It’s extremely well-known in the finance world that women are not as comfortable with their money as men. This needs to change! Not only are women working their way up the pay scale, as compared to their male counterparts (yes, we still have a ways to go), but women are more and more becoming the bread-winner of their own household.
Whether you are in college and saving what you can, or working full-time with a family of 5, there’s no reason why a woman can’t manage her own money. We’re not just talking about managing money in investments, but also money that goes straight to your bank account. The CGS Team is sharing a few pointers to help women gain additional financial skill sets to help them manage their own money more efficiently!
When it comes to managing savings, we are referring to the money in your savings account that should not be touched. If you are constantly drawing money from your savings to fund bills or shopping trips, then it’s truly not a savings. There are a few ways that women can manage their savings to get the most bang for their buck:
1. Save a Set Amount Each Month – By giving yourself a designated amount to save each month (that allows you to still get your normal expenses covered), you are forming a positive financial habit. Even if it’s just $50 a month, giving yourself a set amount, sticking to that amount, and not touching your savings will allow it to grow over time. Have that set amount automatically transferred over, so you don’t have to worry about it.
2. Use a High Yield Savings Account – Since the point of a savings is to let it grow, why not give yourself the chance to gain the most interest possible? Online bank accounts offer extremely high interest rates and aren’t as easy to pull money from as normal savings accounts. For more, check out Best Savings Account Interest Rates. If you are way too skeptical about an online bank account, money market accounts offered by credit unions are your next best bet.
A 401k is a must for young women (in fact, it’s a must for anyone at any age). However, the thought of picking your portfolio may scare you. Don’t let that be an excuse for not starting a 401k or for just winging it. Usually the company that holds your 401k offers financial advisement, but if you don’t want to shell out the cash for that you can use a standard formula of blended investments to help diversify. By diversifying your portfolio, you are adding different investment types that can help even out the hit of the market moving up or down.
According to CNN Money, “the old rule of thumb used to be that you should subtract your age from 100 – and that’s the percentage of your portfolio that you should keep in stocks.” For example, if you’re 30, you should keep 70% of your portfolio in stocks. If you’re 70, you should keep 30% of your portfolio in stocks.
However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age. That’s because if you need to make your money last longer, you’ll need the extra growth that stocks can provide.
Depending on how risky you are, you can choose the first or second option for determining your large cap stock allocation. Once that is determined, it is recommended that the rest of your portfolio includes (in order of importance): Small cap stock funds, bond funds, and international stock funds. Check out the article 8 Things to Know About Your 401k Plan for more need-to-know items about your retirement plan.
Managing Income & Expenses
The ability to manage your income and expenses is extremely important. How well you manage this area of your finances will determine how to make the most of the other financial areas. The goal should be to maintain your current style of living on your income AFTER savings and 401k amounts have been deducted. Here are a few tips to help you do just that:
1. Create a Budget – You’ve heard it from us 1000 times, but a budget is 100% necessary to manage the ins and outs of your money. By creating a budget, you are allotting the income you have available to the necessary living items.
Going above or below the allotted amounts can help you save more, invest more, or even splurge more. It’s not as simple as just creating a budget, but also sticking to it. If you don’t know how you are spending your money, it won’t be long before you realize it left. The CGS Team can help you, check out the CGS Personalized Budget Plans and let us do the dirty work!
2. Get Rid of Debt – Another important part of managing the money coming in is to get rid of debt. When you have debt, any leftover income after your expenses is usually reserved for your debt payments. Sure, you may only have to pay the minimum balance, but as your debt starts to rack up, those minimum balances will too. Before saving money, take care of your debt. The interest you are charged for debt is much higher than the interest gained from savings. Check out 7 Tips for Paying Down Debt.
3. Build up a “second” savings – If you don’t have debt, you contribute to a 401k and automatically have a set amount saved, then consider starting a “second” savings account. This second savings account can be with your normal bank and should serve as your emergency fund. Stuff happens, so having an extra cushion of savings will allow you to avoid pulling from your true savings account, or worse, using credit cards.
This may be one of the scariest financial areas to deal with. The reality is that if you invest money, there is always a possibility of you losing it. However, if you invest wisely you can reduce the risk of loss and increase your chances of long term gain.
If you don’t want to consult an adviser, which can be costly, then start building your knowledge of investing. There are numerous forms of investments (stocks, bonds, mutual funds, hedge funds, etc.). Even a general understanding of each will be extremely beneficial.
If you have all of the other financial areas of your life managed, then you may be ready to invest. Check out the article Are You Really Ready to Invest to help you confirm. If you are ready, then start by opening an account with a discount brokerage firm like Scottrade or Charles Schwab.
Similar to your 401k, you will want to diversify your portfolio. Look for investments that go up when the market goes up, as well as investments that go down when the market goes up. That’s probably one of the easiest and most important investment tips to follow.
Research investments that offer long term growth, short term growth, and invest in some of each. Try to stick with a portfolio of numerous investments. Sticking with just 1 or 2 stocks leaves you open for greater risk. You may also want to read our Beginner’s Guide to Investing with Little Cash if you don’t have much to get started with.
Related: 30 Money Lessons I Learned by 30
Ladies, don’t let anything stop you from being the financially independent women we know you can be! Do you have any tips or success stories for managing your money? What is your biggest financial fear? Share your thoughts with the community by leaving a comment below! We are here to help you!