Paula Harmon shares tips for Financial Planning Month
When we asked our DFSA board members to choose a topic that resonated with them, Certified Public Accountant Paula Harmon selected Financial Planning Month and shares some excellent tips for women to achieve financial stability:
As an accounting and tax major, now CPA, I should have known better, but by the time I was in my late twenties, I had a mountain of debt for no reason other than I spent more than I made. It was just that simple: more was being charged to easy-access credit cards than I could afford to pay off in full each month. I was making minimum payments on those credits and getting nowhere on paying down the balances and continuing to charge more if there was room.
At some point, I sat down and added it all up and had a big, ugly crying session when I saw the results. The total debt was larger than I had been willing to admit. I had set my accounting degree aside with respect to my own personal finances.
I have chosen Financial Planning Month to share that small part of my own personal financial journey. It took me about three years, but I committed to paying down that debt and getting myself to a positive net worth number. It was hard, but I made it through and hope my story will help some people take a moment to look at their own finances.
My steps are relatively simple. You do not have to understand debits or credits!
Know how much cash is coming into your bank account. What is your net paycheck amount that is available to spend?
Know the total of the fixed expenses that are going out of your bank account. Fixed expenses include rent/mortgage, utilities, cell phone, insurance, groceries, and anything else that you have to pay each month.
When you subtract fixed expenses from your net paycheck, this is what you have left over. Those are what I call discretionary funds. I use these funds for spending on things like eating out, personal care, clothing, entertainment, and travel.
If you need or want to cut back on expenses, look for things that you do not use or need. Some common examples include gym memberships or subscriptions to several streaming services when you only watch one.
Save, save, save! If you can, save 10-15% of your pay for two purposes:
First, try to have two to three months of pay in free cash should you lose a job, need to repair your car or home, or for any other unexpected expense.
Second, save for retirement; count any match your employer may have for a 401(k)-retirement plan as part of the percentage you are saving. If they match 3% and you can save 7%, then you are at 10%.
With raises or other pay increases as you change jobs, save at least some of the increase. If you could live on what you made before, then in theory you can save a little of the new amount.
That is all there is to it; stick to the basics. You don’t need an accounting degree or even Excel to complete these steps. Use a piece of paper to add and subtract the old-fashioned way with a calculator (or the one on your phone of course).
There are so many philosophies on financial planning and saving, but I am firm believer that if you do not start with the basics of knowing the ins and outs of your income and expenses, then it is tough to plan for the future.