Disclosure: I’m excited to be working with Ellevest to start this conversation about women and money. I may receive compensation if you become an Ellevest member.
It is the beginning of 2018, which means it is New Year’s Resolution time. This is the time when many people are using the term, “New Year New Me,” but how often does the New Year become a repeat of the years before? According to Biblical numerology, the number 8 means new. Therefore, let’s make this new year truly a new year for you to live the life that you were called to live. A big part of that is to finally take control of how you manage your money. Taking control of how you manage your money and being a good steward of your finances is one of the best gifts that you can give yourself this year in addition to going deeper in relationship with Christ.
How can you give yourself the gift of money management and financial stewardship this year?
We will be discussing 7 ways to give yourself the gift of financial management this year.
Create a Financial Plan And Get Clear On Your Goals
The difference between a financial plan and a budget is that the financial plan is the overarching structure that determines your financial priorities and when you would like to achieve those priorities. Once you have that financial plan, you can then create a budget that allocates money towards those financial priorities in addition to paying your expenses. Given that your financial priorities (i.e. your goals) are the foundation to your financial plan, you must get clear on your goals. This is where goal-setting comes in. If you are trying to decide what your goals are, I encourage you to spend some time in reflection and meditation to clear your mind and then think about the following questions.
- What type of life do I want to live?
- What type of lives do I want my children to have?
- If money or time were not an issue, then what would I do?
- What would I do if I knew I couldn’t fail?
- What do I like and what do I want more of?
Write down the things that are revealed to you in this moment of silence and meditation. If you don’t get your answer in the first session, then stay patient and do it again another day. Keep going until you know what you want. Once you understand that, then you can start to understand how much money you need to accomplish these dreams. However, knowing how much money you need is only part of the equation. You must also pay off debt, build your savings, save for retirement, get current on any past due expenses, and make sure that you are making on-time bill payments. All of those things are essential to understand when you are creating your financial plan. The good news is that Ellevest, an online financial membership program for women, is here to help you on your financial journey.
Create Your Budget And Stick To It
Once you understand your goals and financial priorities then you must understand how to free up or find the money to allocate to those goals. This is where budgeting comes in. When you budget, you must do the following:
- Review your take home pay. This is the money that you have after taxes and payroll deductions.
- Divide your take home pay according to the 50/30/20 rule: 50% for your essentials (i.e. needs), 30% for wants, and 20% for financial goals (Source: Ellevest).
This is a great guideline to use, because it allows you to cover the things that are necessary to your survival, it allows you to have money to do fun things, and you also have money leftover to make real progress on your financial goals. For example, if you have built an emergency savings account and paid off your debt then you can use the 20% towards investing. However, before you start investing you want to make sure you have done the essentials first which are build savings and pay off debt.
Start And Grow Your Emergency Fund
An emergency fund is so critical, because this is the money that you will use in case of an emergency. This would include things like a job loss, medical leave, or a major unexpected expense. This is the thing that helps you to continue to pay the bills while you are looking for a new job or a way out of the situation that caused the emergency. In absence of this fund, you would need to borrow the money, take out credit card debt, or do without.
I remember when I was working in Corporate America during the recession. There were a lot of people losing their jobs because of layoffs. Unfortunately, this was also a time where there were many foreclosures on the market. What if more people had an emergency fund? Would more people have been able to keep their homes? However, most people don’t have an adequately funded savings account. According to a 2017 GOBankingRates survey, 57% of Americans have less than $1,000 in their savings accounts. Not having, at minimum, $1,000 leaves families exposed to financial disaster if the unexpected strikes.
According to the Pew Charitable Trusts, the most common unexpected unplanned expense is a car repair, which ranges between $500 – $1,000. Prioritizing saving is important because think about the impact that an unexpected expense, like a car repair, could have on your life. It could:
- Make it difficult to get to work which impacts your income
- Impact your ability to take the kids to child care, school, or to activities which will impact your ability to take care of your child’s needs
- Missed bill payments, which can lead to late fees, shut off notices, etc.
I don’t want to scare you, but I want to impress upon you the urgency and need to develop an emergency savings cushion.
Pay Off Debt
Proverbs 22:7 says, “The rich rules over the poor, and the borrower becomes the lender’s slave” (emphasis is mine). I highlighted the phrase, “borrower becomes the lender’s slave” because I want you to fully understand what happens to you when you are in debt. I used to be a person who felt like, “I will make the minimum payments on my debt until it is paid off.” I added in the minimum payment to my budget and as long as that payment was made, I didn’t care. It wasn’t until I started working in my first job after grad school that I understood what debt was. I realized that so much of my current earnings were going to pay back money that I borrowed in the past. What really caught my attention were two things:
- I started to look at the money that I charged to my credit card for food. I couldn’t believe that I was still paying on something that literally passed through my digestive system years in the past. It didn’t make sense!
- I realized how much I was paying in interest. I stopped looking at just the minimum payment or the sticker price of the item and calculated the full cost of the debt once I included interest. For some of these items, once the interest was compounded, I ended up paying double or triple what I thought I was paying when I looked at the sticker price. That’s when I started to ask myself if I would have made the same purchase decision if I knew up front that the item was going to cost 2 -3 times more. In most cases, the answer was “no.” Therefore, taking a step back to understand the real cost of my purchases helped me to rethink how I looked at debt.
Once I had a new perspective on debt, I realized that I needed to get aggressive with paying down debt and be vigilant about charging new debt. Therefore, I encourage you in 2018 to rethink how you feel about debt. Even if this is the only shift that you make regarding your debt, it will help you to make better spending decisions going forward.
Increase Your Retirement Contributions
Take the time now to review your current retirement contributions and also your company’s policies on matching. Once you know how much your company matches, then ask yourself if you are contributing enough to get the match. For example, if your company matches up to 4%, then this means that if you contribute 4% of your income to the 401K then the company will add 4% for a total of an 8% contribution. Conversely, if you only contribute 1%, then your company will contribute 1% for a total of 2%. Therefore, in this example, your employer will double any increase that you make towards your retirement. This is important, because this is a great way to make your contribution go further. To use another analogy, think about how charitable organizations will ask you to contribute but to also see if your company offers a gift matching program to make your donation go further. The 401K matching is very similar. Therefore, don’t miss out on this extra money.
If you are looking to increase your retirement contributions, then start at your current employer. If you interested in exploring retirement further, then check out Ellevest by clicking here. With the Plus and Executive Plans, you will receive a personal retirement plan that reflects all your retirement accounts and not just the ones managed by Ellevest.
Commit To Refusing To Quit
This one is really important because at the beginning of each year many people are so excited about their new goals, vision, and commitment. This excitement and passion is genuine at the time, but unfortunately not lasting. In fact, according to Statistic Brain 27% of people abandon their goals 1 week into the new year while 31% of people quit 2-weeks into the year. Just over half of people make it to one month. Therefore, when you are tempted to quit, you must push through. You will fall off the wagon because you are human, but the key is how do you respond when you spend more than your budget or give into the temptation to make an unplanned purchase. Do you keep spending because you already messed up or do you make a decision in that moment to start over again? New beginnings aren’t always for the New Year. Every day and every moment you have are presented with the opportunity to do something better. Therefore, when you make a mistake, forgive yourself and get back up. Don’t stay down. When you are on the verge of giving up remember that, “Let us not become weary in doing good, for at the proper time we will reap a harvest if we do not give up” Galatians 6:9 NIV. This verse should help to sustain you and motivate you that the real test is in the race and in perseverance. You only lose if you quit.
Investing is a wonderful tool in your financial plan, because instead of using addition to grow your savings, you are using multiplication. For example, the geometric average annual return for the S&P 500 between 1928 and 20169.5% is 9.5%. This 9.5% even includes the lowest lows: The Great Depression, the massive slide after September11th and the financial crisis of 2008 (Source: NYU Stern School of Business). However, when you invest you have to realize that there are no guarantees and you should not invest money that you cannot afford to lose if the market loses value. Therefore, once you build your savings and pay off your credit card debt, you can start investing. If you are interested in investing then check out Ellevest as it is a platform for women designed to capture women’s unique financial needs. Investing can seem overwhelming, but the people at Ellevest are committed to making it transparent and more straightforward for women.
If you want more tips and resources, then check out this FREE grocery reduction challenge to help you to cut your grocery and takeout bill so you can have more money for the things you love! Click here to join the challenge!
Aisha Taylor is a single mom of twins, personal financial coach, work from home entrepreneur, and #1 Amazon Best Selling Author of the book “5+5 FNPhenomenal Ways to Save $100 This Week Without Killing Your Lifestyle.” Aisha has been featured in ESSENCE, Jet Magazine, and Black Enterprise. She is also the Founder of FNPhenomenal (Frugal –n- Phenomenal), a movement designed to help single moms create a vision for their lives, craft a financial strategy to support that vision, and show them that phenomenal living is possible. It’s time for you to be Financially Phenomenal!