Step 1: Save $1000 Emergency fund (EF)
Step 2: Pay off ALL debt in order smallest to largest (except for the mortgage) If you have debts with same balance choose the one with the higher APR to pay off first. If you long to leave your assets to your loved ones keep in mind if when you die with debt, before your assets can be inherited your debts must be paid by your assets first.
Step 3: Boost your emergency fund to 3-6 months’ worth of expenses (needs not wants). Tally your monthly expenses (remember need only) then times that by the number of months (3-6) go with the number of months you feel most comfortable and that is your next goal. Keep in mind you should already have $1000.00 to apply towards it. Now that all debt has been demolished your ability to meet this goal generally happens very quickly. Prepare an emergency fund on 3-6 months of your expenses Emergency funds are used in emergency situations such as job loss, large car or household repairs and slow business seasons. It’s a considered liquid cash meaning you have the ability to gain access to your funds within 24 hours. Bank savings/separate checking accts, home fire proof/bolted to the floor safe and or money markets are all examples of where to store your emergency funds.
Step 4: Saving for retirement a min of 15% of your income monthly (NOTE Baby steps 4,5,6 are done simultaneously) Once mortgage is paid off you can increase your % of retirement contribution if you’d like.
Step 5: Save for college (if you want to help your children in this area) Be sure to know which 529 accts (college savings acct) are claimable on tax return for your residing state. For example, in NY, JP Morgan and Vanguard are the only 2 allowed on tax return.
Steps 6: Pay extra on your mortgage monthly-imagine how free you’ll be when there is no mortgage payment every month
Step 7: Build wealth and give
As a financial coach, this is an example of being in the world caught up in the culture of things and the typical story of the “normal” American but now add inflation, tanking stocks and a volatile market.
They say don’t worry you can’t afford college you can take out loans. You have nothing to worry about because you’re going to make great money as a college graduate.
Reality check- you took out loans and your parents co-sign loans you need to pay back 6 months after graduating (if you graduated). It took you 9 months to find a job and the pay was way less than you were told you’d be making. Your monthly payment doesn’t leave a ton of margin to get your own place. Don’t worry they say once you’re done paying off the student loans, you’ll be free and in the clear.
Don’t worry they say you now need a new car and you don’t have the cash to pay for one. You can take out a loan for a wonderful 0% APR for 48 months. How can you go wrong?
Reality check- now you have rent, college loans and a car payment. “Dang this isn’t freedom this feels like slavery.”
Don’t worry they say you need furniture to furnish your apartment. The sales rep says, “You can take that furniture home today if you fill out this circle line of credit.
Reality check- dang after I pay for all my lenders and monthly expenses I barely have enough for food. The only breathing room you see here is to not pay or reduce the car payment you set up to have it paid by the 48-month 0% APR.
Fast forward you had a balance after the 48 months (once again things didn’t go as planned) on the car loan and you got hammered with an insane APR for the full 48 months. Don’t worry they say, oh my gosh you are starting to see this is turning into a nightmare.
Reality check-your teaching degree got you a job where there’s a new agenda, students allowed on their cell phones, the students are full of entitlement and have minimal respect. No expectation of hard work brings good grades and advancement onto the next grade level. Now anything goes and everyone passes and you begin to wonder, “why am I even here? I want out of this teaching job, it’s not teaching it’s a glorified babysitting job so I’m done….oh wait I can’t leave this job because I owe too much. It’s official I have the golden handcuffs on.”
Don’t worry they say getting married and having children it’s wonderful. Getting married financially meant your household income increased but wait that also meant more student loan debt, because she went to college on student loans too. “Not sure how we can afford a wedding we’ll just go to the Justice of Peace and we can use our gift money for the honeymoon.” The reality of the cash gifts you received was only going to cover ¾ of your honeymoon. Well, you had the Visa credit card in your wallet just for emergencies so you’ll cover the rest of your honeymoon with that. Just add that credit card payment to the list.
Then comes the baby carriage. A brand-new love comes into the picture and you could never imagine life without him or her. Surprise! Now your wife can’t imagine leaving this new love with day care, no way, no how.
Reality check – down an income, up debt and now an extra person to care for. The pressure tightens.
One more step to this messy situation. You’ve out grown the apartment and it’s time to buy a house.
Don’t worry they say low interest rates and a 30 year term, nothing down and it won’t cost you any more than an apartment rent but the difference is you’ll OWN it and you’ll stop throwing money out the window. (Watch out for these sales pitches)
Reality- just because you can afford a mortgage doesn’t mean you can afford the home. Repairs, maintenance, taxes and insurance alone are very expensive. Since you don’t have money as a down payment you get the added $75 per 100k PMI insurance added to your payment as well.
Do you think culture is fueling its own motive? Especially when there minimal to zero teaching students on personal finance…….the important skills for life. To date there are only 14 states in US that are teaching personal finance begore high school graduation. Do you see the vicious circle? Stress, marriage is on the rock and so isn’t our health. This is the perfect storm and resolution leads to big money. Counseling, divorce and disease create big bills.
If I just told your story, I’m sorry. I know if you had a window of opportunity, you’d do it over and most likely differently.
I always promote it’s never too late but you better pull those boot straps up because we’ve got work to do. It’s time to change that next generation, break the curse and leave a legacy.