It’s a cold, snowy Saturday afternoon and, for the first time in a while, you have a few free hours. Looking around for something to do, you decide to:
A. Plop down on the sofa and pop a tape of “Titanic” into the VCR.
B. Hop in the car and drive to the mall to catch yet another sale at your favorite store.
C. Park yourself at the dining room table and make good on your resolution to improve your neglected finances.
Sure, A and B are the more appealing options in the short run, but, deep down you know C is the wisest choice. (Plus you resolved a mere 16 days ago to get out of debt and save more, remember?)
So why run around in the cold to buy more stuff that you don’t need or watch a movie you’ve seen five times?
It’s simple. We dread dealing with our finances.
Most people, but women especially, put off financial planning because they’re “busy, confused, afraid or think somebody else is going to do it for [them],” says Jennifer Openshaw, founder of the Women’s Financial Network Inc. and author of “What’s Your Net Worth: Click Your Way to Wealth” (Perseus Publishing, $26).
“We really do ourselves a disservice when we do that,” she says. “At this time of year, there’s an even heightened anxiety [about finances] for women if they face debts from the holidays, if they’re looking for a new job or trying to prevent the loss of a current one. There’s also a sense of paralysis that can come from fear of doing it wrong or not knowing how to get started. But now is really the ideal time to step back and ask yourself what are your most important financial goals to accomplish in 2002.”
So, to help you keep that New Year’s resolution, here are advice and tips from Openshaw and other financial experts around the country:
Track your spending
The money experts agree that making a budget is hands down the best way to uncover those black holes that swallow your cash every month.
Bottom line: Ask yourself, “What does it cost to keep you in operation for 30 days?” says Catherine Williams, president of Consumer Credit Counseling of Greater Chicago. “A budget is not a mathematical problem. It’s a forecast. The whole focus of a budget is to teach you to project ahead.” And, if you have a family, make sure everybody in the household gets involved in the budget process.
Solid-gold tip: Write down everything you spend over a 30-day period, advises Deborah McNaughton, a consumer credit advocate in California and author of the just published “Financially Secure: An Easy-to-Follow Money Program for Women” (Thomas Nelson Publishers, $13.99). “How much are you spending at the vending machine? It’s all the miscellaneous things that you’re losing control over,” McNaughton says.
Online resource: Try the cash flow calculator at www.ivillage.com/money/tools/cash-flow.
Deal with your debt
“Debt is a killer,” says Lynda Rufo, a vice president and private client adviser at Wilmington Trust Corp. in New York, who advises everyone to “reduce debt wherever possible.”
Basically, there are two kinds of debt–good and bad. “Good debt is debt on an appreciating asset” (a home mortgage), says Michelle Hoesly, spokesperson for the Million Dollar Round Table, an international organization of financial service professionals in Rosemont. “Bad debt is debt on depreciating assets like your car and [most items bought with] credit cards.”
Bottom line: “Stop using credit cards; cut them up,” McNaughton advises. “A credit card is not a paycheck. . . . Credit cards should be used only for convenience, and for building a good payment history on your credit report.”
Solid-gold tip: “Anytime you want to buy something on a credit card, wait 24 hours to decide if you really want to buy it,” Hoesly advises. “By then, you will find you don’t want it.”
Other debt management tips:
Close unused lines of credit. Two major cards are probably more than enough to cover purchases that must be put on plastic.
Pay at least two times the minimum required payment to reduce debt faster.
When one credit card is paid off, apply its payment to the next debt you want to retire and so on until you’re in the clear.
Use credit only to buy durables (washers, water heaters, etc.) and pay cash for consumables (dinners, shoes), says Williams of Consumer Credit Counseling of Greater Chicago.
Online resources: If you think you need professional debt management help, visit the Web sites of American Consumer Credit Counseling (www.consumercredit.com), Consumer Credit Counseling Services (www.cccsintl.org) or Myvesta.org.
The cash advantage
Across the board, the experts agree that it’s smart to have an emergency fund, money to tap if you find yourself without a regular paycheck.
Bottom line: Married couples with two wage earners should keep at least three months of living expenses in an emergency fund, in case one spouse gets laid off, McNaughton says. Single-income earners’ emergency funds should cover at least six months of living expenses.
Solid-gold tip: Keep emergency funds liquid and easily accessible. The best bet is a money-market fund. Banks, brokerage firms and mutual fund companies offer money-market funds, which often pay higher rates than offered on regular savings accounts.
Online resource: For a list of the highest-yielding money-market funds, visit www.ibcdata.com.
Keep retirement in mind
A recent survey by the American Institute of Certified Public Accountants indicated that more women than men (51 percent versus 36 percent) are concerned about their personal finances. If women are worried about their finances during their working years, they should be even more concerned about their later years.
According to another report, 75 percent of all elderly Americans in poverty are women. Yet, the Women’s Retirement Confidence Survey of 2000 found that 60 percent of women had not tried to figure out how much they will need to get them through retirement, and 40 percent had not started saving anything for retirement.
For working women, the good news coming out of last year’s Economic Growth and Tax Reconciliation Act is that beginning this year the pre-tax limit that they can contribute to employer-sponsored retirement plans, namely 401(k)s and 403(b)s, is $11,000, up from $10,500. And workers age 50 and older can contribute even more, $12,000. Also, matching contributions made by employers now will be fully vested after an employee reaches three years of service instead of five years.
Contribution limits for traditional and Roth IRAs also will increase this year, from $2,000 to $3,000 per person. Further, under the new law’s “catch-up” provision, those over 50 can make a $3,500 contribution.
For the record, the average American contributed only $3,800 to his or her 401(k) account last year, according to Mellody Hobson, president of Ariel Capital Management in Chicago and personal finance expert for ABC’s “Good Morning, America.”
Bottom line: “If you’re not contributing as much as legally allowed, you should consider increasing your contributions” to these plans, says Vickie Bajtelsmit, a professor of finance at Colorado State University and author of “The Busy Woman’s Guide to Financial Freedom” (Amacom, $17.95). If you max out your contribution, you may stand to realize $3,000 in tax savings, she adds.
Solid-gold tips: Remember Enron. The collapse late last year of the Houston-based energy company fried its employees’ retirement accounts because many had invested it all into the company’s stock. So, it’s smart to evaluate your holdings once or twice a year, advises Rufo, and to be an active manager of your account. And don’t throw away those prospectuses. Read them to know how your funds are invested. “The main thing,” she says, “is to keep diversified.” If you have just the 401(k), Openshaw says, that is probably not enough to meet your retirement goals, depending on what they are. If you can afford to do so, open an IRA early in the year so you have an entire year to let it grow tax deferred. And, if you can afford even more, invest in a mutual fund and contribute to it through automatic payments from your checking account, she advises.
Online resources: Check out Smartmoney.com’s 401(k) planner.
Insure yourself
The most important asset a single woman has is her income, says Hoesly, who is also a certified financial planner in Norfolk, Va. But “most women have not insured their income through disability insurance,” she notes.
Bottom line: If your employer offers long-term disability insurance, sign up for it. Usually for a minimal cost, it guarantees you 60 percent to 70 percent of your income in the event of a long-term illness or injury.
Solid-gold tip: At the beginning of every year, review your life, health, auto, homeowner’s or renter’s insurance policies to make sure you have adequate coverage. Why? Because your situation may have changed since the policies were purchased. Has the value of your home gone up significantly? Then you want to be able to cover it at today’s value, not what it was valued at when you purchased it. If you’ve had children, you want to make sure you have adequate life insurance coverage.
Online resources: For rates and quotes, go to quotesmith.com or reliaquote.com.
Other smart moves
“It’s important on an annual basis to prepare a net-worth statement–everything you own minus what you owe,” says Freida Kavouras, a partner in personal financial counseling at Ernst & Young in Chicago. “It’s a great benchmark to know every year where you are. “
Request copies of your credit reports from all three of the credit reporting bureaus to make sure there are no errors. Credit reports now include a FICO rating (named after the company that devised it, Fair Isaac and Co.), a numerical score that virtually all major mortgage lenders use to evaluate creditworthiness.
For reports, contact Experian (888-397-3742, www.experian.com); Trans Union (800-888-4213, www.transunion.com); Equifax (800-997-2493; www.credit.equifax.com); Qspace.com (offers access to all three bureau reports).
Openshaw points out that you “want to pay attention to your credit report because employers are increasingly looking at reports to determine whether they should hire you.”
Consider hiring a pro
Many people avoid hiring a professional financial planner because they think they can’t afford their fees or don’t have enough money to invest. Not true. “There’s a planner for everybody,” says Denise Gustin-Piazza, an independent financial planner in Chicago and co-author of “Winning Financial Strategies for Women” (Wiley, $16.95). More single women and businesswomen are turning to financial planners, she notes. “They’re saying `I need to take control and understand what’s going on.’ “
A planner can assess where you are along the path toward your goals and help you implement a plan to achieve them.
Online resources: These organizations’ Web sites can help you locate a planner: Certified Financial Planner Board of Standards (www.cfp-board.org); National Association of Personal Financial Advisors (www.napfa.org) and Million Dollar Round Table www.soundfinancialplan.com.
Invest in yourself
“Right now is a great time to consider investing in your human capital,” says finance professor Bajtelsmit. “Put some money aside for your own education, take some classes.”
“That few hundred dollar investment can lead to a new job or a several thousand dollar raise,” Openshaw adds.
Updating your resume is also a good idea right now, she says. “The more prepared we are, the more we can relax.”
Facts and figures
Debt
21 percent of women have cut up or re-turned credit cards.
The percentage of women filing for bankruptcy rose from 17 percent of all filers in 1981 to 40 percent of all filers in 1999.
Retirement
54 percent of women in their 20s and 30s are more likely to acquire 30 pairs of shoes before saving $30,000 in retirement assets.
For a woman in her 20s, waiting one year to save $10 a week could cost more than $12,000 in retirement assets.
For a woman in her 40s, waiting one year to save $50 a week could cost more than $18,000 in retirement assets.
Investing
56 percent of women feel confident about their investing abilities; 64 percent of men do.
Sources: Money for Women, Oppenheimer Funds, Women’s Financial Network
Resources
Financial Health Week
With polls showing that women are increasingly concerned about their financial well-being, the American Institute of Certified Public Accountants and MONEY Magazine’s Money For Women have teamed up to declare Jan. 14-18 Women’s Financial Health Week. A key component of the week is an interactive Web site (www.womensfinancialhealthweek.com) that offers tools and tips to help women develop and enhance their financial plans. Other features of the site include online chats, a “Financial Fitness Test” and a daily poll, designed to gauge women’s financial outlooks and opinions.
Today’s live chat session, “Money and the Independent Woman: Navigating Relationships to Protect Your Pocketbook,” begins at 11 a.m.
Financial services
Citigroup recently introduced in New York City, Chicago and South Florida a member-only financial services program for women called Women & Co., targeted toward those with incomes over $100,000. An annual membership fee of $125 includes:
Invitations to special events
Survivor support financial counseling
Access to a toll-free answer line
Online financial planning
Preferred interest rates on student loans
Child-care and household payroll tax preparation
Women can enroll at select branches of Citibank and Salomon Smith Barney. For more information, all 888-679-9255 or visit www.womenandco.com
Education
The University of Chicago Graham School of General Studies offers full- and half-day seminars on financial planning and decision making. The next seminar, “The Late Start Investor,” is from 9 a.m. to 5 p.m. on Jan. 26. Cost: $250. For more information, call program administrator Jason Power at 312-464-8655 or register online at www.grahamschool.uchicago.edu.
