Money... everyone wants it and most people don't have a clue how to manage it or grow it. Today we are going to take a look at the basics because financial literacy is not taught in school (at least not in the USA), so I'm not going to make any assumptions.
Step 1 - Have an Emergency Fund
This is where you put 3 months to a year of living expenses in a savings account or money market account. It needs to be liquid so you can access it today if needed. If you are single or have kids it should be closer to a year's expenses. I know it's not as fun as a vacation or new shoes but this is the foundation that gives you peace of mind. If you lose your job, you can still pay the bills and eat with this money.
Step 2- Pay Off Debt
This is important so you can have a quality of life and not have collectors harassing you all the time, destroying your credit score, or garnishing your wages. It's not much fun, but it's necessary. The faster you get this one done the more peace of mind you will have since you will no longer be enslaved to your past or owe anyone anything. You have total control over your life and your money!
Step 3- Investing
This is where it starts getting interesting. In this step you have the freedom to dream about your future and what you want to do with it. This is where you start putting away money for retirement (ideally at least 15% but the more you put away the faster you can retire! Look up #FIRE movement), or towards big goals such as a down payment on a house you want to buy in 5+ years. This can also be for "now" money such as investing in real estate, businesses, or other assets.
Step 4- Kids
Skip this step if you don't have kids. If you do have kids then you should save in an ESA or 529 for their schooling/college. Also, make sure you have life insurance and a will if God forbid something were to happen to you. Then your kids will be ok, have a pre-selected guardian and money to live off of.
Step 5- Saving for Short Term Goals
This step is the most fun. Steps 3, 4 and 5 can be done simultaneously. This is where you save money towards reaching your one month to 2 years out goals. Goals like taking a dream vaction to Africa or Bora Bora, a designer handbag, starting a business or your wedding.
This will take a few years to achieve, but it is so worth it in the end to be able to live your dream life!
Much Love,
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