Part 3: Personal Finance 101 — Debt, Budgeting, Giving

  1. Banking, Credit Score, Savings
  2. Investing
  3. Debt, Budgeting, Giving

Debt

The good news (actually really really bad news) is that there is a huge community of people online to support people paying off debt. Again, controlling debt, along with emergency savings and investing, are pillars of financial stability (many people tackle all three simultaneously, it may be different in your situation)

  • Write out the name, the amount, and the interest rate of what you owe
  • Make the minimum payments on all debts except for the one you are focused on paying off first
  • If you follow the avalanche method, pay off debt from the highest to lowest interest rate (this minimizes interest payments)
  • If you follow the snowball method, pay off debt from the smallest to largest amount, regardless of interest rate (this may seem counter-intuitive but there’s powerful psychology behind seeing yourself successfully pay off balances in full)

Budgeting

Budgeting, like everything with personal finance, is personal and also should be considered a work in progress. I’ll list the methods I use, along with popular apps others have recommended

My method (it’s all free!) *disclaimer

Google sheets (mine is super simple and gets adjusted with time). I track:

  • Take-home pay: after tax, retirement, and benefits are taken out
  • Category of expense: essentials, food, investing/savings, donations, and fun
  • The actual name of the item i.e. rent, utilities, groceries, dine out, Roth IRA, downpayment fund, donations, subscriptions, lessons, gym, shopping, miscellaneous
  • What I budgeted and what the actual expense was
  • Categories of expenses as a percentage of take home pay (for example somebody may aim for 20% essentials, 10% food, 40% investing/savings, 10% donations, 20% fun)
  • The date of monthly bills (that way you know how much you need in your account on various days of the month)
  • A list of my company benefits (I do this just because I feel like if it’s offered to me, I’m going to take advantage of it and I don’t want to forget…)
  • Note: read about how Intuit (who owns Mint and Turbotax) lobbies the government to avoid free-filing and a simplified tax code
  • Mint allows you to connect various accounts and does a pretty good job of auto-categorizing expenses into a monthly spending breakdown. I use it to verify my actual expenses against planned expenses in Google Sheets.
  • This allows you to connect various accounts to see your net worth over time. A limitation is that it does not allow you to connect international accounts and even some US accounts.

Other recommendations

  • YNAB and EveryDollar are paid apps for the committed user, who wants to ensure every dollar they make is accounted for in their expenses
  • TrueBill proactively finds where you can save money and even negotiates on your behalf.
  • Envelope system. The envelope system has many proponents on YouTube. I personally hold little to no cash, but this system has worked for many!

Giving

The point of learning about personal finance is so that you control your finances, and not the other way around. If possible, it’s really worthwhile to give a lot of it away.

  • If you’re fortunate enough to be financially well-off, consider reading Peter Singer and other effective altruists (the notion being there’s little logic in not giving away a large portion of your income if you are good at making money). I/ you may not fully agree with this philosophy, but I think giving some percentage of your income if you can is in the direction of good.
  • There are lots of types of doing good: giving money, social influence, direct volunteering, the way you raise kids/ treat others. Think about which combination works best with your personality and life.
  • I keep a spreadsheet with the amount to donate each month (as a percentage of my income)
  • Research the effectiveness of each charity (Donational and CharityWatch are good resources)
  • List the names and amount for each organization
  • Set up monthly recurring donations so I’m not tempted to skimp this month or next because I want new shoes

Currently, my donations are split as:

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