Planning for Certainty in Uncertain Times
One thing is certain, economic uncertainty will remain with us for some time to come. Women should make sure they are on track to meet their goals conducting a semi-annual review of your goals, savings and plans. Here are manageable ways to tackle planning in uncertain times:
1. Re-examine your personal budget. It’s always a good idea to review your personal budget – paying special attention to what bills you are paying automatically, as well as subscriptions that are set up to renew annually. It’s easy to forget about all of the subscriptions you have (for example - streaming services) so taking time to go over all of your bills can really make you aware of things you might not “need”.
2. Find a financial organizational system that works for you and stick to your plan. The all- cash method is a surefire way to get you on a budget, though it can be challenging since we are becoming such a cashless society. We suggest paying all mandatory bills such as mortgage, gas, electric, car and insurance, etc. Keep contributing money towards your employer plans (401k, HSA) every month. After those expenses are accounted for, withdraw enough cash for other items such as groceries, entertainment, personal grooming (hair/nails), fitness and gym memberships, dry cleaning, babysitters, etc. Allocate the remaining cash you have left towards these discretionary items and ONLY use cash. You’ll quickly can see how a dinner out a few nights a week can add up and areas where you might need to say “no” to meet your savings goals.
3. Consider all your investment opportunities, including Roth IRA and others. A Roth IRA, which is a special individual retirement account (IRA) where you pay taxes on money going into your account and then all future withdrawals are tax free[1], is a great idea if you are able to contribute. Another option is a “backdoor” Roth where you first contribute to a traditional IRA and then immediately convert it to a Roth IRA (to avoid paying taxes on any earnings or having earnings that put you over the contribution limit).[2] However, keep in mind anything you move from the pre-tax IRA to the Roth is taxable. We advise our clients to make sure you have the needed liquidity available at tax time. The nice thing about a Roth IRA is once you are 59.5 years old, and have had it in there for 5 years – the distributions are tax free!
4. Reevaluate your money beliefs. This isn’t easy, and brings up a family history and other attitudes you might have been taught about money, but it’s an important conversation to have with yourself. Clever girl finance outlines questions to ask your partner about money, but they apply to a personal reflection as well. Important questions to ask yourself:
· What are your spending habits?
· What attitudes do you have toward debt?
· What did you learn about money growing up?
· How did your parents handle money?
· What financial planning tools do you use?
· What are your retirement savings plans and goals?
· How important is charitable giving, supporting family members, or other donations?
5. Keep contributing to your savings and building up an emergency fund. During tight times, it can be tempting to pull away from savings. Make it automatic, so it’s withdrawn and deposited into a savings account on a regular basis and you become accustomed to it. We recommend at least 20% of your income should go towards savings. And, if you can do even more - do!
6. Adjust your spending and saving for inflation. This goes back to reviewing your personal budget. One area where we all have seen prices climb is at the grocery store. Make a plan ahead of time, have a shopping list of ingredients to keep your spending on track at the store. Consider trying generic brands and buying only what you need or plan to eat that week. When looking at the subscriptions expenses you have, don’t forget food delivery costs (service and delivery fees and tips can add up!) and uber or other conveniences that are nice-to-have but not necessarily must-haves. Reducing or eliminating these are a great way to cut back on expenses!
The goal is to grow your financial wellness by investing in yourself. Taking care of your personal finances is a good first step.
[1] https://www.investopedia.com/terms/r/rothira.asp
[2] https://www.investopedia.com/how-to-set-up-a-backdoor-roth-ira-4584775#citation-18