FIVE TIPS THAT CAN BUILD REAL WEALTH
FIVE TIPS THAT CAN BUILD REAL WEALTH
Plus, Financial Expert Nicole Lapin shares her 12 steps to financial recovery.
Women will talk about most anything, says fiancial expert Nicole Lapin, before we'll talk about money. So the biggest mistake women make is not making a mess of their finances; it’s not even starting the conversation!
We can do more than just save money, we can build real wealth and Nicole Lapin shares her five financial tips to building real wealth below.
1. Spending Breakdown We Should Follow
We should follow: 25% for bills and loans, 25% for housing, 15% for food, 15% for transportation, 10% for savings and 10% for fun stuff.
Tip: Take out the "fun stuff" cash at the beginning of the month and use it on whatever you want. These small indulgences will keep you on track from binging on other spending. But once that fun money is gone, that’s it until next month.
2. Have a 3-6 Month Emergency Fund
You should also have 3-6 months’ worth of expenses in the bank at all times for those major life circumstances that might come up, like job loss, sickness in the family, or starting a family.
3. Save a Bit at a Time
It’s critical to save at least a little bit at a time. Put $50 a week into a bank savings account earning 2 percent interest, suggests Nicole Lapin. And in three years you will have saved more than $8,000.
4. Automate Your Financial Life
Having a 401(k) is perhaps the most important step to creating wealth -- not just saving. Nicole Lapin's advice: Automate. Put your financial life on autopilot as a form of "forced" saving. Your 401(k) is a great example of auto-investing; with every paycheck, money goes into your retirement account. You can set up the same system at a discount brokerage or fund company to help you invest in an IRA, authorizing the firm to pull money out of your bank account weekly, monthly, or quarterly.
Tip: Have $100 automatically transferred from your checking account to a bank savings account each month and in five years at 2 percent interest you could have more than $6,300 set aside.
5. Read the Fine Print
Beware of the balance transfer blunder, says Nicole Lapin. In the past, it was a no-brainer to transfer a balance to a new card with a promotional low (or zero) introductory rate, usually for a fee of up to $75. But now, as you'll learn by inspecting the promo terms, the fee is often 3 percent of the amount being transferred.
Want more? Download Nicole Lapin's Financial Toolkit and visit Recessionista.com to get the finanical news you don't need a dictionary to understand.
WEB EXCLUSIVE: Nicole Lapin's 12 Steps to Financial Recovery
Step 1: Admit Powerlessness
Just like in AA, the first step in moving forward with cleaning up your finances is to admit that you have a problem. Whether it’s crippling credit card debt, daunting student loan payments, or a nonexistent savings plan, now is the time to face your true financial picture head on.
Step 2: Find Hope
The good news is that, after you’ve had that knock-down, drag-out conversation with your finances, there is hope. Now is the time to feel empowered: you’re taking control of your financial destiny, and the sky is the limit! Reward yourself with a subscription to The Wall Street Journal orThe Economist and study up. The more you know, the more power you have.
Step 3: Surrender
I’m not saying “give up;” I’m saying give in to the truth of your finances and clean up your act! This means opening those shoeboxes full of receipts, those old bills, those bank statements. Get it all out there on the table—and I mean literally—so that the clean-up process can begin without forgetting (or denying) any important pieces of the puzzle.
Step 4: Take Inventory
Revisit your budget to get a real sense of where you are. Have you added any additional expenses to it since the last time you checked, perhaps a gym membership or Netflix subscription? Where does your credit card balance stand, and how much do you owe in loans? Enter everything into my expense tracker and see how it all adds up in each category.
Step 5: Confess
It’s okay to feel in over your head; that’s what friends and trusted financial experts are for! Once you’ve gotten into the nitty gritty with your expenses and outstanding payments on the expense tracker, sit down with a friend or financial advisor and go through it together. Sometimes saying it out loud is the best way for your financial picture to hit home; plus, working through the list with someone else will make the task less daunting.
Step 6: Become Ready
It would be great if you could just wave a magic wand over your wallet and make your financial woes go away, but that’s not reality. Let me be honest with you: you might be in for a long, uphill battle. But don’t get discouraged; put your game face on! Recognize that in order to tackle your finances you’re going to have to make some lifestyle changes, most of which are not temporary. This might mean cutting back on some of the things you love to do, like yoga, those weekly mani’s, your growing shoe collection, in favor of things you need to do, like set aside 6-9 months of living expenses in savings, start a basic investment plan, or ramp up your student loan payments.
Step 7: Ask for Help
That’s what I’m here for! Whether you’re looking to tackle your credit card debt or boost savings for those big life purchases down the road, I’ll guide you through every step of the process. But you have to ask and be willing to learn, and I’m not going to sugar-coat it for you. This book is a resource, but I’m not going to hunt you down and make you do any of these things. That’s on you—and I’m here to help.
Step 8: Make List of Amends
Organize your financial pitfalls by priority, typically starting with your highest interest rate payments (like credit card debt) first. Interest will accrue on those the fastest, not to mention damage your credit score, so they deserve your attention first. Next, list a plan for long-term savings (that’s the 6-9 months of living expenses I mentioned before, which will save you in case of job loss or other unforeseen circumstances down the road). After that comes other regular payments like loans, housing, and car payments. Finally, list a few ideas for long-term investing, like a money market account or mutual fund, to make your nest egg grow, baby, grow!
Step 9: Make Amends
The biggest mistake people make when revamping their finances is trying to tackle too much at once. Remember: slow and steady wins the race. Start with the first item on your list and give yourself a quarter—maybe two—to fix it. If you plan to get that credit card debt under control, this means you’re focusing on that for the next 3-6 months, cutting back on monthly spending to ramp up your payments and so forth. Keep an eye on the other agenda items (after all, you can’t just stop paying off your loans!) but don’t let them eclipse your progress on Item #1. Once Item #1 is under control, take a breather, put your game face back on…and move on to Item #2.
Step 10: Continue My Inventory
Life is complicated, and chances are that other expenditures will come along after you’ve made your list. Don’t panic; chances are that as your career blossoms and you become a more savvy investor you will be adding additional income to the mix, too! Check in with your inventory on a monthly basis and add in any additional expenses so that your budget is a real-time reflection of what you have to spend (and to save).
Step 11: Take Time to Reflect
You’re doing great, and by now that list of financial “To-Dos” has more things crossed out than not. Take some time to reflect on your progress, and to see where you could still use improvement. Have you nailed your credit card payments, but slacked a bit on repaying your loans? See if you can cut back in the dining out or shopping categories and ramp up your monthly loan payments for a while. As you grow and accumulate greater wealth, your monthly plan is going to become more complex. But that’s a good thing, and giving yourself a regular pat on the back is just what you need to stay motivated and on track.
Step 12: Help Others
By now, you’ve become a savvy finance machine—and it’s time to share your newfound power and knowledge with the world! They say that you don’t really know something until you teach it to others, so try your hand at being that trusted friend that you sat down with back at step 5. Help a friend to organize her budget into categories (25% of your monthly income should go to bills and loans, 25% to housing, 15% to food, 15% for transportation, 10% for savings, and 10% for fun stuff). You might gain some more budgeting ideas while proving to her—and yourself—that you really know your stuff.
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About Nicole Lapin
Nicole Lapin is known for being the youngest anchor ever at CNN and then going on to claim the same title at CNBC, where she anchored “Worldwide Exchange” and contributed to “Morning Joe” and “The Today Show.” In 2011, she launched her own production company, Nothing But Gold Productions, which produces accessible financial content across multiple platforms. She is the host of a new show, “Recessionista,” on Carlos Slim’s network ORA TV, based on her wildly successful website by the same name. Nicole has also served as an anchor and special correspondent for Bloomberg TV. She regularly appears as a financial expert on CNN, “Entertainment Tonight” and talk shows.