Last column, we talk about mum’s cookie jar and the importance of setting side an amount of money to fall back on in case you need it. This column, we discuss three other important factors to consider when setting your priorities for living secure.
Pay Yourself First
This is a tough one for women. Either women have been trained or are naturally givers. Giving to everyone else in your life, your husband, your children, your friends, is good. But it’s not good when it comes to money.
Your income needs to be allocated first to you, then to your bills, then to all the other loved ones in your life.
Think about it this way—when you are older, if you do not become financially self-sufficient, you will become a financial burden on your loved ones. By saving now you are giving the ultimate gift to your loved ones — freedom from worry when you get older.
How much should you pay yourself? That depends on what you are paying out in expenses and where you are in your financial plan. Jane wants to do two things first—payoff all consumer debt and stash enough for six months’ living expenses.
Set aside a small payment for yourself out of every paycheck. Even if your payment to yourself is only $20 a month, make that payment every month. As you pay off your consumer debt and fill up your cookie jar with cash, you’ll be able to increase your payments to yourself. But no matter what, a portion of your income from now on goes to you.
Pay Off all Consumer Debt
It is important that you tackle any consumer debt with the maximum amounts you can pay to completely get rid of any such debt as soon as possible. Make a list of these debts and figure out what you will need to pay them off. If you do nothing else from reading this column, paying off your consumer debt will make your future financial life better. While you are paying off this debt, stop using all but one or two credit cards to incur any new consumer debt and do not incur any new debt unless you can pay off the bill in full every month. Live on cash, not debt. As you pay off the consumer accounts, cut up the cards and close the accounts. There is no reason for anyone to have more than one or two credit cards at a time.
Contribute To Your 401(k)
The most common “qualified” retirement plans are pension plans, profit sharing plans, employee stock ownership plans, 401(k) plans and 403(b) plans. These types of plans are “qualified” because they provide tax advantages to employers and employees.
Contributions to these plans are tax deferred, meaning you contribute pre-tax earnings to a 401(k) plan. This is a type of forced savings. With retirement plans, a good rule is always to invest for growth. Unless you are ready to retire within the next couple of years, your retirement investments should look to long-term return. Do not put all your retirement eggs into one basket, pick different investments, but do include growth vehicles in your planning. This means picking stocks and taking risks, but the place to do this is with retirement funds over the long term.
About the Author: Lyn Striegel is an attorney in private practice in Chesapeake Beach and Annapolis. Lyn has over thirty years experience in the fields of estate and financial planning and is the author of “Live Secure: Estate and Financial Planning for Women and the Men Who Love Them (2011 ed.).” Nothing in this article constitutes specific legal or financial advice and readers are advised to consult their own counsel.