A. When you are trying to lose weight the basic recipe is “eat less exercise more.” When it comes to staying financially fit in the new year the same formula applies: spend less earn more. The best way to avoid a holiday financial hangover in 2008 is to attack both sides of this equation.
In terms of spending less the obvious place to start is to look through your daily expenses and see where you can cut back. Some not-so-obvious ways to spend less include going shopping in your closet. See if there’s anything you aren’t using that you could sell on eBay. Another idea to spend less is to make sure you actually use those frequent flyer miles or reward points you accumulate; if you don’t have enough for a flight you can trade them in for merchandise ranging from fluffy bath towels to gardening supplies.
As for earning more as next year’s holiday season approaches consider taking on some temporary extra work — retailers delivery companies (FedEx. UPS etc.) and catering companies are frequently looking for a little extra help. The combination of the one-two punch of spending less and earning more can have an incredible impact on your overall financial state of mind.
If money is tight shop for a high-deductible catastrophic health insurance plan. You can start your search on your own using an aggregator like or you can work with a local health insurance broker in your area (you can find one at ).
Make sure you have at least a starter $2,000 emergency fund. According to the Consumer Federation of America the average woman in her twenties and thirties has about $2,000 a year of unexpected expenses yet only $500 in savings. That’s a recipe for stress like you wouldn’t believe. Being self-employed involves enough uncertainty; you don’t also need to be worrying about how you’d pay for a last minute ticket to see a sick relative or a midnight call to the plumber. Our favorite place to stash that fund — savings accounts at online banks like and.
Know that Money Is the Pink Elephant in the Room. According to the American Payroll Association. 70% of Americans are living paycheck to paycheck. Shockingly this statistic cuts across income spectrums. As financial guru Dave Ramsey famously says: Act Your Wage! Don’t succumb to peer pressure to live beyond your means. If you feel like money is tight as often it is when you are starting up a new venture be honest with your friends and ask them to support your decision to live within your means.
A. The biggest mistake we see self-employed women making is not knowing when they should “protect” their cash and when they should “invest” their cash. Our rough rule of thumb is that money you
you need to spend in the next 1 to 5 years should be “protected,” by parking it in an account that generates sufficient interest to offset inflation but doesn’t put your savings at risk. Examples include online savings accounts money market funds/accounts and certificates of deposits (CDs).
is the money you are free to “invest” in riskier options like stocks and bonds. A great keep-it-simple option for this longer term money is target date retirement funds. These are the financial version of the chicken rotisserie “set it and forget it” machine. They have names like “target date 2040″ and “target date 2045,” and the dates correspond to the year in which you will turn 65. The way they work is that a mutual fund company will shift your money between stocks (most aggressive) bonds (moderate risk) and cash (conservative) as you get closer to retirement — so you literally only have to make one decision to invest your money in the funds. You can get these funds at all the major discount brokerage firms — Vanguard. Fidelity and Charles Schwab.
A. For the disciplined self-employed woman our favorite retirement account is the SEP IRA as it enables you to contribute more money than in a simple ROTH. While you don’t get the tax-free status on withdrawals that you would with a ROTH the ability to set aside a significantly larger chunk of change makes it a classic. However when it comes to retirement savings the most important thing is to do it early and often — no matter what type of account you choose!
Q. If a newly self-employed gal isn’t yet bringing home enough bacon to open a retirement fund (let alone pay herself her target salary) should she maybe eat a bit more Ramen and open the fund anyway? Or wait a year or so till she’s more solvent?
A. Eat the Ramen. The money you save early on is the most valuable. Quick quiz: Who has more money at age 65 — the woman who invests $500 a year starting at age 25 or the woman who invest $1,000 a year starting at age 35? Assuming both women’s investments go up 10% a year the woman who started at age 25 will have $221,000 at age 65 while the woman who started at age 35 (even though she saved more!) will only have $165,000. It’s so important we’ll say it again:
Georjina. I just turned 40 have never been married and am with you 100%. I am pretty behind on investing too and am nowplaying catch-up. I’m passing your question on to Manisha and Sharon; hopefully they’ll have time to answer this last question.
Just so you know this discussion — and their book — has ALWAYS been about women standing on their own two feet (note the book’s title. On My Own Two Feet) rather than relying on a spouse. So I don’t think your question is off-topic at all.
“Yep we so hear you. We are all about women - at every stage of their lives - living from a position of financial strength. Alas right now that is not the case. According to The Women’s Institute for Secure Retirement a stunning 2 out of every 3 women over the age of 65 are currently relying on meager Social Security payments as their PRIMARY source of income. In plain English that means that literally MILLIONS of women who have devoted their lives to making the world a better place and caring for others along the way are now having to choose between food and essential medicine in their golden years.
When we talk about this to groups of younger women sometimes we’ll see eyes glaze over and we can almost feel the heat as thoughts meander through the air… “That’s not going to happen to me…” But here’s the stark reality: 80% of men die married & 80% of women die SINGLE. Most of us ladies will be the sole providers of our personal finances at some point in our lives. This is why we firmly believe that ALL women should have financial knowledge and strength. That said we’ve chosen to focus our initial financial literacy advocacy efforts on women in their 20s. 30s and 40s - because as women who have worked in the financial services industry we know firsthand that if you do a few simple things early on in those decades (save invest & protect) you can avoid the fate that so many older women are currently suffering. From what we’ve seen the reason so many women later in life are struggling today is that they didn’t get the necessary financial education early on. That’s why we’ve decided to make it our cause. We’re on a mission to create a MOVEMENT… to try and prevent this cycle from repeating with the next generation!”
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Related article:
http://www.anti9to5guide.com/2008/01/03/on-my-own-two-feet-money-management-made-simple/
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