Five Steps to Financial Health
Recently we've had a lot of new visitors to the site, and many of them have the same questions and concerns. A very common situation is to be starting to think about getting finances in order.
For a beginner though, this can be overwhelming. It's very easy to get discouraged and put things off, or to look for someone to do it for you (there are people who will happily charge you large fees to invest your money for you).
As with any large project, a good way to deal with this is to break it into smaller pieces and just focus on getting each one done. Early success builds momentun and motivation, making it easier to tackle the later stages.
Here is the RetireJapan Quickstart Guide. Each step should be done in order and you should not move onto the next step before completing the current one*
* you can ignore this if you are motivated or knowledgeable, but it will probably be easier if you follow the steps in order.
1. Understand your situation
Write down your total family income, fixed expenses, and total spending. These three numbers will give you a good idea of what will be possible.
2. Tweak your finances
Increase your income or reduce your spending (or both). The easiest way to do the former is to do part-time or freelance work on the side, or change jobs. The most effective way to do the latter is to focus on reducing your fixed costs (rent, loan repayments, mobile bills, insurance, etc.).
3. Save up for an emergency fund
An emergency fund is enough money to pay the rent and buy food for three to six months (fewer if you have a stable job and no dependents, more if you are a freelancer and have a family). This money should be immediately accessible but in a separate account from the one you use normally. The most effective way to do this is decide how much you will save each month and move it into the account the day you get paid (not using what is left over at the end of the month).
4. Start investing
For this, use the money that you were using for the emergency fund. If you are a US citizen you should invest using existing US accounts or open a new one with Interactive Brokers. If not, you should consider investing in Japan: first with iDeCo, then NISA (and Junior NISA), and then ordinary accounts.
The first step is to open the accounts. We recommend using the big online stockbrokers (Monex, SBI, Rakuten). You can open all the accounts with one company or spread them around. Most people should get a tax-reporting and deducting account (特定口座ー源泉徴収あり).
Then decide on what you want to invest in. There are lots of links on the Further Reading page that will help with this. Then buy the products in your accounts.
5. Automate your investing
It is relatively easy to set up automatic monthly investments. Once everything is set up, you will just need to look over them once a year or so to make sure your investments look the way they are supposed to.
*. Pay it forward
Help others around you get better at personal finance. It can transform people's lives for the better.
If you need help with any of this you can ask questions in the Forum. If you need even more help you might be interested in our coaching service. You can also post questions in the comments below.