Podcasts > Money Rehab with Nicole Lapin > “I Want to Achieve My Financial Goals Within Five Years. What Should I Be Doing Now To Get There?“ (Listener Intervention)

“I Want to Achieve My Financial Goals Within Five Years. What Should I Be Doing Now To Get There?“ (Listener Intervention)

By Money News Network

On the Money Rehab with Nicole Lapin podcast, a listener seeks guidance on achieving their financial goal of purchasing a $750,000 home for their family within the next five years. Nicole Lapin evaluates the listener's current financial situation, including income, expenses, savings, and debt.

She then outlines a comprehensive budgeting and savings plan to accumulate the necessary down payment funds. Lapin also discusses investment strategies to build long-term wealth and supplement the down payment savings. The episode provides practical steps for creating a targeted financial roadmap and balancing present needs with future goals.

“I Want to Achieve My Financial Goals Within Five Years. What Should I Be Doing Now To Get There?“ (Listener Intervention)

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“I Want to Achieve My Financial Goals Within Five Years. What Should I Be Doing Now To Get There?“ (Listener Intervention)

1-Page Summary

Assessing Current Financial Situation

The assessment begins with analyzing the caller's $6,000 monthly income and expenses like $5,000 on rent, utilities, debt payments, and essentials - making up 79% of income. The caller also has $10,000 in savings, $60,000 in a retirement plan, and $20,000 in student debt with $380 monthly payments.

Defining Future Financial Goals

The caller's goal is purchasing a $750,000 4-bedroom home outside the city for their family of 5 within 5-10 years. This requires balancing current lifestyle with saving for the home and potentially starting a business. A 20% down payment of $150,000 is considered, or a lower down payment with a larger mortgage amount.

Developing a Comprehensive Budgeting and Savings Plan

To save $150,000 in 5-6 years, the caller needs to save $28,000 annually. Nicole Lapin suggests lowering housing costs by relocating, and potentially increasing income via a raise or side hustle. Creating a targeted savings plan within the 50-30-20 budgeting rule could refocus funds towards this goal.

Investing and Building Wealth for the Future

Lapin advises a diversified approach with safe principal-protected investments like CDs and Treasury bonds, alongside riskier stock market investments. She recommends leveraging investment yields to supplement down payment savings. While preparing for the future, Lapin notes balancing present quality of life remains important.

1-Page Summary

Additional Materials

Counterarguments

  • Spending 79% of income on expenses may not leave enough room for unexpected costs, suggesting a need for a more aggressive budget cut or income increase.
  • The goal to purchase a $750,000 home may be unrealistic given the current savings rate and income, and the caller may need to adjust their expectations or timeline.
  • A 20% down payment is a traditional approach, but there may be other viable options such as first-time homebuyer programs or loans that require a lower down payment.
  • Saving $28,000 annually on a $6,000 monthly income might be overly ambitious, especially if there are any changes in the caller's financial situation.
  • Relocating to lower housing costs could have other implications, such as increased commuting costs or a decrease in quality of life.
  • Starting a business could introduce significant financial risk and may not be the best strategy when trying to save for a home.
  • The 50-30-20 budgeting rule is a guideline and may not be suitable for everyone's unique financial situation; it may require customization to be effective.
  • Diversified investment strategies typically include a mix of stocks and bonds, but the caller's risk tolerance and investment timeline should be carefully considered before investing.
  • Leveraging investment yields to supplement savings can be effective, but it also introduces market risk, which could potentially delay the home purchase if the market performs poorly.
  • Balancing quality of life with savings goals is subjective and personal; what constitutes an acceptable quality of life will vary greatly from person to person.

Actionables

  • You can automate your savings by setting up a direct deposit from your paycheck to a high-yield savings account dedicated to your home purchase fund. By doing this, you ensure that a portion of your income is saved without the need to manually transfer funds each month, making it easier to reach your annual savings goal.
  • Consider renting out a room or a part of your current living space if possible, to generate additional income that can be directed towards your savings. This strategy can help you maintain your current lifestyle while accelerating your savings rate without the need for a significant lifestyle change or additional employment.
  • Explore local first-time homebuyer programs or grants that could assist with the down payment. Many areas offer incentives to encourage home ownership, which could reduce the amount you need to save and allow you to reach your goal sooner without compromising your current quality of life or investment strategy.

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“I Want to Achieve My Financial Goals Within Five Years. What Should I Be Doing Now To Get There?“ (Listener Intervention)

Assessing Current Financial Situation

An assessment of the current financial situation includes examining monthly income, expenses, spending habits, financial goals, and understanding available resources and constraints.

Evaluate monthly income, expenses, and spending habits

To understand the current financial picture, the analysis begins with a look at take-home pay and regular expenses.

Analyze take-home pay, fixed costs (rent, utilities, debt payments), and discretionary spending to understand current financial picture

The caller earns a monthly take-home pay of about $6,000. Fixed monthly expenses include roughly $300 for utilities like electricity, internet, and phone, and about $5 a day for commuting to work via public transportation, totaling around $100 a month. There's also a monthly obligation of $380 toward student loan debt. The rent is the most significant expense and consumes more than half of the take-home pay. Including rent, the total monthly expenses average about $5,000, with essential costs such as rent, utilities, and groceries amounting to $4,780. This spending rate on essentials, which is about 79% of the take-home pay, is higher than the 50% suggested by the traditional 50-30-20 budgeting rule, indicating that the caller's burn rate on essentials each month is notably high.

Determine financial goals and timeline

The caller expresses the desire to set financial goals such as starting a marketing firm, purchasing a home, getting married ...

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Assessing Current Financial Situation

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Counterarguments

  • The 50-30-20 budgeting rule may not be universally applicable, as it does not account for varying costs of living in different areas or personal circumstances that might necessitate higher essential spending.
  • While the rent is identified as the most significant expense, it's not clear if there are opportunities to reduce this cost, such as by moving to a less expensive area or getting a roommate.
  • The assessment does not consider the possibility of increasing income, which could change the financial picture significantly.
  • The financial goals listed are broad and may benefit from being broken down into more specific, measurable, achievable, relevant, and time-bound (SMART) goals.
  • The timeline for purchasing a home is quite broad (5-10 years), and a more precise timeline could help in creating a more targeted saving and investment strategy.
  • The savings and retirement plan are mentioned, but there's no discussion on whether these are optimally structured or if there might be better investment strategies available.
  • The text does not address the potential for refinancing the student loan debt, which could lower the monthly paymen ...

Actionables

  • You can create a visual financial roadmap to clarify your goals and timelines by drawing a timeline on a large poster or whiteboard, marking your current financial status at one end and your goals (like starting a marketing firm, buying a home, getting married, and having children) at the other. Along the timeline, place markers for milestones, such as paying off a certain percentage of your student loan or reaching a specific savings target. This visual aid will keep your objectives in sight and can motivate you to make financial decisions that align with your long-term plans.
  • Experiment with a "spending freeze" for a set period, like one week per month, where you only spend money on absolute necessities. During this time, track how much you save and reflect on the experience to identify non-essential expenses you can live without. This can help you reduce the percentage of your income that goes towards essential costs and free up more money for savings or ...

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“I Want to Achieve My Financial Goals Within Five Years. What Should I Be Doing Now To Get There?“ (Listener Intervention)

Defining Future Financial Goals

The discussion focuses on a caller who has set clear financial targets for the future, aiming to purchase a home within five years.

Determine ideal home characteristics and budget

Envision a 4-bedroom home costing around $750,000 to accommodate a family of 5 in a location outside of the city

The caller has a specific goal to buy a home that would comfortably accommodate their family of five. They envision purchasing a 4-bedroom home valued at around $750,000, located outside of the city, in line with their family’s needs and lifestyle preferences.

Prioritize financial goals and align spending

Balance desire for current lifestyle with future goals of home ownership and business ownership

The aspiring homeowner aims to carefully balance their desire for a comfortable current lifestyle and the future goal of owning a home. The caller understands that to achieve this goal, there may need to be strategic adjustments in their spending habits now to ensure they can afford their ideal home and potentially own a business in the future.

Explore financing options for home purchase

Consider d ...

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Defining Future Financial Goals

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Counterarguments

  • The assumption that a 4-bedroom home is necessary for a family of five may not consider other potentially more affordable and sustainable housing options that could still meet the family's needs.
  • Prioritizing current lifestyle desires might conflict with the long-term goal of home ownership, especially if the current lifestyle is not significantly adjusted to save for the large down payment required.
  • Strategic adjustments in spending habits can be challenging to maintain over the long term, and the caller may need to consider more aggressive savings strategies or additional income streams.
  • Exploring financing options is critical, but the caller should also consider the long-term financial implications of taking on a large mortgage, including the potential for changes in interest rates and the housing market.
  • First-time home buyer loans can ...

Actionables

  • You can create a visual roadmap of your financial journey by using a free online mind mapping tool to chart out your current expenses, potential savings areas, and milestones towards your home purchase. Start by plotting your current financial state, including all income and expenses. Then, identify areas where you can adjust spending, and set clear markers for savings goals. This visual approach can help you see the path to your home purchase more clearly and keep you motivated.
  • Experiment with a 'mock mortgage' strategy by setting aside the projected monthly payment for your future home into a savings account. If you're considering a $750,000 home, calculate the estimated mortgage payment and start transferring that amount monthly into a high-yield savings account. This will not only help you save for the down payment but also get you accustomed to the budget changes you'll experience once you have a mortgage.
  • Engage with a local real estate ...

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“I Want to Achieve My Financial Goals Within Five Years. What Should I Be Doing Now To Get There?“ (Listener Intervention)

Developing a Comprehensive Budgeting and Savings Plan

Formulating a reliable budget and savings strategy is essential for achieving financial goals such as making a significant purchase. The caller is aiming to accumulate a $150,000 down payment in five to six years, necessitating clear steps and dedication.

Analyze current spending and identify opportunities to redirect funds

To begin, it’s important for the caller to understand their current spending patterns. One approach is the 50-30-20 budgeting rule. This rule suggests allocating 50% of income to essentials, 30% to discretionary spending, and 20% to long-term savings. Adhering to or adjusting this rule based on the caller’s specific circumstances could yield opportunities to redirect funds into their savings.

Create a targeted savings plan for down payment

The caller will need to save approximately $28,000 annually to reach their $150,000 down payment within the five- to six-year timeframe. Creating a targeted savings plan will involve setting aside this amount each year specifically for the down payment.

Explore ways to boost savings and income

To boost savings, financial expert Nicole Lapin suggests that the caller could consider lowering their housing expenses, the largest typically monthly cost, by moving to a more affordable location. The caller acknowledges they live in an expensive part of Brooklyn and is open to relocating to save on ren ...

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Developing a Comprehensive Budgeting and Savings Plan

Additional Materials

Counterarguments

  • The 50-30-20 budgeting rule may not be flexible enough to accommodate everyone's unique financial situation, and a more customized approach to budgeting may be necessary.
  • Allocating 50% to essentials might not be feasible in areas with a high cost of living, where essentials may consume a larger portion of income.
  • Redirecting funds into savings is important, but it should not come at the expense of necessary expenditures or emergency funds.
  • Saving $28,000 annually is a significant amount that may not be realistic for all income levels, especially if unexpected expenses arise.
  • Setting aside a fixed amount for a down payment annually may not account for changes in income or life circumstances that could affect one's ability to save.
  • Lowering housing expenses by moving may not always be a viable option due to job locations, family commitments, or other personal factors.
  • Relocating to save on rent could lead to other cost ...

Actionables

  • Create a visual savings tracker to maintain motivation by drawing a large thermometer on a poster board and coloring it in as you save towards your down payment goal. This tangible representation of your progress can be a daily reminder of your financial target and can help you stay on track with your savings plan.
  • Use a cash-back app that rounds up your purchases to the nearest dollar and automatically deposits the difference into a dedicated savings account. This method allows you to effortlessly save small amounts of money over time, which can add up without feeling like a significant impact on your daily finances.
  • Host a monthly "finance date" with yourself or a ...

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“I Want to Achieve My Financial Goals Within Five Years. What Should I Be Doing Now To Get There?“ (Listener Intervention)

Investing and Building Wealth for the Future

Nicole Lapin provides guidance for building wealth by suggesting ways to diversify investments and leverage compound growth to achieve financial goals.

Diversify savings and investment portfolio

Lapin stresses the importance of having a diversified approach to investing, which involves balancing safer investment options with those that offer higher rewards despite higher risks.

Consider principal-protected options like CDs and Treasury bonds alongside higher-risk, higher-reward investments in the stock market

She recommends principal-protected offerings like Treasury bonds and certificates of deposit (CDs) for those looking for safer investment avenues. Treasury bonds, in particular, are backed by the US government and are one of the safest investments. On the other hand, the stock market, while more volatile, historically returns about 8% per annum. Lapin personalizes her advice by sharing her own strategy of investing in both the stock market and in safer investments like CDs and Treasury bonds. Bank of America is noted for having CD options that are insured up to $250,000. A specific CD from Bank of America offering up to 4.35% yield is highlighted, although it's indicated that yields may vary by locality.

Leverage compound growth to accelerate wealth-building

Investment yields can be a game-changer when it comes to building wealth, especially considering long-term financial goals.

Leverage investing yields to supplement savings for down payme ...

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Investing and Building Wealth for the Future

Additional Materials

Counterarguments

  • Diversification does not guarantee against loss; it is a method to manage risk, not eliminate it.
  • Principal-protected options like CDs and Treasury bonds typically offer lower returns, which may not keep pace with inflation, potentially eroding purchasing power over time.
  • The stock market's historical average return of about 8% per annum does not apply evenly across all periods or to all investors, and past performance is not indicative of future results.
  • High-yield CDs may come with certain conditions, such as longer lock-in periods, which could limit liquidity and access to funds when needed.
  • The safety of Treasury bonds is tied to the government's ability to repay its debts; while considered very low risk, it is not entirely without risk.
  • Investment yields can be unpredictable, and relying on them for short-term financial goals could be risky if the market underperforms.
  • Investing part of savings for a down payment may expose those funds to market volatility, which could result in a loss of capital when the fund ...

Actionables

  • You can create a "financial experimentation diary" to track your experiences with different investment types, noting down the performance and how you feel about the risk and returns over time. Start by setting aside a small portion of your savings to invest in a new asset class each quarter, and document the process, including how you chose the investment, the amount invested, and the results. This hands-on approach will help you understand your risk tolerance and the actual performance of various investments in a personal context.
  • Develop a "future-self visualization routine" where you regularly envision your life in 5, 10, or 20 years, considering both financial security and personal enjoyment. Use this visualization to assess whether your current investment balance aligns with the future you desire. If you find discrepancies, adjust your investment strategy to include more growth-oriented or more secure assets, depending on what your future self seems to need.
  • Initiate a "yield-boosting challenge" with friends or family where you collectiv ...

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