Intro to Finances

A Beginners Guide to Finances

If you are just starting out in your journey of financial education and wealth building, or if you have some debt and want to pay it off and start building wealth, then this primer is a good place to start.  I’m going to run through some budgeting and wealth building basics that will hopefully help you on your financial journey.  This will serve as a basic guide to help you create a budget, establish financial goals, start the process of saving and debt repayment, and finally, a brief section on getting out of extreme debt and back on your feet.

For a more in-depth look at finances I’ve put a few websites and books at the end of this article that you can use to further your financial education.  These are sites and books that I have personally used and have found value in.

Step 1: Creating a Budget and Setting Goals

The first step in managing your finances is to know where your money is going.  This task can be achieved by creating and sticking to a budget.  There are several free online tools and resources available that you can use to create a budget and track your finances.  Here are a few of the more popular ones:



If you don’t want to use an online template, then you can create your own using Excel or do it the old-fashioned way and write everything down in a notebook or journal.

You should be tracking every dollar of income and every dollar of expense.  The more detailed that you can be, at least starting out, the better you will be able to “see” where your money is coming from and where it is going.  Once established, many people will scale back a bit and stop tracking every penny, instead focusing more on larger expenses.

Once you have a budget you need to create goals.  You should have short-term and long-term goals in mind.  A few examples of short term goals might be, buying a new car, or a remodeling project for your house.  Long term goals might be retiring financially independent, or saving up for a house or college.

The most important part of this is to stick to the budget that you create.  A budget is great, but if you don’t adhere to it, then it is essentially useless.

Step 2: Build an Emergency Fund

Everyone should have money set aside for unexpected expenses.  It should be in a liquid and secure account that can be accessed quickly should an emergency arise.  A medical emergency, a sudden home or auto repair, or a job loss would all qualify as an emergency.

So, how large of an emergency fund do you need?  You will need 3 to 6 months’ worth of expenses is adequate for most people.  You may want a larger amount if you have variable income or are of a more conservative nature.  A good starting point is to save up $1000.

Keep your emergency fund someplace safe.  An FDIC insured account at a bank or a money market account are good choices.  Avoid riskier investment vehicles such as stocks or investment vehicles that can charge a penalty for early withdraw.  If you must use your emergency fund, then your first priority after getting back on your feet should be to replenish it as quickly as possible.

I can not stress the importance of have some money set aside enough.  Most people who get in trouble do so because they didn’t have any cash to pay for something that came up in their lives.  They most likely turned to credit cards or some form of a loan to get by, and now the problem has snowballed into something unmanageable.

Step 3: Taking Advantage of Employer Sponsored Matching Programs

Do you work for a company that offers a match on a 401K or similar retirement investing program?  If so, you should be taking advantage.  You will be reducing your tax exposure and getting a guaranteed return on your investment at the same time.  Assuming that your company matches 50% up to the first 6% of contributions, make sure that you are contributing 6%.  You will get an instant 50% return on your money.  As time goes by, and as your finances improve you should strive to periodically raise the amount that you are contributing to these plans.  Ideally, you should contribute up to the maximum amounts allowed.

Step 4: Paying Down Debt

After taking advantage of an employee sponsored matching plan, you should take a look at paying off debts.  You should be making the minimum payments on all your debts every month regardless, but there are a couple of methods to accelerate your debt payments.

With the avalanche method debts are paid down in order of interest rate.  Mathematically, this is the optimal method for debt repayment.  You will pay less interest on your loans overall.

With the snowball method debts are paid down in order of balance size, starting with the smallest.  If you are familiar with Dave Ramsey, he is credited for popularizing this method.  This method will cost more in the long run, as more interest will be paid, however there can be a psychological boost to using this method of repayment, since cash flow will be improved, and smaller balance loans will be paid off sooner in some cases.

What about lower interest loans such as mortgage debt?  Some people think you should just pay the minimum on these because your money can earn more invested in the stock market.  This has been true in the past but is in no way guaranteed going forward.  Remember that paying off a loan gives you a guaranteed return on the loan’s interest rate.   A general rule of thumb is that loans at 4% or less can be stretched out.  Anything above 4% should be paid off as quickly as possible.  All of this ultimately depends on your personal feelings toward carrying debt.

What about keeping a loan to improve your credit score?  Don’t do it.  Never keep a loan or take out a loan to improve your credit score.  Take care of your finances, and your credit score will take care of itself.

Step 5: Opening an IRA

The next step is to start contributing to an IRA or ROTH IRA.  Your goal should be to contribute up to the max allowed by law. To play catch up, you can contribute to last year if it’s between January 1st and April 15th.

Why contribute to an IRA if you already have a 401(k)?  Typically, a self-directed IRA gives you much more flexibility and fund choices than an employer sponsored plan.  Several firms can easy set up an IRA for you.  Fidelity, Vanguard, and Schwab are the main ones.

Step 6: Save More for Retirement

You have a 401(k), your debts are being paid down, and you have opening an IRA.  Now what?  You can circle back and contribute more to your 401(k) or perhaps pay down some debts faster.  If you have already done those things or want to boost savings more, then you can open a taxable brokerage account and invest in stocks, ETFs, Mutual Funds, or some other investment vehicle.

Step 7: Saving for Other Goals

Once you have your retirement saving goals in order, you can focus on other goals.  Maybe you want to save up even more with a goal of retiring early.  Now is also a good time to start focusing on non-retirement saving goals.  Down payment for a house, a new car, college funds, and vacation funds are all examples.

A Mountain of Debt: What do I do? 

The proceeding information is good advice and a good way to get started with financial responsibility.  But, what if you have a mountain of debt and just want some relief?  Saving and investing probably isn’t on your radar.  You just want to get your head above water.  Here are a few ideas.

I recommend checking out Dave Ramsey if you are in trouble with money.  He has several books and courses that can help you get out of debt and get on the road to financial freedom.  The first thing that he will tell you is to stop using all credit cards and switch to a cash system.  He is also an advocate of picking up extra work and throwing every extra dollar that you can at your debt. You can find more info on him at his official website.  www.daveramsey.com

His show is on YouTube as well.  So, you can watch countless hours of recorded content there to get some knowledge under your belt.

Personally, I am going to recommend what I would do if I were drowning in debt.

Stop using all credit cards and other forms of debt would be the first step.  Debt is the problem, so you need to stop using what got you into a mess in the first place.  Cut up cards, close revolving credit line accounts, basically do whatever you need to do to stop the bleeding so you can focus on repayment.

Come up with a plan to repay everything.  As mentioned earlier, you can take a few different approaches to debt repayment.  It’s up to you which is best for your needs.  Here is where things can get complicated and will require more in-depth research on your part.  Debt consolidation, negotiating with lenders, and even bankruptcy are all options to explore.

After you have tackled the repayment methodology you will need to make your budget and stick to it as mentioned earlier.  Here is where a budget is critical to your long-term success.  You can now start to follow the steps to budgeting and saving as mentioned in this article.

Don’t think that this will be easy.  Just the opposite depending on how big of a hole you’ve dug, but it is possible.  It will take a lot of hard work and discipline to make progress, but you can do it.  I’ll again recommend checking out some of the resources that I’ve put at the end of this article to help get you the knowledge that you need to get out of debt and start living financially free.


Creating a budget, setting up a saving regime, and maintaining it doesn’t need to be an overwhelming task.  It can be broken down into a few steps and followed to help you create a path to financial freedom.  It’s recommended that you start as soon as you can, as it will be a lot easier to accomplish your financial goals before you have money problems.  If you are already facing an overwhelming amount of debt, then you will need to follow a different approach before following the steps in this article.    This article is just a basic overview of budgeting, saving, and debt repayment.  To really dive in on a deeper level I’m going to give you a few places to start.

Recommending Websites and Reading List




And a few things for your reading list:

The Total Money Makeover

The Millionaire Next Door

The Richest Man in Babylon

The Wealthy Barber