Financial Goals

  • How to Start Investing as a Millennial

    Are you a millennial? Then we need to talk about why you should be investing and how you can start today.

    Millennials are those born between the early-1980s and mid-1990s. Made up of about 83 million people, our generation is the best-educated and most diverse, but we’ve gotten a tumultuous start to our financial adulthood.

    Many millennials entered the job market during and immediately after the 2007-2008 financial crisis. In other words, we got off to a rough start.

    Because of that, it should come as no surprise that millennials are a bit leery of putting their money into the stock market. Data shows that more than two-thirds of millennials have nothing invested for retirement. 

    It’s time for us to fix that. In this article, I’m sharing a few simple steps to help you start investing as a millennial.

     

    How to Start Investing as a Millennial

     

    Why you need to be investing

    The first question you might be asking yourself is why you need to invest. After all, isn’t investing risky?

    Investing is the most effective way to build wealth and help your money to grow for the future. It’s a way of putting your money to work to make passive income so that you aren’t relying on trading time for money. 

    Another important reason to invest is that without doing so, most people would never be able to retire. It’s only because of compound interest that invested money grows large enough for people to retire. 

    Finally, investing helps protect your money from inflation. Many people feel safest with their money in a savings account. But because of inflation, money in a savings account is losing its value every year.

    The Federal Reserve has a target inflation date of 2% each year. And I think we all know that throughout 2022, it’s been far higher, meaning your money is losing value more quickly.

    In most cases, you’d be hard-pressed to find a high-yield savings account that pays that much as the rate of inflation, no matter what that rate is. As a result, your money becomes less valuable each year.

    But what happens when you invest that money? According to the Securities and Exchange Commission, the stock market has an average annual return of 10%. Not only are you protected from inflation, but your money is actively growing each year.

     

    HOW COMPOUND INTEREST WORKS

    The reason investing is so effective is because of the miracle of compound interest. In other words, your money makes money. Then, the money you made also begins to make money.

    Let’s look at a quick example:

    Let’s say you were to save $250 per month each year from ages 25 to 65. By the time you retire, you will have $120,000.

    But what if you put that same $250 per month into the stock market with a 10% return? You’d retire with about $1.34 million. So you can see how important compound interest is.

    To figure out how much you could have in the future by investing in the stock market, you can use a compound interest calculator.

     

    Investing vs. trading

    One of the biggest misconceptions I hear from millennials is that they hear they should be investing, and they think that means opening a brokerage account and buying individual stocks. So before we dive in any further, I want to clarify what I mean when I say investing.

    Trading generally refers to buying short-term investments with the intention of selling them after a short time for a profit. Traders usually try to time the market, selling before a stock price falls and buying before it rises.

    For many people, day trading is a full-time job. It takes an incredible amount of research and understanding of the stock market, and most people are still ultimately unsuccessful. Unless you have the time and understanding to do it properly, I would avoid trading.

    Investing, on the other hand, is a long-term strategy. It involves buying and holding investments over many years for the purpose of growing wealth. Investing is less about timing the market and more about time in the market. 

     

    Investing for retirement

    The most important type of investing that everyone should start with is investing for retirement. In fact, you may already be investing without realizing it since the first place many people start investing is in their employer’s 401(k) plan.

    If your employer offers a 401(k) match, make sure you’re investing at least enough to get the match. If you have more room in your budget, you can increase your contributions even more.

    Outside of an employer 401(k), another great way to invest is through an individual retirement account (IRA). This option offers more flexibility and a way of diversifying your tax advantages.

    There are also plenty of options to save for retirement when you’re self-employed, including a SEP IRA and Solo 401(k).

    Not sure how much you should be investing for retirement? Personal Capial’s retirement calculator is my favorite way of figuring out much to set aside each month to live comfortably during retirement.

     

    Investing for financial goals

    Your first priority should be investing enough to reach your retirement goals. But if you’re doing that and still have room in your budget, you might consider investing for other financial goals as well.

    As a general rule of thumb, you shouldn’t invest any money that you plan to need within the next five years. The stock market can be volatile, and when you invest your savings, you risk seeing your portfolio’s value decrease substantially right before you need it. For goals less than five years out, you can put your money into a high-yield savings account and earn a bit extra.

    So what does this look like in practice?

    Let’s say you’re saving for a home you plan to purchase in about three years. The best place to save that money is in a savings account. But that dream vacation home you plan to purchase in 10+ years? Feel free to save for that in a brokerage account.

     

    Investing while paying off debt

    Many of the people I work with are in the process of paying off debt. And many find themselves wondering whether they should be investing while they’re paying off debt.

    There’s a little more that goes into it, but the short answer is: Yes!

    No matter what, I always recommend investing at least enough to get any 401(k) match your employers. Once you’re doing that, your next priority should be to pay off any high-interest debt, such as credit cards or personal loans.

    Once you’re left with only low-interest debt like student loans, you can split your money between investing and paying off debt, or you can decide to go all in on one. Yes, the debt is important. And yes, there’s a huge emotional burden that comes with carrying debt.

    But ultimately, the return you can expect to get in the stock market is higher than the interest rate you’re paying on your debt. And the more time your money has to grow in the market, the better off you’ll be during retirement.

    When it comes to investing for other goals beyond retirement, that really comes down to what you’re comfortable with. Some people are more worried about getting their debt paid off as quickly as possible, while others are more focused on building wealth.

     

    Determining your asset allocation

    One of the biggest questions people have when it comes to investing is what they should actually invest in. 

    The first thing to know about asset allocation is that you should be diversifying your portfolio. In other words, don’t put all your eggs in one basket.

    First, you can invest across asset classes, meaning you put your money into a variety of different assets. For example, rather than just investing in stocks, you would also invest in bonds and other securities.

    You should also diversify within asset classes. For example, rather than buying stock in just one company, you’d buy stock in many companies across various industries.

    The idea of choosing your investments might be overwhelming, but there are tools to make that job easier. Index funds, mutual funds, and ETFs are investment vehicles that hold many different assets. When you invest in the fund, you’re investing in every security in the fund.

    THE BEST INVESTMENTS FOR MILLENNIALS

    When we land on this topic, many people want to know what are the best investments for millennials. I can’t answer that question for you, and neither can anyone else on the internet. The best investments for you depend on your financial goals, risk tolerance, and more.

    Personally, I rely on both a robo-advisor and diversified index funds to help reach my various financial goals. The same strategy may or may not be right for your goals.

     

    Choosing the right investing platform

    Another important decision you’ll have to make is the investing platform you use. If you invest through your company’s 401(k), you won’t have to worry about this. But if you’re investing in an IRA or a taxable brokerage account, you’ll have to decide which type of account is right for you. 

    There are two primary options to choose from:

    • Traditional brokerage firm: With a traditional brokerage firm, you’re responsible for choosing your own investments. This option is ideal for those who want to be hands-on investors. Popular brokerage firms include Vanguard, Fidelity, and Schwab.
    • Robo-advisor: For those who don’t want to choose their own investors, a robo-advisor is a great alternative. You answer a few simple questions about your goals and risk tolerance. Then the robo-advisor chooses your investments for you. My favorite robo-advisor is Betterment.

     

    Final Thoughts

    For many millennials, the idea of investing feels overwhelming. People who are new to the investing game consider it to be too risky, often compared to gambling.

    But long-term investing and gambling couldn’t be more different. Additionally, investing is one of the most effective ways to build wealth and financially prepare for the future.

  • How to Create a Five Year Financial Plan

    Do you know what you’ll be doing with your money five years from now?

    Chances are, no. Five years seems so far away, and it’s hard enough to figure out what you’re going to do with your money next month, let alone years from now. 

    But data consistently shows that those with a written plan are far more likely to reach their goals. And by making a plan for your future money, you can make intentional choices and have the exact future you envision.

     

    How to Create a Five Year Financial Plan

    There are affiliate links in this post, meaning I may make a small commission at no additional cost to you. For more information, see my full disclosure policy here.

     

    Why create a five-year financial plan?

    I know what you’re probably wondering: Why five years? It seems like an arbitrary amount of time, but it’s really not.

    Five years is a short enough period of time that you can reasonably set goals for that period. While you don’t have a crystal ball, you may be able to picture what you’d like your life to look like five years from now.

    Five years is also long enough that even for those bigger goals, five years could be long enough to help you save up enough money and accomplish them.

    Saving for the down payment on a home seems daunting when you decide you want to buy next year. But if you know you’ll want to buy several years down the road, you can start saving early.

    Five years seems like a long time, but it goes fast. And if you don’t make a financial plan for those five— years, they’ll pass before you know it.

     

    How to create a financial plan

    IDENTIFY YOUR VALUES

    I truly believe that the first step in any goal-setting exercise — whether it’s setting an individual goal or making a full-blown financial plan — should be identifying your values.

    Far too often, we live our lives on autopilot, doing the things we think we’re “supposed to” be doing. But we haven’t taken the time to really decide whether that life actually aligns with our values.

    One of the first exercises I did with my money coaching clients when I offered that service was helping them to identify their most important values. From there, we could make sure their budget prioritized those values. And then we could set financial goals that aligned with them.

    So think about what you value. Maybe you value freedom, and that manifests itself in travel. Or maybe you value security, and a life well-lived would include buying a home and having a large nest egg. 

    If you’re having trouble thinking of values, you can literally just Google “list of values.” You can read through it and see what resonates with you.

     

    ENVISION YOUR LIFE FIVE YEARS FROM NOW

    As you sit down to craft your five-year financial plan, consider what your next five years will look like. Envision your life one, and then three, and then five years from now.

    Where do you live — both the location and the actual home? What do you do for work? Are you married? Do you have children? What hobbies do you do in your spare time? What kind of car are you driving? What trips are you taking?

    It might seem like you can’t possibly know what you’ll be doing five years from now. But if you really think about it, I’m guessing you can come up with a vision for what you might like to be doing.

    As you picture your life in the future, write down everything you see.

     

    SET SPECIFIC FINANCIAL GOALS

    Alright, you know that list you just made of what you envision for your life in the next five years? Well, it’s time to take that list and turn it into specific financial goals.

    For each thing you’d like to accomplish, write down the date you’d like to accomplish it by and how much it will cost.

    Some of these will be easy. You might know that a big goal is to become debt-free in the next few years, and you currently have $50,000 in debt. But some might be trickier. Maybe you think you’ll be having a wedding in a few years but have no idea how much you’ll need to save.

    No matter what your goal is, chances are you can do a little research to find out how much you can expect to spend.

    Once you have your list of goals, I want you to do one very difficult thing: prioritize them. I know it’s hard to look at a list of goals and decide which you want to come first. But at the end of the day, it’s easier to save for one big goal than many.

    I recommend putting them in the order you’d like to achieve them and going all-in on the biggest one. That way, instead of making little progress on many things, you can make big progress on one.

    Read More: How to Set Financial Goals

     

    DETERMINE SPECIFIC SAVINGS TARGETS

    Once you’ve figured out what goals you plan to save for over the next five years, it’s time to figure out how much you’ll save.

    When you sat down and identified your goals, you hopefully identified when you want to reach each goal and how much it will cost. If so, this part should be pretty easy.

    All it takes is a little math. Divide the amount you need to save for your goals by the number of months you have to save. You’ll know how much you need to save each month to make it happen.

    You might see that number and realize you could be saving even more. That’s great news because it means you can move on to the next goal that much faster.

    On the other hand, you might see the number and realize that your current list of goals isn’t exactly realistic over the next five years. That’s totally fine and pretty normal.

    In that case, you have a few options:

    1. Adjust your expectations so that your goals fit within your current saving capabilities, or
    2. Decide that you’re willing to do what it takes to reach your goals no matter what, even if it means either drastically cutting your spending or increasing your income, or
    3. Do a little of each. Adjust your goals slightly, but also reduce spending and increase your income to make sure you can reach your goals.

    It’s okay for goals to feel a little uncomfortable.

    When Brandon and I first set the goal of buying an RV and traveling full-time, I didn’t actually think we’d be able to do it. I ran the numbers dozens of times, and it just never seemed possible. But lo and behold, we accomplished our goal, and we even did it ahead of schedule.

    So I guess what I’m saying is plan as much as you can and leave room for a little bit of magic.

     

    STICK TO A BUDGET

    Yep, we’re going to talk about the B-word. I’ve talked to so many women over the years who tell me they hate budgeting and they want a way to reach their goals.

    And yes, there are personal finance experts who will tell you they can help you reach your goals without a budget. But then they describe the spending plan they teach, and it sounds an awful lot like a budget, just with a different name.

    At the end of the day, the only way to be intentional about the amount of money leaving your bank account each month is with a budget. And when you budget, it’s easy to create a five-year financial plan because you know how much you’ll be able to save each month for the foreseeable future.

    If you don’t have a monthly budget yet and aren’t sure where to start, you can use my guide: A Step-by-Step Guide to Creating a Monthly Budget.

     

    TRACK YOUR PROGRESS

    Tracking your progress is one of the most important steps to any plan, and your financial plan is no exception. After all, it’s all about follow-through. And how will you know if you’re following through if you don’t actually track your progress?

    I track my progress in a couple of ways:

    1. I sit down each week and update my budget and spending tracker to make sure I’m staying within my monthly budget. If I’m not staying on track, I can cut back as needed.
    2. I sit down each month and plan my budget for the following month and update my net worth. If I went over budget the previous month, I adjust, either by changing how much I budget for or figuring out how I can cut back on certain areas.

     

    CREATE AN ANNUAL CHECK-IN

    As you make your way through your financial plan, it’s important to check in on your progress.

    And while we’ve already talked about tracking your spending and your progress on a more granular level, it’s important to check in on the bigger picture too. Sit down each year and take an inventory of where you planned to be at that time versus where you actually are.

    By scheduling an annual check-in, you can change course if things aren’t going quite the way you expected them to be.

    It might be that you check in on your financial plan and find that you’re falling behind. In that case, you can either find a way to speed up your progress or adjust your expectations.

    On the other hand, you might check in on your plan and find that you’re ahead of schedule. That’s great news! In that case, you can adjust your goals to accomplish even more in your five-year plan.

     

    What to include in your financial plan

    AN ANNUAL AND MONTHLY BUDGET

    A five-year financial plan seems like a huge undertaking, and it definitely is. And if you look at it as one big picture, then it’s going to be hard to make strides.

    Included in your five-year plan should be annual and monthly budgets.

    The concept of a monthly budget is pretty common. You figure out how much money you have coming in each month, and you create a plan for exactly how you’ll spend it.

    The idea of an annual budget isn’t quite as common, but it’s still an important way to make a plan for your money.

    Creating an annual budget can help you identify those less common expenses, such as your annual vehicle registration or holiday spending. I use sinking funds to save for these expenses and my annual budget to plan for them.

    Read More: What Are Sinking Funds and Why Do You Need Them in Your Budget?

    An annual budget can also help you to see what’s going to be happening with your money three, six, nine, and twelve months from now.

    Here’s an example: Let’s say you’ve got a monthly car payment, but you’ll be paying off your loan in just a few months. When you use an annual budget, you’ll know ahead of time where you’ll reallocate that money each month. As a result, you have a better idea of when you’ll reach your next goal after that.

    I love planning, and helping people to craft long-term financial plans is one of my favorite things, but I also know that the foundation of every great financial plan is your budget.

     

    AN EMERGENCY FUND

    Building an emergency fund should be the first step in anyone’s financial plan. It helps prevent future financial mishaps from becoming disasters and helps set a solid foundation for the rest of your financial goals.

    There are two reasons you need emergency savings:

    • One-time emergency expenses
    • Income replacement in the event of a job loss

    There’s definitely some debate as to how much you should save in your emergency fund. Certain financial experts recommend saving just $1,000 while you’re paying off debt, but I’d strongly recommend against this.

    As a minimum, I recommend saving three months of expenses in your emergency fund. Once you’re debt-free, I’d go even further and shoot for at least six months of expenses.

    One of the reasons an emergency fund is so important is that it helps you avoid future debt.

    Imagine you didn’t have an emergency fund and had an emergency $1,000 car repair. If you put it on the credit card and it takes a few months to pay it off, you’ll pay interest, meaning your emergency costs even more. But if you had an emergency fund, you could just pay for it and be done with it.

    Read More: How to Build an Emergency Fund & How Much to Save

     

    A DEBT PAYOFF PLAN

    If you’re paying off debt, that should absolutely be a part of your five-year financial plan. Now, depending on how much debt you have, you may not plan to pay it all off in the next five years. For those with high student loan debt — which is many people these days — it’s okay to take longer if that fits your plan better.

    The first step to creating your debt payoff plan is to decide which strategy you’ll use to pay down your debt. The two most popular strategies are the debt snowball and debt avalanche.

    The debt snowball is where you prioritize your debt based on balance, paying down the smallest debts first. The debt avalanche is where you prioritize based on interest rate. You pay down the debt with the highest interest rate first.

    The other decision you’ll have to make is how much you’ll put toward debt each month. It can be tempting to pay just the minimum payments and use the money for other goals. But I highly recommend paying at least some extra to pay it down faster.

    Paying your debt off early can help you save hundreds, thousands, or even tens of thousands of dollars on interest. And if you have high-interest debt like credit cards, I think that should be your absolute priority. 

    I recommend using a tool like Undebt.it to help you plan your debt payoff. You can experiment with the order and see how much faster you’ll be debt-free by paying just a little extra each month.

     

    FINANCIAL GOALS

    Your financial plan should also include any other financial goals you might be saving for. In fact, this right here is why a five-year financial plan is so important. When you can anticipate the goals you’ll want to reach several years from now, you can start preparing for them now.

    When crafting your financial plan, map out when you hope to achieve each of your financial goals and how much they’ll cost. From there, you can easily figure out how much you need to save each month.

    Common financial goals include:

    • Buying a home
    • Taking a vacation
    • Going back to school
    • Starting a business

    …and many, many more.

     

    MAJOR LIFE EVENTS

    As you’re mapping out your financial goals, be sure to map out any major life events you think will come up over the next five years. Unfortunately, we often don’t start planning and saving for these until they’re upon us, and then it’s hard to catch up.

    Major life events to consider in your financial plan include getting married, starting a family, or moving to a new city.

    Even if you don’t know for a fact that one of these things will happen, you can still plan and save for them. Plenty of people start saving for a wedding long before they’re engaged or start saving for kids long before they’re pregnant.

     

    RETIREMENT SAVINGS

    When you’re young, it’s easy to brush off saving for retirement, thinking you have plenty of time. This is how I felt for years, and I was incredibly lucky to have an employer that required us to contribute a certain percentage of our income to our retirement accounts each year.

    No matter your age, retirement savings should be a part of your financial plan. Your age and how much you want to have when you retire will determine how big a part of your financial plan.

    For younger people who don’t plan to retire until they’re 60s, saving for retirement is actually pretty simple.

    The Securities and Exchange Commission reports the stock market produces a return of about 10% per year. Using that number, if you start saving when you’re 25 and invest $250 per month until you’re 65, you’ll retire with more than $1.3 million.

    In some situations, you may need to save more per month to reach your retirement goals. That might be the case if you’re closer to retirement age or if you’re working toward early retirement.

    Not sure how much you need to save? The Personal Capital Retirement Planner is one of my favorite tools to help figure it out.

     

    ADDITIONAL INCOME STREAMS

    I’ve found increasing my income to be the best way to speed up my financial plan and reach my big financial goals. And the good news is that there are many ways to do this.

    Many people hope to start their own businesses someday. If this is you, make sure it’s a part of your financial plan. Online businesses today often quire little start-up costs, but it’s worth setting aside money either way. Luckily, you’ll ideally then see a return on that investment.

    If you aren’t interested in starting a business and simply want a way to increase your income temporarily, that’s even easier to do. 

    There are plenty of side hustles — either online or in-person — where you can earn extra money in your spare time. Once you know how much you can make each month, you can work that into your financial plan to help you reach your goals even faster.

    If you’re interested in finding additional income streams, check out my guide on how to earn more money this year.

     

    Final Thoughts

    Having a financial plan is essential to making sure you are where you want to be in the future. Five years is the perfect amount of time — it’s just short enough that you have an idea of what goals to save for and just long enough that you have plenty of time to save.

    Financial planning sounds a lot more complicated than it is. While you might picture sitting down with a financial planner and paying them a pretty penny to put together a plan for you, this is something you can do on your own — and for free!

  • How to Save for Retirement When You’re Self-Employed

    When I started my career after college, retirement was the last thing on my mind. I was 22, and it hardly seemed important. Luckily my employer (the state government) required that I contribute to my retirement account — otherwise, I probably wouldn’t have!

    As I learned more about finance, I began to see the importance of saving and investing early.

    By my late twenties, I was contemplating quitting my job to run my own business. One of the biggest things holding me back was the fear of being on my own to save for retirement.

    I spent months researching, learning everything I could about the best way to save for retirement when I was self-employed. And today, I feel confident that I’ll be able to retire comfortably — and probably earlier than if I had stayed at my government job.

    In this article, I’m sharing that knowledge with you and talking about how to save for retirement when you’re self-employed.

     

    How to Save for Retirement When You’re Self-Employed

     

    Saving for retirement when you’re self-employed

    The unfortunate truth is that most people aren’t saving enough for retirement. Data from the Federal Reserve shows that only about 36% of Americans think they’re on track with retirement savings.

    The numbers get even bleaker when you look at self-employed individuals. Data from Pew shows that only about 13% of solopreneurs contribute to a retirement plan. For some workers, it’s that they simply know what options are available to them. And then there’s the fact that when you’re self-employed, you don’t have an employer to contribute to your account as people with more traditional jobs often do.

    With this article, I’m hoping to help people understand what options are available to them so they can finally start preparing for retirement.

     

    Saving vs. investing for retirement

    Before I dive into the retirement plans for self-employed individuals, I first want to make a quick clarification.

    When we talk about retirement, we typically use the phrase “save for retirement.” In reality, you should actually be investing for retirement.

    When you invest, your money grows. And each year, your earnings compound — that means that your earnings also begin to earn money. Over time, you have more and more money earning money, meaning it grows faster and faster.

    Let’s look at a quick example. Imagine you saved $200 per month from ages 25 to 65. Instead of investing the money, you put it into a bank account where it doesn’t earn anything. By the time you’re 65, you’d have $96,000.

    But what if you put that same $200 into the stock market? Using the Securities and Exchange Commission’s estimate for average annual stock market returns, you would reach age 65 with more than $1 million.

     

    Retirement plans for self-employed people

    SEP IRA

    A Simplified Employee Pension (SEP) IRA is a type of retirement account specifically designed for self-employed individuals. SEP IRA contributions are tax-deferred, which means your contributions are tax-deductible, and then you pay income on the money you withdraw during retirement.

    Using a SEP IRA, entrepreneurs can contribute up to 25% of their annual income each year, with a maximum contribution of $61,000 per year as of 2022.

    A SEP IRA is perfect for solopreneurs, but there are special rules for people with full-time employees. If you have a full-time employee, you must contribute to their account at the same percentage you contribute to your own.

    A SEP IRA is what I personally use for my business!

     

    SIMPLE IRA

    A Savings Incentive Match Plan for Employees (SIMPLE) IRA is another type of retirement account designed for small businesses. With this type of account, you can contribute up to $14,000 per year as of 2022. Like the SEP IRA, your contributions are tax-deductible. If you have employees, you must also contribute a small percentage to each of their accounts.

     

    SOLO 401(k)

    A Solo 401(k), also known as an Individual 401(k), is another way that entrepreneurs can save for retirement. Like the SEP IRA, participants can contribute up to $61,000 per year as of 2022. Contributions are also tax-deductible.

    The big difference distinction with the Solo 401(k) that separates it from the SEP IRA is that you can contribute as both the business and an individual. First, as an employee in your business, you can contribute up to $20,500 up to 100% of your income. Then your business can also contribute up to 25% of your income, with a maximum combined contribution of $61,000.

     

    TRADITIONAL OR ROTH IRA

    The three plans I described above are specifically designed for self-employed individuals. They’re the best option if you work for yourself because they have high contribution limits — especially for the SEP IRA and Solo 401(k).

    But another option is to set up a traditional or Roth IRA. These accounts are available to anyone, not just self-employed people. They also have significantly lower contribution limits at just $6,000 per year.

    The one benefit to using this type of account (perhaps alongside one of the options above) is that you can contribute to a Roth IRA. With a Roth IRA, you contribute with post-tax dollars, meaning there’s no tax deduction. But then the money grows tax-free, and you don’t pay taxes on it during retirement. The other self-employed IRAs don’t have a Roth option.

    If you choose to open a Roth IRA, I would open it in addition to another self-employed retirement plan.

     

    Where to open your self-employed retirement plan

    Not only are there plenty of different types of self-employed retirement plans, but you also have plenty of options for where to open your plan.

    This might be confusing, so let me explain it in a simpler way. Think of your brokerage firm (meaning where you open your account) as a piece of land. The specific type of retirement plan you choose (SEP IRA, Solo 401(k), etc.) is the house you put on the land. And the individual investments you invest your money into is the furniture you fill the house with.

    When choosing a brokerage firm, you have two primary options. If you want to be a hands-on investor, you can choose a traditional brokerage firm like Vanguard, Schwab, or Fidelity. You choose what to invest in, and typically pay very low fees.

    A popular option for retirement savings is a target-date fund, which is a type of mutual fund that corresponds with your retirement year. For example, if you planned to retire in 2050, you would find a target-date fund associated with the year 2050.

    Target-date funds have a fund manager who changes the asset allocation as time passes to ensure it’s appropriate for the time horizon. As 2050 nears, the fund manager will decrease the number of high-risk investments in the fund and increase the number of low-risk investments.

    If you prefer a more hands-off approach, you can use a robo-advisor. Your robo-advisor will ask a few questions about your age, investment goals, and more and then choose your investments on your behalf. The fees are a bit higher, but it takes way less time and research on your part. My favorite robo-advisor is Betterment.

     

    How much to save for retirement when you’re self-employed

    One of the most challenging parts of saving for retirement is figuring out how much you need to save. After all, you have no idea how much money you’ll need or how much you’ll money will grow in the stock market.

    Luckily, there’s a took to make it easier for you.

    Personal Capital has a retirement calculator that can help you estimate how much you should save each month to retire comfortably. It uses information such as your age, current savings, desired retirement age, and spending habits to predict how much you’ll need. And using average stock market returns, it will give you an estimate of how much you should save monthly to get there.

    What I love about the calculator is that you can adjust different factors to see how that changes things. You can increase your decrease your desired retirement age or the amount you want to spend each year while retired to see how that influences the amount you need to save.

     

    Retirement saving tips for self-employed people

    DON’T WAIT UNTIL YOU’RE DEBT-FREE

    Before I dive into the steps to take to start saving for retirement, I first want to address the question of whether you should start investing while you still have debt.

    Some personal finance leaders (okay, one personal finance leader) say that you should wait until you’re debt-free to start investing for retirement. This couldn’t be further from the truth.

    Remember above where we talked about compound interest and how it helps to take the amount you invest and grow it into way more?

    Well, compounding only happens when your money is in the market for many years. And unfortunately, many people are paying off debt well into their 30s, 30s, 50s, and even later.

    If you want until your debt is gone to start saving, your money doesn’t have time to grow.

    As a general rule, compare the interest rate on your debt to the average return of the stock market (10%, according to the Securities and Exchange Commission). If your debt interest rate is higher than that, pay it off first. If it’s lower, you can invest at the same time because your investments will be growing faster than your debt.

     

    SET UP AUTOMATIC MONTHLY CONTRIBUTIONS

    It’s easy to tell yourself that you’ll set aside money each month for retirement. But more often than not, something comes up that stops you from doing so. 

    The best way to make sure you’re saving consistently is to make it automatic. Decide how much you want to save each month to hit your goal, and then set up an automatic monthly contribution in that amount.

    It’ll automatically come out of your bank account each month, so you never have to think about it, and you won’t have a chance to talk yourself out of it.

     

    DEDUCT YOUR CONTRIBUTIONS

    Retirement accounts come with tax advantages that you should be aware of. Most retirement accounts have tax-deductible contributions. You can deduct everything put into the account throughout the year, which reduces your taxable income and, therefore, your tax liability. 

    The one exception to this is if you’re contributing to a Roth account. In that case, you contribute with post-tax income and the tax advantage comes when you withdraw the money during retirement.

     

    Final Thoughts

    Retirement savings is something many people don’t really think about when they dream of leaving their jobs to become self-employed.

    When you’re just getting started, it can feel overwhelming and confusing. But it becomes a lot easier as you go. And you’ll thank yourself later when you can retire and enjoy your later years!

  • Should You Save For Retirement While Paying Off Debt?

    When Brandon and I got married, we had more than six figures of debt between the two of us. We both had student loans, and I was still paying off the credit card debt from my divorce.

    One of the very first things I did after our wedding day was sit down and make a list of all of our debts. I wanted to put together a debt payoff plan ASAP.

    One of the questions I struggled with was how much, if any, we should continue to put toward retirement while paying off debt.

    Working for the state government, I was required to put at least 6.5% of my income toward my retirement account, and the state would match it. But we also had Brandon’s retirement account to consider. Not to mention, once I left my job to run my business full-time just four months after the wedding, I was on my own for retirement savings.

    I’m not the only one to have struggled with this decision — it’s one of the most common questions I see from those trying to figure out their finances. And considering some personal finance experts still teach that you shouldn’t put a dollar until retirement until you’re debt-free, it’s understandably confusing.

    In this article, I’m going to lay out a few basic guidelines for you to follow when figuring out how to save for retirement while paying off debt. But ultimately, everyone’s situation looks different, and you have to do what’s right for you.

     

    Should You Save For Retirement While Paying Off Debt?

    There are affiliate links in this post, meaning I may make a small commission at no additional cost to you. For more information, see my full disclosure policy here.

     

    Contribute enough to get your employer match

    Many employers offer to match up to a particular percentage of your income that you contribute to a company 401(k) plan. For example, your employer might say they’ll match the first 3% or 6% of your salary that you contribute.

    This match is free money and could equate to hundreds — or more likely thousands — of dollars per year.

    Not only is your employer match essentially a 100% return on your investment, but it’s also a part of your total compensation. Turning this match down is essentially asking your employer to reduce your annual pay.

    If your employer offers a 401(k) match, make this your first priority. Depending on the type and interest rate of your debt, contribute just enough to get the employer match. You can always increase it later when your debt situation is different.

     

    Pay off high-interest debt

    The interest rate on credit cards is brutal. For young people, it can often be anywhere from 20% to 25%. Interest this high makes it incredibly hard to pay off debt. You find that each month, most of your money is going toward interest, and barely any of it is going toward the principal balance.

    And it’s not just credit cards with high interest. I’ve seen plenty of student loans, car loans, and personal loans with interest rates above 10%.

    If you have high-interest debt (which I’d consider anything above 6 or 7 percent), prioritize that before increasing your retirement savings. With more money available in your monthly budget, you can pay well above the minimum payment and pay it down a lot faster than you otherwise would have.

    The reason to prioritize these debts above saving and investing is that the interest rate on them is higher than the rate of return you’re likely to get in your retirement account. If your retirement account is seeing an 8% return rate and your debt has an interest rate of 20%, you really aren’t making money — you’re losing money.

    Read More: How to Pay Off Credit Card Debt Fast

     

    Consider the interest rate of your debt

    Once your high-interest debt is gone, you’re probably left with student loans, car loans, or a mortgage with rates of anywhere from 3% to 6%.

    Once you get to this point, it’s a good idea to increase the amount you’re contributing to your retirement accounts.

    Why?

    Because, at this point, the rate of return you can get on your investments is likely higher than the interest rate you’re paying on your debt. If your retirement account sees an average 8% return and your student loans have a 4% interest rate, you’re making more on your investments than you’re losing on loan interest.

    For each individual debt, consider the interest rate. Is it higher or lower than the average stock market return (which has been about 10% annually over the past century)?

    Another reason to save for retirement if you can — retirement accounts are tax-advantaged. Depending on the type of account, this means that you either aren’t paying taxes on the money you contribute or you contribute money post-tax and then won’t pay taxes when you withdraw it. 

    Read More: Debt Snowball vs. Debt Avalanche: Which Debt Payoff Strategy is Right For You?

    I do want to acknowledge that there’s an emotional component to paying off debt. Regardless of the interest rate on your debt, it may be weighing on you too much to prioritize investing, and that’s okay.

    Personal finance isn’t always about doing the thing that will get you the best return in the long run. Sometimes it’s about doing the thing that will bring you the most happiness and peace of mind.

     

    How to save for retirement while paying off debt

    So you’ve decided that you want to contribute to retirement while paying off debt. Great! But where do you start?

    First, sit down and look at your monthly budget. After you account for your monthly bills, how much is left? Once you know how much money you have to work with, treat both your retirement savings and your debt payoff as a line item in your monthly budget.

    Deciding how much to contribute to each is up to you. But there are a few tools I recommend to find some guidance in this area:

    • Undebt.it: This debt payoff tool allows you to add all of your debt accounts, and then it helps to design a debt payoff plan for you. It helps determine which order to prioritize your debts in, and then shows you how quickly you can be debt-free depending on the amount you put toward debt each month.
    • Personal Capital Retirement Planner: There are plenty of retirement calculators out there, but this one is my favorite. You input information such as your annual income, current retirement savings, age, and desired income during retirement. Then it tells you whether you’re on track to reaching your retirement goals and how much you should contribute each month to get there.

     

    Final Thoughts

    One of the reasons it’s so hard to find the perfect personal finance advice is finances are just that — personal. What works for someone else may not exactly work for you, and vice versa.

    That’s why it helps to look for general guidelines, and then you can adapt them to fit your specific situation.

    Debt and retirement, in particular, are some of the more stressful financial topics we all face. You want to make sure you’re putting enough money toward each, while still having money in your budget to enjoy your life.

    Trust me, I understand the struggle!

    I talk to so many people who want to know if they should pay off debt or save for retirement. And as you can see, you can do both!

  • How to Set Financial Goals

    Have you ever told yourself that you were going to get your finances in order but then struggled to make any meaningful changes? I hear it from readers and friends all the time.

    “I don’t know where to start.”

    “I know I should be setting goals, but I just don’t know what goals to set.”

    “I try to save money, but I feel like I never have anything left at the end of the month.”

    If any of these sound like you, then this post is for you. I’m sharing why it’s important to set financial goals and how to set financial goals you can actually achieve.

     

     

    Why it’s important to set financial goals

    Have you ever decided to start saving money just because you felt like you were supposed to? You tell yourself, “Well, I know I’m supposed to be saving, so I guess I’ll start putting the money I have left at the end of each month into my savings account.”

    Most often, what happens is that you don’t have anything left at the end of the month, and you don’t end up saving money.

    Why?

    Because there’s no purpose behind your saving. When you’ve set an intentional goal that you’re excited to reach, you can create a plan to save for it. But when you’re saving just for the sake of purpose, it’s hard to get excited about it. 

    Setting financial goals pushes you to get super clear on what you want out of life and then come up with a plan to get there. 

     

    How to set financial goals

    ENVISION YOUR FUTURE

    I see many of my readers setting arbitrary financial goals because they feel like they should. They open a credit card or start saving for a home without really having any intention behind it, all because some personal finance “expert” told them that they should open a credit card or start saving for a home.

    When I help people to set financial goals, I do an exercise where they envision their future. What do you see when you envision your life one year from now? Two years? Five years? Ten years?

    Once you have that vision in your mind, consider what financial goals you need to reach to make it happen. What’s standing in between you and your dream life?

    Brandon and I envision financial freedom in our future and being able to spend our money on things that bring us joy. We got married with a combined six figures of debt standing between us and that vision. As a result, we had plenty of purpose behind our goal.

    The bottom line: Don’t just set goals because you feel like you should. Have purpose and intention behind them.

     

    IDENTIFY YOUR CURRENT SITUATION

    Imagine you’re going on a road trip with a friend. What’s the first thing you do? You type your destination into the GPS. And the GPS can give you step-by-step directions based on where you’re starting from. But with no starting point, the GPS won’t work as planned.

    Goal setting is no different. If you want to map out a route to get to your final goal, you’ll first need to identify where you’re starting from.

    Let’s say your big financial goal is to pay off your debt. In order to make a plan and know when you’ll accomplish your goal, you need to know where you’re starting. In this case, that includes things like making a list of your debts, including the lender, the amount owed, and the interest rate.

    Or maybe you want to save an emergency fund of $10K. Figure out how much you currently have saved to know what your starting point is.

     

    SET SMART GOALS

    I’m sure you’re familiar with the concept of SMART goals. But this is important, so let’s talk about how this concept relates to financial goals. Smart goals are:

    • Specific: The more specific your goals, the better. Don’t just set a goal of earning money from a side hustle. Set a goal of earning $1,000 per month from your side hustle within the first year (for example).
    • Measurable: The progress of this goal can easily be tracked. $1,000 per month is very specific — you’ll know for sure if you’ve reached it or not, as well as if you’re on track to reach it. And once you know how much you want to make per month, you know what your daily and weekly goals should be.
    • Attainable: While setting your goals high is awesome, make sure it’s something you can actually accomplish. I’m all for setting huge goals — to a limit. Consider what will be required of you to complete this goal, and carefully consider whether you have that to give.
    • Relevant: Make sure your goal is in harmony with your core values and where you see yourself in the future. If your dream life includes you working from home on your own business, then setting a goal of $1,000 in the first year is awesome because it’s moving you in the right direction, not the wrong one.
    • Time-bound: Don’t make the time frame for reaching your goal open-ended. We tend to take as long as we’re allowed to accomplish a task. If your goals are completely open-ended, they may never seem urgent enough to get to. As you can see, we set a time frame of one year for the goal we’re using as an example.

     

    BREAK YOUR GOALS DOWN INTO SMALL, ACTIONABLE TASKS

    When you look at your big goal at one big task on your to-do list, chances are you’ll pass right on over it to something a little more achievable. After all, a goal like paying off debt or saving a large amount of money isn’t going to happen quickly.

    When I’m going after a big goal, I like to start by breaking the goal down into as small of actionable tasks as I can. Break it down into small enough tasks that you can do in one sitting.

    Suppose you’re making a plan to pay off six figures of debt. You can’t just throw that on your to-do list and hope you get to it. But you might plan tasks such as:

    • Make a list of all your debts
    • Call your credit company and ask for a lower interest rate
    • Set up autopay for more than the minimum payment on one of your debts

     

    MAKE A PLAN TO REACH YOUR GOALS

    Once you’ve broken your goal down into as many small actionable steps as you can, it’s time to make a plan to accomplish them. That typically looks like putting those tasks on your calendar.

    Let’s go back to our debt payoff example. Maybe you’ll set aside half an hour tomorrow to make a list of all your debts, including lender and interest rate. 

    Then next week, you’ll set aside some time to call each credit card company. While you’re doing that, you’ll hop onto your account and setup your auto pay.

    I don’t know about you, but I’m far likely to accomplish a task when it’s actually on my calendar. Otherwise, it’s just me constantly making mental notes to do something later without ever actually remembering to do it when I have time. 

     

    CREATE ACCOUNTABILITY

    One reason that so many people struggle to stick to their goals is that they don’t have any accountability. They get really excited about a goal when they first set it, but then the motivation starts to wane.

    So how do we go about creating accountability? Here are some ways to do just that:

    • Write down your goal. Seriously, this is a step that most people skip. And studies show that just writing down your goal makes you more likely to reach it.
    • Share your goal. When Brandon and I started saving for our RV, we told everyone — even before we had saved a dime. But everyone in our lives knowing about our goal kept us motivated.
    • Track your progress. Remember that SMART goals are measurable, meaning you can measure their progress. Find a way to do this using a notebook, journal, spreadsheet, etc.
    • Hire a money coach. If you’re struggling to create accountability on your own, hire a coach! One of the benefits of a money coach is that you’ve always got someone in your corner, encouraging you and pushing you.

     

    CREATE HELPFUL HABITS

    One of the things that makes reaching any goal easier is having habits in place that help move you toward your goal. 

    In the case of financial goals, I find that a lot of people ignore their finances or fear opening their bank accounts. A good habit to adopt would be setting aside time on your calendar at least once per week to check in on your accounts and update your budget, whether you use a spreadsheet, budgeting app, etc.

    You could also work on implementing habits that don’t seem related to your goal but will help move you in the right direction. Let’s say you’re working to save for the downpayment on a house, but are finding that you don’t have much money left at the end of each month.

    In that case, you might decide that you’ll meal plan and prep your lunches and dinners each week to prevent you from impulsively ordering takeout because you don’t feel like cooking.

     

    6 tips for reaching your financial goals

    START A BUDGET

    I see a lot of personal finance experts talk about how they can teach you to save money without a budget. But here’s the thing — every one of those people teaches some method of tracking your spending. And they just call it something other than a budget.

    There’s no way around it. The best way to make progress on your finances is to figure out where every dollar is going and to start intentionally deciding where you want your dollars to go from now on. 

    One of the first things I recommend you do when making changes in their finances is designing a create a monthly budget to help you get closer to your goals.

     

    CHANGE YOUR MONEY MINDSET

    For many people, it’s actually their mindset that holds them back from reaching their financial goals. People struggle with limiting beliefs, telling themselves they’ll never be able to reach their goals because they’ve tried and failed before.

    Anytime you’re getting your finances in order or chasing a big financial goal, I recommend making money mindset work a part of the process.

     

    MAKE TEMPORARY LIFESTYLE CHANGES

    One of the biggest struggles of setting financial goals is coming to terms with the fact that you might have to cut back in other areas in order to get there. Rather than thinking of those changes as permanent, consider temporary lifestyle changes you can make.

    Let’s say you’re working to pay off debt, and you know you could eat out less to make room in your budget. Rather than permanently cutting your eating out budget, decide that you’ll cut your eating out budget by 50% until you’re debt free.

    Or maybe you get biweekly manicures, and you decide that until your emergency fund is fully funded, you’ll get manicures half as often.

     

    SPEND ACCORDING TO YOUR VALUES

    I tell my readers all the time that they don’t have to stop spending on the things they love to pay off debt or reach their financial goals. And while they can spend their money on anything, they can’t spend it on everything.

    Rather than letting your impulses guide your spending, let your values guide you. Decide on a few things that are really worthwhile expenses to you. What expenses are worth putting off your debt-free date or your goal for a bit longer?

    Brandon and I love eating out and we love live music. We could cut those out completely and pay off our debt a lot faster. We also could have stayed in an apartment instead of buying an RV to travel full time. But we decided that those expenses really align with our values, and so they’re worth putting a bit less money toward our debt-free goal. 

     

    FIND A MOTIVATING WAY TO TRACK YOUR GOALS

    I find that having some sort of goal tracker front and center is the best way to boost your motivation. 

    When Brandon and I started saving for our RV, we put a whiteboard in the kitchen where we tracked our progress. Every day we would see it, and it would be a small reminder. There are plenty of creative and visually appealing goal and debt payoff trackers you can use to help you stay the course.

     

    TREAT YOURSELF FOR MILESTONES

    Going all-in on your goals can be exhilarating and exhausting at the same time. While you might feel super motivated in the beginning, that excitement can start to wane.

    Rather than letting your lack of motivation completely throw you off from your goal, set small milestones where you’ll treat yourself. Decide that for every $1,000 in your savings account, you’ll have a date night or whatever feels like a treat to you. Make these treats big enough that you keep you motivated but small enough that they don’t throw you off track from your goal.

     

    Financial goal examples

    Not sure what financial goals to set? No problem! Here’s a list of great ideas for financial goals to set this year:

    • Build an emergency fund
    • Pay off debt
    • Start saving for retirement
    • Save for a house downpayment
    • Renovate your home
    • Plan a vacation
    • Start a business
    • Save for a child’s college education
    • Pay off your mortgage
    • Reach financial independence

     

    Final Thoughts

    Sitting down to set a new financial goal seems like just about the most daunting thing ever. I get it. I felt it when Brandon and I set the goal of paying off six figures of debt early and when we decided to save up to buy an RV to travel.

    But by setting goals that truly align with your dream life and breaking them into manageable pieces, you can totally do this.

  • Can You Pay Off Debt and Save For Financial Goals at the Same Time?

    If you’ve been reading this blog or following me on social media, you might know that my husband and I had a combined six figures of student debt when we got married. As soon as we said “I do,” we started an aggressive debt payoff plan.

    But you may also know that a few months after getting married, my husband and I bought an RV and got rid of our apartment so that we could travel across the United States full-time.

    So how did we rationalize spending money on other financial goals while paying off debt? And how did we get around the difficult decision many people face of whether to pay off debt or save?

    The good news is that you can do both! You can pay off debt early and still make room for other financial goals in your budget. There are a few things I recommend checking off the to-do list before saving for other goals, which we’ll cover later. 

    In this post, we’ll answer the question of whether you can save for financial goals while paying off debt and how to actually do it. 

     

     

    Make a plan to pay off your debt

    Before prioritizing any other financial goals, I recommend sitting down and crafting a solid plan to pay off your debt. This plan should include how much you’ll put toward debt each month and which debt you’ll pay off first. Once you know these details, you’ll know exactly when you’ll have your debt paid off. 

    I previously shared on this blog how we plan to pay off our six figures of debt.

     

    Make sure to build your emergency fund first

    Before saving for any other financial goals, your first priority should be to build an emergency fund. I wouldn’t put money toward other goals until you have this in place. 

    How much to save depends on several factors. While some personal finance experts recommend saving $1,000, I just don’t think that’s enough. If you unexpectedly lose your job, $1,000 likely isn’t enough to cover your bills for even one month. 

    I recommend saving at least 3-6 months of expenses. If you have a partner who can cover your expenses if you lose your job, you might be able to get away with three months. If you have irregular income or are self-employed, you may want closer to 9-12 months of expenses saved. 

    I also know that saving that much before you start tackling your debt can be difficult, so I recommend starting with at least one month of savings before turning your attention to pay off debt or save.

     

    Prioritize high-interest debt

    I don’t generally advise that people put their lives on hold while paying off debt. The one exception: high-interest credit card debt. 

    Unlike most debts, the interest rates on credit cards can exceed 20%. I know first-hand just how quickly that interest adds up when you are only paying the minimum payment each month. If you have credit card debt, I recommend putting all of your extra money toward that until it’s gone. 

    If you aren’t sure how to prioritize your debt, consider reading up on the debt snowball and debt avalanche methods, which create a framework to help you break down your debts in a way that makes sense financially.

     

    Treat your goal like a line item in your budget

    I know plenty of people who don’t think you should be spending money on other goals while paying off debt. But you’re already spending money on things. You’re probably paying for rent or a mortgage. You pay for groceries, insurance, the occasional night out, etc. 

    You’re able to spend money on these things because you make room for them in your budget. So when it comes to saving up for other financial goals, I recommend treating it just like any other line item in your budget. Just make sure it fits with your debt payoff plan! 

     

    Don’t take on any additional debt

    I probably don’t need to tell you this, but don’t take on more debt while you’re paying off debt! 

    I know how easy it can be to tell yourself that since you already have credit card debt, putting a little more on your card won’t make a big difference. It’s time to change your thinking here.

    I’m all for people going after goals such as vacations, weddings, or whatever it is you’re saving up for right now. But if you can’t afford to pay for these things in cash, don’t do them. Putting expenses on your credit card while paying off debt isn’t something I’d ever recommend. 

    In fact, only buying things you can afford to pay for in cash is just generally a good rule of thumb to follow, regardless of whether you already have debt. 

     

    Figure out where you can cut costs elsewhere

    I firmly believe that people can pay off debt and save for other financial goals at the same time. But most of us don’t have an unlimited supply of money, meaning you’ll probably have to make cuts elsewhere. 

    Go through your budget and figure out where you can cut. For example, do you really need to be eating out for lunch every day? Could you pack a lunch instead?

    I generally recommend cutting things that aren’t really important to you but that you spend money on for convenience or because you’re with other people who spend money on them. 

    You can also look at your financial goals and see where you can cut there. For example, could you take a more affordable vacation or save for a downpayment on a smaller house?

    My husband and I were planning our wedding while paying off debt. We decided early on that a big, expensive wedding just wasn’t a priority for us. We saved a lot of money on our venue, the food, our alcohol, and decorations without having to sacrifice having a wedding day we loved. 

     

    Final Thoughts

    I know how it can feel to be paying off a ton of debt and feel like you can’t spend money on yourself anymore. And while I’m all for making sacrifices to pay off debt faster, I also think there’s room for everything in moderation! 

    Whether it’s a vacation, a wedding, a downpayment on a home, or anything else, I firmly believe that you can make room for other goals in your budget while paying off debt.

  • How to Build an Emergency Fund & How Much You Should Save

    There were way too many years when I didn’t realize just how important an emergency fund was. I made enough money to pay my bills every month. But when an unexpected expense came up, I’d have to put it on a credit card or pull money from a different spending category. 

    Having a fully-funded emergency in place is seriously life-changing. It provides so much peace of mind and helps ensure that little bumps in the road don’t rock your financial world. 

    In this post, you’ll learn what an emergency fund is, how much you should have in your emergency fund, and how you can save enough money for an emergency fund. 

     

    How to Build an Emergency Fund & How Much You Should Save

     

    What is an emergency fund?

    An emergency fund, just like the name suggests, is a chunk of money that you set aside for an unexpected financial emergency. 

    Your emergency fund has two primary purposes. First, it can help to pay for unexpected one-off expenses that you don’t have room for in your budget. For example, if your car breaks down or you have an unexpected medical bill, your emergency fund can help to pay for it.

    The other use for an emergency fund is a job loss. If you lose your job, your emergency fund can serve as a replacement to your income until you have a new job.

     

    How much emergency fund should I have?

    There’s a lot of debate as to how much you should have in your emergency fund. If you follow Dave Ramsey’s baby steps, he recommends an emergency fund of $1,000 until you pay off all your debt. Once your debt is gone, then he recommends that you save an emergency fund of 3-6 months worth of expenses. 

    Depending on how much debt you have, I don’t think $1,000 is nearly enough. When my husband and I got married, we were working to pay off about $150K of debt. We knew it would take us several years to get there, and I wouldn’t have felt comfortable going years with only $1,000 in our emergency fund. 

    My comfort level before paying off debt is about three months of expenses in our emergency fund. I feel confident that in our career fields, we’d be able to at least partially replace our income in that time. 

    Long term, I recommend an even larger emergency fund. I feel most comfortable with six months of expenses set aside for an emergency.

    There are other things to take into consideration when it comes to the size of your emergency fund. If you’re single, you might want more of an emergency fund than someone in a two-income household who has another person to rely on in the case of a job loss. Similarly, someone who has children to support might feel most comfortable with a larger emergency fund than someone with no one relying on them financially.

    Read More: Is it Better to Pay Off Debt or Save Money First?

    People are tempted to underestimate how much they need in their emergency fun while paying off debt so as to avoid paying more in interest. However, the lack of an emergency fund can actually end up being more expensive.

    Imagine you don’t have an emergency fund and end up needing a $1,000 car repair. Now you have to put the repair on your credit card, and in addition to paying the initial $1,000, you also have to pay the high credit card interest rate until you can pay off the balance.

     

    Where should you keep your emergency fund?

    It’s best to keep your emergency fund somewhere easily accessible and highly liquid. If an unexpected expense comes up, you want to be able to get to your money as quickly as possible.

    A high-yield savings account is a great option. You’ll keep your money safe while earning a little extra money on interest. I personally recommend Ally Bank, but there are plenty of options that pay rates far higher than a traditional bank.

    If you’re tempted to invest your emergency fund in the market, I highly recommend against it. The market can be volatile, and the last thing you want is for the stock market to drop at the same time you need to use your emergency fund. 

     

    How do I build an emergency fund?

    STEP 1: DECIDE HOW MUCH YOU WANT TO SAVE

    I talked about how much I recommend having in your emergency fund. But you’re the only one who can ultimately decide how much you’ll need. Once you know how much you want to save, you can figure out how long it will take you to get there. 

     

    STEP 2: FIGURE OUT HOW MUCH YOU CAN SAVE MONTHLY

    This step is where budgeting comes in. If you don’t know how much you can save every month for your emergency fund, it’s probably because you don’t have a firm grasp on your monthly budget. Let’s change that!

    If you don’t already have a budget set up, check out my guide on setting up a monthly budget. 

    If you already have a budget in place but don’t have extra money left over to put toward your emergency fund, go through and figure out where you can make cuts.

    You may currently be making extra debt payments, and that might be a good place to cut until your emergency fund is in place. Otherwise, find some other discretionary spending such as eating out or a vacation fund you can divert budget money from. 

     

    STEP 3: MAKE IT AUTOMATIC

    I used to tell myself that I would save whatever money I had left at the end of every month after my expenses. And time after time, the end of the month would roll around, and I would have spent everything. There would be nothing left to put into savings. 

    Finally, I changed my strategy. I set up an automatic payment to go through the day after my paycheck hit my bank account every month. Then I could only spend what I had left after savings. 

    It’s easy to have the best of intentions when it comes to saving. But I think we can all relate to a situation where we spend more than we plan to. Setting up an automatic transfer to savings is the best way to make sure it happens every month. 

    Read More: 6 Easy Ways to Automate Your Finances

     

    STEP 4: SAVE ANY WINDFALLS

    I don’t know about you, but I love those cash windfalls that come in throughout the year. Sometimes it’s a tax return (or finding out you owe less in taxes than you had saved). It could also be a little bonus or a raise at work. 

    Another windfall many people don’t think about is that extra paycheck some people get a couple of months per year. If you get paid every other week, then there are actually two months per year where you get three paychecks instead of two. I always look forward to those months, as my husband gets those extra paychecks. 

    While it might be tempting to spend those extra windfalls on something fun, there are probably better uses for them. If you’re still saving your emergency fund, then throw those windfalls in there. Once your emergency fund is fully funded, then you can throw those windfalls toward a different financial goal! 

     

    STEP 5: FIND WAYS TO EARN EXTRA MONEY

    At some point, there’s only so much you can cut from your budget. Even if you’re as frugal as can be, the money can only go so far. That’s where extra money comes in. 

    I love having a side hustle. I started my blog years ago and worked on it alongside a full-time job. A few years later, I added freelance writing to the mix. But in the years when I was really building up my financial health, that extra income was a life saver.

    The good news, it’s super easy to earn extra money every month. Some of my favorite side hustle ideas are super easy to get started and can earn you $1,000 (or more) every single month.

     

    STEP 6: REEVALUATE AND REBUILD

    Your financial needs are going to change a lot during your life. You might decide today that $5,000 is plenty for an emergency fund for you. But fast-forward a few years, and your life might look totally different. 

    In that case, you’ll need to reevaluate whether your current emergency fund is still sufficient. In general, the higher your monthly expenses get, the bigger your emergency fund will need to be. 

    The other thing to keep in mind is that something you’ll need to rebuild your emergency fund. Emergencies are bound to pop up sometimes — that’s what the fund is for!

    When you find yourself needing to spend some of that money, be sure to build it back up afterward. It might be that it was a relatively small expense, and you can get the fund back up in a month or two.

    In the case of a job loss where you end up draining the entire fund, it’s going to take you a lot longer to get it back to where it was. 

    Don’t get down on yourself if that happens — that’s what the fund is for! Your life will probably be a constant back and forth of building up the fund and then having to use it. 

     

    Final Thoughts

    I think we can all agree that unexpected financial emergencies suck. But they’re also inevitable and something we should all be prepared for. 

    If you use the tips in this post to boost your emergency fund, you’ll have a lot more peace of mind next time one of those unexpected costs rolls around. 

  • Is it Better to Pay Off Debt or Save Money First?

    One of the questions I am asked most often is whether it’s better to pay off debt or save money first. And honestly, it wasn’t all that long ago that I was the one struggling with this dilemma. 

    When I was working to rebuild my finances, I read article after article that told said things like:

    • “Put all of your disposable income toward debt!”
    • “Build an emergency fund to fund 3-6 months of bills!”
    • “Max out your 401(k) and your Roth IRA!”

    As someone who was living paycheck to paycheck, I was crushed. How the hell was I supposed to do any of those things (let alone all three of them) when I could barely pay my bills every month? 

    Because of the amount of anxiety I had around this question, it honestly comes as no surprise that so many people are also struggling with it. 

    In this post, I’m answering that age-old question we’ve all had at one point or another. Which should you do first: pay off debt or save money?

     

    Is It Better to Pay Off Debt or Save Money First?

    There are affiliate links in this post, meaning I may make a small commission at no additional cost to you. For more information, see my full disclosure policy here.

     

    Remember, it’s not one or the other

    First things first, you don’t have to choose between just saving money or just paying off debt. You can do BOTH. 

    I’m not saying it’s going to be easy. In fact, I can guarantee you it’s going to be tough. 

    The first thing you’re going to need to do is to take stock of where you’re at. First, take some time to figure out exactly how much debt you have. It sounds obvious, but I know far too many people who just blindly make their minimum payments every month without really paying attention to how much they owe. 

    My favorite tool to gather all of my debt information in one place is Undebt.it. This tool allows you to add and manage all of your debt accounts, among other functions that we’ll cover later on.

    The other thing you need to consider is your life situation. How much money do you have coming in? How much money do you have in savings? What are your monthly expenses? All of these factors will help you choose between prioritizing saving money or paying off debt.

     

    Start by building your emergency fund

    Regardless of whether you have debt and how much debt you have, building your emergency fund should be your very first goal. How much you actually need in your emergency fund comes down to your comfort level, among other life factors. 

    To figure out how much of an emergency fund you need, really think carefully about where you are in your life and what you need out of an emergency fund.

    Today my husband and I both bring in income (I’m self-employed, and he has a good job). Because we share expenses, I know that if I were to lose all of my freelance income tomorrow, we’d be able to get by for a while on his income. 

    But just a few years ago, it was a very different story. A few years ago, I was single, living alone, and barely making ends meet. If I had lost my job during that time, it would have immediately been an emergency.

    Your life situation will tell you a lot about how much money you should have in savings. If you’ve got kids or are a one-income family, you’ll need a lot more of a cushion. 

    Alright, so how much should you save in your emergency fund?

    Dave Ramsey recommends putting $1,000 in your emergency fund before you aggressively pay off debt. I highly recommend more than that. There are plenty of house or car repairs that cost more than $1,000 on their own. And what about job loss? For most of us, $1,000 isn’t even enough to get by for one month. 

    As I said, how much you should actually save depends entirely on your lifestyle. I’m pretty risk-averse, so I would shoot for a minimum of a few thousand dollars. 

    Another thing to remember is that your emergency fund and your debt are totally intertwined. Nearly half of families don’t have enough to cover a $400 emergency. So when those emergencies do inevitably pop up, those families are going further into debt to pay for them.

    Having an emergency fund doesn’t prevent you from paying off your debt — It helps to avoid debt!

    Read More: How to Build an Emergency Fund & How Much You Should Save

     

    Take advantage of an employer 401(k) match

    Just like there’s a bare minimum for what you should save for your emergency fund, I also think there’s a minimum for what you should save for retirement.

    Listen, I know how hard it is to care about retirement when you’re in your early twenties. I was lucky enough to get a job out of college that had mandatory pension contributions, so I didn’t have the opportunity to opt-out. And let me tell you, I’m so grateful that was the case. 

    If you start saving for retirement in your forties, it’s going to seem overwhelming. If you start saving in your twenties, it’s going to be a hell of a lot easier and more painless.

    When it comes to saving for retirement, the most important factor you should look at first is whether your employer offers a match on your 401(k). If they do, take advantage of it. This is literally free money. Try to contribute as much as they’ll match. 

    If you can do more than that, that’s great. But if you’ve got a lot of debt to tackle, I would hit your employer match and then turn your attention to the debt. 

     

    Make a plan to pay off your debt

    If you’re going to prioritize paying off your debt, you need to have a plan in place. And no, making the minimum payment on all of your debts every month doesn’t count as having a plan.

    As I’ve mentioned on this blog before, my husband and I got married with six figures of debt (around $150,000 to be more specific). 

    Had we continued to make all of our minimum payments every month, we would have been paying off that debt for practically the rest of our lives. And after putting a plan in place to pay it off faster? We moved that timeline up by decades. 

    As you can see, there’s a pretty big difference there, and it’s all because we made a plan.

    To make our debt payoff plan, we used the tool Undebt.it.

    The first thing you’ll do when you sign up for Undebt.it is to add all of your debt accounts. This means consumer debt, car loans, student loans, and any other debt you’re carrying. 

    Next, Undebt.it will prompt you to decide in what order you want to prioritize your debts. Essentially they’re asking if you want to do a debt snowball (where you prioritize the lowest debt amount) or the debt avalanche (where you prioritize the highest interest rates).

    The debt snowball is popular with lots of people working to pay off their debt. I understand, as paying off small debts can give you a lot of motivation. If that’s what you need, go for it. 

    We chose to go with the debt avalanche instead. Because of the amount of debt we have, paying off the high-interest debt first is going to save us tens of thousands of dollars in interest. 

    Once you’ve added all of your debts and have chosen what order you want to tackle them in, Undebt.it is going to ask you how much money you want to put toward debt every month. 

    This part is challenging and totally comes down to what fits within your budget. Try to find a number that is quite a bit more than just your minimum payments but still low enough that you have money to save and money to live a little. 

    I know there are plenty of people who think you shouldn’t spend any fun money until you pay off debt. I 100% don’t fall into that camp. If it’s going to take me years to pay off debt, my husband and I are going to go out to eat and go see our favorite bands while we’re at it. My opinion is that you should still set aside some money for things that bring you joy. 

    Once you’ve got your number, you’re done! At this point, Undebt.it will tell you when you’re scheduled to pay off your debt. You’ll have to go in monthly and manually enter the payments you’ve made. As an alternative, though, you can sync Undebt.it with the budget app You Need a Budget (YNAB), and it will automatically keep up to date with your balances. 

     

    Make a commitment not to go back into debt

    Paying off debt is glorious. We’ve got a long way to go before we’re debt-free, but even paying off just one debt is an amazing feeling.

    But paying off the debt isn’t enough. 

    For all of this to work, you also have to commit to yourself to never go back into debt (outside of a mortgage). 

    In some cases, this will be easy. Most of us aren’t planning to take on more student loan debt after we pay ours off. 

    But what about credit cards? Can you commit to never putting something on a credit card if you don’t already have the money to pay it off?

    Can you commit to saving up to purchase cars in cash rather than taking out a loan? 

    After paying on my car loan for years, I was determined that we’d purchase our next car in cash. It might not be the nicest car, but it feels pretty darn good not to be making payments on it. 

     

    Once the debt is gone, go all-in on saving

    When you get to this point, you’ve done the following:

    • Build an emergency fund
    • Put enough into your 401(k) to get your employer match
    • Paid off all of your debt (YAY!)

    For many people, it’s probably tempting to spend that extra money. It’s like getting a huge raise, right? And while I totally agree that becoming debt-free means you can start using some of that money on wants instead of needs. 

    But this is also the time to up your savings game in a big way. 

    First, this means building a hefty job-loss fund for yourself. Aim for six months of expenses in case you and/or your spouse lose your jobs. 

    Now that you have more disposable income, you can also start putting more into your retirement account. The younger you start saving for retirement, the more you can take advantage of that compound interest! 

     

    Final Thoughts

    I know so many people stress out about whether they should be saving first or paying off debt. I struggled with this dilemma for years. 

    The good news is that you can do BOTH.

    It is possible to save a solid emergency fund to help you out in a tough situation, while also slaying your debt. 

  • Financial Goals to Help Make 2023 Your Best Year Yet

    Before I started my personal finance journey, I knew almost nothing about money management. Needless to say, there was a huge learning curve. 

    A huge part of this journey has been setting financial goals to create some direction for me. This has been such a game-changer in helping me to take control of my financial life and actually feel ahead instead of just always falling behind!

    Luckily my husband has been great about jumping on board and setting financial goals with me too. 

    In this post, I’m sharing why you should set financial goals and how to set them, and I’m giving you a list of some great financial goals you can set for 2023!

     

    The Best Financial Goals to Set in 2020

    There are affiliate links in this post, meaning I may make a small commission at no additional cost to you. For more information, see my full disclosure policy here.

     

    Why you should set financial goals

    There’s a big difference between wanting to do something and actually doing something. And the difference is almost always setting actionable goals. 

    For many years, I would have told you that paying off debt was a top priority for me. And yet, my husband and I were making the minimum payment every month on our six figures of debt. 

    So yeah, we said it was a priority for us. But our actions proved that was not really the case. 

    Setting goals is what allows you to stop just dreaming about getting your finances in order and actually start doing it.

    Setting long and short-term financial goals is an absolute game-changer in taking control of your financial life and actually living a life you’re excited about. 

     

    How to set financial goals

    Ok, so we know we need to be setting financial goals. How the heck do we actually do that?

    First, focus on setting SMART financial goals — specific, measurable, attainable, relevant, and time-bound. 

    First, make sure your goal is specific and measurable. Don’t just say, “I want to save money.” Instead, say, “I want to save $5,000 by the end of the year.” Also, make sure the goal has an end date. If you allow yourself to work toward your goal indefinitely, it will take an indefinite amount of time. 

    The most important part of reaching any goal is creating an actionable to-do list to make it happen. Write down every single task you’re going to have to complete to make your goal a reality. 

     

    Financial goals to set for 2023

    Financial goals are so personal to what you want for your life. That being said, I know a lot of people don’t know where to start with setting financial goals. So I’m going to share some specific personal finance goal examples for you. 

     

    CREATE A BUDGET

    I know you’re probably rolling your eyes seeing this one at the top of the list, but you knew it would be on here! Creating a budget and actually sticking to it is the one thing that makes everything else on this list possible!

    It is so freaking important to have a plan for your money and to know where it is going every month. That is the difference between being in control of your finances and just being a passive bystander. Trust me, I’ve been the passive bystander, and it sucks — plus, you’re broke all the damn time. 

    When I first started getting diligent about budgeting, I just used a spreadsheet. It worked great for the first several years and really got me to stick with the practice. 

    Now I use a budget app called You Need a Budget. I can’t praise this tool enough! It’s a very hands-on budgeting tool, and I think it creates a lot more accountability than your traditional budgeting apps. 

    Check out my guide on how to put together and stick to a monthly budget.

     

    BUILD YOUR EMERGENCY FUND

    Did you know that nearly one-third of Americans don’t have an emergency fund, and nearly half don’t have enough money to cover a $1,000 emergency?

    As much as I’d like to think I’d never be in that situation, I was exactly that person for years. 

    After my divorce, I could barely afford to pay my bills — actually, I couldn’t afford to pay my bills. So I definitely wasn’t putting money away for a rainy day. 

    And then, when things like car repairs would pop up, they’d go on the credit card. And sadly, this is the case for many people. 

    Make 2023 the year that you prioritize an emergency fund! How much you should save depends on your life circumstances, but shoot for between three and six months of expenses.

    Read More: How to Build an Emergency Fund & How Much You Should Save

     

    AUTOMATE YOUR SAVINGS

    You wanna know the single biggest thing that helped me to actually stick with putting money into savings?

    AUTOMATION. 

    For years I would tell myself that I’d take whatever money I had left at the end of the month and put it into savings. And, of course, I never had anything left at the end of the money. 

    So what I started doing instead was having an automatic transfer move money from my checking account to my savings account on the day I got paid. 

    It happened on the first of the money, and it was before I ever had a chance to notice the money was in my checking account in the first place. 

    If you’re having trouble putting money into savings, try setting up an automatic transfer so you’re paying your savings account before you use that money for anything else. 

    Read More: 6 Easy Ways to Automate Your Finances

     

    START A SIDE HUSTLE

    Listen, there are a lot of financial goals in this blog post. And things like paying off debt and saving for the future cost money. 

    I talk a lot on this blog about designing a life you love, and for a lot of people, their dream life isn’t cheap. And that’s okay!

    Rather than feel guilty for wanting expensive things like a house or a wedding or vacations, make a plan to pay for them. Having a side hustle has been the best way I’ve found to do that. 

    After all, you can only make the income you have go so far. Rather than pinching pennies, why not just increase your income?

    My favorite ways to make money on the side have been freelance writing and my blog. I’ve always loved writing, so I don’t mind spending most of my free time doing it. 

    If writing isn’t your thing, no problem! There are literally endless side hustle ideas out there, and I feel like I read about new ones every day!

    Here are a bunch of other ideas for how to make extra money to put toward your financial goals. 

     

    MAKE A PLAN TO PAY OFF YOUR DEBT

    I recently published a blog post about how we made a plan to pay off our six figures of debt. 

    Plenty of people have huge debt and just make the minimum payments every month. And for a long time, we were those people. 

    Making a plan completely changed the game. Just last year, we were on track to have our debt paid off…well, never. Now, as long as we follow our debt pay-off plan, we’ll be debt-free in less than seven years. 

    You know what finally pushed me to make an actual plan? I was looking at my credit card bill, and it had a chart that showed when my card would be paid off if I made the minimum payment every month. It was like thirty years, and the balance wasn’t even that high! 

    Needless to say, I panicked and immediately started running the numbers to figure out the soonest we could possibly have our debt paid off. 

    If you have a lot of debt and you aren’t sure where to start, I highly recommend the tool Undebt.it, which allows you to add each of your debts and come up with a debt snowball to get it paid off sooner. 

     

    MAXIMIZE YOUR CREDIT CARD REWARDS

    I know there are plenty of finance experts who swear up and down that credit cards are evil and no one should ever use them. And as someone who has credit card debt, I understand where this argument is coming from. 

    But I also completely disagree with it. 

    Now let me preface this by saying that if you know you can’t control your spending with a credit card and you continue to grow your balance, ignore this step and stop using credit cards. 

    But if that’s not a problem for you, then find a way to maximize your credit card rewards. 

    Some cards offer some really awesome rewards. This year for the first time, Brandon and I sat down and came up with a strategy for how we’ll use our credit cards to maximize our rewards.

    We have a few credit card accounts that have different reward structures, and some have bigger wins for certain types of purchases. 

    For anyone who wants to get started with credit card rewards and isn’t sure where to start, I recommend getting one good cash-back card and one good travel rewards card. 

    The most important part of this strategy is that you pay your balance off every single month, so you’re never paying interest!

     

    SAVE FOR RETIREMENT

    For the first five or so years that I was out of college, I didn’t think much about saving for retirement. It seemed lifetimes away. 

    I was also privileged enough to find a job working for the state, where they automatically withdraw a certain percentage of income for my retirement account and provide a pretty generous match. 

    It wasn’t until I started reading personal finance books that I really started to think about how much money I would actually need for retirement. Would my basic retirement savings be enough?

    Plus, as I prepare to leave my government job to go full-time in my business, I know that saving for retirement will be solely my responsibility — I won’t have an employer pushing it on me. 

    So over the past year, I spent a lot of time educating myself on individual retirement accounts (IRAs) and compound interest. Now I’ll be going into self-employment with a specific plan for saving for retirement. 

    If you haven’t yet started saving for retirement, now’s the time! The first book I read that was a wake-up call for me on this subject was Smart Women Finish Rich by David Bach — I seriously recommend it for all women. 

    Even if you’re already saving for retirement, take a few minutes to reevaluate your strategy. How much are you putting away each month, and how much do you expect that to amount to in retirement?

    Are you just putting some into your company’s 401(k), or are you saving in an IRA as well? Are you saving aggressively, or just putting in the bare minimum. 

     

    READ PERSONAL FINANCE BOOKS

    Reading personal finance books was one of the biggest factors that pushed me on my own personal finance journey. Some of the books I’ve read have honestly been life-changing. 

    I have an entire blog post with some of the best personal finance books out there, but here three of my favorites:

    1. I Will Teach You To Be Rich by Ramit Sethi. This is hands-down my favorite personal finance book. First of all, I love the way Ramit writes, and I appreciate his blunt approach to financial advice. In this book, Ramit walks you through a six-week program to figure out what a rich life means for you, how to set up a budget, where to prioritize your money, and how to invest and save for the future. My copy is full of highlighter, margin notes and dog ears and I’ve gone back to it so many times! 

    2. Smart Women Finish Rich by David Bach. I’ve already mentioned this book, but it’s worth mentioning again. I first heard of David Bach when I was listening to a podcast where he was a guest. He was talking about how most personal finance information is geared toward men, and yet women are the ones who live longer and often spend their last years living in poverty because of the poor financial decisions of the men in their life. It was startling and totally eye-opening. He also talked about the power of compound interest and how, if you start early, it only takes a little every day to set yourself up for retirement. I can’t recommend this book enough! 

    3. You Are a Badass at Making Money by Jen Sincero. I’ve never paid much attention to mindset advice. It always seemed a little too woo-woo for me. I’d always take quantifiable, actionable advice over anything. And then a few things changed. First, I started learning from a life coach who blew my mind. And I read Jen Sincero’s Badass books. What a freaking game-changer. Following the advice in this book has completely changed the way I think about and talk about money. Subsequently, I’ve made exponentially more in my business since reading this book than I’ve ever made before. 

     

    BOOST YOUR CREDIT SCORE

    I read a statistic recently that more than half of Americans never check credit their credit score. Like….literally never. 

    Considering your credit score can make the difference of tens of thousands of dollars in interest, that’s a pretty frightening statistic.

    When you take out a loan or any kind of credit, your interest rate is based, in large part, on your credit score. The higher your credit score, the lower the interest rate you’ll get. 

    So when you’re talking about a big purchase like a house or a college education, yeah, it can be a difference of tens of thousands of dollars. 

    This is another reason why I don’t agree with people’s advice to avoid credit cards at all costs. Using credit cards properly can really help you to boost your credit score! 

    My credit score took a huge hit when I went into debt after my divorce, and I’ve been focusing big time on getting it back up. Check out my blog post on how to repair your credit score during major life changes.

     

    CREATE LONG-TERM FINANCIAL GOALS

    Setting personal finance goals for this year is amazing. But we also need to be thinking a little further in advance. 

    Because here’s the thing — someday, you’re going to want to buy a house or have a wedding or do something else that costs a whole lot of money. And if you only set your financial goals for one year at a time, that’s going to be tough. 

    MY HUSBAND and I sat down together and talked about what we want the next 3-5 years of our lives to look like. We specifically nailed down the big expenses we anticipate coming up so we can start saving for them now. 

    For example, after we do some traveling for a couple of years, we know we’ll want to come home and buy a house. So instead of waiting until we’re done traveling to start saving for a house downpayment, I’m going to set up a budget goal for it now so we can put a little money in every month. 

    Your goal doesn’t have to be buying a house or planning a wedding. It might be starting a business, going on a killer vacation, or having kids. Whatever you envision your life being five years from now, start saving for it now!

     

    Final Thoughts

    Listen, we can’t do it all. And as much as I would love for all of us to tackle every single thing on this list, we’ve gotta focus on baby steps. 

    At the same time, I promise that if you make a budget and take at least the first step toward the rest of the financial goals on this list, you’re going to be setting yourself up for amazing things in the future. 

  • 11 Financial Goals to Set to Make 2023 Your Best Year Ever

    If I’m being honest, I haven’t always had my financial shit together. I spent much of my twenties struggling financially and waiting for things to turn around.

    But like other areas of your life, you aren’t likely to succeed financially without having direction and something specific to work toward. And once I started getting specific with my financial goals, I actually started achieving them. Slowly but surely, my financial life turned around.

    Setting financial goals can be easier said than done. If you’re new to working on your finances, you may not know just where to start. To help you start your money journey, I’m sharing a list of financial goals to set for yourself to make 2023 your best year ever.

     

    financial goals to set

    There are affiliate links in this post, meaning I may make a small commission at no additional cost to you. For more information, see my full disclosure policy here.

     

    Short-term financial goals vs. long-term financial goals

    Before we dive into the list of financial goals to set, let’s talk about the two types of financial goals: short-term and long-term goals.

    Short-term goals are more immediate and will probably be a priority in your budget. They can include goals that range from just a few months away to several months away.

    Long-term financial goals, on the other hand, are generally at least five years out. Some can even take decades to reach, such as retirement or buying your dream home. You may have some long-term goals you haven’t even started saving for yet, and that’s okay.

    It’s important to know whether your goals are short-term or long-term. Not only is it helpful to have a realistic expectation for when you can reach your goal, but it also helps determine how you’ll prioritize, save, and invest for them.

     

    Financial goals to set in 2023

    1. CREATE (AND STICK TO) A BUDGET

    I’m pretty sure all of us, at some point, have hoped we could get our finances in order without a budget. But I’ve got some bad news for you: budgeting is the very cornerstone of reaching just about any other financial goal.

    When I first started working on my finances, I tried and failed at budgeting several times. But once I found the right method, it all came together.

    Not sure where to start on your budget? Here are a few articles that can help:

     

    2. BUILD AN EMERGENCY FUND

    Buiding an emergency fund should be one of the first financial goals you work on when you start getting your finances in order. In fact, it will make all of your other goals more achievable, because it will ensure that an unexpected financial emergency doesn’t completely derail your plans.

    An emergency fund is designed for two purposes. First, it can help you cover any unplanned expenses. Second, it can help replace your income temporarily if you lose your job.

    Not sure how much to save? A general rule of thumb is that you should save between three and six months of your monthly expenses.

     

    3. READ A PERSONAL FINANCE BOOK

    When I started working on my finances, one of the first things I did was choose a few personal finance books to read. There are so many to choose from, some of which have become best sellers because of how many people they’ve helped.

    Of course, no personal finance book can turn things around for you — you still have to do the work. But they can give you the steps (and the motivation) to help you turn your finances around yourself.

    Read More: The 7 Best Personal Finance Books to Read This Year

     

    4. INCREASE YOUR CREDIT SCORE

    Your credit score is one of the most important numbers related to your personal finances. Think of your credit report as a report card and your credit score as a grade that shows lenders how responsibly you use debt.

    So just why is your credit score so important?

    Lenders use this number when deciding whether to lend you money, as well as the interest rate at which to lend it. The better your credit score, the more likely banks are to lend you money or give you a credit card. And since a good credit score can also land you a lower interest rate, increasing your credit score can help you save money.

    The best way to boost your credit score is to pay your bills on time. A late or missed payment can have a major negative impact on your credit score.

    There are plenty of other ways to increase your credit score, including reducing your debt, increasing your credit limits, diversifying your credit accounts, and increasing the age of your credit history.

    Note: According to Bankrate, it can take anywhere from three months to six years to repair your credit, depending on what you’re bouncing back from.

     

    5. MAKE SURE YOU’RE ON TRACK FOR RETIREMENT

    If you’re in your twenties, thirties, or even your forties, retirement may seem too far off to be prioritizing right now. It makes sense that you’d rather focus on goals that are going to happen in the next few years.

    But the truth is that retirement is a goal that you must start planning and saving for today to achieve decades in the future.

    Most of us start saving for retirement in a workplace retirement plan like a 401(k), but you may also be saving in an individual retirement account (IRA).

    Not sure how much you need to save? A tool like the Personal Capital Retirement Planner can help you figure out whether you’re on track for retirement and how much you should be saving and investing each month.

     

    6. SET SOME SHORT-TERM SAVINGS GOALS

    Long-term financial goals like retirement are important, but they don’t carry quite the same excitement as a goal you can achieve within the next few years.

    While you’re saving for those big goals, consider a few short-term goals you’d like to save for as well. These could include buying a new car, going on a vacation, or even making the down payment on a house.

     

    7. PICK UP A SIDE HUSTLE

    It’s easy to look at all the financial tasks on your to-do list and wonder how you’ll ever afford them all. I get it! How are you supposed to have money going toward retirement, your other financial goals, paying off debt, and your regular expenses each month?

    That’s where a side hustle comes in. A side hustle can provide a bit of extra income each month to help achieve your financial goals more quickly.

    Not sure where to start? I’ve rounded up more than 35 legit ways you can start earning extra money today.

     

    8. NEGOTIATE A PAY INCREASE

    A side hustle isn’t the only way you can earn more money. You can also negotiate a pay increase at your current job as a way to boost your income.

    Not only can negotiating a rase help you earn more money now, but you’ll change your income projection for your entire career. You’ll make more money over the long term and be able to set aside more for retirement.

    When asking for a raise, make sure to research the average salary for your position, as well as put together a list of accomplishments and successes you’ve had in your job. Share thoes with your boss to show why you deserve a pay increase.

     

    9. MAKE AN INVESTING PLAN

    Investing is one of those financial tasks that sounds more complicated than it is. In reality, anyone can set up an investment strategy and start setting aside money, all in less than an afternoon.

    If you’re wondering whether it’s really necessarily to be investing, the answer is a resounding yes. Investing is the single best way to build wealth.

    Look at it this way: If you set aside $200 per month in your checking account for ten years, you would end up with $24,000. But if you invested that same amount, you’d end up with $10,000 more — just shy of $35,000. And the longer you leave your money invested, the more that discrepancy grows, thanks to compound interest.

    Most people start by investing in a retirement plan, but you can also invest in a taxable brokerage account for your other shorter-term financial goals.

    Read More: How to Start Investing as a Millennial

     

    10. CHECK YOUR INSURANCE COVERAGE

    Insurance might be just about the least exciting financial topic out there, but it’s also one of the most important. No matter what type of insurance we’re talking about, it’s designed to protect you from financial loss.

    The type of insurance coverages you’ll need — and how much coverage you need — depends on your lifestyle. The most common types that many people have are health insurance, life insurance, car insurance, home or renters insurance, disability insurance, and more.

     

    11. GET YOUR ESTATE PLAN IN ORDER

    No one likes to think about their death, and that’s understandable. And as much as you may not want to think about it, it’s important to plan for it. After all, you want to make sure that if something happens to you, your wishes are carried out.

    Estate planning is especially important if you have loved ones you depend on you, children who will need to be cared for after you die, or significant assets that will need to be distributed.

    The steps for setting up an estate plan are a bit too length for this article, but LegalZoom has an excellent estate planning guide on its website.

     

    How to set financial goals

    Setting financial goals is easier said than done. It’s one thing to say you want to retire early or take your dream vacation in two years, but it’s a totally different thing to make it happen.

    Here’s a quick guide to setting financial goals:

    1. Envision your future. What do you want your life to look like five, ten, and twenty yeras from now? Figuring this out can help you decide which goals to set.
    2. Identify your current situation. What things in your life are exactly where you want them to be, and which could use a bit of work? Knowing where you’re starting is critical in helping you reach your end goal.
    3. Set SMART goals: Specific, Measurable, Attainable, Relevant, and Time-bound. 
    4. Break down your goals into small, actionable steps. You probably can’t save $20,000 for the down payment on a home in the next couple of months. But you can set small monthly savings goals to help you get there in the next couple of years.
    5. Make a plan to reach your goal. Achieving goals doesn’t happen accidentally or without effort. It’s important to make a plan and follow through with it.
    6. Create accountability. This step is key to achieving your goals, because it helps to ensure you’re on the right track. Some ideas for creating accountability include writing down your goal, sharing it with others, and tracking your progress along the way.
    7. Create helpful habits. Your habits are what drive your actions each and every day. Creating the right habits will be key in helping you achieve your desired outcome.

     

    Final Thoughts

    In this article, I’ve shared a handful of examples of goals to set to make the next year even better than the last. 

    But financial goals — and personal finances in general — aren’t one-size-fits-all. Instead, you’ve got to find the financial goals that will help you achieve what you envision for your life. For some it might be buying a home and setting down roots. For others, it’s traveling the world. 

    The beauty of personal finances is that everyone can take their own journey. So what will yours look like?