The Simple What to Do with Your Money Guide

So a lot of my friends and co-workers have been asking me for advice on where to put their money and what kind of credit cards they should apply to… well, mainly it’s been about credit cards, as I have over lot of cards open and active for travel hacking, but I’ll give you guys more details on that later.

Anyways, I decided to write up a simple guide on what they can do with their money to help assist my friends and also people who might have the same question.

As a word of precaution, I’m not a Certified Financial Planner (CFP), so please take my suggestions with a grain of salt. I was able to triple my Net Worth in a year, so maybe I do “know” how to handle my money?

Keep in mind that these suggestions are mainly my observations on how money should be handled. If you want professional advice, please contact and see a CFP.

Finally, there are many different ways of using your money. It is important to be flexible and adjust your plan depending on your priorities.

Brief Disclaimer: Some of the products and services on this post may offer compensation for referrals. For the products and services that do not receive compensation, there are referred simply because I think these products and services and useful and will be convenient to have.

Find out What Accounts You Have and Understand Where Your Money Is Going

The first thing you should do is really simple –  make a list of all your accounts. This task will allow you to find out how many total accounts you have – whether it is student loans, savings, checking, investments, etc.

After you have done that, the second thing is to create an account at Mint or Personal Capital and then connect all of your accounts.

I had mentioned Mint and Personal Capital briefly on my Net Worth Reports as tools that I use to keep track of my transactions and net worth. I highly recommend using them as they make it really convenient for you to understand as it collates and categorizes where your money goes.

Expense Dashboard

They also have great visualization tools to detail your net worth, cash flow, portfolio balances, and more.

Personal Capital Dashboard.PNG

If you would like to see more products and services I recommend, head over to the Recommended page to see more.

Unfortunately, Mint and Personal Capital are only able to pull transaction data of up to three months from the date you start. But don’t worry, that’s still plenty of data to look at.

Once the data is gathered and organized in Mint or Personal Capital, take a look at your transactions and ask yourself the following questions for each category:

  1. Did I spend too much on the category because of an emergency?
  2. Is this what I expect to spend on this category every month?
  3. Did my spending improve my life by making it more convenient or give me unforgettable memories?
  4. Can I reduce the spending on this category?

How do you feel about your spending after analyzing where your money goes? Do you think that you spent a bit too much and that you should have cut back on it? What can you do to reduce your spending, if you could?

Create A Budget and Hold Yourself Accountable

One of the best ways to reduce spending is by creating a budget.

It’s just like dieting in a way. If you want to lose weight, you would have to reduce the number of calories going in to your system.

The same can be applied to your finances. If you want to spend less, you would have to reduce your spending and not have your money leave your wallet or bank(s).

The goal of having a budget is to enable yourself to have complete control of where your money goes. It is a tool used to forecast your income and expenditures, to allow for better decision making, and even analyze the performance of your finances.

For example, take a look at my budget for 2017.

Budget.PNG

It’s not the best example as I don’t have many categories, but I’ll explain why.

For 2017, the only things I am certain of spending on are:

  • Auto Payments
  • Auto Insurance
  • Groceries

I don’t have to pay for rent, gas, utilities, and a whole bunch of things other people would have to pay for. This is why I don’t have many categories created in my budget.

Additionally, the “Everything Else” category will mainly cover transactions that are one-time and do not fit in under Auto Payments, Auto Insurance, or Groceries. The main transactions that would go under “Everything Else” are:

  • Credit Card Annual Fees
  • Emergency Fees
  • Credit Card Payments
  • Tax-Advantaged Account Contributions (as I have not automated this)
  • Business Services, such as server costs for this blog and more

The most important thing to note is that your budget won’t always cover all of your transactions. You’ll just have to be flexible and adjust your spending when it happens.

What Next?

Now with your created budget and “hopefully” reduced spending goals, you can now use your extra money that you save to do a various amount of things.

Here are a few things you can do with your money to set yourself up for financial success:

  1. Pay off your Students Loans
  2. Max out your Tax-Advantaged Accounts
  3. Save up for Other Goals

If you don’t have any specific priorities and just want to be on the right track, keep on reading.

If you already know what you want to do with your money, feel free to skim ahead.

Pay Off Your Students Loans Using the Avalanche Method

For those who just graduated from college, you’ll most likely have student loans that you need to pay off.

It is important to pay off your loans and get out of debt as the interest rates on these loans are usually super high.

If you have multiple student loans, it is important to pay off the highest interest loan first, then move on to next highest one. This is also called the Avalanche Method and is the fastest way to pay off your loans.

There is another student loan payment method called the Snowball Method. It is a bit slower than the Avalanche Method as it focuses more on a psychological perspective.

In the Snowball Method, debts are paid down starting by the smallest balance size. By paying off small debts first, it will make you feel more motivated, thus giving you a psychological boost (kind of like a Redbull, but for our psyches!). The downside to this method is that larger loans with possibly higher interest rates are not being paid down for a longer period of time, which will allow the interest to accumulate.

Depending on the person, it might be better to go with the Snowball Method if you like to see your debts drop one by one. You can always switch methods whenever you want. Just keep remembering to pay your debt though!

Check out unbury.us, which is a loan calculator where you enter in your loan details and it’ll calculate which loans you should pay off first. It has simulations for both the Avalanche and Snowball method, so you can see the differences between both methods on there too.

Start Maxing Out Your Tax-Advantaged Accounts

Once you have your first job or if you already have a job, you might gain access to the following Tax-Advantaged Accounts depending on your employer:

  • 401(k): A retirement plan sponsored by an employer
  • 403(b): A retirement plan for certain employees of public schools, tax-exempt organizations, and certain ministers
  • 457(b): A retirement plan for governmental and certain non-governmental employers

Some employers will offer an Employer Matching Program, which will give you free money when you contribute to your 401(k), 403(b), or 457(b) up to a certain extent. As of 2017, the maximum contribution limits to these accounts are $18,000.00 each.

If your employer offers you a match, make sure to put money into your 401(k) to obtain the match as that’s free money!

The 401(k) and 403(b) have a combined deferral limit, so the maximum you can contribute to both plans is a combined total of $18,000.00. This means you can max out the 401(k) or 403(b) at $18,000.00 per year and the 457(b) at $18,000.00 for a total of $36,000.00!

In addition to these accounts, you also have access to an Individual Retirement Account (IRA), which you will have to set up at a financial institution like Vanguard, Fidelity, Charles Schwab, etc. As of 2017, the maximum contribution limit to the Individual Retirement Account (IRA) is $5,500.00.

After contributing enough to meet your employer’s 401(k) match, you should max out an IRA as they usually have better fund choices than the ones offered by your employers and sometimes people just don’t have $18,000 to contribute to a 401(k). The same can be down for the 403(b) and 457(b).

If you still have money left over from funding your IRA, you can go back and max out the rest of your 401(k), 403(b), or 457(b).

Save Up For Other Goals

If you have other goals you want to save up for or already contributing the maximum to your tax-advantaged accounts, you can save up for other goals.

Depending on how much you need to save up for that big purchase (like a house or a car), you can put them into different accounts to let your money grow.

For short-term goals (<1 year), I recommend putting your money in a high-yield savings accounts (like Ally Bank’s 1.00% Interest Rate Savings Account) and just collect interest every month. This is a non-risky method and you will earn interest at 1.00%, instead of the measly interest rates of 0.01% at bigger banks like Chase, Bank of America, Wells Fargo, and more.

For long-term goals (2+ years), I recommend putting your money in a brokerage account with a three-fund portfolio that is adjusted to your risk tolerance. This is a riskier method and typically offers a higher return. As the stock market is volatile, there can be years where your account holdings will increase by a large percentage and there can be other years where it will decrease by a large percentage. But typically, the “average” stock market return is an increase of 7.00% after being adjusted for inflation. Keep in mind that past performance does not indicate future performance.

Different Priorities Have Different Paths

One thing to keep in mind is that this path may not be for everyone as people have different priorities.

For example, since I am aiming for Early Retirement and being Financially Independent, my path is like this:

  1. Pay off Students Loans (if any)
  2. Contribute enough for my employer’s 401(k) match
  3. Max out my ROTH IRA
  4. Finish maxing out my 401(k)
  5. Put the rest of my money in a brokerage account

For someone who might want to be purchasing a house in the future, it might look something like this:

  1. Pay off Student Loans (if any)
  2. Contribute enough for the employer’s 401(k) match
  3. Put the rest of the money in a brokerage account or high-yield savings account to save up for a down-payment

These are just two paths, but they can be adjusted to have many different ways to use and save money depending on the individual’s priorities.

Final Words

Yay! You got to the end! I hope you have gained some knowledge and hopefully will be better at handling your money.

Thank you so much for checking out my simple guide on what you should do with your money. I will be going more in-depth into some of the topics in this article in the near future. If you have any questions, feel free to ask and I will do my best to answer them as well.

Do you agree with my tips? What are other cool tips and tricks that you suggest people to do with their money as well?

If you aren’t already tracking your accounts or net worth, check out Personal Capital! It’s an amazing online tool that provides great visualizations and is easy to use!

Connect with me on Social Media!

If you liked this post, feel free to share it with your friends or connect with me on social media and give me a shout out! It really helps me continue to produce more and better content for you guys!

JOIN THE NEWSLETTER
Join the community to receive our newsletters and insider updates on how to build wealth, travel hack, and live life simply. It's complete free and always will be.
We hate spam. Your email address will not be sold or shared with anyone else.

18 thoughts on “The Simple What to Do with Your Money Guide

  • January 16, 2017 at 1:06 pm
    Permalink

    These are all great tips!

    Figuring out where your money is going is such an important step. So many people don’t realize that!

    Reply
    • January 16, 2017 at 4:08 pm
      Permalink

      I agree with you, Michelle!

      Budgeting has done wonders for my finances (and for many others as well). It’s so easy to do, but often overlooked.

      Reply
  • January 17, 2017 at 2:02 pm
    Permalink

    I used Personal Capital more for tracking accounts and such, not so much for budgeting. I have an excel template that I’ve been using for years to budget. I need to take some time and see what PC can do for me that my excel can’t. But at the same time, I don’t know if I want the process to be so much automated because I like the manual exercise of entering my expenses myself and feel like it makes me more aware and conscious of things.

    Reply
    • January 17, 2017 at 2:16 pm
      Permalink

      I agree with you on that sense. It’s much easier to track when people go in and type it in themselves as well.

      I actually use a program called YNAB (You Need A Budget) instead of Excel, but would like to move back over to Excel when I have time. Excel has a lot of cool functionality that I haven’t been taking advantage of.

      Reply
  • January 17, 2017 at 9:47 pm
    Permalink

    I definitely agree that you need to figure out what you want your money to do for you. Creating a financial bridge to get to your goals are so important. Too many times I felt aimless as I wasn’t sure what I was trying to accomplish besides being “rich.” Now I have a much better idea which makes it easier to work towards 🙂

    Reply
    • January 17, 2017 at 10:42 pm
      Permalink

      I agree! If people understand what they want and can break it down into small, achievable, and measurable steps, then they can do almost anything!

      Reply
  • January 19, 2017 at 4:55 pm
    Permalink

    This is a great review to help young people get started in personal finance. What happened with the cash flow for the example above? $-3,351 is not the right direction! Am I missing something?

    Reply
    • January 19, 2017 at 4:59 pm
      Permalink

      Haha, yeah.

      The cash flow should be positive and should show that money is coming into your accounts instead of leaving.

      The reason it was negative is because I used my most recent (December) dashboard view, where I had actually overspent due to travels and eating out, thus having a negative cash flow.

      I’ll update with a new view when my Personal Capital Dashboard becomes positive.

      Reply
  • January 19, 2017 at 7:18 pm
    Permalink

    I love this post. It is so informative and perfect for anyone not knowing where to start. I used to use Mint when I was trying to budget every last dollar. It always amazed me how quickly each category would fill up. It really is great for keeping on task. We ultimately gave up on big time budgeting and just started to not buy anything that wasn’t planned. 🙂

    Mrs. Mad Money Monster

    Reply
    • January 20, 2017 at 1:55 am
      Permalink

      Thank you, Mrs. MMM!

      Yes! Not buying anything is definitely the best way to simplifying a budget.

      Reply
  • January 20, 2017 at 5:50 am
    Permalink

    Mint is my favorite. They truly make it easy to use and view. I actually load it up daily as I drink my coffee to make sure things are on track. And the reason I do that is because years ago, when I wasn’t diligent, I found an account open for 17 months for which I paid a hefty fee for. I was angry and embarrassed for letting so much time pass.

    In the beginning it felt overwhelming but once I got the hang of it it was quite easy to maintain.

    Well got to go… Time to check Mint.

    Reply
    • January 20, 2017 at 2:18 pm
      Permalink

      Haha, I also have a daily ritual of checking Mint at night, mainly for fraudulent transactions though.

      Were you able to close out the account and save on fees?

      Reply
  • January 21, 2017 at 8:25 am
    Permalink

    Maxing out your 401k and IRA is always a good move especially when you are young. Also I’d suggest setting up a taxable growth oriented mutual fund with automatic contributions. Dont touch it for 15 or 20 years and you should have quite a bit for early retirement in your 40’s.

    Reply
    • January 23, 2017 at 3:40 am
      Permalink

      Yep! I have a taxable brokerage account at Vanguard (my favorite brokerage for 401(k)s, IRAs, and Taxable Accounts) because of their low expense ratios.

      I’m going for more of an aggressive retirement and am targeting anywhere from the early to mid 30s. Depending on my situation, I may retire a bit earlier or even later. The key is being flexible!

      Reply
  • January 22, 2017 at 2:58 pm
    Permalink

    Vert interesting post. Figuring out where your money is going is such an very important step. So many more people don’t realize that!

    Reply
    • January 23, 2017 at 3:37 am
      Permalink

      Thanks for the comment, Chris!

      I agree with you that it’s a very important step! Just have to spread the word and teach people to be more aware of their finances.

      Reply
    • February 1, 2017 at 5:46 pm
      Permalink

      I agree. If you can hold yourself accountable and stick to your budget, you’ll be able to save a lot of money!

      Reply

Leave a Reply

Your email address will not be published. Required fields are marked *