Want
a better financial future for yourself? Act now.
As a young
woman, you have an opportunity to make some major financial strides. You truly have time on
your side when it comes to investing, saving, and harnessing the power of
compounding. Now is the time to pay yourself first and do those things that
could make you wealthy in the future.
Your first
move should be debt reduction. This frees up money for the other moves you can
make and lessens the amount of money you pay to others, instead of yourself,
each month.
Consider attacking your highest-interest
debts first rather than your largest debts. If you have big credit card balances,
high-interest car loans, or similar financial obligations, that borrowed money
may be extremely expensive. Credit bureau Experian says that monthly household
credit card balances in this country hover around $6,375. According to personal
finance website NerdWallet, the average interest rate on a credit card right
now is 14.87%, and the average U.S. household pays out $904 a year just in
credit card interest. A constant debt of $6,000 is bad enough, but having to
pay roughly another $1,000 a year just for the opportunity to borrow? That
really hurts.1
Whether your major debts are larger or
smaller, think of the progress you could possibly make by devoting thousands of
dollars you pay to others to yourself. Say you direct $3,000 you would
otherwise pay to creditors during a year into an investment account returning
6%. Say you do this for 10 consecutive years. At the end of that 10-year
period, you are looking at $47,287, not simply $30,000. That is what compound
interest – the best kind of interest – can do for you financially.2
Across longer time periods, compound
interest has a proportionately greater positive effect. Stretch the above
example out to 35 years and those annual $3,000 investments at a 6% return grow
to $377,421. (Keep in mind, you may be able to save and invest considerably
more than $3,000 annually as you earn more money per year.)2
Save or
invest whatever you can. Setting aside a little cash for yourself is good, too. You want to
build some kind of emergency fund with money you can touch; money you can get
at right away if you need it quickly.
Many
retirement savings vehicles offer you tax breaks. The common workplace
retirement plan or IRA is tax favored: money within the account grows tax free,
and it is subtracted from your paycheck before taxes. You only pay taxes on the
money when it is withdrawn. In addition, many employers will partially match
your contributions if you meet a certain minimum. Roth IRAs and workplace plans
allow both tax-free growth and tax-free withdrawals, provided Internal Revenue
Service rules are followed. While you get no up-front tax break for
contributing to a Roth account, you also have the potential to withdraw the
money tax free for retirement, which is a great thing.3
Not using these
saving and investing accounts could be a big mistake. Some people are skittish
about Wall Street investments, but largely speaking, those are the kinds of
investments that have the potential to return better than 5% a year (think
about the scenario from a few paragraphs earlier). In fact, the S&P 500,
the broad benchmark of the stock market, gained an impressive 19.42% last year.4
Parking too much money in cash and
avoiding all risk can come with an opportunity cost you may not be able to
afford. Sallie Krawcheck, the former president of the investment management
division of Bank of America and CEO of Ellevest, estimates that a woman making
$85,000 annually who puts 20% of her yearly pay into a bank account rather than
an investment account could effectively forfeit more than $1 million after four
decades of doing so.5
Now is the
ideal time to plan to get ahead financially. Think about your future, and make the wise
money moves that give you the potential to make it bright.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 - tinyurl.com/ybxskou6 [2/19/18]
2 - bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx
[2/22/18]
3 - fool.com/retirement/2017/05/20/taxable-vs-tax-advantaged-savings.aspx
[5/20/17]
4 - ycharts.com/indicators/sandp_500_return_annual [2/22/18]
5 - money.cnn.com/2017/03/08/pf/financial-moves-sallie-krawcheck/
[3/8/17]
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