Personal Finance 101

Sunday, March 21, 2010

I read many personal finance books (thanks to public libraries :)) but oddly never came across Dave Ramsey's books 'till about two years ago. Many Americans are in debts due to living above their means. Thanks to our parents who generously support us through college, we don't have any debts or loan except for our mortgage. Still, living in Silicon Valley where things especially housing is super duper expensive, encourage us to manage our money wisely otherwise we will be drowning in debt.

Total Money Make Over is one my favorite personal finance book. Other books that I found to be useful as well are:

Dave Ramsey's Financial Baby steps, which basically function as financial map that way we know the way or steps to our destination

1. Build up a $1,000 emergency fund.

2. Pay off all debt from the smallest to the largest. Personal finance is 80% behavior and only 20% head knowledge. When you start seeing the traction and progress you're making you get excited and more focused and start really attacking the debts which result in getting out of debt quicker. Paying only cash for cars not only to stay out of debt but also to avoid the beating in value you take when driving the car 10 feet off the lot. After paying off all consumer debt not including the house if a home is owned.

3. Increasing the emergency fund to 3-6 months of expenses. This emergency fund should be placed in something that's extremely safe such as a money market or savings account. In case of losing a job you would have a solid 3 to 6 months to look for one without the pressure of paying bills with no income.

4. Investing in a retirement plan through work if they match a percentage of your contribution and then through a Roth IRA. If there is no matching from the employer in a 401k, 403b, or TSP, you would start with the Roth IRA which grows tax free. Using mutual funds with solid 10 year track records is a great diversified investment strategy for a retirement account. One would also want to spread money around to various mutual funds such as a growth & income fund, an aggressive fund, an international fund, and a value or balanced fund. The goal is to invest 15% of a paycheck into retirement.

5. Funding education for children through a couple Education Savings Account (ESA) or a 529 plan.

6. After all 5 of these steps are in order, the next step is to pay down the house as quick as possible.

7. Once the home is free and clear, you win and have true financial peace. At this point, you invest in 100% paid for real estate as well as continuing to invest and give lots of money away.

Happy callers on Dave Ramsey show:

This one is so funny. One family makes this video after they pay off their debt:


  1. aku lagi blajar ini nih ci buat regulation (CPA). Lagi blajar individual taxation, oand I hate it so much... =)

  2. O... I love individual taxation maybe because I got a great tax professor. :)