|

## Money management 101

6 August 2019

Money is scary.

Not so long ago, I preferred not to know exactly how much money I have than to face the truth. Proper money management and investing have always been something I wanted to figure out "one day".

This January, with the usual "new year, new me" motivation, this day finally arrived. I spent a couple of weeks researching money management, talking to friends, and experimenting. The results were quite satisfying, and now, half a year later, I am confident enough that they really work to share them here with you.

Let's go.

## Disclaimers and philosophy

All the usual disclaimers apply. I am not a financial advisor, use your own judgement.

A lot of tools described here are US based, but you can either use them worldwide or find your local alternative.

Finally, my money management philosophy is quite simple. I am not particularly enjoying investing and such, and want to spend on it as little time as possible. Thus, I am always choosing the easiest, passive long-term solutions.

## What to do

Here is what I do for money management, and you probably should too:

1. Use common sense. Don't spend more than you earn. Don't take unreasonable loans. Pay off any debt you may have.

This all should go without saying, but it's probably the biggest problem for a lot of people, so worth mentioning explicitly.
2. Save. Aim to save at least 10–20% of your income. It's always possible.
3. Track your money. This is the most basic, and the most helpful step you should take. Knowing how much you have is the foundation for everything else.

I am not a big fan of tracking everyday expenses (bank statements are usually enough), so I just track all my bank and investment accounts once a month in a Google Sheets document. It looks something like this:
4. Personal finances spreadsheet. All rows and data are fictional, but you can get the idea.

5. Have an emergency fund. Before you do anything else, make sure you have enough money in case of an emergency, or if you would want to change your job, or for any other similar situation. The general rule of thumb is to have enough money so that you could live on them for 3–6 months.

These funds should be safe and easily accessible. One of the best and easiest options is to keep them in the savings account. At the time of the writing, highest interest savings accounts in the US like Marcus by Goldman Sachs and Wealthfront offer upward of 2% annual yield. You can use any of them.
6. Maximize your 401k or any other retirement accounts. If your job offers some kind of 401k match (like 50% up to some limit in a lot of tech companies), use it to the fullest. In most cases, it's free money.
7. Invest in index funds. Index funds offer an easy and safe way to invest. Think of them as investing in the stock market, but instead of buying individual stocks, you invest in a portfolio consisting of hundreds of stocks and bonds. This allows you to diversify and minimize risks. A typical simple portfolio consists of investing in the US stocks, international stocks, and bonds.

One of the most popular and trusted options is to build a simple Three-fund portfolio on Vanguard. This will require a couple of hours of reading and setting up your account. After that, it's mostly invest and forget.

Or you may go an even easier way like I do, and use robo-advisor like Wealthfront or Betterment (be careful: you shouldn't use both of them together as it will mess up your taxes). Robo-advisors are investment services that build your portfolio, invest, and manage your money for you, so you don't have to do anything. For that, they take a yearly fee of around 0.25% of what you invest, but it's said that because of smart money management they do (i.e. tax-loss harvesting and other fancy stuff), it's worth it. And actually, under the hood both Wealthfront and Betterment are often based on the same stock funds as used by Vanguard.