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I've saved and invested 6 figures over the last 3 years: This is the wealth-building habit that helped most

"With a plan for your money, you will feel empowered to direct it exactly where it should go."

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Ayana Campbell Smith is the founder of Millennial Money Guide.
Courtesy Ayana Campbell Smith

Seven years ago, I wanted to buy a car on my own. Before I could do that, though, I had to reassess my financial priorities and habits.

Throughout college, and when I started my first real job after graduation, the days after I got my paycheck would often follow the same pattern. I would pay my bills and then treat myself to a mani-pedi, lunch with friends, or a few trips to the mall. By the time I got to the end of the month, I would be wondering where all of my hard-earned dollars had gone.

Over time, even though I was making more than I ever had before at my full-time job as a web designer, my savings balance remained largely the same. 

I started thinking about how I could make some changes. One of the things that made the biggest difference was when I read about the concept of "paying yourself first," or essentially committing to save before you spend any money that comes in. Making this practice a regular habit can help ensure that your savings goals remain your top priority, while the temptation to delay saving, or avoid it altogether, is held at bay. 

So with this new mindset, at the beginning of 2014, I started consistently putting a percentage of each paycheck toward a down payment for a car, before I spent that money on anything else. Four months later, I had enough saved for the down payment, and I continued using this approach to help save for other big purchases, like my wedding in 2016. 

Over the last three years, by prioritizing paying ourselves first in support of our big financial goals, together, my husband and I have been able to focus our efforts to save and invest six figures.

Today, as a millennial money coach, I use my experience to teach my clients how to pay themselves first too. Here are the four steps that helped me get started. 

I did an audit of my finances

Before you can make major moves with your money, you have to figure out where you stand. Auditing your current spending is one of the best ways to do this, and it can be done in three simple steps:

  1. Start by gathering your bank statements from the last three months. These statements should be from any accounts you spend from, including debit accounts and credit cards.
  2. Next, review and categorize every expense with categories that make the most sense for you, such as bills, food, transportation, shopping, hobbies/going out, savings, debt, etc.
  3. Finally, add up the total amount spent in each expense category and look for any patterns in your spending habits.

The first time I did this exercise back in 2014, I was surprised to see just how much of my money was being spent on things that weren't really important to me. 

The Chipotle runs, random trips to the mall, and nail salon visits every other week amounted to hundreds of dollars every month. By taking a deeper look, I was able to see how much I could be saving once I shifted my priorities.

I built a consistent and itemized budget

The way I see it, a budget doesn't have to be intimidating. To me, it is simply a plan for how your money will be spent during a given period of time. And with a plan for your money, you will feel empowered to direct it exactly where it should go: to work for you.

At the start of every month, I put together a budget that accounts for my expected income and fixed and variable expenses. These expenses include an itemized list of planned savings. For example, there are line items for retirement savings, emergency fund contributions, and sinking funds for travel, our future home, and even treating myself. 

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You don't have to deprive yourself of the things that bring you joy. There's nothing wrong with treating yourself every now and then, and with this approach, you can do so without the guilt. If anything, having line items for discretionary expenses like shopping and dining out has made me less inclined to overspend on them. 

I've found that having a detailed list to refer back to throughout the month helps me hold myself accountable to the goals I've set, and leads to the most long-term success.

I set intentional goals

If you're not sure where to start with your financial objectives, my best advice is to think about your goals in terms of these four categories: emergency funds, retirement savings, fun money, and big purchases.

Personally, my first big savings goal was the car down payment, and over the years, I've added new ones, like money for a down payment on our future first home, and building out my emergency, travel, and retirement funds.

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Any of these goals on their own could be overwhelming. But instead of focusing on one big, sometimes arbitrary figure that I want to meet by the end of the year, I break it down into smaller, more manageable pieces, focusing on per paycheck savings and monthly expenses. 

For example, as I got more comfortable with saving and paying myself first, in 2017, I opened a Roth IRA, and maxed it out for the year, allocating $250 from each paycheck. I have maxed it out every year since then and watched as my retirement savings and investments have grown. 

I opened a high-yield savings account

When it comes to giving your savings a safe place to live and grow, I've found that there are many benefits to using a high-yield savings account (HYSA). These types of accounts often pay out more interest than the 0.01% offered by many traditional banks, which means more free money for you.

I opened my first HYSA in 2019. One of my favorite features of my account is that it makes visualizing my savings progress easier through the creation of named buckets that align with each of my goals. I've found that it is much more motivating to send money to an account called "travel fund" or "future house" than a random jumble of numbers. 

Once I started thinking about my financial choices in terms of paying myself first, my savings rate steadily increased. And with these four steps, I have been able to put the money I earn where it will make the biggest difference.

Ayana Campbell Smith is a debt-free money coach with a passion for helping millennial women and couples get unstuck so they can ditch debt, save more, and win with money. In 2019, she launched Millennial Money Guide. Through her email newsletter, Instagram, blog, and money coaching programs, Ayana shares practical tips and money advice to help young adults navigate the sometimes intimidating and often misunderstood world of personal finance.

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