I recently wrote about “ELIMINATING YOUR DEBT” # 3 of the FIVE key ingredients to Financial Peace and the recipe that I find most useful to get there.
To recap here’s the full list of the 5 KEY Ingredients once again:
- Simplifying your Life
- Eliminating Your Debt
- Saving/Investing/BUILDING WEALTH
This month I want to focus on Saving/Investing/Building Wealth and why this is such an important part of the recipe.
When I work with clients I teach that intensified saving comes after the first 3 ingredients.
Before we pull out the bowl to bake your way to financial wellness, we make sure you have built a small emergency fund of $1000-2500.
Then we move to eliminate all of your Non-Mortgage Debts.
AFTER that, we start intensifying the savings so you can build wealth. Your goal at this stage is to save up to 3-6 months of your total household expenses in a FULLY FUNDED EMERGENCY FUND.
This means that after every credit card, student loan, car loan is paid off, YOUR INCOME IS NOW WORKING TO YOUR ADVANTAGE to build savings and wealth. You can go to work and know that your efforts are paying off because your savings will now start to grow.
Instead of 20-30% of your take home pay going to DEBT payments, you will now be using those same dollars to build up savings and wealth.
Why is building the fully funded emergency fund so important? Because in today’s day and age there are so many things that can stifle your plan.
Today we’ve seen (or maybe you’ve experienced it yourself) job loss due to mergers, restructuring, downsizing, and economic hardships. Many of us have watched a family member or a friend deal with an unexpected illness or health scare.
An unexpected car accident can take you out of the earnings game.
It’s very important to protect yourself and create additional savings (security) before you start to invest and build wealth.
The emergency fund should be kept in a money market account and not invested in longer term investment vehicles. It should also not be so easily accessible (don’t tie an ATM Card to this account) that everything including dinner starts to come out of it.
Now it’s time to get serious about retirement.
With no payments and a full emergency fund, you can start building your retirement dream.
This step is all about building long-term wealth.
Take 15% of your gross household income and invest it first into matching company 401(k)/503(b) plans and then into Roth IRAs. If your company doesn’t offer a retirement plan or match your contributions, then go straight to the Roth.
Be sure you find a reputable Financial Professional in your area so you have someone working with you on diversifying properly and making certain that based upon your goals and timeline that you don’t take too little or too much risk.
Again, remember that the BUDGET is the tool to making sure every dollar has a name and that your ability to build wealth is quicker and easier. If we TRACK our money we have more of it going where tell it to.
If you are interested in sharpening your financial wellness timeline why not invest in a Financial Coach? (That’s me!)
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Want to feel like this? READ what these clients shared about their AH-HA’s after working through my process:
- “I now have confidence AND clarity around my money and a plan which has left me feeling so good”
- “ I can sleep at night!”
- “Before working with you everything was an emergency. I walked around worried all the time about what was next, Paycheck to paycheck, month to month. Constantly stressed out! Today nothing feel like an emergency. I have pre-named dollars for everything and when it shows up I’m ready!”
- “You gave peace where there were pieces!”
- “Your the closet organizer for my finances! Ha, and I can afford a closet organizer now if I WANT one!”
- “You gave me a plan and tools that made it easy and gave me good strong financial advice in other areas!”
- “I took back control!”
- “Since working with you this past 11 months I’ve paid off $52k of debt and have turned on the wealth building machine!”
- “I’m no longer in scarcity mode as you called it. I’m in stability mode and can see ABUNDANCE is right up ahead”
See you next time as we put the icing on the cake with ingredient #5!
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