Introduction

Do you keep a budget each month? Do you allocate part of your income toward savings, investments, and a retirement account? Is your retirement account through your employer, or do you have your own? Do you have a Roth IRA that you max out each month? Do you even know what I’m talking about? (If you do, that’s awesome; if not, don’t worry — you will soon enough!)

For just about everyone, taking control of your personal finances is essential to live the life you want: getting an education or helping your children get an education; purchasing a home; paying off debt; and being able to buy material things you really want or need, to name a few important things you may want to do in life. This is why I’m on a mission to develop a core curricula for all personal finance concepts that will help you take control of your financial future.

This isn’t to say that you aren’t currently in control, because you very well may be! Perhaps these ideas won’t be as useful to you, and in fact, you may have some additional things you do that are not covered here. If so, I would love to incorporate them to share with everyone else. Please email me anytime at katie.kormanik@gmail.com.

What I’m releasing now is non-exhaustive, but over time I will continue to build on it to accommodate those in as many different situations as possible. You’ll be able to find all lessons at turnthewheel.org/free-textbooks/personal-finance.

So let’s dive in to topic #1: budgeting and saving.

Lesson 1: Budgeting and Saving

“The key to becoming wealthy is the ability to convert earned income into passive income or portfolio income as quickly as possible.”
Rich Dad Poor Dad

I couldn’t agree with this statement more. (And I recommend reading this book!) Earned income is literally your income from your employer, which is taxed at about 30-35%. Passive income is money you earn from investments, which is taxed at about 16% (and often your investments will grow by 5-15% per year depending on what you invest in). The first step to converting earned income to passive income or portfolio income (purchasing a home) is budgeting.

It goes without saying that you should spend less than you make. Out of each paycheck, at the bare minimum you should allocate enough for:

  • Living expenses: rent, food, household items
  • Saving: amount that goes in your savings account for emergencies so you have liquid assets
  • Investments: stocks, bonds, mutual funds, retirement accounts (we’ll cover investments in Lesson 2)

This spreadsheet can help you keep track of your finances. Use it to decide how much you will save and invest after taking mandatory expenses into account. After inputting the amount you’ll spend, save, and invest each month, you’ll see your final checking account balance. The goal is for that balance to always be close to $0, but never negative. (It’s usually good to have some cushion just in case you have automatic withdrawals from your checking account or you need to withdraw cash, so maybe make sure the balance never goes below $100 or $200.) You can then plan months or years ahead to make sure you’re saving enough to meet your financial goals (whether that means paying off mortgage each month, saving to purchase a car, etc.).

In the video below, I demonstrate how I use this spreadsheet for my own personal finances.

The key here is to spend as little as possible so that you can put as much as possible into savings and investments. For many people, the most important thing is discipline. Keep track in your head of how much you’re spending; if you can’t do that, withdraw cash each week and only spend that.

Stay tuned for Lesson 2: Investing. In the meantime, please fill out this personal finance questionnaire to help me determine which content would be helpful to include.

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