The Top 5 Basics: Beginners, Start Here

I love (love) the Instagram DMs I get on my Money with Katie Instagram because they provide such wonderful insight about what the people who frequent this site give a shit about. One DM I received recently made me laugh out loud:

I’m 22 and none of what you talk about makes any sense to me, and I’m intrigued. I feel like I need to know more.

And in that moment, I wanted nothing more than to be able to fire off a quick post that laid it all out. Where do I even start?

Realizing that there is no one-stop shop on this blog for someone to use as a “starting point,” so to speak, I decided it was time to create one. Below you’ll find some of my hottest personal finance takes wrapped up succinctly in the dreaded listicle format that Buzzfeed has fallen back on for years—#virality, here I come.

Mostly, I hope you use this as a jumping-off point and open these linked posts in new tabs to read more, but I’m trying to distill the 5 most important things you need to know about personal finance (if you buy into my philosophy, that is) so that even if you never read another article, your priorities would have at least a little bit of strategy baked in.

If you’re just starting out and don’t want to dive in with both feet, I recommend bookmarking this article and working through it piece by piece—it’ll be fun. I promise. And you’ll get rich! Bonus!

#1. Pay off any debt you have strategically (and give yourself more credit than the “snowball method”).

One of the biggest mistakes (I use “mistake” non-judgmentally—unless anyone tells you this, there’s no way to know—so don’t be hard on yourself) I see when it comes to debt is that people prioritize the wrong debt. Always use the interest rate to determine whether you’re better off paying off your debt more quickly or investing aggressively instead.

The “snowball method” is a popular debt payoff strategy that tells you to focus on the debt with the lowest balance owed because it feels like a bigger psychological win, but this totally ignores the interest rate—and ultimately, interest rates determine how expensive your debt actually is.

The magic number here is about 7%. If you have a debt with an interest rate <6%, make the minimum payments. Invest anything extra that comes your way, rather than putting more money toward the debt (obviously, just spending that extra income isn’t the same thing—I’m not giving you permission to make minimum payments then blow the rest, all right?!). If your interest rate exceeds 7%, make as many extra payments as you can, as often as you can.

More on this topic (everything you need to know about debt payoff strategies) here.

#2. Your first priority beyond debt should be saving an emergency fund.

An emergency fund is what I affectionately refer to as the “oh, shit.” fund. If money makes you feel uncomfortable and is a source of low self-esteem for you, creating this fund for yourself will change that.

Your emergency fund is what you fall back on when things hit the fan so you don’t have to move back in with your parents and work at your dad’s law firm (unless, of course, you want to). It provides freedom and autonomy, even when things don’t go your way—maybe we should start calling it a Freedom Fund? If you don’t know where to start building an emergency fund, this is the account I recommend, as it’s actually invested in roughly 80% bonds and 20% stocks (read: it’s risky enough to make money on its own, but not risky enough to keep you up at night).

When I first started my personal finance journey, “How much should I be saving?” was my most intensely burning question. Turns out what I should’ve been asking was, “How much should I aim to save?” Knowing when to stop, pivot, and focus on more aggressive investing is key. More about what to do once your emergency fund is fully funded here.

I recommend shooting for between $12,000 and $15,000, but you can read more about how to determine exactly what you should be shooting for here or pick up a Wealth Planner and get super specific recommendations. Once you’ve mastered your cash flow (an article about that lives here), you can keep less in an “emergency” fund and invest more of it aggressively.

Trust me, I get it—it’s hard to save money. It’s especially hard when you aren’t saving for any particular reason. But let me tell you, this is the most difficult—yet most impactful–hurdle in your entire journey. Once you can prove (to yourself) that you’re able to save an emergency fund, you’re going to get hooked on investing.

#3. You can shave decades of working years off your retirement timeline by investing often and early.

And in 2022, there’s no excuse not to—with services like Betterment, you can make contributions to an investment account as if it’s a savings account and the robo-manager (read: algorithm) will invest your money for you. If there’s only one thing you take away from this website, it’s this: Invest.

Investing is how I saved more than $100,000 in a little over two years by the age of 25 and am already on track to hit $250,000 in the next few months. Compound interest is your best friend.

There are two different types of investment accounts (broadly) that we talk about on this site: tax-advantaged retirement accounts and “regular” taxable investing accounts. When it comes to retirement accounts, I do a mix of Traditional and Roth for diversification, but almost always recommend using the Traditional 401(k) instead of the Roth for everyone in the 22% tax bracket and above. Here’s why.

And for those of you who are like, But Katie, I can’t touch that money until I’m old! I don’t want to tie it up there! Not so, my friend. Check out this post about how to use your 401(k) before age 59.5 without the 10% penalty by using something called a Roth IRA conversion ladder. And if you think you’re out of luck because you’re self-employed and don’t have an employer 401(k), check this out.

I’m passionate about early retirement, but you don’t have to want to retire early to benefit from tax optimization. I made a video called “Never Pay Taxes Again,” and it basically leverages all the tax loopholes I’m aware of based on current tax law to show you how you could structure your investments such that you and your spouse could withdraw $80,000 per year to live on, tax-free. It’s got true mad scientist vibes.

Here are some other good resources:

• How to prioritize where you’re investing, and why

• Your early retirement calculator—figure out when you’re on track to retire, and how to retire sooner, based on your current trajectory

#4. Living beneath your means will enable you to do steps #1 – #3 a whole hell of a lot faster than if you live barely within (or above) them.

Whether you make $50,000 or $150,000, one of the most powerful things that you can do for your future self is live beneath your means. And speaking of income, we should put this out here right now: Spending less matters way more than earning more.

I know. I get it. What could be less sexy than living below your means? When you look around, it’s far more likely that most of the people you know are living above their means—the $30,000 millionaires, I like to call them (lovingly, of course).

These are the people who live at home, make $2,000 per month, and drive Mercedes with car payments that eat up almost half their income. That’s the danger with the word “afford”—it merely suggests you could pay for it. It doesn’t mean you should.

It means you’re paying to present an image of yourself to the world that doesn’t actually reflect who or where you are, financially. Why not actually become that person first, rather than stealing the actual reality from your future self by faking it now?

Before I realized how much further my money could go, I spent almost everything I made—simply because I didn’t really know I shouldn’t be. When I got my first job offer, I drove immediately to Louis Vuitton and bought a $1,200 handbag. I doubt if I was even receiving $1,200 on a single paycheck back then. I’ve come a long way—in my highest earning month this year (where, between my full-time commitments, side hustles, and other passive income, I made nearly $10,000 in a single month), I didn’t spend more than $2,500 and invested the rest.

(An aside: If you would’ve told me two years ago I’d have a month where I hit a 5-digit income, I would’ve laughed in your face.)

As soon as you have the perspective shift—wherein you realize how much further your money will go if it’s invested and how much of your life it can buy back via early retirement—you no longer feel tempted by materialism.

If you struggle with overspending or need more guidance…

• Here’s a case for why all the nice stuff you have might be making your life worse

• These are the top 3 spending mistakes I see most often

• How to budget for your discretionary, fun expenditures if you’re unsure

• Figure out how much your life costs, which I’d consider to be step #1 in your personal finance journey

• How to wrangle a food budget gone wrong

#5. Credit cards can be a powerful way to travel the world for free.

I think a lot of millennials are scared of credit cards because we watched the generation before us royally f*** up their financial lives by abusing credit cards, to some degree.

Credit cards, to me, are a genius way to cheat the system. As long as you don’t allow the credit card companies to make any money on you (in other words, don’t spend more than you can easily pay off, and therefore don’t pay any interest), you can rob these banks of thousands of dollars worth of free travel.

If debt payoff is personal finance 101 and emergency funds are 202, investing is 303. Credit card hacking is 404. Living beneath your means is the attitude with which you approach these “classes.”

You wouldn’t take a graduate level course before passing your 101 and 202 classes, so focus your attention on credit card hacking after you feel like you’ve got the rest of this safely tucked away in your Gucci fanny pack (see, that was a test—no more Gucci fanny packs for us, ladies, unless they’re from Chinatown and paid for with expired CVS coupons).

I’ve put a lot of time into the exhaustive travel hacking guides on this site, mostly because I wanted someone to boil it down for me when I first started in a way that wasn’t insane. I had friends who had 20 credit cards, but that felt way over the top. This guide provides a really solid middle ground option that’s reasonable for just about anyone with a decent credit score.

• The overview travel hacking guide

• Travel hacking for couples

In summary

My new friend, I’m glad you’re here. Thank you for taking an interest in your personal financial health—if you take these ideas seriously and actually implement them in your life, you’ll look back on this time as one in which everything began to change. You should have enough articles linked above to last you through the next global pandemic, but I release one new blog on Mondays and a new weekly episode on Wednesdays, and I’d love to hear from you if there’s anything you want to see that I’m neglecting.

Thanks for being here. Let’s get rich!