Thinking Small About Financial Planning
Did you ever have a piggy bank?
If you did, then you can remember the satisfying clink as you slid each penny into the bank and how the sound would deepen the fuller the piggy bank got. While saving money as adults may not feel as easy as putting pennies in a piggy bank, it’s even more important. The stakes are higher, but the concept of saving little by little — maybe dollar by dollar instead of penny by penny — is just the same.
Start by thinking small about financial planning. Tuck away a small percentage of your earnings every month to build an emergency fund. Identify what your “sleep well at night” factor is, then start making financial plans to reach that goal. Lundeen Abrams Advisors can guide you in making achievable, smart financial goals so you feel empowered and ready for any financial emergency.
Shifting Your Thinking: Half-Full or Half-Empty?
When it comes to financial planning, many of us prefer to ignore it or simply hope for the best. Hoping you’ll have enough money to cover an emergency like a trip to the hospital or a new furnace will not help you sleep at night. Planning for these kinds of emergencies and even establishing a separate “rainy day fund,” for non-emergency needs will help you be financially secure and independent.
Instead of thinking about all the steps you’ll need to take to establish an emergency fund, start by thinking small about financial planning. According to some financial planning models, 20 percent of your monthly paycheck should go towards savings and paying down debt. If that’s too much, then start with 5 percent. Just like with a piggy bank, every little bit counts.
Conventional financial wisdom suggests that a household should have six-months’ worth of expenses saved in an emergency fund. Not only can you use an emergency fund for unexpected, serious issues like home repairs and hospital stays, but you can also use this fund if you lose your job. Having a safety net for emergencies will give you peace of mind and will help you avoid racking up debt. Despite the evidence of the benefits of having an emergency fund, only about 30 percent of adults report having one. More than 50 percent of adults have less than 3 months’ worth of saving, according to Bankrate.
Not surprisingly, the amount that people save as they get older increases and the gender pay gap is evident in median savings, with women having an average of $2,000 savings and men with $7,000. (White women currently earn 78 cents to every dollar white men earn. The gap is even bigger for African-Americans and Latinas.) In addition, female-led households are less likely to have any kind of savings account. To avoid being part of the current statistical status quo, start thinking small about financial planning. What are small changes you can make today?
Start Small, But Think Big
Making any kind of change can feel daunting, so start by thinking small about financial planning. Apply the same mindset you did to any important goal you’ve reached. Whether it was earning a degree, training for a marathon or losing weight, you needed to take small steps to reach a big goal. Here are some questions you can ask yourself to help you make a financial plan:
Have you had a financial emergency in the past? If so, what was it and how much did it cost? How did you pay for it? Learning from our past experiences can help in changing our behavior going forward.
What is your end goal? Calculate how much you’ll need to have six-months’ worth of savings for your emergency fund.
Do you currently have a budget? If not, apply the 50/30/20 rule:
50 percent of your after-tax income should go to needs (think mortgage, utilities and groceries)
30 percent to your wants (dining out, shopping)
20 percent to savings and debt repayment. If putting aside 20 percent is too much, start smaller.
Where can you cut back? Making coffee at home, shopping at consignment stores and clipping coupons are all great ways to save money, little by little. It’ll add up!
What is a specific, achievable goal you have? Do you want to save a certain amount by Christmas? Making realistic and definite goals will help you mark your successes and stay focused on the small steps along the way rather than the goal itself, which can feel overwhelming.
Do you have a financial planning friend? Just as you would with achieving a health-related goal, having a friend to check in with or even have some friendly competition with will help you reach your financial goals.
By thinking small about financial planning, you can achieve your goals and hopefully sleep better at night. To help you along the way, contact Lundeen Abrams Advisors. This financial advisor specializes in helping women manage their finances independently, from tactical asset management to financial planning to legacy planning. Your road to financial independence and empowerment starts with that first, small step. What are you waiting for? Contact us today.