• Kale

Gen Z: Your 2021 Financial Plan

A brief guide to getting your sh*t together next year.

You have a ton of student debt, are only a few years into your first job, and are sick & tired of being poor.

The reality of the situation is that you need to get serious right now or you (and your potential future kids) will suffer.

There are a million "financial gurus" out there but very few of them provide practical guidance.

So here it is.

Your only chance at financial success is setting up a monthly system that aligns with a longer-term goal.

Most people are similar and have long-term goals to purchase a home, get married, upgrade their car, have a child, pay for their children's school, and retire someday.

A reasonable first-home purchase can cost $150,000.

A typical wedding will cost $10,000 at a minimum.

Purchasing a new (but used) car that is quality will typically cost $10,000.

Having a child + providing for the first year can cost around $35,000.

Paying for a child's future college (in-state) can cost around $80,000.

A typical retirement requires approximately $700,000 in investments/savings.

These numbers do vary but, as you can see, nothing is cheap.

Add to this the hole you are starting in with your student debt - typically between $10,000 to $100,000 of outstanding loans.

Your monthly system will need to attack your debt and invest/save according to the priority of your financial goals.

For example - if you do not care about retiring until you are 85 years old, you can focus more on other short to medium-term goals.

I'm going to arbitrarily assume that the priority of your goals is as listed above.

I'm also going to assume that you earn about $3,000/month (post deductions).

I'm also going to assume that you only use cash (do yourself a favor and stop using a credit card).

The system begins when your bi-monthly direct deposit hits your bank account.

This will be $1,500 every 2 weeks.

Once your first check hits your account, pay:

  1. Rent + Utilities in entirety (as a guess, $1,000)

  2. Withdraw $300 cash for groceries ($150/week)

  3. Withdraw an additional $200 for miscellaneous/fun expenses for the month

Once your second check hits, pay:

  1. The minimum payment on all outstanding student loans ($1,000)

  2. An additional payment to your highest rate student loan ($300)

  3. Pay yourself by transferring money to your savings accounts ($100)

  4. Pay yourself by transferring money to your brokerage account ($100)

  5. Immediately invest the $100 in a US total market stock index fund

Continue this pattern until your student debt amount is entirely paid off.

This simple system deploys $15,600 towards your student debt each year, adds $1,200 to your savings account, and $1,200 to your investment account.

As you obtain raises or additional income, continue to increase the additional payment used for student loans until paid off in entirety.

Once paid off, you can increase amounts put into your savings account and brokerage account (recommended split post-student loans: 20% savings = $300/month, 80% investments = $1,200) - based on $1,500/month direct deposit.

Options along the way:

  1. Immediately set aside $1,000 as an emergency fund (in a savings/fixed-term savings account)

  2. Once you have accumulated $10,000 in savings, you can consider looking to purchasing your first home (keep max price below $200,000)

  3. Depending on the timing of your wedding - you can use the $10,000 to pay all wedding expenses in cash and then begin savings again for the down payment (home purchase) afterward

  4. If you have a child, you will need to adjust priorities - shift all savings use towards "having a child + first-year expenses), once this is completed, you can circle back to the wedding and home purchase goals

Lastly, I recommend you use:

NBKC for your checking account

Froogal.us for your savings account (it is important that this is at a different institution that your checking account)

Schwab for your brokerage account

This system is purposefully not complex and does not involve a budget.

It relies on you taking the option of overspending away and creating the continuous feeling that you are broke (which you likely are when you start anyway).

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