Useful Applications
Budget Spreadsheet
Links to a copy of my budget spreadsheet which tracks income, debts, goals, monthly bills, and more. Fill in bold numbers and it will auto-fill.
Intuit Mint (Referral helps)
Very useful net worth tracker that allows you to add all of your bank accounts, credit cards, loans, and assets like homes or cars to see your entire financial picture.
Compound Interest Calculator
Useful for calculating how much to save each year to reach the final amount needed for your 4% rule.
Monte Carlo Simulation
Simulation tool to test long term expected portfolio growth
What Is This Page For?
Give quick financial life advice for people that (likely) have not learned in school. This will include things like explanations on what 401k's and IRA's are. This will then lead into things like what you should do once you get your first full-time job and how to set yourself up to be financially independent in the future. Finally, I will add links at the bottom of the page for videos that are useful should you want to learn more. All hyperlinks are for more in depth reading if you so desire.
0.1 What is F.I.?
1.1 Banks 1.2 Credit Cards 1.3 Budget
2.1 Savings Rate 2.2 Investing 2.3 IRA and 401k 2.4 HSA
3.1 Roth Conv. Ladder 3.2 4% Rule
0. Info For Before You Begin
0.1 What is Financial Independence (F.I.)?
Financial Independence is typically defined as having enough income (from investments, passive businesses, real estate, etc) to pay for your reasonable living expenses for the rest of your life. You have the freedom to do what you want with your time (within reason). Working (full or part time), hobbies which generate income, or other activities are optional at this point.
1. Financial Literacy Basics
1.1 Banks
Bank accounts are typically the first financial account that you'll open and are necessary for major purchases and life events. Why else are they important? They are safer than holding cash and are insured by the FDIC.
1.2 Credit Cards
Credit cards let you borrow money from a bank to buy things. Pay them off in full each month or you will have to pay back the money with interest. They can be very helpful for building credit and getting rewards, but be careful not to spend too much or you could end up in debt.
1.3 Budget
Budgeting is the process of creating a plan to manage your money. It involves making a list of your income and expenses, and then figuring out how to allocate your money in a way that meets your needs and goals. Creating a budget can help you track your spending, prioritize your expenses, and make sure you have enough money to cover your bills and savings goals. To create a budget, start by listing all of your sources of income, such as your salary or any freelance work. Next, list all of your expenses, such as rent, utilities, groceries, and transportation. Then, allocate your money based on your priorities and make sure to set aside some money for unexpected expenses and savings. Finally, review your budget regularly to make sure you are on track and adjust it as needed.
1.4 Learning
IN PROGRESS
2. How to Build Wealth
2.1 Savings Rate
Your savings rate is the percentage of your income that you save each year. It is an important metric to track because it can impact your ability to achieve your financial goals. Many experts suggest aiming for a savings rate of at least 20% of your income. Ways to increase your savings rate include reducing expenses, increasing income, and automating savings. By monitoring your savings rate and taking steps to increase it, you can improve your financial security and increase your chances of achieving your long-term goals.
2.2 Investing
When it comes to investing in the stock market, one of the key decisions you will need to make is whether to invest in individual stocks or to use exchange-traded funds (ETFs). While investing in individual stocks can potentially lead to high returns, it also carries significant risk. ETFs, on the other hand, offer several benefits, including diversification, low fees, and ease of use. ETFs are designed to track a specific market index, such as the S&P 500, which means that they provide exposure to a broad range of stocks. This diversification helps reduce your overall risk, as you are not dependent on the performance of a single company. Additionally, ETFs typically have lower fees than actively managed mutual funds, making them a cost-effective option for many investors. Overall, ETFs can be an excellent choice for investors who want to build a diversified portfolio with low fees and minimal hassle.
2.3 IRA and 401k
IRAs and 401(k)s are two popular types of retirement accounts that offer tax benefits to help you save for retirement.
2.4 "Triple Threat" HSA
Health Savings Accounts (HSAs) are often considered a triple threat because they offer tax benefits in three ways. First, contributions to an HSA are tax-deductible, meaning you can reduce your taxable income by the amount you contribute. Second, the money in an HSA grows tax-free, which means you will not pay taxes on any investment gains. Finally, withdrawals from an HSA for qualified medical expenses are also tax-free. This triple tax benefit makes HSAs a powerful tool for managing healthcare costs and saving for retirement. Additionally, HSAs are portable and belong to you even if you change jobs or retire, making them a valuable long-term investment.
3. How to Retire Early
3.1 Roth Conversion Ladder
The Roth conversion ladder is a strategy for converting traditional IRA funds into a Roth IRA. By doing this, you can pay taxes on the converted funds at a lower rate, and then withdraw them tax-free in retirement. Here is how it works: first, you convert a portion of your traditional IRA into a Roth IRA. You will pay taxes on the amount you convert, but this can be a good strategy if you are in a lower tax bracket than you expect to be in during retirement. After five years, you can withdraw the converted amount from the Roth IRA tax-free. To use the Roth conversion ladder, you will need to have enough money in non-retirement accounts to cover your living expenses for the five-year waiting period. This strategy can be a great way to reduce your tax burden in retirement and maximize your retirement savings.
3.2 What is the 4% Rule?
The 4% rule is a guideline for withdrawing money from a retirement account during retirement. It suggests that you can withdraw 4% of your retirement savings each year without depleting your savings over a 30-year retirement period. For example, if you have $1 million saved for retirement, you can withdraw $40,000 per year (4% of $1 million) to fund your retirement lifestyle.
The 4% rule is based on historical market returns and is meant to provide a balance between spending enough money during retirement while also making sure that you do not run out of money too soon. However, it is important to note that the 4% rule is not a guarantee and may need to be adjusted depending on your individual circumstances. Factors like inflation, investment returns, and unexpected expenses can all impact your retirement income and should be considered when determining your withdrawal rate.
4. Final Words
This is not an exhaustive list of everything you might want to know. These are just the main things that I believe are the most important to be aware of and learn about as it will put you far ahead of the average person. These are some interesting facts if you want to compare yourself to the average person in America.
| Education Attained | Median Income |
|---|---|
| Highschool Graduate | $33,669 |
| Associate's Degree | $37,968 |
| Bachelor's Degree | $56,592 |
| Master's Degree | $70,608 |
| Doctorate Degree | $79,231 |
| Professional Degree | $91,538 |
| Field of Study Matters | Affects Earning Potential |