You might not be in charge of your finances today, but studies have shown that you’ll be solely responsible for your own finances at some point in your life. Yes, this idea may be daunting for some, but understanding the basics of financial literacy is imperative – it’ll allow you to implement important steps early on, so you feel both financially empowered and secure when looking into the unknown of your future.
The truth is, even in today’s day and age, some women (especially those with more traditional mindsets) find talking about money taboo or inappropriate. And yet, we’d probably all agree that we’d like the women in our lives to be able to take care of themselves, to live the life they want, and be financially independent. Would it surprise you to learn that four out of five women admit that they have never talked about money with the people who are the closest to them? It’s fascinating to think that we share so much of our lives with those around us, but money somehow isn’t spoken about. So rather than shaming or labeling money talk as taboo, how can we encourage women to talk about it and get involved with their finances at a young age? Starting with the basics early on is key!
Where to Begin
The foundation of your financial journey is budgeting and developing your budget in relation to the amount of money that’s coming in. You’ve probably heard it before, but it needs to be said because it’s crucial. Add your income, spousal maintenance/alimony, child support, investment income, and Social Security benefits, subtract your taxes and your spending, and that golden number left over is your starting point. Is that number negative? What percentage of your total number is that? Ideally, that number should be around 15% of your income. If you’re not hitting 15%, start with a lower percentage and work your way up to start saving for your future.
Thinking Down the Line
While it may take some time, start by paying off your credit card debt and then saving money into an emergency fund until it has three to six months of living expenses. If you achieve these milestones and are then able to continue to put 15% of your earnings away into a retirement account, you are setting yourself up for a very secure financial future.
Investing in the Market
We recommend that money for long-term investing, such as retirement, be in the stock and bond market. If you are in your 40’s, this portfolio needs to grow so that it can support you until age 95 and possibly even beyond. If you’re putting these funds in bonds or leaving it in cash, it’s not going to keep up with inflation and grow to the value you need. Even if you’re in your 60’s or 70’s, these funds can only work for you if they’re in the market. The difference is, as you get older, you may move from having 80% in stocks, to only maybe 20-30% by the time you’re 80.
It may not be surprising, but one challenge is that women are often unaware that we’re retiring with fewer assets than our male counterparts. On top of that, women tend to live longer than men, and as we age, our health costs are higher in retirement. What we save and how we invest are especially important under these circumstances.
The way you invest, the percent that you put in stocks vs. bonds is the number one predictor of what your investment return is going to be. You can use this retirement calculator via Vanguard, where you put in your age, risk tolerance, and the amount of money you plan to invest. This calculator tool can help you set goals for retirement and give you a better understanding of what to expect.
Importance of Financial Literacy
Saving for the future and creating a plan that works for you is an attainable goal, but the catch is that we need to know how our income and investment allocation now will affect our future. When women are left in the dark about their finances, they give up control of their future security, flexibility, retirement age, and so much more. Taking these steps and digging deep into your personal finances may seem scary and somewhat overwhelming, but if you take these steps to familiarize yourself with these things, they can save your future self a headache and heartache.
Starting anything new can be intimidating, but here’s an excellent way to get started:
- Gather your financial statements/documents to see:
- Credit card debt and interest
- Student loan debt
- Car payment
- Find your “Golden Number” (it’s okay if it looks bronze for now – you’ll get there).
- Work with a financial advisor so that they can analyze your situation and plan for various scenarios.
- Learn more about financial planning through Savvy Ladies Inc. (www.savvyladies.org). Savvy Ladies offers core programs such as the Savvy Ladies Helpline, Wedne$day Wi$dom Webinars, seminars, and an informative Newsletter.