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In this article, we’re talking about my beginners guide to personal finance. The reason I came up with this article is that a lot of guys have been asking me lately “hey Prince, what should I do with my personal finances at this time of like my life”.

My answer always varies super widely depending on where you are. If you’re still in school, or if you’re right out of school. Maybe you just got your first job, or maybe you just got a promotion. It’s always going to be a different type of answer, but in this article, I hope to answer all of those with just an overview of my idea of personal finance.

In this overview, there will be six different phases I’ll speak about. Depending on where you are in life, you can probably figure out which phase you’re in, or which level you’re in. Anyway, that’s the point of this article.

Special thanks to one of my friends, this article was a suggestion by him. He has no idea what he’s doing with his finances, and it wasn’t taught to him in school, wasn’t taught to him by his parents either.

That’s basically the intro for this article. I’m going to be talking about my beginners guide to personal finance, hopefully, you’ll learn something from this.

If you do have comments about it, please leave a comment for me thank you. So with that out of the way, let’s go talking.

Beginners Guide To Personal Finance

Phase Zero

There’s nothing like a “phase zero”, in fact, it really isn’t a phase. But I’m going to call it phase zero because it’s kind of like, the starting point.

What I think characterizes phase zero is somebody that’s still in school, or maybe they just got out of school, and they have no idea what they’re doing with their finances. Basically, I think there are two really important parts of phase zero. One of the main parts is to secure a credit score, and the other is to build an income.

Getting A Credit Score

Now, to get a credit score when you have zero credit, one of the easiest ways to do that is with a secure credit card.

Basically, what a secured credit card is, is that you loan the credit card issuer $200 collateral. Just to make sure that, in case you don’t pay your credit card payments, they can take that from you. That’s essentially what it is, you deposit $200 to the credit card issuer, they give you a credit card, and you can start spending money as you normally would on a credit card, and that helps you build credit.

Once you have a little bit of credit history, I believe it’s anywhere from three, six, or nine months. You’ll then be able to apply for a normal credit card.

A Plus

Just to add, if you do have a credit score already but it’s in the negative, I recommend getting it fixed. You can do it manually, check out my article on 5 EASY Financial Goals That Anyone Can Start. Alternatively, you can use the help of a credit score booster company like Credit Pro and Credit Firm to improve your credit score.

The second goal in phase zero is to really figure out how to make an income, whether that’s babysitting for $10, $15, or $20 an hour. Maybe you’re doing some sort of craft or hobby that keep paying you on the side, or maybe you just take a job where you’re just trading time for money, like some sort of labor job. Maybe you work at a restaurant, or you work at a cafe.

In any case, any type of income in phase zero is extremely valuable, and you should be patting yourself on the back for that. After you’ve started to make some income and you’re starting to build credit, you can slowly start to move to phase one.

Phase One

In phase one, you just want to get bare-bones self-sufficiency.

So what does that mean?

It basically means you want to be making more money than you spend, and you want to be minimizing your living expenses as much as you can. It’s in this phase that you’re probably living paycheck to paycheck, you don’t have enough money to move out of your house yet.

If you’re living at home, you might not be able to save that much but you might be able to save just a little bit of money, like maybe $25 a month. Probably, you can save $50, $100, $200 a month.

In any case, one of the major goals I think in phase one is to start building an emergency fund. For those of you that don’t know what an emergency fund is, it’s basically three to six months of living expenses worth of money in a bank account, that’s never to be touched unless it’s for an emergency.

What’s An Emergency Fund

An emergency would be something like a medical emergency, maybe your car gets totaled just through a random accident, or something you could use that emergency fund for. But in general, an emergency fund should really not be touched unless it is for an emergency. It’s so so important to have this emergency fund because, what it does is, especially in phase one when you’re barely self-sufficient.

it’ll really give you a kind of that mental launchpad to take more risks, especially when it comes to making more income. Since you’re not really afraid of say losing your job because, if you do lose your job, you have six months of expenses to fall back on. It’s a lot more comfortable of a position to be in, rather than let’s say you lose your job and you don’t have anything to fall back on. It’s going to just be a really really tough situation.

What You Can Do

What I recommend is, having six months of living expenses. The way to figure that out would be, to figure out how much you’re spending on a monthly basis, and just multiply it by six. If your rent is say let’s say $1000 a month, and you spend $500 a month on other stuff like food or utilities. I would add those two together so it’d be $1500, and multiply it by six. That would be the emergency fund that you’re looking to save for, starting in phase one.

You don’t have to complete it in phase one but, you should start building towards that emergency fund because it’s gonna give you a lot of flexibility down the road.

The other important part of phase one is to continue building credit, especially from phase zero where you started to build credit. In phase one, you really want to build upon that credit. What that means is, continuing to spend money on a credit card, not a lot of course, but, can you continue to spend a little bit of money on a credit card every month, just to build that credit history. Make sure you’re paying that in full every month as well.

The same thing with bills, you can continue to do auto-pay on your bills and that will just help you build your credit history for the long run. Let’s say you’ve been doing phase zero and phase one for a while, you’ve been continuing to build credit, you’ve started that emergency fund, and maybe you’re making a little bit more money now, and you’re ready for phase two.

Maybe you’ve just been saving more money in phase one, you’re ready for phase two.

Phase Two

Basically, phase two is mostly a continuation of phase one. The only difference is, in phase two, you’re finishing off that emergency fund that you’ve already been building upon in phase one.

And secondly, you’re paying down high-interest rate debt. If you do have debt, there are a couple of different methods to pay it down quickly. The first one is called the avalanche method, this is a method in which you pay off your debt according to how high the interest rate is. The most financially optimal way to pay down debt is the avalanche method, you’re paying down the debt that has the highest interest rate in that order, and then you’re going down the line.

If you have a debt with a 25 % interest rate, you’re trying to pay down that debt first, and then you’re going to move on, probably with a lower interest rate like 15 %, and so on and on.

The other method is called the snowball method. In this method of paying down debt, you’re paying down debt in the order of its balanced size. You start off with the smallest balance first, and you pay that off, and then you go to the next one and you pay that off. Let’s say you have a debt of $50, and then a debt of $100, and $150, and then $200. What you want to do is, pay off that $50 log at first no matter what the interest rate is, and then the $100, then the $150, and even the $200, and so on and so forth.

Why Is That

The reason you do this is that it provides a really large psychological boost. Imagine having like 10 or 12 different amounts of debt that you owe, but if you knock out the small ones, you only have 4 left. That’s a really big psychological boost, and can keep you going, and you maintain that momentum to pay off your debt. It can be somewhat more psychologically motivating, than paying down just high-interest rate debt. This is because, if you have a really high-interest rate large sum of debt, you might feel like you’re not making a big enough dent in it over time.

Sometimes, the snowball method could actually be more preferred by people than the avalanche method. However, we just must remember the financially most optimal way is the avalanche method, but just choose what’s right for you.

Also in phase two, we want to start thinking about ways that we can start saving for retirement. Once you’re having your emergency fund out of the way, and once you have your high-interest rate debt out of the way, you can start thinking about things like contributing to an IRA, or maybe your company 401k. We’ll talk about that more in phase three which is coming up.

Phase Three

What characterizes phase three?

Let’s say you’ve already built your emergency fund like in phase two, and you’ve started to pay down your high-interest rate debt. I still think phase three is all about finishing off that debt.

If you can get rid of as much debt as you can or all of it, that’s one of the main differences in phase three that you’re going to hate. The other big difference in phase three is, that you’re going to start contributing heavily to your retirement accounts. Either a 401k, a Roth 401 k, an IRA, or Roth IRA.

If your company matches your contribution, you should definitely be taking advantage of that at every single possible chance that you can get. It’s basically free money guys.

In phase three you want to make a plan for how you’re going to budget your entire income, including saving for retirement, or perhaps it’s saving for another big goal like buying your first house. In any case, hopefully, your income has increased enough by now, that you can start to budget for these things appropriately, and you can also maintain your living expenses or keep them at a very low amount.

The lower you can keep your expenses at this point, the better off you’re going to be, for saving for those big goals like your first house or like retirement.

Phase Four

Now that you reach phase four, I assume by phase four you have no debt, your income is increasing. Your retirement accounts are being maxed out every year, and you’re starting to build out some other investments for yourself. I think one of the key things in phase four to keep in mind is lifestyle inflation, and to keep it as low as possible.

I think in phase four, you should really be focused on how much you’re saving because many of your peers who also might be in phase four might just be spending a lot of money. Let’s say you’re making $10,000 a month, and your friend let’s just call him Will, he’s making $10,000 a month as well, and spends $8,000 a month on just his living expenses, and you’re spending like $3,000 a month on your living expenses.

The difference there is $5,000. At $5,000, over the course of a year is a $60,000 difference. Even though you guys are making the same salary, you’re actually saving way more than Will is, and therefore you’re going to be way better off for phase five and for the rest of your life. I would pride yourself on your savings rate not your income rate in phase four.

The other thing that you can start to do in phase four, is to start to build skills that you might need in the future. Basically, what that means is, that maybe you start to take on more side projects, or maybe you take on more responsibilities at work so that you can be more well-rounded in your career and also have different types of opportunities for you later on in life.

Phase Five

Phase five is here.

In phase five and beyond, I’m not really too sure what happens in phase five because I haven’t gotten there yet. But, basically, in phase five where I assume you’re all you’re going to do is, continue to save for those big goals like retirement, and buying that first house. Maybe you already have the first house you want to buy your second house or an income property. You can do that as well but, you’re going to be trying to leverage your capital in a way to continue to build your wealth.

In phase five, you can start to give back. You could have started giving back in any of the phases before that, I think in phase five it is really important to start giving back because basically, your personal financial life is pretty much covered by the time you hit phase five, that giving back could be a large priority in your life at this point.


With that being said, this was my guide to beginners personal finance, and I hope that you found it helpful. I know that we covered a lot of topics here, some of them I glossed over, some of them I went a little bit deeper into. But if this was helpful for you please let me know, because I’m still trying to figure out what other topics I want to cover.

I think that this was just a very all-inclusive article that I’m going to just send to some of my friends because they’re gonna ask me inevitably “hey what should I do with my finances”. Well, sir or madam I just told you.

Hopefully, you guys learned something from that. Thank you for tuning into this blog, I really appreciate it. I really appreciate you guys reading, thanks for your continued support let me know what you think in the comments.

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