Financial savvy involves discipline in budgeting, saving, and spending habits
Your spending and saving habits affect the spending and saving habits of your family members
You’re smart about a lot of topics, but when it comes to personal finance, perhaps you feel a little overwhelmed.
Financially smart women control their money to get what they want; it doesn’t control them. But it takes planning and a little bit of work if you want to be your own or your family’s chief financial officer (CFO). To beef up your financial chops, consider keeping these five factors in mind.
Reframe the Words “Budget” and “Save”
Spending is fun, but we know it may not always be the financially right choice. Reframe how you think about budgeting and saving to create spending plans that balance short-term and long-term needs.
“You’re either going to consume today or you’re going to consume in 20 to 30 years when you’re retired,” says Melody Juge, founder and managing director of Life Income Management, a firm specializing in retirement income planning and the transfer of family wealth. “That’s where the money is going. The money is going to future consumption.”
Create Your Spending Plan
Find a rainy afternoon to itemize every single thing you spend money on, from buying flowers to commuting costs, and put it on a spreadsheet or in personal finance software. Label the items with a B for basic living needs and an L for lifestyle needs. This will show you where your money is going and help you focus on redirecting money toward your future consumption.
Have kids? Consider giving them an allowance and let them spend 50% and save 50% so they start to understand balancing short-term and long-term planning.
Your spending plan should lay out fixed costs such as rent, mortgages, and loans, and variable costs such as going out for dinner. It’s the mindless spending that ends up defeating the best-laid plans. “Everybody’s in a hurry, so we end up charging stuff and living beyond our means,” Juge says.
A common budget-busting culprit? Eating out. So think twice before indulging too much during Taco Tuesday. You might also want to consider how your spending habits affect the future spending habits of your kids, if you have children. When you display discipline in your spending, some of it might filter down to them.
Pay Yourself First
Retirement, college savings, student loans, mortgages—it’s a lot to handle. Consider making your own financial goals a priority by paying yourself first to help save for retirement. According to Dara Luber, senior manager for retirement product at TD Ameritrade, “Making regular contributions to a retirement account, even small amounts, can have an impact on your financial future. Studies have shown that there is a correlation between people who get in the habit of automatically investing for retirement and arriving financially prepared in retirement.”
So if you have a 401(k) with an employer match, consider saving up to the matching amount. No 401(k) or employer match? Consider an IRA. Check out this retirement planning checklist to help you stay on track.
Don’t Keep Up With the Joneses
It’s easy to desire the newest of everything—phones, cars, and houses, especially when your friends seem to have it all. But it can become a trap if you fall into debt.
Feel the urge to splurge? Go back to your spending plan and weigh your goals between current spending and future spending. “We live in a society where we’re bombarded all day long with advertising,” Juge says. “And we overspend. You have to be very disciplined and be aware. You’re either going to give somebody else your money, or you’re going to keep your money for your future consumption.”
Ready for more? Check out the Women in Investing webcast series from TD Ameritrade. You’ll learn:
- How to become the master of your financial destinyHow to make goal-setting a priority among life’s distractionsHow to define your dreams and start moving toward themHow to avoid common financial pitfalls
Plan for tomorrow by setting financial goals today.