This is a summary of my current approach to personal finance after my first year of living (somewhat) on my own.
Philosophy: Your Money Or Your Life + Dave Ramsey
Before I graduated from college, I was already listening to Dave Ramsey quite a bit, and I’ve continued to follow his philosophy, regardless of the fact I’m not in debt.
Around last Christmas time I listened to an abridged / paraphrased version of Your Money Or Your Life, and have found the ideas it contains to be very useful. It can be summarized briefly as giving the reader a plan to achieve financial independence (a kind of early retirement) by revolutionizing the reader’s fundamental relationship with time, money, and possessions.
Budgeting: You Need a Budget
Right out of college I started using Simple to do my banking. The service tries to encourage banking by allowing you to define goals you want to save for, and (optionally) how much you want the service to automatically earmark towards that goal each day, thereby removing that money from the balance the service tells you is safe for you to spend. Why not use this feature to do my budgeting?
While this works fine in theory, in practice Simiple’s budgeting tool is very simplistic and not well-optimized for use with a complete budget. I quickly outgrew the budgeting tools Simple had to offer (though I still love them as a bank!).
After giving up on doing my budgeting inside Simple, I switched to using Google Sheets, cobbling together the extra functionality I wanted using Google Apps Script. This approach gave me the flexibility to revise my approach to budgeting over time, figuring out what works and doesn’t work for me along the way. However, it was clunky and unwieldy.
Thankfully, after I had developed a fairly good idea of what I needed in a budgeting tool, I discovered that the tool I needed already existed: You Need a Budget (YNAB). This tool does exactly what I had discovered I needed via reinventing the wheel, and better. I’ve been using YNAB to do all my budgeting for almost seven months now, and couldn’t be more satisfied.
Some of my favorite features:
- An emphasis on spending your money at least a month after you earn it.
- Flexible reporting.
- The ability to attach goals to your budget items. Tell it how much you need in a particular category, and by when, and it’ll tell you how much you need to put in this month to make your goal.
You can find out more about how YNAB’s software works at their website.
Near the end of college, I started investing using Acorns, which allowed me to put some of my money into market with very little effort or up-front capital. It was a great way to get into investing gingerly.
However, after graduating, I started having more money I wanted to invest, and I wanted to be able to invest that money towards different goals, for which I’d need the money at different times. This difference in time horizons for various goals meant I really needed to have a different portfolio for each goal. Acorns didn’t let me do that. They only let you choose one portfolio for all the money you invest with them.
That’s why I was so happy when I started using Betterment. Betterment does goal-based investing, meaning they allow you to set up multiple “accounts” within your main Betterment account, each with a different financial goal, time horizon, and, importantly portfolio make-up. Betterment also makes it very easy to set up automatic withdrawals from your bank account, and lets you know at a glance which goals are on-target, and which goals need attention to make sure you stay on track to meeting your target on time.
Having read A Random Walk Down Wall Street before graduating, as well as researching the investment strategies of people like Trent Hamm and Alistair Huong, I was already quite opinionated about the investing strategy I wanted to use. I was looking to follow a passive buy-and-hold strategy with a highly diversified portfolio while minimizing expenses. This is exactly the strategy that Betterment encourages.