Your Money + Happy Plan, Part 3: Get your stocks off: an investment primer for saving superheroes

This is Part 3 of the Money + Happy series. Don’t forget to read Part 1 and Part 2 here!

When most people hear that I run my own business and I’m saving for a wedding, a down payment, AND retirement — at the same time — they’d be right to give me some serious is-she-crazy side eye.

But when it comes to using money to create the life I want, I’m not a damsel-in-distress, fawning and saying “woe is me” while waiting for someone to rescue me and do the work.

I’ve crunched the numbers, bridged the financial gap between my dreams and my reality, and priced out my dreams to discover that I need $2,695 more per month to achieve my big, hairy, audacious financial goals over the next few years. (Check out Part 1 if you have no idea what I’m talking about.)

If you’ve been following along at home, you’ve also seen that I’ve done the research on tactics to get more happy for my money (like the ones we covered in Part 2), and I’ve used those exact strategies to save $600(!) per month on housing and $115 per month on other expenses, like eating out, groceries, and gas.

Without doing a darn thing to earn more, now I’m $715 closer to my goals every month, meaning my goal “savings gap” has shrunk to $1,980.

It’s about to get even crazier because in today’s article, your financial heroine (okay, okay, it’s just me) has another tactic to get you where you want to be financially: investments. Want to make your current cash work harder for you right now, to make your future goals easier to achieve? Keep reading.

Back in college, I knew of investments but knew nothing about actually making them. In true damsel-in-distress (or naive youth) fashion, I figured that kind of work ought to be left up to banks, and I’d just keep my savings right in my bank account.

Then, when I became an economics major, I discovered that the rate of inflation for the U.S. dollar is roughly 2.5%. To refresh those of us who miiiight have fallen asleep in our macroeconomics class, the inflation rate is a measure of the purchasing power you lose every year. Because more and more dollars are printed and enter circulation each year, the ones out in the world start to have less and less value. It’s why prices tend to rise slowly but surely over time and why most employers will give you a “cost of living adjustment” even if you aren’t getting a raise — they want your dollars to go just as far next year as they did last year.

It kinda sucks that your cash money is losing purchasing power every year, right?

Even if you have one of those rad high interest savings accounts, there isn’t a single one that gives you an interest rate that’s more than the rate of inflation.

So, I am glad to be your financial fairy godmother bearing great news: if you are willing to put your money into a non-cash form for a little while, you can get returns on it that beat inflation. Your money can grow at a rate higher than inflation merely because you promise not to touch it for a little while. Not too shabby!

If you’re serious about achieving your financial goals, ya gotta get hip to investments that beat inflation — and pick ways to get stronger returns with a risk level that feels good to you.

Here are a few tools to consider to get your current cash to better provide for your future self (the one where you’re the ass-kicking heroine, complete with supersuit), based on the amount of time you’re willing to make your moolah “untouchable:”

• Certificates of deposit (CD). These are not sexy, and they have ridiculously low returns because they just barely keep pace with inflation. But if your current savings account is paying you less than 1% interest and you’re saving up for something that’s a few years away and you’re super risk averse, putting some of your cash into a CD is a good option. I bank with Capital One and like them, and, as of publication, Capital One has CDs with return rates between 2.6% and 3.1%, depending on the length of time you’re willing to make your money untouchable (1, 3, or 5 years). And if you need something with more flexibility so you can take out the money when you need it, CiT Bank has a 2.05% APY (interest rate) “11-month” CD that allows you to withdraw your cash whenever you need to without a penalty. (But note that because you’re getting more flexibility, the interest rate is lower. It’s a give and take, depending on your needs.)
• Short-term private investments in the good ol’ stock market. This is higher volatility, so do this at your own risk! Higher risk can mean higher possible rewards. There are LOTS of resources out there on how to get started with this kind of investing, so if this feels like your cup of tea, check them out. There’s even a whole community of folks called FIRE: Financial Independence, Retire Early that share strategies for how to save and invest smartly in investments that you can access far earlier than a “typical” retirement age. These investments are good for people who can stand a bit of ups-and-downs in their private investment performance but who plan to leave their money in the assets long enough for them to grow significantly (so usually longer than a year). And know this: everybody and their mom recommends index funds to help you mitigate against the volatility of individual stocks’ performance, so when you’re allocating your funds, ignore that data-backed advice at your own risk!
• Real estate investing using a platform like Fundrise. The minimum advised investment timeline for doing this is 5 years, because, well, it takes a little while to build and sell/fill buildings — and depending on the way they structure your investment portfolio, it might make a lot more sense to wait. Fundrise has a couple different investment tracks depending on whether you’re looking for faster access to supplemental income or whether you’re cool with leaving your money there for decades, so take a look at the options to see what makes the most sense to you.
• Long-term retirement investments. These are also not sexy (unlike your rad all-leather supersuit, you saucy minx), but like taking a vitamin or eating your leafy green vegetables, this is so important in the long run. The typical growth (called a “return”) expected from a retirement investment each year is about 4%, so by putting money into your 401K, your dollars will likely beat the rate of inflation. (That’s why so many folks do this!) But there are big time penalties if you take money from your retirement account before you’re retired, so it’s another tradeoff: lock up your funds in investments in the long term to get even better returns in the long-er term. If you’re down for this tradeoff, find out if your employer offers any 401K matches that essentially give you free money. (And find out the date that the money “vests” — because if you quit or leave the job prior to that date, you may forfeit their matching dollars.) If you’re self-employed or investing in retirement on your own, check out things like a Roth 401K (where you pay taxes upfront to get your money tax-free when you retire) or a SEP IRA (our version of a 401K) if you’re in the “self-employed-and-still-wanna-retire” camp. I have my IRA investments managed through Wealthfront, which has been awesome. They’re super straightforward and clear about what’s happening with my money and help me project whether my future self is taken care of with the amount I’m putting away.

Now, there are lots of other vehicles you can invest into, too: bonds, annuities, peer-to-peer microfinance, buying investment properties, etc. Think of this list as a jumping in point for your own research, not an exhaustive index. And, if you’re feeling overwhelmed or unsure, bring in help! A Certified Financial Planner or wealth advisor who is a fiduciary (“fiduciary” = legally obligated to not screw you over financially) is a great person to enlist for guidance and ideas.

Once you’ve evaluated the possible places to put your money that look like they’ll get better returns, the next step is to think about your goals and decide how the different investment opportunities match up.

Here’s how that looks for me. I have 3 big goals: up my retirement income, pay for my wedding in cash in the next year, and buy a house in the next 3 years.

For my retirement, I feel pretty good about the sweet thing that Wealthfront and I have going, so I’m going to leave my retirement investment as-is in their very capable hands. Any wealth advisor will usually tell you that your best retirement investment strategy is “set it and forget it:” leave your money invested in certain risk balance categories for a looooong time to let things mature. While I still need to contribute more money to this, the way they’re managing the money I’ve already invested is groovy with me.

For the wedding, there’s no sense investing that money in a risky way because I’m going to need access to it too quickly to have a reliably strong return (especially considering any withdrawal fees, taxes, or penalties). As it turns out, I have zero dollars allocated towards wedding savings so far, so no need to worry about that yet, but if I had them, I could put my current wedding savings into a CD for the next year to get them an ever-so-slightly better return than a regular ol’ savings account interest rate.

With the house purchase, since I need access to the money within 3 years, the option that best meets my personal risk tolerance would be putting my money into a shorter-term investment. The return on CDs feels a little too low to be worth having the funds locked up like that, so I have $18K invested in personal investments with a risk level of 7.5 with Wealthfront right now, which ought to outpace a CD unless there’s a recession or steep turn of the market. The other $6K I’m planning to invest into Fundrise to see what happens. (How’dya like that: I’m doing a researched financial experiment just for you, dear reader!)

3 years from now, if the personal investments have a 4% return, I’ll have turned $18K into $20,160 — increasing by over $2,000 just because I don’t touch it (and the stock market doesn’t bottom out). And if Fundrise even gets close to meeting expectations (which they set pretty darn high, talking about average expected returns around 8%), my $6K investment would become at least $7,260. So just by putting my money where I can’t touch it, I could expect to have $3,420 more towards my down payment. Badass, right?

(Want to play with calculations like this for yourself? I used this online annual return calculator.)

Mega grain of salt alert: it’s entirely possible that these investments would underperform these calculations, so I’d earn less (or possibly even lose money). It’s also possible they could OVERperform. What a rad situation that would be, right? Either way, by diversifying where I keep my money between stocks, bonds, real estate, CDs, and cash, I’m hedging against risks the best I can to protect myself while trying to make more money in an inherently risky financial world.

So, if we come back to ye olde financial model from Part 1, I can now expect to have an extra $3,420 in 3 years by doing nothing. And you betta believe that’s going right back to my goals!

With that return, I can start to adjust my other numbers. Instead of needing $25,400 more for my house down payment in 3 years, I only need to earn (roughly) $21,980. That means that my monthly savings towards this goal becomes $611, a decrease of $94 per month. Woohoo for getting closer to another financial goal by doing next to nothing!

When we roll this into my monthly total need to close the gap, I now only need to find an extra $1,886 per month. Woot!

So with some savvy investment decisions, I’m inching closer to achieving those money dreams and never being a damsel-in-dollar-distress ever again. And while decreasing spending and increasing investment returns are fabulous tools in your financial toolbox, the most leveraged lever anybody’s got over the long term is making. more. money.

So can you guess what’s up next in Part 4? We’re talking about how to increase your earnings big time to close that goal gap and make your money dreams come true! Get. Excited!!

This is Part 3 of the Money + Happy series. Catch up by reading Part 1 and Part 2 here — and read Part 4 here!

And as a disclaimer, I am not a CFP or a fiduciary. I am a career coach who was an Econ major who loves doing research into this kind of stuff, and wants to equip you with information to help you create a fabulous financial plan. Don’t just trust me — do your own research, talk to other financial professionals, and make the choices that work best for you!

Lisa Lewis is a career change coach who helps unfulfilled individuals create lucrative, soulful, and joyful new career paths. Don’t love your job? We should talk. Learn more at GetCareerClarity.com or check out The Career Clarity Show podcast on Apple Podcasts, Stitcher, Spotify, and Google Play.