Personal Finance 101

A practical guide to budgeting, saving, and investing

The Only Formula You Need

Earn - Spend = Save → Invest → Freedom

The gap between what you earn and what you spend is the most important number in personal finance.

The 50/30/20 Rule

Split your after-tax income:

  • 50% Needs — rent, groceries, insurance
  • 30% Wants — dining, travel, hobbies
  • 20% Savings — emergency fund, retirement, investing

This is a starting point, not a law. Adjust to your situation.

CategoryTarget
Housing25%
Transport10%
Food10%
Insurance5%
Fun & lifestyle30%
Savings & investing20%

Emergency Fund First

Before investing, build your safety net:

  • Starter: $1,000 for unexpected expenses
  • Standard: 3–6 months of essential expenses
  • Conservative: 6–12 months if self-employed

Keep it in a high-yield savings account (4–5% APY) — liquid, boring, and separate from your checking account.

Compound Interest

$300/month at 8% return for 30 years:

$447,000 in total growth

You contribute $108,000. Interest contributes $339,000.

Time is the most powerful ingredient.

Start Investing — Keep It Simple

The 3-Step Plan

  1. Open a brokerage account (Fidelity, Schwab, or Vanguard)
  2. Set up automatic monthly transfers
  3. Buy a total stock market index fund

Why Index Funds?

  • Hold thousands of stocks at once
  • Fees as low as 0.03%/year
  • Outperform 90% of actively managed funds over 20 years

Account Priority Order

  1. 401(k) up to employer match
  2. Roth IRA (max $7,000)
  3. HSA if eligible ($4,300)
  4. Max out 401(k) ($23,500)
  5. Taxable brokerage

Always capture the employer match — it's a 50–100% instant return.

Your Savings Rate Is Everything

Savings RateYears to Financial Independence
10%~46 years
20%~32 years
30%~24 years
40%~18 years
50%~14 years

Going from 10% to 20% doesn't halve the time — it saves 14 years.

A higher savings rate means you need less AND you accumulate faster.

Inflation: The Cost of Doing Nothing

At 3% average inflation:

  • $100 today = $74 in 10 years
  • $100 today = $55 in 20 years
  • $100 today = $40 in 30 years

Keeping cash in a 0% account is guaranteed to lose purchasing power.

The solution:

  • Short-term money → HYSA (4–5%)
  • Long-term money → Index funds (7–10%)
  • Retirement money → Tax-advantaged accounts

Not investing is the riskiest choice of all.

Start Today

  1. Track your spending for one month
  2. Open a high-yield savings account
  3. Set up a $50/month auto-transfer to an index fund

The best time to start was 10 years ago.

The second best time is today.

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