We left off at phase I and phase II. Where phase I we are saving $1100 cash and phase II we attack the debt from least to greatest until it’s eliminated (except the mortgage). The battle of phase II will not be pretty and there will be countless days and nights where you wish you could go on a trip with friends or go out to eat every weekend, etc. But put those things on hold until phase II is complete. After phase II is completed we continue our momentum into phase III.
PHASE III: SAVE THREE TO SIX MONTHS OF EXPENSES
Make sure you are not contributing anything to your 401k, IRA, mutual funds, etc. at this point but remember the first line item, on the very top of the budget template I can provide you is the “charitable gifts” line item. Continue to give 10% through all the phases. In phase III you have conquered all your debts and now you are building your security when something happens to you or your family that forces you to take out $2500 to fix your A/C at the house or to get a new transmission in your car. (note that I said WHEN and not IF. We all no life throws us challenges). With a fund in place to cover the big expenses we are more financially and psychologically prepared to cover the cost. This phase will also take some time and patience to get to your three to six month savings but remember since you aren’t making any payment to any lenders, your momentum is still building and your savings goal will be accomplished in no time. You also already have the $1100 saved from phase I, so enjoy the head start. This phase is also really beneficial when it is time for you to leave the job you “like” and create or find the job you LOVE. In my recent blog, “DON’T FALL IN “like” WITH A JOB YOU DON’T LOVE” I mention how it takes time to save/prepare to transition out of the job you “like.” During phase III you will be saving/preparing for a dream or if you already are in the position of your dreams than phase III will still benefit you when Mr. Murphy affects you and your family.
PHASE IV: INVEST 15% OF INCOME FOR RETIREMENT
Now is the time you send human resources an email saying, “I’m ready to contribute again to our 401k!” If your company matches, than contribute at least the max amount the company will match. For example, if your company matches up to 7% then put 7% of your paycheck towards your 401k. HELLO FREE MONEY!!! So using this example we would have 8% remaining of your income to put towards retirement. Of course there are many Individual Retirement Accounts but I recommend contributing towards a Roth IRA. Now you have 7% of your income towards your 401k and 8% towards a Roth IRA. If you contribute $416.67/month (look familiar to a car payment amount?) towards your IRA with an average of a 10% annual rate of return over the next 25 years, you will have a smooth $557,458.37. Keep in mind you will be debt free including the mortgage while ALSO cashing in your Roth IRA at $557,458.37 and whatever the amount of value your 401k is. So approximately well over a million dollars in retirement after 25 years if you start now! DON’T RELY ON THE GOVERNMENT FOR YOUR RETIREMENT PLAN. I.E. SOCIAL SECURITY.
I’m very familiar with YOLO (You Only Live Once) and I believe there is a must to have balance in our life where we are enjoying the present but also preparing for the future. While we were ATTACKING phase I – III, there were times where people would remind me that “we only live once” or “Dave, what are you going to do with the money when you’re gone?” And at times I was like this stuffing envelope thing and this budget stuff is to demanding! But now we are just entering the days of Phase IV and we are able to enjoy the PRESENT even more than ever while also preparing for the FUTURE. Words can’t describe the relief we have and during this journey it has forced us to communicate our dreams to each other or to communicate what Shannon is cooking for dinner this week while we were attacking our debt (I love food, a lot). Communicating each month while preparing the budget forces us to be on the same page and if anything comes up during the month that affects our budget then we just re-group and compromise while we modify the budget. Stay focused during the first three phases regardless if you only have $2500 in credit card debt or you have $100,000 in student loans. As you know time flies so start now and being free from lenders is a huge step in changing your family for generations to come! It’s up to you. Much Love.
Contact a Endorsed Local Provider in your area to get the best advise for investing your money.