45 Steps to Success

Jonathan Clements

WHAT DOES A GOOD financial life look like? Here’s a quixotic roadmap—comprised of 45 steps:

  1. Stuff part of your babysitting or lawn mowing money in a Roth IRA. Suggest to your parents that they should encourage this sort of behavior—by subsidizing your contributions.
  2. Get a credit card when you head off to college, charge $5 every month and always pay off the balance in full and on time. You’ll soon have an impressive credit score.
  3. Spend two years—but not much money—at community college, before transferring your credits to the college you want to graduate from.
  4. Live at home for a few years after college, so you can mooch off the free food and accommodation.
  5. Sign up for your employer’s 401(k) as soon as you join, rather than waiting for automatic enrollment to kick in, and stash everything in a target-date retirement fund. Contribute at least enough to get the full employer match. If there’s a Roth 401(k) option, favor that, because the tax-deduction on the traditional 401(k) won’t be worth much at your current modest income.
  6. Skip the new car—and accompanying auto loan—and buy a used car for cash.
  7. Stash money every month in a high-yield online savings account. Think of it as your emergency fund, future house down payment and let’s-not-live-paycheck-to-paycheck account.
  8. Turn down the chance to buy cash-value life insurance from your old high school buddy.
  9. On the third date, steer the conversation to money—and make sure your future spouse shares your financial values.
  10. Ponder which charities you care most about. Get into the habit of regularly sharing a slice of your financial success.
  11. Fund a Roth IRA. Again, stash that money in a target-date fund, choosing one that invests in index funds.
  12. Ask your parents whether you can have a less lavish wedding—and let you use the cost savings toward a house down payment.
  13. Get a will. Change the beneficiaries on your IRA and 401(k). Purchase term insurance. Prod your new spouse to do the same.
  14. Stretch a little to buy a home that’s big enough not just for you and your spouse, but also for the kids you expect.
  15. Now that your latest pay raise has pushed you into the 24% tax bracket, switch your regular contributions from the Roth 401(k) to the traditional 401(k).
  16. As soon as the baby’s Social Security number arrives, open a 529 plan.
  17. Buy more term insurance—enough to cover the kid’s education and pay off the mortgage.
  18. You’re maxing out your 401(k), plus funding a Roth or backdoor Roth every year. Next up: Buy a total U.S. stock market index fund and total international stock index fund in your taxable account.
  19. Take the two kids to Disney. Try to contain your shock at how much it costs.
  20. Buy company stock every year through the employee stock purchase plan to take advantage of the 15% discount—but unload the shares as soon as you qualify for the long-term capital gains rate, because you don’t want the risk.
  21. Add $100 every month to the monthly mortgage check. Think of it as another way to buy bonds.
  22. At dinner, occasionally tell family stories that illustrate your financial values. Talk about how much you earn, where the money goes and how you invest. Ask the kids if they have any questions.
  23. Raise the deductibles on your auto and homeowner’s insurance to reflect your burgeoning wealth.
  24. Remodel the kitchen. Tell anybody who will listen that it’s a terrible investment, but you still think it’s worth it.
  25. Drop some of your term insurance, because you figure that—between the remaining coverage and the savings you’ve amassed—your family would be okay if you went under the next bus.
  26. Talk to your high school freshman about how much you can help with college costs. While you’re at it, discuss how much you’ll assist with other major costs, like the kid’s future wedding and house down payment.
  27. Now that you’re 50, take advantage of catchup contributions to your 401(k) and IRA.
  28. Every year, allocate a little more of your retirement account to bonds.
  29. Get powers of attorney drawn up for both you and your spouse—covering both financial and medical decisions.
  30. Consider buying long-term-care insurance, but then realize that—come retirement—you’ll have enough socked away to self-insure.
  31. Let your oldest move home after college—on condition that the money saved on rent ends up in a savings account.
  32. Use your year-end bonus to pay off the mortgage.
  33. Draw up a list of all the things you want to do in retirement. Stick it on the refrigerator. Revise often.
  34. Drop your remaining term insurance.
  35. Decide you have enough.
  36. Use your early retirement years to convert part of your rollover IRA to a Roth.
  37. Continue to work part-time, largely because you enjoy it—but, hey, those modest paychecks are sort of comforting.
  38. Take the kids and grandkids on vacation. Somewhere other than Disney.
  39. Delay Social Security to age 70.
  40. Write your own obituary. Think about the accomplishments you’re most proud of—and whether there are any more you’d like to add to the list in the years ahead.
  41. Downsize to a smaller home—which forces you to empty the basement. It’s your junk. Why should your kids have to deal with it?
  42. Make occasional financial gifts to your adult children.
  43. Identify a fee-only financial advisor you trust—to help your spouse, should you die first, and as a precaution, in case your mental capacity slips.
  44. Cut yourself some slack: Fly business class.
  45. Hire a local kid to mow the lawn. Advise her to put the money in a Roth.

Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Got to BelieveLabor of Love and Mixing It Up. Jonathan’s latest book: From Here to Financial Happiness.

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2 years ago

I find items 15 and 36 non-intuitive, and possibly contradictory. (I definitely would like to run some numbers!)

First, on item 15, just because your last dollar was taxed at a 24% marginal rate, is that enough to justify such a drastic change in investment vehicles? I am probably reading this too literally. However, I still wonder if once-a-year tax savings invested in a taxable account are better than accumulated, year-over-year, tax free growth.

Then, on item 36, I assume the “rollover IRA” came from that traditional 401(k) in item 15, which begs the question, why not put the money in a Roth account to begin with?

Again, this will be an interesting exercise in number crunching!

Thanks for everything you do to help educate people of all ages on their financial life.

Jonathan Clements
Jonathan Clements
2 years ago
Reply to  OBX9397

Thanks for the comment. Regarding No. 15: If you invest in a tax-deductible retirement account rather than a taxable account, you can effectively get tax-free growth — assuming your tax bracket is the same when you withdraw the money as when you fund the account. You can read an explanation here:

Sometimes it can be even better than tax-free — and you can come out ahead at the expense of the taxman. That brings us to No. 36. Many people find their taxable income drops in their early retirement years, so they can convert from traditional retirement accounts to Roth accounts and pay taxes at a low tax rate. For instance, you might have been able to fund a traditional retirement account and taken a tax deduction at a 24% rate, and then later covert those same dollars to a Roth in your early retirement years and pay tax at just 12%.

Langston Holland
Langston Holland
4 years ago

Full circle on lawn mowing! Zen and the art of lawn mowing? Beautiful and important, I’m sending a link to my kids. Thanks again Jonathan.

Peter Bryans
Peter Bryans
4 years ago

I lol’d when I got to step 45.

4 years ago

Regarding suggestion 20 (buying company stock at a discount), why trade a spectacular guaranteed savings rate (15%) for a speculative gamble on the performance of a single stock price? I suspect that you have owned stocks that declined 15% (or more) over the course of 12 months. Sell the company stock on same day that the shares accrue. Even if you are in the 32% marginal tax bracket, you are still earning a guaranteed 10%. Where else can you get that?

The FIIntrovert
The FIIntrovert
4 years ago

On the 529, no need to wait for your child’s social security number. You can open one with your social security number and transfer it to your child once he arrives. This gives you a head start on savings when you are still a dual income no kids. We just did this!

4 years ago

I just forwarded this to my children …..Excellent Common Sense article…
I pretty much followed all of them and retired at 52.. The only ones I have a hard time following is 44 – Business Class Seats…(I always flew business on work trips but I cannot pull the trigger for personal trips) l would rather stay at a nicer place and eat at nicer restaurants

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