Financial Goals: What, When & How to Prioritize
Listen, there’s a reason most people are overwhelmed when it comes to planning their finances.
Savings, spending, debt, retirement planning, emergency funds.
What to do next?
What to do when?
Where is the best place to put my money NOW?
What do I need to do today and also think about the long term?
Ahhhhhhhhhhhhhhh! It all gets a bit crazy, right.
I’m going to break it down for you here, babe.
Let’s simplify things.
I want to ask yourself one simple question: Where do my next dollars need to go?
And when you answer, think about the PAYOFF.
Your grey haired accountant will call this your RETURN.
PAYOFF: What are you getting in return for the money you’re putting in?
1. Minimum debt payments
First and foremost, don’t miss those minimums!
As long as you’re making your minimum payments, on time every month, your credit will stay in tip top shape.
This is vital for you because if you’re like most, at some point you’ll need some company - bank or otherwise - to trust you enough to dish you some cash you don’t have.
Keep in mind, whoever you owe this debt to wants to drag out these payments as long as possible.
Why?
Because then they make more money in the interest you pay them.
They will calculate a minimum monthly payment to make sure they’re getting paid each month.
But this minimum likely leaves you paying off this debt well into your senior years.
PAYOFF: A good credit rating
We want to make more than our minimum monthly payments, but first...
2. Your FU Fund
You want some cash in the bank, just in case.
This is the minimum amount you’d need in an account to live if you wanted to say F. YOU to your boss, quit your job and begin your life long dream of being a salsa dancer.
Yeaaaaaaah, girl.
Otherwise known as an emergency fund, it’s the money you need to survive in the event of a big life earthquake.
Say, maybe a global pandemic.
This money must be easily accessible and will cover your minimum monthly expenses needed for survival.
If that happened, you’d likely cut your monthly expenses to the bear minimum so this isn’t today’s monthly expenses, but your bear minimum.
How many months of monthly expenses?
The answer to that is how much you need to feel safe.
For those with a little more love for the wild side and who are comfortable with risk, three months will do.
For anyone who prefers more safety and security, anywhere up to 12 months could be your number. Keep in mind, money in cash isn’t growing so you don’t want to keep endless supplies on hand.
Only keep what you need to make sure you’re covered.
PAYOFF: Safety & Survival.
3. Employer matched retirement contributions
Employer matched retirement-what now?!?!
This is a program that some companies offer as an extra perk of the job.
It’s their way of helping you save for retirement.
Not every employer offers this, but if they do, get on that wagon girl and take yo money!
How it works.
You can opt to take a portion of your salary, invest it for retirement and the company will match your money up to a certain amount.
Some employers match 100%, some 50%.
But it’s basically free money.
This is also a guaranteed return.
That kind of payoff is hard to beat.
For example if you invest $5000 in a year and they off a 100% match, you’d have $10,000 invested - their 5000 + your $5000.
You’ll be hard pressed to find 100% return anywhere else.
If they offer a 50% match, you invest $5000 and they invest $2500.
BAM!
You’ve got $7500 growing toward your retirement. I like dem numbers. 😎
PAYOFF: Up to 100% return
4. High interest debt
Any debt with an annual interest rate above 7%.
These are credit cards, lines of credit, store credit cards or other high interest loans.
WANT TO KNOW A FUN (and startling) FACT: Most people don’t know the interest rates of their debts.
Why, because it’s probably buried in a 37 page doc of legal jargon typed in pt 8 font.
And you only saw that doc once 3 years ago.
So if that’s you and you can’t remember, don’t stress darling.
There’s a super simple 5 minute fix.
CALL THEM.
Whoever you have the debt with.
Call them.
NOW.
Like today.
The reason I say call and not email is that you can ask questions.
Ask two simple questions,
What is my annual interest rate?
When will it change?
Most student loans, bank loans and some credit cards will give you an introductory interest rate that rolls to a higher one at some stage in the future.
You’ll want to know that date and the new rate so you can plan yo path to debt freedom, babayyyyy!
Unlike investing in the market, paying off debt gives you a guaranteed payoff.
Your return is the annual interest rate on the debt.
Clear as mud?
Let’s run some easy numbers.
If you have a $10,000 balance on a credit card with a 20% interest rate, you’re forking out a little less than $2000 a year in interest alone.
Once you pay that off, that money stays in your pocket.
So the return you get from paying off debt is the amount of that annual interest rate - whether it’s 20%, 18% or 9%.
PAYOFF: Annual interest rate on the debt
An Art, Not a Science
Whewwwww!
So you’ve got your high interest debt paid off, you’ve got your FU fund and you’ve started tucking some money away to live large into your grey years.
Nice work!
So now what?
The next few options will depend on your specific sitch.
But mostly your priorities.
I want you saving for retirement and for your dreams.
You’re going to do three things:
Save for retirement.
Bring your dreams to life.
Pay off lower interest debt. (less than 7%, e.g. mortgages, etc)
The main difference between retirement and your dreams is when you need the money.
Based on when you need the money, you’re going to hold it in different places and in different investments.
If one of your dreams is to take your dream vacay to Bali next year, you don’t want it locked away in an investment where you can’t spend it until your grey years.
How to know which to work on first?
Which is more important to you?
Are you willing to delay the closer dreams for a larger future payoff?
Or would you rather manifest those dreams sooner so you can spend more time enjoying the now?
Life is short, right?!
There’s no one right way to create your dream life.
Only the best way for you.
You’ve got options.
There are also a few juicy perks and accounts that Canadians get to use to reduce taxes when you’re saving long term.
Next week I’m going to break it down for you in full detail.
Tax Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs) and a full run down on all things investing … from the ground up.
How to get started investing and grow: The how-tos, the what-tos and the where-tos.
NEXT WEEK: Getting Started with Investing
Investing is the most important thing you need to create financial freedom.
I can’t wait to dive in.
Catch you next week!
And remember, anything is possible, babe.
Kristen 💚xx