Seven Ways to Gain Financial Clarity

As we celebrate Women’s History Month and focus on both the progress that women have already made and the progress that we have yet to make, financial well-being stands out as an area for engagement. According to Ellevest, 59% of women stress about money one or more times per week, and 43% of women actively worry about money at least once a day. The topics we are worrying about range from broad- inflation, the economy, and retirement- to specific- the cost of child care, housing prices, and job security. If you are considering prioritizing financial wellness as a key component of a balanced, purposeful, and satisfied life, here are some initial steps you can take to increase your financial confidence and security.

1. Get to Know your Finances: In the 18th century, Thomas Gray famously wrote that “ignorance is bliss.” Although there may be areas of life in which this is true, experience tells us that finances are not one of them. Many new clients explain their finances along the lines of, “ignorance is waking up in the middle of the night worrying” which, subjectively, seems to be the opposite of “bliss”. When it comes to finances, women like to be fully informed. If you’ve fallen behind on your finances, start by making a list of your assets (bank accounts, investment accounts like 401ks and IRAs, and real estate) and liabilities (credit card debt, mortgages, and student loans). Your assets minus your liabilities is called your “net worth”. Begin keeping track of how much income you earn each month, and how much of that income you spend each month. Ask yourself:

1. Is my net worth increasing or decreasing over time?

2. Am I making more money than I am spending?

3. If I can save money, where am I saving and do I have a strategy for saving?

4. If I am in debt, am I making payments and do I have a strategy to reduce my debt?

2. Plan for the Future: As you begin to understand your finances, think about where you are now and where you want to be. Consider both security (planning for a rainy day, protecting those who rely on you) and aspirations (things like buying a home, retiring, or changing careers). At Clarity Financial Design, we are proponents of writing down your goals and putting a time frame on them. Keep in mind, not all goals need to sound “fun”— for example, paying off a mortgage or planning to care for aging parents are good things to plan for. The first step to being financially prepared is aligning your personal values, aspirations, and financial means.

3. Set Financial Goals: Studies show that the most effective way to successfully achieve goals is to establish, track progress, and celebrate success. Start by establishing your financial goals. For near-term goals, consider paying off high-interest debt (such as credit cards and some student loans), planning for a major purchase like a home or car, and experiential goals including travel and personal improvement. Long-term goals may include paying for a child’s college education, paying off low-interest debt such as a mortgage, retirement, and planning for long-term health concerns.

4. Establish an Emergency Fund: Now that you understand your finances and have established your goals, the first step in making progress toward these goals is to make sure you aren’t pushed off track by an emergency or unanticipated expense. Establish an emergency fund with enough cash to cover 3-6 months of regular expenses. We recommend that this fund is kept separate from your primary checking account. This segregation helps demarcate the funds as “not available” for everyday spending and makes your emergency fund easy to monitor. A high-yield savings account is an excellent spot for emergency funds, as these types of accounts typically pay a high rate of interest, are FDIC insured, and are accessible when you need them.

5. Automate your Savings: The best way to create and maintain a habit of saving is to automate your savings. Are you working to fund your emergency reserve? Set up an automated transfer every month. Are you working to pay down debt? Set up an automatic payment to be sent when you receive your paycheck. If you are eligible for a retirement savings plan or health savings account through work, set up a payroll deduction for these contributions. Because automating transactions reduces the mental friction of decision-making, you’ll be one step closer to achieving your goals without needing to think about it (literally!).

6. Consider your Investments: Investments introduce the possibility for higher returns and higher risk, so it is critical to understand what type of investments you have and which goals these investments are earmarked for. Use a bucket approach to match your investments with what you're saving for. Money that you’ll need in the short term or that you can't afford to lose—the down payment on a home, for example—is best invested in relatively stable assets, such as money market funds or high-yield savings accounts. Near-term expenses may be more conservatively invested, and long-term savings for goals such as retirement may be more aggressively invested.

7. Find a Financial Planner you can Trust: If you'd like a partner to walk with you on your financial path, you should find a fiduciary financial advisor who you can trust to collaborate with you. An experienced advisor helps create a comprehensive financial plan that serves as a roadmap for spending, saving, and investing decisions. At Clarity Financial Design, we focus on financial planning for women, so you can expect an open dialogue, plenty of time for questions and conversation, and a specialization in issues that are important to you.

If you’d like to learn more about the way Clarity Financial Design puts clients first, we welcome you to set up a meet-and-greet call to learn more.