Today, as part of her financial literacy for women series, contributor (and financial professional) Sandra Gilpatrick shares 4 ways to work towards financial security:
At four years old, my son told me he was saving for a house. When I asked him why, he stated, “I want to buy a house next to you and papa.” It was an endearing response, but on further questioning he also admitted he didn’t want to be “one of the fuzzy blanket people.” The exposure of living in a large city had opened my son’s eyes to the sad reality of homelessness.
The question struck me because the same fear plagues many, whether four years old or seventy-four years old: running out of money. "Bag lady" fears persist among even the most successful women and 49% of women fear ending up broke and homeless (2012, The Allianz Women, Money, and Power Study). Being a good financial role model and sharing these exercises with your children can be a good start toward the goal of financial security These are my four quick tips:
1. Pay yourself first. If you want to become the richest man in Babylon (or Boston, like my son's goal), the most important thing is to put away as much as you can, as early as you can. Take advantage of your employer’s retirement plan. In 2015 you can take a maximum from your paycheck of $18,000 (more if over 50 years old) into your 401(k) or 403(b). At the very least, don't miss out on your employer's matching funds if offered. If you don't have a work retirement plan, then look into guidelines for your own Individual Retirement Account (IRA). If you are able to invest the maximum to your retirement plan each year, you will be working toward your own financial security.
2. Write it out. A great way to help hold yourself accountable to your financial goals is to write them down. Making a financial plan can give you better odds of reaching goals. Want to retire early? Pay for a college education? Start working on whatever financial goals are important to you by making your roadmap, a financial plan. If the task is too daunting, have a financial planning professional assist.
3. Create a cushion. What if you lose your job or an unexpected expense blindsides you? Having a cushion of liquidity can help you meet life's unpleasant surprises. The extra pool of money will also help you from dipping into less liquid assets and running up credit card debt. True, interest rates are so low they aren't doing you any favors keeping ahead of inflation. But if you need those funds suddenly, you wouldn't want to take on market risk of possibly having much less than you counted on.
4. Be consistent. Historically, Americans tend to save money when the economy is poor, and spend money when time gets better. The average savings rate for Americans is lower when the economy is strong, and then increases in tougher economic times. Don’t fall into this trap of spending and saving different amounts depending on the state of the economy! The more consistent you are with saving your money, the stronger financial blanket you can have in the future.
The fear of running out of money is something that many experience, from my young son to even my most financially adept female clients. It's best to confront financial fears early, so you'll have more time to work toward your goals. Getting those goals in a written plan and then following steps needed to achieve them is key. For the past three years my now seven-year-old son has been consistently working towards his goal of buying a house on Beacon Hill. If a first grader can do it, you can try too!
To learn more about Sandra, visit SandraGilpatrick.com. Third party posts on this profile do not reflect the views of LPL Financial and have not been reviewed by LPL Financial as to accuracy or completeness. Securities offered through LPL Financial, Member FINRA/SIPC.
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