Let’s face it: Millennial women have their eyes set on the here and now. They are driven to find the perfect job and get established in their careers — they want to “make it”. Well, the here and now can sometimes be a roadblock to seeing the holistic view — for example, planning for the future. To achieve financial independence and prepare for the long term, it’s important for young women — especially the under-30 crowd — to start the planning process now and take an active role in managing their finances.
Need a push in the right direction? Here are five basic tips to help you get started.
1. Build an emergency fund
This is a theme you’ve likely heard time and time again: Build an emergency fund.
Make sure you have three to six months’ worth of earnings saved in case something happens.
Right now, you might be thinking, “I have so many expenses!” You might not realize it, but an emergency fund is an important factor in your financial plan. Believe me, it is hard to sock money away into an emergency fund; no one is immune to the struggle (including financial planners). But what if your car breaks down? What if you have an unexpected medical bill? What if you lose your job? You will be grateful to have that emergency fund to keep you afloat when you might have otherwise been a sunken ship.
If you’re having trouble building an emergency fund, try setting up a direct deposit or automatic transfer from your paycheck into a separate account. An automatic deposit can be your best friend, because you won’t notice that the funds are gone. If you don’t think you can afford to save anything, consider skipping that morning latte twice a week and put the extra $10 into savings. I can’t stress it enough; every little bit adds up.
2. Investigate your company’s retirement plan
Building an emergency fund is important, but it is also important to save for retirement — even when you’re young! When you land that dream job after college — even your second or third job — consider using that as an opportunity to contribute money to your company’s 401(k) plan. (You can find a few tips for navigating a new job and your 401(k) here).
It can also be a good idea to find out if your company has a Roth 401(k) option. If you contribute to a Roth 401(k), you’ve already paid tax on the funds in the account. When you retire in, say, 40 years, you will be able to withdraw money from the account tax-free. High five, future you!
3. Track your spending and create a budget
Sure, those shoes are super cute…but can you really afford them? Do you really know how much you’re spending per month or year on items like shoes or makeup? Using a financial resource like Mint, BillGuard or Budgt can help you track your expenses and wrap your head around how much you are actually spending — and where your hard-earned dollars are going. These resources also provide tools to help you set a budget and track whether you meet said budget each month.
However, it’s also important to be realistic. Remember to build holiday gifts, student loan payments, vacations and that extra pair of cute shoes into your budget so the expenses don’t sneak up on you. Putting a recurring, monthly appointment on your calendar will help you remember to review your budget and see if you are on track to meet your goals.
4. Establish and keep track of your credit
Ever thought of buying a new car? Owning your own home? Many times, you’ll need to get a loan in order to buy these big-ticket items.
“I can just get a loan for those at any time, right?”
Unfortunately, the answer is no. You can, however, build your credit to get approved and capture the best interest rate on a loan. Regardless of your relationship status, your credit matters in these borrowing situations. Whether you’re single, engaged or married, you are responsible for your own credit score.
You can build credit by doing a variety of things, such as using checking and savings accounts, paying student loans on time or opening a credit card account (but don’t overdo it!). The longer your credit history — and the stronger your credit score — the more likely you’ll be approved for loans. A strong credit profile proves to lenders that you are reliable and capable of paying back your loan. Keeping track of your credit rating is important, too. You’re entitled to one free credit report per year, which you can order from Annual Credit Report.
5. Don’t be afraid to ask for help
You are never too young to seek the advice of a financial planner or Certified Financial Planner (CFP®). It’s their job, so don’t hesitate to ask for help. When it comes to financial planning, there are no silly questions!
And remember what I said about planning for the future? Achieving financial independence also means planning for the factors you can’t control. While it’s not always the most pleasant topic of discussion, your financial planner can help you evaluate your life and disability insurance needs, or help you establish an estate plan to support your future children or spouse in the event that you pass away unexpectedly.
You’re not only helping yourself, but also your future family.
By developing a holistic plan while you’re young, you can get a head start to building a secure financial future. Stay on track, and the road ahead may be bountiful!
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