By FPA member Jane Nowak
Last Updated: May 10, 2010
While deeply entrenched in the 'your way, right away' mentality of many Americans, the long road of preparing for a secure financial future does not often fit our unrealistic expectations. Unless inherited or received via a windfall, accumulating wealth does not often happen quickly.
Wealth accumulation should be undertaken with a long-term plan that is carried out each and every day by our daily financial activities and choices. The principles of providing ourselves with a secure economic future apply universally to all of us.
But, because women live an average of three years longer than men and earn less during their working lives, women can have greater challenges to meeting their financial goals than their male counterparts. So, what's a woman to do?
Step One: Pay Yourself First and Establish an Emergency Fund
One of the oldest maxims practiced by successful wealth accumulators is saving! After you have paid for your monthly budget essentials of food, housing, clothing, transportation and medical expenses, save a non-negotiable amount every payday. If you are like me, an auto draft out of your paycheck into your savings account really works. If you don't see the money, you are likely not to miss it.
With the money you have saved, have three to six months of expenses set aside in a savings account. Have any of you ever had that proverbial financial 'rainy day'? This money is for when the car breaks down, you have an unexpected medical bill, you lose your job etc. This money is not for vacations, expensive cars, a new pair of shoes or something else that you just 'have to' buy. Vacations, expensive cars, shoes, clothing etc. are not emergencies.
Step Two: Insure for Risks
Take advantage of economical insurance products available from reputable companies to provide you and your family with an appropriate level of life, health, home, automobile and umbrella liability insurance. Catastrophic bills (especially from medical expenses and excess credit card debt) are the biggest enemies of successfully sustaining family wealth accumulation.
Step Three: Invest Your Assets and Invest in Yourself
Once you begin to accumulate money above and beyond your emergency fund, begin investing. Come up with an investment plan and use your 401(k), 403(b), Individual Retirement Account (IRA), Roth IRA or other available tax advantaged savings vehicles to begin to accumulate your wealth. Dollar cost average into your investment account — put a fixed amount in every payday. And, asset allocate among many asset classes. Simply put, don't put all your money into one investment or investment type.
If you don't know about investing or how to come up with an investment plan, begin by reading about personal finance online, in money magazines and in your local newspaper. When you need help, don't be afraid to seek investment advice from a financial professional. It's ok to 'know what you don't know'. We don't have to be experts in everything.
Step Four: Don't Be Afraid to Plan with the End in Mind
Make sure you have guardians named for your minor children and have provided for them via a will. Name beneficiaries (and check them every couple of years or after a death, divorce, etc.) for your 401(k), 403(b), IRA, Roth IRA or any tax advantaged savings vehicles. Powers of Attorney, Health Care Powers of Attorney and Living Wills are also very important. Seek professional advice and prepare for the unexpected. Your loved ones will thank you.
So, what's a woman to do?
No matter what your age or your stage in life, building a solid foundation for your financial life is never out of style. While it may not be glamorous to live within your means, make saving a priority or drive an older model car while saving for a newer car, use steps one through four as stepping stones for achieving your goals of wealth accumulation and greater financial security now and in the future.
FPA member Jane Nowak is a Financial Planner with Kring Financial Management located in Atlanta, Ga. Jane's practice focuses on Women's Retirement and Financial Planning for Women.