Financial Goals

  • How to Start Investing as a Millennial

    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 right now, you’ll be lucky to find a high-yield savings account that pays that much. 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 would have $120,000 by the time you retire.

    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 generally try to time the market.

    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? NerdWallet’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 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. 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 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, 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.

     

    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.

    CONTINUE READING

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

    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!

    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 for saving for retirement.

    I spent months researching, learning everything I could about the best way to save for retirement when I was self-employed.

    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 the annual income each year, with a maximum contribution of $58,000 per year.

    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 $13,500 per year. 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 $58,000 per year. 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 $19,500 up to 100% of your income. Then your business can also contribute up to 25% of your income, with a maximum combined contribution of $58,000.

     

    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.

    NerdWallet 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!

    CONTINUE READING

  • Should You Save For Retirement While Paying Off Debt?

    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?

    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.

    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 millennials, it can 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: 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: Debt Snowball vs. Debt Avalanche: Which Debt Payoff Strategy is Right For You?

    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.
    • NerdWallet Retirement Calculator: 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!

    CONTINUE READING

  • 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 coaching clients 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.

     

    How to Set Financial Goals

     

    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 and coaching clients setting arbitrary financial goals because they feel like they should. They open a credit card or start saving for a home without really having 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 my money coaching clients 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. Right now we’ve got six-figures of debt standing between us and that vision.

    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, 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 goal

    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 side 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 remember 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 account. 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 we do in my money coaching program is design a values-based 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.

     

    Look for temporary lifestyle changes you can make

    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 clients 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 both small and large

    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.

    CONTINUE READING

  • 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 have a combined six-figures of student debt. Since getting married in 2019, we’ve been on an aggressive debt pay-off plan and plan to pay it off in just a few years. 

    But you may also know that my husband and I also recently bought an RV and got rid of our apartment so that we could travel the United States full time.

    So how do we rationalize spending money on other financial goals while paying off debt? And how did we get around the difficult decision many 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. 

     

    Can you pay off debt and save for financial goals at the same time?

     

    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 3 months. If you have inconsistent 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. 

     

    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! The only exception might be taking out a mortgage, but we won’t get into that right now. 

    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?

    Brandon 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.

    CONTINUE READING

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

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

     

    There were way too many years where 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. 

    An emergency fund is a safety net you can use for one-time expenses such as a broken-down car or longer-term financial emergencies such as a job loss. 

     

    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. My husband and I are working on paying off about $150K of debt. It’s going to take us several years to get there, and I wouldn’t feel 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. Once we pay off our debt, we’ll work on building our emergency fund to last 6-9 months.

    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.

    You Might Also Like: Is it Better to Pay Off Debt or Save Money First?

     

    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. 

    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.

    If you’re currently making extra debt payments, 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, with 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. 

     

    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, which is what happened to me this year). 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. Now that I’m working on my business full-time, I’m already looking for another side-hustle to add to the mix. 

    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 to where it was. 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. 

    CONTINUE READING

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

    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 newly divorced and desperate for financial advice, 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. Three 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. 

    Like 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!

     

    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 are currently in the process of paying off 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 literally the rest of our lives. And after putting a plan in place to pay it off faster? We’re scheduled to pay it off in about seven years. 

    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).

    From what I read, the debt snowball seems to be a lot more popular. 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!)

    I haven’t made it to this stage yet — we’ve got a way to go on our debt. But I can only imagine how great it feels to be debt-free. We’re probably years away, but I’m already planning what I’m going to do with that extra $2,000 per month when the debt is gone.

    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. 

     

     

    CONTINUE READING

  • Financial Goals to Help Make 2022 Your Best Year Yet

    The Best Financial Goals to Set in 2020

     

    If you read my blog often, you know that my finances have been a top priority for me for several years now. 

    Before I started this 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 Brandon 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 2022!

     

    The Best Financial Goals to Set in 2022

    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, Brandon 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. 

    For all the deets, check out my free printable goal-setting master plan that gives you all the steps you need to make your goals happen

     

    Financial goals to set for 2022

    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 (and stick to it)

    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 2022 the year that you prioritize an emergency fund! Financial expert Dave Ramsey recommends putting $1,000 in your emergency fund before you prioritize paying off debt. Then, once you’re debt-free, work on putting aside three to six months of living expenses. 

     

    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. 

     

    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 for interest!

    And as a note, while I do have credit card debt, I never use the credit cards that have debt that I’m still paying off. I only use those that have no balance. This makes accounting a lot easier. 

     

    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 wakeup 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 are my three 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 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. 

    Brandon 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. 

    CONTINUE READING