Email your money conundrums, from the technical to the psychological, to firstname.lastname@example.org.
I am 25 and have modest savings: about $10,000 in cash and $30,000 in my 401(k), to which I contribute 10 percent of my salary. Still, I am staring at my goals — get married to my longtime boyfriend, buy a house, travel to Europe, have kids in my 30s, take a few trips a year to visit family — and I don’t know how I’ll ever afford them all. How do people do it? I make over $60,000 a year. My boyfriend has a good job with a similar salary, but has student loans and a little credit card debt. Is it a good idea to invest in the stock market beyond my 401(k), for short-term goals? Should I elope? Not put down the full 10–20 percent on a house? What else can I be doing?
You strike me as being very good at doing what you’re supposed to do. I think you’re overwhelmed by the next phases of your financial life because there’s no actual blueprint — you have to decide what you want, rather than following a prescribed set of steps. I can’t tell you if you should elope — that’s your choice. (If you’re tempted, by all means, do it — weddings are giant, insatiable money pits.) I can tell you that weaseling out of the full 20 percent down payment on a house is usually a bad idea; in most cases, it’ll stick you with (pricey) private mortgage insurance, higher closing fees, and a worse mortgage rate. And since we’re on the subject, how’s your credit? It can take a few years to whip it into shape, so if you’ve never had a loan or a credit card, now’s the time to apply.
The average American woman with a college degree earns about $1.4 million by age 65. That may sound like a big pile of cash, but if you subtract the costs of a house, a wedding, a trip to Europe, kids, and the general expenses of being an adult human over five-plus decades (plus taxes), then the math starts to look dicey. However, you have already done a lot to prevent yourself from becoming a bad statistic. You are saving intelligently, and asking good questions. Take a moment to recognize that you’re in a great place.
Of course, it’s frustrating to do everything “right” — sock away for retirement, build an emergency fund, get and/or stay out of debt —and still feel miles away from the shiny benchmarks of success that you’ve set for yourself. But think of it this way: You’ve laid a solid foundation, and now you’re ready for the construction phase. “It’s about incorporating practicality and prioritization,” says Megan Ford, a financial therapist at the University of Georgia and creator of Finding Harmoney. “I relate to your desire to want to ‘do it all,’ and your next step is to gauge what’s most important to you, as well as what’s financially pressing — financial triage, if you will.”
A good first step is to sit down with your boyfriend and make sure you’re on the same page. If your financial goals involve him, he should be aware — and be onboard. Bear in mind that you also won’t be able to hash everything out in one sitting. I know you love an action plan, but you’ll need to get comfortable with flexibility and uncertainty. These plans will change.
Next, assign your goals to one of three buckets: short-term, medium-term, and long-term. Long-term goals include retirement (you’re good in that department — just keep doing what you’re doing, and make sure that money is invested wisely), while short-term goals include maintaining an emergency fund (put your $10,000 savings into a high-yield online savings account and don’t touch it unless you absolutely have to). Other foreseeable expenses within the next five years (a wedding, trips to visit family, etc.) belong in the short-term category, too. Medium-term goals — more than five years out — may include a house.
Once you’ve sketched out a timeline, get nitty-gritty with numbers. “When my clients feel stressed, I like to bring some rationality to the picture by attaching a realistic price tag to each objective,” says Ford. “If you know what’s important, what will make you happy, and what it costs, you’ll feel increased confidence making decisions with a more complete picture. For instance, if you hope to buy a house in six years, what do you have to be putting away every week or month to meet that down payment? This exercise helps you ‘see’ your goals, and compare and prioritize them.” These amounts don’t all have to be hard and fast (that would be nuts), but the point is to have something to work with.
The timing of your goals determines how you’ll save for them. For short-term goals, you’ll want to sock away cash (also in a high-yield savings account); that way, if the market crashes, your timeline won’t be compromised. For medium- and long-term goals, investing is a better option because you have more “risk tolerance” — i.e., if your portfolio tanks, you don’t need to panic because you can afford to wait it out. For first-time home-buyers, Ford recommends saving up with a Roth IRA, because your investments will grow tax-free and you’ll be able to withdraw the money after five years (you can learn more about that process here). For other medium- and long-term goals, consider putting your money into different target-date funds, which are managed according to when you need to cash out (read more about them here). If you need more investing guidance, check out Ellevest, which will divvy up your portfolio according to your goals and give you a template for working toward them. If you prefer working with an actual human, most banks offer access to an investment professional (whomever you talk to, make sure they are a fiduciary).
And finally, ease up a little bit. “Being a future-oriented 25-year-old is already impressive — you’re further ahead than you may believe,” says Ford. Your friends might be buying houses and planning fancy weddings, but they probably aren’t saving the way you are. In the meantime, you owe it to yourself to think about what will actually make you happy, and not just what you see other people doing. “Explore where this perceived pressure to do all of these things comes from,” Ford continues. “Many of us struggle culturally with the ‘keeping up with the Joneses’ mentality — what’s going on around you that reinforces this? Also, how is this flurry of money objectives related to the way you were raised?” Once you dig into what’s driving this compulsion to aim for so many things simultaneously, you might realize that some aren’t quite so pressing. You’ll keep saving, but better yet, you’ll know what you’re saving for.