Take charge of your personal finances
Too many smart, accomplished women who effectively manage corporate budgets and wouldn’t dream of investing company resources without thorough financial analysis fail to apply that same discipline to their personal finances. And pay the price. But a few key moves can help you build a robust financial future.
“I get very concerned when women, especially those early in their careers, don’t take their financial health seriously,” cautions Allison Mitchamore, CFA, CPA, registered financial advisor and founder of WealthWise Financial Solutions. “Good financial decisions early in your career create a positive cycle of increasing assets,” she adds. “But failing to make and follow a disciplined plan will likely decrease your wealth, options and flexibility down the road.”
Mitchamore offers these guidelines to get, and keep, your financial house in order.
Get and stay organized with a budget and then track actual income and expenses against your plan. “Many people do not want to confine themselves to a budget, but mastering this critical skill sets you up for financial success,” Mitchamore says. Remember to allow for taxes, savings and investments and then adjust spending as needed to avoid taking on debt to fund regular living expenses.
Your financial health is actually not private. “There is a record of how well you manage your finances,” Mitchamore warns. “Your credit score is derived from your history of taking out debt and paying off that debt and is key to securing financing for large lifestyle purchases such as a car or house.” Pay bills on time and avoid bouncing checks.
Prepare for financial emergencies such as a job loss, car repair or a health issue with a risk-free account. Unless you have a career that might take longer to replace or the job market is slow, Mitchamore recommends savings to cover three to six months of expenses. “This may seem like a luxury if you do not have excess cash flow, but it can stem financial stress in the future.”
Invest early for retirement. Start your career having funds taken out of your paycheck and you will be less likely to miss them and be able to develop a consistent investment approach and much larger retirement fund. “Make the time value of money work for you,” Mitchamore advises. If you invest $100 at 8%, you will have $108 at the end of one year, and $215 at the end of 10 years. If you put aside $100 every month, you will amass $18,517 in that same ten years. “I like to think of investing for retirement as another little you working right beside you earning money for your future,” she says.
Use credit wisely. Credit is not a bad word, according to Mitchamore. You have to take out credit to start building your credit score to help you acquire future funding for a mortgage or auto loans. “If you are disciplined to pay off your credit cards monthly, then using them for expenses while you take advantage of the cash back offers and other incentives makes financial sense,” she says. “However, using credit cards to spend in excess of your income is a downward spiral.”
Be savvy about benefits. Your company may offer benefits you are ignoring. You know about your health insurance, retirement plans (hopefully with a company match) and discounted stock purchases. But many companies also offer discounts on cell phone purchases, electronic purchases, educational assistance and even financial advice.
Safeguard your family’s financial future. “As we start to grow our families, we sometimes get too busy in this new phase of life and forget to assess our changing financial needs,” Mitchamore says. “If you have children, you should evaluate your need for life insurance. You also need to draw up a will.” Give careful consideration to designating the people you want to parent your children if something were to happen to you and specify those individuals or organizations you want to have the personal items and assets you have spent your life growing.
Apply the same discipline and strategic thinking that contribute to your career success to your personal finances and you will be repaid with security, freedom and flexibility.