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

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

Debt

  • 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

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

  • 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

  • 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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Mary Gao

Mary Gao

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