I like to stop every now and then between Moves to show people their progress. Motivation during a financial plan, much like getting physically fit, is important. At this stage of the game you have:
- Learned about your financial life with intensity
- Build a rock-solid budget to help propel you through this plan
Those are two huge goals. Now comes the execution. Move #1 is the blueprint. Move #2 is the game plan. Move #3 is all about executing. The Move is simple: Save 5% of your net annual income for your first savings goal.
62% of Americans have less than $1,000 in savings. This means that when a sizable expense happens, people have to resort to debt (credit cards, payday lenders, etc.). It is important to have a safety net in place. This safety net is smaller, but the reason being is because your larger savings fund will take longer and you need to eliminate those pesky monthly consumer debt payments before you can tackle a big goal.
The goal is 5% of your net annual income into a savings account. Why 5%? Well, everyone's income is different so everyone's savings goal should be different. The greater your income, the greater your liabilities. At this point, I wouldn't advise anyone to keep more than $5,000 in savings until the consumer debt (Move #4) is taken out. This is so you don't spend a lot of time balancing savings with paying off debt.
The formula is straight forward. Take 5% of your net annual income. For example, if your net annual income is $50,000 then your 5% savings goal would be $2,500. From there, you take your monthly Flex Cash total and divide it into your 5% savings goal. If you have $500 in Flex Cash, then you would have reached your goal savings goal in 5 months. Simple, right?
A few ways that people fund this goal quicker is using a tax return, bonus, or selling items that you no longer use. eBay and Amazon can be great tools to help you earn extra cash to fund this goal. Lastly, as long as it doesn't impact your work/life balance, taking on a second job may be a good thing to do in order to get through your first savings goal as well as your consumer debt.
Once you have hit your 5% savings goal, you can press forward to Move #4.