One of the most important things you can do to create a healthy financial life is invest regularly and automatically. If you’re not already investing, don’t wait another day. Don’t wait because time is not in your favor. Unfortunately women think we have to be perfect and know everything before we start to do anything. Simply investing $50 per month will help you create financial independence.
It’s important to understand the difference between savings and investing. Saving money won’t make you rich, but it will be there when you need it. Savings are when you put your money in checking accounts, savings accounts, certificate of deposits, money market accounts, U.S. Savings Bonds, etc. Investing involves more risk, but if you make good investment decisions, your investments will yield higher returns over time than savings. Investing is when you put your money in stocks, mutual funds, bonds, etc.
I call this the magic of compounding interest and I would give anything if someone had explained this to me when I was in my 20s and that I would have listened! But, when I was in my 20’s I thought retirement would never happen to me – it was many, many, many years away. I’m encouraging women to replace the word retirement with financial independence. You get to choose the age of your financial independence. So, when you’re investing $50.00 a month for your retirement say to yourself “I’m investing $50.00 per month for my financial independence.” Investing regularly and automatically gives you the opportunity to determine the age you want to achieve financial independence.
If you put your money in savings and don’t invest you will outlive your money. A sad, but true fact because your savings simply cannot keep up with the cost of inflation. The Women’s Institute for Financial Education (www.wife.org) has a great online calculator to show you the effects of inflation. For example, in 1997 a car cost $14,500 – in 2006 the cost was $27,958; 1997 a loaf of bread was $1.65 and in 2006 it cost $2.11 and then there’s the cost of a gallon of gas – 1997 it was $1.19 and in 2006 it cost $2.19. And, all you have to do is look at the price of gasoline today to know that it’s a lot more than $2.19; in our area its almost $4.00 per gallon.
It’s not necessary to master the art of investing on your own. If your car broke down, would you read a book and fit it on your own? No, you would hire an expert auto mechanic. The same thing applies with investing – find and work with a good financial advisor. A trained professional who will be your coach and mentor. She can assist you in identifying your problem areas, develop strategies to help you reach your financial goals, assist you in setting priorities, save you time by researching investments and help you make money with your investments.
Finding a good financial advisor might not be as difficult as you think. Begin by obtaining the names of three candidates. Ask friends and colleagues for referrals. If possible interview all three financial advisors before determining which one best fits your needs. Another resource is on the Money Wi$e Women website under Sponsors. Questions to ask when you conduct your interviews include:
- Can you tell me about your work, educational experience, and how long you have been in business? (Though there is no right or wrong answer to that question.)
- How are you paid for your services? There are several ways a financial advisor can be paid for her services. One method is fee-based services, which is based on total assets being managed. Another method is commission-only, which is when you pay a commission each time you buy or sell an investment. You need to determine which fee structure best fits your needs.
- How often do you or does someone from your office communicate with your clients? Your financial advisor can be your financial coach therefore you want to communicate with her at least twice a year to ensure that you keep in touch with your investments. Your relationship with your financial advisor is important in achieving and maintaining financial fitness. Remember it’s up to you to know how your investments are being managed. Don’t rely solely on your financial advisor without taking responsibility for overseeing your investments.
- Can you provide references of clients with needs similar to mine? Talking with other clients can be very valuable. Ask them if they are happy with the service the financial advisor provides. You might also want to ask them if the financial advisor has any strengths and/or weaknesses.
Remember, though some of these questions may sound a bit intimidating to ask, you are the one in charge. You are the one doing the hiring of someone to help manage your money. Take whatever steps necessary to assure your comfort in working with these advisors. One trick is to ask these questions over the phone when you are screening candidates. That way, when you sit down face-to-face, the potentially uncomfortable questions have already been answered.
Whatever you decide to do, don't wait to invest in yourself! Take small steps, but start investing - regularly and automatically and start now!