I know a lot of people are probably wondering why my blog has essentially derailed into a personal finance fiesta—how does one go from posts about hydration and feelings to compound interest and index funds in one fell swoop?
Plain and simple, I firmly believe the money decisions young people my age are making right now are literally going to affect the rest of their lives. I cannot overstate the importance of having your financial shit together, and that has come more clearly into focus over the first year of my adult, working life.
After delving into this financial world of books, podcasts, and blogs galore, I’m learning so much information that I feel morally compelled to share with all of you. Maybe you’ve got $100,000 in student loan debt. Maybe you’ve got $100,000 in the bank. I don’t know your situation, and I’m not a guru—I’m not trying to prescribe you a one-size-fits-all solution.
I merely feel strongly (very strongly) that money apathy or ignorance in your early twenties is an alarmingly avoidable way to make your life 20 years from now much harder.
I want all of us to learn (together) about investing, saving, workarounds, hacks, and other money savviness that’ll help ALL of us get rich someday, so we aren’t working for paychecks in our seventies because we didn’t think to contribute to our 401k or open a robo-investing account.
The personal finance community is an interesting one. My latest exploratory obsession can be attributed to my friend Landon, who's gotten me into the "Financial Independence" craze: extremely frugality for about 10-12 years and retirement in your early to mid-30s. Yes, it's possible, and people are actually achieving it.
These are the types of things I want to share with you—from the most basic to the most radical.
Because after all, your money in your savings account(s) is losing at least 2% a year to inflation. I don’t want to scare you (maybe I do a little bit), but in order to build true wealth, you have to start right now. Like, yesterday. Time is money.
If you don’t know how much money you’re taking in vs. spending (i.e., your cash flow), you may be in for a rude awakening. (Check out my OG budgeting post or download the free tool in the sidebar to determine your proper saving and spending ratios.)
If you're like, "But KG, I don't even know where to start," fear not! I want everyone to get on the same page with this very easy first step. Devoting an hour to setting up this system and then 15 minutes once a month to maintaining it could mean the difference in hundreds of thousands of dollars (literally) in 40 years from now.
Creating a system
I’m talking, of course, about tracking your net worth. Maybe it’s the control freak in me, but I’m obsessed with full transparency and knowledge of my #assets. I want to know how much I’ve got, where it lives, and how fast it’s growing.
The system that has worked well for me (again, control freak) is a Google Sheet.
We’ll get into the accounts in a moment, but let’s talk for a second about setting up your system.
Pick a consistent day to check all accounts.
Since my budgets reset on the first of the month, I do my full assessment on the first of every month. I pay rent on the first too, though, so the money usually hasn’t cleared out of my account when I take down all the numbers (which is kind of cheating since it makes it look like I have more than I do, but hey, it’s MY system!).
Total the entire column of accounts once you’ve noted down the balances.
Make sure to total all your accounts so you can ensure your net worth is, in fact, going up every month. If your value is going down over time, that means you have a negative cash flow.* In other words, you’re spending more than you’re making, and/or living paycheck to paycheck (maybe without even realizing it). This is, in essence, why this exercise is so important.
*If you have a lot of investments and the market's really down one month, that could also account for a dip.
You could be consistently dipping into your savings without even realizing it if you’re spending on a credit card, or at the very least, you may be spending money you had intended to save.
If you track your accounts/net worth over a few months and notice your net worth is getting lower over time, you need to make some serious adjustments to your spending.
May I suggest this blog post about the joy of when less is enough and how to essentially convince yourself that your life will be better if you don’t reward yourself constantly and mindlessly with restaurant food and shopping sprees (to the point of dulling your pleasure centers). If there’s anything that can make saving sound sexy, it’s this.
And if you haven’t read my post about the beauty of compound interest and how this little exercise may convince you to give up Starbucks and monthly mani/pedis, I highly, highly suggest you read it. You may just end up with an extra $10,000 because of it.
A few key accounts you should track (and if you don’t have them yet, no time like the present)
High-yield checking or savings account(s)
401k and/or Roth IRA
The three above accounts are no-brainers. If your company doesn’t offer a 401k, open a Roth IRA account instead. (IRA = Individual Retirement Account.)
If your company DOES offer one and offers a match, do whatever you have to do to contribute up to the match. This is legitimately free money. You have no excuse! It’s almost like an automatic raise you’re giving yourself by contributing.
I’m going to toot my own horn here for a second to try to encourage you to contribute to yours—I contribute 10% of every paycheck to my 401k and since it’s been gone from every paycheck since day one, I’ve never missed the money. This balance climbs faster than just about anything. Don’t lose out. Don’t know how? Ask your Benefits department or HR.
When it comes to high yield savings accounts, this is a pretty basic suggestion for where to store your emergency fund (that "$2,000 minimum, ideally 3-6 months expenses" emergency fund). Our Southwest Airlines Credit Union offers a checking account with a 4% interest rate which is actually bananas, so I have mine in there (instead of a traditional "savings" account).
But recently, I heard on a Financial Independence podcast that a Roth IRA is actually the best place to put your emergency fund because it'll grow way more quickly than a lousy savings account, but you can access the principal (your initial investment) without being penalized. You can't touch the interest until retirement, but you wouldn't have that interest anyway had it not been in the IRA.
So, just sock away your $10,000 in savings in a moderately risky IRA, and call it a day. (See? Not painting myself into a corner here—as I learn more from increasingly savvy finance experts, I'll share it with you here.)
Go one step further (c'mon, everyone's doing it!)
Robo-investment account (like Betterment)
[Use that link during sign-up to get three free managed months! It's a 0.25% monthly fee on your investment otherwise, which is still very reasonable.]
Robinhood account for individual stocks & ETFs
[Use that link during sign-up to get one stock free!]
Assuming you have a fully funded emergency nest egg in the bank (at least $2,000 that you never touch unless you absolutely need it for an emergency) and are contributing to your 401k and/or Roth IRA, you really should look into external investing.
I’m going to plug the two services I use here since I can speak to them more intelligibly. Essentially, though, the extra mile exercise I'm suggesting is setting up investment accounts (and hey, right now’s a GREAT time to buy since the market is in the toilet—buy low, sell high).
You can work with a financial adviser or set up an account with Fidelity to buy individual stocks and ETFs, but a ~cool~ Millennial way to achieve both of these things, with ease (all in apps with killer UIs) is to use the sites designed for quick and low-fee investing.
Here’s the difference between the robo-investors & apps like Robinhood:
Robinhood is for buying individual stocks, index funds, ETFs, etc. This is so you can pick and buy your own (like the S&P 500 ETF from Vanguard, my favorite) shares.
Robo-investing apps like Betterment (and Ellevest, about which I’ve heard good things) are different in that they automatically invest and diversify your portfolio FOR you, which is great if you don’t want to think about it. I’ve set up an automatic deposit every month of my #SideHustle money from teaching at Corepower.
So, you fill out your information (age, income, etc.) and risk tolerance, and it allocates your investments properly. It can also project where your money will go over time and how it’ll change if you invest more, based on different market outcomes.
My current mix is 90% stocks and 10% bonds since I don’t anticipate needing to access this money for a very long time (so I’m OK with it fluctuating).
So, if I’m putting in my extra $250 of yoga income per month, in 2054 this account will (based on past market performance) do the following. (And, for the record, I don’t necessarily think I’m going to instruct Sculpt until 2054—but I do intend to continue putting at least $250/month (or, hopefully, a lot more) into this account.)
Ok, you guys ready?
Average outcome is $453,431. And that’s from contributing SIDE HUSTLE money, or $107,750 over 36 years.
Do we think I’d miss that $250 every month? No—that’s not even money I had coming in two months ago. And if I just throw it in Betterment—set it and forget it—in 30 years from now when I’m retiring, I’ll have an average of $450,000 in an external account.
This is minor, easy stuff, and a pretty tame example. I'm using $250 to show how little you really need to get started. Maybe you've got that emergency fund fully locked & loaded but you're still accruing hundreds of dollars in savings per month and letting them pile up in your savings account (there are worse problems to have, right?)—here's another (much smarter) option for that money.
All right, all right, I get it—so what does this spreadsheet look like?
Well, depending on your situation a la investments & debt, it could look a lot of different ways. But for the sake of example (because I'm a visual learner, and I bet you probably are to some extent, too), here's mine with FAKE (emphasis on fake) numbers plugged in.
The accounts, however, are real, to give you an idea of the ~spread~.
Again, numbers are fake to prove a point (but I tried to make them move in a desirable way MoM), but notice how the total net worth is climbing over time (and climbing at a graduated rate, no less!).
Also note how I added my credit card bill too, so I'd know how much money I should consider 'debt' in that total. If you have student loan or credit card debt payments, add those underneath to show money that will be siphoned out.
And voilá—I hope this paints a pretty reasonable picture of how you can get a handle on your finances and how you can make your savings accounts work harder for you. You'll notice in this example majority of that money is in the aforementioned high-yield checking account—probably too much of it, to be honest—and could stand to be moved somewhere with a better return, like the Betterment portfolio.
Extra credit reading for greedy peeps
If I've plugged it once, I've plugged it a thousand times:
Money Diaries from Refinery29. This is, in some ways, what lit my personal finance fire (or at least fanned it dramatically). This is Money Management 101 with some juicy shit thrown in.
A Random Walk Down Wall Street. This is the best investment book out there. If Money Diaries is a little too remedial for you, this is like Money Management 303. This is your second-semester, junior year money class.*
*Also great for when you need some dense reading before bed.
The young woman's money guide for all the things you're too embarrassed to ask your friends. Build the life you thought you were too broke to afford through managing your spending habits, travel hacking, and simple, smart investing.
Full-time Brand marketer at Southwest Airlines, part-time Yoga Sculpt teacher, occasional Waffle House Model and reformed materialist.
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