4 steps to building a smarter, healthier, and more resilient financial mindset
1. Begin wherever you are—it’s never too late to save, invest, and work towards your financial goals.
There is a lot of content out there that talks about the benefits of saving and investing when you’re young (starting in your early twenties or teens if you can swing it). I often see a post on Instagram that shows two side-by-side scenarios—one of a 22-year-old who invests $250 every month and retires at the age of 65 with $2 million vs. the 35-year-old who invests $700 every month and has less than the 22-year-old. The reality is we all start our financial journey at different points at different times. Everyone has a unique starting point when it comes to debt, income, inherited wealth, and so on. Some people are graduating college with a lot of student debt and a low-paying job where they can barely cover expenses. Others are starting their post-college life with no debt and high-paying jobs and others never even went to college.
We need to acknowledge that it’s okay if people have other things they need to prioritize when they are younger. For some people, rather than saving $250 per month when they’re barely able to cover rent and food, they might actually prefer to start saving at a later age when they have more breathing room and a financial net available with improved earnings.
Many of us just don’t learn about personal finance until we have already passed our teenage years and early twenties. That’s also okay. We can’t go back in time to start investing so the only thing we can really do is start now—wherever we are. A lot of people may think that because they didn’t start when they were younger that it’s too late. That’s absolutely not the case and sooner is better than later, so start now.
2. Save for an emergency fund, so you have a safety net.
The number one thing that we can do to give ourselves some breathing room when it comes to our finances is to have an emergency fund that we can quickly access if we ever find ourselves in need of money. If you don’t have any savings, start with the goal of saving one month’s worth of expenses. After that, depending on your risk appetite, you may want to save 3-6 months, or potentially even longer. As the name might suggest, we usually can’t predict what the emergency will be since it will be unexpected but we do know that we are bound to face a financial challenge at some point in our future. For many of us right now, this is taking shape in terms of layoffs and rescinded offers where people suddenly find themselves without a steady income coming through. For others, it could be a medical expense for yourself or a family member (including pets). Emergency funds can also help cover things like a car accident, bad luck (if you break a computer or phone accidently), home repairs, and anything else that you really aren’t planning for.
From my own personal experience, I was totally blind-sided when I was laid off after starting a new job less than three months before then. Knowing that I have my emergency fund and because I am not living paycheck to paycheck, I don’t have to take any new job that comes my way. I have the financial and mental security to ensure that I look at new opportunities without the pressure of having to cover next month’s expenses.
3. Identify your goals and build a roadmap—having a strategy enables you to feel empowered.
Once you have your emergency fund set up, it’s time to think about your other financial goals. This includes paying off debt, saving for major expenses (like a home down payment), saving and investing for retirement, and so on. Putting numbers on your goals and the timeline you would like to achieve them help crystalize what you need to do to make them happen. For example, let’s say you want to save $60,000/year that will go toward paying down student loans, saving for a new car, and maxing out your 401(k) account. However, let’s say your current income is $120,000, which after taxes and your monthly living expenses, doesn’t leave you with income to save $5,000 a month for your savings goals. This shows you that it will either take you longer to achieve your goals and you need to re-adjust your timeline or you need to find ways to increase your income. Or, maybe you realize that there are ways to reduce your expenses or it would be better to get a cheaper car.
While it can be scary to put numbers on goals because it might feel like you’re so far away from where you want to be, it’s actually the first step toward making those goals a reality. You need to know where you’re starting and where you’re going in order to actually begin the journey. Check out this article on building your financial roadmap.
4. Strike a balance between today and tomorrow—enjoy the journey towards achieving your financial goals.
Once you have set your goals, you might be tempted to do everything you can in your power to reach those goals one step sooner. Maybe you’ll even start cutting out things you’ve budgeted for to get to the end point faster. However, like most things in life, reaching your financial goals is a marathon, not a sprint. Building in ways to enjoy the journey will make it more sustainable, so intentionally include things in your budget that can help you stay on track for the long haul. Money is a tool to help us live fuller lives, so don’t put that off until the future.
It is highly important that we save and invest for our future goals for our future selves in the lives we envision for ourselves, but it is also important to acknowledge that our present self has needs and wants that are valid. There is a way to spend purposely on things we care about while cutting out spending on stuff that doesn’t add value to our lives. Only you know what will truly bring you joy and how best to balance how you allocate your resources between your current and future self.