Financial Wisdom by Manisha Thakor

Nine to Five

Nov 16

Hello Darlings,

I am excited to bring you this post by Manisha Thakor, founder Women's Financial Literacy Initiative. Thank you Manisha for taking the time to educate us on the basics of finance, since every woman needs to know how to stand on her own two feet and feel achieved :)

1. Start Saving Now These are the three most powerful words in personal finance. Why? It's the financial equivalent starting to use sunscreen regularly in your 20s. By the time you hit your 50s you'll be high fiving yourself for your foresight and great skin. Here are the numbers: Jane starts saving $5,000 a year every year starting at age 22. She invests wisely and her money earns an average return of 7% a year. By age 65 Jane has $1.2 million. By contrast, Joe waits until a more typical age of 42 to start thinking about his retirement. He saves the same $5,000 a year and gets the same 7% returns, but by 65 he has just over $250,000. That extra 20-year head start gave Jane nearly 5x more money. Amazing!

2. The Magic Formula Is 50/30/20 When you go out on your own, most of us enter the "real world" without any guidance on how much to spend on what. In their fabulous book All Your Worth, Elizabeth & Amelia Warren lay out the best formula I've seen: 50 need /30 wants /20 savings. In other words, strive to keep your NEEDS (housing, transportation, food, insurance, mandatory debt pay down) to 50% of your take home (i.e. after-tax) pay. Strive to keep your WANTS (clothes, entertainment, vacations, etc.) to 30% of your take-home pay. That leaves you with the all-important 20% to save and be like Jane!

3.Avoid Credit Card Debt Like The Plague Credit cards can be your friend or your foe. If you use them for convenience - to avoid carrying around wads of cash in your purse and to only buy items you can pay for in full when the bill comes, you're golden. Here are the numbers. If you have $5,000 in credit card debt with a 13% interest rate and you make just the minimum monthly payment, by the time that debt is paid off you'll have forked over the $5,000 you borrowed PLUS over $2,700 in interest. Or said differently, if you charged a $100 item - it ended up costing you $154 with the interest. And the numbers get worse the higher the interest rate.

4. Pay All Your Bills On Time. This may sound simplistic but it's vitally important. Why? Because in today's world we all have 24/7/365 reality TV cameras aimed at our purses. They are operated by the three big credit bureaus and they record all our financial activities. The data is used to calculate your "credit score." A credit score is a 3-digit number that summarizes how responsible you are at managing your money. Unlike your weight, higher is better! It is used by people ranging from lenders to cell phone providers to landlords to decide whether you'll get their service/product and at what price. And a whopping 35% of your credit score is based on one simple factor - how solid a track record you have of paying your bills on time. A great way to keep from paying bills late is to utilize the online bill paying resources offered by your bank.

5.Investing In Your Financial Knowledge Gives A Guaranteed Return If you feel at all overwhelmed or confused about your personal finances, you are not alone. We are not formally taught this information. It's up to us to figure it out on our own, and it's often hard to figure out where to go for that info. In my own life I look back and can see that it's roughly 10 hours of personal finance lessons that made all the difference. I highlight that number so you can see that you don't have to get a PhD in personal finance to learn how to dominate your dollars. If you are looking for a place to start, I encourage you to check out the new online personal finance class I created to affordably ($99) offer exactly this type of information in a fun and interactive way.

The bottom line is that good personal finance hygiene does not have to be difficult or boring! Learning and following a few simple rules of thumb such as those outlined in this article will put you on the path to financial nirvana.

Want more financial love? Follow Manisha on Twitter at @ManishaThakor & sign up for her weekly blog here. Manisha is a Harvard MBA, 15-year veteran of the financial services industry, and co-author of two critically acclaimed personal finance books for women. As the founder of The Women's Financial Literacy Initiative, Manisha currently teaches an innovative online eCourse for women called "Money Rules" for Sympoz.com. Her website is www.ManishaThakor.com.