What’s in it for me? Achieve financial freedom and fund your dreams.
For too long, women have gotten the short end of the stick when it comes to money.
Lower pay, more time out of the workforce, and longer lives that need larger retirement savings all lead to a sad reality: women are more likely to be impoverished in old age than men.
On top of that, women are often not taught the rules of the money game, and invest at far lower rates than men.
They also experience greater difficulty finding high-paid work.
We point this out not to depress you, but to motivate you to plan for a comfortable retirement and discover how to fund your lifelong dreams.
Because financial security and personal wealth can be achieved with smart habits and the right goals – even if you’re living paycheck to paycheck.
With author David Bach’s classic financial roadmap, you can learn to not only handle your expenses confidently, but finish rich too!
The sooner you start, the larger the money pot will be at the end.
(That’s the magic of compound interest.
) So let’s get to it!
Busting the money myths
How many times have you heard the saying “Knowledge is power”?
Probably more than once or twice.
Yet, knowledge is only potential power.
It’s what we do with knowledge that counts.
Unfortunately, money is a subject riddled with misinformation.
This makes taking action overwhelming at best and downright detrimental at worst.
So let’s start by busting the most common myth: the myth that wealth depends on income.
Now you may be thinking, “What part of that is a myth?
A fat income is how you become rich!
” But let’s take a look at some numbers.
Say you earn $2,000 a month.
Over a 40-year career, $960,000 will pass through your hands.
Earn $5,000 a month, and that sum leaps to $2,400,000.
Yet, a GoBankingRates report revealed that 42 percent of US adults have less than $10,000 tucked away for retirement!
For most of us, the problem isn’t a lack of money – it’s how that money is handled.
An eight-figure net worth doesn’t mean much if you spend eight figures each year.
Consider hip-hop star M.
C.
Hammer.
In the early 1990s, Hammer was one of the world’s highest paid performers – earning a cool $35 million in just one year – and his spending reflected his status.
But less than five years later, the superstar was filing for bankruptcy.
Smart Women avoid this fate at all costs.
Later sections will explore the specifics of where your earnings should go and how effortless proper distribution can be, but for now, understand that “finishing rich” won’t require more money than you already have.
By retaining more of your current income, that mythical place called wealth can become your new home.
Values-based financial planning
If you were a fly on the wall at one of the author’s FinishRich Seminars, this is what you’d hear asked at the very beginning: “What’s important about money to you?
” You’d then hear the deafening silence that usually follows.
Most people don’t expect to be asked this by a financial expert, yet, it’s a question central to Purpose-Focused Financial Planning.
This approach asserts that identifying what’s really driving you financially is the single most important step in the wealth-building process.
When someone finally breaks the silence at one of these seminars, words such as “freedom,” “security,” “happiness,” “service,” and “independence” soon resound around the room.
Perhaps some of these come to mind for you too.
The author then encourages everyone to mine even deeper, advising them to ask, “What’s important about X to me?
” – X being their last answer.
Lost?
Let’s look at how this applied to Helen, a 72-year-old widow.
Helen answered the question, “What’s important about money to you?
” with, “Security.
” She then asked herself, “What’s important about security to me?
” Her answer?
“Being financially independent.
” Helen drilled down another three times until she arrived at “Enjoying life with family now” – her core financial motivator.
Knowing your underlying value makes crafting an intelligent financial plan possible and following it easier.
Financial behaviors that don’t align with your driving force suddenly become a lot less compelling in light of this insight.
So, what’s driving you financially?
Don’t skip this step.
Spending ten minutes with this exercise will provide a greater return on investment than you imagine!
Show me the money
Picture this: you’ve finally mustered the courage – and savings – for a dream trip abroad, perhaps to Italy, Japan, or the Maldives.
You’re online, about to book the tickets, and … the website won’t work.
You’ve entered the dates, destination, and number of travelers, but the error message keeps flashing red.
Annoyed, you reach for your phone to call customer service, but the moment you do, you realize what you’ve done wrong.
You haven’t entered your point of departure.
No one would knowingly attempt to book a holiday without providing all the information.
Yet, this is how most of us try to tackle our finances – without identifying where we currently stand.
A personal understanding of our position is key.
Smart Women acknowledge that they can't “leave” money matters to a spouse or accountant.
Handing over the fate of their future is simply out of the question.
So, Smart Women get organized.
If you were asked to list all your bank accounts, investments, insurance policies, and debts on a piece of paper right now, would you be able to?
If not, you might benefit from the author’s recommendation – his FinishRich Folder System.
To start, set up some physical or digital folders.
Label them “Tax Returns,” “Retirement Accounts,” “Investment Accounts,” “Savings and Checking Accounts,” “Household Accounts,” and so on until you’ve covered the major areas that relate to your finances.
Then, over the coming weeks, start to fill them with the corresponding bills and statements.
If you find you’re missing certain documents, chase them up.
Soon, these folders will paint a clear and comprehensive picture of your current financial position.
Pat yourself on the back.
With your organizational system in place, you’ve completed all the groundwork necessary to Finish Rich!
As M.
C.
The Latte Factor
Hammer showed us earlier, fat paychecks don’t guarantee lasting wealth.
It’s the percentage we keep of that paycheck that does.
How many hours a week do you currently work?
Twenty?
Forty?
Seventy plus?
How many of those hours go towards actually paying yourself instead of taxes, a mortgage or rent, car loans, and credit card bills?
For most of us, it’s a small miracle to have anything left to put toward our future.
But this approach is backward.
Paying yourself first – pre-tax investing – is the quickest (legal) route to building wealth.
This is where you direct part of your earnings to a retirement account (such as a 401(k) or IRA) before the government deducts tax.
Financial experts tend to agree “everyone” should set aside 10 percent of their pre-tax income for retirement.
“Everyone,” however, typically uses men as the default, and as women’s retirements average 20 percent longer than men’s, women’s nest eggs should be 20 percent larger – meaning that you’d need to save an additional 2 percent of your earnings.
If saving 12 percent of your pre-tax income sounds unfathomable, try starting with just 1 percent.
Then, each month, increase your savings by another 1 percent.
Within 12 months, you’ll have hit 12 percent and hardly notice.
Wondering how you’ll survive on the remaining 88 percent?
Here’s where the author’s Latte Factor comes into play.
Take Deborah, a 22-year-old working in advertising.
For Deborah, squirreling away $50 a month for her retirement seemed unimaginable.
Yet, when she examined her daily expenses, she realized she routinely spent $8 on coffee and biscotti.
By cutting these unnecessary expenses, Deborah could save and invest almost $240 a month and $3,000 a year.
If she continued doing so until retirement, Deborah could very likely have over a million dollars waiting for her.
Where could you effortlessly save a few dollars?
The sooner you identify your Latte Factor, the sooner you can jump on the fast track of pre-tax investing.
Don’t put all your (nest) eggs in one basket
When the author was seven, he became an investor.
Being a stockholder of his favorite restaurant – McDonald’s – was exhilarating, so he purchased additional shares whenever he’d saved enough.
One day, his grandmother wisely advised he consider diversifying his humble portfolio, explaining the well-worn expression, “Don’t put all your eggs in one basket.
” Today, he advocates three baskets for financial eggs: a security basket, a retirement basket, and a dream basket.
We covered how to set up your retirement basket in the last section, so let’s explore the remaining two.
Your security basket exists to protect you from unexpected financial hardships.
The exact amount will depend on your emotional makeup and employment circumstances.
Some people are fine knowing they have three months’ worth of living expenses; others need 24 months’ to sleep soundly at night.
Equally important is how long it would take to replace your current income.
Could you find another job paying the same amount in three months, or would this need a year?
Less ambiguous is where your security basket should sit.
For the author, there’s only one answer: a money market account paying at least a 1 percent return.
Now to your dream basket.
Imagine you’ve just been handed a genie in a lamp.
How would you use your three wishes?
Would you start your own business?
Devote your time to a charitable cause?
Set off gallivanting around the world?
Refer to the core value you identified earlier if you need some inspiration.
Again, the amount to set aside will vary, but a good starting point is 5 percent of your after-tax income.
Savings for short-term dreams can be kept safe in a money market account, but consider a balanced mutual fund for those with a mid- to long-term horizon.
Voilà!
Your (nest) eggs are now in all the right baskets!
Investing mistakes you don’t need to make
Can you recall a mistake you made years ago that you’ve never repeated again?
For the author, it was sticking a screwdriver into an electric socket.
He was only five at the time, but the lesson remains to this day.
Learning from our mistakes is how we grow.
Yet, Smart Women see that they can learn just as much from other people’s as their own – and save themselves unnecessary pain in the process.
When it comes to investing, one of the most detrimental mistakes you can make is to wait.
Unfortunately, it’s a mistake thousands make each year.
We mentioned earlier that 42 percent of US adults have less than $10,000 tucked away for retirement.
But here’s an even scarier statistic: 14 percent have nothing whatsoever.
It’s never too late to start investing, but the sooner you do, the less you’ll have to save and the more you’ll have to eventually enjoy.
The miracle of compound interest famously received Albert Einstein’s acknowledgement, so we’d be wise to follow suit!
Another area where you don’t want to dawdle is buying a house.
This mistake is particularly prevalent among young women, who assume it best to hold off until they’ve found their Mr.
or Ms.
Right.
But think of it like this: when you own, you’re making yourself rich; when you rent, you’re making someone else rich.
As a general rule of thumb, for every $1,000 you put towards your monthly rent, you could have $125,000 in a mortgage.
What sounds better: spending $2,000 a month on rent that you’ll never see again?
Or taking out a mortgage that could provide you with a lifelong shelter or lucrative return on sale?
We all make mistakes, and we’ll probably make a few on our way to finishing rich.
But we can minimize that number by learning from others.
After all, we don’t each need to personally jab a light socket with a screwdriver to know it’s not the wisest thing to do.
At this point, you may be screaming, “I wish I’d known this earlier!
Smart kids can finish rich too
” If so, you’re not alone.
In a report from the Council for Economic Education, 66 percent of US high schoolers failed a basic test of economic principles.
What’s more, a PricewaterhouseCoopers study revealed that only 31 percent of American K-12 teachers would feel “completely comfortable” teaching personal finance to their students.
The financial education we receive is in desperate need of improvement.
Why not help turn the tide?
Sharing your newly acquired knowledge with the children in your life – helping a smart kid finish rich – is a rewarding endeavor.
If you don’t have young ones yourself or in your family, consider becoming a mentor with an organization like The National Mentoring Partnership or Big Brothers & Sisters of America.
The best place to start is by explaining where money comes from.
We’ve all heard the expression “Money doesn’t grow on trees,” but kids also need to recognize that money doesn’t grow on ATMs or apps either.
Letting children handle physical money – coins and notes – is a great way to introduce them to its true value.
Also, don’t be afraid to provide kids with a weekly allowance.
A modest sum can be a fantastic teaching tool.
Nelson Rockefeller recounts the strategy that his father, mega magnate John D.
Rockefeller, used.
Nelson and his siblings were given 25 cents a week.
Of this, 10 percent had to go to charity, and another 10 percent had to go to savings.
If they wanted more, they had to work for it.
If they wanted to spend it, they had to note where it went.
The Rockefellers are one of the wealthiest families in modern history.
Why not take a leaf out of their book and help the kids in your life finish rich too?
Attracting abundance
We started this Blink with the assertion that “finishing rich” doesn’t require an eight figure income.
That said, becoming someone who attracts abundance is still a worthy endeavor.
After all, the sooner you have your security and retirement baskets filled, the sooner you can start living the life of your dreams.
Here, the author encourages a gratitude practice.
Now, this may provoke a groan or eye roll, but listen to this exchange between the billionaire investor Sir John Templeton and self-help guru Tony Robbins.
When Robbins asked Sir Templeton what he considered the single most important piece of advice for pursuing wealth, Sir Templeton replied, “Learn to live with an attitude of gratitude.
” It’s fantastic that you’ve committed to financial security and funding your dreams.
Just don’t forget to pause and smell the figurative roses along the way.
The circle of life is a powerful force.
Savor those around you, and they’ll savor you back.
Love existence, and existence will love you in return.
Be generous with your time and energy as you journey towards finishing rich.
It will be all the more enjoyable and meaningful for it.
Final Summary
Smart Women pursue financial empowerment.
They recognize that men have a significant head-start in the money game, so make financial education, future security, and realizing their dreams a priority.
By connecting with your values, getting organized, keeping more of your income, investing wisely, and appreciating the journey, you too can join the ranks of Smart Women who finish rich!