Hello, HENRYs! Lauren here! Today, I am breaking down how to prioritize your money goals.

We are a generation overwhelmed by choice + bombarded with information. This same confusion and information overload extends to our finances, specifically to our savings. From every direction, we hear that we need an emergency fund, but we also need to pay off our credit card debt. We need to invest in the stock market, but, rent is crazy, so we also need to buy a house. There are so many different theories about what we need to do with our personal finances in our 20's, but, when there are too many options + opinions, how do we know where to begin?

Those of you who have been following us for a while, know that we follow the 50/20/30 method when it comes to budgeting. You may, or may not, remember that The 20, or 20% of your take home pay, is allocated for your future. In my opinion, The 20 is the scariest and most unclear component of the budgeting method. When I think about funding my future and all of the big (aka expensive) dreams that I have, it’s easy to feel like I am being pulled in a million different directions and that prioritizing all of my financial goals is next to impossible. I’m sure that I’m not alone in feeling a little lost. The confusion that we all have in prioritizing our financial goals boils down to one big question:

If I have extra money (i.e. The 20), where should it go first?

My friends ask me this question ALL the time. Obviously, I’m still a work in progress when it comes to achieving my financial goals, but I do have my own answer to this question and a plan that I follow pretty diligently. I hope that by sharing what works for me, I can inspire others to prioritize their savings goals in a way that works for their lives.

To get started, determine the dollar amount that you are working with, a minimum of 20% of your take-home pay. This number is what you will be setting aside each and every month for your future priorities. Remember, this is 20% AFTER you have already contributed up to what your employer will match in your 401(k).

When it comes to financial goals, the list could go on forever: retirement, dream vacation funds, mortgages, credit card debt, stock market, etc. If you were to divide up 20% of your pay between all of these priorities, it would take forever to feel like you were making any headway toward achieving your goals. Which is the exact reason why people feel so overwhelmed.

To counteract this feeling and to prevent yourself from giving up on your goals, it is much more effective to focus your energy and efforts on 1–2 objectives at a time. Below is my game plan, one that I think caters well to a millennial lifestyle.

1) Build An Emergency Savings Account

We’ve all heard about saving for a “rainy day.” Even if you live in San Diego, where the sun almost always seems to shine, there will be a rainy day and you need to be prepared. Your first savings priority is to build a $1000 emergency savings account. Flat tire, broken leg, dishwasher breaks…whatever your “rainy day” might be, $1000 is, generally, enough money to protect you from any surprises or incidentals. It also prevents you from needing to use a credit card for unforeseen expenses.

For those looking for the best savings account, we have a post breaking down our favorites HERE.

Disclaimer: This is absolutely for emergencies. Non-negotiable. Even I have to admit, new jeans are not an emergency.

2) Pay off credit card debt.

We love credit cards when used responsibly - check out our favorites HERE - but if not managed correctly, credit cards can be the number one barrier to amassing wealth and achieving financial freedom. Given that the standard savings account earns about 0.06% in interest + the average consumer credit card charges about 15.07% in interest, you are actually losing money if you choose to save, rather than pay off your credit card debt. With a $1000 emergency fund in place, you can feel confident that you are covered if any surprises come your way + begin redirecting the money that you were saving toward your credit card debt. If you need help determining which credit card to pay off first, take a look at my debt repayment plan HERE.

Another disclaimer: It is EXTREMELY important that if you are electing to pay off debt vs. save that you are super diligent with your spending and do not accrue any additional credit card debt. If this means you need to use a debit card or cash only, then do so, but we do NOT advise anyone to forgo saving to pay off debt if they don’t also adjust their spending accordingly. Your total credit card payments should be more than your new charges every month.

3) Save 3–6 months worth of expenses.

Congratulations! You have already made major progress toward your financial freedom. You have an emergency savings account and are consumer debt-free! That is much more than can be said for most people in their 20's! The next priority that you need to focus on is building a nest egg of 3–6 months worth of expenses. $1000 is a great start + a surefire way to cover most incidentals or surprises, but what if something bigger happens? For example, how will you survive if you lose your job + need a few months to find your next role? I guarantee that you will need much more than $1000. A great target goal is to save 3–6 months worth of your fixed expenses. You should keep this money in an account that you absolutely cannot touch and don’t have immediate access to.

I would recommend an online savings account, such as Ally or Emigrant - more on why we love online savings accounts HERE. Not only do online savings account offer insane interest rates, sometimes upwards of 2.00%, but they also take an average of 72 hours to transfer funds to your standard checking account for use. This ensures that you won’t be tempted to dip into your savings for an impulse buy.

4) Get serious about investing.

After you have tackled the first 3 beasts of financial priorities + goals, it’s time to get your money working for you. I would argue that a majority of people that have built serious wealth have done so with more than just their salary alone. You don’t get rich just by putting 20% of your income in a savings account. Once you’ve built a solid financial foundation, it’s time to get into the stock market, real estate + increasing your retirement contributions.

You’re already investing by contributing to your 401(k) - more on 401(k)s HERE. Your ultimate goal should be to contribute 10–15% of your income toward your retirement savings. If you can commit to this, especially during your 20’s, I can practically guarantee that you will have several million dollars by retirement. That sounds pretty fabulous to me.

Here are our investing recommendations:

1) Once you’ve contributed enough to your 401(k) to earn an employer match, we recommend that you open a Roth IRA - more on that HERE.

2) Once you’ve contributed enough to your IRA to reach the annual max, return to your 401(k) + increase your monthly contributions.

3) Once you’ve hit your annual max contribution to your 401(k), consider investing in stocks + mutual funds or in real estate - more on our favorite brokerage HERE.

5) Pay off your student loans.

With the average American holding over $20,000 in student loan debt, paying off student loans is not something that will happen overnight, but it is possible! Because student loans are, generally, regarded as “good” debt (i.e. they are an investment in your future) and, typically, have very low interest rates, paying off student loans is not as important a priority as paying off credit cards. In fact, we would argue that they aren’t even as important as investing. Investing in the stock market, real estate or retirement accounts earn between 8-10% on average a year compared to 3-4% interest rates on most student loans.

However, once you have built a strong financial foundation, have started investing + still have more money left over, making extra student loan payments is a great idea! When you make an extra payment, be sure that this goes toward your principal balance + if you can choose which loan it goes to, choose the loan with the highest interest rate - not necessarily balance.

We mentioned at the beginning of the post that we recommend focusing on just a few goals at a time. For Steps 1-3, you should be very narrow-minded + just focus on accomplishing that one goal before moving to the next. However, when you get to goals 4 and 5, we think it’s okay to spread your funds around a little more + not necessarily tackle one before moving onto the next. For example, I choose to make an extra monthly payment to my retirement accounts, but when I get a tax return or windfall, I use that to make an additional student loan payment. Do whatever works for you + aligns with you goals and priorities, but it’s definitely okay to spread the love between a few goals once you get to the investing stage of your savings goals!

As I hope you now know, there is so much more to saving than automatically transferring 10% per month to a low-yield, big-bank savings account. Saving and planning for our futures can be a lofty and overwhelming topic, but by prioritizing our goals and focusing on 1–2 things at a time, we will all be well on our way to financial success and freedom. As always, we are, by no means, experts, but we have found a plan that works for us. It is our hope that by sharing our thoughts and experiences, we can inspire others to take charge of their personal finances and come up with a strategy that works for them. One that still leaves a few dollars for a Sunday brunch mimosa.