Many recent graduates are moving into the work force. Life transitions often involve a lot of decisions – housing? car? benefits? budget? This is also a good time to consider your financial goals. Different goals have different time horizons. Some are short term—such as establishing an emergency fund—and some are long term, like retirement. Tackling all your savings goals at once is unrealistic, so you should prioritize. The most immediate savings goal is your emergency fund. Experts recommend that you have an emergency fund sufficient to cover six months living expenses. Assets in the emergency fund should be very liquid such as cash in a savings account or in a money market fund. If you are new to the workforce, it may take time to build up an adequate reserve. The easiest way is to transfer a portion of your paycheck every pay period directly into an account. You may…
Assessing your Financial Needs and Goals
What Are Your Savings Goals? The new year is the perfect time to reconsider your financial goals. If you have a partner, make this discussion a priority. It is the only way to determine if you are on the same page when planning for the future. To assess your financial needs, ask yourself the following questions: Do you need dividends or interest to support your present lifestyle? Are there any impending near-term changes in your life? When do you plan to retire? What about other long-term plans such as having children, changing jobs, traveling, or starting a business? Do you want to help your children with college expenses? Do you want to support specific charities? Are there unique factors to consider, such as health issues? Do other people rely on you for financial support? Do you have children or other family members with special needs? Are you interested in and…
Prioritize Financial Goals
Life transitions, such as college graduation, are a good time to think about financial goals. Different goals have different time horizons. Some are short term—such as establishing an emergency fund—and some are long term, like retirement. Tackling all your savings goals at once is unrealistic, so you should prioritize. The most immediate savings goal is your emergency fund. Experts recommend that you have an emergency fund sufficient to cover six months living expenses. Assets in the emergency fund should be very liquid such as cash in a savings account or in a money market fund. If you are new to the workforce, it may take time to build up an adequate reserve. The easiest way is to transfer a portion of your paycheck every pay period directly into an account. You may need a bigger emergency fund in some circumstances. You may face hurdles when looking for a new job,…
Time to Focus on Your Retirement
Most women are caregivers. We often put others’ needs—whether our parents, our spouse, or our children—before our own. We all have heard the advice that we cannot help others without taking care of our individual needs first, which is also true for our finances. Women take on many roles throughout their lives – daughters, wives, mothers, and, increasingly, businesswomen. The Small Business Administration reports that 50% of all small businesses in the US are home-based, which equates to approximately 15 million. The Census Bureau estimates that women run nearly three-quarters of home-based businesses. Running your own business offers independence and flexibility. These appealing attributes are sometimes the primary reason why women start businesses, especially those who are mothers. At the same time, women business owners need to be even more diligent and disciplined about planning for retirement. Saving enough for retirement is the biggest concern for many of us. For…
Paying Yourself First
When you are just starting out, make a goal of saving and investing a fixed dollar amount every month. The amount you save is not as important as getting in the habit of putting money aside consistently. Automatic savings plans, which you can use to build an emergency reserve or save for a down payment, graduate school, or retirement, are a relatively painless way to save. You can set up an automatic transfer from your bank on the day you get paid, a practice known as “paying yourself first.” Investing a fixed-dollar amount at set intervals is called dollar-cost averaging. An advantage of these automatic plans is that you invest the same dollar amount every time. When markets are weak, or asset values have fallen, the same dollar amount will allow you to buy more shares of a mutual fund or a stock than when markets are strong and investable assets have appreciated. In this example,…
Emergency Reserve and Liquidity
Experts recommend that you have an emergency fund sufficient to cover three-to-six months of living expenses. Your emergency fund should be a safe, stable reserve such as a savings account or money market fund. If you are new to the workforce, it may take time to build up an adequate reserve. The easiest way is to transfer a portion of your paycheck every pay period directly into an account. If you dip into your emergency fund, replenish it as soon as possible. In addition to an emergency reserve, you need to think about liquidity. Liquidity is a term from economics that indicates how easily an asset can be converted to cash. Some asset classes are more liquid than others. Cash and money market funds are the most liquid assets. Stocks and bonds are usually liquid. During periods of financial turmoil, however, you may not want to convert these assets to…
Take Advantage of Retirement Plan Matches
When it comes to planning and saving for retirement, you must be consistent and save and invest every year. You also must be disciplined. Once you invest the money, you cannot touch it. Because of the power of compounding investment returns, contributing to your retirement every year and allowing it to grow are the keys to building your nest egg. It is easier to put money away when you are young than when you have a mortgage or a family. Many of those that are just starting out in the workforce, however, face substantial headwinds: hefty student loan payments and high—and in some cases sky-high—housing costs. Even with a tight budget, saving for the future must be a priority. Start saving for retirement through your employer as soon as possible and take advantage of corporate matches. Corporate matches are free money that helps boost your savings every year. Make sure…
What is Your Time Horizon?
Life transitions, such as college graduation, are a good time to think about financial goals. Different goals have different time horizons. Some are short term—such as establishing an emergency fund—and some are long term, like retirement. Tackling all your savings goals at once is unrealistic, so you should prioritize. The most immediate savings goal is your emergency fund. Experts recommend that you have an emergency fund sufficient to cover six months living expenses. Assets in the emergency fund should be very liquid such as cash in a savings account or in a money market fund. If you are new to the workforce, it may take time to build up an adequate reserve. The easiest way is to transfer a portion of your paycheck every pay period directly into an account. You may need a bigger emergency fund in some circumstances. You may face hurdles when looking for a new job,…
Investing in Others
Be Thoughtful About Giving Back Consider having a family giving policy or charitable mission statement and prioritize the causes you wish to support financially. Evaluate donations the same way that you analyze investments. Look for organizations that use resources efficiently so your donation dollars will have the biggest impact. Analyze the percentage of donations to an organization that are used to cover administrative and fundraising expenses. The percentage of donations spent on administration and fundraising should be available in a charity’s literature. You can visit Charity Navigator at http://www.charitynavigator.org and look up a charity. The Better Business Bureau also rates charities. Keep Track of Donations Keep track of this year’s donations and the acknowledgments, thank you letters, and emails, in a current year tax file, which makes it easier to recall donations at tax time. Note the date, amount, and check number (if you wrote a check) on the…
Importance of Maintaining a Sell Discipline
When you make an investment, you rely on an investment thesis. The investment thesis is based on company fundamental attributes and valuation. Why is a particular stock attractive? Is there a catalyst that will improve earnings? Will the company benefit from a changing competitive landscape? Are there operational or regulatory risks on the horizon? Is the valuation attractive? Being disciplined and considering both fundamentals and valuation are essential when investing in stocks. Being undisciplined and only focusing on fundamentals or on valuation could have negative consequences. For some “hot” sectors, exuberance and a “fear of missing out” can elevate valuations across the board beyond reasonable levels. At the same time, there is a difference between buying a stock that is misunderstood or out of favor and buying a stock that is declining in value for a valid reason. Changing Fundamentals A change in fundamentals will have an impact on your…