Personal Finance 101

October 19, 2005 12:19 PM

Young married couple, mid-20's, good income: ready to take our finances more seriously. Who do we talk to?

My husband and I are not particularly good with money. We earn it, we spend it, and as long as we've got a little in the bank we feel all right about it. This has worked okay for the last few years, but it's not particularly sound fiscal policy.

Together, we realize that we need to learn how to handle our finances more adeptly. How to budget, how to save, how to clean up our somewhat checkered credit history, and how to afford a house without mortgaging ourselves up to our eyeballs. We have a good income -- enough that we're paying down our debt, keeping up with our bills and increasing our savings a little -- but we're not as responsible with money as we should be. We have this sense that if we managed our money better, we could do a lot more with our income.

We're looking for general financial counseling: someone to help us set goals, show us new habits, and teach us about the wide world of personal finance, without giving us a hard sell on investment plans or mortgage rates. Where's the best place to get this kind of help?

posted by junkbox to work & money (25 comments total)

On AskMetafilter of course. (sorry)

Get some books and perhaps a subscription to Money magazine. It will be cheaper and less biased than the services of a financial advisor.
posted by caddis at 12:24 PM on October 19, 2005

You want a fee-based financial planner. This means they do not sell insurance or mutual funds or any other investments. Instead, you pay them a fee and they help you plan and manage your finances.

In the meantime, put together a full budget. Analyze your spending for a month or two. Is there money missing? (Muffins and coffee can make small change disappear, but add up to $50 easily.)

Write to the credit bureaus (Equifax, TransUnion, and one other in the US) and request your credit history. Verify it and make any corrections.

Make a list of all your assets and liabilities, too.

Once you've got all this, you should be ready to see a financial planner. Be wary of mutual fund reps who call themselves financial planners. You want someone who only gains from helping you plan, not from helping you buy.
posted by acoutu at 12:25 PM on October 19, 2005

I would recommend a fee only financial planner - check the NAPFA.com website for someone in your area. The first visit should be free - they will try to sell you their services and will give you an opportunity to interview the firm for fit. Many of them will do financial planning, tax planning, will preparation, goal setting (do not go with someone that doesn't do this - you would be surprised how many couples never actually sit down and go over specific goals and write them down), budget/cash management education, etc. I would recommend meeting with at least 2 firms (or 2 advisors with the same firm if there aren't too many in your area) and keep looking further if you get any sketchy feelings about them. Feel free to contact me with any questions regarding the process or what questions you may want to ask when you meet with them.
posted by blackkar at 12:26 PM on October 19, 2005

1. Get Microsoft Money / Quicken and use it regularly. Add all your asset accounts and liabilities.
2. As soon as you get paid take out 10-20% and put it away in a Roth IRA and/or savings account.
3. Try to keep 3 months pay in savings. Invest everything else.
4. If you have debts, put 20% to debt, 10% to savings as soon as you get paid.
posted by letterneversent at 12:32 PM on October 19, 2005

Follow-up question: how much do fee-based financial planners cost? (Ballpark; I realize costs must vary by location and service.)
posted by junkbox at 12:38 PM on October 19, 2005

"Write to the credit bureaus (Equifax, TransUnion, and one other in the US) and request your credit history"

Or go get them for free online if you haven't already.
posted by mr_crash_davis at 12:39 PM on October 19, 2005

Personal Finance for Dummies is really good if you can get past the title. I like mine so much that I don't loan it out.
posted by elderling at 12:41 PM on October 19, 2005

I'm inclined to agree with going to a fee-based financial planner. For the last year I have been using a financial planner from my bank who did not charge for her services. It seemed great at the time, especially since I didn't have much money to spend, but after a while I realized that all of her advice was tailored to sell the bank's various products and services. I plan to go to someone else soon for better financial advice.
posted by randomstriker at 12:45 PM on October 19, 2005

The Suze Orman book for the "Young, Fabulous & Broke" was very helpful to me...it's perfect for 20 & 30-somethings and has some really useful advice. You may want to check that out if you haven't yet.
posted by catfood at 12:45 PM on October 19, 2005

I'll second the recommendation to get Quicken or something like it. My SO and I started using Ace Money to keep track of our finances about a year ago and it's done wonders for us. Just like how keeping track of what you eat helps you understand your body and helps you loose weight, tracking your spending dollar by dollar really helps you figure out where it's all going and what you can do with it if you manage it better.
posted by soplerfo at 12:47 PM on October 19, 2005

I don't know about fee-based. Fee-only, we used a scale - there was a base fee assessed (dependent on your gross income vs. net worth) and an additional charge for gross income (based on your taxes). It was cheaper to start early. They may have switched to an hourly retainer after I left - there was a lot of discussion about that the last summer I was with the firm. Fee-based probably skips the additional gross income charge and gets it by selling you products and/or managing your assets.
posted by blackkar at 12:48 PM on October 19, 2005

Also, fee-only advisors should not be employed by the investment firm. They may recommend a firm (we used Schwab and Price-Waterhouse) because they gave our clients preferred service (they allowed us to count our clients in aggregate and qualified our clients to purchase better money market funds, etc) and gave us assigned representatives to deal with account problems and trades, as well as gave us access to gain/loss reports and tax paperwork. Fee-only advisors should have disclosure statements stating that they receive no compensation from the advice they give with regards to investments and investing houses.

It sounds like randomstriker's advisor was really fee-based - the firm that person worked for benefitted, which in turn probably paid out to the advisor, even if they didn't make money directly from the investments.
posted by blackkar at 12:55 PM on October 19, 2005

Do you own your home? If not, then talk to a real estate agent.
posted by Pollomacho at 12:56 PM on October 19, 2005

If you're looking at working on your credit score there's a lot of good information on Art of Credit. Among the things you'll learn there is that the above-mentioned free credit reports are somewhat inferior to the ones you pay for - a free report allows the reporting agency 45 days to respond to your requests for correction. A paid one they only get 30. Which may or may not make a difference to you, but it demonstrates that not all are created equal.
posted by phearlez at 1:09 PM on October 19, 2005

Paging jdroth. There's some sound advice on his site, including book reviews.
posted by grateful at 1:21 PM on October 19, 2005

I'd recommend starting with Andrew Tobias's The Only Investment Guide You'll Ever Need. I read it back in high school, and I've found it invaluable. A summary.

My impression is that financial advisors mostly tell you how to invest your savings; they don't really tell you how to improve your spending habits.
posted by russilwvong at 2:14 PM on October 19, 2005

Just to add something to the discussion on fee-based planners. I saw one about a year ago with my husband. The fee for a complete financial plan was around $5,000.

I'm not sure where you stand with savings and the like, but for me $5,000 was (and is) a considerable chunk of change.

We decided that we would be better off eliminating debt and building our savings first so that we had funds to actually invest when we did the financial work-up with an adviser.

Incidentally, the person we met with was not by far the most expensive of all the planners I interviewed.
posted by Sully6 at 2:27 PM on October 19, 2005

1. Get Microsoft Money / Quicken and use it regularly. Add all your asset accounts and liabilities.

I strongly second this recommendation. Without Quicken, I wouldn't have the foggiest clue where my money went.
posted by I Love Tacos at 2:52 PM on October 19, 2005

Read Your Money or Your Life.
posted by Zed_Lopez at 3:25 PM on October 19, 2005

Someone already mentioned picking up one of Suze Orman's books--I also recommend checking out her TV show. People who are more "advanced" criticize some of her advice, but it's absolutely great when you have no idea where to even start from.

If you record the show (it's on at odd hours on CNBC) and have it on in the background while doing other things, you'll pick up lots of tips and concepts that you otherwise might forget or not understand if they're presented en masse in a book.
posted by bcwinters at 3:28 PM on October 19, 2005

The Motley Fool
posted by wackybrit at 4:09 PM on October 19, 2005

I'd agree with Zed_Lopez and suggest you read Your Money or Your Life before going for a fee-based financial planner. It will help you get a sense of where the money goes. I think the discipline in the book is a little top-heavy if you don't buy the whole downshifting premise of the book, but it's a useful way to get you thinking.

From the questions you ask, I'd say you already have the tools in hand to do much of what you want without paying for it.

There's a useful goalsetting exercise on-line. Google "goalsetting 101" - the original link isn't working this morning, but you can see it in the cache.

Don't pay a financial planner for what you can do yourself, but do consider paying one for what you can't. I think that echoes sound advice given by many already.
posted by sagwalla at 3:48 AM on October 20, 2005

This is very situationally dependent, but it may also be helpful to consider living on one salary and banking the other. We've done it for a couple of years, and I'm shifting to stay-at-home-mom status very soon. I'll probably work from home a bit (10-15 hrs/week) to keep from going insane, but it's a way to see savings add up really quickly rather than in drips and drabs.

Things that have worked for us:
1. Using a spreadsheet or Quicken/Money is critical to see exactly where your money goes. But it's important not to totally deprive yourself of fun or you'll binge-spend and be back where you started.

2. Also helpful is reducing time with friends who have a "Buy it -- you deserve it" mentality, especially with regard to cars and clothes. What you deserve is peace of mind from living the life you can afford (now and later).

3. Books and budgets and financial planners are good, but you have to actually DO what they suggest.

4. Save up to buy quality products and do your research to find good sources -- we drove to NC to buy furniture to furnish our new house and got beautiful things for 70% off retail.
posted by mdiskin at 4:50 AM on October 20, 2005

mdiskin's point about trying to live on one salary if you can is a good one (The Two-Income Trap is a powerful and cautionary read).

I have found Get A Financial Life : Personal Finance In Your Twenties And Thirties by Beth Kobliner to be useful.

The book that really affected how I handle my finances, though, is The Complete Tightwad Gazette. Changed my life.
posted by Melinika at 6:27 AM on October 20, 2005

And the obligatory self-link to PearBudget.com. It's a free, Excel-based budget tracking tool I built. I think it's pretty good. And, as I said, it's free.
posted by Alt F4 at 4:11 AM on October 23, 2005