The intersection of personal finance, financial independence, and Disney.

Category: Choose Your Own Adventure (Page 1 of 2)

The Personal Finance Choose Your Own Adventure Series

Step 15: College Savings Plan

College savings plan path to FI

Every parent wants a fully funded college savings plan for their child. There are very few parents out there that have no desire at all to save for their child’s college education. I bet that every parent wants to have a college savings account even if they cannot for some reason.  One reason is you need to care for your own financial future first. But if you have the room, your kid will thank you (eventually).

We all want our children to have an easier go at life than we were afforded, right or wrong. Like the majority of millennials, I left college with a sizable amount of student loans. Debt that took me more than 10 years to pay off. Any amount of college savings my parents could have provided me would have significantly reduced my payback period. I want to fast track my child’s path to FI and a solid college savings plan is key.

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Step 13: Save 15% for Retirement

Step 13 Path to FI Save 15 percent for retirement

Telling someone to save 15% for retirement (of your pre-tax income) might just be simultaneously the easiest and hardest step in the journey to financial independence.  It is incredibly easy to explain and understand this step since everyone can immediately understand why this would be important.  Saving more, earlier, is a key to any path to becoming financially independent and retiring so that shouldn’t be a surprise. 

Even the how part is relatively simple in that you could just log into your 401k right now and set your contribution percent to 15%.  As to whether or not you could actually afford to do that is a different story but everyone knows the actual mechanics of the step is the point.

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Step 12: Big Purchases

big purchase step 12 path to financial independence

You’ve come this far down the path to financial independence. You paid down all of your major debt and fully fund your retirement accounts. The amount you save each year might be north of 35-50% of your income. Even if you’ve been hardcore FIRE until now, you have at least one big purchase you want to make. A car, a house, a dream vacation, or something else you’ve held off on.

That is more than ok. Expected even. I have some very strong opinions on certain categories of purchases but everyone values things differently. Get that house, go on that trip, or remodel your kitchen. Just make sure you plan and save for the big purchase.

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Step 11: Max IRA Contributions

max ira contributions Step 11 Path to FI

Two questions. First, are you contributing to an IRA account for retirement? Second, are you doing the max IRA contributions allowable amount each year? (assuming you are eligible to do either) If you can answer yes to these questions feel free to move onto the next step in the Path to Financial Independence. If not you need to keep reading on why they can be so important for your future.

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Step 10: Pay down moderate debt

pay down moderate debt

If you’ve made it this far that means you have a healthy emergency fund and have successfully paid off your high interest debt. Hopefully you have a plan in place to keep both of those victories in place and prevent sliding back into trouble. Now it is time to pay down moderate debt. A 4-8% interest rate may not seem like its high enough to worry about tackling right now. Some might argue that your money is better off in the stock market. I think it is critical to keeping up on the Path to Financial Independence.

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Step 8: Pay Down High Interest Debt

pay down high interest debt path to FI

I’m not going to break any ground here telling you that high interest consumer debt isn’t good for your financial welfare. We all know that the first step toward a life of financial independence is to pay down high interest debt. Knowing the destination isn’t the same as knowing the directions for getting there however. There are several, very popular, methods for paying down debt at an accelerate pace we’ll look at later in the article so stay tuned.

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Step 7: Employer 401k Match

Employer 401k Match: Step 7 on the Path to Financial Independence

get your employer 401k match step 7 path to fi

Does your employer offer a 401k match with contribution program and do you contribute enough to get the full match? I hope if you are reading this you understand the importance of saving for retirement so I’ll skip that. What is more important here is saving for retirement with someone else’s money. The 401k match is essentially your employer giving you free money for retirement as long as you save too.

A 401k match is basically free money

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Step 6: Pay All Your Bills On Time

pay all bills on time step 6 path to FI

Well… that seems obvious.

I’ll agree that to pay bills on time isn’t the most revolutionary financial advice but it is very important. It is important beyond the obvious ‘stay out of debt and collections’ aspect of paying your bills. There are far-reaching effects of paying your bills late you will want to avoid where possible. I fully understand that sometimes people pay their bills late because they lack the funds to pay in full on time. This advice isn’t necessarily for that situation but rather for those forgetful among us who have trouble remembering to pay on time.

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Get a small emergency fund

step 5 get a small emergency fund

You need an emergency fund.  I personally don’t think that is up for debate in the personal finance world. The amount in your emergency fund and where you keep it certainly is though.  At this stage in your personal finance adventure, you need at least $1,000 in your emergency fund.  Do you realistically need more than that? Of course.  We’ll get there soon but for right now you need at least $1,000 or at least one month worth of your typical expenses.

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Personal Finance Step 4 – Set Up A Budget

set up a budget track it step 4 path to FI

Did you already set up a budget you track and stick to? If not that is ok. I’ll help you build a simple budget to get you started on the path to financial independence. you update each month to track how you are spending your money?

If you do that is perfect and you are on your way to understanding your finances. If you don’t have a budget that is fine too since we’ll be working below to build one. I honestly don’t expect every person outside of the finance or accounting profession to have a budget they keep up with. Everyone needs to set up a budget but so few people have one they manage to despite the advantages.

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