How to structure your finances

When you start working and making money, its really important to know how to have everything organized.

This is how I was taught to structure my finances.

Imagine a pyramid made of layers. It looks like the following..

Investment
Savings/Emergency fund
Debt Management
Protection


The bottom layer is the foundation, the thing that should be done first. Protection will included different types of insurance. Health insurance usually comes to find first.

Should something happen to you, injury, sickness, etc, and you go to the hospital. Hospital bills can be very expensive. You want to protect yourself in case you run into medical bills of tens of thousands of dollars.

In this section, you would include other types of insurance if you have any legal exposure like if you own your own home or have your own business. You need to have the right type of insurance to protect yourself from lawsuits.


Above protection is Debt Management. Whatever debts/loans you have, it is your goal to make sure that the balance goes down every month. It is your ultimate goal to have all of these debts paid off.

Debts/loans most always come with an interest rate. Left untouched, the balance will grow. Grow uncontrollably.  Credit card debt can carry interest rates of around 20%.

This is why you focus on debt management way before investment. Typically, the interest rates charged on debt will vastly surpass the interest rate you could earn on any safe investment.

Last I checked, the best interest rate I could get at a CD at my bank is three tenths of one percent.

After getting debt under control (total debt decreasing every month). The next thing you want to have is an emergency fund.


Typically, you want to have 3 to 6 months of your earnings saved in a bank account in case something unexpected something. Though the amount is not exact, you can adjust the amount to how much you feel comfortable with.

Say you lose your job, have unexpected bills, your car breaks down, you need to maintain your house. You have that money to take care of yourself for a little while.


At the very top, you have the last thing to focus on. Investment.

If you have spare money after taking care of protection, debt, and emergency fund. You can try to invest it into different things to earn a better return.

Investment is the last thing you focus on for a few reasons. You might have to hold your investments for several years to see a return. Your investments might not be very liquid. The value of your investments will fluctuate. You might take a loss on your investments.




The mistake that a lot of people make is that they focus on investment first without considering anything else. So if a man loses his job, and he has everything in investment with no emergency fund. He might have to sell off his investments at a loss.

Put down the controller

Ever since I was 9, I spent lots of time playing video games.

While I really like playing games, it can be kind of expensive if you go crazy with it.

The new systems now cost $400. I really wouldn't recommend buying a PS4 or Xbox One right now. And the biggest reason why is that there aren't really any good games that are only coming out for the PS4 or Xbox One that isn't already coming out for the PS3 or Xbox 360.

If you want to get these systems, either wait for a price drop or wait until some good games come out that won't come out for the PS3 or Xbox 360.

There is another reason why I would not buy a new gaming system now.
This is just an opinion and it is based on absolutely nothing. But I kind of get the feeling that Microsoft did not learn from the red ring of death with the 360. November of 2014, you might start hearing reports of defects with the Xbox.

After all, I've heard stories about people that bought multiple 360s. If someone had to buy 4 or 5 of them, that could be a thousand dollars spent because of defects.


One thing that I also would not do is buy games as soon as they come out.
For as long as I can remember, highly anticipated new release games always go for about $50 to $60. I remember buying super smash bros for the N64 for $52 when I was 12.

If you bought two new release games a month for a year, that would cost roughly $1200 a year.
$1200 could buy me gas for 8 months.

If you really need new games, try to keep new release down to only a few times a year. From experience, checking prices in Walmart, if you wait a couple of months after a game is released, the game's price will drop from $55 to $30 to $35.

After a year or two , it may drop down to $20.


Speaking of which, if you really want to save money, don't buy the games that you want right now.

Instead, go and buy the games that you wanted to play a few years ago but never did. You can find games dirt cheap that way.

I went into a GameStop a year ago just looking for some cheap games for my PS2.

When I was there, I saw that they were just trying to get rid of those things. I could pick up games for $2 to $10 dollars each.

Off the top of my head, here are 10 PS2 titles that were just amazing.

1. Metal Gear Solid 2
2. Kingdom Hearts
3. Tony Hawk's Pro Skater 3
4. Final Fantasy X
5. Katamari Damacy
6. Silent Hill 2
7. Grand Theft Auto Vice City
8. Guitar Hero 2
9. Shadow of the Colossus
10. Jak and Daxter


The last way to save money on gaming is to shift some time away for it.
Try some activities like running, swimming, hiking, bicycle riding.

Just try one or some of the above. They are enjoyable, and also cheap. But that is for the next post.

Learning how to use Ms Excel with financial planning

Back in college, I took one class all about learning how to use spreadsheets. On of our projects was to plan out savings and retirement. 

When I got my first job, I kept track of my expenses and put my life down on spreadsheets immediately. 

Below is an example how to make simple spreadsheets in Microsoft Excel.

age	savings
25	1000
26	2000
27	3000
28	4000
29	5000
30	6000
31	7000
32	8000
33	9000
34	10000
35	11000
36	12000
37	13000
38	14000
39	15000
40	16000
41	17000
42	18000
43	19000
44	20000
45	21000

This is a simple spreadsheet to illustrate the point. This took less than a half minute to make.

In cell A1, put age. In cell B1 put savings.

In cell A2, you can put your current age. For this example, you can use 25.

In cell A3, you can type in a formula =A2+1

Press enter and 26 will appear into the box.

Make sure that the cell A3 is selected. There should be a small square in the corner of the cell. 

Click and hold the square and drag the mouse down to cell A22. Release the button and Excel should fill in all the age until 45.

This is the fill function in excel. The same thing can be done with the column for savings.

This is just an illustration. If you know how to make this, you can replace the numbers with those that apply to you.

In the following example. Jack is 30 and saves $10,000 every year.

The spreadsheet shows Jack's total savings at any given year.

age	savings
30	10000
31	20000
32	30000
33	40000
34	50000
35	60000
36	70000
37	80000
38	90000
39	100000
40	110000
41	120000
42	130000
43	140000
44	150000
45	160000
46	170000
47	180000
48	190000
49	200000
50	210000
51	220000
52	230000
53	240000
54	250000
55	260000
56	270000
57	280000
58	290000
59	300000
60	310000
61	320000
62	330000
63	340000
64	350000
65	360000
66	370000
67	380000
68	390000
69	400000
70	410000
71	420000
72	430000
73	440000
74	450000
75	460000
76	470000
77	480000
78	490000
79	500000
80	510000
81	520000
82	530000
83	540000
84	550000
85	560000
86	570000
87	580000
88	590000
89	600000
90	610000