Once you have contributed to your 401k, you are still left with the somewhat daunting decision of how to invest within your plan. For better or for worse, 401k providers typically “help” by limiting your choices to a small number of mutual funds (after all, the only true freedom is freedom from choice, right?).

A good strategy that will serve anyone well is the 3-fund portfolio. In the 3-fund portfolio you aim to hold broadly diversified index funds in the three major asset classes: US stocks, International stocks, and Bonds. By investing in this manner you are instantly diversified across thousands of different securities, will never significantly underperform the market, and are mathematically certain to outperform most investors doing differently.

Identifying what asset class a fund belongs to can be challenging, especially if your 401k provider doesn’t break them out for you. Identifying which funds are index funds can be even more difficult, but in general index funds will have expense ratios that are much lower than the other available funds. The expense ratio is the annual fee you pay for the privilege of investing in the fund. A low expense ratio is the single best indicator of superior long-term performance. An expense ratio of 1.5% may not seem like a lot, but when compared with an index fund charging an expense ratio of 0.3%, that 1.2% difference compounded over 30 years will add up to tens of thousands of dollars in lost returns. Vanguard offers various tools to compare the costs of investing in high or low expense ratio funds.

Unfortunately not all 401k plans are created equal, and some fund selections are truly horrendous containing funds with expense ratios in excess of 1.5%. If this is the case for your 401k plan, consider campaigning for improvements. While you’re doing that, make the best of a bad situation and choose the lowest-cost funds in your plan. You could also consider funding an IRA before contributing to your 401k (since this is a post about 401ks I will not go into the details here – see the FAQ or Google “IRA”), however, if you are saving for retirement you should contribute to your tax-advantaged accounts to their limits before putting money in a taxable account with no tax advantages.

Some other frequently asked 401k questions

1. My employer does not match my contributions. Should I still contribute to my 401k?

If your employer does not match contributions and you are looking to save money in a tax-advantaged account, most people will be better served with an IRA. However, the IRA contribution limit is $5,500 per year for those under 50 and has income limitations. If your income is such that you do not get the full tax advantages of an IRA, it is absolutely worth contributing to your 401k in order to save for retirement.

2. My 401k is crappy. Should I still contribute to it?

If your 401k has a poor selection of high cost funds, consider contributing to an IRA first. You can open an IRA with whoever you want, thus allowing you to choose which funds you have access to. If you have already maximized your IRA contribution for the year and still have money left over you want to put towards retirement, you should contribute to your poor 401k. The effect of high expenses really only starts to bite after long periods of time, and 401ks are quite portable in that you can roll them to your IRA if you leave your current employer, or sometimes you can roll it into a new 401k with a new employer. Bad 401k plans can turn into great IRAs in a heartbeat.

3. I want to retire early. Should I contribute to my 401k and lock up my money until age 59.5?

You should take advantage of the tax structure of the 401k for at least some of your savings, assuming you are planning to live past 59.5 years of age. Early retirement requires a lot of planning – you should project your needs before and after you’re eligible to take distributions from your 401k and plan accordingly.

From /u/arichi: If you plan to retire before 59.5, but close to it – say, at 55 or so – you can use 72(t) distributions to access pre-tax money without penalty. If you do so even earlier, you can access it with a five-year delay via a Roth IRA conversion ladder, although you’ll still need the first five years’ expenses available via taxable accounts, Roth IRA contributions, and perhaps part-time work.

4. Pay off debt or contribute to my 401k?

If your employer matches any of your 401k contributions you should contribute enough to get the full match. This is free money that you should not leave on the table. After that, any high interest debt carrying interest rates beyond what you could reasonably get investing elsewhere should take priority. Remember that paying down debt offers something that only scammers can claim otherwise – guaranteed, risk free return!

5. I’m a young person and want to invest aggressively – why invest in bonds at all?

Bonds provide a source of funds to purchase potentially higher-yielding investments when they can be had at discount prices during market downturns, reduce your portfolio’s volatility, and usually offer a steady return themselves. On the technical side, there are numerous studies that show that 100% (or more) stock investors are not compensated in proportion to the extra risk they take on by doing so. While stocks have outperformed bonds over the long run to date, “past performance is not indicative of future returns.” Finally, the psychological/emotional effects of a severe bear market really cannot be appreciated until they’re felt first hand. It is one thing to say you’re OK watching half of your investment portfolio evaporate in a few weeks. It’s quite another to watch it happen for real and have the wherewithal to stay the course. Bonds offer some consolation in such a scenario.

6. What is a vesting period?

(By suggestion from /u/dgmachine) Any contributions that come out of your paycheck are always 100% yours. However, if your employer provides any matching contributions to your 401k, occasionally they become yours according to a vesting schedule. A vesting schedule is essentially a time delay between when the money your employer contributes becomes “yours,” and is used as an incentive to keep employees with a particular company. Vesting schedules can take many forms – some schedule vesting in 20% increments (20% the first year, 40% the second year, etc.), some have a set amount of time (100% vesting after 3 years), others do not have a vesting period at all and the money is yours immediately. Your company’s HR section should be able to explain the terms of your company’s vesting schedule, if you have one.

7. I’ve left my previous employer. What should I do with my old 401k/403b/retirement plan?

See the FAQ entry on Rollovers.

8. Do rollovers into my new 401k count against my annual contribution limit?

No. Rollovers do not count against annual contribution limits for your 401k. For more information on rollovers, see the FAQ page on Rollovers.

9. Do employer contributions into my 401k count against my annual contribution limit?

No – employer contributions do not count against the individual contribution limits ($18,000 in 2015 and 2016). They do, however, count against the total 401k contribution limit – currently $53,000 in 2015 and 2016.

10. My company offers an after-tax 401(k). Should I contribute?

Possibly, if you have already reached the annual max for traditional or Roth contributions. See detailed discussion here.

11. Can I contribute $18k to my 401k and $5.5k to my IRA?

Yes. The 401k and IRA contribution limits are separate and do not affect each other.

12. Can I withdraw my contributions from my Roth 401k without taxes or penalties (like my Roth IRA)?

No. Unlike a Roth IRA, you cannot choose to only withdraw contributions from a Roth 401k. Distributions will contain a proportional amount of contributions and earnings, and the earnings will be taxed and penalized.

In plain English, a 401k is an account you put money into that receives favorable tax treatment. Each year you can elect to contribute money to your 401k plan through payroll deductions. Elective deductions are usually specified as a percentage of your income, although some plans allow you to specify a dollar amount as well. The annual contribution limit is $18,000 in 2015 and 2016 (plus an additional $6,000 in 2015/2016 if the employee is age 50 or older). Do not go over this limit (some plans will not let you, and others will simply stop accepting contributions once you reach the limit).

401k plans come in two flavors:

• Traditional 401k plan contributions reduce your taxable income. This is known as tax deferral – you are not taxed on the money you contribute now, but will pay income tax on your contributions and your earnings at your marginal tax rate when you take distributions from your 401k in the future.
• If you contribute to a Roth 401k, contributions have already been taxed at your current marginal income tax rate. In exchange, all earnings may be distributed tax free if the distribution meets certain age and eligibility requirements. Note that not all 401k plans have a Roth option.

Which one do you choose? It depends on a lot of factors, but the big ones are:

• Income – High earners are usually better off contributing to a traditional 401k, as this allows them to avoid paying their current high marginal tax rate. Conversely, those with lower incomes usually favor the Roth option, as they can pay a low marginal tax rate now in exchange for never being taxed on that money again.
• Your guess about your future income tax rates – Those that believe they will be in a lower income tax bracket when they retire usually favor the traditional 401k. Those that believe they will be in a higher income tax bracket when they retire usually favor the Roth option. Those that believe income tax rates will rise across the board in the future usually favor the Roth option.

Money you contribute to your 401k must then be invested in the funds your 401k provider offers you.

What should I do with my old 401(k)?

You usually have 3 options to choose from:

1. Leave it where it is, managed by your old 401(k) company. (This assumes there is no periodic fee to maintain your account as a non-employee and that you have enough money in the account to meet any minimum requirements.)
2. Roll it over into an IRA. (Note: this may not be a great idea for pre-tax 401(k) plans if you have a high income that is above the Roth IRA contribution limits and are planning to do a backdoor Roth IRA in the future.)
3. Roll it over into your new company’s 401(k) plan. (This assumes they allow it.)

Make your decision based on which of the three options provides the best selection of investment options. “Best” is based primarily based on which has the investment options with the lowest expense ratios. Most of the time this will be option #2: an IRA with a low cost provider where you have access to index funds with expense ratios below 0.2%. However, if either your old or new 401k has a particularly good choice of low expense ratio index funds (below 0.1%) to choose from you may want to choose option #1 or #3. This is usually only the case with extremely large corporations.

Note that some 401(k) plans feature “force-out” provisions that will remove separated participants with a low-balance from the 401(k) plan. If your old employer’s 401(k) plan features a force-out provision, they may exercise it if your account balance is less than $5,000. If your account balance is below $1,000, your former employer may send you the entire balance in the form of a check; otherwise, your employer must exercise the force-out by rolling the money into an IRA on your behalf. If you have an old 401(k) and are planning on keeping your money in the plan (as per option #1), ensure that your balance is high enough that you cannot be forced out, or that your plan does not force out old participants. If you are planning a rollover (as per option #2 or #3), and your old employer’s 401(k) plan features a force-out provision, you may want to roll your balance out as soon as possible, to avoid your 401(k) balance going through the force-out process.

I have a bad 401k plan, can I roll it to an IRA now?

401k plans usually only allow rollovers upon separation from the employer that sponsors the plan. Some plans, however, have an “in-service rollover” provision that does allow participants to roll funds from a 401k to another qualifying retirement plan without separating from the sponsor. This is a plan-by-plan feature, so you need to check with your 401k administrator or human resources office to find out if your plan has it.

Do rollovers into my new 401k count against my annual contribution limit?

No. Rollovers do not count against annual contribution limits for your 401k or IRA.

What’s the best way to perform/initiate a rollover?

Starting in 2015 the IRS is instituting a “one rollover per year” policy regardless of how many IRAs you own. In context, this refers to a rollover when you, the account holder, receives a check and then redeposits the money into the proper account. It does not apply to trustee-to-trustee rollovers in which you never have to deal with a check and everything is handled by the gaining and losing financial institutions. Thus, do a trustee-to-trustee rollover whenever possible to avoid any potential complications with the IRS, losing the check, or accidentally taking a distribution when you don’t mean to.

What’s the best company to roll my 401k/403b/etc. to?

Vanguard, Fidelity, and Charles Schwab are generally the IRA providers with the lowest expense ratio funds to invest in.

A lot of personal finance advice is straightforward applications of math: Keep expenses less than income. Pay off highest interest rate debts first. Compound growth is your friend. Then there are obvious legal requirements and benefits: Use tax-preferred retirement / HSA accounts. Keep insurance in force. Know how self-employment taxes work.

This post is about less-obvious but still interesting existing US laws to your advantage. There’s an endless number of these, but some come into play frequently enough that it makes sense to raise awareness about them.  Here are some that you may not already know about:

Tax planning loopholes

• If you earn less than 30K single / 60k jointly, you can use the Saver’s Credit to get a tax credit for a portion of your IRA or 401k contributions, even for Roth contributions. Full-time students are not eligible. If you contribute to a retirement account (401k or IRA) at low(ish) income levels (see the link in the OP), then a portion of your contribution, up to a limit, is applied directly against your other tax liability. For example, couple making 36K jointly (even if one income) contributes $2K to one or more 401ks (to get a match, say), and now can apply an additional $1000 against their other tax liability as well, either reducing their taxes or increasing their refund in most cases. The exact benefit depends in income and phases out quickly.
• You pay no taxes at all on long-term capital gains if your taxable income (including those gains) is less than the top of the 15% tax bracket. That could be $95,000 gross income for a married couple filing jointly. This is better than a Roth in that you can do this at any age.
• Sales of a personal residence often have no capital gains tax as well. Various rules apply.
• If you rent a room in your house, part of all of your housing expenses (including insurance and utilities) can be Schedule E expense deductions against your rental income (but you need to declare the rental income).
• Take advantage of “adjustments” like student loan interest, tuition, moving costs, etc., that don’t require itemization if you are eligible.

Retirement planning loopholes

• Employer contributions to your 401k don’t count against the 18k limit.
• If you change you mind about making an IRA contribution, e.g. your income becomes too high for it to be allowable, you can simply remove the money before the tax filing deadline without penalty.
• For redditors with more “life experience”, you can increase your contributions to a 401k and IRA at age 50, and your HSA contributions at age 55.
• Self-employed people have lots of options for retirement accounts. This can apply even if you have employment retirement savings.
• Think you make too much to contribute to Roth IRA? Think again! The ever-popular Backdoor Roth IRA may work for you. [But no, I am not adding the Mega-Backdoor Roth. There are some places even I won’t go.]
• Retirement accounts are often protected for those filing chapter 7 or chapter 13 bankruptcy. If your medical bills or finances are getting the better of you, don’t touch your retirement accounts to pay them off.

Health insurance loopholes

• If you change jobs and don’t have insurance coverage for a time, you have 60 days to elect continuing (COBRA) coverage. This works retroactively; you can decide to take COBRA at day 59 and be covered for the previous 59 days. Yes, we get that COBRA is expensive. But it’s free if you wait to elect it and don’t need it, but you’re still covered because you can elect it retroactively. Any other health insurance you’d have to pay for but probably still not use.
• You won’t pay a penalty for lack of health insurance if you have a single brief coverage gap, which is defined as “less than three months.” I.e. May 1 to July 28 is OK. May 1 to July 31 is not.
• A very important part out of COBRA “loophole” which is yes you have 60 days to apply, and it is retroactive, but you also have 30 days from the date you apply to start making payments. On the 88th day or whatever you can just call and say you know what I changed my mind and as long as you didn’t file any claims against it can cancel it free of charge. So in this scenario you have 88 days under an umbrella of emergency coverage without paying a dime.

• HSAs -You are able to either contribute directly out of your pay check (like a 401(k)) or deposit whenever you want from a personal account (like an IRA). If you contribute out of your paycheck, you do not need to pay FICA taxes on that amount (SS or Medicare). This gives you an extra 7.65% of what you contributed. If you contribute directly from a personal account you do not get this break, as you have already paid the FICA taxes on that money and there is no provision to get it back come tax time.

Thanks mainly to the FACTA (Fair and Accurate Credit Transactions Act), companies that compile personal information on you to give to others must (for the most part) give you at least one free report detailing what they have on you every 12 months.

The Consumer Finance Protection Bureau maintains a list of these databases but many of them either have the same information as the major ones or don’t have as much as the big ones do.

These companies essentially control your ability to open bank accounts, rent an apartment, get a mortgage, find a job, get a credit card, etc. You deserve to know what they have on you so you can tell them to correct something if it’s wrong.

In order to keep things simple, these are the information providers you should be looking at if you suspect you may have credit, banking, employment, driving or housing issues.

How to check Credit Reports?

It’s what you hear about most on this sub and rightfully so since credit report impact most peoples’ daily life.

• AnnualCreditReport.com offers your credit report from Equifax, Experian and Transunion every 12 months. You can order all 3 reports at once or spread them out 4 months a piece, etc. You’ll see loans, credit card accounts, collections, court judgments (most counties), addresses, etc.

How to Check General Background Information

Employers will usually pull one of these background files on you if they want to hire you. If you plan on going into certain fields (law enforcement, regulatory administration, anything with a security clearance) they’ll likely pull more than one type of background check on you as part of their investigation.

• First Advantage Corporation and Verification offers information mainly concerning court cases, both criminal and civil and will report some things which might also appear on your credit reports.
• Hire Right gives potential employers and landlords a better look into your driving records as well as things that might appear on a court docket or your credit report.
• LexisNexis may be your most important file since they vacuum up information on nearly everything. If you’re only going to get one non-credit report disclosure, make it this one.
• CredCo is another fairly all-encompassing database which doesn’t require that you mail in a paper copy of your request.

How to Check Banking Record Reports

ChexSystems is the gatekeeper at 80+% of banks, a few major banks don’t use them (Regions) but most do.

• ChexSystems is what would likely stop you from being able to get a bank account if you’ve written bad checks or left account balances negative in the past. See what they have on you to start figuring out how you can fix it.

How to Check Rental History

Most landlords run some type of tenant background check to see if you have previous evictions or you owe your former landlords money. These databases hold that information:

• SafeRent is mainly used by landlords and can be slightly more extensive than other background checks.
• Tenant Data may have something that SafeRent might have missed and vice versa.

How to Check Credit Scores

Other than getting your credit score from a banker for free after a loan application, you can use these site guides to get a close approximation of your credit score.

• Credit Sesame offers your credit score and credit report along with what aspects of your credit you need to improve.
• Credit Karma gives you free credit reports and scores along with recommendations for credit cards and loans.
• Discover Score Card offers your Experian score and updates it on a monthly basis.

Bitcoin is the currency of the Internet. A distributed, worldwide, decentralized digital money. Unlike traditional currencies such as dollars, bitcoins are issued and managed without the need for any central authority whatsoever.

There is no government, company, or bank in charge of Bitcoin. As such, it is more resistant to wild inflation and corrupt banks. With Bitcoin, you can be your own bank.

Where can I buy bitcoins?

You can buy or sell any amount of bitcoin (from as little as $1 worth) and there are several easy methods to purchase bitcoin with cash, credit card or bank account. You can buy bitcoin from local traders or online using a bitcoin exchange. There are bitcoin exchanges all around the world, and as bitcoin grows the exchange market is fluidly growing as well, with exchanges located in many countries. You can start by checking the list on where to buy bitcoins in the FAQ.

How much do bitcoins cost?

Note: Bitcoins are valued at whatever market price people are willing to pay for them in balancing act of supply vs demand. Unlike traditional markets, bitcoin markets operate 24 hours per day, 365 days per year. Here are a couple useful sites [bitkoin.io, preev.com] that shows how much various denominations of bi

tcoin are worth in different currencies. Alternatively you can just Google “1 bitcoin in (your local currency)”.

Where can I buy bitcoin online?

• More countries that have bitcoin exchanges

Bitcoin Units

One Bitcoin is quite large (hundreds of £/$/€) so people often deal in smaller units. The most common subunits are listed below:

For example, assuming an arbitrary exchange rate of $500 for one Bitcoin, a $10 meal would equal:

• 0.02 BTC
• 20 mBTC
• 20,000 bits

If you want to use ‘bits’ exclusively, just remember that there are 100 satoshis in 1 bit, and 1 million bits in one bitcoin. For more information check out the Bitcoin units wiki.

Where can I spend bitcoins?

Here are a few places that you can spend your bitcoin, but there are more appearing all the time, so check online for the most up to date information, or tell us or add other significant ones that you find!

Can I mine bitcoin?

Mining bitcoins can be a fun learning experience, but be aware that you will most likely operate at a loss. Newcomers are often advised to stay away from mining unless they are only interested in it as a hobby similar to folding at home. If you want to learn more about mining you can read more here.

If you want to contribute to the bitcoin network by hosting the blockchain and propagating transactions you can run a full node using this setup guide. You can view the global node distribution here.

Securing your bitcoins

With bitcoin you can “be your own bank” and personally secure your bitcoins OR you can use established companies such as Coinbase and Circle which have secured wallets where they hold the bitcoins for you and provide insurance.

If you prefer to “be your own bank” and have direct control over your coins without having to use a trusted third party, there are many options. If you would prefer easy and secure storage without having to learn computer security best practices then a hardware wallet such as the Trezor or other hardware wallets are recommended.

BitCoin Wallet security

Now we are getting to the meat of things.

There are a number of wallets available to store your hard earned bitcoins. If you have a decent amount of coins to store, you should look into software wallets – BitcoinQT, MultiBit, Armory or Electrum. They are among the best place to store your money safely (provided your computer is secure as well). Chose one you think best suits you, install it and encrypt your wallet file with your strong password. You should take your wallet file and back it up (location of the file is different for different clients, so you have to do some research as to where to find that file). Back it up on a CD, safe USB drive or the like. Keep them safe. If you lose that file, you will lose your money.

A quick word on deterministic wallets. Electrum and Armory allow you to create wallets from a seed. If you use the same seed later, you can recreate your wallet on other machines. With deterministic wallets, you only need to keep that seed secure to have access to your money.

In comparison, in BitcoinQT’s traditional wallet, every address you use is random, meaning that after you send 50-100 outgoing transactions your backups can be obsolete. Always keep an up-to-date backup of such wallet file if possible.

Okay, sometimes you need to have your Bitcoins with you when you leave your computer. In this case, you should look into either online or mobile wallets. A staple for both of those is Blockchain.info, but there are others to chose from.

A good rule of thumb with these is to not store more money in them than you can afford to lose. They are best used as a convenient way of accessing some money, not storing your savings. Online wallets are especially vulnerable to their servers getting hacked and people’s money getting stolen.

What to keep in mind while using online wallets:

• Use a secure password (the more money you have in them the stronger the password should be)
• Always keep a backup of your wallet in case you need to recover your money
• Whenever possible, enable two factor authentication
• Don’t use your online wallets from unsafe computers

Cold storage for Bitcoins

Sometimes you want to store your bitcoins for a long time in a safe place. This is called “cold storage”. There are a few ways one can do this.

First of all, paper wallets. They are nice for giving people small bitcoin gifts, but also for long-term storage if properly used. What you want to do is generate and print them offline. You can save the linked page for example and run that offline. If you are really paranoid, you can put it on read-only media and access that from a different computer. For really long term storage, use archival-grade paper.

Another approach to take is using a separate computer for storing your money that is offline 99+% of the time. You could set one up easily by buying an old laptop, reformatting it, installing Linux and a Bitcoin client. Generate an address on that machine and send money to it from your main wallet. Depending on how paranoid you are you can connect that computer to the Internet afterwards to synchronize data with the Bitcoin Network and then turn it off and put it away somewhere safe until it’s needed.

Budgets. Not only do they make finance nerds happy, but it’s essential to your financial health. They allow you to keep a modicum of self-control on your spending. They will show you, clear as day, where you can start saving money. In fact, I would go as far to say that trying to make ends meet without a budget is like trying to drive a car without a brake pedal. And here’s the wildest thing about them: they only take mintues to set up; shorter than the time it takes to read this post. If you haven’t started yet, you’d be crazy not to.

Create a budget: List Monthly Income

1. Start with listing your Monthly Income. Budget out with four weeks of take-home pay. If you’re starting a new job and planning ahead, use an after tax paycheck calculator to get some rough numbers.

• If you’re bi-monthly, you might want to grab your February pay stubs (or a calculator) and see what 10 workdays of pay looks like, then multiply by two. This will help you budget out the worst-case scenario.
• If your monthly income fluctuates, list your worst-case or lower-than-average scenario. Budget out for that instead, and anything that’s left over should be allowed to float in your checking as a buffer.

First thing you want to do is budget out for four weeks of take-home (after-tax) pay. This means if you’re paid weekly, your monthly income is based on four paychecks. If you’re bi-monthly, you might want to grab your February pay stubs or a calculator and see what 10 workdays of pay looks like, then multiply by two.

You probably noticed that you’re missing a couple of checks, or at least part of your checks. In fact, you just calculated a year to be only 48 weeks long. This is a good thing. You are assuming the worst-case scenario, which will happen at least once a year: February. Only base your monthly income off of your minimum, guaranteed income.

So what does this mean? If you’re bi-monthly, you get paid a little more than you expect a month. If you’re weekly, you get four “bonus” checks spread throughout the year. Bi-weekly, you get two or three “bonus” checks per year.

Using this method—whether you’re bi-monthly, weekly, or bi-weekly—you’re earning on thirteen months, while spending on twelve. All of your “bonus” money should go toward Step 4.

Create a Budget: List Mandatory Spending

2. Take a look at your Mandatory Spending. This is all the spending that is related to safety and survival. This kind of spending includes:

• Mortgage, rent, and insurance.
• Electric, natural gas, water/sewer.
• Groceries
• Transportation

Not included in this list are discretionary items (which belong in Section 4):

• Cable TV
• Dining out, bars, and clubs
• Shopping

A few Rules of Thumb: You should consider making a major change to your lifestyle if one of the following scenarios is happening:

• Your monthly mortgage/rent is more than 30% of your take home pay. You might want to consider getting a roommate, or moving to some place cheaper.
• Your monthly expenses on your car is more than 15% of your take home pay. You might want to consider carpooling to work, traveling less, or taking the bus or a bike. You may also want to consider moving closer or selling your car, if either’s an option.
• Your groceries cost more than $300 per person. If you’re trying to cut costs, you might want to look at more frugal options for buying groceries, such as buying in bulk, going for store-brand foods, or frequenting less expensive grocery stores.

Create a Budget Review Debts, Goals, and Retirement

3. Take a look at your Debts, Goals, and Retirement. How much you put here is subjective, but the faster you take care of this, the quicker you can become financially independent.

• You want to pay debt down fast (especially debts with high interest rates), so you pay as little interest as possible. There are tools to help you, and Mint has a paydown calculator if you chose their service. (Some investors would advise you to pay low interest debt, like debts that are only a few percentage points above inflation, more slowly. You can instead invest in retirement and get higher returns. More on this later.)
• You want to save up for an emergency to cover 3-6 months of expenses in case something goes horribly wrong. You will need this money available to you in a separate, liquid savings account, not an investment fund. I will elaborate why in next week’s post.
• You want to invest as early as you can into retirement, so you can take advantage of compound interest and live a wealthy lifestyle.

Your ultimate goal in this section is taking steps toward total, financial independence. This can take years or even decades, but don’t fret about the timeline. The point is that this should be your biggest financial focus, and the more you put toward this step, the more your money compounds. Your money can work harder than you do.

“Those who understand [compound interest] earn it. Those who don’t, pay it”

—Albert Einstein

Create a Budget: Discretionary Spending

4. Discretionary spending is anything that’s left over from your goals. Shopping, hobbies, cable, coffee, fast food, dining, and so on. Just remember: always live within your means, and try to save up for capital expenses before buying.

Dining out is more expensive than a lot of people think. It’s easy to blow $250+ in a month just eating by yourself, or going to the bar with friends. If you’re looking to cut back on this, consider making food at home, or inviting friends over for beer and homemade wings over a football game instead of going out.

Budget Tools and Budget Websites

Commercial Software

• Mint is free and automates much of the process by linking up with most large financial institutions to help track your spending and other aspects of your finances.
• Personal Capital is free and automates much of the process by linking up with most large financial institutions to help track your spending and other aspects of your finances.
• YNAB is commonly recommended here. Here are some notes on pricing:
  • Currently a subscription service at $5/month (or $50/yr)
  • The “classic” software (version 4) has a 34 day free trial.
  • The “classic” version (version 4) costs $60.
  • Students with a .edu e-mail address may be able to obtain Classic YNAB (version 4) for free.

So you just found out that your identity has been compromised. Perhaps you have had your purse or wallet stolen and your ID and social security card was in there, or you found out someone opened a credit card in your name. Whatever the case may be, you need to take control of the situation promptly.

What to do immediately if your identity is stolen

Do these steps right now, in order, and do not wait if you even suspect that someone has stolen your identity.

Immediately report any stolen credit cards

Imediately report any stolen credit cards or missing checks to their respective banks or issuers. Make sure you account for each card and check, and contact every lender. Prompt reporting will limit your liability in the event of fraudulent usage.

Place security freezes if identity is stolen

Place security freezes with each of the following Credit Reporting Agencies:

• Experian Security Freeze
• Equifax Security Freeze
• TransUnion Security Freeze
• Innovis Security Freeze (Innovis is smaller than the other three, but you should still place a freeze with them.)

You must file a separate report with each agency. Once you freeze your credit reports, no bank or lender will be able to pull your credit reports. This will prevent identity thieves from opening lines of credit, credit cards, or other loans in your name. This will also prevent you from taking out your own loans or credit lines, unless you either temporarily thaw your credit, or permanently unfreeze them. You will be mailed a confirmation letter with a PIN code, and you must use that PIN code to initiate any temporary or permanent unfreezing. Keep these PIN codes filed in a safe and secure place!

Depending on your state, placing a freeze may be free for everyone, or it may only be free for identity theft victims. If it’s free in your state, or if you don’t mind paying for immediate peace of mind, then place the freezes online and skip to the next step. If you can’t afford to pay, but your state makes it free for identity theft victims, first place a free fraud alert online (and unlike a freeze you only have to do it with one agency, they will report the alert to the others), then file an identity theft affidavit and police report (more info below) and then come back and file your free security freezes. You will need to mail in the requests with copies of your documentation.

ChexSystem Security Freeze

Place a security freeze with ChexSystems:

• ChexSystems Security Freeze

Eighty percent of banks and credit unions use ChexSystems to screen new customers. This step will make it harder for thieves to open a bank account, at most banks, in your name. This works the same as the above credit reporting agencies, and it is free for everyone. This is not foolproof, as some smaller banks may not use ChexSystems, but this will limit a common scam (a thief will open a new account, make a large cash ATM withdrawal to send the account negative, and then leave your credit damaged when the account gets charged off).

Identity theft affidavit and file a police report

4. Create an identity theft affidavit and file a police report.

• You can file your identity theft affidavit online with the FTC. When you are finished, save your complaint reference number, and click “Click here to get your completed FTC Identity Theft Affidavit”. Make sure to save a copy and print it.
• Then, file your police report. Bring along your filled out affidavit, a form of government issued ID, proof of address, and a copy of the FTC memo to law enforcement.
• If you haven’t signed the affidavit yet, bring it to a notary public to have notarized. Many banks offer notary services for free. DO NOT sign the affidavit until instructed to do so by the notary public! They must witness your signature! Now you will have a notarized identity theft affidavit along with the police report. Together these two documents make up your “Identity Theft Report”, and will be the basis for any future disputes.

Identity Theft Government Resources:
FTC.gov Identity Theft Affidavit (.pdf)
If you don’t want to file online with the FTC, you can print this blank affidavit and fill it out.
FTC.gov Identity Theft Guide (.pdf)
There are sample documents at the end of the identity theft guide, including a blank identity theft affidavit, and also sample dispute letters.

Secure Your Online Presence

Make sure your online presence is secure.

• Install anti-virus on your computer, check for malware, and remove any malware that is discovered. Use a well-regarded program such as Avira, Bitdefender, Avast, ESET, or Microsoft Security Essentials.
• If your computer was infected, immediately change your passwords for any financial accounts, social media, and email (especially any accounts related to the ID theft). (There is more on this below.)

What to do within the first few days after Identity Theft

These steps are not as urgent, but are still important to do in a timely fashion.

Credit Report After Identity Theft

Pull a copy of your credit report to look for newly opened accounts. Remember to pull all three bureaus. You will need to dispute fraudulent accounts with both the credit reporting agency, and with the fraud department of the bank or lender where the accounts were opened. You should also look for recent credit inquiries that you didn’t initiate (signs of attempted fraud), and check to make sure that the only addresses being reported on your credit report are your actual address (thieves will open accounts using addresses they control, or try and change the address for your existing accounts to one they control). Dispute any fraudulent inquiries or addresses. You can get copies of your reports for free via www.annualcreditreport.com, or through a credit monitoring service (read below).

1a. (Optional) You should consider signing up for a credit monitoring service, preferably one that will let you have daily credit report pulls, and keep it signed up for at least 90 days (preferably a year).

• If you were impacted by a large data breach such as the Anthem Health breach, the Office Of Personnel Management breach, or one of the many other breaches that have been in the news, you can typically get free credit monitoring for 2 to 3 years. Find the official web site regarding the breach and sign up (it should be linked from the company’s main web site or you can find it via Google).
• If you can’t afford a paid service, consider signing up for Credit Karma (uses TransUnion and Equifax).
• Since you have already frozen your credit reports, if nothing comes up in the first couple of months, itprobably never will. That being said, you may want to sign up for a paid credit monitoring service, ideally a service with “3 bureau” monitoring. American Express customers may want to consider CreditSecure Unlimited and USAA members may want to consider USAA CreditCheck Monitoring. Otherwise, compare the paid “3 bureau” credit monitoring options from Equifax, Experian, TransUnion, and MyFICO (you shouldn’t need to pay more than $15 per month).

Monitor Credit Accounts Online

Keep an eye on your accounts. Check your recent transactions frequently. Set up text (SMS) alerts with your bank and credit cards for things like “address changes”, “failed log-in attempts”, and/or “suspicious activity” so that you can be notified immediately. Immediately dispute fraudulent activity as soon as you learn of it. Dispute debt collection notices within 30 days (to protect your rights under FDCPA), and send all disputes via certified mail, return receipt requested. You can read more about dealing with collection agencies here: /r/personalfinance/wiki/collections

Notify the IRS About Recent Identity Theft

Notify the IRS if your tax information was stolen, or believe that someone has already filed (or may try to file) a fraudulent tax return in your name. File a Form 14039, Identity Theft Affidavit with the IRS. Read it, fill it out, sign and mail it. Then continue to file and pay your taxes like usual. You can contact the IRS Identity Protection Specialized Unit at 1-800-908-4490 if you need further assistance. More information is available here: http://www.irs.gov/pub/irs-pdf/p5027.pdf

Things you should do to protect your information in the future

1. Change your important passwords, and use two-factor authentication (2FA) for any accounts that support it. Especially consider two-factor authentication for your Email and Banking services. Gmail, Bank of America, Yahoo!, Facebook, Twitter, and many other services support two factor authentication. You can find a whole list at twofactorauth.org. Make sure to print out backup codes (if applicable), and keep the backup codes in a safe location such as a fireproof safe. Two factor authentication will keep anyone who gets your password from being able to log in, but if you don’t have your backup codes and you lose your phone or device,you’ll be locked out too! You can also use a password manager such as 1Password or LastPass to securely store passwords that are too long to remember.

2. Protect your physical information carefully. Keep important identification and sensitive documents on your person at all times when they are not in a secure place (a locked car is not a secure place, anyone can bust open a window and grab your stuff). If you don’t have a safe deposit box you should invest in a safe (preferably a fire resistant, RSC-rated safe, but any cheap locking fire safe is better than nothing) to store your documents in at home, and if possible bolt it down or keep it hidden. Only take documents out for as little time as is absolutely necessary. And don’t carry your social security card in your purse or wallet.

3. Shred documents containing personal information before disposing of them. Utilize a cross-cut or micro-cut shredder. Although it may not be likely that someone will dig through your trash, items in an unlocked garbage container are generally considered public property, so legally anyone could.

Things you should consider doing, to protect yourself

1. Opt-out of pre-screened credit offers from coming to you in the mail: OptOutPrescreen. This will reduce your junk mail, and reduce your risk in the event of mail theft. This is free to do, and you can opt out for five years or permanently.

2. Put all of your phone numbers on the Do Not Call Registry if they aren’t already. You can verify online if you aren’t sure. This will reduce unwanted telemarketing calls.

3. If you want to reduce the amount of personal information about you available online, use a service likeSafeShepherd to opt-out of common public data brokers. You can cancel after a few months, because once they’ve done the heavy lifting of opting you out of databases, you probably don’t need them anymore. Or if you are paranoid, you can keep your subscription. You can also opt-out individually (list) but it is more time consuming.

4. Turn on encryption on your computer (on Windows, use BitLocker, on Macs, use FileVault).

Important things to remember about Identity Theft

1. Stay calm. Don’t get discouraged. Take things step by step, and deal with problems as they arise.

2. Send all mail USPS Certified Mail, Return Reciept Requested, and make a note to yourself of what you sent along with the certified mailing number. It is important to have a paper trail for documents, and certified mail is the gold standard for sending legal correspondence. Send copies of original documents if possible, but if you need to send original documents you should keep copies of them for yourself. Write brief notes like the Certified Mail #’s on your copies, or on a cover sheet, so you don’t lose that information. When you get back the green signature receipt cards, attach them to your copies of what you sent as proof of receipt.

3. Keep good records of the steps you took, when you took them, who you sent things to. Take notes, record phone conversations if possible (but check the laws in your state first). If you ever have legal troubles resulting from identity theft, good documentation will make your life a lot easier.

What are some good books on personal finance?

There are lots of books that teach everything from the basics of budgeting to how to invest like a pro. I’ve listed a few of my favorites geared for every stage in life. To help narrow down the choices and find the best advice, we reached out to personal finance experts and authors to find out which foundational books everyone should read

• Your Money or Your Life by Vicki Robin, especially if you want to change your emotional relationship with money.
• The Millionaire Next Door by Thomas Stanley, especially if you have high expenses.
• The Money Book for the Young, Fabulous & Broke by Suze Orman.
• I Will Teach You to be Rich by Ramit Sethi.
• The Bogleheads’ Guide to Investing and/or The Bogleheads’ Guide to Retirement Planning, both by Larimore et al, which covers the investing philosophy espoused by most of /r/personalfinance.
• A Random Walk Down Wall Street by Burton Malkiel, especially if you aren’t convinced that index-investing is right for you.
• The Four Pillars of Investing by William Bernstein
• Total Money Makeover by Dave Ramsey, especially if you are in more debt than you want to be.
• The Richest Man in Babylon by George Clason, for timeless advice.
• Additional Authors to Consider: John Bogle, Larry Swedroe, David Swensen and Rick Ferri

What are some good videos about personal finance?

• The Bogleheads Investment Philosophy and Sound Financial Lifestyle videos by Rick Van Ness
• Khan academy “Practical Money Skills” videos:
  • The full series (skip the first video)
  • An indexed list
• Timeless advice from SNL

Are there any free e-books about personal finance?

• The Richest Man in Babylon by George Clason
• If You Can: How Millenials Can Get Rich Slowly by William J. Bernstein

What are some good blogs about personal finance?

(Please don’t ask to be added to this list, sorry.)

• Get Rich Slowly – general personal finance
• The Finance Buff – general personal finance
• The Simple Dollar – general personal finance
• The White Coat Investor – personal finance for professionals (higher income topics)
• Mad Fientist – advanced strategies for financial independence and early retirement
• Mr. Money Mustache – early retirement and frugality
• jlcollinsnh – early retirement advice from a retired guy

What are some good books on investing?

• A Mathematician Plays The Stock Market by John Allen Paulos, for a good overview of various investment terms in the context of the author’s unfortunate dabbling in WorldCom stock.
• Why Smart People Make Big Money Mistakes by Gary Belsky & Thomas Gilovich, for an accessible overview of how psychological biases affect your investments & finances.

What are some good books for more specific topics?

• Stock options and stock grants:
  • Consider Your Options by Kaye A. Thomas.
• Windfalls and inheritances:
  • Sudden Money: Managing a Financial Windfall by Susan Bradley and Mary Martin
  • The Windfall Club: What to do When Life Deals You a Good Hand by Janne Ashton
  • Sudden Wealth: Blessing or Burden? by David Rust
  • Windfall: Managing Unexpected Money So It Doesn’t Manage You by Maria Brill

What are some other resources for investing advice?

• The Long-term Investing Start-up Kit is a great place to start your path to investment success.
• The Case for Index Fund Investing, Vanguard publication