After typing this out several times for different people, I decided to just post it for public consumption. There’s nothing novel here by any stretch; it’s simply a distillation of the best advice other people have given me over the years. This advice is most applicable to single, young graduate students, but the basic outline should be a solid foundation for most people. Use at your own risk.
The 3-step plan
First, make sure you have an emergency fund in an easily accessible savings account that can cover 3-6 months of normal living expenses. This will keep you afloat in case something expensive and unexpected happens.
Second, open a Roth IRA and contribute the maximum every year, which is $5500 as of 2018. Set up an automated investment plan to invest the ~$100 per week and forget about it. (I like the Vanguard Target date funds because they are low cost and rebalance for you.)
Third, with any money you have left, invest in a brokerage account. (Again, I use Vanguard because they have very low fees.) You should invest in low-cost index funds because no matter how smart you think you are, you can’t consistently beat the market*. I just copied the asset allocation of the Vanguard 2045 Target Fund, except I use admiral shares to lower the expense ratio considerably. (If you don’t have enough money to do this yet, investor shares are a perfectly fine way to start out.) I use a 10% bonds portfolio, but you can vary that depending on your risk tolerance. More bonds = less risk but less return. Note that you shouldn’t put money you expect to spend soon (~5-10 years, maybe for a house downpayment) in the market if you can’t afford to lose it.
A 10% bonds portfolio
54.1% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
35.9% Vanguard Total International Stock Index Fund Investor Shares (VTIAX)
7.0% Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
3.0% Vanguard Total International B
Once a year, check your account and buy/sell funds to maintain this percentage allocation. (Buying is cheaper from a tax perspective, if you can afford it.) Outside of that once-a-year maintenance, DO NOTHING. If stocks drop precipitously, DEFINITELY DO NOTHING. The worst mistake you can make is trying to time the market. The market will rebound, and selling at the bottom will only make things worse.
What about credit cards?
The general idea: get a no-annual-fee credit card and set up automatic payments to pay off the ENTIRE balance every month. As long as you aren’t paying interest, credit cards are great: they build your credit history and earn you some cash back on purchases.
If you don’t want to spend tons of time farming sign-up bonuses, the Citi Double Cash card is your best best. It gives 2% cash back on every purchase. If you can stomach having two cards, your second one should be the Blue Cash Everyday Amex, which gives 3% on groceries. If you don’t qualify for either of these cards yet, any card that doesn’t have an annual fee will be fine until you build up your credit history.
*You can’t beat the market in the long run without literally making it your full-time job and investing in financial instruments that are inaccessible to the average retail investor. If you have any doubt about whether you can beat the market, you can’t. If you have no doubt you can beat the market, you still probably can’t.