If the 7 Steps were climbing Mount Everest, Step 4 was the Khumbu Ice Fields. But now that you’ve paid off your high interest debt, you can see the summit up ahead!
Want to jump around?
- Earning, Spending and Looking Ahead
- Building an Emergency Fund
- Employer Matching Contributions
- Paying Down Expensive Debt
- Setting Big Goals
- Preparing to Retire
- Seize the Day!
We recommend that at the start of Step 5, you step away from the computer. Stare off into space for a bit. Go for a walk – no need to climb Mount Everest. While you are out, think about the following questions. It might be helpful to write your answers down.
What are the big, important projects coming up in your next three years? Are you:
- Planning to go back to school?
- Wanting to buy a car to get to work?
- Hoping to get married and/or have a baby?
- Needing to move, buy a condo or a home?
- Trying to help your family with a big purchase?
If you could project yourself three or five years into the future, what accomplishments would make you most proud?
Step 5 is the place where you set out to do those things. It’s also where you look at options like life insurance to protect yourself and your loved ones against disaster.
The first part of Step 5 is investing your surplus cash. “Surplus” in BodesWell is one of the concepts new users struggle with, but it’s important to understand how it works for this step.
“Surplus” is the projected extra cash you will have in the future. As a reminder, we project your income and your expenses into the future based on your recent transactions. In Step 1, you learned how to be sure your income is greater than your expenses. “Surplus” is the difference between your projected income, your projected expenses and the costs of your goals.
When your Surplus is negative, a mentor will alert you with a red warning along your timeline.
But what if your Surplus is positive? That’s what Step 5 is all about, moving a percentage of your surplus into an investment or savings account. Once you’ve invested your surplus cash, you’ll have closed the loop on your plan.
Now, any surplus (after your planned goals are accounted for) will be added to the account you’ve chosen.
So have at it! Drag those big, long term, expensive, and important goals onto your timeline. See what you can afford and how much you need to save to be ready for that big moment. We’ll always warn you when your plans get too ambitious. You’ve done the hard work of building a great financial foundation. This is the time to think about the kind of life you want to build on top of it.