Financial Planning for Generation X & Y Women
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Expert Q&A Archive

Saving When the Debt Burden is High.
I would like to know — this is not in regard to myself because I do have the savings and my investments — but for those that are just coming out of high school or college, those women loaded with debt, how are they expected to save 10%, and also those single women that are head of household struggling with the price of gas? I know there's always been issues in different periods of time, you know, women in depression time. But it's extremely hard to do some of the things that you're talking about. Can you please help those folks?
Gail Cunningham:
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I realize that saving 10% of one's take-home pay can seem daunting when every penny is already spoken for. However, it might help to look at it like this...Try the 80-10-10 rule. Spend 80% of what you make. Save 10% of what you make. Save 10% of what you make. Oh no! I've sliced another 10% out of an already tight budget. Where's the money to come from?

Let's say that you have 15 spending categories. Things like rent, food, utilities, clothes, medical, insurance, childcare, etc. Some of these are fixed expenses, so you can't carve anything out of them. For instance, your landlord isn't going to let you pay less. But, what if you could shave 10% off your clothing, your groceries, your entertainment? You see where I'm going with this. Ten percent is such a small amount that you won't even miss it. That's a real key to cutting back. Save on things where you won't notice the difference. Then you won't feel deprived.

People often want a magic bullet. Unfortunately, financial stability is pretty boring. You just make a lot of smart decisions, and they all add up to a significant savings over time. Let me give you a personal example. I live in a very hot climate. When we received our electric bill, I almost fainted. I'm not kidding. A paper route was in my future! So, I began researching how to save on electricity. The two main components are your consumption and the rate you pay. We did everything we could to cut consumption. We cleaned the filter, raised the thermostat and closed the curtains. Sure 'nuf, when the next bill came, it was lower by $130.

I don't know about you, but to us, that's real money. We happen to live in a state that deregulated energy, so we researched that, too, and have changed providers to lower our rate by about 1 cent per kilowatt hour. That doesn't sound like much, but should result in another savings of about $30.

If you have cable, cut back to the basic package. You'll still have plenty of channels to watch, yet you'll save money. Look at all the ways you can bundle services. For instance, can you put your land phone with your cell phone? Can you give up your land phone and just use your cell?

Your first step should be to track your spending. I know it's a pain, but you can't plug the hole until you've identified the leak. Write down every cent you spend for the next 30 days. It's the little money that wrecks a budget. If I asked someone how much their car payment was, they'd tell me. If I asked them how much they spent eating out, they'd have no idea. So, write it all down. Then, at the end of the month, total it and see where you can reasonably cut back. Any budget is only as good as it is in practice, so don't set unreasonable goals.

Let me know if you need more tips. I'm happy to help. You've taken the first step by asking the question.
Gary Silverman, CFP®:
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Most, but certainly not all budgets have some "give" in them. Cable TV. Used vs new car. Chicken vs steak. Walmart vs American Eagle. That's where I'd begin because that is under the immediate control of the consumer.

But what about those people who are already down to survival mode and can't cut any more. In that case, income is the key (it works in the other scenario as well). Do your job well, better than most. Take the opportunity for assignments and education offered to make you more saleable. Do what it takes to be the one who is considered for the next raise or promotion. This one takes time, and savings may be impossible until that next step comes.

The key is believing that there is a way out. That then enables you to see the opportunities that are there.

Can things still turn out rotten? Of guarantees in this life. But without continual effort a person doesn't know what is truly possible.
Barbara Babcock:
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As a single woman who paid her own way through college (and took 10 years to pay her own way out of college debt), I can say that you’re right, it isn’t easy. The only way to do it is to face your financial reality, set limits, and do without. That is the only way, there is no other answer.

One of the biggest mistakes that financial educators make is to throw out a rule like “save 10% of your paycheck” and then make it sound like it’s set in stone, with no compromise. The real key is to start saving something, right now. Don’t get hung up on the 10% thing. But DO write a budget and squeeze every penny you can. If you do this, you will find some amount of money—maybe $50 a month, maybe 2% of your income—that you can save. Start RIGHT NOW to save this. The young ladies in their 20s have the best financial advantage of all: they have years till retirement, so their savings will compound (which means to earn interest on top of interest) for decades. Time plus discipline to save is a sure way to build wealth.

Here’s an example: open a savings account with $40 that pays 5% interest compounded monthly. Add $40 per month every month for 47 years. Your savings plus interest will grow to $90,988. Save for 50 years, and your account will grow to $107,230.
Elizabeth Goldsmith:
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Dear SH, This is an enjoyable question and one I answer nearly every day as a college professor of personal finance and public speaker on the subject "Women and Money: From Purses to Portfolios." The U.S. savings rate is now less than 0% so we are a nation of dissavers rather than savers so anyone saving 1% or more is ahead of the game. The suggested 10% is an ideal, but you can find individuals and couples saving 20%-50% or more. The ones saving more are often dual-career couples who live on one income. My husband and I did this early in our married lives and I remember a bank teller asking me how we banked one set of paychecks. Part of the answer was living very inexpensively in university housing. A contrast to this is that often when people get a little ahead, for example their truck is paid off, they immediately go out and buy a new truck and start payments again. Car dealerships will even contact people when they know their truck or car is paid off and call them to get a new one. I know young single working men and women who are barely making it who have fallen for this "you'd look so good behind the wheel of..." sales technique. Those who save more than normal at a young age have roommates or live with their parents at least for awhile. The tv show "Friends" glamorized the singles living together and young people today were brought up with that show.

Many of my students go back home after graduation to live with their folks for six months to a year or after a divorce or the selling of their house or birth of a baby. If their parents have a mega-house with a master down, the young couple or single mom with the baby live upstairs in a two bedroom suite with bathroom. It works! I know several situations like this. Students after living in beat-up apartments with noisy neighbors have a new appreciation for the comforts of home. I know others after one year of apt. life their freshmen year return home to the folks and finish out the next three years that way. If you are older you might not understand this answer but the 19 year olds today are different from the way the boomers were, eager to escape. Cell phones have increased the parent-child connectedness. They are marrying later too. Also, college students often go in the hole knowing that their education will help them pay off their loans and move ahead. Through education they are investing in their future and often are not saving during this time period but they know it is temporary. Temporary poverty is a whole other animal than permanent poverty. Once making a decent income, things change and here is where the savings habit should kick in and the 10% or more becomes more feasible.
Ben F. Boyd, Jr.:
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Perhaps one easy way for a new graduate to put away 10% of their earnings, is to utilize their companies retirement plan options. If the company has a matching plan contribution, then the monies are taken out on a pre-tax basis, allowing the individual to invest, save money on taxes and actually take home more money after tax than they would by not making the contribution.

If the company matches the first 5% on a dollar for dollar basis, by putting in their 5%, they are receiving a 10% savings benefit with the 5% matching contribution by the company.
Delores Lenzy - Jones, CPA, CIA:
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Life is about choices! You would be surprised how much you can save if you put that as your focus. For example, bringing your lunch could save you $5-10 per day. Washing and ironing your clothes vs. sending them to the cleaners could save your $40-60 per month. Also, do you purchase clothing and other items on sale vs... at full price? I never purchase anything unless it is at least 50% off, and most times 75% off. Do you plan you car path such that you maximize your gasoline usage?

Also, if you can't save 10%, start with 1%, then 2%, 3%, etc. The important thing is consistency of saving. Set a timeframe when you will increase to the next % and you're well on your way.
Alyssa Rakovich:
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First they should get their debt structured and manageable - have a plan that shows cash flow money in and out - if they have a 401(k) available that is the best way to save - remember that $ is pre tax so even if it is $10 a week they need to start - you were able to - everyone needs to take some personal responsibility for their situation. The government is trying with the savers credit - It encourages people to contribute to their 401(k) plans and depending on their income will match their contributions with tax cerdits.
Susan Saleem:
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It is always difficult when you are starting out but if you follow the best advice ever of "pay yourself first" you will find a way to manage the rest within your budget. Also, consider that 10% pre tax is less than 10% out of your pocket. When I was starting out my husband made our furniture, we covered some foam squares for couch cushions we used old display tables from the store where we worked for end tables. We worked on establishing our careers and eventually were able to enjoy our efforts, send our kids to good schools and are now looking forward to retirement.

When you are starting out you need to focus on establishing good habits. It is like eating right. It is a choice and a lifestyle. There are no easy answers.
Ellen Hoffman:
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I see two basic steps for young women just starting their careers and/or single women head of households, regardless of how much they are actually earning.

First, make a budget and stick to it. For some, it may require some concerted effort to learn about money management from sources such as Wi$e Up, or a local community college course or a book. Having a budget means controlling expenses for non-essentials such as expensive clothing and make-up, eating out, etc. and for many it may mean sharing an apartment or other living space. If gas makes commuting by car too expensive, find a way to use public transportation, share the expenses with another commuter, etc.

Second, make a commitment to saving SOMETHING for retirement out of every paycheck, even if it's less than 10 percent. It's important to establish a habit of saving and then, as your income increases, notch up the amount you save little by little. Any amount of money put away now is better than none, because there will be a very long-term benefit to compounding the savings. These women should make sure they are taking advantage of the federal "Saver's Credit" (just renewed), which rewards lower-income taxpayers for retirement savings by providing an income tax credit.
Check here for details: .
Elizabeth Rusnak:
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Here is a budget that someone shared with me one time. The person who shared it with me was really struggling financially, and she said she stayed true to this budget and this allowed her to overcome her financial challenges.

Other helpful points to assist during those trying times: Omit un-necessary spending... eat out less (especially fast food, which is quite costly). Omit the "latte a day" (this provides a real savings). Omit the extras like having manicures or pedicures. I find it's easy to do those myself at home. The list of "omits" can get pretty long, but I'm sure you see where I'm going.

Here's the budget:

25% of take home pay for housing (utilities, rent, etc.)
25% transportation (car, gas, etc.)
10% savings
20% food
20% misc.

With gas prices as high as they are, there are definitely alternatives:
1. Carpooling
2. Riding the bus
3. Cycling
4. Telecommuting

My vote is #2. I have so many friends that work in the downtown area and they all ride the bus.
They leave their car at a park-n-ride and then hop on the bus from there.
Jennifer Lane:
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I agree. It is becoming harder and harder for folks of modest means to make ends meet. We work with many clients in this position through various EAP and corporate relationships we have. Very careful expenses tracking and planning seem to be key, along with a clear understanding of goals and priorities. Not sexy but important skills for all of us.
Catherine Petter:
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While regular saving is an admirable goal, you are right – there may be times in life when it is just not possible to live up to the goal you have set. However, most of the time it is possible to save SOMETHING – even if it's only my sister's old trick of putting the $5 bills she received as change into a jar in her closet, taking the booty to the bank once a month. I think that making a point of always saving something, even when it is impossible to do it in the way that you would like to ideally, is the most important thing when you're trying to build good financial habits.

That said, one of the easiest and inexpensive ways to save 10% of your salary is through a 401(k) plan at work. Many employers match employee contributions, so not joining the plan is, in effect, like giving up a raise. Moreover, the money you put in comes out of your paycheck before taxes are taken out, making the saving a little less painful. Younger employees tend to be less likely to join 401(k)s, I think in part because all the paperwork seems confusing and because retirement seems like such a long way away. But you Wi$e Up Women won't make that mistake!