The Ultimate Personal Finance Fundamentals Cheat Sheet

These are just the core essentials you’ll need to know to handle the basics on your financial journey. If you want more detailed information, check out my other articles on the personal finance fundamentals . Everything in this personal finance cheat sheet is leaner and straight to the point, so you may need to do some of your own research – this is just to help you get started!

How To Use This Cheat Sheet

Throughout this cheat sheet, you’ll find links to other articles and tools as well as infographics to help with your understanding. To make this faster, scan for the infographics and take them to heart. Where you need more information, read all of the details I provide here. If additional information is needed, then use the links I provide or dig in and do some additional research. This will get you on the right track, but it doesn’t have everything under the sun. There is only so much I can go into detail on while keeping it brief.

If you need actual financial advice for your specific situation, it’s never a bad idea to consider hiring an expert!

Goals

No matter the current state of your personal finances, you always need good financial goals to work towards. Good, specific goals make it easier to get where you want to be and help you keep moving forward. As you knock out one goal, it’s important to set another so that you can keep your momentum going. Now, you probably have a lot on your plate and think your long-term goals are miles away, but you may be surprised. It’s easy to underestimate how much you can accomplish over a few short years!

Tracking Goals

Below, you’ll see a spreadsheet I made for setting your financial goals. If you want to use it, save the image below or sign up for my newsletter and I’ll send out a free copy in my welcome email! As a bonus, the welcome email even includes a budgeting template. If you don’t like this pre-made sheet, I encourage you to make your own or customize it in the way that best suits you. If you don’t want to use a tracker, no worries – use whatever system that helps you stay on top of your goals.

Budgeting

Sticking to a good budget is mandatory. If nothing else, I’m sure you’ve heard that. Don’t let the process scare you and deter you from getting started. Budgeting seems scarier than it actually is, so just do your best and run with it. Sometimes personal finance is just a learning process, and that’s okay!

At the end of the day, all a budget does is basically determine where you’re putting your money each month. By monitoring what you have going out and what you have coming in, you’re able to run a tighter ship and save a lot more money. You’d be surprised how much money you can spend when you’re not paying close attention.

Simple Starts

Let’s discuss some of the best starting points you can use to help build your budget. Some are better than others, but some are easier to understand and successfully create a budget with. Find one that sounds good to you and try using it as a basis for your budget. Remember, you can always adjust your budget and deviate from it if you find out that your starting point wasn’t the best one for your needs.

50/30/20 Budgeting

The 50/30/20 rule doesn’t work for everyone. I’m not sure I’d even recommend it as the ideal budgeting tactic. However, it may work for you and it can be a great place to start from. If you don’t know what it is, it’s actually pretty simple. You spend 50% of your net income on your needs – things like food and shelter. You spend 30% on your wants, like subscription services. Last, but not least, you put 20% away towards your investments.

It’s not the perfect budget. It isn’t as aggressive as I’d like, and the distribution may not work for a lot of households. That being said, it is definitely something to jump off from, and it gives you a good minimum amount to start investing to set you on the path towards financial independence.

Zero-Based Budgeting

One system I’m a fan of is zero-based budgeting. With it you’re basically making sure that every single dollar you bring in has a specific function. That helps give a much more detailed focus on what you’re using all of your money for. All of your money will be assigned to mandatory expenses, discretionary spending, savings, investments, and debt repayment. In short, your income minus your expenses (including investments) should always be zero. If that sounds complicated or daunting, then zero-based budgeting may not be for you. If you like the sound of an even more structured approach to budgeting, I’d give it a try.

The Envelope Method

This method is a little bit different, but it works for people who need a more concrete, physical budgeting system. You’ll have to create a list of your expenses and how much you’re willing to spend on them, and then put that amount in an envelope labeled for the corresponding category. By doing this it can be easier to see and understand all the money you’re spending. If you don’t want to do this with your entire budget, you could always do it with any expense you have a problem controlling.

Budgeting Template

Below you can see a picture of my free budget template! It has everything you need in order to get started. All you have to decide is how much you want to allocate to different categories each month. Of course, I highly recommend you use it, but you should also tweak it to perfectly meet your needs. As I said before, if you want to get a free copy, sign up for my newsletter and we’ll send out the budgeting template and a financial goals worksheet for free!

The Budgeting Process

Okay, now that you’ve made all these fundamental decisions and know the direction you want to go, the rest falls into place more easily. Remember to keep it simple as you go along!

Debt

Everyone realizes how damaging debt can be, even if they aren’t responsibly trying to eliminate their own. Imagine if all your loans were paid off – that’d be at least a few hundred dollars per month you could save or invest, perhaps even thousands. Having no debt can offer more financial freedom than most people will ever have.

Fortunately for all of us, debt is manageable if you work hard and stay disciplined. It can take some time to get into the swing of things, but it’s possible to eliminate your existing debt and prevent having to take more on in the future!

The Best Methods To Eliminate Debt

There are many effective ways to tackle debt, but my two favorite methods are the debt snowball and the debt avalanche. Let’s break each method down.

Debt Snowball

The debt snowball is a strategy used to rapidly eat away your loans, from the smallest to the largest, which helps you gain momentum towards eliminating all of your debt. When the debt on the smallest loan is paid off in full, you then use the money you were putting towards that onto the second smallest loan and so on. It’s similar to rolling a snowball down a slope.

If this sounds complicated, don’t worry. You only really need to do a few things:

1. List your loans from smallest to largest. For now, ignore the interest rates on the loans but don’t include your mortgage.
2. Make minimum payments on all loans.
3. Figure out how much extra you can set aside each month towards your smallest loan and pay it. This will accelerate how quickly you can eliminate that source of debt.
4. When that loan is paid off, put all the money you were using on that loan towards the next smallest loan.
5. Repeat until you’re left with just your mortgage. From there you can tackle your mortgage as you see fit.

Why It Works

The reason the debt snowball works is because it is more about the psychology behind paying off debt, rather than financial aptitude.

If you start paying towards your highest interest rate loan, which is possibly your largest or second largest loan, you won’t see results for many months or years. You may know the balance is going down, but it’s easy to lose the drive to work on debt when you aren’t eliminating accounts in a timely manner. Plus, if you give up before you finish that one, you won’t take care of all the other debt you have under your belt.

If you focus on the smaller loans first, you will see real results much faster. That will only push you harder towards your goals. It really helps you stay consistent – which is the real trick behind debt elimination and financial freedom.

With all the smaller loans paid off, and the money from those payments going towards the larger loans, a snowball of sorts has been created and you’ll be able to pay several hundreds of dollars (or more) extra towards your largest debts by the end. Remember, it’s all about consistency. Patting yourself on the back after you’ve eliminated one or two loans won’t help you get rid of the larger debts if you quit there.

Debt Avalanche

If you take the time to calculate it, you may find that paying off loans with the highest interest rate first will save you the most money. However, that is only true if you can keep yourself consistent and accountable for paying everything off. It is better to take the smaller wins at first if that helps you stay focused and driven to pay off the rest of your debt. The debt avalanche strategy has different priorities than the debt snowball method. The debt avalanche tackles high-interest loans first. It doesn’t provide small victories initially, but your first victories will be massive, like an avalanche or landslide.

The debt avalanche method is relatively similar to the debt snowball, but it has a few key differences. Here are the steps to the avalanche method:

1. List your loans from the highest interest rate to the lowest. Ignore overall loan size and your mortgage for this.
2. Make minimum payments on all of your loans.
3. Figure out how much extra you can set aside each month towards your highest interest rate loan and pay it.
4. When that loan is paid off, put all the money you were using on that towards the loan with the next highest interest rate.
5. Repeat the process until your only loan is your mortgage.

Emergency Funds

The average American has little-to-no money set aside for emergencies and rarely has enough for the serious expenses that tend to crop up. Most people recommend having an amount equivalent to 1-3 months of expenses saved up for emergencies, but I’d suggest saving around 6 months worth of expenses for the average household’s emergency fund. You may need even more than 6 months worth of expenses depending on the specifics of your situation!

Your emergency fund serves to help you if any disasters or unexpected events occur. Emergency funds can save you from having to take on extra debt or from potentially crippling your finances. These types of events and disasters could be a million different things – an appliance breaks, you need to fix your car or house, you get fined, or even something like losing your job. If you work in an exceptionally volatile field, you may want to save anywhere between 8 and 18 months worth of expenses.

There isn’t a one-size-fits-all rule for emergency funds, but it’s best to play it a little safe here. Be honest with yourself about how high-risk you are for major unforeseeable expenses. If you’re high-risk and you don’t have much job security, you’ll definitely want to save more.

The Utility

Instead of having to go into devastating debt every single time something goes awry, you can stave off debt by paying with money from your emergency fund. Of course, in order to keep this up you should include consistent reimbursements for your emergency fund in your budget so that you can keep it topped-off.

Amounts To Save

Again, if you’re struggling with an emergency fund, keep it simple and start with baby steps.

1. Save at least $1,000.
2. Save at least 1 month worth of expenses.
3. Start building up to 6 months worth of expenses.
4. Expand your emergency fund as needed.

High-Yield Savings Accounts

Remember, for this emergency fund to be viable you need quick access to your cash in its entirety. Don’t store your emergency fund in a retirement account where you’ll have penalties if you withdraw! I recommend putting it in a high-interest savings account, perhaps with an online bank as I mentioned earlier.

You should be able to withdraw or transfer funds fairly easily and having it in an account with a higher than average interest rate is definitely ideal. If that sounds like the route you want to go, I’d pick Axos – they have a great high-yield savings account that is perfect for emergency funds.

Emergency funds, in my opinion, should always err on the side of caution and accessibility. Use your investments to take risks and build wealth – emergency funds should be kept safe!

Credit Scores

A good credit score makes it much easier to get approved even if you’re trying to rent a house. Good scores also give you better interest rates for different loans, like your mortgage or consumer debt. On top of that, many services give you access to better options when you have a good credit score – like credit cards, for example. Access to the top rewards (cash back, travel perks, points, etc.) are heavily dependent on your score.

In short, a good credit score makes it far easier to get loans in general, get good interest rates on those loans, and it gives you access to nifty perks. On top of that, building a good credit score is fairly easy and simply rewards behaviors that you should want to do anyway.

How Credit Scores Are Calculated

For the purposes of this article, I’m going to be focusing on FICO scores since that is one of the most common.

The following are the primary ways your score will be calculated:

• Your payment history is responsible for 35% of your score. This is mostly about making payments on time.
• The total amount you owe counts for 30% of your score. That means using less of your available credit is better for your score. In other words, don’t max out your credit cards!
• The overall length of your credit history is about 15% of your score. The longer your credit history, the better your score will be.
• New credit counts for 10% of your score, which is basically just how many accounts you’ve opened recently. Opening tons of accounts in a relatively short period can be seen as a high-risk behavior by credit bureaus.
• Lastly, credit mix is another 10% of the FICO score. This generally means that they like to see you have a mix of different types of credit. For example, having a credit card and a mortgage may be seen as better than just having two credit cards

How To Improve Your Credit Score

It’s important to remember a few key tips:

• Use as little of your available credit as possible.
• Pay all of your bills on time.
• Don’t keep a balance on credit cards. In other words, pay it off completely each month.
• Don’t open too many accounts at once.
• Avoid tons of hard inquiries. Hard credit checks occur most often when you get preapproved for a new loan. If you don’t open too many accounts in a short period, this is easy to handle.
• If you’re young or have a limited credit history, avoid closing your older accounts if possible.
• Bankruptcy should always be a last resort. It can actually help you out of a bad situation in some cases. However, it will hit your credit score incredibly hard.
• Like bankruptcy, foreclosures will destroy your good credit. It’s definitely something to avoid.

Checking And Monitoring Credit

Don’t worry, checking your credit score shouldn’t hurt it as long as you do a soft check. Many credit card companies and some banks offer ways for customers to check their scores easily. If you don’t have access to that, or want another source for your credit score, I highly recommend using myFICO to check and monitor it.

Credit scores can be any number between 300 and 850. There are various systems for scoring credit, but as I said earlier, I’m going to focus on FICO since that seems to be the most common and “standard” system in my experience.

The consensus is the following:

• <580 is poor
• 580-669 is fair
• 670-739 is good
• 740-799 is very good
• 800+ is exceptional

Insurance

Most people have to deal with insurance constantly – either by making claims or finding a new policy. Insurance can sound a little complicated at first and may be intimidating, but if you know some general concepts and what to look for with the different types, it should be easy to find policies that suit you.

The method to lower your premium varies wildly. Fortunately, there are some general options you can look into.

• Reduce your coverage. For example, reducing auto insurance from covering collisions or reducing the total maximum it can cover will also reduce your premiums. However, this is not necessarily a good idea. Sometimes it is worth it to pay a higher premium.
• Increase your deductibles. Your deductible is the amount you pay out of pocket. That will decrease your premium, but it will increase the amount you have to pay if any incident occurs. Again, this may be useful at times, but it can also backfire.
• Look into credits or ways to waive fees. For example, many health insurance and life insurance companies will lower your premiums if you complete something like a tobacco cessation course. Of course, if you struggle with anything like that, it’s always a good idea to look into finding ways to manage it better.
• Shop around for insurance providers. If your insurer isn’t meeting your expectations, do some price comparisons to make sure you’re getting a good deal. If you need to, don’t be afraid of switching providers.

Investing In The Stock Market

At the end of the day, investing in the stock market is a stellar way for the average person to build wealth. It’s not as glamorous as some get rich quick schemes people make, but it’s tried and true. So, if you want to use your money to help you make more money and garner more flexibility in your life, investing in the stock market is practically a must.

Index Funds & ETFs

Index funds are one of the best passive investments. Time and time again, I will always come back to them. They are, without debate, a fantastic option for those opting for a long-term strategy. Find some of the best performers, invest and diversify, then watch as your money grows with the market!

This growth is hard to beat, and passive index fund investors beat the majority of day traders over the long run. When in doubt, this is a simple go-to option that everyone can benefit from.

ETFs are a lot like index funds. I’m not going to get into the nitty gritty here, just know that they’re amazing for long-term growth – again, just like index funds. As long as you pick good performers, with low fees, you’re bound to do fairly well. If you want to start investing in ETFs, index funds, or even individual stocks, then sign up for M1 Finance. They make the investment process easy. With them, building a portfolio and automating investments has never been simpler. I’ll go into more detail about M1 Finance below!

The main takeaway is that index funds and ETFs are straightforward and pretty amazing. By nature they’re diversified (to various extents) and they have a record of producing great long-term results. They’re so easy that if you want to then you can get started today with very little headache.

M1 Finance

For those of you who don’t know, M1 Finance is a brokerage that offers high customization and automation to help you build your ideal portfolio that can meet just about any preference or requirement you may have. On top of that, it has low fees and minimum balance requirements. It’s definitely my personal favorite of all the brokerages I’ve used!

You can create and design your own portfolio – made up of anything from index funds to individual stocks. Alternatively, if you are more of a beginner, you can use their premade portfolios based on your current goals. What separates M1 Finance from some of its competitors is that M1 Finance also lets you deal in fractional shares and it gives you immense control over your own portfolio. Overall, it’s a great brokerage that has the flexibility to give just about everyone (except for day traders) the flexibility they need to hit any goal.

Investing Goals Based On Income

This is just my personal opinion, but when setting investment goals I think it is best to invest a percentage of your income. Obviously that will be a fairly consistent amount, but the purpose is to make sure the total amount you invest increases with your income. That means every year or so I recommend looking at your current income and adjusting how much you invest based on that. This way you can avoid lifestyle creep, to a certain extent.

Now, whether you invest a percentage based on your post-tax or pre-tax income is up for debate. Personally, I like to use my post-tax income to set my investment goals. Unfortunately, using your pre-tax income can make it a bit more complicated, but if you want to use pre-tax income that is perfectly fine. The only caveat with using your post-tax income is to remember that your 401(k) contributions are based on pre-tax income.

Of course, all of that sounds complicated, and if it is confusing you then don’t worry about it. Just calculate how much money you’re netting each month after taxes, then invest based on that amount.

10%

Investing 10% of your income should be an absolute bare minimum. Investing this much will get you on the right track, and if you make an average income or more then this shouldn’t be a difficult goal. You’ll have a decent chunk of money due to compound interest eventually, but it may not be enough. Depending on how long you plan on working, and how much money you need in retirement, you could (and probably will) fall far short of what you need.

Consider 10% a baseline. It’s a good place to start, and you should be proud of yourself for taking the effort to save this much. However, if this is where you’re at, be sure to increase how much you invest to match where you want to be in the long run.

15%

Investing 15% of your income puts you at a much nicer spot. I still wouldn’t say it’s ideal, but it’s much more realistic to meet your retirement goals with this amount. If you are several decades from retirement, and you plan on living off a smaller amount once you retire, then this could be enough. With that being said, for most people 15% won’t quite cut it. However, 15% puts you in a good spot, and even if it isn’t where you need to be, it shouldn’t be too hard to catch up a bit.

It’s also worth noting, if you’re investing 15% of your pre-tax income then you should start feeling a lot more secure – even if you’re not quite at your ideal goal.

25%

25% is the ideal spot in my opinion, for your post-tax investing goal. I still recommend investing more if you can, but once you’re saving 25% of your post-tax income, you’re usually in a decent position. If you started investing somewhat early in your career, and you plan on retiring at a normal age, then even 20% might be enough to meet your goals in a lot of situations.

If you aren’t investing 25% of your income already, make that a priority. Follow good budgeting tactics, increase your salary, and do what you need to get there. Once you’re at 25%, invest more as you’re able, but don’t forget to avoid lifestyle creep. As your income increases, simply invest more. Do not increase your expenses simply because your income is increasing. Your expenses generally shouldn’t increase except after major life events like marriage or having a child.

50%+

To be fair, I’m well aware that investing 50% of your income isn’t feasible for most households. With that being said, once you start investing more than 25% of your income, you’ll start seeing absolutely astounding returns. If you’re able to invest 50% of your income, then you’re actually well on your way to retiring early! This puts you far ahead of schedule and gives you a lot more flexibility with what you want to do with your future. Again, I know this isn’t feasible for everyone, but it’s a worthwhile goal to try to achieve, especially if you want to retire early.

The 5% Rule

In my opinion, a portfolio is served well by reserving 5% of it for the much riskier investments. These can be things you don’t necessarily understand, or assets with a high degree of volatility. An example would be some of the more volatile cryptocurrencies. Setting aside 5% for that means that you’ll be able to take advantage of any potential successes, but you won’t get crippled if its value plummets either.

Investment Priorities

Let’s use all the information you’ve learned so far! Below is a list of investments that should probably be your top priority. It varies based on circumstance, but most people will find this to be accurate. Use your new investing knowledge to get started with it.

Again, this isn’t the end-all priority list for everyone, but it’s a place to start to get you thinking about your personal priorities.

Types Of Fire

Let’s break down the types of FIRE. They all have their pros and cons, but each one is serviceable. While going over these methods, remember to keep your overarching goals in the back of your mind so that you can figure out which meshes the best with you.

Coast FIRE

To put it simply, your Coast FIRE number is how much you need to invest to not have to contribute anything else until retirement age. In other words, your investments are done and you don’t have to invest anything else for your retirement fund. This is less of a foundational method to achieve FIRE and more of a milestone along your way. At this point you can also decide if you want to make changes to pursue a Lean FIRE, Barista FIRE, or Fat FIRE goal.

You can find tons of calculators online to identify your Coast FIRE number. Here is one of the better Coast Fire calculators available.

Lean FIRE

Lean FIRE is a bit more of a traditional path to retirement. You still retire early, but not exceptionally early. Most people who use Lean FIRE opt to retire in their 50s or 60s. Lean FIRE is basically just about dropping the luxuries. With this method you’re investing enough for what you’ll need to survive during retirement, but with little past the necessities. If you have a simpler lifestyle, this can be a great option for you. However, if you don’t see yourself being able to function with just core necessities, in a smaller house, in a low cost of living area, then this may not be for you.

Assuming “Regular Fire” would be investing at least 25 times your income, a common metric for achieving Lean FIRE is investing 18-25 times your annual income or expenses. A lot of sacrifices must be made to live this lifestyle in retirement, but it’s certainly achievable.

Fat FIRE

Fat FIRE is pretty much exactly like it sounds. You’re likely saving 33 times your annual income or even more. This makes it so that you don’t have to work anymore and you can still enjoy tons of luxuries. In order to achieve this, you need to save a serious portion of your income – investing 50% or more of it can make this much easier. Obviously, Fat FIRE is easier to achieve for those earning a higher income during their working years.

Barista FIRE

Barista FIRE has a lot of overlap with Lean FIRE. Overall, it’s a bit of a hybrid FIRE methodology. You’ve hit your retirement goal, and it may match a Lean FIRE lifestyle. For example, your retirement funds can fuel all of your necessities, but there is nothing left over for luxuries. Barista FIRE is a way to hit that goal, but still find enough money for those luxuries.

In a way, many people consider it to be partial retirement. You can work a part-time job, side hustle, or some passion project, but Barista FIRE requires you bring in extra income. The job should be something a lot more fun though – it only needs to cover the costs of those extra luxuries, after all!

Retirement Accounts

We know that investing is important, we know we need to stay consistent, we know to invest in low-fee index funds and ETFs, but we don’t necessarily know which retirement accounts we should use! The most important part is clearly investing consistently, but investing in the right account can save you a huge amount in taxes. Also, if you want to retire early, you may need to consider investing in an account with no tax benefits, so you can begin withdrawing from it much earlier (with no penalties).

IRA

An IRA is a type of tax-advantaged investment account. There is a cap on how much you can contribute annually for Roth IRAs, for which there is also an income limit.

I’ll go over the two types shortly, but you may only have a traditional IRA available to you depending on your income. That being said, both are valuable and a good investment, so don’t fret if you hit the Roth IRA income limit!

Traditional

In a traditional IRA, your contributions are deducted from your taxable income. Like the traditional 401(k), this means your contributions are made essentially tax-free, however you will have to pay tax when you withdraw them during retirement. This can be a good thing since a lot of people will be in a lower bracket when they retire. However, it is always unknown how policies and taxes will change in the future, so you can never be completely sure what will end up being the better option in the long run.

Roth

Roth IRAs use contributions that have already been taxed. While that seems unfortunate now, it does mean you won’t have to pay taxes on them later on, which could turn out in your favor (but it could also work against you too). The main issue for Roth IRAs is that they have an income cap, so once you make over a certain amount you can’t contribute to it anymore.

Some people like to do a combination of Roth and traditional IRAs, but it is more common to just focus on maxing out a Roth IRA. IRAs, like 401(k)s, have a minimum age of 59.5 years old before you can withdrawal with no penalties. However, there are a few exceptions if you need them – but it’s best to avoid early withdrawals altogether.

401(k)

A 401(k) is another type of tax-advantaged investment account. There is a cap on how much you can contribute annually, but usually your focus is simply on reaching the amount your employer will match.

Both have their merits, but you may only have a traditional 401(k) available to you. However, if you have the ability to do both, you could always split your contributions between them to hedge your bets to a certain extent.

Retirement Finances

How much you need to invest really depends on how much you plan to spend during your retirement. But, as a general rule of thumb I’ll say the following:

• A common standard (based on a variety of factors) is to save 25-33 (based on Regular or Fat FIRE) times your annual expenses. So, if your expected annual expenses in retirement are $50,000 – that means you’ll need to save at LEAST $1.25 million!
• Withdraw around 4% each year from your retirement accounts. This makes it easier for you to maintain your lifestyle, without rapidly running out of money. Using our previous example, 4% of $1.25 million is $50,000 – what a surprise! Of course, the less you withdraw each year, the longer you can stretch your retirement funds. If you withdraw a smaller portion each year, that also means you’ll have to save more money in order to pull out the same amount of cash (and be closer to 33 times your annual expenses, rather than 25).

Real Estate

There is more hype and interest surrounding home ownership than ever before. Despite all of that, many claim that it’s harder than ever to own a home or any real estate in this economy! Well, the market is certainly different than it was 30 years ago – or even last decade. However, it’s important to know that home ownership is within your grasp if you really want it, as is investing in real estate.

Buying Vs Renting

Markets can fluctuate and favor renting or buying over the other. While buying generally looks better in the long run, if you live in an area where the houses for sale are prohibitively expensive, renting a cheap apartment could be the best option. Think about it this way, renting a cheaper place in the short-term can help you save up enough to buy a nice house later!

Renting Pros

• There is more freedom to move.
• Maintenance is not your responsibility.
• There are no miscellaneous fees like closing costs.
• You’ll encounter far fewer unexpected expenses.
• You have the ability to try out different living environments.

Buying Pros

• Equity is built when you own the property.
• Home values generally increase over the long run.
• There are potential tax advantages you can use.
• Customization of the property is only limited by your HOA (if there is one).
• You have more long-term stability.

The Process of Buying A Home

Most of us will buy a home at some point in our lives, or at least try to. Unfortunately, purchasing your first home can be a long and confusing process. That’s why I decided to break this down step by step – with all the ins and outs I had to learn firsthand! Let’s skip the jargon and get straight into what you need to know.

Prepare

The first part of the home buying process is probably obvious – preparation. It pays off if you do a bit of the legwork up front. How you handle this initial phase is part of what will determine how difficult or easy the rest of it is!

Start Saving Early

Start saving as much as you can afford for your down payment. It may require a tight, zero-based budget. However, the more you can start saving now, the better off you’ll be when it comes time to actually close on your home. Also, do not use your emergency fund towards your down payment. There are usually a lot of unexpected expenses that come with moving and settling in, which you may need your emergency fund for. Consequently, using your emergency fund as your down payment will only put you in a bad financial situation that you may not be able to afford.

Calculate What You Can Actually Afford

The key here is to be brutally honest and realistic with yourself. Based on your credit score, debt to income ratio, and your other life expenses, be sure you aim for something you can afford. Also, you don’t need a down payment that is 20% of the property’s value to purchase a home, but if you have a smaller down payment you will have to pay PMI. If you don’t know what PMI is, it’s basically just an extra amount you’ll pay every single month (as part of your mortgage) if you have a down payment of less than 20%.

If you still want a house, and can’t afford a 20% down payment, be sure you calculate PMI into your monthly total. On top of that, don’t just go with the biggest loan you get approved for. It is possible for a lender to approve you for a loan that you can’t comfortably afford. It’s up to you to determine what is actually in your budget.

Shopping Around

Now it’s time to shop around for the right lender. Don’t be afraid of walking away. It’s better to be picky here and make sure you get a good deal. It’s wise to take a little extra time now because it can save you a lot of money in the long run!

Compare Rates And Choose The Best

Now that you have all the basic information you need, go ahead and start seeing what offers you can get from lenders. Weigh the best options carefully and narrow them down based on which ones fit your financial situation well.

Pick One And Get Pre-Approved

You may want to do this process with a real estate agent, but the main thing you need to know is that you need a pre-approval letter when you’re ready to buy a house. These letters are only valid for a certain time-frame, so be sure you’re ready to buy a home as having to reapply can negatively impact your credit since they’ll be performing hard credit score checks.

Finding A House

Obviously, at some point, you have to find the house you want. Sometimes this can be a short process, and other times it will be lengthy. Don’t let yourself get discouraged. Be patient and you’ll have a better chance of getting the right house for your situation and needs!

The Right Agent Is Key

Find a good agent near you who can help you find the right home (and lender) for you. Make sure it’s a good fit and that they’re professional. Nobody wants an agent who just goes through the motions with you – purchasing a home is a big deal whether it’s your first time or not! Word of mouth can be a great way to find some of the best agents in your area.

Adjust As Needed – But Stick To Your Budget

If you’ve been realistic, but find yourself just over budget, you’ll probably have to compromise somewhere. Maybe you’ll need to change neighborhoods, move to the next city over, get a slightly smaller house, or sacrifice certain amenities. When you’re over budget, you’ll have to find something your can compromise on to afford the house.

Put In An Offer

Putting in an offer is a relatively short part of the process. On top of that, your agent will do most of the legwork here on your behalf. Naturally, there are still a few things to keep in mind.

Inspection

Usually, you (the buyer) will have to pay for the inspection. Make sure it’s done thoroughly and finds all potential pitfalls or concerns with the house. Not only is it good to be informed about any problems, but it can be used for leverage when you negotiate.

Negotiation

Depending on the inspection, and the skills of your real estate agent, you may be able to ask for a lower price or get the seller to cover closing fees. Alternatively, they might be willing to just outright pay for any repairs that are necessary. Negotiation will be heavily driven by the current market too, so if it is a seller’s market you may have an uphill battle.

Closing, Warranties, And Insurance

Your real estate agent should walk you through the closing process, all you need to do is show up and follow the instructions closely! On top of that, make sure you’re getting a home warranty and homeowner’s insurance when you close. It’s important to be covered in case of emergencies, so it doesn’t lead to financial ruin. If you’re opting for a newer build, you may decide that you don’t need a home warranty. However, a good homeowners insurance policy is a must!

Rental Properties

Rental properties are probably the main thing you thought of, so let’s dive into them first!

Single Family Real Estate

First up is your standard single family housing. Think of an average house designed for one family to live in – that’s all it is. These are a simple and straightforward rental property you can get into. Some people find that they have a hard time making enough of a profit on them, but it all comes down to the deal you get when you buy the property. Get a bad deal then, and you’ll struggle for years. Do your work, get a good deal, and you’ll be fine.

Live, Move, Rent Out, Repeat

One common tactic I see is for a family to buy a house, live in it for 3-5 years, move to another, and rent out the previous property. After you’ve been repeating that for 15+ years, you can start building a healthy rental property portfolio!

Multifamily

Multifamily homes are quite similar to single family housing. This will usually be something like an apartment building or a condo. Nothing groundbreaking, and not completely different from a single family house. Think of this as just a single family house, but on a bigger scale. More money will be required to get your feet wet. Depending on what you go for, you may also have to take care of more things than you would for a single family house. For example, apartment complexes may have amenities or offer services (like spraying for bugs routinely).

Business Buildings

Office buildings or storefronts can be other lucrative options. They can often get really expensive to get into, but I’ve also heard the money is great in turn. It’s up to you how you want to get into real estate, but this may be better for a person with a lot of money to invest or with a background in real estate already.

Flipping

So far, most of what I’ve mentioned has been renting. Well, you can always just flip the property! Buy the house, make adjustments and renovations, and then sell it for a profit. With this, you’ll really need to know what you’re doing. You’ll need to get a good deal when you buy, know how to do renovations (or have a good contractor), and know what renovations the market cares about. You can make a lot of money with this, but it requires a lot of knowledge, time, and effort.

Deciding If Real Estate Is Right For You

Investing in real estate has made many people extraordinarily wealthy. However, it has also financially ruined people who weren’t suited for it and those who didn’t do their research. We’ve discussed the pros and cons of buying a property to live in as it compares to renting. We’ve also gone over the ins and outs of real estate investing. It’s a turbulent field, and now it’s time to figure out if real estate investing is right for you before you decide to dive in.

There is a lot more to it than some of the other common types of investing, like index funds and ETFs. Without further ado, let’s get into the details and see if it’s right for you.

The Perks Of Real Estate Investing

• First up, there is the obvious perk of being able to make money. Real estate has had some pretty amazing short-term gains in the past, and because of the use of leverage, you can make an incredible return on your investments.
• Second, real estate investing has a lot of potential tax breaks. You’ll need to research the details and stay on top of it, but that can make real estate even more lucrative.
• There are tons of options when it comes to how you invest in real estate. It isn’t a cookie cutter ordeal, so you can approach it however you feel is best.
• Real estate is a real, physical asset. For some, that may not be a perk or a downside at all – it’s just a neutral fact. For many, it being a physical asset makes it easier to understand and manage.

The Harsh Truths Of Real Estate Investing

• Most real estate investing is not passive income at all. You will likely have to do a lot of work to manage properties. In some cases, it may be as much work as a full-time business.
• Historically, over the long run index funds and ETFs tend to perform better on paper. With that said, if you know what you’re doing you can certainly make a lot with real estate and outstrip the “experts” who like to day trade stocks.
• Your money will be tied up. Real estate is one of the harder assets to liquify when you need to, so that is another concern to consider based on your financial goals.
• Usually, real estate requires a lot more knowledge to do successfully than other investments strategies – like diversified ETF holdings. This isn’t the end of the world, but it’s probably the biggest reason why people who get into real estate may end up failing.
• Because you’re usually holding onto a real, physical asset, there may be a lot of maintenance involved. Lawns have to be maintained, AC has to be kept working, and the house can’t fall into disarray.
• You will require a lot more money to get started in real estate. Down payments are a thing, and they can require a hefty amount of upfront cash.

Careers Are Useful

Yes, yes, it’s surprising, I’m aware. Most of you probably don’t think a 9-to-5 is a great way to build wealth, but the fact of the matter is that it’s amazing for that. With a 9-to-5 you can reliably make enough to pay your bills, get started investing, fund a hustle or side business, and potentially have some leftover “fun” money. In other words, a 9-to-5 can supply you with more than enough to get started so that you can ramp up your finances. It’s not glamorous, but it’s effective when you’re smart about your money and time.

Choosing A Career

These days there seem to be countless options when it comes to choosing a career. Obviously there are, and many of them offer a lucrative lifestyle! However, the best career won’t come down to just how much you can make off of it – even though that is a huge plus. That means the right career will come down to a mixture of features including things you must have, things you can’t have, and everything in between. Fortunately, I have a simple and effective process for you to follow in order to help you narrow down your options and find the right career for you and your goals.

Get Introspective

Clearly, in order to figure out what type of career is a good fit for you, you’ll need to know what you want out of your job and your personal priorities. There is no one-size-fits-all solution for this, but it helps if you take the time to get to know your wants and needs well. You could always take an online career or personality test, but I would only do that to help you brainstorm. In other words, take any results with a huge grain of salt.

Find where your interests and your talents overlap. Figure out what you want to learn. Set your personal and financial goals, so you know your absolute minimum requirements. When it comes to things like working remote, the number of hours you work per week, travel required, and anything like that, it’s best to make a list of your priorities. Carefully define your must-have items as well as your can’t-have (under any condition) items.

Create A List Of Jobs You’re Interested In

Now that you know what you want, need, and are interested in, it’s time to make a general list of careers or fields which you’d like to explore more. A good tactic for this is to base your initial search around your best or favorite skills and determine which in-demand industries they can be used in. For now, be pretty lenient about what careers you include in this list, as long as they meet your bare minimum requirements. After all, you might be surprised about them once you do more research! If you decide you don’t like one, you can always remove it in the next step.

Research The Jobs And Narrow Them Down

Once you have you main list created, it’s time to do some research. At this stage you should do more research about the different professions you chose. Consider how feasible each one is for you. For example, if one job requires extensive education, and you hate schooling, it may not be the right choice for you. Alternatively, if don’t enjoy working with your hands you may start narrowing it down to only desk jobs.

The best criteria to narrow down the list at this point are your minimum requirements in a career as well as how interested you are in it. If a job doesn’t meet a minimum requirement, or it includes a deal-breaker, then drop it. If you realize you have no interest in the day-to-day functions of the job after some basic research, drop it from the list too. By the end of this you should only have one or two dozen options left in your list at most.

Good Questions To Ask Yourself

I’ve touched on some of these points, but here are several good questions to make sure you ask yourself as you keep narrowing the list down:

• Is there anyone I can go to for more information on this field? If not, is there a reliable source online?
• How much would I actually enjoy most of the work that goes with this profession (not just the highlights)?
• Would I be good enough at it to be competitive with my peers?
• How much education does it require? In other words, how long would it take before I can start it and how much money would that cost upfront?
• What is the average salary for it? What are the salaries on the lower and higher end?
• Do I have to live in certain places in order to do this type of job? If so, it that something I’m okay with? Assuming I’m okay with it, can I afford the cost of living in that place, given the salary?
• Does this career have the long-term stability I’m looking for?

Keep Narrowing It Down

I’m glad you’ve thought long and hard about your potential options, and asked yourself some hard questions! Hopefully, most of the jobs left probably meet your minimum requirements. All that’s left for you to make the list shorter is to prioritize your wants in a career. Once you do that, it becomes a lot easier to figure out which jobs will be more enjoyable for you in the long run.

Remember, salary is only one component. There are a lot of factors at play when it comes to what you do with your life day-in and day-out. If you pick a job you hate, just because it pays slightly more, you’ll probably end up regretting it.

Do In-Depth Research – Volunteer, Intern, Or Talk With Professionals

You should only have a handful of options left from your original list. It’s great if you have a clear winner at this point, but in all likelihood it’s probably still a bit of a toss-up between a couple. At this stage, the best way to actually figure out what you like is to start getting some experience with it.

If possible, get as much first-hand experience as you can. When you have an opportunity to volunteer, intern, or job shadow – take it and learn as much as you can. If you find out you hate the idea of a job after that, it’s perfectly okay! If you can’t get first-hand experience, try to reach out to some professionals in that industry or go to a networking event for that field and try to learn more from them about the details of the job.

Make Your Choice

Finally, you should be ready to make your final choice. Make it based on what you think will satisfy you the most over a long period of time (given your already defined priorities and must-haves). Now you can begin working towards getting into the field and establishing yourself. Of course, tons of people change their careers multiples times throughout their life. You’re never completely “locked in” and you always have the option to change tracks and move to a different field. Even if you started working towards a certain field, if you realize you can’t do it long-term then don’t force yourself!

It’s Not Locked In Until It’s Locked In

By setting your goals, it’s easier to come up with a plan to help you achieve them. It’s important to figure out what you want and to go for it. However, it’s also important to take opportunities as they present themselves – and risks, if you’re open to that. Don’t become so rigid with your goals and preset plan that you miss out on good opportunities that anyone else would take in a heartbeat. Follow your goals and desired career path, but just make sure you take the time to consider anything that comes your way as well (it may even help you achieve long-term goals faster)!

Stages Of Professional Development

I think most of us, at one point or another, have fantasized about how our career will progress. Maybe you have some 300-point plan to get you to where you want to be, or perhaps you just have a general idea of where you want to end up. Whatever you currently think, and wherever you currently are, there are some universal stages of your career that you’ll experience. Knowing what they are, recognizing them, and seeing the benefits of each can help you further your career and your professional development. Of course, developing additional skills to further your career won’t hurt either!

1. Exploration, Investigation, And Basic Development

The first stage is basically the exploratory phase. You’ll also do some investigation when it comes to your options and abilities, as well as some basic development. Let’s break it down.

Explore

You’ll explore your career options. What I mean by this is pretty simple – we’re at the starting point of your career here, after all. This is where you’ll be considering completely different careers and weighing the pros and cons as well as whether you’re suited for them and the lifestyle they’ll require. Maybe you’re interested in a career in HR as well as a career in electrical engineering. This is the point where you’ll figure out what the options are, what sounds interesting to you, and how you can try them out or learn more about them.

Investigate

When you find a career, or set of careers, that you’re interested in, you’ll need to do a deep dive. How far this goes is up to you, but this is where you’ll ultimately decide what you want to do and begin pursuing it. Be careful in your decision-making process, but don’t take years to decide. In my opinion, it’s better to start learning the ins and outs of a trade to only decide partially through that you want to do something else.

At the very least you’ll have learned some skills, know more about yourself, and finally find yourself on the right track. Detours are part of life, don’t be so afraid of them that you’re too petrified to do anything. I’d rather take the dive and learn something than get paralyzed by indecisiveness!

Continue To Develop

At this point, you’ll have picked a career to start working towards. You’ll need to figure out what you need to do in order to break into it and get started. For example, if you want to be an engineer or lawyer, you’ll find that you need to go to college. However, if you want to become a plumber or work with your hands, you may end up going to a trade school instead. These days there are still many ways to make money without a degree.

Don’t get caught up in what people say you should do. Instead, focus on the best way to actually develop and learn the skills you need so that you can market yourself properly during the interview process and actually land your first job.

2. Solidification

Second up is the solidification phase. Per the name, this is about finally breaking into your career and solidifying yourself as a professional. Think of this as the period, after something like college or trade school, where you’re in the first few years of your profession. This is where you see some of the work from the first stage start paying off, and actually get real-world experience that takes your skills up a notch.

3. Advancement And Job Opportunities

The third stage is all about advancing your career. This may be where you see a lot of turbulence. You may change positions, get large raises, see promotions, and so on. This is another major crossroad, which you likely won’t have seen since the first stage. The second stage sometimes has major choices, but it is mostly straightforward. However, this third stage is where you start seeing a lot of options. What you choose will vary wildly based on circumstance, your interests, and even your desire to start a family.

It’s okay to choose an abnormal route, or one that leaves you with less money. Not everything is black and white, so be sure you consider your options carefully. Do what will make you the happiest and most secure with your decision in the long run. Try not to live a life of regret. Blindly following passion isn’t good, but neither is ignoring your mental and emotional needs.

4. Finalization And Stability

Stage four is where you really get to see the fruits of your labor. You’ll finally be where you want and achieve some level of stability. You may have a lot of work on your plate, but at the very least you should know what to expect at this point. This is where your salary will peak. Enjoy it!

5. Decline & Retirement

The final stage is decline and retirement. You may’ve gotten too comfortable in the last stage, or you may not be up to date anymore. It could be your age and the desire to not have so much on your plate. Whatever the case, this is usually when you slow down and enter retirement.

I’ve discussed retirement extensively many times. It honestly looks different for everyone. If you’re the type who wants to kick back and basically take a permanent vacation, do it – but be aware that you may find yourself bored if you have nothing to do. An increasingly common thing I find retirees doing is leaving their old career and pursuing an endeavor that’s more philanthropic. It keeps them sharp, and gives them a continued purpose in their life.

Factor In Cost Of Living

The cost of living is basically how much it costs to live in a specific area, especially relative to other locations or the national average. For example, large cities in California and New York are generally incredibly expensive, particularly because housing is in high demand (and consequently outrageously expensive) and usually groceries have a higher average price.

This is important because it directly impacts how effective each dollar you spend is. If it is twice as expensive to live in city A, but you can make almost the same salary in the cheaper city, B, then why wouldn’t you live in the cheaper location? Out of a purely financial motive, city B in that example would be the obvious choice for you to move to. Of course, choosing where you live has to do with a lot more than just the cost of living. However, it’s still useful to know when weighing your options and is definitely the deciding factor for many people.

Side Hustles & Businesses

I’ve said it before, I’m saying it now, and I’ll say it again – start a side hustle. There are many lucrative side hustles you can start, all it takes is the bravery to start one and the discipline to keep it going. If you’ve never started a side hustle before, but want to, it’s best to just dive in! The importance of getting started is obvious, but do your best to keep it up as long as possible – at least 6 months – so that you can actually see the results.

Starting a side hustle can be scary – a bit intimidating to most people. The good news is that it doesn’t have to be. Side hustles generally aren’t that complicated. Many people are able to come up with a good plan or strategy for starting, but they end up failing to launch. The key to starting a side hustle is just that – starting. Then, once you’ve started, it’s important to stay disciplined and keep up the hard work.

Begin Immediately

This is going to be the hardest part, and the point where most people quit. Yes, people do quit that fast. It may take a lot of work, but immediately start going into action to get everything you need to start pursuing your side hustle. If you’re blogging, this initial phase may be the period where you set up the website and your social media accounts. If you’re doing something more akin to freelancing, this is probably where you’d create accounts on platforms that help freelancers find gigs, and potentially reach out to your connections to start finding work. For whatever you’re doing, don’t underestimate the power that word of mouth still has.

Work Hard For 30 Days

The first month can be the scariest for most people. I generally recommend people come up with a quick, basic plan and just dive in. Don’t get stuck in the planning stage. For the first 30 days you should just be focused on hard work and getting your hustle off the ground. Use word of mouth, networking events, social media, or anything else you need to get started. If your side hustle requires a significant online presence, this is also the ideal time to start building an audience on social media or to fine-tune your website. During the first month, just keep your head down and get to work!

Look Back And Learn

At the end of the first 30 days, it can pay off to take a quick inventory. Are there any glaring mistakes? Is there something you can fix or do better? How did the first month go? Have you made your first sale or profit yet? Consider the events of the past 30 days, how well you did, and what you can do to improve. After that, all that’s left is for you to keep moving forward.

Continue For At Least 5 More Months

No, you don’t necessarily need to keep going at the same pace. However, commit to continuing to work on the side hustle for another 5 months, without quitting, and you’ll start seeing real results. A lot of side hustles and businesses need at least 6-18 months to really start seeing growth, especially if it’s something you’re new to. So, continue working on it for at least 6 months in total, and then review where you are and how far you are from where you want to be.

Remember, certain things take time – most people quit just before they start seeing exponential growth, don’t let that be you. Again, if you need a good bank to start storing all of your side hustle’s earnings, check out Axos. They have arguably some of the best personal checking and savings accounts on the market right now, and their business accounts are also quite competitive.

Choosing To Go Full-Time

If you’re reading this article, you probably want to be financially free and no longer need to work a 9-to-5. That’s great! However, don’t jump ship before you’re ready. It can be easy to rush things before you’re prepared, but patience is incredibly rewarding.

At the end of the day, you need to do what’s best for your success and happiness. Meeting your financial goals is obviously important, and I write tons of articles on making more money or investing more to watch your money grow exponentially. However, it’s just as important to factor in your own personal satisfaction and joy. If you would hate doing your side hustle full-time, you don’t need to take it full-time at all. Sometimes it’s perfectly fine to pull back from your side hustle or business to focus more on your day job or to spend more time with family!

Work-Life Balance

Your personal finances are important. Making money is important. However, remember what you’re working so hard for. It’s crucial to find the right work-life balance for yourself, so don’t beat yourself up if you find yourself needing to reprioritize.

Conclusion

There we have it, the ultimate cheat sheet with all of the personal finance fundamentals. If you have any thoughts of your own, be sure to let us know what they are in the comments.

If you haven’t read the others, check out the rest of the articles in my series on the personal finance fundamentals!