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Finance 101 for Women

October 3, 2013

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Being financially independent is so important for women at every age, from the single ladies in their early twenties to the happily married mothers of three. What does financially independent mean? Being capable of paying off loans, avoiding credit card debt, contributing to a savings account, and having a complete grasp of your finances, to name a few. It certainly can feel overwhelming to think about money. These five steps to financial freedom should help!

  1. Create a monthly expense sheet. Take a few moments to sit down and draw out a monthly budget for yourself. Starting with your monthly income and subtract from that the amount that you need to spend each month on essentials including rent/mortgage, cell phone, cable, utilities, card expenses or public transit costs, and groceries. The amount that you have left is your expendable income. This is what you can spend each month without accruing credit card debt.
  2. Think of saving as an expense. While you are creating your monthly budget, work in an “expense” for savings. This can be as little or as much as you can afford, just so you are setting some money aside. As a rule of thumb, it’s good to have enough money in your savings account to pay for all of your expenses for three months. That way, if you lose or quit your job, you can rest assured that you can survive a few months while you search for another.
  3. Build credit for yourself. This is an important one and it goes hand-in-hand with knowing what your financial situation is. It is common for women to let their husbands take care of all of the taxes, bills and budgeting, thus leaving them in the dark about their financials. Understanding what your family income is, and where all of the money is going will give you and your family a sense of finance freedom. In addition to a bigger involvement in the family budget, building personal credit is important as well. Put a car payment, credit card, or the mortgage in your name. Anything that is attached to your name and is regularly paid will build you a high credit score.
  4. Use your credit card, but pay it off. Of course when a credit card company approves you for a high credit limit, it is tempting to head over to Bloomingdales and snatch up that Michael Kors purse you’ve been coveting, but try to practice some restraint. Think of a credit limit not as money that you have but as money that you could potentially owe. However, I’m not saying that you shouldn’t use your credit card. One of the best ways to build credit is to use and pay off your card, key words being pay off. If you have the funds in your checking account to purchase something, use your credit card for the purchase, and pay the bill off monthly. If you are able to pay off your balance each month, then the credit limit that you have is reserved for emergencies.
  5. Contribute the max amount to your 401K plan. If you are in your 20s or 30s, not contributing to your 401K is certainly tempting. At this point in your life, retirement is in the far distance, and you could probably think of ways to use that money now instead of seeing it as another deduction from your paycheck. However, there are two things to keep in mind when it comes to 401K. If you start early, your 401K will add up over the years and you will definitely be thankful that you did once you reach retirement age. You don’t want to work forever, do you? Start saving now!

The other great thing about contributing to your 401K is that it comes out of your paycheck pre-tax. This means that if you choose to contribute 5% of your income, it will be 5% of your paycheck before federal and state taxes are taken out. If you have the good fortune of working for a company that makes your contribution, always contribute the maximum amount that they will max. Think of it as free money!