Yahoo Finance Girl To Girl: Money Edition — Women Are Sharing Money-Saving Tips And Hacks To Keep Your Credit Cute And Your Pockets Fat
Black women on Reddit shared their best financial literacy tips to help others feel more comfortable with their money when it comes to saving it, spending it, and investing it.
Here's some of the great advice they shared:
1."Build an emergency fund."
• Build an emergency fund ($3-10k). Aim to max out your retirement savings in an index fund. Invest extra savings in the stock market, such as an index fund like SP500 or tech stocks.
• I believe six months worth of living expenses should be a great start for your emergency fund, just in case you lose your job or something.
• Always have FUCK YOU money so you can leave any situation at any time (be it work or home). I don't know if I would consider this financial or just a well-being tip.
Resource to get started: Essential guide to building an emergency fund via the Consumer Financial Protection Bureau.
2."You only need 1-3 credit cards."
• You only need 1-3 credit cards. It's better to get a card that offers cash back or some form of incentive. Don't spend more than 1/3 of your limit per month, and make sure to pay off your balance in full.
Resource to get started: Understanding Credit Cards via Yale University
3."Get into stocks."
Regarding stocks, and let me say my career is very related to this topic, I would really encourage folks to avoid buying individual stocks and stick with diversified funds, such as ETFs. Most people do not have the time and knowledge to succeed in picking individual stocks.
What you want to aim for is broad market exposure. And the younger you are, the more weighted you should be towards equities vs. bonds. Investing is not gambling — it is far more systematic and disciplined.
Resource to get started: Stock Market Basics: What Beginner Investors Should Know via NerdWallet
4."Get disability insurance."
• If your job has long-term disability insurance, contribute to it. You never know if something may happen to you. This ensures you'll get a certain percentage of your paycheck in case you have to go on leave for a period of time.
Resource to get started: Why Disability Insurance is Important via Life Happens
5."Limit overspending."
I use a zero-based budget, which means that every dollar is assigned to something before I spend it. It helps me limit overspending.
Saving is the second thing I do, after tithing/giving, so I can usually hit my savings goals. I set a minimum percent of my income that I want to save each paycheck and aim to save 5-10% more, so if I overspend a little or it's a month with high expenses, I'm still good. I found that it was hard to save and easy to overspend when I was using leftover money after paying my living expenses/wants.
I split up my living expenses over every paycheck so I don't forget anything. If I get paid twice a month, I pay half of all my living expenses with my first paycheck and the rest with my second.
I also learned a lot about passive investing on the r/personalfinance page. I recommend it to everyone. A compound interest calculator convinced me how beneficial investing is. It's free money!
Resource to get started: Inside the Psychology of Overspending and How to Stop via US News
6."Big plug for 401K plans."
• I want to put in a big plug for 401K plans. If you have one, put in the MAX. Always. You will not miss those funds. A lot of folks say put in enough to get the employer match, but I say suck it up and put in the legal maximum. Your budget will adapt to it. As an illustration, my current 401K is over $1 million. It took less than 20 years of max contributions to get there. That is the power of compounding.
• If your employer matches your 401K up to a certain percentage, make sure you take full advantage of that.
Resource to get started: What is a 401K? via Fidelity
7."Get life insurance."
Get life insurance! Get it for yourself, your parents (if they don’t have a policy naming you as the beneficiary), your spouse, and your children. So much of generational wealth is built like this. Death is inevitable, at least with life insurance you or your family members can get a lump sum of money that could be life changing. Just think about it: $100k, $250k, $500k, and $1mil can be a down payment on a brighter future.
For parents who are older, consider term-life insurance. The term expires, and then you have to get more. So if you get a 20-year term policy, you pay the premiums (which can be less than $100 a month), but if the death doesn’t occur within the 20 years, you get nothing and have to buy a new policy.
Get whole-life insurance for younger folks. It NEVER expires, as long as you pay the premium, and the premium doesn’t increase. So, if you get whole for a 20-year-old and they live to be 90, you get paid. It also builds cash value over time that you can cash out or borrow against. It’s an investment with a guaranteed payout upon death. It’s much more expensive than term, but that’s why.
Resource to get you started: Do I Need Life Insurance? via US News & World Report
8."Don't buy outside of your means."
• When you buy a house, don't buy outside of your means. Particularly due to social media, I think people suffer from "keeping up with the Joneses." They think they need a 5-bedroom home and 3000 sq ft. when they are only a family of four. More home brings more problems...money problems.
I could have afforded a more expensive home, but I chose to get a starter home. I'm only one person. My mortgage is so low I literally never have to think about it.
• The wealth formula I have always pursued is: 1) maximize income because for Black folks gifts/inheritance is unlikely, so income is the only way we generate funds to save; 2) consistent savings/investing through up markets and down markets; 3) home ownership, which is a powerful wealth creation tool for multiple reasons; and 4) living below your means because if you don't, the saving and investing won't happen.
Living below your means is tough for us because, on average, our incomes are below our white peers, but also, when we get a little cash coming in, it is tempting for us to want to buy and show status markers - from designer threads to luxury cars. That's understandable, given what we see folks doing on social media, as well as a desire to feel good about ourselves and counter the way society sees us. But it is a habit that destroys wealth. Books like The Millionaire Next Door: The Surprising Secrets of America's Wealthy do a good job of explaining how this works.
Resource to get started: Making a Budget via Consumer
9."Take financial risks."
It's controversial, but if you have a high income, take one financial risk per decade or every five years, but only with money you are willing to lose...nothing more. I find we are way more conservative when investing, and we end up so far behind as a result.
If you are low-income, please focus on safe investments until you have a good safety net for you and your family, where applicable.
Resource to get started: 6 Steps to Investing Wisely via The Department of Financial Protection and Innovation
Do you have a financial literacy tip that would make a great addition to this list? Share it with us in the comments below!
