Financial Feminist - 5. Where Do I Start? (aka the Financial Game Plan)

Starting point is 00:00:00 So the biggest question I get asked all the time in my DMs, in my comments, in my emails is how do I start? And I think there's so much different information out there about how to actually begin. You have one financial expert telling you one thing and you have another financial expert telling you another thing. And then you think to yourself, but also I am unique and I need my own personal finance game plan and situation. We like saying at Her First 100K that personal finance is personal and that 100% is the case.

Starting point is 00:00:50 However, there is a game plan that we can give with the step-by-step rules and guidelines of how to get started on your financial journey. It doesn't matter who you are. It doesn't matter what your financial situation is. Ultimately, these are the steps. Even if you have a ton of debt, even if you have different goals, maybe than somebody else does, this is a good guideline or guidepost to come back to on your financial journey. And this is information that you will literally use for the rest of your life.

Starting point is 00:01:21 What we'll discuss today, what I'll outline today is information that you will literally use for every financial goal for the rest of your life. So this is the financial game plan. This is what to do in what order, how to get started in your financial life. If you are just beginning your financial journey or trying to figure out where to go next, this is definitely the episode for you. So step one on the financial game plan is an emergency fund. Now there's a lot of financial experts out there who will tell you to prioritize debt first. And I will tell you why I don't agree with that. First is that I don't want you going into debt or going into more debt, trying to pay for an emergency, right? I don't want you to have financial hardship or even more financial hardship trying to cover yourself during potentially one of

Starting point is 00:02:12 the most stressful times in your life. And the second reason we prioritize emergency savings before paying off debt is I just want you to have the mental peace of mind knowing that you have something in the bank. Again, during one of the potential most stressful, crazy, disorienting times of your life, I want you to know I'm covered. You don't have to sit up awake at night thinking like, how would I cover an emergency? You know that you have something in the bank. A question I get all the time is, in addition to how do I start, what if I have a ton of debt? I have tens of thousands of dollars, hundreds of thousands of dollars in student loans. I have credit card debt. Shouldn't I prioritize that first? I really need you to have an emergency fund before you proceed. I really need that to be the number one goal. Your starter emergency fund should ideally be three months of living expenses. So what you want to do is total up

Starting point is 00:03:05 what your monthly expenses are. And I tend to tell clients it's your living expenses that you absolutely need and multiply that by three. So let's say that's $2,000 a month multiplied by three, right, your starter emergency fund goal is $6,000. Now this should be in a high yield savings account. If you follow me online, you know I talk about these things never ending. A high yield savings account is so important. It's

Starting point is 00:03:28 the easiest thing you can do to immediately make more money for yourself, making sure that your money is in a high yield savings account. The whole point of an emergency fund is that it's just going to sit there. It's going to sit there in case you need it. It's there for emergencies. So it may as well be working harder for you. But please do not invest this money. We hear working harder for you and you think investing, which is great. That's the exact right impulse. But you do not want to invest your emergency fund. It needs to be easily accessible.

Starting point is 00:03:55 It needs to be like you could get it day of or next day. You don't want it tied up in the stock market. And in terms of what constitutes an emergency. Now, I have a certain pair of shoes that I've been watching go up and down in terms of sale for like six months. And if they reach a certain level, I get to buy them. But that's not for my emergency. It's not like this pair of shoes I really wanted for a long time has gone on sale.

Starting point is 00:04:22 It's like my dog gets sick, or I lose my job, or my car breaks down, or you get sick, right? It is an actual emergency. It is not something that you really want. So an emergency fund is for emergencies. And the cool part about the emergency fund is that once it's done, it's done. That takes a long time, right? Typically, saving for retirement is going gonna be a lifelong process, but the emergency fund is a goal that you can save for and concretely check off. So that is your number one financial priority. If you're listening to this episode

Starting point is 00:04:56 and you don't have an emergency fund yet, by all means, keep listening, but know that that is your first goal. Know that that is where you wanna start before you continue to these other tasks. The second on our financial game plan is high interest debt. Now I define high interest debt as anything over seven percent. That is always going to be credit cards that might be some student loans. The reason seven percent is our magical number is that is the average amount

Starting point is 00:05:23 we can expect in the stock market. The average stock market return year over year has been about 7% to 8%. So if we are losing more money by being in debt than we could be making in the stock market, we are going to prioritize paying that debt off first. Let me explain that again. So 7% is the threshold. That's the average amount you can make in the stock market.

Starting point is 00:05:44 If you are losing more money by being in debt than you could be making in the stock market, you're going to go ahead and prioritize paying that off before you start investing. So this number two task, high interest debt. Now let's say you have multiple credit cards. Let's say you have one credit card at 22% and another credit card at 15% and both of them have debt. You are going to focus on paying off the one with the highest interest rate. You're going to do that first because that is the one that's costing you more money. Now, I have a lot of clients who when they first come to me, they go, okay, well, I'll put $15 a month extra towards credit card number one and $15 extra to credit card number two. I would rather you just take that $30 extra a month and put it towards the most expensive

Starting point is 00:06:31 credit card. Don't half-ass two things, whole-ass one thing, as the lovely Ron Swanson says. Focus on the one that's costing you the most money and prioritize paying that one down first. Number two in the financial game plan is paying off that high interest debt and staying out of high interest debt. Credit cards are a great tool if used responsibly. They can be really dangerous if you don't use them responsibly. So after your emergency fund, number one, number two is go ahead and pay off your high interest debt. Number three on the financial game plan. Number one was an emergency fund. Let's say you got that going on. Number two, you've paid off all your high interest debt. Number three is kind of a twofer. It's a two for one kind of deal. You are going to start investing for retirement while

Starting point is 00:07:13 paying down lower interest debt. Now, how I define lower interest debt, as you can imagine, is anything under 7% in interest. This is most student loans, car loans, mortgages, etc. In terms of recording this, it is April 2021. And we are currently in this kind of student debt freeze right now where many student loans are put on pause. Now, this doesn't really change the financial game plan. And this is the beautiful thing about the financial game plan is it kind of is everlasting. It is immortal. It's like Thanos with all of the infinity stones. If you have the ability to pay off your student loans or to significantly pay down your student loans, if you're already starting to save for retirement, if you already have an emergency fund, if you don't have any high interest debt, then definitely do it because right now they're not

Starting point is 00:08:05 accruing any interest. So if you can take advantage of this time to more aggressively pay down your student loans, I would say definitely take advantage of it. However, that should not be prioritized over an emergency fund or paying off your credit card debt. Last step in the game plan. You have your emergency fund. High interest debt's gone. You're starting to save for retirement. You're continuing to do that while paying down your lower interest debt. Number four is a package deal with number three. So you're saving for retirement. You're paying down your lower interest debt. You're also going to start saving for what I like to call the big stuff. Buying a house, having kids, getting married, starting a business, retiring

Starting point is 00:08:47 early, going on a kick-ass once-in-a-lifetime trip, right? These are the big milestones in your life that you need to save money for. Most of those goals are short-term. I would say most of them, if not all of them, are short-term. Short-term being what I would define actually as under like seven years. So you want to open up a separate high-yield savings account and start saving for that goal. So set up, in addition to your emergency fund, a separate high-yield savings account for your down payment on a house fund.

Starting point is 00:09:18 And then maybe you have another high-yield savings account for your wedding fund. You can have as many high-yield savings accounts as you want. In terms of the financial game plan, three and four kind of go together. You're going to be saving and investing for retirement while paying down maybe your student debt, your mortgage, your car loans, and then saving for these big life events. There is one exception to this financial game plan rule. I need like a rap or horn, like this is the one thing that is an exception. If you get an employer match through your 401k, we are going to lie

Starting point is 00:09:52 in King one and a half. And what I mean by that is right between one and two, you're going to slot in your 401k match. So you're still going to prioritize your emergency fund. But if you have high interest debt, we're actually going to prioritize your emergency fund. But if you have high interest debt, we're actually going to wait on that until you get your employer match to your 401k, because that is free money. Let me explain what an employer match is really quick. So let's say your employer says to you, we're going to match 3% in your 401k. And that means that if you contribute 3% of your salary, your employer will double it immediately. That's what a 3% match is. If they say, we're going to match you at 6%, that means if you contribute 6% of your salary,

Starting point is 00:10:35 they will match you. They will double your money immediately for free. And that's anything up to 3% or 6%. So you could contribute 3%, 4%, 5%, right? This is free money, y'all. This is the only place in the entire world that your money is guaranteed to double with half the effort. So this is why we take advantage of this actually before we pay off our credit card debt. So that is the financial game plan. That is your order of operations. The other thing we hear a lot with this to conclude is that it can often seem overwhelming. It's easy to look at Mount Everest and be like, how the fuck am I going to climb this thing? And it's the same thing with the financial game plan. It's the same thing with

Starting point is 00:11:15 a lot of our money shit, right? It's really easy to look at all of these goals and be like, oh God, that seems like a lot of work. And the truth is, I'm not going to sugarcoat it. It is. It is a lot of work. It's a lot of work to save money. It's a lot of work to get out of debt. It's a lot of work to invest. However, hopefully this gives you some clarity and support

Starting point is 00:11:34 as you start or continue on your financial journey, knowing that you have these next steps and this game plan to go off of. And y'all know I'm here with you every step of the way. Thank you for listening to Financial Feminist. Financial Feminist is produced and hosted by me, Tori Dunlap. Theme song and audio production by Jonah Cohen Sound. Administration and marketing by Olivia Kulkana,

Starting point is 00:12:00 Sophia Cohen, and Kristen Fields. Research by Arielle Johnson. Promotional graphics by Mary Stratton. And photography by Sarah Wolf. A huge thanks to the entire Her First 100K team and community for supporting the show. For more information about Financial Feminist, Her First 100K, our guests, and our sponsors, go to financialfeministpodcast.com.

Financial Feminist - 5. Where Do I Start? (aka the Financial Game Plan)

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