Eat Your Way to Financial Independence
By Kathleen Hansen, Certified Financial Planner®, EA, MBA
We plan the things that are important to us. We spend weeks on Pinterest and Instagram searching out the quintessential ombre look to bring to the hair stylist. We scour travel review sites for that Caribbean getaway almost a full year in advance. Heck, we agonize for days over the dinner menu for when the in-laws come to town. So why is it that we haven’t dedicated any time to one of the most significant aspects of life?
Planning our financial independence.
The simple answer is that we need to work at it. Accounting is not intuitive. Most of us didn’t come into this world knowing how to read a balance sheet and conduct cash flow analysis. It takes time, practice, and dedication to developing good fiscal discipline.
The first step is understanding what we spend our hard earned money on. Sounds easy, right? But as a financial advisor, I often come across couples and singles who have no idea where their money goes. All they know is that at the end of the month, funds are gone and nothing was allocated to savings. Consumerism got in the way. Or lack of attention. Or just plain laziness.
We have become immune to spending. Our paycheck gets loaded electronically into our bank account. We purchase with the flick of a piece of plastic. No cash passes through our hands.
As an experiment, try going paper-only for a month or two. Make withdrawals from the ATM. Start paying with cash and see how it feels. Is the money as easy to part with? What happens when the car needs gas, but your wallet’s empty?
Growing up, I remember my mom sectioning the money my dad brought home from his paycheck into separate envelopes. When the grocery envelope was exhausted, no more groceries were purchased. We never went hungry. She fixed dinner from the items in the pantry. Not much food was ever wasted.
A coffee and oatmeal at the ubiquitous Starbucks are $10. The same meal at home is a tenth of that, or about $1. Life is about choices, and the sooner we start making better choices, the sooner we start building a better future. So the next time the urge to treat yourself to a venti vanilla latte hits, elect to skip it in favor of your financial independence.
Improve Your Financial Literacy
Financial literacy, or what I see as illiteracy, is a serious issue for women over 50. Too many of us were taught that the men in our lives would take care of this for us. We must save for retirement now, or we will never retire. Here’s how we can start to change that now!
Develop lifelong good habits
Spend less than what you make
Use credit wisely - You rarely make more on cash than what a loan will cost you. So only use credit when the cost of credit is cheaper than what you are earning on your cash or investments.
Credit cards usually have the highest interest rates. Be careful because sometimes the minimum payment will not even cover the interest charges. Shop around for the best credit card rates. Some cards offer 0% interest rate if you transfer a balance.
Pay off your credit card every month to avoid interest charges. Only charge purchases you can pay off at the end of each month.
Pay off debt - Pay down loans with the highest interest rate first and work your way down.
You should have some emergency funds, so don’t spend your cash down to zero.
Know when it is good to get a loan and for what assets - If you must get a loan, shop around. Credit unions are a good place for used car loans. Auto dealerships will often have a reasonable rate for cars that they are trying to move off the lots. The deals won’t be on the hottest car models.
HELOC (Home Equity Line of Credit) will have lower rates because your home is the security behind the loan. Be careful with this – you don’t want to lose your home if you can’t make this payment.
Understand basic investments like stocks, bonds and mutual funds - The Osher Lifelong Learning Institute has finance classes for adults over 50 at 120 universities and colleges in 50 states including UCLA Extension.
Keep track of your credit score.
Consult a financial planner for help strategizing what college to have children attend without killing your prospects for your own retirement. Use the low cost, or often free tuition, community college system. Then have your child transfer to his or her favorite school for Junior and Senior years. The degree will be the same!