An article from the Smart401k Women’s Series
During the month of May, Smart401k will place extra emphasis on women and investing. One element of our Women’s Series will be a set of blog articles that highlight women’s opinions, challenges, interests and unique situations with investment, budgeting and general finance. We will meet three women who are in different phases of life with distinctive financial situations. Amy is in her 20s with a successful career and an independent lifestyle. She has been cognizant of remaining within her budget, and she actually has faced challenges because of her prudence. Shannon is a married mother of two who is more than 15 years into her career. She grew up in a single-mother household. Ellen is a mother of grown children who is preparing to retire this year from a full career. She also is in the midst of a divorce.
Amy has maximized her career opportunities from the outset. Despite being in her 20s, she already has been promoted twice within her company – from account executive to senior account executive to account supervisor. Her rise is indicative of her education: undergraduate and master’s degrees from a leading journalism and communications school. Amy counts herself lucky because she completed her education with no debt. She is a successful, single woman living independently and trying to pay greater heed to her fiscal affairs.
Budgeting
Amy’s mother has been a significant influence in her budgeting efforts. Her mom attended a well-known, in-depth budgeting and financial seminar. The information she acquired became the basis for Amy’s budgeting strategy. The seminar provided a guideline to determine what percentage-of-income is appropriate for each of the expenses someone incurs. From that guideline Amy created a spreadsheet with a budget that includes allowances for food, transportation, utilities, rent, savings, clothing, medical costs, personal needs, vacations and charitable giving.
“Before this, I had no concept of what percentage was reasonable for food and other expenses. Because the percentage for each category was a range, it allowed flexibility for me to prioritize how much I wanted to spend in each. But at the same time, it provided me with the guidelines I needed,” Amy said.
Amy’s disappointment has been that she has not stuck to her plan as strictly as she would like. The budgetary spreadsheet was actually blank for a while, but this year Amy has made a concerted effort to track her expenses. She said she has come to realize the importance of saving and financial management.
“I’m trying to budget to be more aware of my financial situation and spending habits so that I’m consciously telling my money where to go. For example, instead of spending $100 on random stuff at Target, I’d like to think about whether there is something else I really want,” Amy said.
Credit
Amy’s parents strongly discouraged the use of credit cards, so Amy never used one in college or later.
“I didn’t even want one. I had a limited income, and I would much rather pay with money I have than worry about paying for something later.” she said.
The seminar series that formed the basis for Amy’s budgeting strategy also strongly emphasized the problems inherent with credit cards. In fact, many financial planning seminars teach absolute avoidance of credit cards. Recently Amy visited the seminar’s Web site to see whether they had altered their message. They have not, and the seminar states that there is absolutely no beneficial use for credit cards.
Amy has decided that credit cards actually have one benefit: establishing a credit history. Currently Amy has none, and she’s very discouraged about the situation.
“About six months ago, I applied for a Southwest Airlines Visa card and was rejected for lack of credit history. Then I tried American Express – same result. And then I tried going to my bank – same result. So I’m stuck in this major catch 22: I realize now that I need to get a credit card to build a credit history, however I can’t get a credit card because I don’t have a credit history. My frustration hit a new level when I tried to buy a cell phone. I had gone through the entire process of ordering the phone when the sales rep said I would have to pay a $500 deposit, not to be returned for another two years, due to lack of credit history,” she said.
Ultimately, Amy said, she feels like she’s being punished for living within her means. The lack of credit history will negatively impact any attempt Amy will make in the future to purchase big-ticket items like a car or house. For that reason, Amy persists in her efforts to open a credit card. But she also intends to use it wisely.
Lessons women can learn from Amy’s life
- Avoid or minimize college debt – be willing to work during college and take the time to apply for available scholarships
- Create a reasonable budget – then stick to it
- Establish a savings plan that includes retirement and emergency savings
- Begin to establish a positive credit history as soon as possible; use a credit card in college and afterward to build credit, but do not carry debt from month to month
More to come …
Look for more about Amy during the month of May. Her views about and experiences with investing and retirement planning will appear in other May blog articles.
About Smart401k
Smart401k is a Web-based investment adviser providing unbiased advice to help employees invest with confidence in their employer-sponsored retirement plans. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found Smart401k.com.
