The 5 financial milestones everyone should hit

One of the biggest reasons people feel overwhelmed with their finances is trying to do too much at the same time.

You listen to multiple finance gurus, and one says you should focus on building your emergency fund, another one says you should focus on investing, while another person says you should pay off debt first.

After a while, it becomes really hard to figure out what you should actually be focusing on.

In today's newsletter, I will simplify the process for you by sharing five milestones I believe everyone should hit on their financial journey. When you understand these milestones, it becomes much easier to know which goal to focus on right now and what to work towards next.

Milestone 1: Get to 30% Surplus

The very first milestone everyone should aim for is reaching a 30% surplus in your monthly net income.

This means that after you’ve paid all your bills and covered your living expenses, you still have 30% of your income left over.

A lot of people focus on trying to earn six figures because they think that once they get there, everything will feel comfortable. But a lot of people reach that income level and realize that it still doesn’t feel like it's enough.

The real issue is not that you're not earning enough income, but that there is no gap between your income and your expenses.

I’ve seen people earning $70,000 who are able to keep more than 30% of their income. And I’ve also seen people earning $250,000 who are not able to keep anything because their lifestyle has increased with their income.

Without a gap or a surplus, it becomes very difficult for you to work towards any financial goal. You won’t be able to consistently save, invest, or pay off debt because there simply isn’t enough money left.

So the first thing you want to do is figure out what your surplus is today and start working toward that 30%.

Milestone 2: Building a Three-Month Emergency Fund

The second milestone is building an emergency fund.

A lot of people ask how much they should save for an emergency fund, and the answer is that it really depends on your situation.

The first thing you want to figure out is what it takes for you to survive each month.

We’re not talking about living your best life here. We’re talking about what it would take for you to survive if you weren't making any money.

Things like housing, utilities, food, transportation, and insurance.

Once you know that number, the next step is to determine how long it will take you to recover to your full income. That will become the number of months you should save for.

If you are in a dual-income household, three to six months may be enough because you still have another income coming in.

If you are single, in a volatile job market, or self-employed, you may want to aim for six months or even twelve months of expenses.

But regardless of your situation, the bare minimum that everyone should aim for is three months of emergency savings.

Milestone 3: Pay Off All Consumer Debt

 The third milestone is becoming completely debt-free.

This includes credit cards, lines of credit, personal loans, and student loans. The only thing you can remove from this list is your mortgage.

When you don't owe anyone, there is a different level of peace and freedom that comes with it, and I want everyone to experience this type of freedom at least once in their lives.

A lot of people stay stuck in jobs that they hate because they owe so much money, and they feel like they cannot afford to quit because they won't be able to keep up with their payments.

When you are debt-free, you are no longer living in fear of those payments, and you can take on bigger risks.

Milestone 4: Reach $100,000 Invested

The fourth milestone is reaching $100,000 invested, or one year of your annual income invested.

This is a very important milestone in your investing journey.

In the beginning, most of the money in your investment account will be money that you contributed yourself. But once you get to that $100K mark, you really start to see the power of compound growth.

Over time, the returns from your investments start to outpace the amount of money that you are putting in.

That is why I always encourage people to get to their first $100K as quickly as possible.

Once you reach that milestone, your investments really start working for you.

Milestone 5: Financial Independence

The final milestone is financial independence.

This is when your investments have grown to the point where they can completely replace your annual income.

At that point, you no longer need to work a job or run a business in order to sustain your lifestyle.

Even if you decide to keep working, you are doing it because you want to, not because you have to.

And that is the ultimate goal for a lot of people. Getting to a place where you have that level of financial security and freedom.

Focus on one milestone at a time

The biggest mistake people make is trying to work on everything at the same time.

They are trying to save, invest, pay off debt, build an emergency fund, and also save for travel.

The worst part is that they don't even have enough surplus, so whatever surplus they have is stretched thin when spread across multiple goals; it barely makes a dent, and they get frustrated because they don't see any progress.

Inside the Surplus Stack Society, everything is designed to guide you through these milestones step by step, so you always know what you should be focusing on and what you should be working on next, so you see faster progress.

If you're ready to complete your next money milestone, join the surplus stack society.