Money money money MONAYYYY. *cue the song we all know and hate*
I love talking about money, investing, finances, budgeting, etc. but I definitely didn’t always. Money talk used to make my skin crawl and my stomach hurt because I had legitimately no idea what people were talking about or how to apply it to my life.
Then, I landed a job with a large investment company and was basically thrown into the fire and told “You’re gonna learn today.” Which I did.
Now I’m here to share that knowledge with you. Because when it comes to money and your finances, literacy is super important. And not just understanding basic vocabulary words like “investment vehicles” “annuities” “IRAs” and “money markets.” That stuff is important–but it’s even more important that you can apply money principles to your life and understand why they matter and how they’ll help you.
You can find money advice just about anywhere from just about anyone. And I encourage you to do your own research and constantly strive to learn more. But I also want to warn you that not everyone knows what they’re talking about. Your friend who’s trying to convince you to join their MLM currency trading scheme–avoid their advice, please. Finances are a complicated matter and not everyone has the education necessary to help you. Choose wisely.
LET’S GET INTO THE BLOG! This post is all about the 5 money moves you should make prior to jumping into any crazy investing. I get asked all the time, “Kaili, how do I buy stock? I want to start investing in companies like Apple but I don’t know where to start.” Fabulous! I love that money is on your mind and you’re pumped about growing your income, but let’s make sure you have the basics covered first.
Cover these 5 steps and then let’s talk specific stocks. Because before you worry about how much Nike stock you can afford, you need a solid foundation you can count on. Here’s how to get that:
- Budget: Creating and maintaining a realistic budget is absolutely necessary if you want to reach financial freedom and remain free to do as you please. When I say “realistic,” here’s what I mean:
– Below your means: You need to make more money than you spend. If your budget is more than you’re bringing in, what’s the point? And if you hit me with the argument of, “I don’t know what else I can cut out though!” I might roll my eyes. Because here’s the reality: You either want it or you don’t–it’s that simple. Quit getting your nails done, your hair colored, going to happy hour every Thursday, and buying brand name everything. There’s always room to save. It might not be fun, but it’s always there.
– Honest: As in, you’re tracking everything. Each penny in and each penny out.
– Attainable: Obviously, your necessities and a few wants need to fit into your budget. You don’t want to set the bar so high that you’re failing to stay within your budget every month–that’s a surefire way to burnout and give up.
My favorite way to budget is through Excel. If you need a good template, let me know and I’ll send mine your way. Think you might forget a purchase? Simply a) take a picture of the receipt or b) make a note in your phone. No excuses guys. Get it done.
- Emergency Savings: I’ve said it before and I’ll say it again–you NEED an emergency savings. And it should be equivalent to 3-6 months of your basic expenses: rent, groceries, car payment, loan payment, insurance, gas, etc. Personally, this is $12,000-$18,000. Your amount might look completely different depending on where you live and your expenses. Take a few minutes (now that you have a budget!) to figure out your sweet spot, write it on a piece of paper or in your phone, and commit to saving that amount in the next year.
Where should this emergency savings live? That’s up to you. Personally, I keep mine in an online high-yield savings account that makes 2.15%. Why? Because that’s more than a traditional savings account makes and it’s always accessible.
What counts as an emergency? Not date night, not a dress for an event, not new shoes, not a haircut, not that super cool thing you just saw an ad for. We’re talking real emergencies: car repair, can’t pay rent, home maintenance, or you’re starving and need groceries.
Once you’ve reached your target amount, you can start stashing the money away you were previously saving somewhere else. But before you’ve reached this amount, you should be making an effort to put as much as you can–including your leftover cash–into this account.
- Move Money Out of Traditional Accounts: If you’re anything like me, you grew up knowing about 2 types of accounts: checking and saving. Though you should definitely still have both of these, the bulk of your money shouldn’t be sitting in them.
Why? Because their interest rates are extremely low. Meaning your money is just barely beating inflation. Not cool. Here’s what I suggest instead (after paying rent and any other large necessary expenses):
– Keep 1-2 months worth of expenses in your traditional savings account. This way, if you ever need it immediately, you have access.
– Keep enough money in your checking account to pay for your basic needs. Honestly, this shouldn’t be much more than $1,000. If you’re routinely dropping more than that on groceries and gas, I have some questions.
– Move everything else. Where? Fill up your emergency savings. If your emergency savings is full, put it toward debt. If you don’t have debt, put it into a retirement account. Already maxed those out? Invest.
– Make sure that you aren’t going to overdraft though! Be aware of your monthly payments and ensure that you always have enough available–but not too much.
I’m done paying my large expenses (rent, loan, etc.) by the 5th of the month. So on the 6th, I usually shuffle my money around and make sure my accounts are sitting where I like them. This way I’m actively putting my money to better use than just hanging out in a savings account collecting dust.
- Max Out Retirement Accounts: If you don’t currently have a retirement account, please promise me you’ll open one immediately after finishing this blog.
You have a few options: 401(k), Traditional IRA, Roth IRA, and a few others–but these are the most common. If your employer offers a 401(k), you can contribute up to $19,000 annually to it (as of 2019). For an IRA, your contribution limit is $6,000 (as of 2019). If you’re able, maxing out these limits should definitely be a goal.
I know retirement feels like a lifetime away, but the quicker you save for it, the more money you’ll have when you need it and the more likely it’ll be that your money thrives through any market downturns.
Not sure how to start? Please seek out professional advice from a financial advisor. Sometimes employers offer these services for free, so don’t be afraid to ask. And even if you’re not employed, some advisors offer their advice for free or at a very low cost to newbies.
Retirement accounts can be tricky–but you should 100% have one. I won’t dive into their intricacies right now (that’s for another time), but I’ll tell you this: If you’re looking to have a better understanding around investing and investing vehicles, a retirement account is a great place to start.
PS: Because I know a lot of people get confused about this–retirement accounts ARE investing. You can invest in nearly anything in these accounts: stocks, bonds, mutual funds, ETFs, etc. These accounts aren’t like traditional savings accounts–your money isn’t hanging out in a bank. Your money is invested in whatever portfolio (mix of investments) you or your advisor has chosen.
- Aggressively Pay Off (AND AVOID) Debt: I hate to break it to you, but if you want to rid yourself from the chains of financial burdens, you need to pay off your debt. I’m talking all of it, and aggressively. This means a few things:
– Dedicating a solid portion of your budget to paying off your debt.
– Making larger payments than necessary when you’re able.
– Making payments on time, every time.
– Avoiding taking on more debt than you need. AKA: stop using your credit cards for silly purchases and stop buying things you actually can’t afford.
– Making a plan and sticking to it.
The reality is this: Most of us will face debt–and a lot of it. But if you’re smart about your money, dedicate your excess to pay down debt quicker, and avoid it when you can–you’ll be OK.
And because I get asked this all the time: YES, you can pay off debt while saving for retirement and stashing money in an emergency fund. You don’t have to choose just 1 at a time. If the interest rate on your loan is higher than the interest you’d be making in your retirement account or emergency savings, it might be smart to dedicate extra money to paying off your loan. If the opposite is true–you know what to do.
Once you’ve covered these 5 steps, you should feel more confident not only in your financial decisions but in your future financial status. And once you’re comfortable and confident with money, the world is yours! You don’t have to stress and freak out. The key is continuing these habits for the rest of your life and always striving to stay on track.
If you have more questions, I’d love to help out! My last piece of advice? Snag yourself a trustworthy, knowledgable advisor to help you on your path to financial freedom. Trust me, you’ll be happy you did.
Disclaimer: I’m not a financial professional. These are my opinions based on my personal experiences, career in investing, and research I’ve done on my own. Your financial decisions are important and can impact a lot of areas of your life. Please do your own research prior to making any major decisions.