“Don’t tell me what you value, show me your budget, and I’ll tell you what you value.”-Joe Biden
I‚Äôve never really cared for the word ‚Äòbudget‚Äô, it feels restrictive, like the word ‚Äòdiet‚Äô. However, whether you like it or not, we need money to live and therefore we need to allocate that money to different areas of our lives. But money doesn‚Äôt have to solely be for survival. It can enhance our lives and bring additional joy to the most sentimental of moments ‚Äì if managed properly.
Unfortunately, managing your money can be complicated, especially if you earn a lot of it. Rather than spending the excess after your expenses, take a moment to think about the road map of your life. Surely you‚Äôll want some money to retire on, but what are all of the big expenses along the way? Here is a list of things you might not have considered saving for.
1. Treating Yourself
Being on an overly strict budget can make you feel even more like overspending. It‚Äôs OK to have a latte or buy a magazine on impulse now and then. You can also splurge more, like on vacations or luxury items if that‚Äôs what sparks joy for you. The key is planning ahead and regularly setting aside the money to cover it. And if you want something particularly expensive, consider investing to grow your savings and possibly achieve that goal sooner. Personally, I like to maintain an ‚Äòopportunity fund‚Äô to take advantage of sales and last-minute travel bargains.
2. Repairs to Your Home or Car
You can bank on the fact that sooner or later, something is going to happen to your car or your home that will require spending money to fix. Expect the unexpected and start setting aside some money so that you‚Äôre prepared when, not if, it happens. Since this is money that you might need at any time, you might not want to invest it in the stock market since it can be volatile. However, if your house is new, then you might still want to consider investing in a more conservative stock portfolio. Emperor‚Äôs approach for constructing conservative portfolios is to invest in less volatile industries such as Utilities.
3. Your Future Children
Did you know that the estimated cost of raising a child is $233,610, according to the Department of Agriculture? And that‚Äôs not even accounting for any college costs. If you think you might want children at some point, starting to save and investing today is the smart thing to do. That way, your money has ample time to grow with compound interest. And if the kids never come, you can always reallocate that wealth to something else.
4. Weddings, Gifts, and Special Occasions
My thirtysomething friend has already traveled out of town for four weddings this spring, and it‚Äôs not even June yet. That‚Äôs just this year! While you can‚Äôt really predict a wedding, birthdays, holidays and anniversaries are a given. Estimate the annual costs for all your special occasions. Factor in not only the cost of presents, but extra expenses like travel, clothing, meals, or hosting a party. You probably shouldn‚Äôt invest any of this money, but there are some situations where you should consider it. For example, knowing that you want a huge party for a milestone birthday, or that you want a big wedding.
5. Buying an Extra Property
If you still have student loan or consumer debt, you might want to pay those off first. But, if you‚Äôve got the extra cash to save, you could buy another piece of real-estate. You can use this property for your own personal enjoyment or buy it as an investment. If it‚Äôs an investment, the rental income can typically cover a good chunk of your mortgage. Once that‚Äôs paid off, you can use your rental property as a passive income stream or flip it down the road. This sounds great, but it‚Äôs important to run the numbers and compare your potential real-estate investment to your current investments. For example, let‚Äôs say you expect your real-estate to return 5% per year on average. Unless you‚Äôre looking for more diversification, it doesn‚Äôt make sense to invest there instead of your stock portfolio which could be earning more.
6. Starting Your Own Business
Ever had a desire to abandon the 9 to 5 and be your own boss? Most small businesses fail from being undercapitalized, and the founder didn‚Äôt have time for the business to become cashflow positive. If possible, start your side gig while you‚Äôre still employed full time (and have benefits). Allow yourself at least 6 months of barebones living expenses to get your fledging business off the ground. If this is your goal, best of luck to you, and start saving now! Businesses take a lot of planning, which is plenty of time to invest and take advantage of compound interest. The more capital you have, the more time you have to make your business work.
These financial goals are just the tip of the iceberg. There are many more things you should save towards depending on your situation. But whatever they are, if it‚Äôs long-term, you should consider investing and possibly reaching them sooner. To make it easy, you could give Emperor Investments a try. Their online platform is designed to support an infinite number of goals; each one getting its own pure stock portfolio. The best part is that you can set up an automated savings plan and track the progress for every goal you set up. I wish you the best of luck on your path to retirement and hope you reach all your goals on the way.
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Martha Brown Menard, PhD, is a research scientist, financial coach, and dividend income investor. She takes a smart beta approach to building her own portfolio, and likes seeing her income stream grow.