Introduction to Personal Finance

Brian WalshLauren Anastasio


  • Week 1: Approaching Your Finances with Purpose
  • Week 2: Understanding Your Net Worth and Credit Score
  • Week 3: Assessing Your Cash Flow and Taxes
  • Week 4: Planning and Budgeting for Your Future

Week 1

The Benefits of Financial Planning

Financial decisions are getting more complicated and stakes are getting higher. Low education, not taught in school.

  • Be better prepared for emergencies
  • Plan better for retirement
  • Improve investment returns
  • Manage debt better
  • Reduce your financial stress
  • Understand your money
  • Save for future goals
  • Manage and repay debt
  • Invest for the future
  • Prepare for unexpected events

Common Misconceptions

1. Financial planning is investing
- Financial planning is making a plan, one step at a time.

2. I already made a plan years ago
- Financial planning is ongoing

3. Financial planning is just for the well off
- Financial planning is for everyone, for all incomes

4. Financial planning is expensive
- There are many approaches

5. I'll wait for major life events to do it
- Small healthy habits established early are more effective

Life Cycle of Financial Planning

  • Spending less than you bring home
  • Investing wisely
  • Insurance plan
  • Healthy habits
  • Balance between the present and the future

Planning in your

20s: establish healthy financial habits, find a balance between .paying down debt and saving for emergencies
30s: have a backup plan for unexpected events, prioritize between competing goals
40-50s: prioritize your own financial future
60s: planning for the unexpected and healthcare costs in retirement

Healthy habits for any age

1. Small healthy habits for long-term success
2. Consistent approach to understanding your finances to accomplish your goals
3. Establish safeguards

The Financial Planning Process

Financial Planning in 6 Steps

  1. Understand what you own, owe, and spend
  2. Identify your goals, concerns, and preferences
  3. Plot your course
  4. Identify your next best action
  5. Focus on that action for 30/60/90 days
  6. Rinse and repeat

Your Relationship with Money

Understand the Human Side of Personal Finances

Klontz Money Script Inventory (KMSI) Assessment

Based on assumptions: 
  • Money beliefs are developed in childhood and often passed down through generations
  • They are typically unconscious but connected to specific context or situations
  • Money beliefs are a primary driver of how we interact with money
  1. Money avoidance: Rich are bad/greedy, money should be avoided.
  2. Money worship: Happiness and solution is money, one can never have enough.
  3. Money status: self worth and net worth are closely linked
  4. Money vigilant: secretive and frugal, detrimental to relationships and inhibits your ability to enjoy your resources

Deep Dive into Personality 1 - Money Worship

Money is the key to happiness, but the pursuit never satisfies you. Have credit card debt, have lower net worth, prone to buying things. Redefine what happiness is, incorporate giving, increase timing between wanting to buy and actually buying.

Deep Dive into Personality 2 - Money Avoidance

Talking about money makes you feel uncomfortable, and rich people take advantage of others to achieve. There is virtue in not having much money. Often associated with people whose parents are wealthy, but not always. Acknowledge why you avoid it. Check in often. Create a ritual about being financially informed. Check in on your money habits. Come up with a list of ways where money is good. Create and hit smart and small goals.

Deep Dive into Personality 3 - Money Vigilance

Do you constantly thing about money optimization and making better choices, do you think it is important to always save. Appreciate that you need to work for your money, may believe that financial handouts are bad. Have better financial health. Higher likelihood to feel anxious about your financial future. May cause you to save, but also have financial secrets from your partner. Frugalness can lead to excessive anxiety about money, which impacts personal health and happiness which prevent you from enjoying your money. Find balance by incorporating fun into your budget. Have a trusted advisor or financial planner. Set an intention to spend less time worrying about money. 

Deep Dive into Personality 4 - Money Status

Linking self-worth to net worth, enjoy buying luxury brands or buying prioritize newest tech. Prone to excessive gambling, financially dependent on others, may hide spending from partners. You are not your net worth, focus on defining yourself. Try exercises to curb spending, pause reflect on impulses. Be healthy in emotion, physicality, and financially.

Couples and Money

Managing Finances with a Partner - Where to Start

Money consistently ranks at the top of the list for couples conflict.
  1. Know yourself, identify your money personality
  2. Share your money history, tell your partner how money was handled in your household growing up and how that has shaped you, listen to your partner's money history, identify your shared goals and values.
  3. Identify the roles you want to play in managing money together
  4. Review your finances together, go over all accounts and balances, discuss status of credit scores, talk about income amounts, share your goals. Cover credit scores and credit history, income amounts, debts, account balances, as well as goals.

Managing Finances with a Partner - Joint Accounts or Some of Both

Completely Separate Finances
Best if you are early in relationship, divorced, or prefer full control or value independence, autonomy, and privacy. Use a Transfer on Death designation for assets.

Hybrid Approach "Yours, Mine & Ours"
Contribute a percentage of income. Best for living together, carried debt or large assets into the relationship or have shared goals.

Completely Combine Finances
Combine all spending and these expenses are paid out of joint accounts, joint credit card, joint checking account. Best for married or committed life partners, you value transparency and simplicity.

Working with Your Partner on Finances

Establish Jobs to be Done, Identify the Roles You'll Each Play, Schedule a Monthly Money Date, Enjoy the Date

How Emotions Impact Your Finances

Understand and Overcoming Loss Aversion

Cognitive bias that explains why the pain of losing is psychologically more powerful than the pleasure of an equally sized gain. Reframe financial decisions in a way that focuses on the potential gain instead of solely focusing on the potential loss. Put the potential loss into perspective by investigating what the worst case scenario is and its likelihood. Find a money buddy to reason about with.

Understanding and Overcoming Hindsight Bias

Diversification is the more predictable path to growing your money, over individual stock picks. Hindsight bias influences your decisions making skills by causing you to feel overconfident. Think about alternative scenarios to make the actual outcome appear less predictable.

Understanding and Overcoming Confirmation Bias

When you notice, focus on, or give credit to evidence that supports your existing beliefs. It happens early on in the decision making process, look for third-party resources while investigating.

Understanding and Overcoming Reference Bias

Reference bias or anchor bias causes you to rely on the first piece of information you learn about a given subject. It also makes us reluctant to change our minds. Challenge the anchor, and look for alternatives that don't fit the pattern of our confirmation bias.

Week 2

Understand What You Own

What is net worth and why does it matter?

Add up everything you own and subtract everything you owe.

What is an asset? 
Liquid vs Non-liquid assets
Asset: Something that has value to a person/company/gov
Personal assets: cash, cash equiv, checking savings, money market account, certificates of deposits, us gov treasury bills, personal property, car, boat, art, jewelry, collectiots, furniture, computers, cameras, phones, tvs, real estate, residential/commercial, land, structures on land, investments, stocks, bonds, annuities, mutual and exchange-traded funds. 
Business assets: bank account, inventory of goods, accounts receivable, business vehicles, office furniture/machinery, build/land.
Liquid asset: accessed quickly and converted to cash without losing much of their value (cash)
Non-Liquid: have value but may not be as easy to convert into cash when needed

The value of knowing what you own
  • Are you getting the max ROI
  • How does the asset make money? What must happen for the investment to increase in value?
  • How does the asset match up with your personal and financial goals?
  • How liquid is the investment? How hard would it be to sell if you needed money right away?
  • What are the risks associated with the investment? What is the most you could lose? Can you handle the risk financially and emotionally?

Types of assets - Understanding what you own

Cash: loses its value due to inflation, price of goods rise, purchasing power of your money falls
How much should you have, 3-6 months of expenses, baseline in checking account, savings for goals in the next few years. Too much cash means missed investment opportunities, too little means extra works to convert non-liquid assets.
Real estate will be your largest assets, but also associated with your largest liabilities being your mortgage.

Measuring and assessing your liquidity

How much cash you have, relative to your costs.
Liquidity: how easy an asset can be sold for cash
Liquidity ratio: how much cash you can get if you need it. Divide cash assets by monthly expenses, ratio is how many months you can last without income.

What are the different types of debt

Debt can be a good thing if you can make monthly payments.
Secured debt: offered some type of collateral or asset to the lender or creditor in exchange for the ability to borrow funds. If you go into default on the loan, the lender may seize the property or asset used to secure the debt. Improves odds of approval and receive a better interest rate.
Unsecured debt: less personal risk, credit cards, student loans, medical debt, at the cost of stricter requirements to qualify. Bound by contractual agreement to repay funds, defaulting requires the lender to go to court to reclaim money owed at the cost of the lender, thus higher interest rates.
Installment debt: loan that gives you a lump sum at the start, pay back over time before a date, less frequent include a balloon payment which only include interest payments throughout the term and end with a large payment due at the end. Installment loans can have a fixed or adjustable interest rate based on the index rate it's attached to.
Revolving debt: open line of credit to draw and repay continually, credit cards ex, make min payments on revolving credit but interest continues to accrue thus higher interest rates and late fees.

Debt payoff strategies
  • Pay off the highest interest debt first
  • Pay off the debt with the smallest balance first
  • Debt consolidation
  • Debt settlement companies (which have no guarantee and can cost more)

Types of Debt - Understanding what you owe

Good if buying an appreciating asset. 

Using Relay to understand what you own and owe

Track your spending, categorize transactions for budgeting, add accounts from multiple financial institutions, insights into trends and habits, auto calculate net worth over time. Pay attention to the broader trends like monthly spend, spend per category, and misc spikes. 

The Fundamentals of Your Credit Score

What is a credit score and why does it matter?

Multiple types of credit scores; its a number between 300 - 850 that tells a lender how risky you are to lend to. How the score is calculated: accounts, how many and what types; length of credit history; payment history, credit utilization ratio. Credit scores matter for: loans, interest rates, apartment rentals, employers.

Who determines your credit score?

You have more than one credit score, you have more than 50 FICO scores.
Credit bureaus: collect and maintain consumer credit information and resell it to other businesses as a credit report
Top 3 (90%): Equifax, Experian, TransUnion
Credit scoring models: FICO and VantageScore (newer, based on values from all three credit bureaus; payment history, length and types of credit, credit utilization, credit balances, new credit inquiries, available credit)

What is a FICO Score?

Components: payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), new credit (10%)

Key components of your credit score

  • Payment history: timely and full payment on due, automatic payments protect your credit score
  • Credit Utilization: ratio of total credit available (lower better), determined by revolving credit; a credit renewed as it is paid off
  • Length and mix of credit use: longer credit history better, credit mix is variety of debt you have, desirable mix includes revolving debt and installment debt (history ends when account is closed, thus keep open and semi-active)
  • New credit inquiries: recently opened accounts/applied debts
  • Derogatory Marks: negative factors like foreclosures or bankruptcy (7 years)
Actions to take: autopayments, avoid maxing out credit cards, keep oldest cc open.

What's your credit score?

Experian FICO Score 8 or Equifax VantageScore 3.0, free credit score monitoring

Obtaining and Monitoring Your Credit Score

How to request and review your credit report (1/5 have an error), what goes in there, missed or late payments, lender requests for your credit report, list of employers, negative actions like bankruptcies.

Improving and Protecting Your Credit Score

How to improve your credit score

  1. Identify where you have room for improvement
    1. Payment history, credit util, age of credit, mix of credit, new credit, derogatory marks
  2. Understand key actions to make progress in that area
  3. Take action and track your progress over time

How to build credit over time

Making every payment on time, use a spouse/parent joint account/co-signer to start, monitor the credit limit ratio, keep unused credit cards open, boost credit mix like using a personal loan to finance a large purchase, check the credit report and report errors or fraudulent accounts, limit credit applications to overtime instead of at once.

9 most common credit score mistakes

  1. Missed or late payments
  2. Closing old accounts
  3. Playing the rewards game
  4. Forgetting to review your credit report
  5. Taking on new debt before major purchases
  6. Taking out in store credit cards
  7. Ignoring loans in collections
  8. Making too many hard inquiries
  9. Consolidating debt then racking up more debt

Protecting your credit

Identity theft: steal your data and open accounts in your name, contact a protection plan, call any company where fraud may have occurred, add a fraud alert and maybe a freeze.

Week 3

Assessing your cash flow

Understanding cash flow

What is disposable income

Maximizing your cash flow

How to improve personal cash flow

Monitoring and updating your cash flow

Cash flow changes in different life stages

7 life events you should financially prepare for

Managing uneven cash flow

Ways to determine your cash flow

Key financial ratios for your finances

Understanding different personal finance ratios

How to evaluate your personal finances

How much of your paycheck should you save

Why your debt to income ratio matters

The basics of taxes

Types of taxes

What are the different types of taxes

How income tax withholding works

Understanding your key tax numbers

How income tax brackets work

How income tax withholding works

Preparing to file your taxes

Taxes - DIY vs. hiring a pro

Week 4