Self-care is about more than just “treat yourself.” Sometimes, it’s more like “let’s do the damn thing.” Enter: financial self-care.
It’s good for present-day you: Sometimes the best way to beat stress is to look the stressful thing in the eye and conquer it. And it’s good for Future You, too — the sooner you get started, the more time you have to work toward your goals. And it’s good for stress: In one survey, 73% of people who had clear financial goals also said they had lower stress levels. Plus, like with any self-care practice, the more consistent you are with it, the better it gets.
So if you’re looking for that last little nudge to get started, here it is: your financial self-care checklist.
1. Track down your most recent pay stubs
Start by getting an understanding of how much money you have coming in each month. Grab your paycheck stubs from the past month and give them a look.
First, calculate how much you’re making after taxes — aka your take-home pay. This may or may not be equal to the final amount of your check: If you have money withheld for 401(k) contributions, insurance premiums, or other employee benefits like that, then those will come into play later. For now, just look at your gross pay minus taxes. How much take-home pay do you earn in one month?
If you get paid irregularly, like if you rely on freelance income, then this might be a bit trickier. We recommend calculating your take-home pay from the last few months and then taking an average.
2. Get to know your current spending habits
Next, pull up your debit and credit card statements and look through your past few months of purchases. Categorize them into three buckets: needs (groceries, rent, etc), fun (eating out, buying things you wanted, etc), and “Future You” (saving, investing, and debt payments beyond the minimums).
This is where those paycheck withholdings we mentioned above come in. Any 401(k) contributions you’re making go in the “Future You” bucket, and insurance premiums go in the needs bucket. You can categorize any other withholdings however makes sense — for example, a public transit benefit might go in needs, and a gym membership might go in fun.
Finally, add them all up. How much are you spending on each bucket per month? There are no wrong answers — this exercise isn’t meant to make you feel guilty, it’s just to see where you’re starting from today.
3. Set a goal for your future spending habits
Now it’s time to make a plan. We like the 50/30/20 rule, which is a high-level framework for organizing your spending. It uses the same buckets we mentioned above. Traditionally, following the 50/30/20 rule means 50% of your take-home pay will go to needs, 30% will go to fun, and 20% will to Future You.
But those percentages might not be realistic for you — which is why step two on this list was so important. Based on your spending habits today, set yourself a realistic goal for tomorrow. Maybe it’s 70/20/10, or 60/20/20, or 80/15/5. It’s flexible.
Even if you can only put 1% to Future You, start there. Over time, you can work on trimming expenses or boosting your income so that you can increase that percentage over time.
4. Take the next step with your 401(k)
Two things, specifically. First, if your employer offers a 401(k) employer match but you aren’t taking full advantage of it, then sign up and start contributing enough to get the full match. That’s free money, y’all.
Second, if you have an old 401(k) or two (or however many) from a previous employer just chillin’ out there, think about rolling it over. You could roll it over into your new employer’s plan, if they let you, or an IRA. Either way, it can be super helpful to get everything in one place.
5. Prioritize your debt payments
Being in debt — credit cards, student loans, personal loans, etc — doesn’t feel good. But paying your debt off does. The fastest way to do it is to pay more than the minimum required payments, if you can. That will also save you money, because the longer you take to pay debt off, the more interest you’ll owe.
So if you have debt and can make extra payments, the next step is to figure out which debt you want to focus on first. There are two popular strategies: To start with the balance that has the highest interest rate, or to start with the balance that has the smallest outstanding balance. Here’s some more info on those two methods and how to put them into practice.
6. Set an emergency fund target
Financial emergencies are a fact of life. Cars need repairs. People (and pets) get sick. Phones and computers break. Which is why building an emergency fund is a big part of getting your financial life in a stable place.
We typically recommend saving between three and six months’ worth of your take-home pay. (Here’s how to decide exactly how much is right for you.) That might sound like a lot, but it’s totally OK to start small and work your way up over time. But today, your goal is just to figure out how much you want to aim for. Maybe, if you don’t have high-interest debt, you even open an account and make your first deposit.
7. Start investing toward your goals
If you’ve finished the first six steps of this checklist — first of all, you’re crushing it. Keep the momentum going by starting to prioritize and invest toward your long-term money goals. Goals like ramping up your retirement contributions, or like buying a home or starting a business.
Financial self-care checklist complete. Now light some candles, run a bath, and recharge — you’ve got some serious world domination ahead of you.
© 2019 Ellevest, Inc. All Rights Reserved.
Planning to work past the age of 70½?*
Once an individual reaches age 72,* the rules for both 401(k) / 403(b) plans and IRAs require the periodic withdrawal of certain minimum amounts, known as the required minimum distribution (RMD).
If you continue to work past the age of 72,* however, your plan might not require you to make withdrawals from your 401(k) / 403(b) plan until you stop working. That means the funds in your plan can continue to grow tax-deferred until you retire. This is different from an IRA, where you’re required to start making withdrawals starting at age 72,* whether you’re working or not.
* Recently, the SECURE Act made major changes to the RMD rules. If you reach the age of 70½ in 2019, the prior rule applies, and you must take your first RMD by April 1, 2020. If you reach age 70½ in 2020 or later, you must take your first RMD by April 1 of the year after you reach 72.
Filing for bankruptcy?
If you are considering filing for bankruptcy, then funds you have held in a 401(k) or 403(b) plan are generally protected from creditors. Depending on your state of residency, funds in your IRA may not be fully protected from creditors. Please consult with your legal professional for additional guidance as to what may be applicable for your situation.
Comparing important factors when considering a 401(k) or 403(b) rollover:
Fees and Expenses
In general, both plans and IRAs typically involve (i) investment-related expenses and (ii) plan or account fees. “Investment-related expenses” may include sales loads, commissions, the expenses of any mutual funds in which assets are invested, and investment advisory fees. (Ellevest does not charge loads or commissions.) “Plan fees” typically include plan administrative fees (ex, recordkeeping, compliance, trustee fees) and fees for services such as access to customer service representatives. In some cases, employers pay for some or all of a plan’s administrative expenses. An IRA’s account fees may include, for example, administrative, account set-up, and custodial fees. (Each of the fee types listed here may or may not apply to your portfolio managed by Ellevest; please see your Client Agreement for details.)
Click here to read Ellevest’s Form ADV.
Required Minimum Distributions
Once an individual reaches age 70½, the rules for both plans and IRAs require the periodic withdrawal of certain minimum amounts, known as the required minimum distribution. If a person is still working at age 70½, however, they generally are not required to make required minimum distributions from their current employer’s plan. This may be advantageous for those who plan to work into their 70s.
If an employee leaves her job between age 55 and 59½, she may be able to take penalty-free withdrawals from a plan. In contrast, penalty free withdrawals generally may not be made from an IRA until age 59½. It also may be easier to borrow from a plan.
The availability of Ellevest’s investing goals depends on the membership plan selected. Ellevest Essential members can access Build Wealth only. Ellevest Plus members can access Build Wealth and Retirement On Your Terms. Ellevest Executive members can access all available investing goals.
The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.
The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.
Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.