Women and Money: Taking Control of Your Finances
As a woman, you have financial needs that
are unique to your situation in life. Perhaps you would like to buy your first
home. Maybe you need to start saving for your child's college education. Or you
might be concerned about planning for retirement. Whatever your circumstances
may be, it's important to have a clear understanding of your overall financial
That means constructing and implementing a plan. With a financial plan in place, you'll be better able
to focus on your financial goals and understand what it will take to reach
them. The three main steps in creating and implementing an effective financial plan involve:
- Developing a clear picture of your current financial
- Setting and prioritizing financial goals and time frames
- Implementing appropriate saving and investment strategies
Developing a clear picture of your current financial
The first step to creating and implementing a financial
plan is to develop a clear picture of your current financial situation. If you don't already have one, consider establishing a budget or a spending plan. Creating a budget requires you to:
- Identify your current monthly income and expenses
- Evaluate your spending habits
- Monitor your overall spending
To develop a budget, you'll need to identify your current monthly income and expenses. Start out by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support.
Next, add up all of your expenses. If it makes it easier, you can divide your expenses into two categories: fixed and discretionary. Fixed expenses include things that are necessities, such as housing, food, transportation, and clothing. Discretionary expenses include things like entertainment, vacations, and hobbies. You'll want to be sure to include out-of-pattern expenses (e.g., holiday gifts, car maintenance) in your budget as well.
To help you stay on track with your budget:
- Get in the habit of saving--try to make budgeting a part of your daily routine
- Build occasional rewards into your budget
- Examine your budget regularly and adjust/make changes as needed
Setting and prioritizing financial goals
The second step to creating and implementing a financial plan is to set and prioritize financial goals.
Start out by making a list of things that you would like
to achieve. It may help to separate the list into two parts: short-term
financial goals and long-term financial goals.
Short-term goals may include making sure that your cash
reserve is adequately funded or paying off outstanding credit card debt. As for
long-term goals, you can ask yourself: Would you like to purchase a new home? Do
you want to retire early? Would you like to start saving for your child's
Once you have established your financial goals, you'll want to prioritize them. Setting priorities is important, since it may not be possible for you to pursue all of your goals at once. You will have to decide which of your financial goals are most important to you (e.g., sending your child to college) and which goals you may have to place on the back burner (e.g., the beachfront vacation home you've always wanted).
Implementing saving and investment strategies
After you have determined your financial goals, you'll want to know how much it will take to fund each goal. And if you've already started saving towards a goal, you'll want to know how much further you'll need to go.
Next, you can focus on implementing appropriate investment strategies. To help determine which
investments are suitable for your financial goals, you should ask yourself the
- What is my time horizon?
- What is my emotional and financial tolerance for
- What are my liquidity needs?
Once you've answered these questions, you'll be able to
tailor your investments to help you target specific financial goals, such as
retirement, education, a large purchase (e.g., home or car), starting a
business, or increasing your net worth.
Managing your debt and credit
Whether it is debt from student loans, a mortgage, or credit
cards, it is important to avoid the financial pitfalls that can sometimes go
hand in hand with borrowing. Any sound financial plan should effectively manage both
debt and credit. The following are some tips to help you manage your debt/credit:
- Make sure that you know exactly how much you owe by keeping track of balances and interest rates
- Develop a short-term plan to manage your payments and avoid late fees
- Optimize your repayments by paying off high-interest debt first or take advantage of debt consolidation/refinancing
Understanding what's on your credit report
An important part of managing debt and credit is to
understand the information contained in your credit report. Not only does a
credit report contain information about past and present credit transactions,
but it is also used by potential lenders to evaluate your creditworthiness.
What information are lenders typically looking for in a
credit report? For the most part, a lender will assume that you can be trusted
to make timely monthly payments against your debts in the future if you have
always done so in the past. As a result, a history of late payments or bad
debts will hurt your credit. Based on your track record, if your credit report indicates that you are a poor risk, a new lender is likely
to turn you down for credit or extend it to you at a higher interest rate. In addition, too many
inquiries on your credit report in a short time period can make lenders
Today, good credit is even sometimes viewed by potential
employers as a prerequisite for employment--something to think about if you're
in the market for a new job or plan on changing jobs in the near future.
Because a credit report affects so many different aspects
of one's financial situation, it's important to establish and maintain a good
credit history in your own name. You should review your credit report regularly
and be sure to correct any errors on it. You're entitled to a free copy of your
credit report from each of the three major credit reporting agencies once every
12 months. You can go to www.annualcreditreport.com
for more information.
Working with a financial professional
Although you can certainly do it alone, you may find it helpful to work with a financial professional to assist you in creating and
implementing a financial plan.
A financial professional can help you accomplish the
- Determine the state of your current affairs by reviewing
income, assets, and liabilities
- Develop a plan and help you identify your financial goals
- Make recommendations about specific products/services
- Monitor your plan
- Adjust your plan as needed
Tip: Keep in mind that unless you authorize a financial professional to make investment choices for you, a financial professional is solely there
to make financial recommendations to you. Ultimately, you have responsibility for your finances and the decisions surrounding them. There is no assurance that working with a financial professional will improve investment results.