If we had a crystal ball to tell us exactly how financially fit we’ll be in the coming years, our money stress would probably drop exponentially. We don’t, alas, but what we do have are financial planners who can take a look at where we are today and extrapolate what our future balance sheets might look like if we make the right (or wrong) kind of changes.
To that end, we asked Diahann Lassus, CFP, CPA and president of Lassus Wherley, a financial planning company in New Providence, New Jersey, to examine the fiscal fitness of five real women. “Managing money is challenging, especially when you have specific financial goals you're trying to reach,” Lassus says. “Always remember that the more you know about your financial situation and the more committed you are to your goals, the more likely you are to achieve them.”
Read on as she gives her advice and score for each woman (one dollar sign means she’s in need of the most financial rehab and three or more indicates that she’s on the path to fiscal fitness).
Zina, 25, Indianapolis
- Job: Communications Coordinator
- Salary: $31,356
- Rent: $266/month
- Credit card debt: Zero, though she has student loans that she will pay off in November
- Retirement status: Zina contributes 6 percent of her salary for retirement; she also has a Roth IRA she started in college.
- Splurges: Groceries. “I’d rather buy a nice piece of mozzarella from Whole Foods than Value Brand from Kroger,” she says. Zina also spends money on her hobbies (photography, sewing, crafting) and $99 per month on kettle bell and boxing classes. She spends $800 in cash per month.
- Money worries: “That I won’t have enough money for what I want or need. For example, I worry that my dog will get cancer and I won’t be able to save her life without going into bankruptcy. [Or,] that I won’t be able to buy nice furniture or get another car when mine dies."
- Score: $$$ (on the path to fiscal fitness)
The Fix: While Zina’s in great shape (she’s debt-free) and has started to save for retirement, she needs to limit her cash spending, Lassus says. “When cash goes into your pocket, it goes into a black hole,” she says. To create an emergency reserve fund that will help Zina feel more in control of her finances, she should establish a monthly savings target and have that money automatically set aside each time she deposits a paycheck. “If she does that, her emergency fund will add up fast,” Lassus says.
Lauren, 27, Emigsville, Pennsylvania
- Job: CEO of a branding firm
- Salary: $45,000
- Rent: $1,125/month not including utilities
- Credit card debt: $6,100
- Retirement status: Zero. “My company doesn't have a 401(k) and I cashed out my 401(k) from my previous job.”
- Splurges: Food and restaurants. “I spend about $200 in cash each month,” she says.
- Score: $ (In need of financial rehab)
The Fix: Lauren is spending 30 percent of her gross income on rent and has high credit card debt, Lassus says. “Those two things are making it more difficult for her to manage savings.” Lauren needs to focus first on paying off her credit cards to free up dollars to use for saving in a Roth IRA. “For now, any contribution to a Roth IRA will add up and reassure her that she’s in better shape for retirement,” Lassus says. “Lauren should set a specific target for that retirement savings and record it on paper or her computer to measure how she’s doing.”
Lisa, 32, Washington, DC
- Job: Writer
- Salary: $85,000
- Rent: $1,550/month
- Credit card debt: Zero
- Retirement status: Contributes regularly to a 401(k)
- Splurges: Coffee, going out to eat, events, concerts
- Money Worries: “Because I’m not planning for a wedding and I don’t have kids, I don’t feel like I have a money plan. I have no idea what to do besides save!”
- Score: $$
The Fix: “Lisa needs to think about where she wants to be in three or five years and then figure out what she needs to do to get there,” Lassus says. “Her goals don’t have to be super long-term, either. And, just because she doesn’t have a family, that doesn’t mean she should avoid saving up for specific things such as a vacation and, most important, retirement.” To begin, create a wish list. “That list could include establishing an emergency fund of $2,000 or a fund to purchase a car,” she says. “Once you have the list, you want to rank it in terms of priorities and then establish a goal for the dollars that will go into it from every paycheck. The key is to start with achievable goals.”
Kat, 29, Oakland, CA
- Job: wardrobe stylist
- Salary: $59,000
- Rent: $800/month
- Credit card debt: $16,000
- Retirement status: She puts three percent of her salary into a retirement fund
- Splurges: Rent, restaurants and clothing. “Shopping is therapeutic,” Kat says. “I’ve tried to find ways to ‘trick’ myself into spending less and saving — using auto-deposits into my savings, taking out more taxes, but once that money is in either my savings or checking account, its days are numbered.”
- Money Worries: “I have a good job, but I live in a very expensive city. Add the cost of an upcoming wedding to the mix and it’s a lot to figure out.”
- Score: $
The Fix: “Kat needs to leave the tricks to the magicians of the world and make a real commitment to getting out of debt,” Lassus says. “She should set monthly targets and every time she pulls out her credit card, Kat needs to ask herself ‘is this something I absolutely have to purchase or is it something I can delay or do without?’”
When it comes to paying off credit card debt, there are two basic approaches, Lassus says. “One is to pay off the credit card with the lowest balance first so you can double up payments on the larger balance once it’s paid off. The second is to pay off the highest interest rate card balances to reduce your overall interest expense. Choose the method you think will work for you depending on how many credit cards you have and the interest rate on them.”
Melanie, 26, Dayton, Ohio
- Job: Marketing manager
- Salary: Around $50K
- Rent: $660/month
- Credit card debt: Zero
- Retirement status: She puts 10 percent of her salary into a 401(k)
- Splurges: Fashion. “I think my mom would cringe if she knew what some of my boots/purses cost!”
- Worries: “I look at money as divided into four main buckets: Retirement savings, long-term goals (i.e. buying a house or car), a three to six month emergency fund and spending money. Currently, the middle two are kind of blended together and I worry I’m not saving enough. I broke my elbow last year and had to dip into that money, which was really stressful for me.”
- SCORE: $$$
The Fix: “Lauren should start by establishing specific goals for each of those two middle buckets,” Lassus says. “By keeping those dollars separate, she can focus on what it will truly take for her to buy a house within the next three to five years. She should also look around at the cost of homes in her neighborhood to determine what she can afford and then she can set her objective for how much she needs to save for that down payment.”