A 20-something woman recently asked what I thought about borrowing from her 401K plan to take a vacation. She said she was about $1,000 short for the trip and, since she was only going to borrow this amount for a short time and then repay it, didn’t see the downside of doing so. As I told her — DON’T DO IT. Your 401K monies should be considered off-limits for anything except a dire emergency (in which case you may be able to take a “hardship withdrawal”). You may have the best of intentions for repaying it, but things always come up and, if retirement is a ways off for you, it’s going to be easy to rationalize foregoing payment. In addition, for every day you have money withdrawn from your plan, you’re missing out on having that money work for you.
My suggestion to her was to save up for the trip of her dreams without reducing the amount she put into her 401K. If it was only $1,000 that she needed, and knew that she was going to be able to pay that amount back in a short time, then it shouldn’t take her long to save it. Once she has the money in hand up she can take the trip guilt-free and really enjoy it.
Your 401K is for retirement, period. With any luck you’re going to live to be an old lady and it’s better to be a rich old lady who learned to postpone immediate pleasure for long-term gain, than a poor one with nothing but fond memories.
TAGS: 401K, retirement planning, retirement savings, vacations
Earlier this week I had a conversation with a woman who asked me to review her resume. I made the assumption she was looking to get an in-house job and gave her suggestions for how to make the resume appealing to employers. She had a strong background as a writer and editor and I could see her working in the communications department of a large company or advertising firm. About mid-way through the conversation she stopped me and said, “What I really want to do is be a screenwriter.” I should have known — half the people in the Los Angeles want to be screenwriters. But I took a risk and said, “As best I can figure from your resume you’re around 45 years old. Unless you’re telling me you have several hundred thousand dollars in the bank for retirement you need a job.” As it turns out, she was living on the edge financially — and she’s not unlike so many other women.
Listen up, girlfriends (and I don’t care if you’re 25 or 65) — if you’re lucky, you’re going to live be an old lady. If you don’t want to be living on the financial edge for the rest of your life you need to be thinking about how you’re going to get rich. It’s not a four-letter word, you know. In my book Nice Girls Don’t Get Rich I define rich as having all the money you need to live your life the way you want free from concerns about money. Doing well and doing good are not mutually exclusive. No one is ever going to take as good care of you as you are going to take care of yourself. I can tell you horror stories about women who thought they would be married to the same man for the rest of their lives only to find themselves divorced and with no or few financial resources of their own. So here are some tips:
- Have a financial goal. There’s not a woman on the face of the earth who doesn’t know what she wants to scale to read when she steps on it. But ask a woman how much money she needs to be rich or what she needs for retirement and she’s like a deer in the headlights. A financial goal helps you prioritize your spending — and saving.
- Pay yourself first. When you get your paycheck and you’ve paid your rent or mortgage, utilities, car payment, etc. you’re not finished. One other “must pay” is your retirement account. It’s not optional. It’s required just like all of your other bills. Then, after you’ve paid yourself, what’s left over you can spend on “nice to have” items.
- Stay involved in your finances. If you’re married or partnered, don’t turn the finances over to your mate to worry about or handle. Be involved with where that money is going. If something were to happen to your partner (either through death, divorce, or incapacitation) you need to know where the money is and how to handle it. If you doubt me, read Barbara Stanny’s book, Prince Charming Isn’t Coming.
- Learn about finance and investing. Our own Liz Weston (www.asklizweston.com) and our friend Barbara Stanny (www.barbarastanny.com) have websites with plenty of tips to help you become more financially savvy.
- Buy a home. I know, the market right now is in a slump, but this is the perfect time to get into your first home. Real estate has traditionally been a great way to create equity over time and I have no reason to think that will change for the long-haul. Just beware of shady financing deals. If it seems too good to be true, it probably is. Too many women wait to get married to get into their first home — don’t be one of them. Your first home doesn’t have to be your last.
TAGS: financial planning, Investing, retirement planning
