Most people aspire to be financially responsible, but it can get confusing to understand what this means sometimes. With so many mixed messages out there about what you’re supposed to do with your money (i.e. saving vs. investing, paying down debt vs. living in the moment), how are you supposed to even know what the right path for you looks like …and even still… where you’re supposed to keep all of that money?
In this post, we’ll attempt to break down five financial priorities every woman should have so that you, too, can feel more confident.
Okay, so first things first, let’s acknowledge that everyone has a different set of financial priorities, especially in this economic environment where very little is certain. That said, there are a few common goals that are worth striving for regardless of your situation:
The first goal: Create an emergency fund.
Now more than ever, it is so important to have some cushion to rely on in tough or difficult times. If this pandemic has taught us anything, it is that we can never fully know what is just around the bend or how the chips may fall. Therefore, it is SO important to set aside funds in a high-yield savings account so that you can feel protected in a difficult situation.
As a general rule of thumb, aim to save anywhere from 3-6 months of your income and keep these funds in a high-yield savings account (aka: a savings account offered through a bank that can offer you higher rates of interest than if you were to just stash your cash at home) that allows you to easily withdraw the funds without penalty. If you have an unpredictable income or uncertain job, perhaps look to save an additional month or two worth of your income. You will be so glad you took the steps towards saving for an emergency if the worst were truly to happen to you.
*Note: to compare rates and find the bank that offers the highest amount of interest for a savings account, check out this helpful resource here!
Your next goal: Take advantage of that employer match (if you have it).
For those of you who are lucky enough to have employers who offer you retirement plans (such as a 401k, 403b, or pension), definitely make sure to contribute a portion of your income if you can. Better still: if that employer will make a contribution on your behalf to match your contribution, then DEFINITELY take advantage of this major benefit. Not all employers do this, and some have even suspended doing so during this lockdown so if yours does offer a match, be sure you don’t miss out on the opportunity to grab free money for the taking!
Note* worried about what could happen to your 401k if you were to leave that employer? Don’t be! Your contributions will always be yours that you can take with you, and depending on how long you worked for that employer, their contributions may also be yours to take along, as well. For more on this, check out our post here!
Goal number three: Prioritize eliminating any debt with interest rates of over 7-8%.
Though debt is never a fun thing to necessarily “have”, some debt is more tiresome than others. Any debt that comes with a high-interest price tag of over 7-8% should be high on your financial priority list.
Why 7-8%? Historically speaking, the stock market averages an annual rate of return of about 7-8% (when accounting for inflation). This doesn’t mean all years will produce these results, but over the last 90+ years, this has been the historical annual average. Therefore, if you have debt costing you more than 7-8% in interest (as is often the case with credit cards), you might consider making slightly more than the minimum monthly payment on these outstanding loans in order to pay down these debts as fast as you can. This way, you’ll be able to save yourself the total amount you’re likely to spend on interest over time.
There are many different schools of thought on this, but the general philosophy is it makes sense to focus on your higher interest debts first if need be (since investing it wouldn’t outpace the amount of interest you’re paying). However, if you have low interest debt (as is often the case with student debt or car loans), you’ll want to make sure you are prioritizing both debt and retirement at the same time.
Note* You’ll still want to make sure you’re making the minimum monthly payments on ALL debts, of course, but if you have leftover money at the end of the month, you’ll want to either allocate extra funds towards your higher interest debts (if you have them) OR contribute more towards your retirement (if you don’t have the high-interest debt).
The idea here is to maximize your return for retirement while also saving yourself in interest payments over time. It’s a delicate balance, to be sure, but it is also important not to lose sight of growing your future retirement savings by only focusing on debt.
Goal number four: Find a budgeting method that works for you and stick with it.
Budgeting doesn’t have to be limiting or only about “cutting your expenses”. Budgeting is actually more about giving you control of your money instead of always letting your money control you instead. Your budgeting method doesn’t have to be anything fancy or sophisticated, but it should work for you and your lifestyle. If you don’t have one, take some time this week to create a budget and review your past expenses. Get a feel for what your spending priorities or non-negotiables are vs. what other things might be needing a change or adjustment. Commit to following a budget for the next several months and we promise you’ll feel more confident just by doing this one exercise.
*Looking for a budgeting guide or tips to get you started? Check out our Budgeting workbook here!
Goal number five: Invest in “future you”
Having hopes and dreams is what makes life so meaningful. We all have ideas of things to we’d like to save for or ways to enjoy our retirement, but keep in mind that no one will take care of “future you” if “current you” doesn’t. To ensure you’re living the life you’ve always wanted, make sure to invest in yourself now.
What does this mean? It can mean a number of things but by and large it means putting your future goals ahead of your current wants. Invest in your future by literally opening an investment account and getting educated about the process. Take advantage of the time you have between now and retirement to save money, invest wisely, and build a nest egg for yourself. If you’re not sure how to get started investing or don’t even know what is involved, check out our investing course here!
Of course, investing in your future could also mean strategically saving for a down payment towards your first or next house. It could also mean saving for a dream trip or experience you’ve always wanted to have. It could also mean investing in self or career development by finding a course or educational program that fits your needs.
Investing in yourself can take many forms. Remember this and commit these things to memory: You’re important. You’re worth it. You’ve got what it takes.
Now, all that is left to do is just get started.
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