Financial Independence Doesn’t Have to be Complicated

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Published by Taylor Financial Group (for women)

My mom always stressed the importance of growing up to be a financially independent woman at an early age. It’s something I stress to my two daughters as well. That means everything from encouraging them to develop a strong work ethic and earn their own money to helping them understand the value of the dollar and how to budget their allowance (which seems to all go to Starbucks and Sephora!). Instilling the need for a solid financial foundation in my daughters is something that I am proud of, especially given the overwhelming statistics about women living longer than men, rising health care costs, gender income inequality, and sky-high divorce rates. It’s more important than ever for women to understand the significance of financial independence. Here are three steps to get you started on establishing and maintaining your financial independence.

Track every penny you spend. It may sound tedious but keeping track of spending is something every woman can benefit from. It doesn’t take much to get off track, which is why having a handle on what’s going in and out your checking account lets you see the reality of your financial state. At first, everything from the $2.00 Dunkin Donuts coffee to the $300 car payment should be recorded! Then, once you’ve got a good understanding of your spending, you can focus your budget on the more significant items. Utilize our Cash Flow Worksheet so you can organize what goes in and out of your bank account!

Question big spending decisions. Think about your work day and try to equate your spending with hours at work. That $400 designer purse may not seem so worth it any more when you realize it’s worth 13 hours at the office. Instead, use the purses you already have and save the big-ticket items for a special occasion, like your birthday. You can also help yourself make good decisions by evaluating expensive purchases by level of importance. For instance, next time you’re at Nordstrom’s and have that urge to drop some cash on an expensive purse, ask yourself these four questions: Is it in my budget? Is it an emergency? Will it make me happy (in the long run) or healthy? Does this purchase get me closer to any of my goals? If you can’t answer yes to at least one of these questions, consider putting that money towards something more meaningful, like paying bills, contributing more to your 401(k) or another investment.

Invest your money because money is power. The best place to start investing is in a 401(k) retirement account (if your employer offers one), or an Individual Retirement Account (IRA) account. The tax advantages that these types of retirement accounts offer will allow your money to grow at a faster rate than just simply putting your cash into a savings account. According to the chart below, if you invest $100,000 over a 30-year time frame, it can grow to $574,349 in a tax-deferred account before taxes! Many women are hesitant about investing because they fear they will “lose everything.” However, when it comes to investing, it’s important to understand that some risk is necessary. It’s even more important to understand how much risk you’re willing to take. That’s why we have a Risk Tolerance Questionnaire to help clients make appropriate investing decisions based on their personal risk tolerance.

JP Morgan, Guide to Retirement

Becoming financially independent and gaining financial confidence is a process. As your financial advisor, we take the journey with you. Let us help you with your budgeting and investing needs.

Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty.

 

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