5 Money Stages + Your Next Right Step for Each
Remember the ‘choose your own adventure’ books from ye olde 1900s? The hero would be swashbuckling through some perilous pirate situation and you (as the reader) got to choose what you wanted her to do next. Should she try to take down the swarthy sea captain? Or hide amongst the crates with the rats scurrying below deck?
Truth time: I never read those types of books. They gave me anxiety- why should I have to decide what happens to the main character? Shouldn’t the author be making these types of calls- that’s their job! What if I choose wrong? It’s too much pressure!
My nervous system definitely preferred some Laura Ingalls Wilder and sod houses on the open prairie, thanks.
When it comes to our money, I think a lot of us feel like we are stuck in a ‘choose your own adventure,’ book- but how do you know what to choose? No one ever taught us the right things to do or really even talked to us about money.
We are just out here winging it, choosing adventures- come what may.
It might be nice to toss out those dumb books and just get a quick and easy “do this next” guide, right?
For example, if you have consumer debt, but you also want to invest, which should happen first? Should they be happening at the same time?
Or- if you are ready to start investing, what should you invest in? And where?
If every time you think about money you just want to put your head in the sand, cry, or both- what is one simple action step to take today to move past that overwhelm?
Ta-da! Here is that guide, friends. Below you’ll find five different money stages, what I’d recommend as a next right step for each, plus some handy podcast and book recs to learn more about moving through each stage.
The stages are:
You Are Too Overwhelmed to Look at Your Money
You Have Consumer Debt
You Have Student Loan Debt
You Have Debt But Want to Invest Now
You Are Debt-Free & Want to Increase Your Investments
Scroll down to the stage you find yourself in- let’s get into it!
Money Stage 1:
You Are Too Overwhelmed to Look at Your Money
Step #1: Normalize it. Validate yourself for feeling this way. Maybe you grew up in a chaotic household, maybe you’ve experienced some financial setbacks as an adult, maybe there are systemic issues at play. Whatever is going on, it makes so. much. sense. that you feel this way. This is not your fault. You were doing the best you knew how to do.
Hands on hearts, deep breaths.
Step #2: (Two steps for the price of one?! Bonus!) It’s time to get honest about the numbers, friends. Black and white. Math.
Use Ramit’s Conscious Spending Plan to get a (free) complete and total picture of your financial life. Be brutally honest with it (nobody has to see it but you!) and remember- you can’t move forward until you have the facts.
I’m not a betting gal, but I’d bet that something in your CSP will surprise you. Either you will be shocked at how much you are spending on something that you don’t care about (#winning because you get to change that now) OR you will be shocked at how high your net worth is. Maybe both, who knows.
Why should this be the thing you do now? Because you deserve to take the power back in your financial life. Because you deserve freedom from the worry you’ve (probably) been carrying. Because you are strong, and powerful, and you can do this.
So go get clear about your money.
Resource Recs for This Stage
Podcast: Afford Anything #713 Why Smart People Still Sabotage Their Own Money, With Tiffany Aliche
Books: Get Good with Money by Tiffany Aliche; I Will Teach You to Be Rich by Ramit Sethi
Money Stage 2:
You Have Consumer Debt
The action you take here is not all that different from the one above. So here it is-
Step #1: Get out a fancy piece of the nearest scrap paper you can find and make a list of all of your debts, not including your mortgage (or your student loans- more on that later).
This includes any credit cards, personal loans, car loans, medical debt, IRS debt, etc.
Yes, this can be scary.
But again, you deserve to be spending your hard earned money on things you genuinely love- you absolutely do not deserve to be spending 26% of compounding interest on a couch you bought three years ago so that other people can get free airline miles.
Get angry about that- and then let your anger move you towards action.
After you list out all of your debts, add them up. Then, you’re on to…
Step #2: Input what you find into this debt payoff calculator. The point here is to know the truth about how many months it will take you to pay off this debt AND how much interest you will pay.
Still angry? Good. Now’s the time to go hog wild nuts to figure out creative ways to pay off your debt way faster than that dumb calculator says you will.
Got stuff to sell at home? Throw it on Marketplace. Can you pick up a side hustle? Great! Can you cut $50 to $100 to $250 from subscriptions/DoorDash/random Target runs? Get after it!
Throw all of that “extra” money at the stupid debt. Get angry, get moving, get rid of it.
Celebrate the milestones along the way.
Resource Recs for This Stage
Podcast: Financial Feminist #211: How to Pay Off Debt
Books: I Will Teach You to Be Rich by Ramit Sethi; Financial Feminist by Tori Dunlap
Money Stage 3:
You Have Student Loan Debt
Let’s first acknowledge that we were sold a lie- that a college education always ends with a good-paying job, security, lifetime fulfillment and a sense of importance.
This sucks, but it is also in the past (and we can stop selling our kids on the same lie, right?)
I didn’t include student loan debt in the consumer debt “adventure” because student loans generally have interest rates that more closely mirror mortgage rates. Credit card debt = the house is on fire and we must put it out asap. Student loan debt = slow demoralizing drain, but not an emergency.
First, it is worth looking into the possibility of student loan forgiveness. If this is not an option, use the same debt calculator I referenced above and figure out how long it will take and how much interest you will pay. Then, treat your student loans like a bill you pay every month.
Just like consumer debt, it will be better to pay more than just the minimums. But again, this is not a “house on fire” situation. Do what you can, then move on.
Resource Recs for This Stage
Podcast: Death, Sex & Money: Our Student Loan Questions Part 1 (Series)
Books: I Will Teach You to Be Rich by Ramit Sethi; Financial Feminist by Tori Dunlap
Money Stage 4:
You Have Debt, Plus You Want to Invest for Retirement
If you have high interest consumer debt and/or student loan debt and you want to start saving for retirement, where should you start?
I’m turning into a broken record here, but I’m going to reference Ramit’s work again, with a caveat.
To read his advice, here is the article- but if you want the long and short of it, here it is:
Step #1: The first thing you should do is invest enough in your company’s 401k to get their match. This requires a quick call to HR or a review of some paperwork, but you need to find and understand what you have to do to get the maximum match your company provides.
If you do nothing else from this post- THIS is the thing to do. By doing this you are beginning to invest in future you. These dollars will start working for you, making more dollars while you sleep. These are magical dollars!
The caveat: if you have no liquid emergency savings, this should be a priority. You don’t want to go back into debt if something happens. Ideally, you’d have 3-12 months of cash in a high yield savings account, depending on your situation. Don’t get overwhelmed by this though. Start by aiming for 1 month and build from there.
Read his article, then Step #2: email your HR person and ask about the match.
Resource Recs for This Stage
Article: Investing for Beginners, by Ramit Sethi
Money Stage 5:
You Are Debt-Free & Want to Increase Your Investing
First- way to go! You’ve dialed in your financial habits and are now looking to the future. This is exciting!
The general rule of thumb is to max out your tax-advantaged retirement accounts first. This would be your company’s 401k, then your Roth IRA, then perhaps an HSA if you have access to one.
There are IRS limits to how much you can invest in each of these retirement vehicles- most people won’t be able to max them out, which is fine. Put in as much as you can each month, and try to increase it by 1% each quarter.
In the article I linked above, Ramit talks about what to invest in within your retirement accounts. What you invest in is just as important as the act of investing itself- but don’t worry. He spells it out very clearly.
Step #1: Get a clear idea of how much you are investing. The more you invest, the sooner you can leave paid work. Folks in the FIRE community generally aim for a 25-50% savings rate. This is bonkers- set a goal that is lofty for you (challenge yourself!) and then increase it as you can.
Step #2: Play with a compound interest calculator to see how much you’ll have in 5, 10, 25 years.
Resource Recs for This Stage
Podcast: Hasan Manaj Doesn’t Know: Financial Literacy for Dummies (Like Me) w/ JL Collins
Books: The Simple Path to Wealth by JL Collins
Phew! I hope that was helpful! Do one of the stages apply to your situation? Or did I miss one?
Comment below or send me an email- let’s chat!