One common request from new GRS readers is some sort of central location where they can find a list of introductory articles to guide their progress. This is a great idea, and I'm working on it. Some of the GRS elves are working on a "Guide to Money" that will provide some of this info, but I envision a single page that collects all of the relevant articles for folks starting out.
In the meantime, folks like Ashley are hoping they can get some help now. Ashley writes:
I'm a new reader to the blog and just wanted to say thanks for presenting often overwhelming information in a digestible manner. As someone whose former financial philosophy was "ignorance is bliss", GRS has played an integral part in my transformation from 30 year old faux-dult to real, live adult, at least in the personal finance category.
My question is this: What does a generally healthy personal financial portfolio look like? What are some must-haves for everyone and in what order should I work on getting them? It seems like a simple question, I know, but I'm picking myself up from living paycheck to paycheck and struggling with debt and I want to set some goals: savings, debt, retirement, investments (gulp). I realize it's hard to generalize, but what does a good adult's finances look like?
Ashley's right: It is hard to generalize. Everyone is different, with different strengths, different weaknesses and different goals. Still, it's possible to make a few recommendations. There's a core group of financial structures that I believe are important to everyone. And there are many ways to customize a "personal financial portfolio" (as Ashley calls it) in order address you own personal aims.
Building a Base
When I talk with people about how they should set up their finances, I generally recommend the following:
These are some of the basics, though not all of them. These core skills and habits can help almost anyone get started on the path to prosperity.
Customizing Your Course
Once you've become accustomed to the basics, it's important to customize your financial habits and structures to reflect your personal skills, goal, and psychology.
For instance, some folks are opposed to debt in all forms. These people avoid credit cards, certainly, and often try to avoid mortgage debt as well. Other GRS readers love credit cards. They never abuse them, never carry a balance, and never pay any sorts of fees. And some are eager to carry a low-rate, long-term mortgage because they figure they can put that money to work elsewhere to earn a better return.
Another example is automation. For most people, automation is liberating. By creating a system whereby you make automatic contributions to saving, to your retirement plan, and to your bills, you take the weakest link -- you -- out of the chain. But for a few people, automation actually creates problems. For these folks, it's important to do things manually.
So, you see, once you have a solid financial base, you begin to build a customized financial framework based on your personal needs. And these needs are determined by your goals.
Until you have personal financial goals, you can't really know what's "healthy" for you. Emergency funds are a great example. Some folks -- such as Trent at The Simple Dollar -- don't feel comfortable unless they have a sizable emergency fund, such as a year (or more) of monthly income. I, on the other hand, am OK with six months worth of expenses in savings. Based on my psychological make-up and my personal goals, this is plenty.
My own financial profile? Let's see if I can summarize it quickly:
There's more to it than this, of course. That's where you come in. Until I've had a chance to compile a beginner's guide to personal financial mastery, Ashley's best bet is to listen to the advice of GRS readers.
What do you think? What advice do you have for Ashley? Is there such thing as a one-size-fits-all starter financial portfolio? If so, what does it look like? How does it change with time? If not, then what do you think different people should do (and have) at different stages in life?