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I’m often asked, “What
are the most important things girls should know when it comes to personal
finance?” It’s a great question, especially since I’ve always been focused on
empowering young women to take charge of their financial futures. And it’s
timely, too, with April being Financial Literacy Month. So here are my favorite
financial tips, especially for girls and young women just starting out:
1. Put your goals on paper. It may sound basic, but it works. To turn dreams and ideas into real goals, write them down. Not only will it help you think concretely, but it will also be a source of motivation, and will ultimately provide the framework for a plan of action.
One way to approach it is to think in timeframes: short, medium, and longer-term goals. Short-term goals are things you want to achieve in a year or less, like buying a new bike or computer. Mid-term goals can be one to three years away, such as saving up for a special trip or a car. And long-term goals aim ten years out or more, like saving for college or even retirement, depending on how old you are.
Once you have your goals, attach a realistic estimate of how much each will cost. The main point is to work toward something tangible and realistic, where you can chart your progress to achieve your goal within a specific time period.
2. Spend less than you make. I’m a big believer in living below your means, and a budget can help you do that. You can use the 50/30/20 rule as a guide. This means spending 50% (or less) of your income on things you need, 30% (or less) on things you want, and reserving at least 20% for savings.
Having a budget puts you in control of your finances by helping you prioritize and balance your income and savings.
3. Prepare for the unexpected with an emergency fund. An emergency fund is “just in case” money. Financial surprises inevitably come up. Not being financially prepared can make a bad situation worse. When you’re just starting out, aim to save $100 first then $500, working your way up to $1,000 and beyond. Eventually you’ll want your emergency fund to be able to cover 3–6 months of important expenses.
Keep your emergency fund in a safe place where it’s easy to access. A regular bank savings account, money market account, or short-term CDs are great places to stash your savings. And remember, your emergency fund should strictly be used for emergencies.
4. You need to save and invest. Saving is critical, but don’t stop there. You need to invest your money—the earlier you start, the better, thanks to the “magic” of compound growth. Compound growth creates a snowball effect, as the original investments plus the income earned from those investments grow together.
You can use the rule of 72 to see how fast money can compound. Simply divide 72 by your rate of return to see how long it takes for your money to double in value. For example, if you had $1,000 that was earning a 6 percent return, it would grow to $2,000 in 12 years (72 divided by 6 equals 12).
When you invest in stocks, you’re investing in businesses that provide different goods and services that people want and need. And as an investor, you are a part owner of the companies you invest in. As companies grow and flourish, you stand to benefit.
Investing in the stock market can feel scary, mysterious, and risky. But there’s a bigger risk of not reaching your goals if you don’t invest. Investing is pretty simple if you follow some basic steps. Learn how to get started at schwabmoneywise.com.
5. Diversify. Because no one knows the future and the stock market can be so volatile, it’s important not to put all your eggs in one basket when you invest. Diversifying means putting your money in different kinds of investments (stocks, bonds, cash), in different places (international, domestic), and different kinds of companies (manufacturing, technology, health care, etc.) so that all your money doesn’t go up or down at the same time.
Diversification can help protect you against losses from different kinds of investment risks, but like anything involving investments, it’s no guarantee. That said, it can help reduce overall investing risk.
6. Manage debt wisely. Debt can be a useful tool to accomplish your financial goals if you use it wisely. There are two kinds of debt: good debt and bad debt.
Good debt is borrowing with low interest rates and low fees to help you build wealth and take advantage of more opportunities. Some examples of good debt are student loans you take out to attend college in order to improve your knowledge and skills, a mortgage to buy a home that will eventually increase in value, or a loan to buy a dependable car so that you can get back and forth to work and make more money. But keep in mind that borrowing too much can turn good debt into bad.
Bad debt is high interest borrowing with high fees that hurts wealth and can back you into a corner. Payday loans, pawn shops, and rent-to-own shops are some good examples of bad debt. For instance, a typical two-week payday loan with a $15 charge per every $100 that you borrow equates to an annual percentage rate (APR) of almost 400 percent!
Credit cards can be useful tools in managing your finances, but they generally carry high interest rates, so you need to use them carefully and wisely. The annual percentage rate (APR) on credit cards can range from about 12 percent to about 30 percent. When thinking about opening a credit card, it is important to note that carrying a credit card balance can encourage you to live an unsustainable lifestyle. Anything you buy with your credit card will eventually be paid for out of your money!
As a general rule, you should avoid interest charges by never carrying a credit card balance over into the next month. Instead, only charge what you can pay off in full each month. And always pay your bills on time to avoid late fees and penalties, which can add up quickly. Paying your bills late or skipping payments may seem like a short-term solution but can cause big problems for you down the road that can not only affect your credit score, but also your ability to buy a house or rent an apartment, get a job or promotion, and even the amount you pay for insurance.
7. Be patient. Whether you’re investing in your own skills through school or at work, paying off a debt, or investing in the stock market, it often takes time for you to see results. Patience can keep you focused on reaching your goals.
For example, constantly checking your investments can lead you astray from buying low and selling high as an investor. The more you look, the more likely you are to become distracted from your long-term goals and do the opposite (sell low and buy high) during inevitable stock market declines.
It’s time in the market (getting in and staying in), not timing the market (guessing when to get in and out of the market) that’s the name of the game when it comes to investing.
By being patient and disciplined with your money—as with just about anything you do in life—you can reach unimaginable heights.
I wish you all the best on your journey!
The information provided
here is for general informational purposes only and should not be considered an
individualized recommendation or personalized investment advice. The investment
strategies mentioned here may not be suitable for everyone. Each investor needs
to review an investment strategy for his or her own individual situation before
making any investment decision.
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Girl Scouts of the USA is teaming up with Charles Schwab and its Founder to help bridge the financial literacy gap for Girl Scouts in grades K–12. With Charles Schwab’s support, Girl Scouts from all backgrounds will strengthen their money management skills and enhance their financial literacy, setting them up for financial success.
To help build girls’
confidence, Girl Scouts has developed Financial Literacy badges that your girl can start
earning today! The badge activities are based on real-life situations, such as
budgeting and philanthropy, to give girls a deeper understanding of financial
literacy power their future life success!