What is this document?

This a step-by-step guide to help you get better with your personal finances. Growing up through my 20s I did not pay enough attention to my finances - for multiple reasons - and only now, at 30, do I realize the lost opportunity. So here's a guide I wish I had when I was 20 and I hope this serves as a guide for you.

Why is this important?

Growing up we all think that once we have enough money, we'll be happy and think that the way to get enough money is to earn a higher and higer salary, and save most of that money. Unfortunately that approach won't take you too far. At least it didn't for me.

What we seek is freedom - the ability to do what we like with the people we like and when we like. And to get freedom, you need to have wealth, so that you're not doing things for money. You need to be financially independent. Unfortunately saving most of salary is a pretty inefficient way to financial independence. This isn't obvious when you're 20. You've never seen money and once you get your first paycheck, you believe that you'll earn more and more and will save a lot and then retire by 40. The chances of that happening are very low. Just ask people who are 10 years ahead of you. From my experience, there 2 levers to get wealth - own a piece of something, spend as little as you can. Conversely, don't rely on your salary and don't keep increaing your spending as your income increases. Wealth is not your income, but what is left after you remove your expenses.

If you can do this, you will be on the path to wealth and freedom. Before you read further, I strongly recommend reading this tweetstorm. There's even a book that deep dives into this. Unfortunately, many of us, including myself, don't really understand money and thus are pretty bad with money. This is a good starting point to fix this handicap

https://twitter.com/naval/status/1002103360646823936?lang=en

Principles

It's very hard to prescribe a one-size-fits-all list of things to do. I have put something down so that you can get started easily, but since everyone is different, each of us must do what is best for us. However, there are a few principles that are worth following

1. You’re not going to get rich renting out your time. You must own a piece of something
2. Be patient to let time (compounding) works it's magic
3. Automate so that you're making fewer decisions
4. You can be twice as rich if you need half as much

Cheat Sheet

Managing your money can seem like a monster task and you might not even know where you should get started. Here's a cheat sheet to help you get started.

Part 1: Build up an Emergency Fund

• Save enough money so that you can survive 6 months without any income. This will give you the freedom to take risks, get out of jobs that you hate, and will take away the stress of losing your job (which is much more likely than you imagine)
• What you need to do
  • Calculate much you spend each month on essentials (rent, food, utilities, etc.)
  • Multiply this by 6
  • Set up a different bank account and store this money there. It's important that this money is kept separate and is not subject to any kind of risk. Do not invest this money
  • #ProTip: Take 70-80% of this money and invest it into a liquid mutual fund so that your money is beating inflation. You don't need to do this on day 1 and can do it later
  • #ProTip: Increase your emergency fund to 12 months

Here's a video about emergency funds