Bottom Line Up Front (BLUF): If you are just getting started with personal finance, don’t try to plan everything before you start. Take one single step. Once you do that, take another, then another. Finally, when you run out of steps, do some research so you can find the next few steps to take.
“A journey of a thousand miles begins with a single step.” - Chinese Proverb
This website includes a lot of detailed information about different types of investment accounts, index funds, magic numbers for retirement, college savings plans, IRA rollovers, etc. Sometimes, it is easy to forget how daunting all of this was when I first started.
For years, I knew nothing about investing. I was putting a small percentage into TSP because an old supervisor told me to. But, I didn’t know how the TSP worked, I just knew it was a good idea. I also had a 529 college savings plan for my kids, but I had no idea how high the fees were (they were high!). I knew that credit card debt was bad, and that I needed to pay my bills. Otherwise, I just didn’t know much about finances.
I started researching investing, but still didn’t know much. However, after reading a few good books, I learned just enough to pick the first couple of steps. I opened a Roth IRA and moved some money in. Then, after a couple of Google searches, bought my first shares of Schwab’s SWTSX Total Stock Market Index Fund.
I made a TON of mistakes after that. I bought Coinbase’s stock during their IPO (which promptly fell). I bought a few shares of AMC (I’m not kidding)… just before the meme stock sank. Luckily, I didn’t have much money in the account to lose, so these mistakes didn’t cost me much. And, over time, I stopped chasing the latest hype and refined my investing strategy. I still have more to learn, but I’m in a much better place now than when I started.
The biggest mistake we make
What would’ve happened if I would’ve waited until I know what I know now? Or worse, until I knew everything about investing? I would still be waiting to get started. Worse, I would still be sitting on cash during the latest inflation hike, which would’ve greatly eroded its spending power.
Waiting until we know everything is the biggest mistake that we make. In investing, the longer you are invested the more your money grows. If you wait to create the perfect plan, you’ll be waiting all your life to get started. Instead, start with one single step.
Starting with a Single Step
In my case, I had read a good book that recommended opening a Roth IRA for investing. It explained the tax benefits in a simple way, and it made sense why it was a good idea. This became my first step in learning how to invest on my own.
I didn’t know which company to start with, so I chose Schwab (somewhat randomly) and then opened an account. This wasn’t much, but I had taken the first step. I was in a different place than before I started. I had an investment account!
From here, the next step was obvious. To buy investments, I needed money in my investment account. I transferred money from my bank account into my Roth IRA. It was as simple as online banking, and once it was done the next step was obvious: buy my first investment.
I had read the book, “The Boglehead’s Guide to the Three-Fund Portfolio”, which told me to invest in a total market index fund, amongst others. So, I Googled “Schwab total market index fund” and found the ticker symbol for it: SWTSX.
I walked through the process and placed my very first order. (That day I also learned that it takes 2-3 days to buy shares of an index mutual funds… unlike ETFs which you can buy instantly. But I digress.) After 2-3 days later, I had bought shares. I was an investor!
After that, I decided to follow the rest of the Boglehead’s Guide and bought the other two types of index funds they recommended (total international market & bond index funds). I had 3 types of funds, and was a Boglehead investor.
When you get stuck, research
For a few months, this was all the investing I knew. There is nothing wrong with this simple strategy. There are many happy Boglehead investors who swear by this method. But, I still felt like I didn’t have my arms around all of my finances. I wanted to dig further, so I started to learn more. My progress was fairly random, but each time I tried to focus on actionable steps I could take to improve my financial situation.
For example, after reading Dave Ramsey’s “Total Money Makeover”, I understood the importance of creating an emergency fund and paying off our debts. We paid down all of our debts (except our mortgage), and then had a clear path to concentrate on adding to our investments.
I also started researching the impact of fees on your investment returns. After looking at my USAA 529 college savings plan, I found that I was being charged outrageous fees for my kids’ college savings. I searched for better 529 plans and eventually rolled over their plans to BrightStart’s 529.
I also researched how to increase our investments. I found that spouses who do not work can have their own IRA or Roth IRA (sometimes called a Spousal IRA). I opened one for my wife and we started maxing it out.
Each of these sparked a single change that improved our family’s investing strategy. One step at a time, we made great strides towards our financial goals.
Conclusion
You won’t know everything at first. No one does. However, taking a single step forward is often all you need to get started.