A Beginner’s Guide to Personal Finance

beginner's guide to personal finance

If you have $10 today, how will you spend, save or invest it?

After you spend money on necessities, how much will you allocate on the extras – the fun things, the things that you’ve wanted for a long time and the things that count as luxuries to you? How will you accomplish all of your goals given the finite resources available to you?

financial freedom

A large part of planning your finances is anticipating your needs and dreaming about what you want. You probably already do this to some extent. You need to buy some clothes, so you wait for a Black Friday sale. You know you’re running out of milk, so you plan a grocery trip on Sunday. The challenge is thinking about what you may need and want two years or a decade from now. Figuring that out will take some time, but you can educate yourself in the short-term. Armed with the right information, you can begin to steer yourself in the right direction.

There’s a lot of literature on the topic of personal finance it can be daunting to know where to begin. So here are some resources and ideas for how to get started!

How to Start Prioritizing Your Financial Needs

personal finance

The first step is to evaluate where you are. Just like your physical health, your financial health also needs regular attention over time. Once you know where you are, you can work on educating yourself on the relevant terminology.

Inspired by Maslow’s Hierarchy and the many hierarchies of financial needs on the internet, I’ve created my own pyramid.

mallika sen pyramid

It’s possible to move back and forth between these levels, but the tools and education you acquire will be valuable and essential at every stage:

1. Basics

It’s very important to understand how to stretch your money to meet your basic needs, especially when you have no income or irregular income. You can use the budgeting template in the resources below or just do the following exercise on paper in order to generate awareness about your spending habits and requirements.

Here’s a quick budgeting primer :

  • Maintain all your receipts for a month or two. Alternatively, record every expenditure.
  • Fixed expenses – Start by writing down total expenses that do not vary from month to month. Eg – rent, phone bill, groceries, etc. Add it up.
  • Variable Expenses – What are the occasional costs that you’re not accounting for? Eg – annual costs like renters insurance, repairs, gifts, etc.
  • Now look at your categorized monthly expenditures (fixed vs variable and necessities vs non-necessities) and prioritize your absolute necessities over anything that isn’t essential for a given period of time(eg.- a month, 2 months, till you get paid next, etc). This exercise might give you an astonishing amount of visibility into your spending habits and requirements! Consider building a budget and tracking it on a monthly basis.

2. Safety

Although you’re using all your resources to cover your expenses, you can slowly start saving for a rainy day, aka building an emergency fund. The purpose of an emergency fund is to cover a few months of necessary living expenses in the case of job loss or other extenuating circumstances that throw your plans off track. This can go into your savings account; unlike the checking account, you can earn minor interest on the money you put in your savings account. Aim towards saving enough to cover one month of living expenses and then build your way up to 3-6 months.

3. Accumulation

At this stage, you’re consistently earning more than you spend and can start saving towards future goals. This includes investing in CDs(fixed rate of return), the stock market, bonds, your company’s 401k, etc.  

Getting started with your personal finance can feel intimidating and overwhelming, but there are so many resources out there to help you! Take it step by step and before you know it, you’ll be budgeting, saving, and investing money like a pro!


Mallika Sen is an engineer in the Bay area. She loves to read, watch Netflix and plan things – but not simultaneously. She has a lot of “micro-hobbies”, which is a term she’s made up to describe her habit of intensely researching or practicing a new topic or activity for a few months or more at a time before moving on to the next. She believes this adds perspective and excitement to life and would love to share what she learns along the way here at LiveYourDream.org.

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