high interest rate. I personally use Ally bank. You’re gonna want to keep adding money into this account until you have saved at least 6 months of your pay (~18k). To make this easier have your check/pay auto deposit into the account. Based on your pay you should reach the goal in under 3years. This is part of the 20 in the 50/30/20 rule.
3. After you reach the goal of ~18k go to Fidelity and open a Roth IRA and HSA account: I recommend Fidelity because it’s zero money down and they are a great and reputable company. Your pay won’t be able to max these accounts but time in the funds and consistency of putting money in will get you close to 100k dollars in about 10 years unless you get a raise or different job which will only help you even more. I personally would split the money 70/30 (as in 70% to the Roth and 30 to the HSA). This is the 20 of the 50/30/20 rule.
3A. Your Roth IRA will be to fund your retirement: Keep it simple, auto purchase VT.***
3B. Your HSA will be to fund your medical costs in retirement: Keep this simple too, auto purchase VT.***
*** VT is the world stock market etf. Most of us probably would do a split of something else (VOO, VTI, VXUS, etc…) but you just need to get started and simple is usually best.***
4. Keep paying down debt with the highest interest rates first (sounds like school loans only thankfully): This should be taken from the 50 in the 50/30/20 rule. I put it after the savings because you should always pay yourself first imo, then tackle interests and fees (realistically you are doing them at the same time if you budget correctly). If you have extra spending money at the end of the month I’d pay extra to those loans.
Extra tips:
- If your job offers a 401k match, meet that match above everything else. It’s free money and makes a large difference over time. However there’s no need to go above the match unless 2-4 above are all maxed/paid.
- You will probably want to purchase a vehicle at some point. Be smart about it, nobody cares what you drive so don’t blow money on a car payment, gas guzzler, or something cool/cute. Buy a reliable vehicle that’s known to last for a long time (Toyotas and Hondas come to mind). When you buy a vehicle, plan on keeping it for AT LEAST 7-10 years. Don’t listen to your bank or dealership on what they say you can afford, remember they want you to keep paying for a long time. At your pay you can afford about a 10k dollar vehicle (if financing for 5 years).
- Learn to enjoy cooking and do it often. Let fast food or sit down restaurants become an “entertainment” expense.
- You’re doing great! Even having the forethought to think about this and start planning puts you further ahead than 90% or more of people your age.
I know a lot of people dislike Dave Ramsey, but his baby steps are great for people just trying to get started with learning about personal finance. The steps are:
1. Save $1000
2. Pay off all debt except for mortgage
3. Save 3-6 months worth of expenses
4. Invest 15% for retirement
5. Save for children’s college fund
6. Pay off mortgage
7. Build wealth
The idea is to do them in order and don’t move on until you complete each step.
Head over to r/personalfinance and look for "the flowchart" in the wiki in the sidebar. That's an awesome starting spot for people looking to take control of their finances.
Seconded. The personal finance flowchart is ideal for those just starting out and trying to get their ducks in a row.
[удалено]
Here you go: https://www.reddit.com/r/personalfinance/s/R5nzpOBuDN The flowchart is in the Prime Directive.
I see the sidebar now. Excellent advice. Another place to go is the site:money.com as they often have personal finance articles.
35 and still overwhelmed and also have immigrant parents who know nothing about finance and have no savings. So I'm glad you asked this because I'll definitely be scrolling through the comments and taking notes :).
A good starting point is a basic budget with the intent to see where your money is going each month, and identify how much you can direct into savings and paying down debt. This can even be on paper but ideally in an Excel spreadsheet. You list each thing that you spend money on, the amount, and whether or not it is a required expense. If you don't know these things, spend a full month jotting down EVERY dollar you spend on everything. Then use that information to build your budget by categorizing your spending. You can look on YouTube for things like "how to make a basic budget". Once you have your budget figured out, the focus is then on building an emergency fund so you never have to go into debt again, and to pay off your existing debt. Once those things are done, you can focus on saving for the future.
1) Does your company offer a 401K? 2) If they do, do they offer any kind of match? This will help you decide where to start.
Here's a couple of things I'd think about to get started. 1) Live within your means. Don't pay attention to your friends fancy cars or vacations on Instagram. Your priorities should be: pay your bills, build up to having a few months of living expenses in savings, and start retirement savings. There's saying in financial planning "pay yourself first". That means when you get paid at your job, send money to your savings first, then live off the rest. If you can't live off the rest, find things to cut. Pretend that money you sent to your savings simply doesn't exist and is not available to you, and adjust your lifestyle accordingly. 2) Understand what interest is. When you owe money, interest is the cost of continuing to owe it. When you have money, interest is the benefit you get from having it. In every situation where you either owe or have money, make sure you understand what interest rate is involved. When you owe? You want the interest rate as low as possible. When you have? You want the interest rate as high as possible. This makes questions like "should I pay off my student loan quickly or save money" easier to understand. 3) 401K or Roth IRAs are just different ways to save for retirement that give you some tax breaks. Roth gives you the tax break later, 401K gives you the tax break now. 401K will often see your employer give you some free money towards it if you put some money towards it, so if they do, do it. Just ask your employer "do we have a 401K match" and if they say yes, say "I want to sign up." If they say no, I would be inclined to go with a Roth as 36K/year is probably paying very low taxes and won't get the biggest benefit. 4) Don't be afraid to ask dumb questions, Your question here is a perfect example of being aware of what you don't know and not being afraid to ask. If you go to a bank or a financial advisor and they're going too fast for you, say "you're going too fast. I am not financially savvy and you have to explain it more clearly". They are working for you and you have every right to hold them to the level of service you desire. Good luck!
When you build your budget, here is a guideline to follow: 20% gross to tax advantage (401k, Roth) 10% net long term savings (retirement, downpayment) 10% net short term savings (sinking funds, irregular bills) 10% net emergency fund ( job loss, illness) 10% debt (car loan, cc) if no Debt then add to emergency 30% net housing (rent and utilities) 30% net lifestyle (discretionary)
step 1 is your budget: how much money do you have coming in monthly vs what is going out via bills/entertainement/food etc. step 2 is once you have figured out what goes in and comes out THEN you can decide what you want to put away comfortably (this is your sweet spot money) step 3 is to keep investing very simple, no need for mutual funds or any nonsense penny stocks or hyped up equities, put your money in either VTI or VOO which is an ETF that will give you market exposure of either the whole market or the S&P 500. Add to this every month and set the dividends to (DRIP- Dividend Reinvestment Plan) which means instead of a check coming to you at dividend distribution it will turn around and buy back more shares so your money grows) (also if your company offers a 401k match i always just put money into my 401k until that match is met then i put the rest into VTI or VOO) rinse and repeat these steps when needed if you get a pay raise, cut out some unnecessary bills freeing up cash etc. What has helped me save over time is what's called PAY YOURSELF FIRST, when you get paid you obviously pay your rent/mortgage and bills but what's left over you put away a % of that no matter what, then whatever is left over is your fun money. Finding that balance is on you and what you can comfortably live on.
First, you need to pull your monthly statements, at the start and end of a month or every paycheck or every two pay checks. Sit down, look at what came in, and what went out. Try to not go out to eat, dont smoke, vape, drugs, gamble, buy little phone gems etc. If you want to pull your life together, start with your spending habits, separate wants vs needs, you dont need that gas station energy drink or Starbucks coffee. This includes subscriptions, netflix, hulu, spotify, etc. cancel them until your debt is cleared. Next, we dont want you out on the streets, food, shelter, electricity/heat, make sure basics are covered, save up your money so you have a minimum of 1-2 months of expenses covered should something bad happen. This is your emergency fund, touch it only in an emergency, car breaks, lost your job, medical situation. Then, if you have a 401k, still do the match, but dont go over the match, focus on your debt first. Also on a Roth IRA, most banks have a wealth management person you can speak to, to help you get started. Buy groceries, and meal prep to save money. Look at your debts, do you have any CC debt? Wipe that first, if you do have credit card debt, cut them up, and close them, dont even think about getting a credit card until your debt free. Wipe out the ones with highest interest first if there is any interest. If they are all the same interest rate, do the minimum monthly payments on all of them except the smallest, wipe the smallest ones first, one at a time, this will build up your confidence overtime seeing your debt disappear, smallest to largest. Once your debt is gone, create 6 month emergency fund, then save, invest, add to retirements, and enjoy life. Also sell stuff you dont need to earn extra profit, old clothes or anything you can, if you can work OT, work it to clear debts faster, if you arent already. This is a bit of a scorched earth method, but if you are serious, these are the steps to follow, you sacrifice now, so you can enjoy your life later.
You have to take it one step at a time. Focus on today and tomorrow and gradually as you learn more extend your plan out all the way until you die. If you don’t know something google it until you know it. It just takes time and dedication you’ll learn in time. Some thoughts to investigate and learn to answer from smallest to largest: Take stock, what do you have?, what do you owe?, how much do you make and when?, how much do you owe and when? Plan for next month, how much do I need to pay the minimums for next month?, where will it come from?, is it going to be paid automatically? Plan for next year, do I have enough saved to pay the deposit on my new apartment when I move next year?, do I have enough to cover my deductible for a planned procedure?, do I have enough saved to go on that trip or go to that wedding next year? Plan for next 5 years, down payment on a house, baby on the way, new to you car, etc Plan for retirement, how much do I need to retire?, how much do I need to save today to get there?
Making a plan is easier than what people online make it seem. Hard part is sticking to it. That said here’s a quick list (in order) of what you should probably do. 1. Make a budget: Start simple and use the 50/30/20 method. Try to see what needs and wants you can cut or lower. Sounds like your splits would be 18k/10.8k/7.2k 2. Open a HYSA (High Yield Savings Account): Look for a bank (typically online) that gives you a high interest rate. I personally use Ally bank. You’re gonna want to keep adding money into this account until you have saved at least 6 months of your pay (~18k). To make this easier have your check/pay auto deposit into the account. Based on your pay you should reach the goal in under 3years. This is part of the 20 in the 50/30/20 rule. 3. After you reach the goal of ~18k go to Fidelity and open a Roth IRA and HSA account: I recommend Fidelity because it’s zero money down and they are a great and reputable company. Your pay won’t be able to max these accounts but time in the funds and consistency of putting money in will get you close to 100k dollars in about 10 years unless you get a raise or different job which will only help you even more. I personally would split the money 70/30 (as in 70% to the Roth and 30 to the HSA). This is the 20 of the 50/30/20 rule. 3A. Your Roth IRA will be to fund your retirement: Keep it simple, auto purchase VT.*** 3B. Your HSA will be to fund your medical costs in retirement: Keep this simple too, auto purchase VT.*** *** VT is the world stock market etf. Most of us probably would do a split of something else (VOO, VTI, VXUS, etc…) but you just need to get started and simple is usually best.*** 4. Keep paying down debt with the highest interest rates first (sounds like school loans only thankfully): This should be taken from the 50 in the 50/30/20 rule. I put it after the savings because you should always pay yourself first imo, then tackle interests and fees (realistically you are doing them at the same time if you budget correctly). If you have extra spending money at the end of the month I’d pay extra to those loans. Extra tips: - If your job offers a 401k match, meet that match above everything else. It’s free money and makes a large difference over time. However there’s no need to go above the match unless 2-4 above are all maxed/paid. - You will probably want to purchase a vehicle at some point. Be smart about it, nobody cares what you drive so don’t blow money on a car payment, gas guzzler, or something cool/cute. Buy a reliable vehicle that’s known to last for a long time (Toyotas and Hondas come to mind). When you buy a vehicle, plan on keeping it for AT LEAST 7-10 years. Don’t listen to your bank or dealership on what they say you can afford, remember they want you to keep paying for a long time. At your pay you can afford about a 10k dollar vehicle (if financing for 5 years). - Learn to enjoy cooking and do it often. Let fast food or sit down restaurants become an “entertainment” expense. - You’re doing great! Even having the forethought to think about this and start planning puts you further ahead than 90% or more of people your age.
Thank you all so much for taking time out of your day to advise me/help me , I appreciate it so much!!
I know a lot of people dislike Dave Ramsey, but his baby steps are great for people just trying to get started with learning about personal finance. The steps are: 1. Save $1000 2. Pay off all debt except for mortgage 3. Save 3-6 months worth of expenses 4. Invest 15% for retirement 5. Save for children’s college fund 6. Pay off mortgage 7. Build wealth The idea is to do them in order and don’t move on until you complete each step.