high income, not rich yet

The Bare Minimum For Financial Stability

The Bare Minimum For Financial Stability

Today’s post is about the bare minimum steps to take for financial stability.  I find that my friends are typically divided into two camps: those that get a kick out of personal finance, and those that prefer to not think about anything related to money and financial planning.  Most everyone reading this blog is probably at least somewhat interested in personal finance, but it’s possible that you have friends or family members who might prefer a cheat sheet to the bare minimum.  This post is a great one to share with them.  The steps below may not guarantee that you’ll be financially independent by 40, but they should provide a large degree of financial stability.

Emergency Fund

As I discussed in one of my first posts, an emergency fund is the cornerstone of financial stability.  So you need to save some money.   Any money is better than no money.  But aim for $50 as a minimum each week.  Those with higher incomes should strive for a larger amount.  The goal is to save $5-25,000 in a savings account. This account provides the ability to deal with an unexpected car repair, to transition from one job to the next, or to deal with an unexpected illness.  If you don’t think you can save, then cut your spending.  If you still don’t think that you can save at least $50 every week or two, then get a side hustle.  It’s imperative to have some money set aside.


High-income graduates should save 15-20% of their incomes to retirement.  This includes any employer match, which will typically help out with 3-5% of savings. Take advantage of the employer match.  If you have a high income, you’ll likely need to max out both your employer-sponsored retirement account (401(k)), as well as individual accounts such as a Roth IRA or Backdoor Roth IRA.  For the employer-sponsored plan, figure out how to login or get the paperwork from HR. Once you have the paperwork look at the investments until you see “Target Date Index Fund 2050” or “Target Index Fund 2045.”  Put 100% of your contributions to go into that fund.

Most people will also need to save money into either a Roth IRA or Backdoor Roth IRA (which is converting an IRA to a Roth IRA if your income exceeds the Roth IRA limits).  I’ll do a post on those later, but for now, know that they can easily be set-up at places like Betterment.  Betterment is a Roboadvisor that can have a Backdoor Roth IRA set-up very quickly into a reasonable portfolio based upon the time remaining before retirement.  The other good thing about Betterment is it will automatically give you an asset allocation based on your current age and projected retirement age.  I would probably go with this allocation.

These savings are mandatory. You’ve got to do it.  That means if you make $60,000/year, $461 from each paycheck needs to go into some sort of retirement account.  If you make $100,000, then you need to save around $769 from each paycheck. Live on $80,000. After taxes and entitlements, you’ll still have around $50,000 to live on each year.  You can do this.  More importantly, this needs to happen to have a comfortable retirement.

Student Loans

The bain of every graduate’s existence.  My best advice is to pick a 5-10 year plan to get them paid off.  This is particularly true if your student loans are only 1-2x your income. So, if your student loans are $120,000, but you make $60,000, then try to refinance into a 5-10 year plan. Your loans will be gone in 5-10 years, hopefully before you turn 40.  If your student loans are much higher, then it may make sense to stay on IBR or Repaye, but be prepared for a potentially very large tax bill in 25 years.


Set your exemptions to 0.  Have the most amount of money withheld. This should guarantee that you have a generous refund at the end of the year. If you have a side hustle in which income taxes are withheld, make sure you account for that when you look at your withholding.  You may have to have extra withheld.  Use this money to fund your Roth IRA or Emergency Fund.


You need some insurance. This is especially true if you share a house, are married, or have kids. Go to policy genius and sign up for inexpensive, term life insurance for 25-30 years.   If you’re a high income earner then get $1,000,000 to $2,000,000 in coverage. The good news is it’s probably only $20-25/month.

Make sure you have some sort of disability insurance, either through work or privately.  Most personal bankruptcies in the U.S. are due to medical bills and unexpected health problems.  Insure appropriately against this risk.  Some coverage is better than no coverage.

Budgeting and Daily Spending

Spend the rest of your money.  After taxes, entitlements, debt repayment, and savings, this means that you will be most likely be able to spend 20-50% of your income.  Spend it on anything you want and enjoy. If you have problems only spending 50% or less of your income, then try to lay off the credit cards and just use cash.  Figure out a way to increase income if you’d like to spend more.  Airbnb is a great option.

Estate Planning

If you have kids, then you need a will that will let the world know what’s going to happen to them if you and your partner die.  Either call an attorney and get a recommendation or go to Legal Zoom and start typing.  Make sure you tell the lucky individuals you designate that you want them to take over in case of your untimely demise.

Professional Advice

If this all seems a little overwhelming, look for professional, fee-only advice.  You want any financial advisor to be fiduciary that either charge a flat fee or a percentage of assets under management.  Look for an advisor whose a Certified Financial Planner.

Note: Most “advisors” are actually salesman that sell you insurance-type projects.  Figure out how the “advisor” is making their money. If it is through large fees on the product they are selling you, be wary.  Figure out where the other hidden fees are in the sale.  For good perspective on choosing a financial advisor, check out John Oliver here and a Forbes article discussing the show here.


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