When I got home from my first babysitting gig at age 13, I excitedly showed my parents the super-cool $20 check our family friends had given me and started listing off the Smackers Chapsticks and glitter eyeshadow I couldn’t wait to buy. They celebrated with me, as good parents do, but then my dad sat me down and explained that I really didn’t have $20 to spend, that I had $16 to spend. Confused—and mentally figuring out which goodie I could live without—I gave him a funny look. And he said the seven honest and wise words I still hear in my head, 14 years later:
Every time you get paid, you save.
These days, I’m luckily paid more than $20 once a month and I happen to live in the most expensive city in the country, New York City. Everything you read about NYC financially is pretty much true, and though I’ve worked really hard to be successful here, I also cringe when the rent check comes every month and I realize just how hefty of a price tag I’m paying to put New York, NY on the back of envelopes. But because my parents have always instilled a sense of respect, opportunity and commitment toward my financial literacy and intelligence, I’ve always considered any incoming money to be partly for bills, partly for fun and mostly for savings.
Even so – the very word ‘money’ or talking about retirement or taxes is enough to get this girl to wiggle out of the conversation, out of my seat or off the phone. Luckily, I’ve never had to really struggle with not having enough money, but it’s always a worry of mine. In response to this anxiety, I’ve just kept my attitude heads-down about my finances: I get paid, I pay and I save. For a long time, it was as simple to me as my skin care routine: cleanse-treat-moisturize-SPF-repeat.
But just like my dad did more than a decade ago, he started to nag me about investing. And my 401K and IRAs and all sorts of abbreviations that weren’t nearly as fun to me as seeing my savings account rise every month, with my money right where I can see it. It took him a few years to convince me to see a financial planner – and though I was more nervous talking to her than I ever am while primping to go on a first date, the call was well worth it. And dare I say it—empowering.
Just like you take control in your love life, your career and your beauty routine, being in charge of your own finances is something every woman should do sooner than later. Here are the things I learned from taking a big ol’ gulp of wine and mapping out my financial future:
1. When it comes to finding the right financial planner, look beyond her resumé.
Just like I prefer to have a female check out my lady-bits for my annual, when it came to picking a financial planner, I wanted to work with a woman. I found Cary Carbonaro, MBA, CFP, a managing director and CFP Board Ambassador, and the self-proclaimed The Money Queen. But what stood out to me about Carbonaro wasn’t her credentials (again: abbreviations that don’t mean much to me); it was her real-talk about financial matters with women. The title of her book said it all for me: The Money Queen’s Guide: For Women Who Want to Build Wealth and Banish Fear. Um, yes please!
Carbonaro said that most women get nervous when discussing money and that they are even a little more competitive than men when it comes to investing. But when they take the lead, get smart and work through their budgets and planning, Carbonaro says they can really switch the conversation to a fruitful one, instead of a fearful one. If you want to hire a financial planner, finding a woman might be tough, as Carbonaro says only 23 percent of planners are female and of that, only half actually work with clients. That’s one of the reasons she went into the business: to help women like me (and you!) build something great for their future.
2. The first meeting isn’t as scary as I thought.
When you’re searching for someone to hire, keep in mind that most first sessions are free because they serve as a consultation. Carbonaro sent me some pretty basic forms to fill out that detailed everything from my yearly income and the amount in my bank accounts to my budget and any debt (like those pesky student loans). She also had me estimate how much I spent on dining out, shopping, traveling and more, to give her a complete picture into how I utilize my earnings.
It might be a little overwhelming to fill out these fields and see your habits, on paper, for the first time. Before I sent in my forms to her, I was nervous about spending too much or not saving enough or if I had everything in order. I expected to be a little scolded (hey, I have the travel bug like crazy and I go through quite a lot of lipsticks every season), but Carbonaro says she prefers to educate her clients instead of harping on them. Your financial planner isn’t there to correct you, but to let you know where you stand, where you could go and what you need to do to get there.
After we talked through everything, I was surprised (and mighty proud) to know I was already making some great choices and headed in the right direction for a stable, secure future. The places where I’m lacking? Unsurprisingly, my 401K.
3. Most young professionals are making this worst money mistake.
Her greatest recommendation for me was to establish what’s called a solo 401K. Though I do work full-time and have a 401K through my employer, I also freelance for a number of magazines and websites. This additional income is highly taxed at the end of the year and can be a lot to manage—not only in terms of deadlines but in paychecks. I look at my freelancing as my savings, so I’m never surprised by having to pay back Uncle Sam, but one way to offset those taxes is to invest into a solo 401K. Unlike a typical 401K where both you and your employer contributes, a solo 401K is what it sounds like: just your contributions. Though the max amount you can contribute varies every year (this year it’s around $17,500), when you put money into it, you don’t pay taxes on it. So in other words: it makes your income lower, so you pay less taxes.
But apart from the short-term benefits for me, the long term really outweigh it. The cash I put into my 401K is meant to be money that I don’t touch for at least 30 years, and if I continuously add to it, it’ll grow bigger and bigger each year. As a fun example, Carbonaro said if I put $17,500 into the account for five years in a row, and then never touched it again or added another dime, by the time I was 60, it would be worth nearly $900,000.
Even if you can’t stow away such a huge chunk of change every year, any type of contribution to your 401K—solo or not—is a healthy decision for any young professional. While it might be tough to think about decades from now, retirement accounts are meant to be fostered over a very long period of time, otherwise, you won’t reap the real benefit of them. “The biggest mistakes that people can make in their 20s is not investing in their retirement,” Carbonaro says. “Why? Because time is your greatest asset right now!”
4. A cliché but worth repeating nevertheless: Stick to a budget and don’t get into credit card debt.
I’m admittedly not very good at budgeting and my way of balancing my bank account is logging onto my app and making sure everything looks mostly right before paying my bill. This isn’t healthy (or smart) and something I’m working on, and it’s an important trait to learn, Carbonaro says. She also adds that racking up credit card debt is a fast way to get into a lot of trouble. I actually don’t have credit card debt (thank goodness), and I use my credit cards to build credit and pay off in full at the end of the month, another habit that Carbonaro praised. “Credit cards are not free money! You should pay them off in full at the end of the month or don’t use them,” she explained. “You have to always spend less than what you make to stay healthy and stable.”
5. Investing in the stock market isn’t always the best option for you.
One big question that Carbonaro asked me was around where I see myself in 5 or 10 years. Right now, I’m a 27-year-old single woman living in New York with a great job I love and plenty of vacations every year. But at 32? I’d like to be in a long-term relationship, married and looking at buying a house with a yard somewhere that’s not in Manhattan. And at 37? I hope I have a baby by then!
Because my near-term goals include a lot of things that require cash (down payments, the millions of things that babies need), Carbonaro says now is not the time to take risks in the stock market. Instead, having a larger cash savings for emergency and those big investments is more important. Why? Getting into the stock market is a gamble because if I need to take out that cash for anything, I not only would pay taxes on it, but there’s also a chance I could lose it. But once I’m settled with a mortgage and all that jazz? That’s when it’s time to try it out.
“It’s better to invest in your retirement vs. dabbling in the stock market right now because you need to have more access to cash for down payments and such. But once you’re settled in, that’s when you can start to explore stock options,” Carbonaro says. “You need your cash for emergency and home down payments. After you have all of that, you can think about putting after-tax money into the stock market.”
Moral of the story? Go see a financial planner now. Not only is it free but it’ll help you feel more enthusiastic and prepared for whatever will come your way. And if nothing else, knowing the numbers and what they mean put you in a better position to make intelligent shopping decisions—like whether to buy that ridiculously expensive eyeliner or the cheaper alternative that’s just as good—and put the rest of your income in your savings or 401K where it belongs. (Sorry.)