Mapping Out Your Financial Life
I’ve been feeling a bit at sea financially recently (mostly cuz ya girl absolutely did too much for all of 2023). To combat this I’m trying to be much more mindful about my money this year. Recently I took a full page to map out the answer to this question: What does financial stability look like right now?
I divided my finances into three broad categories: retirement, expenses, and savings. This made sense to me because this is how my direct deposit is set up so it’s easy to (re)allocate the money.
Retirement
I started this category with a big question. What percent of my income would I like to contribute to retirement in total? Based on guidance from Fidelity (read more here) I decided on 20% total, including contributions from my employer. From my employer’s plan and based on my income, I have three options for retirement contributions: a Roth IRA, a traditional (pre-tax) 403b, and a Roth 403b.
I split up the 20% among these four options (employer contribution + other three), and calculated how many actual dollars that would be. I don’t currently make enough where maxing out my 403b (23K in 2024) is a reasonable option for me, so this is a great strategy until I make that much.
Pro-tip: Try to find a good balance between pre-tax and Roth contributions to lower your tax rate now, but also so that you have a good mix of types of income for your eventual retirement.
Savings
My savings category has three sub-categories: Emergency Fund, Sinking Funds, and Large Expenses
My emergency fund is, like the name implies, money that I have saved for emergencies. My plan here is to get this fund up to 3 months of expenses, and then leave in my savings account until I need it. The goal amount will increase as my monthly expenses change, but should be pretty static for the next few years.
Sinking funds refers to money set aside for an occasional but recurring expense. My sinking fund buckets include Birthday, Travel, Gifts, Car expenses (maintenance and insurance), and Special Occasions (for example, my sister’s wedding this year).
Large Expenses for me refers to a one-time, high-dollar expense. In this case I have three things on my list: a new mattress (~$2000), a new car, (~$55K) and a down payment for a home (~$100K)
Pro-tip: To maximize your savings, put them in a high-yield savings account! These are typically in online-only banks, which has the added benefit of making the money not immediately accessible. These types of accounts probably also have some form of buckets, where you can allocate money for your specific goals without having to have multiple different bank accounts.
Expenses
These are all my regular everyday life expenses: rent, internet, cell phone, food, gas, etc. Even if I actually put these expenses on a credit card (hey extra points for dining and gas!) I want to have an idea of how much money I really need for these expenses each month. In that sense, this category is really my budget (or spending plan, if you don’t like the b-word).
Creating this category forced me to consider how I actually spend money monthly vs how I would like to spend money. [If I want to spend $400 on food per month, but I’m actually spending $550, ya girl needs to order food less often.] It also helped me account for monthly expenses that I often forget about, like my monthly flower subscription, or taking dance classes (my version of a gym membership).
Doing this exercise was super helpful for in me getting an understanding of what I would need to feel okay. Maybe you’ll find this helpful for you too.
