It is safe to say money is not the most lucrative topic for women. Historically women have been removed from these conversations and completely relied on their partner for financial support. It was only since 1974, when the Equal Credit Opportunity Act[1] passed, allowing women in the U.S. the right to open a bank account on their own! Chances are you know a woman who relied on (most likely) a man to manage finances on her behalf. Assuming she had money to manage in the first place. It is no wonder so much of our stress is related to money, as a human species we are in the newborn phase of dealing with money. However, we can expand our knowledge around personal finance, implement proven strategies, and make our money remove financial stress instead of create it.
Learning is your financial stress superpower
There are only two things that are certain in life, death and taxes. Depressing I know, but the reality is both of these truths should be used to empower us to learn as much as we can about the subjects. Our life will come to an end one day and we all know how important our health is for our longevity. Similarly, every year you will pay taxes on the money you make. Therefore, we must prioritize learning what we can to maximize our earnings.
Most of us take at least a handful of health courses throughout our education, however, we do not have a class on personal finance let alone taxes. You can sulk and moan and claim you are not responsible for this knowledge and if you follow the rules you will probably be fine. But if you are reading this chances are you are looking to EXCEL. You want to do better than bare minimum and most importantly you want to ensure financial peace for life. Here are three ways to start your financial wellness journey to tackle financial stress by expanding your knowledge:
Best books to protect you from financial stress
When I wrote this post the search “personal finance books” returned over 700 M results. Where to begin! When starting your personal finance journey getting informed about your current financial habits is key. Our current habits and thoughts are a combination of our childhood, primary education, and the five people we surround ourselves with most. If none of these sources have worked for us in the past it is time to peek into other brains. Reading is the most crucial part of this journey, and it is essentially a free way to reduce financial stress by increasing knowledge.
Understand how you think about money
To help with understanding your current outlook on money I recommend reading The Psychology of Money by Morgan Housel.
Housel proves that how we think about money determines what we DO with money. Level 0 of financial wellness is trying to buy respect with money. We believe that owning things that cost a lot of money means we have a lot of money. We see someone with an expensive new car and think they must be “rich”. One of my favorite analogies from the book is realizing that someone with a new $100,000 car is really only $100,000 dollars poorer. As they now have this negative amount of money looming over their head.
This was further ingrained in my head when I realized the richest people don’t look rich at all. Warren Buffet who is is so rich I know i don’t even have to tell you who that is, is said to always purchase used (but high value) vehicles for his personal use.
The universe teaching me about money
Personally, I reflect on my own experience in buying a new car. I thought I had scored a deal after shopping around for months. My payment was reasonable and well below my means. Less than a year into it we were driving on an international highway when a giant boulder fell from a roadside cliff. I heard the clunk on the passenger door and was so heart broken when I saw it had created a tiny, but very real, 1 inch scratch.
The disappointment was so deep, here was my brand new car which i had to pay hundreds a month for and now it looked like a regular old car. The payment didn’t decrease because it was now dented. This opened my eyes to the idea that buying things was not the path to joy. That the more I spent on something that could be broken, dented, scratched, ripped, or lost the more it was going to hurt when one of those things happened.
They say money cant buy you happiness, but I disagree the money I spent on travel, helping others, or learning something new to this day brings fond memories. It has been almost 10 years since I dented my car, the car and the dent are still in my life and are a constant reminder of choosing wisely how to spend my money.
Go beyond your limiting beliefs
Another common favorite is Think and Grow Rich by Napoleon Hill.
As mentioned above for many women the ability to own a bank account is relatively new. Unless we inherited the money it is hard for us to think of a “rich” life. This book helps you in overcoming your limiting beliefs around money. How often have you heard a parent at the store tell their child “we aren’t buying that toy right now we can’t afford it.” Maybe you were this child! From a young age, many of us whose parents weren’t wealthy heard this message. For many, this is our first experience with money. We want a toy a candy or whatever knick-knack while out grocery shopping and told we “can’t afford it”.
A seed is planted forever in our minds about what money means to our family, and there is one word to describe it, scarcity. So we grow up thinking there isn’t enough, scarcity is a proven path to financial stress. That we can’t do things because of a lack of money. Instead of finding ways to manifest that money or learn how to manage the little we may have to bring us joy. “If you do not see great riches in your imagination, you will never see them in your bank balance,” Hill states in this book and goes on to explain how thinking rich will enable us to grow rich.
Finding the Rich
A critical piece in your financial journey is finding mentors. This is especially important if your parents lack the financial literacy skills you need to develop. However, every single person deals with money, some better than others. Mentors are all around us, we can learn as much from the entrepreneur as we can from the unemployed and in debt. People are more open to talking about money than you think. When I started my first job out of college in a Silicon Valley corporation I knew I was surrounded by people with VERY different ideas about money than I had. For starters, I was a first-generation college graduate, a female, in engineering, in tech, and a Hispanic surrounded by… let’s say the opposite of most of those things.
As soon as I developed relationships with my colleagues I started asking questions about things we had in common. Here are three questions I commonly ask;
- How much should I be putting towards my retirement?
- How much of the company stock are you buying? Are you selling it? Why or why not?
- Do you invest outside of your retirement? If so do you mind sharing the things that have worked for you?
People are eager to be helpful and you can get a lot of information and wisdom from folks raised differently from you. Especially those further along in their careers. All of my peers I had these conversations with I am still in contact with and have developed great friendships outside of work. This proves there is even more to gain from these discussions than just money tips.
Experimenting to combat financial stress
One of these conversations from my mentors was with one of my managers, she was retiring from her job very early. During our one on one I expressed the admirable achievement of reaching retirement young and simply asked “What helped you achieve this goal?” She told me that she did a lot of experimenting and that helped her learn. In the early 2000’s she got curious and lucky by investing in Netflix and Nvidia. She said she would start with small amounts and work up. I found that interesting and realized I could do that as well. I could set aside what i would call “experimenting” money. A set amount that I wouldn’t get behind on payments if I lost and that I would consider the cost of my own crash course in investing.
I saved up $500 and bought technology stock. I googled things I should be looking for and from that small exercise began to get familiar with the terms used in Wall Street. Things like ticker, index fund, expense ratio, dividend, S&P, etc. This strategy gave me some skin in the game, essentially forcing me to learn what I was spending my money on. But most importantly, making it FUN! Those $500 were the best I ever spent (and NOT because my gain to date is +1700%) but because it was the push I needed to get serious about investing. It was my equivalent of ripping the band-aid off. I highly encourage you to take the next $20,$50, or $100 you can to invest in your learning. Invest in whatever you want so long as you can clearly explain with 3 data-proven quantitative values why you are picking that investment.
Organize your money to prevent financial stress
The first step in managing your money is building a foundation, or really a trampoline a worry free plan for when life happens you can bounce back. Many people call this an emergency fund. A reserve of cash that you can easily access in case of an emergency. As you start this journey (and any journey really) you WILL face setbacks. Think of it as the universe’s test to see how serious you are, how much you want this. So when a setback occurs smile and know that means you have STARTED, then refer to your plan.
But first, what is an emergency?
Do you ever find yourself struggling to say no? Most women are chronic people pleasers. This is especially hurtful for our financial wellbeing. When we have to say no with something that involves money it is that much harder to fight our people pleasing instinct. Therefore, it is critical we define an emergency ahead of time. To start I recommend listing what constitutes an emergency for you, here are some examples:
- The emergency hinders you from meeting your employment responsibilities: i.e. your car breaks down, you are sick, you have an injury, you don’t have childcare, etc. If you can’t work it is an emergency.
- You cannot meet your daily caloric intake. Notice I didn’t say you don’t have food, rice and beans have a lot of calories. Meeting your daily recommended calories (2,000 for women) would constitute an emergency, this doesn’t mean you will be eating steak and lobster during this time.
- You need it for safe housing. This includes your mortgage or rent, utilities, etc.
This list is not exhaustive but the point is to write these things down so you can refer to it when a situation arises. Many times we consider things emergencies when they are not. For example, not having money to celebrate a friend’s birthday over dinner? Not an emergency. Don’t have money to buy your kids or spouse gifts? Not an emergency. Again make your list, write it down, and be realistic about what defines an emergency. Consider the financial peace you are seeking and whether the emergency keeps you on that path or takes you away from it. Having this in your back pocket as a reference when you have to say no will save you from moving backwards in your finance goals.
Emergency Fund Calculator
To start I highly encourage you to put your emergency fund in a separate account that you don’t use daily. Ideally a savings account that has a separate card and account number than your checking. It adds a layer of intentionality when you decide to use it. If your bank will charge you for having another account visit bankrate.com to find a better bank.
To start your emergency fund many finance sources suggest saving 3-6 months but I recommend starting with half of your housing expenses. So if your rent is $1000/month start by saving $500. Once you reach that, try saving the full amount. The goal is to have small wins while also protecting us from small but likely expenses (think car repair or sick day).
Once you achieve that, you want to level up and build a 3 month emergency fund. This is crucial for financial stability and peace of mind. To start, assess your monthly expenses, including necessities like rent or mortgage, utilities, groceries, and insurance premiums. Multiply this total by three to determine your target savings goal. You can also try this free calculator (https://www.forbes.com/advisor/banking/emergency-fund-calculator/) , it is for 6 months so divide your final number by 2. This number may seem high but ideally, you have already built momentum with the steps above. Personally, automating transfers from my paycheck to a dedicated savings account was crucial in meeting my emergency fund goal. Stay disciplined and prioritize your emergency fund, even if it means making sacrifices in the short term. Over time, your efforts will accumulate, providing a financial safety net for unexpected expenses or job loss.
Manage your income with intention
One of the most effective exercises in my finance journey has been getting intentional about my income. This eliminates financial stress because you have actively decided your expenses relative to your income. You can do this by looking at your take-home pay and understanding your expenses, and investments. Some refer to this as zero-based budgeting, meaning you budget your income to zero. It is helpful to look at your bank accounts and essentially read one month’s worth of transactions. This is timely but very important. Most of your monthly expenses are fixed, meaning they are the same each month. Once you have this information follow these steps:
- Start by reading your pay slip and understanding the final number that goes into your bank account and how often. This is your INCOME.
- List every monthly expense you have per month. These are your fixed expenses. These are typical examples :
- Mortgage/Rent
- Utilities; electricity, water, trash, internet, cell phone, cable, etc.
- Transportation: car insurance, payments, fuel, car registration, etc.
- Debt; student loans, credit cards, etc.
- Subscriptions: Hulu, Netflix, storage, etc.
- Food: groceries, do not include dining in this category.
- Children: childcare, clothing, activities, etc.
- Flexible Spending: Now list all the expenses that fluctuate or are dependent on the season.
- Dining
- Entertainment
- Gifts (think Christmas, Birthdays, etc.)
- Hobbies
- List your “future” expenses. These are any savings you contribute to every month. These are future expenses because you are planning for “future you” to be very happy these exist. Some examples are:
- Retirement
- Emergency fund- if you are still building it this is the amount you are contributing to it monthly.
- Health Savings Account
- Sum up each category from 2-4. You should have three buckets your fixed expenses, your flexible spending, your “future” expenses.
- Take the totals from step 5 and divide by your income (from step 1) for each category.
Here is where the intention comes in. These three buckets should be intentionally balanced. According to the 50/20/30 rule, your income should be allocated by using 50% for fixed expenses, 20% for future spending, and 30% for flexible spending. Lets assume you make 6,000 after taxes and deductions. And these are your expenses:
Now we find the percentage the monthly $ is of your INCOME (from step 1).
We see that your fixed expenses are more than 17% above the goal. Your flexible spending is more than 3% of the suggested. This leaves future you short of the 20% goal.
We must optimize our spending to ensure harmony in our finances. In this case we see that we must lower our fixed expenses by ~$1,000 dollars (17% of $6000) a month OR make $1000 more a month and send it to our future bucket. Because we have our fixed expenses all listed out we can analyze and see where we can decrease those expenses to balance our ratios. The point here is to be intentional with our hard earned money. The 50 20 30 rule is a goal you should strive for, if you are not there today ask yourself how you can get even 1% closer tomorrow.
If you have made it this far you are already 90% ahead of most people. The simple act of acknowledging everything you spend your money on can be frightening if not paralyzing for many. So applaud yourself for starting this journey. If you have found ways to lower your fixed or flexible spending you are already winning and should continue to see progress as you implement these learnings. However, there is only so much you can reduce your expenses there is no limit to the amount of money you can make. Lets take a look of some of the possibilities for spending that “future” bucket to make it even bigger.
Making your money grow
You always hear the saying “it takes money to make money” which to me was also so scary. Like why do I have to risk my money, I’ll just work and be super careful instead. For the longest time, I focused on saving that I didn’t dare to invest a single dollar. I was letting my financial stress and fear limit my lifetime earning potential. My thought was I rather make a couple of cents than lose it all. If this is where you are at today that is 100% normal and you should be proud that you learned that money needs to be treated with respect. Until you feel comfortable enough to risk some of it here are some things you can do to maximize your dollars.
High yield savings
These are accounts that offer you significantly better interest rates than traditional banks on your savings. We are talking 0.1% on your money vs. 4.8% (at the time of publication). Though the rates do fluctuate, a high-yield savings account will always be far better than a traditional bank. There is very little risk in putting your savings and even most of your emergency fund in these accounts and you will earn significantly more. From my research, the main drawback is most of these banks do not have physical locations or ATMs. They provide you with a card that you can use at ATMs if you need cash. If you need to transfer, it may likely take one or two days for the money to make it to your traditional checking account.
While this may scare you I see it as a positive, as it challenges you to consider if you really need to withdraw the funds. One month of emergency funds in your traditional checking account is more than enough for day-to-day emergencies. Anything more catastrophic probably should require you to sleep on it anyway. For reference everyone I have spoken to has NEVER had to dip into this account to begin with.
Let’s talk about retirement
When I started my career I didn’t quite understand the idea of retirement. I didn’t know anyone retired, let alone retired AND rich. But, I knew it was important to save for the future yet my brain could not comprehend the idea that I could reach a million dollars, ever. Fortunately, my company provided resources to learn about this investment channel and took advantage of classes offered to understand. Here are three concepts to get familiar with.
The employee benefit
A match is a benefit your employer provides in which they deposit money to your retirement account on your behalf. Every employer is different. For me, they would match every percentage I deposited up to 5% of my pay. Let’s say I made $1000/pay period and contributed 3% to my retirement ($30), then my employer would also give me $30 directly into my retirement account. Meaning a 5% match means they gave me $50 instead. Going from 3% to 5% means I am getting $20 more per pay period for “free.” If you are paid twice a month in a year that’s $480 but by the time you retire in 40 years that’s over $19,000. From this, you can see it’s important to at least contribute the maximum percentage your employee will match you for to ensure you don’t leave money on the table.
Pre-tax and after-tax
Every year you will pay a percentage of taxes on your income. A pre-tax contribution to your retirement takes money out of your paycheck before (hence the “pre”) taxes are taken out. This makes it appear as if you make less money and hence pay less taxes. But there’s a catch because hello it’s taxes! The money you contribute with pre-tax contributions is taxed when you take the money OUT during your retirement.
After you retire your income is now the money you have been setting aside all these years so you are taxed then for those “pre-tax” dollars. The downside here is the money you contributed has grown and now you will also pay taxes on that growth when you withdraw it.
After-tax contributions are just the opposite. You are paying taxes and then contributing to your retirement account, but when you withdraw your initial investment AND the growth on it is tax-free! Don’t get too bogged down making a choice here. If you are starting, I recommend going pre-tax as this will help you during tax season.
As you progress consider this: do you plan to pay yourself more during retirement or less? Do you think tax rates will go up or down by the time you retire? Answering these questions might help you decide. You can always change future contributions you just can’t change previous contributions without a lot of paperwork.
The target date
The investment company your employer uses will typically do the investing for you. For retirement accounts, they want to know the approximate time you want to retire. The default in the U.S today is 67 years old. Your Target Date would be the year you turn 67. You can change this if you want to retire earlier. The target date is used to determine the investment types (high vs. low risk). The closer you are to retirement to less risky your investments should be because you will be more dependent on that income’s stability.
Level Up; banish financial stress for good
Many of us don’t want to wait until retirement to make more money. If that’s you, you need to find a way to make your money work for you, instead of you working for money. In The Millionaire Fastlane DeMarco states “You don’t want millions to accompany your cane; you want it to accompany your youth”. If this is you, you want to level up and start making choices one step further than those mentioned above. Here is what has worked for me so far.
Set messy goals
During my first five years working full time I saved aggressively by keeping my expenses low while increasing my income. This money went into a high-yield savings account. While I don’t recommend setting goals without clear timelines or objectives, this is one instance I deviated from this method. My goal was to invest this money somewhere someday. This isn’t ideal but hear me out.
I have always wanted to start my own business but I never knew in what, I also thought “if the market was right” maybe I would buy a home. Both goals would require some amount of cash upfront and I knew it was up to me to be wise enough today to secure my goals tomorrow. Even if those goals were a little murky at the time. Because here is the thing about opportunities they don’t come at a time of your choosing. So whether you want to one day buy a house, start a business, or build another income. It will require money or time upfront. Eventually, the opportunity came to purchase real estate, I was more than prepared to pay cash for it because I had made the goal to put my money to use someday.
Experiment with long term investing
Once you have established your emergency fund and maximized your retirement you can take a portion of your income for long-term investing. Long-term means you will not need this money in the next 10+ years and can allow it to grow untouched. If you are new to investing here are a few books that helped me get started.
Less financial stress more wellness
Financial independence is often a far-fetched concept for women. Between the gender pay gap, the lack of role models, and the inequality in executive positions we face unique challenges as women. It is no surprise this is one of our highest sources of stress. Financial stress also creates a heavy burden to your health. But with a little curiosity and a growth mindset we can learn from the best, get organized with our own money, and grow it into a prosperous fountain of peace.
- [1] Adam, Jamela. “When Could Women Open a Bank Account? – Forbes Advisor.” Www.forbes.com, 23 Mar. 2023, www.forbes.com/advisor/banking/when-could-women-open-a-bank-account/#:~:text=It%20wasn.