Do-It-Yourself  Financial Management

Taking control of your finances can be an empowering choice—if you know how to get started

By Brittany Shoot

Managing your financial planning doesn’t have to be daunting. Given the many consumer tools available today, selecting products to manage your financial health—from budgeting to investing to saving for retirement­—can be rewarding and even life changing if you set goals and stick to them.

According to research published in 2018 by the investment bank and brokerage firm Charles Schwab, only one in four Americans has any sort of written financial plan. Many people think that their income level does not merit planning. But research shows that even individuals earning modest salaries benefit greatly from creating a financial plan, which cultivates healthy budgeting and saving habits and pays off over the long term.

Financial advisor Laurie Fried, CFP, MAFF, CDFA, who holds a BA in economics and an MBA in finance, spent 25 years at major financial institutions, including J.P. Morgan and Barclays Capital, before founding two firms focused on women’s financial planning needs, New Leaf 
Financial Advisory and Lumina Financial Consultants. For her, working with women to help them understand their finances is personal. When Fried was in corporate finance, she went through a divorce and thought she knew how to manage her money. She was wrong. “I realized many women don’t have the financial expertise to evaluate the choices they’re making,” she says. “A lot of personal financial planning doesn’t address women’s unique challenges. We come from a place of informing and supporting, and we teach clients that they are valuable and strong, and they can take care of themselves in the financial arena.”

It is important to note that the term “financial advisor” is a broad way of describing professionals trained to help manage finances, including investments and retirement planning. Some financial advisors are financial planners, and they may also specialize in certain types of planning, whether to fund education or to retire. Financial planners often have Certified Financial Planners (CFPs) certifications. Both planners and advisors charge fees, which vary widely and may be fee- or time-based.

Setting your goals to get set for success
Financial professionals offer expert guidance, but you don’t have to hire an advisor or planner to begin putting together a plan that works for you. To get an overview of your situation, consider your current standard of living, as well as your hopes for the future. Do you aspire to buy a home, or to pay off your mortgage? Does anyone else—a spouse or partner, or a dependent you support—contribute to your financial goals? Consider any risks that could impact your planning, such as an illness.

Fried says this personal inventory can be an especially important exercise for young women. In her practice, where she works mostly with women in midcareer or later in life, she says, “We sometimes see the back end of mistakes that could have been avoided.” Women who plan as early as possible will be better prepared for future financial events, both negative and positive.

Fried adds, “People can handle their own investing and management or not, but either way, they need to be part of conversations about their finances and financial future.” Through Lumina Financial, she offers monthly social gatherings with an educational component. The idea is to create a community where women feel less alone learning about money management topics. “We call it breaking the money silence,” she says.

Building your future by balancing credit, debt, and savings
Dawn Sanchez, a Certified Financial Planner and a Retirement Income Certified Professional at Ameriprise Financial Services in San Francisco, has nearly 20 years of experience working closely with clients. When it comes to money management, even before investing, she makes sure a client is working on an emergency fund “first and foremost.”

An emergency savings account optimally covers six to 12 months of basic expenses, including rent or mortgage payments, groceries, and transportation costs. If that seems daunting, start by covering one month’s worth of expenses. Different types of savings accounts serve different purposes and can help you quickly build your reserves.

Numerous institutions offer money market savings accounts to individuals. These accounts earn around 2 percent interest on an annual basis. That return isn’t always as high as investing in financial products like mutual funds, but money markets tend to have more relaxed rules about when you can withdraw your money.
Retirement planning is another way in which many individuals first begin considering how to prepare for their financial future. Many major employers offer retirement contribution programs, including some matching amounts. Sanchez suggests that, if possible, “Go beyond what your employer matches in your 401(k).” That could mean setting up additional pretax or high-interest retirement accounts, or simply adding more to your employer-managed fund.

In addition to creating strategies for saving, it’s crucial to remember that all debt is not created equal. When it comes to balancing debt and savings, it’s possible to do both. A good rule of thumb is that good debt can include anything with an interest rate under 5 percent. Some federally subsidized student loans, for example, may run well under that threshold. Paying them off may feel good, but the repayment amounts may be so low that you can pay the minimum due each month during the full repayment period and invest your money elsewhere to earn additional returns.

Keeping your credit score healthy also means accumulating some debt and then paying it down to demonstrate that you can manage your personal balance sheet. As credit cards have very high interest rates, try to pay them off in full every month. Keep older lines of credit open, even if you don’t use them much or at all. Those available lines of credit contribute to the overall amount you could borrow if needed. And don’t be afraid to ask for credit line increases if applicable.

Diversify your investments
Pretty much without exception, advisors use the same word to describe a smart investment strategy: diversification. This step is one that Sanchez typically considers once clients have other financial products, such as a traditional savings account, in place. “If a client is new to investing, I make sure she gets comfortable (with the level of risk) before we branch out,” she says.

In practical terms, diversifying investments means that you might have some cash savings—which may include traditional savings or high-interest money market accounts—as well as stocks, which are more vulnerable to market shifts and swings.

Mutual funds are a typical way to begin investing in the stock market, as some funds—such as the category called balanced funds—include the exact type of diversification that can shield investors from the worst market volatility. There is typically a minimum amount one must invest in a mutual fund. Exchange-traded funds, or ETFs, have become popular since they were introduced over two decades ago. They may have slightly lower management fees than mutual funds and can be bought and sold the same way as individual stocks. Much like mutual funds, ETFs hold a collection of assets that are evaluated together. Both of these types of investments are worth exploring if you’re looking to expand beyond retirement-focused investments that offer tax-free income, such as 401(k) and Roth IRA accounts. 
(A Roth IRA is a popular individual, after-tax retirement account in which you pay taxes as you contribute, but can withdraw funds tax free when you retire.)

Digital resources for DIYers
A reputable service can help you plan your savings and investment strategy. They ask you to answer a questionnaire about your expenses and spending, and link to your existing accounts to maintain a full overview of your finances.

Mint, a free, secure service with a user-friendly website and a mobile app, has long been a favorite among people trying to stay on a budget and keep an eye on numerous accounts at once. A newer, savings-focused app, Acorns, rounds up your purchase totals and invests the rest to make saving a bit easier. It costs $1 to $3 a month and is free to students. Albert, another popular budgeting app (free for iOS), analyzes your spending habits and automatically creates a budget you can tweak and track. Many credit card companies and banks offer mobile apps. With a few clicks, you can get an overview of available funds or view your savings to see if you’re meeting your goals.

Taking charge of your personal finances can have a positive impact on other parts of your life. Financial advisor Fried says, “When women take control of their finances, they make better choices in general.” DW

Brittany Shoot is a journalist based in San Francisco.

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