Jan 6, 2014

The Simplest Personal Finance Post You’ll Ever Read

This is a no nonsense post, so let's get right to it.


1.     Pay off all non-mortgage debt.  Period.
2.     Save 6 months of emergency expenses in an FDIC insured savings account (I like CapitalOne 360 or Ally for this).
3.     Invest enough of your paycheck to earn your employer’s 401k “Match.”
4.     Max out your Roth IRA annual limit.
a.     This equates to $458.33/month.  Set up an auto-investment from your checking to your investment account, preferably at Vanguard.  Treat this as an expense.
5.     Steps 1-4 are a great foundation.  Take a moment to pat yourself on the back, because you’ll likely end up wealthier than 90% of the world by doing these.
6.     Max out your 401k.
a.     This takes either a high income, a high savings rate, or a combination of both.
                                               i.     Maxing your 401k (if you’re under 50 years old) will take $1458.33/month.  Any “excess income” you have should be directed here.
7.     If you STILL have excess income or available cash, you have 2 options.
a.     I recommend investing in a taxable investment account.  Simply open one at Vanguard, type "boglehead 3 fund portfolio" into google, and follow the instructions.
b.     Pay down your mortgage.  I’d only do this if you have a relatively high mortgage rate. 
#7 is a source of constant debate with finance pros, but you’ll be able to make a choice for yourself quickly.
8.     Maximize your savings rate. Target saving at least 25% of your gross income.

That’s it!  I can promise you that these are truly the best pieces of advice I have for the aspiring millionaire, and hope that you can appreciate the simplicity and lack of sales solicitation that has become so rare on the internet these days.

Kindest regards,

TB

Tortoise Banker Archives

Thank you Maria over at The Money Principle for including this post in your weekly roundup, @J.Money for featuring me on your homepage at Rockstar Finance, and Stacy Johnson at Money Talks News for putting us at #1 on your roundup!

21 comments:

  1. I agree with what you have to say here, nice advice.

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  2. Hey Chuck,
    Great ideas although I am contrarian when it comes to retirement investing. Max out 401K first then Roth as I strongly believe in tax deferred. I owe a few people a post on that on why I advocate that before a Roth

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    1. Charles,

      I can see how one's income now vs. in retirement could sway that decision to making 401k first. Thanks for your insight here, and the reminder that often times it does "depend!"

      Cheers,

      Chuck

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  3. Nice summary of every PF blog post, all wrapped into one :)

    It's really not all that complicated when you strip it down. Spend less. Make more. Don't be stupid.

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  6. I love the way you presented this. Just step by step. If people just followed these simple steps exactly, it would be SHOCKING how much better off they would be, financially.

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  7. Hi Chuck...

    Found my way here based on the Rockstar Finance link. I can see why this post was chosen.

    Very nicely done and I especially like the way you put monthly dollar amounts against the idea of maxing out these account. Some how it seems much less daunting.

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  8. Thanks Dave and JLCollins! The tough part is staying committed to the program and keeping your savings rate UP!

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  9. TB, absolutely essential advice for financial security and retirement. These are must do items to achieve financial success. Great post.

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    1. Thank you, Steven. Hopefully this is NEWS to some readers... I'm sure the majority are already taking these steps.

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  10. I love this article! Now I can just forward this to people when they ask what they should do with their money. It's nice to see it all in one place, makes it obvious how simple it all is.

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  11. Great short and simple advice. For #1, I have non-mortgage debt (student loans) which I'm not in a rush to pay off as the interest rates ranges from 1.7% to 4%. I might pay off the 4% ones if possible, but I'm not rushing to pay off the 1.7% loans.

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    1. Thanks, Andrew. You bring up a great point. I think you may be an exception, rather than the norm. Many consumers carry debt with rates well above those of your student loans. If you can put your funds to better use than paying of 1.7% (and not spend the $ on discretionary items) more power to you!

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  12. Love it! All the best advice boiled down to one simple post.

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  13. Indeed this is the simplest personal finance post I ever read. Thank you so much Chuck for sharing this. :)

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  14. Great financial advice. Very concise and to the point. Well done!

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  15. Okay, I'm nervous now, after reading this eye-opening article. I may have been going about our financial freedom the wrong way all along. We have been pouring our heart and souls into paying down our mortgage before a 20-year military retirement. Have we been doing it wrong all along? I may have come out better in the short term, as my family and I will always have a place to live. But after reading the initial finance post along with all the responses, I can only wonder if we would have been better off paying the interest and investing my money instead of paying our mortgage down so aggressively. Can anyone offer some additional advice/insight on this? By being stubborn about paying interest to the "big banks" we may have missed our chances for our money to grow more in the end than we saved by paying our house off 19 years early. Your thoughts and feedback is greatly appreciated. Thank you.

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    1. Mrs. A, thank you for your comment. If I may ask, what is the mortgage rate and term (30 or 15 year)?

      You may be making a great choice, depending on your rate... HOWEVER, if you weren't at least getting the TSP match, you're making a poor decision. Be sure to do this, and don't overlook the great IRA options you have.

      At the end of the day, the only think I want you and your family to focus on is making 20 years. That military pension is likely worth 2 to 3 million dollars. Think of it this way. If you were to go out and buy an inflation adjusted annuity that will pay half (I'm assuming after 30 years this will be around 50k/year) of your salary for life, it would EASILY cost you close to 2 to 3 million dollars. Protect this future income stream, and the rest is water under the bridge.

      Kind regards,

      Chuck

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  16. These are very good places for people to start. I cannot do #6 because of high medical costs but I do save over 25% of my income. This article would be a good starting place for people who want to be on sound financial footing.

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