Three milestones on the road to financial stability

Zachary D. Gildehaus, CFA, CFP®
Analyst, Client Needs Research
You may know what you want to achieve with your financial strategy, but the road to becoming financially stable might not be crystal clear. As you chart your course to financial success, Edward Jones is ready to help you.
Each of these may seem challenging, but a financial roadmap with clear milestones can help guide you on your journey.
This table shows three milestones to help you build emergency savings, save for retirement and reduce debt. Milestone 1 (building a foundation) suggests saving $500 to one month’s worth of expenses, taking advantage of an employer match for a health savings account and retirement plan, and reducing any debt with a nondeductible interest rate above 8%. Milestone 2 (gaining stability) suggests saving one and a half to two months’ worth of expenses, investing 10% to 15% of your gross income (including employer match) for retirement, and reducing your debt-to-income ratio to less than 35% with a mortgage or less than 20% without one, by paying down your highest after-tax interest rate first. Milestone 3 (optimal state) suggests saving three to six months’ worth of expenses, investing the amount necessary to get yourself on track for your retirement goal and considering paying off any debt that causes you stress.
When preparing for a road trip, you might complete a few tasks ahead of time to help ensure things go smoothly. You can follow a similar strategy on your financial journey, to make the trip easier:
Now that you're ready to go, you’ll want to build a foundation for each of the three goals. While we recommend prioritizing each goal in the order shown below, you can tackle them one at a time, save for them equally or put more money toward the one that most appeals to you.
To make it easier, automate as much as you can. For example, you can divert part of your paycheck into an emergency savings account or a retirement account and set up automatic payments for any debt.
This table illustrates the difference between paying only the minimum required and $100 extra each month on a $5,000 credit card balance. With the extra amount, payment time decreases from 15 years to 3.33 years, interest cost decreases from $5,487 to $1,100, and total cost decreases from $10,487 to $6,100.
This chart shows how much you will need to invest each month to reach $100,000 under different time frames. If you have 10 years to invest, you’ll need $610 a month. With 20 years to invest, you’ll need $216 a month. With 30 years to invest, you’ll need $100 a month. With 40 years to invest, you’ll need $50 a month.
Now you're in the home stretch. But just as road trips can have detours, life can be full of the unexpected. You may find yourself back in an earlier milestone for one or more goals, and that’s OK. You can spend from your HSA or emergency savings with confidence, knowing it’s there for exactly that purpose. If that expense moves you back to an earlier milestone, you can go forward knowing you’ve navigated these roads before.
This table illustrates how much may be saved by paying off a loan compared with how much could be earned by investing the money instead. In this example, the investor saved $200 in loan interest but could have expected to earn $338 by investing instead.
By completing these milestones, you’ll not only have built financial stability, you’ll also have achieved financial flexibility to do the things you want to do in life. Whichever road you choose next, your financial advisor will be there to help you at every turn.
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**Edward Jones, its employees and financial advisors cannot provide tax advice. You should consult your qualified tax advisor regarding your situation.