Clueless About Personal Finance? Start Here!

All topics, even those appearing superficial have depth. The real conversation is to what depth is it worth learning and understanding.

I suspect many of us have a vehicle. Understanding basic operations such as opening the doors and starting the vehicle are essential for operation. Take it a step farther by understanding interventions to ensure operation. How about filling up the gas tank?

Now, there are a few nuances here. Which type of fuel to use? How do I operate a gas pump?

Take operational understanding a bit farther by looking under the hood (or beneath car). How about the battery and motor oil? Again, may be worth spending the time to understand how each contributes to the unhindered operation of the vehicle.

A bit farther down the rabbit hole is where I fall off the knowledge train. This is where I found it best to have an expert step in.

I recently had (what was suspected to be a) fuel pump issue. Could I spend the time and money to acquire the knowledge and equipment to diagnose the problem and fix it? Sure. But it's more efficient for me to troubleshoot the basics and step aside for the fuel pump issue.

This vehicle is a 2010 model and hasn't given me much trouble. I used my little bit of knowledge on the matter to perform regular maintenance (i.e. have someone else change my oil) and troubleshoot small stuff. Just knowing the basics allowed me 13 years of easy sailing.

Simply knowing how to handle a flat tire and change a battery took me this far. At this point in my life, learning about vehicles instead of passing anesthesia gas comes at a significant opportunity cost.

Personal finance is no different -- it's worth knowing the basics. If you understand the basics, you’ll be 80% of the way there. 80% of a decent plan is better than 0% of any plan. Find an expert for the 20% “big stuff.”

Understand your situation.

Start by noting your liabilities and assets on a spreadsheet. List all debts. Know where your money lives. It sounds boring, but you don't want to overlook anything.

Cost of living

Track expenses to determine your monthly cost of living. Many do this in the form of a budget.

Proactive budgeting gives each dollar a home before payday arrives. Retrospective budgeting looks at your bills from last month.

I recommend proactive budgeting to keep a better hold on your dollars. Mrs. TFC and I have been financially aware for so long that we budget retroactively. We don’t have a problem with impulse spending, which would cause major problems.

I realize the progression requires a bit of time to make it this far. Jumping right to investing would be like choosing an anesthetic plan without first knowing the surgery. No top-secret investing tips quite yet.

Spend less than you make

Timeless personal finance advice. A budget surplus provides options. Folks can arrive by spending less, earning more, or both. The next step of understanding personal finance speaks to the allocation of said surplus.

An emergency fund of $1,000 -$2,000 is essential. Hold this amount in a money market account or high yield savings account. I recently compared the two.

Keep this small amount liquid. A small emergency fund prevents a significant loss of progress when the unexpected arises. Note I said “when” not “if.”

I don't want to see much more than this stored away (for now) because it could be put to better use. And having an uncomfortably low emergency fund will spark an aggressive approach to the next couple steps.

Meet the employer match

For high income earners, this is the way. A W2 employEE may have a 3-6% retirement match from the employER.

A CRNA contributing 3% or $500 per month into your 401k will produce an instant 100% return. This amount is also tax deferred. Additionally, most retirement accounts are invested in target date funds which will likely produce an annual return. A trifecta of benefits.

No match, no invest. I hear folks with $300,000 in student debt express a desire to invest. Chances are, that debt carries a 6% interest rate.

Even if the debt free road takes 5 years, the progress of eliminating medium and high interest debt free allows for a much sturdier personal finance foundation than holding high interest debt for decades to come.

No glitz and glam

Really though, investing appears way too high on many beginners' priority lists. It's far more beneficial to understand your financial situation, track expenses, create a budget surplus, and attack high interest debt.

For many professionals in high opportunity cost fields, these 4 steps take a while. Years if the student debt carries a significant rate. So...now we invest? Almost.

We can't forget the emergency fund is low. Intentionally, dangerously low. The next big step is to set aside 3 to 6 months’ expenses. Well, how much is that you may ask. Good news...if you follow the steps, you will be acutely aware of your costs.

Having a fully stocked emergency fund lifts stressors like you wouldn't believe. Most healthcare facilities have a 60-to-90-day credentialing time frame. Lose your job and out of work for that time? No worries. Or some worries, but not catastrophic outcomes.

After the emergency fund is tucked away earning 5% interest, look for tax advantaged accounts. I'm talking 401k, HSA, and backdoor IRAs to name a few. Let's not overlook taxable options such as a brokerage account or real-estate.

There are many avenues, and your situation determines which is best. But this scope is beyond this blog entry of how to begin a personal finance journey. By this time, you won't be clueless. You will feel empowered and educated. Future financial setbacks won't change your life. That's when personal finance becomes fun.

I enjoy writing about investing. I actually have a bunch of content on investing you can check out here. Thanks for reading.