Personal Finance Basics

I’ve written for you a compilation of all the knowledge I have of finance and how to make good financial decisions. From various books, blogs, and general life experience, here comes the best set of personal finance options and information I can offer you at this time.


Your spending habits are most likely built in already. You could analyze them, but this takes discipline in order to track your spending for a day, a week, or a month. In the book Your Money or Your Life, Vicki Robin and Joe Dominguez suggest that you track your spending every single day. Forever. They claim that this is the sure path to understanding you and your money.

A finance blogger and author by the name of Ramit Sethi argues that tracking your money takes too much willpower, and that doing this will only break your resolve to understand your own spending habits since you’ll be focusing too hard on the minutia instead of actually cutting your spending on things that matter. Here’s a sample from one of his posts:

But by reducing the number of things to focus on — and picking major, important items — you don’t need to worry about that one-off latte or extra $20 you spent on shoes. If you’re handling your major goals, the minor details fall out of that.

Overall, I think that the best strategy so far would be to focus on the big wins like Ramit encourages us to do, while still checking in with your spending habits to be sure that your big wins are still big expenditures in your life.

If your spending changes, as it most likely will a few years down the road, you’ll need to make adjustments accordingly and start cutting back money where it matters instead of where you’ve gotten used to cutting back money.

What if you spend a little on a lot?

If this is the case, then Ramit’s suggestion to spend less on the big wins won’t work for you. In this case, you’ll probably need to go through a few weeks where you look at what you’ve spent and where and get a feel for what things just don’t matter.

You may find out that you do have larger categories of spending where you could potentially cut back. The trick is, according to Ramit, not to cut back too quickly. If you cut back too hastily, you’ll most likely give up out of exasperation and never meet your goal.


You can earn money in a few different ways: working, creating a product, or investing the money in something that will give you greater returns. Let’s go through these one by one and look at the pros and cons of each.

  1. Working

    This is the most common route for people to take when they consider the idea of earning money. This can include being employed by someone else, or being self-employed.

    -PROS: This is the easiest way to make money. You trade your time for income. It’s a direct exchange and you know that you’ll be paid.

    -CONS: Most people max out at a reasonable hourly rate and have no hopes of making wild amounts of money from working a stable job. Also, people tend not to diversify their income when they’re working for someone else. This is a dangerous situation if you think about it because a layoff would then mean something critically unfortunate.

  2. Creating a product

    This option is a little more scalable than working, as you can potentially grow your sales to a significant number of people, therefore not putting a cap on what you can earn in your waking hours.

    -PROS: Larger possibility for growth, and therefore more income.

    -CONS: Harder to get started. Might end up investing a lot of time without good return if product doesn’t sell.

  3. Investing

    When it comes to investing money, lots of people (young and old) feel they don’t have enough information to decide what to invest in. If you’re a young person (20s and 30s), a book that I intensely recommend you read is I Will Teach You to be Rich by Ramit Sethi. It settled all of my fears, and changed my financial life forever. And the book isn’t just about investing. It covers all aspects of personal finance and basically highlights the importance of starting early.

    -PROS: If you put your money in the right places, you’ll be able to let your money grow with very little work on your behalf.

    -CONS: Investing aggressively could lead to large losses. Investing too safely is a waste of your money’s potential. You must invest in the right things in order to make good returns.

Either way, diversifying your income is just as important as diversifying your investment portfolio. If you find that you’re at a place where you rely solely on one income source, then you should consider finding other ways of making side income so that you’re prepared for any sudden loss of an income source. Plus, it’s also fun to see if you can challenge yourself to make more money in cool new ways.

I’m currently working a work-study job with my university, freelance babysitting, and working on a few other ventures such as this blog and helping a friend with her Etsy sales to see if they’ll prove fruitful. I hope they will, but if not I can always move on and I won’t incur a great loss because I didn’t invest all of my time in one potential revenue source.


Saving is the first thing that I do when I get my paycheck. It’s my default activity. Fortunately, it comes very natural to me to want to save a large portion of my money.

Sometimes I still have cravings to spend rather than save but it probably has to do with this consumer society. There’s no sense in dwelling on what can’t be changed, so instead of whining about consumerism, I like to address instead what I can do to help myself save before I spend.

Here’s what I did to optimize my balance of saving and spending:

  1. Calculated average earnings

    I figured out my average monthly income and used this as a basis for the rest of my calculations.

  2. Subtracted recurring fixed costs

    I calculated all of the costs that I pay for on a regular basis such as rent, groceries, gifts, and books and subtracted this from my monthly income. I also tacked on some extra for unexpected expenses.

  3. Established a minimum monthly savings goal

    I either save or spend the money that I have left over. I choose to save first. I created some minimum savings goals for myself each month towards future expenses such as a vacation, my wedding, and a house. I create a sub-savings account with ING Direct for every new savings goal that I create.

  4. Freely spent remaining money

    Once my savings goals are met, I can spend the rest on whatever I’d like. At this point though, I still consciously think about whether or not I need the item in question.

  5. Actively saved extra money

    If I find myself with any extra money at the end of the month, I like to actively put that money towards my savings goals, because I feel like I’m making progress. Also, this forces me not to spend all of my extra money just because it’s there.


Start a retirement account today if you haven’t already done so. I have a Roth IRA with Vanguard. You can too. If you haven’t yet learned about the power of compounding, I suggest you take a quick moment and learn about it. It can very well increase your chances of becoming wealthy.

Creating a more informed future generation

I think that in order to really do this, we need financial transparency.

However, when dealing with relatives or friends in your life, it’s often hard to bring up questions of finance, especially if your relationship usually doesn’t include these types of open discussions. Some people believe that financial matters are a private thing, not to be discussed with others. Other times, there are taboo topics such as bankruptcy that are going on in the background. Probing questions after a situation like this aren’t usually welcomed.

But finance books and blogs aren’t like this. They’re basically a window into the financial soul of the authors, and will let you truthfully gauge how well you’re managing your money, and what you can do to make your situation better. There’s definitely a blogger with a financial style that jives with you. The most important thing to do is to seek them out.

A few websites that I’ve read and enjoyed are:

Why financial self-education is so important

I’ve already discussed how it’s difficult to gain financial transparency with those around you, either due to privacy issues or general embarrassment as to the state of their financial system. Now I ‘d like to discuss why you should read more about finance.

It’s quite simple: when you learn about finance, you can make your money work for you.

After taking steps to learn about personal finance, I’ve become more informed than I ever hoped I’d be at this age. I’m honestly happy as to how I’ve diversified my income/investments, and set up my accounts.

I’m proud to say that I’m on my way to a healthy financial future.

Are you?

If not, what can you do about it?


The picture for this post is the Banco Central del Ecuador. I took this picture on my study abroad trip to Ecuador and I became really excited when I realized that a picture of an Ecuadorian bank fit well within the content of the post.


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7 Comments on “Personal Finance Basics

  1. Miss Selina! I didn’t know that you were also a big fan of Ramit Seith. I also started reading his blog last year along with his book and I agree that it’s was one of the most important personal finance books I picked up.
    It’s rather sad to see that saving for the long-term future generally does not make the top of the list for most 20-30 somethings. But you have your head on your shoulders!
    Not sure if you’ve read it but if you have the luxury of investing beyond your Roth I’d highly recommend ‘The Bogleheads’ Guide to Investing’ which gives much insight (perhaps more than you need) on how to further diversify, reduce risk and maximize returns from your investments.

    Thanks for spreading the word!

    • You know what? I actually purchased The Bogleheads’ Guide to Investing on my Kindle and read it over Spring break. I found that the authors had similar ideas to Ramit, but they were coming at the whole investment idea as an older generation which was nice to see as well. I did find a lot of the information to be super in depth and I had to skim over a few sections. I’ll probably reread it in the coming months to make sure I get a good grasp on the ideas. Thanks for dropping by with a comment! =)

  2. Very comprehensive post. :] I agree with a lot of your points, Selina; I especially agree with the need for financial transparency. Good work!

    • Thanks Adina for stopping by and leaving a comment! I highly enjoyed writing this post because it’s all I’ve been thinking about for the past few months.

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