by Jenna Kutcher
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I know for so many, finances are heavy on our minds this year. It’s been a year of challenge from every direction — a global pandemic, a national civil rights movement, and tons of personal reflection and changes with life at home. And with it has come shifts to the economy, many intense and scary, and some long-term effects still unknown. I know there are people all over the world worrying about finances, if not totally hurting because of them, and I am always amazed at those who find the courage to find opportunity in the midst of hurt.
When everything on the outside feels OUT of control, I do my best to return to this: What can I control? What do I have power over? What can I ACTUALLY change? What habits, routines, or thoughts can I shift so that I don’t stay feeling stuck?
These questions guide us towards a small adjustment in thinking with big results on how we show up in our lives and in the world. And I truly believe that change in our lives can start with these small, simple shifts inside of each one of us.
So while financials are a big, top-of-mind topic these days, let’s talk about financial habits that successful women possess. Because even though things may feel shaky and unpredictable in the economic climate, you DO have control over how you show up in your life and in this world. You have power over your approach to money, how you handle it, and your belief systems around it.
My hope is that you take pieces of this episode and start small with building them into your daily routines and rituals. Just like SO many of the important things in life, there’s no fix-it button for financial habits — it’s a slow, steady process with consistent, intentional thought and action behind it. But I believe EVERY woman is capable of taking charge of her finances and owning her financial future with confidence, and these are tools to get you started.
Know Your Finances
A successful woman knows numbers mean power… Even if the numbers are less thrilling than she’d hope for. When you’re regularly checking in and have an awareness of where your money is going, you have a different level of knowledge for what your goals can look like, and for how you can be using your finances to better your world and the world outside of yourself.
Having a healthy understanding of your finances, from your debts to your income to your investments to your savings and beyond, is what allows you to begin taking action from a place of confidence, even if the action is teeny, tiny steps toward a savings goal or buying a car in cash, whatever it might be.
Using a personal finance tracker can make it so easy to view your finances from a birds-eye view as well as digging deeper into things like interest on loans, spending categories, and those other nitty-gritty details. I know there are TONS of smartphone apps out there that can help with this, like Mint which is great for saving money and cutting spending habits, YNAB (or You Need a Budget) for savvy budgeting support, and Personal Capital which tracks your wealth and spending.
Just spend time each week and month getting to know your finances at first if this isn’t a regular practice for you yet. I know it can be easier to just trust your automatic payments are doing their thing, or maybe it’s just anxiety-inducing to open your bank accounts and begin digging around. But, often the things that make us uncomfortable at first allow us to grow the most over time, right?
Have a Budget
So many people don’t really have a grasp on what they’re spending vs. what they’re making, and while maybe you don’t need a serious spreadsheet that allocates every penny that you make to go somewhere, it is extremely beneficial to weigh your income against your expenses to make sure you’re being smart with your money and not overspending on things that don’t make sense.
Financial planning company Fidelity recommends a good rule of thumb to follow is allocating about 50% of your take-home pay to essential expenses. That’s things like rent or mortgage payments, car payments, healthcare, student loans, utilities, groceries, gas, etc. The things that you NEED to pay for each month.
N0w, that’s not to say you can’t budget for non-essentials (like a Sephora haul when they’re having a sale)! But they just don’t fall within that 50% of your take-home pay, necessary expenses category.
Fidelity then says to save for emergencies and unexpected bumps in the road by putting aside 5% of your take-home pay. Dave Ramsey is also a big proponent of building an emergency fund that covers 3 to 6 months of your living expenses in case something happens to your job or some unforeseen emergency comes up with your health, your car, your home, or something else substantial.
And finally, Fidelity says to put aside 15% of your pretax income toward retirement. Now, the other allocation suggestions were for your take-home pay, and this one is pretax, so it’ll be a different number to calculate from.
After analyzing hundreds of financial situations, Fidelity found that this 50% of take-home pay toward essentials, 5% toward unexpected expenses, and 15% of pretax income for retirement breakdown creates a strong chance of maintaining financial stability now AND for continuing your current lifestyle into retirement.
This 50-15-5 rule is totally a suggestion, though, and the most important thing is knowing YOUR finances and smartly allocating them so that you can cover your necessities, save for retirement, and save for extras and emergencies. You’ll find the numbers that work best for you and your family, and those personal finance apps I mentioned earlier are SUPER helpful for easily budgeting without it becoming all-consuming.
Set Financial Goals
We knew early on in business ownership that we wanted to pay off all of our debt as soon as possible and pay for our personal expenses in cash if possible. This did NOT happen overnight and was a huge goal of mine. I’ve shared before that I really struggled with money mindset issues and part of that includes HATING debt.
Early on in my business, paying down all our debt and eliminating credit cards from our personal expenses felt like a massive, substantial goal to work toward, but we began chipping away at our student loans and mortgage and eventually were able to become debt-free, which felt like such an enormous weight off of our shoulders.
I opted to pay myself less than what the business was bringing in for years and years because I knew we could live off of my old salary and so for many years I just paid myself the minimum on what we needed based off of the old budget so that we could build up our savings and pay down our debt.
Your financial goals may be different — maybe it’s saving a certain amount of money for travel each year, or being able to pay for your child’s college tuition eventually, or paying off your credit cards that have racked up over the years.
No matter WHAT the goal is, it’s so important to just simply HAVE financial goals to work toward so that you’re not just spinning your wheels working to only make money with no vision behind it – that can get old real fast. Always set SMART goals: specific, measurable, attainable, realistic, and timely so that you can clearly work towards something that keeps you motivated and on track.
Money is a vehicle towards freedom and independence and yep, even joy in some ways, but you have to let your values drive your financial goals so that you’re using money not in a greed-filled way, but to drive your life toward the vision of life you desire for yourself.
Plan for the Future
A lot of entrepreneurs specifically pour much of their finances back into their businesses — which at times is necessary, but you also have to think about your future just as much as the present. You don’t want to work yourself into your grave. Remember your hard work now only pays off if you’re putting aside enough to live off of later on.
I put myself on payroll when I was a full-time photographer because I was working and making ALL my money for the year in just 6 months of the year – welcome to wedding season in the midwest, where weddings really only take place from April to September!
The rest of the year was bone dry for my income, so I created a payroll with the help of my accountants and paid myself way less than what the business was bringing in because I knew then I could live off of it longer, when I wasn’t working as much.
We’ve always maintained a pretty low payroll for myself because we want to continue saving for the future and for our children’s future. Knowing what your ENOUGH point is helps to determine how much you truly need to pay yourself. Knowing your “enough” is more than just knowing your necessary expenses. It’s knowing how much you need to make to pay for those essentials, plus the extras you desire to reach your financial goals or personal desires.
Your enough number won’t look like someone else’s who is in the exact same season of business as you because it’s a deeply personal figure and based on your own needs and wants.
Ideally, you’re making enough to cover your “enough” and then the rest can go toward savings, investments, debt and giving back. Your enough should be what you really need to make ends meet and to feel comfortable enough, without overextending your finances OR undervaluing yourself. Figure out where from the leftovers you can save money for retirement or put it back into the business.
For those who work a 9-5 job or don’t own their own business, you can still practice owning your enough number by negotiating your pay to reflect your goals. And negotiating your salary isn’t just a quick decision for a more comfortable life NOW — it can pay dividends down the road, too. Any future jobs you get, you can communicate what your previous job paid and just improve and make more from there on out.
The Big Picture
Finances aren’t the easiest thing to talk about or even think about sometimes. They can be stressful and overwhelming, and financial hurdles can just feel big and heavy and all-consuming. But I also believe that subtle, tiny shifts can hand the power back over to you and allow you to start building a life towards financial freedom. Things like: thoroughly knowing your finances, as in depth as though you’re going on Shark Tank, plus building a budget that makes SENSE to you, creating financial goals that excite and motivate you, and preparing for your future by saving for retirement starting NOW.
You don’t have to do all of them at once, but just pick one and begin honing in and exploring it. Build on it with others and before you know it, you’ll build momentum and a deeper awareness of your finances that allows you to make informed decisions and empowers you to know your worth and make improvements based on THAT, not on fear or insecurity.
You have the control to make changes and shifts to own your financial future. I know you’re capable and more than that, I know you deserve a life of financial security and confidence! Now, go get after it.