Five Things to Know About Money Management
Managing your finances well is important for your future. We’ve put together five critical things every woman should know about money.
1. Build and follow a budget. Good money management begins with creating – and then following – a budget that matches your money coming in with your money going out. Financial advisors recommend the spending side of the equation follow the 50/30/20 rule.
- 50% of spending goes to needs: housing, utilities, groceries, insurance, car and student loan payments, etc.
- 30% of spending goes to wants: most clothes, entertainment, restaurants, etc.
- 20% of spending goes to savings: consider setting up a monthly auto transfer of this amount from your checking into your savings account to make sure you do this.
Continually track and adjust your spending to align with your budget and what is important to you. What matters most is consistent progress toward your goals!
2. Tackle your debt. Always stay current and on time with your loan payments. You are building a credit history that will stay with you for a very long time – good or bad! Also, completely pay off loans with the highest rates of interest first. Typically, these are student loans, car loans and credit card debt.
3. Manage your credit cards. Always pay off all credit card balances in full each month. When you make only the minimum payment each month, you end up paying significantly more than you borrowed because most of the minimum monthly payment goes to interest and fees rather than debt repayment. Be thoughtful in your use of credit cards, and don’t borrow more than you can pay off each month.
Do use credit cards to establish a good credit history. And use them instead of debit cards so you can catch any fraudulent transactions and earn program rewards. Be careful not to open too many cards, including store cards, since having multiple open credit cards can damage your credit score.
4. Prepare for the unexpected. Life has a way of throwing us curve balls, so be prepared for unexpected expenses. A rainy-day fund will help preserve peace of mind as well as provide protection against emergencies and other unplanned events. Keep money equal to three to six months of your expenses in a savings account for this purpose.
5. Begin investing your savings for the future now! Start by contributing to your retirement through an IRA, Roth or 401(k) plan. The IRS limits how much you can contribute annually to these plans on a tax-free basis. Contribute the maximum for the tax benefit. Also, know whether your company provides an employee matching contribution to your company’s 401(k) plan and contribute enough to receive the full company match. After all, it’s free money!
When choosing investment options, invest in large, stable mutual funds or exchange traded funds (ETFs). Select a number of funds or ETFs that will diversify your overall portfolio into holdings that are roughly 60 percent stocks and 40 percent bonds. Make sure you invest in things that make sense to you, and don’t worry about “beating the market” or short-term market fluctuations. Stay on top of the news and be an informed investor!
So what are your life’s desires and goals? Take control of your personal finances now and take a major step toward making them a reality.
In our KD,
National Vice-President Finance
Based on a presentation from the 2015 National Convention given by Jodi and Christine Sol, KDS Investment Advisory Committee member