Coming into a New Year, I knew I wanted to reach financial goals that would make an impact in my life. I grew up in the home of two hard-working parents that migrated from Kenya to the United States to create a better opportunity for themselves and their family.
With migration came the need to adapt to a new standard of living and normalcy. What my parents were accustomed to back home had no relevance to the way of living in America. Credit, retirement, and many other financial systems were new to my parents, who were used to operating based on what they had at the very moment. Unfortunately, my parents, although very educated in their fields, were not educated on this.
My parents taught me the basics of balancing a checking account when I started working at the age of 16 and from there, I made a host of financial mistakes that forced me to learn through them.
Making a change
My first job out of college, barely afforded me the luxury of saving. By the time I got my second professional job out of college, I knew it was time to start thinking about money, savings, and different retirement options. When I went to visit a financial planner, he asked me if I had 3 to 6 months of savings. I thought, “why would I need that?” For those of you who may not know, the financial crisis of 2007-2008 left a lot of Americans jobless.
Families of all classes were affected. It became very evident that many American’s did not have savings and for those who did not have a financial cushion, many lost not only their jobs but their homes. In a Federal Reserve board survey asking respondents how they would pay for a $400 emergency, 47 percent said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all.
A Google Consumer Survey found that approximately 62% of Americans have less than $1,000 in their savings accounts and 21% don’t even have a savings account. Although I was never a “big spender”, this was mostly because I didn’t have a lot to spend.
With making more money, I realized that I needed to quickly address any unhealthy learned or unlearned behavior regarding finances and money so that I didn’t fall victim to the statistics. I needed to be proactive in my finances and learn what I didn’t know about money. So, here is what I did in a year to work towards some financial goals:
I got rid of my money myths
I realized that I had sold myself a story about money. I believed that to obtain wealth or reach certain financial goals I had to make a certain level of income. Although, true that you cannot budget your way out of poverty, it is possible to reach financial goals when making a modest income.
The truth is, money problems can be summed up as the result of two things. A spending problem or income problem. Characteristics of a spending problem include living beyond your means, having the ability to pay for luxuries and non-essential items, and accumulating debt from non-essential purchases.
An income problem can be characterized as not having enough to cover necessities and a few non-essentials while living within your means and having accumulated debt from essential purchases.
There was a point in time that I had an income problem. But when I got a salary boost although still a modest one it became important for me to curb bad spending habits.
You don’t need to wait until you are making “a lot” of money before you start saving. Saving should always be a priority and making it a priority might require some sacrifice. These sacrifices can include not eating out, having Netflix instead of cable, using a prepaid phone instead of a cell phone, and waiting to buy new clothes.
I learned to make the most of what I had and learned to grow with my income and make budget-based decisions instead of making emotional financial decisions.
I created a goal based plan
As the saying goes, if you fail to plan, you plan to fail. I looked at my income and compared it with my monthly expenses. I then calculated my cash flow. Your cash flow is your income minus your expenses over a certain period of time, usually over a month.
Once knowing how much money had to work with I listed my financial goals for the year. Below were my goals.
· Save 6 months of living expenses
· Save enough for out of country travel
· Save $1,000 in an emergency fund
· Save $1,000 for domestic travel
· Pay off my car
· Open up a retirement account outside of my work one and contribute to it monthly
I broke each annual goal into micro monthly goals. This made the goal feel more digestible and helped me to plan out my monthly expenses. For example, my annual international travel goal amount was $1600. I divided this number by 12. I then went on to save $133 each month for travel.
I figured out what was a priority for ME
Everyone’s financial goals will vary and that is OK. It is important to figure out what you value and your why when creating your goals. Make room for those things. It will help the journey more bearable.
Some people may prioritize paying off debt while others may prioritize investing. Although I would have loved to prioritize my student loan debt, it was not a priority of mine for this year, mainly because of the significant amount I owe.
I applied for the 10-year loan forgiveness program since I’ve been working at nonprofits since I started my professional career and plan to continue to work for one until my ten years are up. Ha!
Travel is also something that was on my list that may differ from others. My goal is to travel to a new country every year. For me this is about immersing myself in different cultures, learning, growing, and being exposed to new experiences. It’s an experience that is worth the money to ME.
I had a side hustle AKA a part-time job
And if we’re being honest, more like two plus side hustles. I found things that I enjoyed doing outside of my regular job to make me money. There are a host of things you can do to make money on the side.
I love working out and dancing, so I teach group fitness. I used this money to build up my vacation fund. This side hustle afforded me to go to leave the country without touching any of the compensation from my full-time job.
I educated myself.
I got advised by a financial advisor and read what I could about money, savings and, personal finance. I was never afraid to ask questions or invest in my learning, whether that meant taking a course or paying someone to help me one-on-one. I realized that the best investment I could make was in myself.
I created a budget
I sat down and created a budget. I created a budget based on my needs and wants. Creating a budget gave me great self-awareness as to where my money went every month. It also allowed me to give myself realistic goals and helped to control spending so I could reach financial goals.
Having a budget also forced me to plan ahead. I was able to plan for things such as birthdays, car expenses, and tag renewals which resulted in me not being financially impacted. In the past, I would end up having to cover these expenses by using a credit card.
I consistently checked on my money.
Many people spend and don’t account for it. I used to be one of those people who would barely know if someone took some money out of my account. The truth is many people don’t want to face what is going on in their bank account. I now account for all my spending. I also check my retirement funds.
Doing this has benefited me significantly. I ended up realizing that I was losing a large percent of my invested money, and it prompted me to ask my financial company hard questions. I eventually transferred my money to another company.
I used the envelope system.
I know this sounds really old school, but it works. The envelope system is a way to track exactly how much money you have in each budget category for the month by keeping your cash tucked away in envelopes.
After creating my budget, I take my non-fixed items such as personal spending, entertaining, and dining and get cash for them. I put them into an envelope with labels of each category and then I spend only what is in that envelope until the following month when I re-up. This has been a major key for keeping me in check and not overspending.
I lived below my means
When I wasn’t making as much money, I had a roommate. When I made more money, I didn’t get the most expensive apartment I could find. I don’t have an expensive car, nor do I have an expensive car note. I shop the sales at my local grocery store. If I can find it at the outlet, I will choose that over the department store. I take advantage of my work discounts and I rack up my travel points.
Lifestyle inflation refers to an increase in spending when an individual’s income goes up. Lifestyle inflation tends to increase every time an individual gets a raise and can make it difficult to get out of debt, save for retirement, or meet other big-picture financial goals.
Regardless of pay increases, I have managed to maintain the same standard of living. Doing this has allowed me to allocate any increase of income towards helping me reach financial goals.
I didn’t let setbacks defeat me
Many would be surprised to find out that I was still able to meet my financial goals while experiencing a financial investment setback that cost me thousands of dollars. Although I was dealing with this setback, I didn’t let it discourage me for long, instead, I handled it and chose to not let it throw a wrench in my life or goal.
The reality of life is that you will experience adversities. It is not what you experience but how you respond to your adversities that help shape your journey and ability to thrive.
I hope this helps some of you. Please leave any financial tips you have below or comment if you have any questions
Read: How to Build an Emergency Fund in One Year
