And ever since then, I’ve lived with this undercurrent of fear that—at any moment—something in the economy could shift dramatically and leave me without a paycheck. While this is likely a fear that everyone with gainful employment experiences, I’d postulate it’s more intense in the US, where your healthcare, retirement savings, and ability to pay for childcare are all tied to your employer. It’s a high-stakes arrangement, right? That’s enough to induce fear in anyone, regardless of how good you are at your job. 

So whether you’ve recently lost your job (or fear that you may for some reason), I wanted to put together a bit of a thought exercise: How to rationally approach a serious, scary situation to lessen the financial and emotional toll I imagine it takes. 

First things first—let’s usher the elephant out of the room

Yes, you are likely aware that you should already be searching for gainful employment elsewhere. We’re not really going to focus on the new job search—just the financial checkboxes you can start ticking off if you’re stressed about job loss in any capacity. 

And on that note, I apologize if any of this feels obvious to some of you, but I figured it made sense to round all of our bases and leave no stone unturned. Analogies abound.

For the purposes of this post, we’re going to assume there’s no juicy severance package or short- or long-term disability pay associated with the job loss—we’re assuming that for whatever reason, you’ve found yourself without the income you can typically rely on. 

That means the first thing you should do is look into applying for unemployment benefits in your state. This was a life raft during the pandemic when unemployment benefits were increased, but if you’re looking around at your savings coffers while doing these exercises and you’re only seeing cobwebs, it makes sense to apply for unemployment. Of course, there’s no guarantee you’ll get it, but it’s there for a reason—and you can get it even if you were let go with a severance package. Your tax dollars fund it. Use it!

Step 1: Analyze your environment. 

That’s a fancy way of saying: Figure out what you’ve got. Do a little inventory of your balance sheet and nail down a few numbers, primarily: How much do you have in cash readily available to you? 

This is probably going to be in checking and savings accounts, but it also might be cash that’s earmarked for things like emergencies, weddings, home improvement projects…and it can feel sketchy to start dipping into funds that were supposed to be for something else. I would note that you have it on your imaginary inventory list, but add caveats wherever savings were already dedicated to something else, and think of those as “last resort” options if absolutely necessary.

The other part of this analysis is figuring out what else you’ve got coming in. If you’re part of a partnership with combined (or pseudo-combined) finances, losing one job may not mean it’s all-hands-on-deck panic time. Same goes for if you’ve got side hustle income that can help eat up some of your impending expenses. 

On that note, a goal to strive for if you’re in a couple: The best way to insulate yourselves from job loss and compensation downturns is to live on one post-tax salary, and ideally, the lower salary. Why? Because even the higher-paying job is lost, there wouldn’t be a disruption in spending. That’s not always easy, though; for transparency, my husband and I are only about two-thirds of the way there in our own home. 

To summarize, in anticipation of (or immediately after) job loss, we’re taking stock of (a) what we have in cash already, and where, and (b) if there’s any other income coming in, and how much. 

Step 2: Calculate your runway.

This is where all the badgering I’ve done over the years to try to get you to figure out “how much your life costs” comes into play. We need to figure out how much heavy lifting our cash on hand needs to do (after all, if you’ve got side hustle income or another earner in your home who can cover some or all of the costs, you may not need to use much of your savings at all). 

We want to calculate how many months we have based on our current spending patterns. This mostly includes things that cannot be easily “behavior-changed” away—your rent or mortgage, utility bills, basic groceries, doctor’s appointments…stuff that’s more or less necessary even if you’re playing life on “Austerity Mode.” 

For those of us with the privilege of discretionary income, I’d venture a guess that not all of your spending every month is necessary, which brings me to step 3…

Step 3: Identify the costs we can cut.

When I think through our joint budget of $7,500 per month, there are a few major areas I recognize right away as opportunities to trim with reckless abandon:

• Cleaning ($200/month)

• Travel and the associated pet care (roughly $300/month)

• Meal prep service ($1,000/month)

• Restaurants ($400/month)

• Shopping and miscellaneous (call it $200/month or so)

Right there, that’s about $2,000 each month that I can just eliminate, shaving our budget down by about 25% to $5,500/month. 

Now, would I be happy to forgo these luxuries? Well, no—but I know I could if I needed to throw that ass in gear. The other big things (like rent, electricity, groceries, etc.) have to stay put, but my weekly takeout habit can go. 

This exercise should help you understand how far your existing cash cushion and/or other streams of income can be stretched once you “trim the fat,” but it brings me to my next major point…your liabilities.

Step 4: Think of any liabilities.

Look, I’m not saying you have to do anything drastic because you’ve lost a job. But if for some reason you feel concerned that it might be awhile before you get another one, or your existing cash cushion is relatively slim and you don’t have too many discretionary expenses to cut (because let’s be honest, having a ton of discretionary expenses in the first place is a pretty privileged starting position), it might make sense to look to your liabilities.

Do you have any remaining student loans in forbearance that you’ve been paying down anyway, that you could pause payments on? Could you consolidate credit card debt or do a balance transfer to get a lower interest rate and buy yourself more time? Do you have two cars in your household, and the ability to drop down to one? (With the thought being, you may be paying off two sets of car payments and car insurance and really only need one.)

The idea is, where can you offload liabilities? Maybe you’ve got a mortgage that’s a little steep, but you can rent out an extra room to a friend as a roommate and recoup some of that payment in rent. While Step 1 was about assessing cash on hand, this step is about looking around and figuring out…where are my current assets or liabilities either holding me back or providing an opportunity? 

Step 5: Figure out health insurance.

This one honestly irritates me, but alas, here we are (and by “here,” I mean: not in one of our peer nations where healthcare is considered a human right—but I digress). 

Was the job in question providing you or your family health insurance? This is something we don’t often think about until it’s too late, but determining your risk tolerance around going without insurance for a little bit is probably wise. 

Ideally, your spouse or partner is still employed and you can get on their coverage (or maybe you already were on their coverage!), but if that’s not an option, you may want to get a cheap marketplace plan in the meantime for catastrophic purposes like, if you required a procedure or service that would be financially ruinous otherwise. (In some states, there’s a penalty for not having health insurance.) 

So like…maybe try to lie low and table the extreme sports until you’re back on that late-capitalist, for-profit, employer-provided private healthcare. (sighs loudly)

Step 6: Check in with your mental state.

You never know how you’ll react to being laid off. Do an emotional assessment and see if there’s anything you can do to take action that’ll make you feel better. I know that—for me—I’d probably want to retain a sense of control. 

I’d probably be consolidating all of my cash in one place so I could keep track of it easily. I’d probably sell items that I didn’t need. If I still had a high balance on a credit card from when I was employed, I would look at doing a balance transfer to a credit card with 12 or 18 months of 0% introductory APR, so I knew I could buy myself some time and not have to pay it down immediately to avoid interest charges. (Note there’s usually a ~3% fee for doing so, but depending on the balance, it could be well worth it to buy the time and avoid the immediate interest and urgency-fueled stress.) 

The other thing to assess at this step is…do I want to rush back into the job market if I don’t have to? If you step back and assess your cash position and outgoing expense needs, you might find that you have quite a bit of runway and may have the freedom to think about this like a mini sabbatical. Even if the job loss was unexpected, if you’re in a financially secure position, it may be a blessing in disguise. 

I remember one conversation with an architect who found herself without work and decided she didn’t want to return to “white collar” America. Instead, she got a job in a local coffee shop that paid most of what she needed to pay her bills, and used her savings to supplement the rest for a little while, thereby extending her “savings runway” by quite a bit—she described wanting a change of pace and to do a job outside of the “knowledge work” sector. This could be a time to reinvest in yourself, depending on what your financial audit unveils—go back to school, get certified in another field that interests you, etc.

In conclusion…

If you’re feeling scared because the “worst case scenario” has already happened, or you’re just trying to prepare for the worst because you’re getting funky vibes from your boss Carol and you don’t want to risk it, know that your feelings are valid, natural, and—honestly—helpful, if they’re the reason you’re reading this blog post right now. 

At the very least, enacting these steps (whether before or after you’re faced with termination) will give you the two things that help most during times like this: security and control. (And hey, if you can coopt the unfortunate circumstance into the whole “sabbatical” thing…send pictures from Copenhagen, please. Word on the street is they’ll give you free healthcare.)

Let’s go on a visualization journey together, shall we?

I want you to imagine the “you” that you are today, financially – and brownie points for this exercise if you’re currently unsatisfied with your financial standing. Maybe you’re living inexplicably paycheck to paycheck, or maybe you’re in a lot of consumer debt and can’t get your head above water. Whatever it is, I want you to imagine that version of you.

Now, I want you to imagine the version of you that is not living paycheck to paycheck, is not in a load of debt, and is successfully living your financial life proactively, rather than reactively. Imagine that version of you.

Now imagine them like two endpoints on a timeline:

(you’re here) ————————— (and you want to be here!)

That distance in the middle? That’s the Pain Zone.

I talk to folks all the time who are (a) in consumer debt, (b) living paycheck-to-paycheck despite great incomes, and (c) totally lost about how to get out of it.

The problem, most of the time, is that they’re interested in attaining a different outcome – but they’re not willing to change their behavior.

Now, sometimes people are in bad situations not because of their behavior – and there are almost too many scenarios of that nature to recount here.

I’m talking about, “I make good money but I don’t know where it all goes and I can’t seem to get my head above water.” I’m not talking about, “I’m in medical debt because of something out of my control and wage stagnation is crushing me.”

Being able to identify when there’s a systemic or structural issue blocking your path vs. you blocking your own path is necessary in discussions like these, so please know that this post is directed toward those who feel they’re blocking their own paths.

Whether subconsciously or not, a short-term interruption in their current lifestyle is not something they’re willing to accommodate, even if it means going from the paycheck-to-paycheck, stuck-in-the-debt-mud bullshit to total and complete freedom. As humans, we have a way of being short-sighted sometimes.

I can see why: If you’re currently living the lifestyle you want (expensive place, nice leased car, fancy dinners out every week, hair appointments every 8 weeks), it can feel like a big, fat drag when someone taps you on the shoulder and reminds you, “Hey, you actually can’t afford this stuff.”

This blog post applies a relatively harsh methodology called “the Pain Zone” to the problem: Because sometimes, when we’re too soft and gentle with ourselves, we end up inadvertently putting ourselves in a worse position. We’re going to embrace tough love today, but know that it’s the same tough love I showed myself a few years ago when I realized my spending was way out of line.

I saw this a lot when I used to live in Dallas: I had a lot of friends and acquaintances who were living as though they made a lot more money than they did.

It’s the rat race we’re all familiar with – and in hushed tones at fancy dinners out or after $35 workout classes, someone would tell me that they were in a ton of credit card debt, had no idea how they were going to pay their bills that month, or that they were stressed about their financial situation (then they’d leave said $35 workout class in a lululemon outfit, Gucci slides, and hop into a brand new BMW to drive to brunch at Nobu).

Put simply: Sometimes our behavior doesn’t really support our goals or what we actually want because we’re trapped in a cycle.

It feels like it’ll require a permanent shift in lifestyle to fix the problem, and that feels painful and shitty – so it’s easier (albeit unsustainable) to carry on in the status quo, because at least that doesn’t require deprivation.

I’d like to propose another way to think about it:

Fixing your financial shit: A short (but satisfying) visit to “the Pain Zone”

This already sounds like I’m introducing a new special on whatever channel airs WWE wrestling. I’m experiencing regret.

But here’s the thing: It’s impossible to get out of “reactivity” mode without changing your behavior. The only strategy that enables you to continue living the way you have been is finding a higher paying job, but even that’s a slippery slope (because #lifestylecreep).

Living paycheck-to-paycheck (or being in a lot of consumer debt) typically has a way of blurring our vision for the future: As Ramit says, it’s like driving in a blizzard where you can only see 50 feet ahead. It’s often difficult to imagine a future beyond that 50-foot view. We have to find a way to stop the snow.

So when faced with the tough behavioral decisions, the path of least resistance is usually to do nothing – resume business as usual, go deeper into debt or continue merely treading water, and waste more time that your money could be compounding in the market instead, right? Even typing that sentence felt bleak.

Rather than thinking about it like a permanent lifestyle shift, think about it like a short stint of financial triage.

Let’s begin:

Short-term crash dieting doesn’t work – but short-term crash budgeting might

Depending on how much debt you’re in, this “Pain Zone” probably only needs to last a few months.

Technically speaking, it’s the length of time between (a) the start of your crash budget and (b) the credit card statement closing on the crash budget’s first month of spending.

Why?

Because typically, you need to wait for your credit card statements to catch up with you. If I start cutting back seriously in January, that’s great – but the credit card bill that comes due in January will likely be from late November/early December spending. There’s a six-week lag time to muscle through before you’ll see your new habits reflected on a statement.

I have a theory that it usually goes a little bit like this:

1. Person decides they’re ready to get their shit together

2. For a couple weeks, they cut back on going out to eat, delete their Amazon bookmark, and otherwise feel emotions of deprivation

3. Credit card bill from two months ago comes due, it’s still high as f***, and they’re overcome with the emotion of, “What’s the point?”

4. Cycle resumes

Anticipate that lag time. The Pain Zone is going to feel uncomfortable, because you’re trying to reintroduce wiggle room into a financial life that previously didn’t have any.

Now, the Pain Zone is not the place to be kind, forgiving, and lenient – the Pain Zone is the place to prioritize self-discipline, apply tough love, and respect yourself financially. A place to really show up as the person you want to become.

Remember: This isn’t forever. This is financial P90X, in both intensity and timeline. Before we can start making proactive steps toward growing your wealth, we have to stop the bleeding.

The Pain Zone is the place where we stop the bleeding.

A playbook for the Pain Zone

Mindset: That problematic queen Jillian Michaels

I’m all for self-love and self-care and self-obsession and whatever else Gwyneth Paltrow is selling on Goop.com these days, but the Pain Zone is not the place to care for your innermost flower. The Pain Zone is the place where you forge yourself in fire.

I use this tactic with myself whenever I’m being whiny, and it’s helped me hone my ability to discern between, “Oh, shit, I’m on the edge of burnout and I need to turn it down a notch,” and, “I’m just being self-indulgent and lazy and I need a reality check about how good I have it.”

The tactic?

Speaking to yourself like you’re none other than the problematic Jillian Michaels training The Biggest Loser contestants. (I know, okay? I already acknowledged it’s problematic. But do you want to feel warm and fuzzy, or do you want to get results?)

I will literally say to myself out loud, “Don’t be a little bitch. You have everything you need to figure this out, and it’ll be worth it.”

In a culture where self-care is packaged and sold more like self-soothing, it makes sense why we’ve all lost this edge a little bit. Sometimes the ability to show yourself tough love is the greatest gift you can give. Sometimes acknowledging that your utmost priority in life doesn’t have to be your own comfort and convenience can go a long, long way.

This is the attitude you take into the Pain Zone. You’re taking no prisoners. You’re not negotiating with terrorists. [other problematic military analogies]

I cannot stress enough how important this step is. You are not a delicate flower. You’re a competent adult, and you’re capable of foregoing life’s luxuries for six weeks to make a permanent positive impact on your life. Sometimes truly taking care of yourself is ripping off the Bandaid and getting comfortable with being uncomfortable for a little while.

Your approach to spending for the next 90 days is bare-ass bones

That’s right – you’re going full bare bones for 60 to 90 days.

Hair and nail appointments? Cancel them. Boozy brunch? Not on your watch! Remember, it’s not permanent – we just need to buy enough time to break the cycle of continuously piling the debt higher and give ourselves some reassessment breathing room.

And you know what? I think there are two levels here:

Level 1: High structural expenses

Put simply, are you paying for rent you can’t afford or a car that’s out of your depth? Do this with me:

What’s your net income every month? In other words what are you bringing in?

Now, what’s 28% of that number?

If the cost of the roof over your head is much more than 28% of your net income, I’d take a long, hard look at it and ask myself:

“Is this worth it?”

Housing that eats up too much of your net income is insidious, and it’s nearly impossible to “frugal” your way out of it.

This is another area where tough love matters: Before you immediately start generating explanations (“Housing is expensive where I live!”), ask yourself: Do you need to live there? Could you move to a slightly different neighborhood, get roommates, or explore other options?

The same goes for the car. Leasing a Mercedes on $55,000 per year? It’s likely that the monthly payment is going to spread you thinner than necessary. (Here’s a post about the drain an expensive car can have on your net worth.)

I’m not saying you need to move and sell your car, but… you might need to move and sell your car if you want to create lasting change.

These aren’t necessarily things you’ll be able to do in the six weeks you spend in the Pain Zone, but it’s helpful to start getting real with yourself about whether or not you’re living above your means in these fundamentally structural expense areas – even 2-3 months in the Pain Zone with discretionary spending won’t much matter if your rent costs 50% of your take-home pay.

You’ll be treading water from your luxury apartment’s plunge pool forever, and that’s about the least luxurious thing I can imagine.

And if you need help with kickstarting tracking some of this stuff during your time in the Pain Zone, I recommend Copilot – it’s the most user-friendly spending tracker I’ve ever used (by far), and the one that actually clicked for all of my less-than-enthusiastic-about-budgeting friends.

Level 2: High discretionary spending

Blowing $1,000 per week at Whole Foods but using Uber Eats for lunch every day? I’m looking at you!

This is the arena that’s way easier to win in during your Tour de Pain Zone, because your day-to-day behavior has a direct influence on it. Remember: Spending approach is Amish, not Kardashian.

We’re in financial triage mode. It’s not forever.

It doesn’t have to be sustainable in nature, because it’s not designed to be. It’s just designed to allow you to get your arms around the bills coming in and start to make progress forward. To create some positive momentum.

Again, it’ll be difficult to see a ton of headway with cutting discretionary spending alone if your structural expenses are obscenely high, but typically, someone who’s living in the nicest apartment in town and driving a leased luxury car isn’t foregoing luxuries elsewhere.

Cutting back to any extent during this time in the Pain Zone will be helpful, but cutting back ruthlessly works best.

Half-assing it will leave you underwhelmed. The goal is to experience what it feels like to have money left over at the end of the month. Until you feel that (and how much better it is than what the money could buy), you’ll be swimming upstream.

Copilot can help with assessing these discretionary purchases, too, because it pulls in the last six months of data for any accounts you link – which means you’ll be able to look back and compare your previous spending with your Pain Zone spending.

You may even be surprised at what you find after ruthlessly cutting back:

Sometimes forcing yourself into an intensely simple way of life has unexpected positive outcomes. To quote Seneca:

“Set aside a certain number of days, during which you shall be content with the scantiest and cheapest fare, with course and rough dress, saying to yourself the while: ‘Is this the condition that I feared?”

All right, Tim Ferriss, that’s enough. #RichGirl translation: “Wow, I haven’t had bottomless mimosas or new Align leggings in two months and my life… isn’t any worse?”

The modern luxuries we love are just that – luxuries. To trick ourselves into believing we need them to be happy is good for nobody but those who stand to profit off the decisions.

Life after the Pain Zone

So I’ve (repetitively) reminded you throughout this article that the Pain Zone is a temporary stop on your journey, not the destination.

What do you do after the Pain Zone?

Allow me to outline the expected positive outcomes:

1. You realize (after stripping away all extraneous spending) that your life satisfaction didn’t really go down. In fact, maybe you discovered cheap (or free) activities that brought you even more joy (spending more time in nature, hanging out with your parents for free food at first but later for their actual company, exercising, getting to know the inside of Netflix’s new releases more intimately, sleeping more, etc.). For me, personally, my visit to the Pain Zone was actually a really nice experience because it simplified my life – expensive habits often beget more expensive habits, and they typically require maintenance and juggling (fancy car means fancy car washes, nail and lash appointments mean stringent refill schedules, etc.).

2. You hone more clearly which of your luxury expenses you actually miss. For me, I didn’t miss manicures. I actually found it was much less stressful to have naked nails, because I wasn’t squeezing gel nail appointments into an already-busy schedule. I also didn’t miss expensive dinners out. I realized that I actually enjoyed eating at home (shocking) and felt better, too, without as much restaurant food in my diet.

3. You gain respect for your ability to deny yourself pleasures in the moment. There’s something to be said (psychologically) for believing you’re a disciplined person, but in order to believe that about yourself, you have to exercise personal discipline. There’s no better place to impress yourself than the Pain Zone.

4. You feel financially in control for the first time in recent memory. Your credit card bill doesn’t make you cringe. Maybe you begin to enjoy the feeling of not looking at bills through squinted eyes more than you enjoy the expensive luxuries that lead to squinty-eye bills.

In summary, sustainable change that feels good has its time and place – but take-no-bullshit, rip-the-Bandaid-off discipline does, too. Being too gentle with yourself may inadvertently imply a self-defeating “truth”:

That you’re not capable of making serious change or denying yourself all of life’s luxuries, even when you simply can’t afford them yet.

Sustainable financial change is the marathon. The Pain Zone is the sprint off the couch. You have to start somewhere, right?

Let me start off by saying: You should only follow my advice if you’re comfortable with it.

That said, it would greatly behoove you to become comfortable with investing, and the only way to become comfortable doing something is to learn the facts, determine your calculated risk tolerance, and actually do it. 

If you’re going to panic, sell your positions, and close your account because your Emergency Fund investing goal dips $10, you’re not going to be able to stick around long enough to enjoy the $30 rally—and it’ll be of no use to you. 

This post is intended to walk you through some of the realistic risks and benefits of choosing an investing account like Betterment’s Emergency Fund to grow (or maintain the value of) your emergency savings. Let’s begin!

I’ve talked before on this site about my first nerve-racking experience investing: I bought $1,000 worth of VOO (an S&P 500 ETF) on Robinhood and the moment I pressed the “Buy” button, I sat at my desk and stared at the balance as it moved. It was fascinating and terrifying, and at that time, it represented about 5% of my total net worth outside of my 401(k). Is this safe? A whole 5% of all my money invested? Maybe I should’ve done less.

Fast-forward only two years, and the ratio has flipped. I have 5% of my net worth in cash at any given time. It’s funny how much my mindset has changed: Now, rather than being nervous about the money that’s IN the market, I’m nervous about the money that’s OUT of it.

Betterment Emergency Fund vs. a savings account

How can that be possible? One word: Inflation. The buying power of every dollar decreases in value (on average) 3% every year.

Does that mean you should have no cash in your portfolio? Obviously not—things happen, and there are those obnoxious things called bills that need to be paid. You certainly want enough cash on hand to cover the next 60 days of your life at any given time, and probably more than that—but beyond your realistic “cash on hand” amount, you (typically) don’t want 5+ figures of wealth sitting dormant in a traditional savings account.*

*If you’ve got a similar situation to me—no children, renter, dual-income, etc. If you’re a single parent paying a mortgage, I’d adopt a far more risk-averse attitude.

Most personal finance hobbyists suggest having 3-6 months of expenses in some type of emergency fund in cash. This is never bad advice—but saving six months of expenses can take a long time.

Betterment’s Emergency Fund account for your emergency savings

I don’t make the decision to recommend Betterment’s Emergency Fund account lightly, as I had always religiously followed the “6 months of cash” dogma of Personal Finance Dot Com.

In doing a little research, I discovered there were other options like the Emergency Fund investing goal at Betterment, a taxable investing account that was invested in 85% bonds and 15% stocks (although their default allocation is subject to change, you can also change the allocation yourself if you want to be heavier in stocks or bonds).

I was intrigued.

In the investing world, bonds are generally considered the lower risk bet in comparison to stocks. They’re called “fixed income assets” because your interest is more or less guaranteed by the government and corporations who issue them.

Here’s why I was interested: Betterment marketed this investing goal as a good place to grow your emergency fund. Up until that point, I had never heard of a company (or anyone) using an investment account for an emergency fund (beyond the idea that your Roth IRA principal actually serves as a back-up emergency fund because you can withdraw it anytime penalty-free).

But to strategically use an investment account to grow a large sum of cash that could help combat inflation? Sounds like a winner to me.

…except let me do a lot of research first, because I’m greedy, not stupid.

How the Betterment Emergency Fund works

The Emergency Fund invests 85% of your total balance in corporate and government bonds, and these bonds produce interest. For example, a percentage of the total goal can be invested in U.S. Short-Term Treasury Bonds, which produce a range of annual yields (read: interest for you!). (Betterment makes these decisions for you; you don’t have to decide which bonds to pick.)

The 15% of your Emergency Fund that’s invested in stocks is the aggressive portion that’s intended to drive growth; the 85% in bonds are intended to provide stability. Think about it like dating a mechanical engineer with a Master’s Degree from MIT who also has a chest tattoo–mostly wholesome and predictable, but… then there’s that chest tattoo, providing a little intrigue.

What’s the catch?

There isn’t one, minus the tax implications for your gains (there are tax implications for High-Yield Savings Accounts, too; this is why your bank will send you a 1099-INT form to report your interest).

Interest is taxed as earned income, which means it basically gets added to your total income for the year and will likely be taxed in your marginal tax bracket.

If you’re like, Wait, what? I’m getting taxed on that interest? It probably means you haven’t earned enough interest income for you to notice during tax time.

With an investing goal like Betterment Emergency Fund, you’ll likely receive a 1099-DIV to report your bond interest and dividends earned.

Unfortunately, most bond interest is taxed as earned income every single year, regardless of whether or not you withdraw it, which means you pay your marginal tax rate on interest. Dividends are taxed every year, too, but qualified dividends that meet certain requirements are taxed at the “capital gains” tax rate—which is often going to be lower than your marginal tax rate.

The larger “catch,” so to speak, is that investing your emergency savings in this way is riskier than keeping them in cash (particularly the 15% that’s invested in stocks).

Other tax implications to consider

The question that I get the most from savvy readers who are considering this type of account? “What happens if I have to withdraw the money after a few months to pay for something?”

Remember those capital gains taxes we talked about? If you hold your earnings for greater than a year and then sell them, you’ll pay 15% on those gains. That’s known as a long-term capital gains tax, and unless you’re earning more than $533,400, you’ll probably be in the 15% group.

But if you sell in less than a year, you’ll be charged as if it’s earned income—just like how your interest is taxed.

So let’s pretend something catastrophic happens and you need all $15,000 of your Emergency Fund’s balance, all at once. It’s difficult to think of a single scenario wherein that would be the case (think about it: Even if you lose your job, you’re likely not going to withdraw the entire account all at once—you’d probably withdraw it little by little as you needed it as you looked for a job), but let’s pretend.

If you sold the entire balance, including the gains, you’d be charged short-term capital gains taxes on the portion that came from the market gains.

Short-term capital gains taxes = your marginal tax rate.

So that would mean your net gain would drop by the amount eaten up by short-term capital gains taxes.

This means that the worst case scenario is that your net gain is slightly lower due to taxes.

There are no transaction fees for accessing your money in your Betterment Emergency Fund account.

What’s next?

Again, I urge you to remember: Investing can be simple (especially with Betterment), but it’s not easy and comes with risk. It’s not easy to see your portfolio drop and log off without selling anything, sometimes no indication that it will bottom out and begin climbing again soon.

How to set up an Emergency Fund account

If you don’t have an account with Betterment at all, you’ll need to sign up to get started.

Step #1: You’ll see a screen that says “How would you like to get started?”

While you’re probably tempted to click, “Save cash and earn interest,” that’s like the second-most right answer on the multiple choice quiz. You want to click:

“Invest for a long-term goal. Build wealth or plan for your next big purchase.”

Then, you’ll be asked to set up your account with your personal information, which is standard and—I trust—you don’t need screen grabs to walk through that part. Once you’re done, you’ll land in the Home section of your new account. Woohoo!

Step #2: Add the actual Emergency Fund goal.

From here, you can go any number of ways, but I would click “Add new” on the left-hand side column (it’s gray) or “Finish setup” on the Investing account.

Once you reach the screen where it asks, “What are you saving for?”, you’ll click “Emergency Fund. Helps build an emergency fund so you’re prepared for the unexpected.” It has the purple life preserver next to it.

Then, you’ll click “Individual Taxable” on the next screen (or Joint, if you’re married and intend to share it).

You’ll then be asked for a Goal name, a Target amount, and a Target date.

If you’re just starting to build your emergency fund, enter a real target amount (like $15,000, for example).

This will help set your account up in an appropriately aggressive manner, along with your target date. I wouldn’t stress too much about the accuracy of the target date; it’s used to tell you whether you’re on track or off track to meet the goal based on projections.

If your emergency fund is fully funded and you’re just trying to grow or maintain the balance, enter its current amount as the target amount.

This will tell you you’ve “reached your goal,” and the money will continue to grow.

Step #3: Click “Create this goal” and begin your trek to world domination.

Notice how “15% stocks” is the recommended allocation; you can change it if you want based on your risk tolerance and #YearnToEarn.

How long does it take to get your money out of the Betterment Emergency Fund?

If you do need to withdraw from the account, it’ll generally take around 4-5 business days for the money be sent to your checking account.

So if you anticipate needing the money in the account the same day something happens (read: you don’t have a credit card or source of cash to pay for the expense before the money lands in your account), this may not be the best thing for you.

You may want to keep one month of expenses in cash and the rest of your emergency fund (whether it be two months or six!) in an account like this one.

Phew. Writing that title felt both exhilarating and terrifying.

Revealing how much you’ve saved feels boastful and, simultaneously, vulnerable—I can’t tell you how many times I’ve wavered between, “This is a huge milestone and you’re proof that ‘slow and steady’ works!” and, “What if this isn’t that big of a deal and you look stupid?”

Luckily, I don’t care much about looking stupid anymore—not if it’ll help someone.

In this post, I plan to do a few things:

• Highlight my advantages with flagrant transparency to make it clear where privilege played a direct role

• Note things that disadvantaged me (but weren’t enough to stop the climb to $100,000!)

• Explain the tactics I’ve used and the main drivers of growth

I intend to share things that could reasonably be replicated by someone else to do the same thing and to be candid about the advantages I stumbled into, because being coy or lying by omission would be worse than unhelpful.

It would defeat the purpose. Transparency is helpful!

Everyone knows the frustration of clicking on an article like this one and reading, three paragraphs in, that the writer inherited $50,000 when their grandma died. (Luckily, my grandma is very much alive and I inherited nothing but work ethic and IBS from my parents, so no worries there.)

And of course, I would be remiss not to acknowledge that a lot of the fundamental advantages I had (societally, structurally, etc.) were the direct result of the innate privilege of being a white, straight, cisgendered, middle-class person in the United States of America in a suburb with married, college-educated parents and access to my own good education.

I know that, in a lot of ways, I was born on third base. My journey to home plate was a lot shorter and easier than it could’ve been, but I think there’s still something to learn from it.

Disclaimers aside, let’s jump in.

Things outside of my control that helped me

As a Millennial living in the midst of the biggest education bubble in history, the appropriate place to begin the conversation about what helped me is talking about student loans.

I chose to attend a public state university, to which I received a full-ride scholarship for grades and ACT scores (thank you, obsessive-compulsive addiction to validating my existence via my GPA—you’ve served me well!).

The safety net was there, though: My parents had been saving for my college education since I was little. Growing up, they’d encourage me by saying I could go anywhere I wanted (“Katie! You can go to Harvard! We’re putting the money aside!”)—which, for starters, is an enormous blessing, but also a delusional one. This girl wasn’t getting into Harvard.

But then 2008 happened, and the fixed income departments of Wall Street banks plunged our economy into a free fall. Most of my college fund evaporated. (“Katie! You can go to a state school! With a scholarship!”)

Because I was 14, I didn’t understand (or care) what a stock market was or how the recession was going to impact my college education (at 14, college was still eons away).

By the time I got the full ride, they had built up more savings. They used some of it to pay for my living expenses and sorority (both of which were a financial burden that they covered so I didn’t have to), but because all of my tuition was paid for by the scholarship, they had some money left over by the time I wrapped up my four-year chaos tour in Tuscaloosa.

Right around the time I graduated, my car stopped working. They agreed to cover the first few years of a lease as a graduation gift, using the savings left over in my college fund. They had promised me this carrot in exchange for graduating with a 4.0 back when I was a hapless freshman, and I think on some level they thought their bet was hedged by the aforementioned “chaos tour” and they wouldn’t have to make good on it. Not so. I’ve always been very easily bribed—so one 4.0 and diploma later, we leased a car.

I realize that up until this point you’re probably like, Sounds like you were cruising down privilege street, sis. And you’re not wrong! The combination of my scholarship and my parents’ financial responsibility helped pay for my college education. The car was icing on the advantage cake. I never claimed to overcome the world’s hardest circumstances, but the parental interference ends there.

I used to look at friends in their late twenties whose parents still paid for their rent and groceries, despite the fact they had jobs and were perfectly capable of doing so, and feel intense resentment that I didn’t have the same advantages.

I used to look at friends who had to buy their own cars at 16 and put themselves through school by working long hours and taking out loans and feel intense shame that they didn’t have the same advantages.

(If it makes you feel any better, though, a quick survey of my friend landscape reveals that the friends who had to put themselves through school and do it on their own ended up in higher-paying jobs with stronger financial positions today than those who received the most help. Maybe coincidence, maybe not, but I really admire my friends who were thrust into adulthood early and crushed it.)

Some people move back home after graduation to save money. Some people receive financial help from their parents for years to come. Some people start working and supporting themselves when they’re 15. We can’t always control the hand we were dealt, but we can learn to play the hand we have.

So let’s recap:

I didn’t have any student loans. This was a tremendous head-start that cannot be overstated, especially because higher education has become so prohibitively expensive. Moreover, rather than recouping the money they set aside, my parents chose to help me by covering the cost of a lease for the first three years out of college.

Rest assured, however, that moving forward in this article, the car was the only thing my parents helped pay for after I graduated, and when the lease ended, I bought a used car. (Edit from the future: I have since sold that car; here’s a post with the math that convinced me it was not a necessary expense for me.)

My expenses come out of my pocket—there’s no steady tributary pumping my checking account with kickbacks from mom and dad. Cell phone bills, car insurance, you name it—they were generous my entire life, but once the University of Alabama deemed me an adult capable of generating income, I was booted from the family payroll.

The saving and investing habits and momentum described below were empowered completely by full-time and part-time jobs that someone could ostensibly imitate.

Things somewhat in my control that helped me

I chose to work for an employer that offers a generous 401(k) match and profit-sharing bonus (the profit-sharing, unfortunately, is probably gone for the next few years since, in order to share profits, you have to be profitable, and no airline is right now).

Having a near-10% dollar-for-dollar 401(k) match has been substantial for me, and I started contributing 10% of my salary from day 1 and increased it from there. (Edit from the future: I have since switched my 401(k) from Roth to Traditional after more research and projections.)

The timing and immediacy of this decision may not seem all that consequential, but starting early was my strongest ally. While you’ll read below about my wheels-off spending habits, the head-first swan dive into the 401(k) created momentum in a powerful account early.

Think about it like a snowball rolling down a hill. If you pack a lot of snow into the ball high up on the hill as fast as you can, it’ll pick up more speed and weight earlier, creating more momentum. (It’s been 9 years since I took physics; please respect my intellectual boundaries in this sloppy analogy.)

The takeaway? When you’re interviewing and considering where you want to work, don’t overlook things like 401(k) matches.

Even having access to a 401(k) through your employer can be a huge advantage from an investing standpoint, so neglecting to use it is like turning down free money (or, at the very least, tax-free investment gains).

Things that hindered me

My dumb ass chose a major where the average starting salary is $35,000.

And while I kick myself every day that I didn’t study computer science or software engineering or whatever major allows 23-year-olds to become consultants to Fortune 100 companies, I was fortunate that I was able to make more than the average salary for my field. But let me stress this: It was about as textbook “average” as it gets, at $52,000. Not amazing, but not bad, either. I wasn’t one of those kids who got the $75,000+ starter job and steadily climbed my way to a six-figure income in a few years (I’m still nowhere near it, frankly). (Edit from the future: Now I am! Keep going!)

All that to say: I didn’t save $100,000 because my salary is $100,000/year (not yet, at least—holding out hope I’ll get there one day).

There’s another panel of less-than-stellar choices I had working against me in the beginning, including but not limited to:

• I didn’t start saving until I started working. Seriously. I had less than $1,000 to my name when I graduated college. That’s why I think my approach is more feasible than some of the stories I’ve read in the past in which the author founded their first company at age 11 and had $30,000 in savings and access to venture capital by the time they graduated high school. I used to read stuff like that and think, Well, I’m 22, and I don’t think I can make up for the last 11 years of lost time, so screw it, why try? I didn’t start until I was 23, so hopefully that’s a slightly more realistic time to get your shit together than at the 6th grade science fair.

• I didn’t budget or manage my money at all for the first 9-12 months I worked. It was a takeout-frenzied, online shopping-fueled free-for-all for at least a year before I saw the light, swore off fast fashion, and got it together. And even then, when I say I “got it together,” I’m using the term loosely—I would say my financial planning and aggressive goals began in earnest in mid-2018, about 18 months after I got out of school.

How I finally kickstarted my financial future and accumulated more than $100,000 in about two years

If I had to sum up this entire section in one word, it would be “consistency.” (Sexy!) These are the primary decisions to which I attribute reaching this goal I set for myself in early 2019. I’ll plug other articles throughout this section that dive deeper into the topics mentioned below in case one piques your interest, but just know the high points are all here.

Always having a side hustle.

Cognizant that I frequently vacillate between extolling the virtues of working 14 jobs and complaining about how stressful it is, I have to include this: Always having at least one side hustle helped me supplement my full-time income a ton. There’s something to be said for hobbies that make you money, and while hobbies that you haven’t monetized are equally important, this is simply a powerful way to (a) make yourself more marketable and versatile in your career and (b) always have a steady cash flow outside of your regular income. Especially when your monthly take-home pay is relatively low early in your career (mine was around $2,700 at the time), an extra hundred bucks or so each month actually went a pretty long way.

My original side hustle (teaching yoga) wasn’t all that lucrative: It ended up saving me more in membership fees than it earned me in side income. The important takeaway from the O.G. side hustle was that it opened doors to a much higher-paying teaching gig and gave me the experience I needed to secure said higher-paying gig.

You can think of side hustles in the same sense you think of full-time jobs: Nobody’s going to hire you to play in the Major Leagues without Minor League experience, and Minor League experience doesn’t pay that well. That’s okay. Do it anyway, at least for a little bit, but trust yourself to know when it’s time to move on and upgrade.

Figuring out how much my life costs (then trimming back!), then automating my investment contributions.

In what I refer to as the 1970s of my personal financial life (free love approach to buying whatever I wanted, whenever I wanted), I’d spend on my credit card (paid off every month with my checking account) and, after a few months, I’d move whatever leftover amount had accumulated there after several paychecks and credit card statement cycles into savings. There was no rhyme or reason.

I lacked a methodical approach, and my results spoke for themselves. My growth was unpredictable, unstable, and not guaranteed.

Once I sat down and figured out exactly how much my life costs (related post here), I determined the maximum percentage I could be contributing to my various investment accounts. Then, I automated biweekly contributions for those amounts. That way, regardless of what I did, I knew for sure that somewhere around $1,100 would be invested every month in accounts outside my 401(k), at a minimum. (Edit from the future: Are you curious about how to structure your investments for tax optimization? This post digs into it a little bit, though you could devote an entire website to the topic.)

Every few months, I’d revisit my checking account and see: Is there money inexplicably left over? Am I under budget or over budget on a consistent basis? Can I increase my automatic contributions?

At one point, I realized I was low-balling my take-home pay because I liked being able to spend my (more unpredictable) side hustle income with reckless abandon, beholden to no automatic contributions and virtually unaccounted for on the Books of KG.

Then, my side hustle income became more predictable, and I realized I was basically cheating myself out of further #gains—so I quit my creative accounting and bumped up the automated transfers. I was living on around $2,000 per month at this point, made possible by being a single, childless woman living in an apartment that was a little shittier than I would’ve liked (with a roommate) and being embarrassingly committed to frugality. I lived beneath my means.

Actually exercising self-control by using transparency & awareness.

This one feels ridiculous to type, because I’m not and have never been the poster child for self-control: But when it comes to money, I held myself fairly stringently to the overall monthly spending allowance that I determined to be reasonable.

One tactic that I’ve found to be super helpful in holding yourself accountable is forced awareness.

Going over-budget is easiest when you avoid your budget like it’s 2020 and your budget is coughing and has lost its sense of smell.

You’d be surprised how your behavior will change by simply staying close to your expenditures in the beginning of your financial journey. Turning a blind eye is your worst enemy when it comes to money.

I would interact with my Mint budgets every day. If I was under-budget, I knew, and I could splurge a little. If I had splurged too much already and needed to rein it in, I’d turn down invitations to expensive happy hours or window shopping and save myself the misery of picking the cheapest drink on the menu that I thought would tighten my already-lean cash flow the least. I was able to keep myself (mostly) out of situations where I was set up to fail by maintaining an honest and fairly disciplined relationship with my financial behavior.

I even updated, optimized, and fleshed out my own planning tool so I could sell it as a template on this site—it’s called the Wealth Planner, and it provides the framework for all the same tracking I do.

The ironic thing is that the lifestyle described by the paragraphs above sounds about as exciting and sexy as marrying into the Duggar family, changing your name to Jessa JoyAnna, and replacing your wardrobe with a dizzying constellation of burlap and denim.

But—and I can’t emphasize this enough—I feel better, have more fun, spend more, and do more than I did before my financial existential reckoning because I finally reached a point where I was controlling my finances, not the other way around. Truly: I used to say ‘yes’ to everything and experience an undercurrent of anxiety at every dinner out and during every purchase because I wasn’t entirely sure whether I could (or should) be doing it.

When I spend now, I do it guiltlessly. I order appetizers! I pay $23 for dry shampoo! I splurge for upgrades! Extra legroom? Yes, please.

The power and certainty that you reclaim when you methodically rearrange your financial life and install boundaries is just that: powerful and certain.

Figuring out how to budget for your discretionary expenses can be a game of tug-of-war with your sensibilities. Here’s a post that provides guardrails so you don’t have to guess.

Taking advantage of loopholes, like travel credit cards.

And I promise I’m not just using this as a means of hocking my referral links (but also, use them!).

The cumulative value of the vacations I’ve been on over the last two years has easily cleared between $10,000 and $15,000 by now, and I’ve done most (if not all) of it by using the travel rewards strategies outlined on this site. (This is where you can find my holy grail breakdown; here’s a version that adapts it for couples.)

I’m a big believer in not paying for shit if you don’t have to. Travel is one of the most expensive things we do (aside from pay for rent and our cars), so if you can mostly eliminate that line item from your budget (or, at the very least, dramatically reduce it), you’ll be able to experience incredible things without signing over the naming rights to your firstborn child (Jebediah, is that you?).

Looking back

When I reverse-engineer the path that got me here and think through the math, I realize that I started in May 2018 with around $15,000 of savings that had been accumulated by accident over my first year of working (as in, when money was left over in checking and I transferred it to savings). By September 2020, I’m clocking in around $115,000.

This means that in 28 months (a little more than two years), my net worth grew by roughly $100,000. That feels impossible, even to me, so I wanted to break down the #facts:

• About $10,400 per year going into the 401(k) between my contributions and the employer match (this happened for three years; you’ll remember I began contributing 10% right away), accounting for $31,200 of the contributions

• About $5,000 per year going into a profit-sharing account (this happened twice), accounting for $10,000 of the contributions

• About $1,100 saved or invested per month in a Roth IRA, a savings account, and a General Investing account (for more information about what I used to invest, here’s my review of Betterment) for about 28 months, accounting for $30,800 of the contributions

And of course, almost everything listed above is invested, which means every dollar is generating returns that’ll compound over time. That’s why the totals above don’t add up to $100,000, and why saving $100,000 in 28 months is easier than it sounds—you don’t have to bring in $100,000 in 28 months to end up with that amount. I think I probably saved and invested closer to $72,000, give or take, and the rest was growth. (Edit from the future: The bull market helped a lot, if you recall what the market was doing during this time.)

As you can probably imagine, I feel pretty satisfied that I’ve been able to do this—but if you read last week’s post, you know net worth goals are slippery, moving targets. Take these tips and tricks as proof that a slow and steady approach to building wealth does work, no six-figure income or $20,000 signing bonus required. The good news? Once you hit the first $100,000, I’m told the compounding really begins to work in your favor. After all, a 10% return on $100,000 is another $10,000—just by having the money invested in low-cost, diversified index funds and letting it Netflix & Chill.

If my 22-year-old self who ate $20 lunches at gourmet taco shops every day and only saved when she felt like it was able to get her shit together, I promise you can, too.

And here’s an example of a Vanguard account:

That’s not to say that Betterment is a better brokerage firm than Vanguard; Vanguard is a trusted (and trustworthy) institution with an impeccable track record. This is merely to say that, if you are unfamiliar with the financial services industry, that should not preclude you from participating – and Betterment’s platform will probably make it feel easier to start than Vanguard’s does.

The cons

In a word, fees. You’ll pay 0.25% of your invested assets annually with Betterment and Wealthfront. This means, roughly, that a $10,000 balance would elicit a $25/year fee for the service. There is no “management fee” of this kind for a self-managed brokerage account elsewhere (like the account shown with Vanguard).

This is still significantly lower than you’d pay a real person to manage your money for you, where you could expect fees more in the 1-2% range (netting $100 or $200 per year on a $10,000 balance as opposed to $25).

That said, you should always be skeptical of any fees levied on your net worth in money management. Ultimately, this is something you could learn to do yourself. But in exchange for the ease and convenience Betterment offers, I made the call for myself that 0.25% annually was acceptable.

Welcome to the year of “Oh, shit, maybe I should cancel that Orangetheory membership and cut back on the Seamless.”

Thank you, economic turmoil, for waking us up to the fact that maybe—just maybe—it’s worth taking a more intentional look at the way we’re spending, how much we’re saving, and if we’re investing properly.

I say this with only an almost-undetectable tinge of sarcasm, since in some ways, I do think this wake-up call helped a lot of us course-correct.

Today, I want to take a look at how to consider your financial life holistically: a sanity check, if you will, that the way your money breaks down makes sense. Not emotional sense, but mathematical sense. Because sure, you may have found a way to justify the $800 in DoorDash monthly purchases (“I work hard!”), but if that represents 25% of your total take-home pay… you have to wonder, does this make sense arithmetically?

One of the burning questions that initially drove my interest in personal finance in 2018 was this:

How much should I be saving and investing every month?

The short, simple, and frustrating answer is, As much as you possibly can.

But how do you balance “as much as possible” with “not wanting to be a hermit”? You turn to the numbers.

Let’s start big-picture. What percentage of your income should you be aiming to save and invest every month, broadly speaking? The minimum, in my mind, (take a deep breath) is around 25%.

While this isn’t going to be realistic for many (especially those with high student loan debt or low incomes), it’s more realistic than I think most moderate to high earners realize. There’s a clear and distinct difference between, “I can’t save 20% of my income because I have to pay $1,000 toward my grad school loans every month,” and, “I can’t save 20% of my income because I’m living beyond my means.”

This distinction makes people understandably squeamish, because it can feel like there’s judgment attached to the qualification of “beyond my means.” And if you grew up in a house where you watched the adults casually and consistently overextend themselves financially, it’s even more likely that this pattern will appear in your own spending habits.

The good news is, you are in control now. Every swipe, tap, or insertion of the Sapphire card is wholly and inescapably yours. You can break the pattern, if there is one.

For most, though, it probably isn’t a convoluted, emotional relationship with money—it’s just simple awareness, or as JL Collins calls it, “benign neglect.”

But jumping into individual investing before you have an emergency fund is like entering a BMX race before you take off the training wheels for the first time (though the enthusiasm is admirable). The emergency fund is the basis for financial security.

“Setting boundaries” becomes “building a launchpad”

So while 25% is the number we’ll start with, I want you to consider what 30% (or maybe even 40%) would look like. Let’s expand the consideration of saving from denying yourself joy in the present to prioritizing your future desires.

The human brain is pretty bad at this. It takes work and awareness. We’ve been evolutionarily conditioned to place more value on the reward right in front of us than the delayed gratification of a (sometimes much bigger) reward 5 or 10 years from now. Because hey, in the age of wooly mammoths and a life expectancy of 20, why the hell would I bet my cave paintings on compound interest when the fancy fur pelt is right in front of me?

Let’s evolve past caveman personal finance policy.

We aren’t denying ourselves the fur pelt now. We’re casting a vote for a future version of ourselves who has grown wealthy enough to buy the entire herd of sheep.

And because I’m running out of prehistoric analogies, let’s shift to the numbers.

An example

25% is not meant to intimidate or agitate you, just to provide a target. Let’s use an example.

If my salary is $60,000 and my company offers a 6% dollar-for-dollar 401(k) match, the first thing I should do (assuming I’m debt-free; if you’re not debt-free, consider jumping to this post about how much your life costs that digs into debt strategy) is set my 401(k) contribution at 6%. This is the preemptive strike—it seizes the free money being offered to you and casts a vote for the gray-haired, shuffleboard-playing future version of you.

Your first 6% toward your goal of 25% is knocked out. And really, since that decision means your company is now contributing 6% as well, it’s a little like you’re at 12%. But we aren’t stopping there.

Next, let’s circle back to layer one: Savings.

When it comes to simple savings, your emergency fund is technically your #1 priority, so shoveling as much money into your emergency fund as possible is the blunt-force approach.

And how much should be in your emergency fund? I know we all say it’s 3-6 months of expenses, but unfortunately, most of us don’t know exactly how much that is (again, I direct you to the article about determining how much your life costs).

If you spend like the average person does, yours is probably around $20,000.

Whether seeing “$20,000” either made you sigh in relief or draw a sharp inhale tells you exactly what your next step is:

If you’re nowhere near $20,000 in savings, let’s forget about investing for a second: The first and only priority (beyond the 401(k) match) is hitting this number.

Where to build your emergency fund if you’re just starting

My favorite place to build an emergency fund is the Betterment Cash Reserve account, which currently offers around 4% APY.

In our $60,000/year example, the take-home pay after tax is probably about $4,000/month after taxes, and $3,700/month after you take out the 6% 401(k) contribution we decided on earlier.

So there you are, with your $3,700/mo.—and 6% of your 25% already checked off.

If you’re building an emergency fund, shoot for depositing the remaining 19% right into the emergency fund account of your choosing. That’s $700 per month, or $350 per paycheck. Automate it so you don’t have the chance every month to change your mind.

I know it might feel like a lot—because realistically, it is.

But this means that 31% of your income is going toward Future You instead of Present You (your 6% contribution, your employer’s 6% contribution, and your 19% contribution to your emergency fund).

Your first $100,000

Even if you never got a raise or increased your contributions, you’d be closing in on around $100,000 invested in about five years. And by saving and investing 25% of your income, you’re on track to go from a $0 net worth to total financial freedom in approximately 26 years.

In this example, a paycheck that typically nets $2,000 per pay period will leave you with about $1,500 to spend after your saving and investing—but it’ll be money you can spend guilt-free, because you know you’ve already paid the most important person in the equation: Future You.

Of course, these examples become far more eye-widening when you start using larger salaries. The ironic part? It also becomes increasingly easier to achieve—living on 75% of $60,000 is far more difficult than 75% of $100,000. This is why negotiating for a strong salary is arguably the most important part, and why it’s such a critical focus in Chapter 2 of my book Rich Girl Nation, “The Truth About Earning More.”

Once you cross the finish line

After the emergency fund is stocked, it’s time to sit back, feel smug, and celebrate.