Peter's Digital Garden

Peter’s Financial Advice

Peter’s Savings Advice (Version 2)

I’m not a financial advisor, but these are the rules I follow. This has savings advice, the other has investment advice.

  • KISS. Keep it simple & safe.
    • Choose a bank and have one checking account that will skip the monthly service fee if you direct deposit your paycheck.
    • Have one credit card at that same bank that will skip the monthly service fee if you use the card each month. Ignore the APR, you shouldn’t leave a balance on the card. You are better off asking your existing credit card for a higher balance than getting a new credit card.
  • Autopay everything. Your credit score goes up as you make regular payments.
    • Your paycheck should automatically deposit to your checking account.
    • Your checking account should autopay the balance of your credit card each month.
    • Same for your other expenses like rent, power, water, auto insurance, …
  • Avoid debt traps. Never use a payday loan or leave a balance on a credit card.
    • The only debts you should have are fixed rate loans issued by a bank because it will only lend money it thinks you can repay. Most auto loans are actually through banks.
    • Unless a “payment plan” system is interest free, then don’t bother. Either pay the amount up front, or get a loan through a bank.
  • Accept gifts.
    • If you have the option for a 401k, take it! Especially if the employer offers any kind of matching. Allocate at least enough to take advantage of any matching your employer offers.
    • If your company offers a share purchase plan with matching, take advantage of it! That is matching money the company is giving you. Depending on the “vestment” period, you can sell those stocks off later.
    • If you get a deal that waives fees for the first year, great. Just make sure you can afford the fees once that trial period is over. Because each time you start or cancel an account, that impacts your credit rating.
  • Don’t gamble with your savings.
    • Gambling is not investing, any money you use for gambling is actually paying for entertainment. If you manage to get any money out, great, that is a bonus.
    • I also consider cryptocurrencies (Bitcoin, Dodgecoin), foreign currencies, commodities (gold, silver), collectables (baseball cards, old coins), and the stock market as gambling. Dealing with those deserves being a full time job.

Wait until you have enough in your checking account to cover 2 months worth of expenses, then flip the sheet and start thinking about investing.

Peter’s Investing Advice (Version 2)

I’m not a financial advisor, but these are the rules I follow. This has investing advice, the other has savings advice. Read the other first.

  • Choose what your safe balance is for your checking account, and only invest with what you have over that safe balance. A good starting point for a safe balance is enough to cover 2 months worth of expenses if something goes wrong. Each month, move anything over that safe balance into investments.
  • Certificates of Deposit (CD) are safe, but have a very low rate of return. You give the bank either $5000 or $10,000 for 1 to 5 years, and they guarantee you get more money back. But, you can’t get access to that money until the CD finishes.
  • Money market accounts are basically like a savings account, but require a higher balance, and have fees for withdrawals. You can generally move money in and out with 3-4 days notice.
  • Mutual funds are where you start dealing with actual investing. In a mutual fund, someone else is managing which stocks, bonds, etc to purchase or sell, and when. All that you do is add your money to the pool they are working with and gain some of the benefits. Note that you can and probably will lose money occasionally. But year over year mutual funds do well.
  • You can also push up the percentage on your 401(k) to invest more pre-tax. Your 401(k) takes money out of your paycheck before you pay income tax, and then you only get taxed when you take the money out of your 401(k), probably after retirement, when your income bracket is lower anyway.
  • Equity matters. Your Equity is your Assets minus your Liabilities.
    • Add up your credit card balance and your loans (auto loan, student loan, home mortgage, …), that is your Liabilities.
    • Add up your checking and all your investments, including the 401(k), that is your Assets.
    • You are generally safe if your Equity is positive, that means you own more than you owe. If your Equity is negative, I would take a very close look at what you are spending money on and try to pay off the loans.
  • Don’t bother with most other investment opportunities until you talk with an actual financial advisor.

Once you have the value of about 6 months worth of expenses in your investments, I suggest you ask to talk with your bank’s financial advisor to figure out what your next steps should be.

I have written everything in terms of months worth of expenses. That is because the monthly expenses for a single person sharing an apartment is very different from a family with their first child. If I had given exact dollar amounts, that would be based on my experience, and may not match your situation.