Investing for Complete Beginners - The Promotion Levels of Personal Finance

Welcome to your free crash course on how to invest your money. This guide is going to cover everything you need to know as a total beginner. It starts off with assuming you're in debt and goes through what to consider doing as you start to make money and build wealth.

I'm not a financial advisor so do your own research. I'm a guy who went from being a broke and struggling English teacher trying to build an online business, to an expat who actually has an online business with decent cash flow.

I mention this to let you know I've been on both sides of the proverbial coin. Let's get to it.

Level 1 - Pay off credit card and student loan debt

When you decide to take control of your finances I describe this as level 1. Your investing strategy is simple. Don't worry about investing and instead focus on getting out of debt. You'll get a bigger return on your money by eliminating debt as it's akin to having your foot on the break pedal. I know this is a tall order for most.

Credit cards on average charge you anywhere from 18% to 27% a month in interest payments. Just by paying this off, your income will skyrocket by this amount. We all get into credit card debt for various reasons, sometimes our own incompetence, sometimes just bad luck because when problems happen the credit card is your way out.

It's not always just being irresponsible and buying stuff we can't afford. Sometimes we start a business that fails or perhaps we need the money to cover an emergency. I'm not judging, but before you think of starting any type of investment, you need to get out of credit card debt.

Next is student loan debt which is a true nightmare for many. I was watching the Dave Ramsey show and one guy had 1 million dollars in student loans! He was studying to be an orthodontist. All in all it will take him 10 years of schooling for his career field and then an additional 10 years to pay off his debt. So in 20 years he will finally start making money when he is in his 50s. Dumb.

I paid off my student loan debt because I served in the Air Force and used the GI Bill. I also majored in finance and accounting and got a high paying salaried position at PWC. There is no real advice here, be very careful not to ruin your life with student debt.

Level 1 First Class - Save $20k to $30K, open a Roth IRA, fund your 401K

Alright, so you slain your debt back to the fiery pits of Wall Street hell from which it came. You're significantly ahead of most people believe it or not. Now it's the time to lay the foundations of your basic investments.

Savings

First thing is to save up $20k to $30 in a high yield savings account. You need to have cash to pay for random expenses that pop up and to take advantage of any opportunities that appear. You can't do this if you only have a $10K in saving and the rest of your money is in stocks, crypto, and so forth.

Trust me, you'll feel a lot more secure and happy knowing you got a decent emergency fund in the bank.

Roth IRA

Now you need to open a Roth IRA. It's a tax advantaged account. That means the earnings within this account grow tax free upon withdrawal at age 59.5. With a Roth, you can take out the principle you put in but not the gains until age 59.5. You also can't write off any contributions.

The max amount you can contribute is $6k a year which goes up to $7k a year if you're over 50. There are income limits if you make too much money as you're not technically allowed to contribute to a Roth IRA, but you can do a "back door" contribution.

A Roth IRA is a basic, boring investment all should have. You can open a Roth with any brokerage like M1 Finance or Charels Schwab. I personally would invest in boring index funds for the next 30 years but you can invest in whatever you like.

Vanguard is also a good company for this, but with M1 Finance you can just model after the Vanguard time date fund and invest in what it invests in (which is public information). That way you have a bit more control over what your Roth is invested in. The only downside is you'll need to rebalance each year but again that's not a big deal.

401k contribution match

Last if your employer has a 401k contribution take advantage of that to the max amount. Simply ask HR what amount your employer will match. It's free money so you're crazy to not take advantage of it.

If you have money left over after putting $6K into your Roth and did your employer match for the 401K, you have two options:

1 - Invest the rest into your 401k. Work in your career field for the rest of your life and simply budget your money by maxing out the Roth, contributing as much as possible to your 401k and enjoy your life. Congrats level 1 first class, you'll be way ahead of your peers just through this consistency.

2 - Invest in yourself to increase your income. 

If you want to get to level 2, you'll need to invest in yourself.

Level 2 - Increase your income and start dividend investing and diversification of assets

Now that you have the basics down, a decent amount of savings, a fully funded Roth IRA and a 401K, it's time to grow your income. You can do that by becoming self employed and starting your own business or to move up the corporate ladder.

You want to grow your income through increasing your earning power and lowering your costs. You want to get to a point where you can invest a solid $1K or more each month. The idea is to sacrifice the things you can buy now with that money for the long term earning potential that money can make you.

Dividend investing

Dividend investing is where you invest your money into individual stocks and ETF's (there are ETF's that only track dividend paying companies) that pay dividends. This style of investing I love because your portfolio grows slowly in value but you get paid for owning the stocks.

You could eventually get to a point where you have a million dollar portfolio but get $30,000 a year in dividend income. Yes you're not balling out, but that's a pension for the rest of your life you just built for yourself on top of growing your own business. Also, depending on how much you can invest, you can reach this goal pretty quick which is why at level 2 you want to focus on making bank so you can get this setup and growing so in 10 years time you're well off.

The truth is you don't know how long you'll have with regards to earning money so it makes sense to live a middle class life and build your own pension. 

Crypto 

I'm personally bullish on crypto. You should prioritize your Roth first, but do consider getting some crypto currency to be exposed to it as well as to understand how it works. Not understanding crypto is like it being 1999 and having no idea what the internet is.

Real Estate

I'm an expat and have no desire to own a house. I don't want to be tied down or have to worry about a property or a property management company. To each their own. If you're like me, then you may want to look at Fundrise. You own part ownership of a bunch of different properties and get paid dividends as rent.

Please note that these dividends are not taxed as dividends at 15% but are taxed as regular income. Regardless, Fundrise is a way to diversify your income and investments.

Conclusion - Level 3 and beyond

So I'll leave it there. I'm currently at level 2 and will be so into my 40s. My personal goals are to contribute to my Roth IRA,  Fundrise, dollar cost into crypto and focus most of my money on growing my business so I actually have a lot of money to invest in dividends paying stocks and ETF's.

Remember, no one is coming to save you. You need to become the rock others can rely on.