2006 Makeover, Step #1: Get your accounts in order

Ramit Sethi

Last week I wrote an article about getting your finances organized for 2006: I’m going to kick some personal-finance ass–yours.

Today we’re going to start 2006 off by getting your money organized. Here’s the deal: We’ll begin step-by-step, starting with your spending (where are you spending money?), getting your accounts straightened out (are you paying fees?), and getting ready to divide your money into different buckets (saving, investing, etc).

Getting your budget stuff will be hard, but it will be worth it. Once you do it for the first time, it’s infinitely easier afterwards.

Then, in the next few weeks, we’ll get into the growth mode, where you can take your discretionary money and start investing it. I’ll help you figure out what kind of investment vehicles make sense (stocks, bonds, retirement accounts, etc) depending on your situation.

Along the way, I hope you add comments to these posts, asking questions and telling us what other personal-finance stories you’ve heard about from your friends, etc. The cool thing is that everyone can see and learn from it.

* * *
What to do by next Tuesday, January 17

1. Get all your investable money in one place (3 hours)
First, I want you to first figure out exactly how much you have to invest. This is money you want to put away for the short-term (1-3 years, maybe for a house or car), and money you don’t need for a long time (5+ years). Now, one of the biggest barriers to getting started is having money in 15 different places. You should also get this in one account so that it’s easy to reach. (Note: If your money is already in some place like a mutual fund, please don’t sell it just so you can get it in one place. You would think I wouldn’t have to say that, but…)

If you don’t think investing is important, just get your money in one place anyway. I’ll show you why it’s worth your time a little later.

Bottom line: Get all your investable money in one place.

2. Figure out how much you’re spending per week (4 hours)
Second, I want you to understand how much you’re spending per week–and what you’re spending it on. This is hard. If you already have a budget in Quicken/Money or something else, great! It’s just a few clicks to get the info. But since 99.99% of people don’t, you’ll have to reconstruct what you spent in December.

Here’s how to do it:

  • Write down your current income.
  • Write down what you currently spend in different categories like going out, clothes, food, car insurance, gas, etc. Keep it simple: Just include the stuff you spend money on, have a “Miscellaneous” category for stuff you don’t account for, and if you don’t know about your taxes, leave it blank. I have about 10 categories total. Here’s a sample budget.
  • Write down what you want to be spending per week in these categories.
  • Start crying.

Don’t worry. We’ll fix that.

Here are the best 2 templates: Budget spreadsheet 1& Budget spreadsheet 2. (Thanks to Wayne and Kiran; FYI the 1st spreadsheet is from the MS Office template page).

3. Make sure you’re not paying fees on your bank account or credit card (1 hour)

  • Credit cards: Call your credit-card company and make sure you have a card with no annual fee. (The only reason you should have a fee is that the cost of $65 or whatever is outweighed by the benefits you get, like tons of free miles, etc. This is hardly ever the case with the spending habits of our age group.) If your card has a fee, get a no-fee credit card. More information in my previous article, All About Credit Cards.
  • Bank accounts: Call your bank and make sure you’re not paying any fees. If you’re a student, tell them that and politely but firmly ask to be switched to a no-fee, no-minimum account. If the bank says they can’t offer that, use my no-fee, no-minimum strategy.

4. Get your credit report. It’s free. (30 minutes)
Because of a new law, you’re entitled to get your free credit report once a year. Your credit report will show you what accounts you have open and your credit history. Check this for errors. They happen a lot and are very very bad. Get your credit report here:

(Note: This is not your credit score, which costs $30. I strongly encourage you to get your credit score, even though it costs a little money. This will tell you exactly what creditors are using to evaluate your loans and interest rates. Get your credit score here:

5. Open a high-interest bank account (30 minutes)
Your bank’s interest rate is probably about 0.5% APY, which sucks. Open a high-interest savings account, which will get you a better rate.

FYI, here’s how I set up my financial accounts.

* * *

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  1. immunokid

    I’m a non-resident alien in the US so, as far as I can tell, I’m not allowed to open any of those high interest accounts (I have one at home paying 5.4%, but I doubt it’s worth converting currencies). Anyone know of a loophole/non-resident friendly high interest account?

    I also just got a credit card in the last 3 months; is it worth getting a credit report already?

  2. Sripathi

    Hi Ramit, Excellent start but I dont agree with your 1st suggestion. It runs contrary to the often repeated saying ‘Dont put all your eggs in one basket’. I also dont advocate having 15 accounts. So long as you know where you have your money invested and can reach them immediately, you are in good shape.

  3. Sripathi

    One more comment that I wanted to add to my previous one…. Throw your credit cards that dont offer any cash back into a piggy bank (yes, piggy bank. Cancelling them might hurt your credit history) and get one of those credit Cards like Citi Dividend Platinum Select etc. This card offers 5% cash back on gas, groceries and pharmacy. On all other purchases you get 1% cash back upto a max of $300 (I think) per year. Write to me if you need a link to this cards application.

  4. Adam Chance

    How do you dispute things in your credit report?

    I have several things to dispute.

  5. Ramit Sethi

    Sripathi: I disagree about the eggs-in-one-basket thing. First of all, that’s meant to diversify risk.

    That’s nice if you have over 100,000 in your bank account (FDIC insurance), but most of the readers on this site don’t.

    With that said,I’m encouraging to get their investable money in one bank account temporarily–so they can see everything they have and then move it to the right place.

    For me, having buckets of different money is very useful. It’s just hard to get started if your money is all over the place.

    Adam: You have to write to the credit reporting agency and the creditor (loan, credit card, etc) itself. Here’s a link with more information:

  6. Cap wouldn’t be a bad pick too. 4.25%, same old deal as ING, emigrant, with no minimum and fees.

  7. JLA

    You should actually get your credit scores from Transunion can only give their own credit score out. There are 3 credit bureaus that each have their own scores and reports. Also myfico is run by fair-isaacs which started the whole fico business

    It’s a bit more expensive but you get all 3 credit reports AND 3 credit scores

  8. Andrew

    Immunokid – if you can open a PayPal account you can earn 4.26% (this week’s rate) by putting your balance in their money market fund:

    I don’t know why everyone gets so excited about ING and Emigrant…

  9. Ramit Sethi is good too. Or you can just go to any of the 3 reporting agencies and get a 3-in-1 report (they sell them in a bundle, or individually if you prefer).

  10. anon

    Maybe cuz of sites like this

  11. Mike

    I think Quicken or Money is a must. It might take an hour or two to set up and download all of your account information into, but there after it does almost everything automatically and saves you tons of time. You can also get several different reports and graphs from the program that help you understand whats going on with your money.

  12. Roger

    Great Tips! I currently have all my accounts organized in a similar way and I’m interested in seeing what you’re going to post next week. Keep up the good posting!

  13. Cap

    paypal’s money market is a bad idea. its like getting taxed twice.

    besides paypal’s already questaionable rep, you’re comparing a money market fund that’s not guaranteed to FDIC insured saving accounts.

    plus, most of these high yield savings have consistently better rates than paypal’s money market fund.

    but I guess if you cant open accounts due to status then its understandable. still, there’s better options out there I think.

    dont’ forget to search for coupon codes on, there’s always a 15-20% off coupon floating around.

  14. Pedro

    Ramit, great post but I think Step 2 should be the 1st step. It’s amazing to see how much money people “waste.”

  15. Sarah

    I second Cap, who mentioned the account. It’s FDIC insured and all that, and if you use the promotional code “start” you’ll get a free $25.

  16. Christina

    Someone told me that you shouldn’t have a savings account so you can get as much Cal Grant as you can for college. Is this good or bad advice?

  17. Christina

    Another question I had for a long time: Could you explain the tax you pay on the interest you make with a savings account? And the tax-free savings accounts?

  18. Rick

    Great post! When I had used Free credit report from Equifax, they had offered FiCO score for $6.95. Also, an additional advice is that it is preferable to take one credit report at a time – and take it an interval of 4 months – thereby regularly monitoring your credit report for free (I have decided to do it in alphabetic order, so order will be Equifax, Experian and Transunion in Jan, May and Sep)!

  19. jtc

    I may be looking ahead, but if we are going to be opening an account with a brokerage firm (e-trade, vanguard, TROW, etc), won’t they all have sweep vehicles with a high APY?

    Wouldn’t it be more convenient to use the brokerage’s sweep as a high APY savings account while investing from there into ROTHs, MFs, bonds, etc?

  20. Ramit Sethi

    jtc: No, and yes, you are looking too far ahead. Etrade’s bank, for example, is horrible, with a low interest rate and high minimums.

  21. Chani

    I’m a little frustrated right now. I have plenty of money, but up here in canada, ING is only paying me 2.75% (and last year it was a lot less). I want to invest somewhere that will at least beat inflation, but.. how? I literally don’t know *how* to do anything. ING offers a mutual fund, and I could probably call them up and move money into that – but it looks like it passes through so many hands it wouldn’t be worth it. I have no idea how to get at stocks or index funds. and all the info online seems to be for americans, not canadians. I don’t want all my money eaten up in fees… but I just don’t know what to do. everyone I talk to gives different, conflicting advice, and most of them probably have no idea what they’re talking about…

  22. Ramit Sethi

    Well, instead of doing nothing, why don’t you call up the right places? Call up Datek, Etrade, Vanguard, etc, and ask them.

  23. Chani

    I really don’t like using the telephone. really, really stressful. besides, wouldn’t they just tell me to buy their stuff? it’s hard to trust any company when everyone’s talking about how the fees are bad, how they’ll take most of my money… my uncle keeps saying I should give him all my money and let him invest it in stocks, but I don’t think that’s a good idea either… 🙂

  24. Chani

    aha… I actually found a canadian investing site,

    I’m a little less stressed now 🙂 but still kinda overwhelmed by the sheer volume of conflicting advice. the index fund things *sound* good… but I’m afraid of making the wrong choices and losing money, or trying to do too many things and having it all eaten up in fees…

  25. Ray

    Chani, I am a Canadian too. There are some Canadian-centric sites out there but you shouldn’t worry about that for right now. Just do the things that Ramit has suggested in this post. In Canada the ING Direct accounts are about the best you will get in a ‘liquid’ account, just accept that and open an account with either ING Direct, PC Financial or ICICI bank. The more important parts of this post (in my opinion) are the figure out how much you are spending each week and the make sure you aren’t paying any unnecessary bank/credit card fees points. I’m sure Ramit is going to address the the question of how to figure out where you should put your money in future posts.

  26. JasonC

    For everyone who is saying they are stressed or worried they might lose money investing, this week is not about WHERE to invest your money.

    This biggest hurdle you can overcome is just getting started. Don’t let irrelevant details get in your way.

    Dont worry about index funds or stocks, just open a high-interest bank account. Dont worry about whether to use ICICI, PC, ING… just pick one and open an account (you can always change later).

    The important thing is to get your cash in one place, so you know what you have available.

  27. Matt

    Another gentle saving tip – its tax season (not so gentle anymore ) and some of the tax software bundle a free copy of Money or Quicken with it – look out for it.

    As far as savings account rates go, ING is passe – HSBC rocks..

  28. Chani

    Ray: I mentioned I already have an ING account. I went through that stage about 6 months ago. now I’m trying to actually start investing…

    perhaps this post wasn’t the best place to talk about it, but I wasn’t sure where else to go.

  29. Ray

    Chani, I have a feeling that Ramit is going to eventually get into the whole investment thing. In the meantime there are a few good Canadian-centred investing web sites out there. The Canadian Capitalist seems to be a good one (I found that one a couple of months ago) and he actually has a list of links on his site that are worth checking out.

    Just remember, you should invest in what you are comfortable with. If that means that you can’t bear the thought of losing (on paper) money then you should choose your investments accordingly. Also remember you don’t have to invest everything you have all at once. There are good index funds out there that will allow you to invest as little as $500 at a time and have fees that are less than 1%.

  30. Chani

    Matt: why do you say HSBC rocks? I looked at and their interest rates seemed low, just like most banks. do they have much better rates in the US? right now it seems is the best in canada at 3.05%, while ING just went up to 3%

  31. Chani

    I can’t find any canadian equivalent 🙁 HSBC only seems to give up to 1% in canada. seems like every country in the world has better interest rates than us.

  32. jtc

    WOW, hsbc is the best of all that I could find. 4.25% is too great to pass up. Also, there is a stellar reputation there. I have made my choice. My second choice would have been ING with 3.8%

  33. Adrian

    I have tried both Emigrant and ING. I had ING, and then I saw Emigrant pays 20bps higher in APR. So naturally I tried to switch to Emigrant. But the customer service was so ungodly horrible, and the interface was so bad (you can’t see how much interest you earn on a monthly basis) that I switched back. Emigrant’s not worth the extra 20bps, especially if you factor in money you can make from referrals.

  34. jk


    I’m in Finland, and the rates here are retarded. My current account has 0.15% APY. The “savings” accounts would get me less than 1.0%. What would you suggest considering 1.0% is less than inflation?

  35. Mike

    Sripathi: Be caseful putting those 0 balance credit cards in a safe place. They will hurt your credit more than cancelling them. One might be okay, but lenders consider too many lines of credit with no balance to be a bad thing. My wife and I found this out buying a car last year and a house this year when our credit took a hit and said “too many lines of credit with no balance”.

  36. Chris

    You say this blog is “for students, recent graduates, and other young people.” Is there any reason the advice you give here wouldn’t apply to an older demographic as well? I am 35, am married, have two children, and am a homeowner, and my financial life is a mess. I could really use some advice, but will the plan you propose here work for me as well, or is it only designed for young single folks with no financial obligations yet? Just wondering, thanks.

  37. Anissa BenSenia

    Thanks for the great content. It may be prudent for some people to refer to January or take a monthly average of several months for Step 2 (figure out how much you spend).

    I know I have to because December is Christmas season for me (and birthdays for 3 family members), so my spending gets skewed horribly.

    Just a thought!

  38. IncPen

    All good advice.

    I have followed these steps for 15 years- the day I got married- and recently passed $1.2 million in personal net worth ($400k in investment stocks and bonds, $800k in real estate ) I’m a creative/designer, my wife is a social worker

    I would recommend as part of your first steps that you include an insurance component for a very simple reason: you don’t want to get wiped out by something beyond your control, and once you start to accumulate wealth you don’t want to lose it to someone else.

    Basically you need to insure yourself against disaster.

    If you have health insurance, you’re off to a good start. If not, consider picking up a high-deductible policy, many of which are affordable from reputable companies.

    Insure your possessions: renters and owners alike can pick up policies for reasonable yearly rates. That way if the clown who lives below you burns the toast some day it won’t cost you your savings to get back on your feet.

    Auto Insurance In many states it’s mandated. No sense going to jail.

    Disability insurance Here you’re insuring against the inability to work. A simple policy can cover 70% of your current income, affordably

    Liability A $1million liability policy attached to your homeowners/renters policy will protect you from disaster if you’re sued for neglect, error or certain malfeasance. Essential, imho.

    I’ve probably missed something, but you get the jist of it. I’m not a shill for the insurance biz by any means, this is just from experience.

    Incidently there used to be a book you could get called ‘The Wealthy Barber’. It’s out of print but probably on eBay, and it espouses many of these principles

  39. Alvin

    Most of these internet banking sites seem to be only for US residents. Anyone know any good ones for international use (I’m from Singapore)?

  40. Dave B.

    This is a great site and I really like your advice. Some of things you recommend I’ve done over the last six months. After paying off all my credit card debt, I began saving in earnest. Searching around I found INGDirect. They are fantastic and pay far more interest than any bank around the SF Bay Area. Plus I get referral $$ when my friends join up. I also got a Citi Dividend card. I was going to swear off credit cards but now I charge all my regular expenses and pay it off diligently every month. After a few months, they are sending me a check for over a $100! Going right to INGDirect account!

    Also I’ve been doing all my online shopping thorugh this great website, . After buying a Nikon and a large printer through J&R Music World, I got enough BondDollars to get a free $50 US Saving Bond! Do all your everyday online spending through this site and the Savings Bonds add up. This is especially true if your say, order office supplies for your company online. Just go to OfficeMax through the Bondrewards site and you get 4% in Savings Bonds to you. I especially like J&R Music World because they are a great NYC discount electronics retailer and pay a fat 5% reward. It’s almost like getting free money!

  41. Tamtam

    I totally appreciate the advice. I have tried two of the suggestions and highly reccomend them. I did one of your first suggestions which was to figure out how much money I was spending per week and then I took the advice further and applied it to the reccomendation of shopping at So now when I do shop, I shop at I have been doing quite a bit of shopping because I just moved out of my last apartment and in to my own home. I have already earned a couple of US Savings Bonds. Thanks for the advice.

  42. Keane

    I tell you what? I’m going to read through the whole article only if you can assure me taht I will be rich one someday. The article is worth reading only if it really works.

  43. Dan Esparza

    I found a great article on setting up your accounts in MS Money (not that Money is better than Quicken, or anything). The article is here:

    Master your money with Money in 6 (fairly painless) steps

    The end of this article essentially ends near the end of Step 1 of Ramits article, above.

  44. Ara

    Hey Ramit!

    I love your site. I’m hopeless at this financial stuff, but I’m trying to get an early start. I’m 20 right now and have some cash savings, but no idea what to do with it. I’m trying to follow your investment steps right now.

    Thanks again!

  45. jeff

    Give a look to, you can easily organise and track your accounting for free

  46. jennifer

    I just today found your website and I’m reading your 2006 Makeover and trying to follow the steps. I even already opened an ING account.

    Here is my question for you. I read your suggestion of 10% savings. It’s my plan to start with that. Currently the only “savings” I have is my 401k that I put 4% and that is matched by my employer 50%. Do I count that deposit to the 401k as part of the 10% savings or do I deposit 10% of my montly net?

    Thanks – I’m excited to see your plan work for me!

  47. anatta

    This is for those of you who aren’t already tied to your main bank account in some way.

    Citibank now offers something called an “eSavings” account. It features a 5% APY and supports linkage to external accounts. Seems like a good choice that serves as a holding area between a primary account (checking) and an investment account.

  48. Taylor

    Ramit, please answer Jennifer’s question, I believe it is pertinent to a lot of ppl, including myself. Thanks.

    Jennifer wrote:
    “Here is my question for you. I read your suggestion of 10% savings. It’s my plan to start with that. Currently the only “savings” I have is my 401k that I put 4% and that is matched by my employer 50%. Do I count that deposit to the 401k as part of the 10% savings or do I deposit 10% of my montly net?”

  49. pesli

    There is this software by the Parcus Group that has budgeting, financial planning, stock analysis and many other features all-in-one. It might be useful to those who are planning your finances. It looks interesting; you might want to check it out yourself.

  50. cc

    Just wanted to plug a website that I frequently read here, for high-interest accounts (MMA, savings, checking, etc.)

    This may be of help to those who are looking for a more suitable banking acct.