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I am married with kids and starting to look hard at savings for retirement, buying a house and sending my kid to college (still a LONG way away).

However, I am completely new to the world of finance and I am wondering where to start. I am thinking it might be good to start by reading a couple of books to get a broad understanding of the available options (e.g. financial products, strategies, etc.) and how I can use them. Basically I am looking to get a foundation of information so I can start making better decisions about what do with my money.

Can anybody recommend some books/magazine/websites that offer this kind of information?

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Folks, this seems like a duplicate of the much-asked "How do I get started in investing?" question .. or is there more to this question? The first half of the question talks about personal finance in general, but the second half goes on to ask about "where to put my money", which to me means investing. Is there merit in keeping this question open, reformulated perhaps? –  Chris W. Rea Jun 19 '11 at 19:01
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We do have another question on financial literacy, here: money.stackexchange.com/questions/195/… –  Chris W. Rea Jun 19 '11 at 19:01
    
I think the crux of the matter is to determine what the question is asking. It seems to me that it is basically asking how to get started with investing, since it asks about financial products. However, I focused on the difference in the wording of this question. While I have concerns about the breadth of the topic, a question on personal finance in general, which is more than just investing, could be useful. Some of the answers seem to approach the question from this perspective. –  George Marian Jun 20 '11 at 20:01
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This question is more on where to start in general. Not now to get started in investing. –  Josh Jun 22 '11 at 13:41

7 Answers 7

up vote 22 down vote accepted

First thing I'd say is don't start with investing. The foundation of solid finances is cash flow. Making more than you spend, reliably; knowing where your money goes; having a system that works for you to make sure you make more than you spend. Until you have that, your focus may as well be on getting there, because you can't fix much else about your finances until you fix this.

A number you want to know is your percentage of income saved, and a good goal for that is about 15%, with 10-12% going to retirement savings and the rest to shorter-term goals and emergency fund and so forth. (Of course the right percentage here depends on your goals and situation, but for most people this is a kind of minimum savings rate to be in good shape.)

Focus on your savings rate. This is your profitability, if you view yourself as a business. If it's crappy or negative, your finances will be a mess. Two ways to improve it are to spend less or to improve your earnings power. Doing both is even better.

The book Your Money or Your Life by Dominguez and Robin is good for showing how to obsessively focus on cash flow, even though you may not share their zeal for early retirement. A simpler exercise than what they recommend: take 3 months of your checking and credit card statements, go through each expenditure and put them in a spreadsheet column, SUM() that column. Then add up 3 months of after-tax paychecks. Divide both numbers by three and compare. (The 3 months is to average out your spending, which probably varies a lot by month.)

After positive cash flow and savings rate, the next thing I'd go through is insurance. Risk management for what you have. This can include checking you have all the important insurance coverages (homeowner's/renter's, auto, potentially umbrella, term life, disability, and of course health insurance, are some highlights); and also adjusting all your policies to be most cost-effective, which usually means raising the deductible if you have a good emergency fund. Often you can raise the deductible on policies you have, and use the savings to add more catastrophe coverage (such as term life if you didn't have it, or boosting the liability protection on your homeowner's, or whatever). Remember, cover catastrophes as cheaply and comprehensively as possible, but don't worry about reimbursement for non-catastrophic expenses.

I like this book, Smart and Simple Financial Strategies for Busy People by Jane Bryant Quinn, because it covers all the main personal finance topics, not just investing; and because it is smart and simple. All the main stuff to think about is in the one book and the advice is solid and uncomplicated.

Investing can truly be dead easy; most people would be fine with this advice:

  1. buy a single low-expense-ratio balanced fund or target-date retirement fund in your tax-advantaged retirement account (401k or IRA); keep putting money into it every month, at least 10% of income; leave it alone. "Leave it alone" means don't lower your savings rate, leave your money in the fund no matter what happens, and don't take out a loan from the 401k.
  2. find a good yield on a savings account or money-market fund from a reputable, convenient institution, and put your savings for pre-retirement goals (house, car, emergencies) in there.
  3. ... there is no 3. seriously, anything else you read is just micro-optimizing, or often undermining, the above plan, which is already fine for almost everyone even though it involves only two simple financial products (an all-in-one retirement fund and a cash account that earns some interest).

Honestly, I do micro-optimize and undermine my investing, and I'm guessing most people on this forum do. But it's not something I could defend objectively as a good use of time.

It probably is necessary to do some reading to feel financially literate and confident in an investment plan, but the reading isn't really because a good plan is complicated, it's more to understand all the complicated things that you don't need to do, since that's how you'll know not to do them. ;-) Especially when salespeople and publications and TV are telling you over and over and over that you need to know a bunch of crap and do a bunch of things.

People who have a profitable "business of me" are the ones who end up with a lot of money. Not people who spend a lot of time screwing with investments. (People who get rich investing invest professionally - as their "business of me" - they don't goof around with their 401k after work.) Financial security is all about your savings rate, i.e. your personal profitability. No shortcuts, other than lotteries and rich uncles.

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+1 great answer. Something like this should go into a wiki about how to get started. –  MrChrister Jun 20 '11 at 7:12
    
+1, especially "micro-optimizing and undermining". My retirement accounts do better when I neglect them :) –  bstpierre Jun 20 '11 at 16:01
    
Eventually there does come a time when you want to gradually shift the nature of the things in your investment account away from equities and towards 'fixed income', but that's not micro-optimizing, so much as altering your risk exposure to reflect what you need the investment to do for you. But prior to that time, I agree that you usually best served to 'set it and forget it' when it comes to retirement accounts –  Chuck van der Linden Jun 20 '11 at 23:05

My reading list for someone just getting into personal finance would include the following

I know it's a bunch but I'm trying to cover a few specific things.

  1. 3 good resources on basics of personal finance, investing etc. (because you should not just listen to a single source for such things)
  2. a great reference on the nomenclature that also teaches you a lot in the process of explaining the terms
  3. One each, great books on Mutual Funds and Bonds which are generally how most folks invest in stocks and bonds. (stocks via mutual funds to get diversity, bonds directly to get away from principle fluxuation caused by interest rate changes.)
  4. Lastly a little something regarding the crazy behavior of the masses, which brings some understanding to bubbles, fads, and why it's not always best to get swept up in whatever the 'next big thing' is.

Yeah it's a bit of reading, but lets face it, nobody is going to care as much about your money as YOU do, and at the very least this kind of knowledge can help fend off a 'shark attack' by someone trying to sell you something not because it's best for you, but because it earns them a fat commission check.

Once you've covered those, you have a good foundation, and oh lord there's so many other good books that you could read to help understand more about money, markets etc.. Personally I'd say hit this list, and just about anything on it, is worth your time to read.

I've used publishers websites where I could find them, and Amazon otherwise.

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First of all, make sure you have all your credit cards paid in full -the compounding interests on those can zero out returns on any of your private investments.

Fundamentally, there are 2 major parts of personal finance: optimizing the savings output (see frugal blogs for getting costs down, and entrepreneur sites for upping revenues), and matching investment vehicles to your particular taste of risk/reward.

For the later, Fool's 13 steps to invest provides a sound foundation, by explaining the basics of stocks, indexes, long-holding strategy, etc.

A full list Financial instruments can be found on Wikipedia; however, you will find most of these to be irrelevant to your goals listed above.

For a more detailed guide to long-term strategies on portfolio composition, I'd recommend A Random Walk Down Wall Street: The Time-tested Strategy for Successful Investing. One of the most handy charts can be found in the second half of this book, which basically outlines for a given age a recommended asset allocation for wealth creation.

Good luck!

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Personal finance is a fairly broad area. Which part might you be starting with?

From the very basics, make sure you understand your current cashflow: are you bank balances going up or down? Next, make a budget. There's plenty of information to get started here, and it doesn't require a fancy piece of software. This will make sure you have a deeper understanding of where your money is going, and what is it being saved for. Is it just piling up, or is it allocated for specific purchases (i.e. that new car, house, college tuition, retirement, or even a vacation or a rainy day)?

As part of the budgeting/cashflow exercise, make sure you have any outstanding debts covered. Are your credit card balances under control? Do you have other outstanding loans (education, auto, mortgage, other)? Normally, you'd address these in order from highest to lowest interest rate.

Your budget should address any immediate mandatory expenses (rent, utilities, food) and long term existing debts. Then comes discretionary spending and savings (especially until you have a decent emergency fund). How much can you afford to spend on discretionary purchases? How much do you want to be able to spend? If the want is greater than the can, what steps can you take to rememdy that?

With savings you can have a whole new set of planning to consider. How much do you leave in the bank? Do you keep some amount in a CD ladder? How much goes into retirement savings accounts (401k, Roth vs. Traditional IRA), college savings accounts, or a plain brokerage account? How do you balance your overall portfolio (there is a wealth of information on portfolio management)? What level of risk are you comfortable with? What level of risk should you consider, given your age and goals? How involved do you want to be with your portfolio, or do you want someone else to manage it?

Silver Dragon's answer contains some good starting points for portfolio management and investing. Definitely spend some time learning the basics of investing and portfolio management even if you decide to solicit professional expertise; understanding what they're doing can help to determine earlier whether your interests are being treated as a priority.

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This Stack Exchange site is a nice place to find answers and ask questions. Good start! Moving away from the recursive answer...

Simply distilling personal finance down to "I have money, I'll need money in the future, what do I do", an easily digestible book with how-to, multi-step guidelines is "I Will Teach You To Be Rich". The author talks about setting up the accounts you should have, making sure all your bills are paid automatically, saving on the big things and tips to increase your take home pay. That link goes to a compilation page on the blog with many of the most fundamental articles. However, "The World’s Easiest Guide To Understanding Retirement Accounts" is a particularly key article. While all the information is on the free blog, the book is well organized and concise.

The Simple Dollar is a nice blog with frugal living tips, lifestyle assessments, financial thoughts and reader questions. The author also reviews about a book a week.

Investing - hoping to get better returns than savings can provide while minimizing risk. This thread is an excellent list of books to learn about investing. I highly recommend "The Bogleheads' Guide to Investing" and "The Only Investment Guide You'll Ever Need". The world of investment vehicles is huge but it doesn't have to be complicated once you ignore all the fads and risky stuff. Index mutual funds are the place to start (and maybe end). Asset allocation and diversification are themes to guide you. The books on that list will teach you.

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The Money Girl (Quick and Dirty Tips for a richer life) Podcast is a pretty good source for this type of information.

Some Recent Topics:

  • 15 IRA Rules you should know
  • 10 Ways to deal with money stress
  • 401(k) Loans
  • 5 problems with tax refunds
  • 8 Tips to invest without too much risk

MOney Girl

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I've recommended this book a few times on this site, and I'm going to do it again.

Get a Financial Life: Personal Finance in Your Twenties and Thirties by Beth Kobliner

Most of the personal finance advice books and blogs I have found focus too much on investing, or are more about "lifestyle" than finances, and left me unimpressed. I like this book because it covers most of the major personal finance topics (budgets, rainy-day fund, insurance, retirement, and non-retirement investment). I have not found another book that covers the topics as concisely as this one.

It is no-nonsense, very light reading. Even if you are not a book person, you can finish it in a weekend. It is really geared for the young person starting their career. Not the most current book (pre real-estate boom), but the advice is still sound.

Keep in mind that is is starting point, not the ultimate answer to all financial questions.

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