The Hierarchy of Personal Finance
When I first began my personal finance journey, I became overwhelmed by all the things I needed to do, to be “good with my money.” I felt I needed to do all things at once and people were trying to sell me insurance left and right.
Since then, I have learned two things:
While there are great financial products out there, not every financial product will be a good fit for you at various points in your life. It is not a one-size-fits-all -- yes I am looking at you, life insurance.
Just like building good habits, various aspects of your finances need to “stack on one another.”
Where do we begin? I realize this is boring and unappetizing -- especially if you’re someone who gets your dopamine hit from shopping (I've been there). However, establishing well-aligned spending and saving patterns can become the foundation for creating a prosperous life with money.
Spending, Saving, & an Emergency Fund
Habit stacking. Similar to how if you set your gym clothes the night before you are more likely to make it to the gym the next day. That is the same way about creating a spending plan.
A spending plan sets the pace about WHERE your money will go & how much you will have remaining.
Automation: a hidden hero to making saving a habit.
Emergency fund: This should be a separate account from your checking. This account is what is going to get you out of an unfortunate situation. Think: one of my car tires blew out but now I need to buy TWO tires and this will set me back $300. Or when your dog accidentally eats what she is not supposed to and you have to make a trip to the Veterinary Emergency room (from my experience, every visit ranges in the three to four-figure range.)
Debt Management
I like to think about debt as the bad guy that keeps you from living the life you truly want. By getting a hold of debt, you will be free to make other life choices (like say yes to that trip your friend invited you to). This involves:
Paying high-interest debt first: if you have any high-interest debt (this tends to be credit cards), paying these off can accelerate your journey to debt freedom.
Refinancing and consolidating can be an option to lower interest rates and make payments more manageable. If you have ever thought about refinancing your private student loans, Juno works with lenders to refinance student loans by using the power of collective bargaining.
Investing
We often hear the word investing being thrown at us, 1. Were seldom ever told WHERE to invest 2. HOW to begin. The word of the game is:
Begin early and do it often. Compound interest is an important aspect of making your money grow and soon you will see your portfolio growing over time.
Understanding your risk tolerance to investing can be beneficial in crafting a portfolio that will withstand market fluctuations. As always, experts recommend crafting a well-diversified portfolio.
Retirement
If you are thinking about retirement planning you are almost to the top of the Personal Finance pyramid - congratulations! Retirement planning is all about:
Taking advantage of employer-sponsored retirement accounts. My introduction and first taste of investing was through my 401k. If they offer a retirement match, you at least would want to match that as that is free money that is potentially left on the table!
It is assessing your risk tolerance. This means determining what your risk level is regarding your investing portfolio -- how much you want to weather the storm when the market is down and what your retirement age will be.
Insurance
A product to protect you against unforeseen events. Just as we have car insurance, sometimes life insurance would be a useful product on your journey to create wealth. Adequate coverage with health, life, and property can protect you from liability and from unexpected events that can impact your finances.
Long Story Short:
I like to think of personal finance as a pyramid of instruments that can help you reach your wealth goals. Each stacks on one another, but you do not need to tackle each slice all at once. For me personally, I realized once I got through one, I was better equipped to tackle the other steps.
