Five Steps to Creating a Solid Financial Road Map

By Aria Krumwiede on September 16, 2020

It’s important to get a solid start in building a financial road map. Here are five steps that you can do now to get started.

1. Build up an emergency fund.

While this might not be the most exciting part of your personal financial journey, it’s essential to first establish an emergency reserve.

Ideally, you’ll be able to save enough cash in your checking and/or savings account to cover three to six months of living expenses. If you can’t work or no longer receive an income for several months, this built-up emergency reserve will help you cover your necessary expenses.

2. Create a retirement fund.

Equally important is contributing to a retirement account such as one (or more) of the following:

  • 401(k)
  • 403(b)
  • Traditional IRA
  • Roth IRA

If your employer matches funds in a workplace plan, make sure to maximize the employer match! For example, if your employer matches 100% of your first four percent in contributions, then contribute at least four percent. Otherwise, you will be leaving free money on the table.

When assessing what to invest in within your retirement account, you might want to consider a target date fund. Target date funds are linked to the approximate time you will retire. As a result, the mix of stocks and bonds will automatically shift to reflect a more conservative risk profile as you age.

3. Pay down debt.

Strive to pay off any debt that you have.

Prioritize paying off debt with the highest interest rate and debt that you don’t receive any tax benefits from having.

Credit cards, for instance, typically carry higher interest rates that accrue daily and offer no tax advantages. Student loans, on the other hand, might carry a lower rate of interest and you can claim an interest deduction. Consequently, it makes sense to pay off your credit card before eliminating your college debt.

4. Create another savings vehicle.

Once you have established an emergency reserve, set up your retirement savings with a good mix of investments, and are paying down debt, you might consider establishing a taxable investment account. This would serve as an additional savings vehicle to earn a higher rate of return on your excess cash than you would in a checking and/or savings account.

As you think about what to invest in your taxable investment account, make sure to focus on what you can control. Make sure that you have the appropriate level of risk and diversification, while minimizing taxes and costs.

5. Create a budget.

Budgeting is the driving force to build your overall wealth. Just being mindful of what your cash flow looks like and what you’re spending your money on, can be an absolute game changer.

Here’s an easy way to simplify the budgeting process.

Start off by separating your net income (after tax withholdings and retirement contributions) into these three buckets:

  • Fixed expenses. Reoccurring monthly bills such as rent, mortgage payments, and utilities.
  • Discretionary expenses. While these expenses will be interpreted differently, they represent more of your wants rather than your needs.
  • This bucket is devoted to building your net worth by contributing to your savings or paying down your debt.

To budget yourself, you can use a basic rule of thumb for your net monthly paycheck:

  • 50% fixed expenses
  • 25% discretionary expenses
  • 25% savings

As an example, let’s say your net monthly paycheck is $5,000 per month. This is what the budget would look like:

  • $2,500 fixed expenses
  • $1,250 discretionary expenses
  • $1,250 savings

To automate this and to give yourself a better chance of sticking to this plan, make sure to always contribute to your savings first by transferring cash to your savings and/or investment account, or by paying down debt. You can automate these transfers on a bi-monthly or monthly basis.

You can also create automatic reoccurring payments for your fixed expenses from your checking account or just link them to a credit card that you then pay down every month.

For discretionary expenses, you can use a credit card that gives you points for the things you prefer to spend your money on (like food or travel) and work to pay down that credit card every month.


Erik H. Nelson, CFP®, CPWA®, Promoted to Director of Financial...

Read Now


Read Now
Suburban townhomes California

California Senate Bill 9 (SB 9): Converting Single Family Lots...

Read Now


Discover the people who make Dowling & Yahnke one of San Diego’s top wealth management firm.



Our team is available now to discuss all of your financial goals.