8 Money Milestones
Someone sent a list from Art Rainer to me and asked what I thought about it. Here it is: there's absolutely nothing wrong with this list. We’re simple creatures and we like to have checklists to feel like we've accomplished things, and this list provides a blueprint for financial planning. It’s a perfectly reasonable plan and any plan is better than not having one. But the thing is - when it comes to money, everyone has an opinion on how it should be handled and what goals should be tackled first. And, those goals may or may not be the goals for you, or in the order that best serves you. So, while I think this plan is mostly reasonable, I certainly have my own opinions on these "milestones":
#1 and #8 Start giving/ Live generously - Depending on your faith and your income, these are pretty presumptuous milestones. It has been my experience that “living generously” is easier when you have money. There’s nothing wrong with these milestones as long as they aren’t based on guilt - there’s enough of that in money decisions.
#2 - Save $1,500 - Great start to an emergency fund!
#3 - Max out at match - this refers to contributing enough to receive the full employer contribution to your 401K. Typically, an employer will offer a match based on a percentage of your salary. For example, if you contribute 4% of your salary to your 401K, your employer may offer to contribute that same amount. This milestone advises to contribute at least the percentage that the employer offers. That’s a great start to investing for retirement.
#4 - Pay off all debt except mortgage. I completely disagree with this one. The shortest version is - all debt isn’t created equally and you should consider interest rates and long-term implications before you decide to “wipe it out”. All debt isn’t bad, particularly if you’re able to manage it responsibly. Being honest with yourself is key.
#5 - Save 3-6 months of living expenses. Personally, I think this is great advice and should be completed, wayyyyyy before you try to pay off all of your debts. Your emergency fund could save you from going further into debt.
#6 - Put 15% of your gross income to retirement. This is another one that I can't fully support. Once you have saved up an emergency fund, your next goal should be completely dependent on your personal objectives. You may be saving for a house or need to save additional funds to repair your current home - the “15% towards retirement” milestone doesn’t consider what else you may have ahead of you. And that’s the point, isn’t it? You need a “next” milestone and only you can determine what that might be. You can never, ever go wrong by investing for your retirement. But 15% seems arbitrary - if you’re saving for retirement, you should be aiming for the maximum contribution for that particular account type.
#7 - Save for college or pay off your mortgage. This is a bit arbitrary - if this house is not your “forever home”, why would you try to pay it off? If you haven’t maxed out your retirement contributions, why would you be saving for college? (You can borrow money to pay for college, you cannot borrow money for your retirement). Obviously, it all depends on your particular condition, but paying off a mortgage isn’t always the best use of your money.
These are all perfectly reasonable milestones in your financial journey. But learning to manage money isn’t necessarily about “good decisions” vs. “bad decisions”. The question is - am I using my money for its highest and best use at this time? None of these milestones are “bad”, but before you set your financial goals, make sure they make sense for your situation. Paying off debt is a good thing, but is it the best thing? Putting 15% towards retirement is a good thing, but is it the best thing for you - can you invest more than that? The key to managing money is to have a plan, and lists like these are a great start. Make sure you’re clear on your personal goals and then apply them accordingly. Don’t be afraid to deviate from “the experts” - create your plan and hold yourself accountable.
For the record, these milestones came from https://www.artrainer.com/. From what I can tell, the site is full of very good financial advice. But like all advice, it may not be applicable to you. Check it out, use what you can, and ignore the rest!