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The first time I ever really sat down to look at my finances and money was my last semester of physical therapy school. We were required to do an exit counseling session about student loans and until that moment I had no idea where I stood. I cried.
Looking at my financial picture, it was (and still is) scary, but I’m so glad I was forced to see how much student debt I had actually taken on during my 7 years of higher education. Seeing that led to hard conversations about making our money work for us. To do that, I had to make a plan and figure out what money moves would lead that to happen. Thanks to our money goals, we have been able to travel to Yellowstone and have several other trips in the works for next year. I am always learning and evolving, trying to pay off our loans quicker or save for that next trip, so this is by no means an end all be all list. However, hopefully this can be a few concrete steps towards hitting your financial goals!
1. Know where you stand
This is undoubtedly the worst part. Actually seeing how much debt you may have, how much you have left to save for x goal, or just how far you have to go until retirement is pretttttttty scary. But I promise once you have a full financial picture and a plan you will feel so much better.
If you have debt, list out every single debt you have from the smallest credit card to your biggest student loan. Include car loans as well. I won’t yell at you if you don’t include your mortgage, but I would recommend having an idea of what your mortgage looks like if you own a home. List out the amount, principal balance, interest rate, monthly payment and due date. It may help to order them smallest to largest or by interest rate. Do what feels best to you.
My advice: put credit cards you are carrying a balance on towards the top of your priority list. These typically have the highest interest rates and hurt your credit score the most if you are not paying them off in full each month. Conversely, if you do use a credit card and pay it off in full each month you avoid interest and can raise your credit score this way.
If you don’t have debt, congratulations! You are sitting in a beautiful place and your options for saving and investing are endless. Just go ahead and move on to the next step.
Now, list out alllll the money you have in your checking accounts and savings accounts. Know how much income you are bringing in with each paycheck. Do you have automatic transfers to savings? Are you saving anything at all? Just check in and see where you truly stand. If you have a Health Savings Account, 401k (retirement account), IRA (individual retirement account), or any other accounts I recommend checking in to those at this stage too.
2. Make a plan
Okay. The hard part is over. This step is probably my favorite step because it allows you some freedom to dream a bit. You get to decide how you want your money to work for you. Do you want to pay off debt? Save for a dream trip? Put more towards retirement? Buy a nice purse? You will have to put on your adult thinking cap and consider what is the smartest move but that’s why it’s called personal finance. It’s personal. What I’m doing to set myself up for success in the future is not the same thing you should do. But you do need to know where you’re going.
If you’re like me and you have a hefty amount of student debt, you may decide you want to pay that off as soon as possible. Paying off debt will really free up your disposable income to travel, invest, or just go on more Target shopping sprees if that’s your thing. There are about one million different strategies to pay off debt (avalanche method, FI/RE, snowball… just to name a few), and your reasons for choosing a certain method will be totally personal.
If you don’t have debt or are on some sort of payoff plan over the next 5-10 years you are comfortable with, you can continue to make minimum payments and make a savings plan. Please note- if you have a car loan or credit card bill I would highly recommend paying off more than the minimum on these. The interest rates are usually really high and it’s just not worth carrying a balance on a credit card, honestly.
If you have a debt payment plan in place, the next step is savings. Many financial advisors will recommend having an emergency savings account. I recommend this too. Some say 6-12 months worth of expenses, some say 3. I say you do you, boo. We have about 5 months worth of expenses in a high yield savings account for emergencies. Think: you suddenly lose your job, your car breaks down, you incur a huge medical bill, etc. Having an emergency savings account is a HUGE weight off my shoulders and reduces a lot of my financial anxiety. When the pandemic hit earlier this year and our jobs were very much at risk, we had some time to think through our next move without being irrational or rushed.
My brother, Josh, pointed out to me that people often believe a credit card is a good way to manage an emergency. He eloquently stated “that’s like being in a hole and someone handing you a shovel.”
So, you have a debt payoff plan and emergency savings. That means you can chill, right? Heckkkkk no! Personal finance would be super boring if it ended there. This is the fun part: investing. Investing is like this weird confusing unicorn of finance because it’s a little overwhelming and sounds like something only professionals should be involved in. I definitely disagree! It does take a little research, but investing is so exciting. I’m personally only investing via my 401k right now – but my husband and I (okay, maybe just me) dream of the day we can start an IRA or open a brokerage account when more of our debt is paid off.
If you’re a newbie to finance, I would recommend keeping it relatively simple and just using your employer sponsored 401k. Typically, you can have a percentage of your income sent to your 401k before tax where it will grow in the market until retirement age. It’s magical… the money goes in before you even miss it in your paycheck and grows over time until retirement. Money invested into the market is expected to grow 8-12% over your life (this is an estimate based from a 100+ year trend in the market) so invest early and often. It’s actually better to invest $200 a month for 30 years than $2000 a month for 10 years.
Investing seems scary but if you are in your 20s or early 30s it’s just important to start. It’s up to you how risky you want to be. It’s common to invest in higher risk (and often higher yield) options when you are younger and transition these to lower risk (and lower yield) options as you get closer to retirement.To keep it simple, let’s just say you make sure you are investing in your 401k at least to the employer match (if your employer offers one). If you are interested in learning more about how to set up and manage your 401k (for example, I increase my 401k by 1% each year and currently have 100% of my investments in stocks which is pretty risky) I can write another blog post on just that!
Past a 401k, the investing options are endless. These options include opening a Roth Individual Retirement Account or just open a brokerage account (an account you put money into that is invested, but can be taken out before retirement age… unlike a 401k or Roth). Sometimes, it can be as simple as using an app on your phone. I use an app called M1 to buy stocks and invest just for fun. These are things I would consider once you have debt paid off and are already contributing to a 401k.
It also bears mentioning that you need to make a plan for fun, too! We take care of all the “essentials” first – making sure we are paying down debt, saving for emergencies, and investing for retirement – but then we like to save for fun things too! This is mainly how we are able to travel so often. Each paycheck, we use “sinking funds” (I’ll talk about this more later on) to save a small amount for a future trip. Maybe you want to save for a trip or you know you love shopping when the new season’s clothes come out. Again: personal finance is personal. No matter what you choose, I recommend choosing a “fun” category. It keeps you from burning out when paying off debt and money is meant to be enjoyed!
3. Make a budget
This is not as bad as it sounds, I promise. The word “budget” gets a bad wrap. I’m on a budget and I’m proud!!! All joking aside, a budget doesn’t fence you in – it gives you freedom to spend. Want to go shopping next weekend? Go for it girlfriend, but just make sure you budget for it!
There are about 47 thousand different budgeting techniques out there and I’m not here to teach you how to budget. If you need a good resource to learn, I’m happy to share some of my favorite resources. I started with Dave Ramsey’s Everydollar app, I’ve also used You Need A Budget in the past. Now we just use a simple excel sheet. The important thing here is that you just do it.
This part is pretty short and simple because it’s not that hard, but it is non-negotiable. Without a budget, whatever plans you just made for your money are vague at best. You need to tell your money where to go and you should use your plan from step 2 to decide how you budget. For example, we are hard core about paying off debt. I usually budget out our necessities: bills, groceries, etc. and send a large chunk of whatever is left to debt. If you’re saving up an emergency fund, I would put a large chunk of “leftovers” to that. If those boxes are checked, maybe put an extra $300 into an IRA. It’s up to you. But remember your plan! That is what is going to make this successful.
A tip I have about budgeting is to not make it a “bare bones” budget. Unless you absolutely have to cut everything to make ends meet, please be realistic. You are most likely going to spend more than $50 a month on groceries and having $9 budgeted as a young 20 something to go out with friends sets you up for failure.
I budget to get my nails done every 3 weeks because I was a poor college student for 7 years and it’s something I enjoy doing. We always budget for “fun” because we go out with friends often. Whatever it is, make sure you are budgeting to still live your life. But be realistic… you don’t need $300 for groceries each week unless you have a really large family. $200 per week for fun activities is probably not going to get you closer to your goals.
That is pretty much the “basics” but I want to add in a few things that I think have really contributed to what success we have had with money so far…
4. Utilize Sinking Funds
This is one of my favorite financial tools to utilize. Sinking funds are basically mini savings for an expected expense that you save up for over an allotted period of time. For example, you know Christmas comes every December. Starting in January (or any month you read this!), decide how much you want to spend for gifts, decor, parties, etc and then divide it by 12. This is how much you should save per month. So now, when Christmas hits you aren’t set back financially from a large expense you didn’t plan for.
We save about $1000 for Christmas. We get paid twice monthly, so we are saving a little bit for Christmas 24 times throughout the year. 1000/24 = 41.6. We save roughly $42 per paycheck for Christmas. We also do this for big trips, car maintenance, gift giving throughout the year, and my car insurance. You can do it for anything – just have a target time and target amount.
These funds are such an easy way to feel like you have control over your finances. Emergencies aside, you have prepared for every big expense in your life! It also helps eliminate the risk of running up a credit card bill you can’t afford to pay off at the end of the month.
5. Have a side hustle
Almost half the people in my life have side hustles these days. The options are endless and it’s a great way to give yourself a little bit more financial stability. When I began working and researching how to pay off debt ASAP, the tip I kept seeing over and over again was to have multiple income streams. I have my normal day job, but I’m also a consultant with Beautycounter, sell my clothes on Poshmark, take surveys at M3 (for medical professionals), and now my blog is a potential income stream as well.
I’m partial to Beautycounter, because it’s the most lucrative of my side hustles. But it could be anything… make jewelry, sell your old clothes, become a virtual assistant. The options are endless. Even if it only brings in $50 a month, that’s $50 you didn’t have before! This creates more margin in your life where that money can be used for things other than necessary expenses. You can put into one of the buckets we discussed earlier – payoff debt, save, or invest. However, a caveat is to consider the time you put into it versus payoff. If you spend 40 hours a month for $10, that’s probably not worth your time. If you value other things like spending more time with family, that’s okay too. Say it with me now: it’s personal!
6. Learn, learn, and learn some more
This is obviously the very beginning basics. I taught myself just about everything I know about finances from reading books, listening to podcasts, and talking to people much wiser than me (thanks, brother). If you are serious about getting your finances in order and planning for your future, I would highly suggest reading a book on personal finance or listening to a good money podcast. Even doing a simple google search will bring up tons of great resources. Choose FI Radio is one of my favorite podcasts to listen to and my favorite book that taught me A LOT about investing is The Simple Path to Wealth.
I am constantly learning something new about saving money or managing our finances. The journey will never be over but it’s important to get started! You gotta know where you want to be to start the journey on the right path. Know where you want to be in the future, map out how you will get there, and get started on making your money work for you.
Stay tuned in the future for more financial posts. I can share more about investing, paying off debt, and my favorite resources, if you are interested!
Drop your questions below and I will answer them the best I can!