To get started with your personal finances you first need to familiarize yourself with two terms: Income, and expense. You need to be able to define and analyze your current income and expenses as well as all other owned assets and debt, to better understand how much capital can be put toward investing. Income consists of everything you can “count on” as income, e.g., your day job salary, bonds, rental income, trust fund payments, and other half-fixed income like dividends. Expenses are anything that would take away from your income. Therefore, it’s important to budget and have an understanding or an expectation of how much of your income can be invested. When it comes to your income you need to ask yourself: Can I somehow increase it immediately without a lot of additional work ?, can I ask for an appropriate raise ?, what expenses can you cut down on that you are not dependent on ?, should I cancel subscriptions I don’t need/use right now ?, analyze your debt and determine is it good or bad debt?, what debt should I pay back immediately and which should I keep ?. Go through your other assets. Are there any immediate expenses that will arise soon, such as home renovations? and so on. Once you’ve crunched the numbers and analyzed your actual income, it’s time to put that idle capital and additional earned income to work.

1) Payback bad debt, which is any short-term debt with a greater than 6% interest on it. Every debt carrying an interest of 4% or less can be considered good debt at the time of this article’s release because you can easily stay ahead of that debt interest by investing into fixed income assets and funds right now e.g. Bonds or cash funds/money markets. Everything between 6% and 4% becomes tricky because the line between opportunity risk and fixed “return” on paying back your debt becomes blurry. 2) Build up an emergency fund worth 6 months equivalent of your current expenses and keep it in a High-Yield-Savings- Account (HYSA) or in a money market fund earning the current cash rate. 3) Max out any tax-advantaged accounts e.g. 401(k), IRA, HSA, and other more out-of-norm accounts such as 529´s, solo 401(k), 403(B), etc. For those outside of the US, it is possible that there are *no* tax advantage accounts available – just skip this step in that case. 4) Invest in low-cost index funds with a brokerage account. Your portfolio should be composed of a 90/10 to 80/20 split between stocks and bonds, regardless of your actual age. Unlike conventional wisdom, risk profiles are best aligned with the time to retirement rather than age. This means the risk profiles for young folk retiring early and elderly folk retiring later would differ irrelevant of their age. Stocks can be further split into a ratio ranging from 70/30 to 80/20 between US and International stocks. Your preference would depend on locational risk and exposure of both the US and internationally. For US stock selection, both all markets or just specifically the S&P500 index funds such as VTI or VOO or other equivalents are just fine. *Additionally, for the part of the international stocks, be wary about their weighting. For instance, some all-world ETFs e.g. MSCI´s, have a lot of US stocks in them, about 60%. The selected non-US international stocks part should really be what it claims to be: everything but US stocks, e.g. VXUS or equivalent funds.