Chloe Daniels’ goal was 27 – 33 to be debt free. She was about $70,000 in the hole, and she says she had a bad relationship with money.
“The money was causing a huge amount of stress and anxiety and depression in my life because of my student loan debt, and not understanding how to transition out of a paycheck to paycheck lifestyle,” Daniels tells NextAdvisor.
“It just made me feel trapped. It was like, ‘I’ll never be able to do the work I really want to do because I don’t know how to handle this stuff.'”
So he started writing everything down chloe bear, a personal blog for mental health and relationships. The goal was to work through personal trauma, anxiety, and depression when she started blogging in September 2017. In its first year, the blog served its role as both an outlet and accountability for personal growth. It also led him to a bigger discovery: He needed to have a better relationship with money, and that meant getting on a budget and learning about personal finance.
Then another realization came: He learned not only about debt, but also investing. Was all the debt bad? if you invest in debt,
“I think the default in our country is: ‘The debt is bad,'” Daniels says now. “Not all debt is bad, and you shouldn’t automatically default, and don’t even think about investing in doing what you can to pay off the debt. Most of the time, people can do both. Huh.”
Daniels quickly learned that being debt free by 33 was not the goal he should be working towards. was learning how to Both: pay off debt and invest,
He started emergency fundlifted him up 401(k) contribution, and maximized it Roth IRA, Daniel a. was able to pay off his debt by using zero based budgeting strategized, and increased his net worth by $300,000 in just three years. Here’s how he did it.
learning is the gateway to more learning
As Daniel began his finances journey, he grabbed a pen and a small notebook and made them close friends. he counted her loan of And he wrote down everything that was going to his money over the next two weeks. This zero-based budgeting strategy forced her to allocate every penny of her income toward a spending, loan payment, or savings goal, and at the end of the budget period, she ended up with a zero-dollar gap.
Daniels ran the numbers, chose a timeline, and then treated his goal like a Bill. His main question while making adjustments in his budget was, “What do I think is appropriate?”
The plan paid off, because from October 2018 to January 2020, she stuck to it and paid $40,000 out of her $60,000 student loan, A great start.
Should you invest in debt?
Different voices in personal finance have different opinions about this. A helpful follow-up question Daniels asks: What type of debt do you have?
Here’s how Daniels structured her debt repayment strategy:
1. He set up an emergency fund
In January 2020, Daniels prioritized saving her first emergency fund, This helped his stock cover 3-6 months of living expenses, just in case something happened. If you’re particularly nervous about starting to invest, an emergency fund can provide you with the protection you need to embark on the learning curve of investing.
2. he got his employer no matter what
During the same time, Daniels increased his 401(k) contribution by about 17%. By the end of 2020, he had a fully funded emergency fund and maximum 401(k), as well as his Roth IRA. If you’re just starting out, take full advantage of what your employer will match. Even though it is 2%, you are getting free money from your employer. It should be non-negotiable, even if you are in high-interest debt. and when are you going to get free money,
3. He converted a high-interest loan to a low-interest loan
Daniels took a look at his student loans and thought his interest rate was decent. It was not. “My interest rate for my student loans was like 8%,” Daniels says. “I thought it was fine. I was like, ‘Okay, that’s less than 10%. It’s not double digits. It’s not 20%.'” She says she didn’t know better. So as soon as he started learning about interest rates, he refinanced twice. It reduced its interest rates to 4.75% for the first time and to 3.54% for the second time.
You don’t need to be a professional to start investing
Daniels says she felt nervous and scared when she started investing. “The people I knew in high school and college who were investing were incredibly smart and incredibly privileged,” she says. “He had parents who taught him how to do it, and parents who guided him through it. I thought investing was something that was reserved for ‘that type of people.
If you can relate, Danielle shares her three places to start:
- robo-advisorIf you are nervous about choosing your own investment, robo-advisor It’s a great way to get over that hump and invest while learning. They ask you to fill out a survey to provide you with your needs, goals, and wants, and then they’ll use an algorithm to suggest a portfolio to meet those needs. Usually they come with a low-cost fee – around 0.25% – but there are brokerages that offer free robo-advisors as well. robo-advisor are one of the best ways to handle your investments, and they’re great for the novice and the practical alike. investors alike.
- target date retirement fund, target date fund It was designed to be completely hands-on investing for those who do not wish to choose their own investments. These funds are designed with a “target retirement date” in mind, which means they become less risky over time. For example, if you want to retire in 2050, you can buy a target date fund for 2050. Inside the fund is a group of mutual funds or ETFs. Over the years, the fund will gradually reallocate from high-risk stocks and bonds to low-risk assets as you get closer to that target or retirement date. Target date funds are great investment vehicles without much effort on your part.
- three fund portfolio: This is the allocation strategy created by the original index fund Investor and founder of Vanguard, John Bogle. The idea is that you can have a low-risk, low-fee, and well-performing portfolio with only three funds: a US aggregate stock market index fund, an international total stock market index fund, and a total US bond fund. With these three funds, you own a tiny bit of every stock in the world, and you avoid paying any high fees because index funds are notoriously low-fee. Plus, since you only have three funds to manage, it’s low maintenance and easy to rebalance when needed.
Good investing is boring. This involves buying solid, diversified assets that you can hold for a long time, if not a lifetime.
You learn by doing, not by over-analyzing
To learn, you must dive to a point, Daniels says. “You can think about it, you can worry about it, and you can think about what the worst-case scenario is, but you don’t feel it until you actually do. Like, ‘Well, it’s not. Too bad. It’s okay,'” she says.
It’s okay to make mistakes along the way. Just make sure you don’t put yourself in a risky position when you’re starting out. Buying individual stocks is a riskier position for beginner investors than a well-balanced portfolio that is diversified and spread out. Make sure your money is safe among hundreds of companies rather than just a select few. index fund This is a great way to make sure your money is safe.
As you learn to invest, it is important to know your risk preference and risk tolerance. If you dread investing in the stock market, make sure you have an emergency fund, make sure your high interest debt is covered, and then start investing.
Good Investing Is Actually Quite Simple
Good investing is boring, says Daniels.
“I don’t know about you, but when I thought about investing, I felt like the brothers on Wall Street standing in a room shouting at each other, wolf of wall street Like stuff, and it’s not like that,” she says. “It’s really boring. And once you realize that good investing is actually pretty boring, you don’t need to be a Wall Street bro to be successful at it. It’s very game changing.”