Starting The Journey
Personal finance has been a recent interest of mine. While I was poor and in my medical training, I didn’t really care too much about personal finance. I grew up with some basic principles – save what you make, don’t spend more than what you have, etc. But when it came to understanding the nuances of personal finance, I always thought that those were concepts reserved for people who actually made money…not realizing that I could still make choices today that could impact my finances in the future.
Now that I’m in the earning income phase of life, and also have tons of student loans to pay off among other responsibilities, it’s hit me that I should probably learn more about this personal finance sort of thing. So I started looking for different resources that would teach me about money and what to do with it. I didn’t really want to spend tons of money on books or programs so I scoured the Internet for as much information as I could to help me understand the basics of managing money. While my crowdsourcing-like strategy for learning personal finance ended up leading to reading all sorts of varied opinions and listening to a bunch of different podcasts, a lot of similar themes began to surface.
Setting Goals and Paths
I found that while there are many aspects to personal finance, there is no one perfect strategy for everyone. And while there are different flavors each expert opinion might have about personal finance, the essentials are virtually the same. I learned that setting realistic goals is as important (if not more important) than what approach is taken to achieve those goals. While we all might have different ultimate goals, there seem to be some fairly common categories that serve as a launch point for setting goals.
Now, I don’t completely agree with the teaching or strategies provided by Dave Ramsey, but his well-known “baby steps” provide a pretty good outline of those common categories of personal finance that form the basic goals most people have (which are pretty similar regardless of where you learn stuff). If anyone has read his books or taken his courses, some of these topics may be familiar. While Google has been pretty invaluable, there are so many different voices out there that it can (and has at times) gotten quite confusing. Still, we are blessed by the wealth of information available to us now in comparison to even 10-15 years ago, when many of these blogs and podcasts were in their infancy.
Since 1 article would be far too long (and for my own sake I want to be a bit more detailed), even by my standards, I’m going to try and organize my notes in separate little posts. Since this is the cover page, I will at least try to put together a few basic categories I have learned so far.
As a disclaimer, I have no background in finance and am not an expert in personal finance by any stretch of the imagination. Pretty much everything I’m writing about in this section is very raw, in that I’m learning as I go. I would highly recommend going somewhere else (and I will try to provide links when I can) to learn things from true financial experts. I am primarily writing this as a way to encapsulate the things I am learning on my own, not to comment as a true expert on the matter. Another goal of mine with this section of my blog is for me to process through how I learn, breaking down the various strategies I use to collect information and formulate my plans for life.
Emergency (“Rainy Day”) Savings
This seems to be one of the important “pillars” of personal finance. The rationale is that because bad stuff happens from time to time, we need to have some financial backup to keep us from bankrupting us. Different financial people define emergency savings differently, but the bottom line principle is the same: people need “just in case” money.
Pay Off Debt
By in large, debt is universally considered bad by all of the financial writers out there. Sure, there’s hedging when considering “good debt” and “bad debt,” but when pressed against the wall, it’s pretty much agreed that having no debt is better than having “good debt.” There are different strategies to get out of debt as well as minimizing the accumulation of debt, and since I’m right there in the mix with a ton of debt (> $100,000), this topic holds high interest for me (pun intended).
Saving For Short-Term Goals
I’m defining short-term financial goals as any savings goal less than 5 years. Some writers have advocated using 10 years as the time horizon for short-term savings. Whether that might be savings for a car, for a down payment on a house, a new TV, or upgrading my mandolin, these goals are going to be achieved primarily through raw savings alone – rather than being able to let time and compound interest work in my favor.
Investing For Long-Term Goals
While “retirement” is definitely the flagship goal for long-term savings, the below-average investor like myself probably needs to view investing on scale of decades, rather than trying to achieve short-term gains through speculation. Some of these longer-term goals might include saving for my children’s college expenses, planning for long-term medical expenses, and even looking for ways to achieve the early retirement/financial independence threshold.
Insurance exists because bad stuff can happen. I was listening to a podcast that put it this way: we should pay insurance with the hope that we never get that money back. There’s a ton of different kinds of insurance, not all of it necessary, and unfortunately because insurance is typically a commissioned commodity, there’s a combination of good and bad information floating around, and a lot of mistrust. Since I’ve been extremely insurance ignorant for so many years, this section primarily exists for me to help me keep track of what insurance I need and how it all works.
Minimizing Tax Burdens
Another way to save money is to make sure that I’m not overpaying on taxes. As many books and other resources have pointed out, tax evasion is illegal, but tax avoidance is encouraged by the IRS. So this is another part of personal finance that can be very important in growing my wealth as well as making sure I’m correctly paying what I owe to the government.
Saving Money/Making Money
Many of the sources I’ve read have described the task of building wealth as a function of how much I earn vs. how much I spend/save. At some point I won’t be able to minimize my expenses any further, but potentially I could always earn more money – be it from moonlighting opportunities (though I don’t have that option at my current job), side projects utilizing other skills I might have, or building so-called “passive income streams.” Since any extra income can provide additional wealth potential in paying down my debt faster or increasing my investment principal, or else give us a little bit more flexible spending options, this topic holds a lot of interest for me.
So here’s my outline for various topics related to personal finance I’m learning. While my perspectives on personal finance may not necessarily be different or better than those blogged by other, more intelligent and more articulate people, these articles hopefully will allow me to process through the many things I’m learning about the subject.