Five steps to securing a bright financial future

Girl, you work hard for your money. And in the immortal words of disco queen Donna Summer, “Isn’t it time you treat you right?”

It’s no fun wondering where your money has gone at the end of every week, even if you have a flashy new Louis Vuitton handbag to show for it. You know you should budget your spending and sock away some emergency cash. But if you haven’t ever tried to formulate a serious budget and savings plan, it’s hard to know where to begin, especially when your income fluctuates.

We asked three financial whizzes to share their tips for creating a financial plan you can live with that includes trimming the fat from your spending and saving for long-term goals.

Budget Isn’t a Bad Word

And it’s time you stop thinking of it as one. Kathleen Day, a financial planner with The Enrichment Group in Miami, recommends breaking down your monthly spending into three categories: fixed expenses such as rent and car payments; costs that change every month, such as gas and phone bills; and discretionary spending, which includes pedicures and purses.

Once you’ve outlined where your money is going, write up a monthly spending plan, eliminating or postponing optional expenditures. Don’t go it alone; invest in personal-finance software such as Quicken Starter Edition 2017 ($40), or buy a financial-planning book with income-expense working forms such as Pay It Down! From Debt to Wealth on $10 a Day, by Jean Chatzky ($10 at You can also seek out budgeting worksheets online, where a quick Google search will turn up an array of free forms.

It’s also important to be realistic about how much money is going out versus how much is coming in. Larry Braunstein, a financial consultant who directs the LMB Group in New York, advises his clients to lower their planned savings by at least a third ($300 a month becomes $200) to account for the “fudge factor.”

“I would rather make sure you establish discipline so that a certain amount gets put away no matter what,” Braunstein says. “You set yourself up for failure when you set up goals you can’t meet. It’s like a diet. The minute you take that snack, you’re off the program.”

Attack Your Budget Busters

Every household has hidden expenses—small costs that are difficult to detect, but can add up to big expenditures over time.

Karen Altfest, vice president of LJ Altfest & Co. and president of the Financial Planning Association in New York, urges clients to comb through utility bills, which are often laden with fees for services that customers don’t even know they’re receiving. Maybe your cable program includes a sports package you never use. In some states, phone companies charge for answering services that customers don’t need and often forget they have. And perhaps you bought a cell-phone roaming plan that sounded great in the store but includes extra fees for traveling to states you never visit.

“Look for these kinds of features in all your utilities and ask if they’re doing you any good,” Altfest says.

And limit your trips to the ATM. It’s difficult to track cash- machine spending, and $40 withdrawals here and there add up fast, especially if there’s a fee attached.

“Yes, it’ll show up on some bank statement somewhere, but bank statements are the kinds of things that lie unopened on a shelf,” Altfest says. “It’s very hard to remember [ATM spending], and it’s easy to just keep spending and feeling out of control.” Instead try to pay yourself a regular “allowance.” Decide how much fun money you’ll need each week and draw the total off your paycheck once a month to avoid those random, tough-to- track treks to the ATM.

Skipping the ATM doesn’t mean charging everything, though. In fact, if the interest rates on your credit cards top the single digits, pay off the cards as soon as possible, Altfest urges. Put as much of your extra income as you can toward retiring your credit cards.

Two Bank Accounts Are Better Than One

Once you’ve pinpointed your spending habits and determined a monthly financial plan, establish a money-market account with an attached checking account. Money-market accounts are essentially mutual funds with professional money managers investing savers’ dollars into savings bonds and federal treasuries. They often pay higher interest rates than conventional savings accounts—currently as much as five percent, compared with two percent or less for traditional savings. They also require higher minimum balances ($1,000 or more) and limit your monthly withdrawals—making it even easier for you to save.

Start saving by funneling all your income into the money-market account, and set up a program to automatically transfer into your checking account only the dollars to cover your monthly expenses. Leave the extra income behind. The transfer plan will help you live below your means.

“It’s not like you’ll have a whole bunch of money in your checking account and you’ll spend until there’s no more,” Day says. “If you think you need more money, it takes a deliberate action to transfer it.”

Let your savings build up until you’ve set aside six months’ worth of fixed expenses. The cash stash will provide a cushion in an emergency, or help you cover your bills if your income falls off for a month or two.

Is Investing in Your Future?

Once you’ve built an emergency-savings stash, you can begin filtering money into the stock market. Start with mutual funds, which allow you to diversify your investments to include shares in a variety of companies, as well as foreign businesses and bonds.

Here’s where patience becomes a serious virtue. Braunstein cautions his clients to avoid speculative investments that unrealistically promise quick payoffs: startup Internet stocks, stocks in unproven small companies and real estate properties in markets where prices may have peaked.

“When you accumulate wealth, it’s a function of grinding it out,” he says. “There’s no miracle pill. It’s just consistent savings.”

To give yourself an idea of how potent slow-and-steady can be, use the “Rule of 72,” Braunstein says. Divide 72 by the interest rate on a potential investment to figure how quickly it will take your money to double. A fund that returns an average of 12 percent will double in six years. Extending the rule out over decades, a $10,000 investment at 12 percent when you’re 30 will be worth $640,000 when you’re 66, Braunstein calculates.

“It’s hard to think in terms of retirement when you’re 25, but if you start a couple of years early, the power of compounding dollars could be the difference between $500,000 and $1 million,” Braunstein says.

Regardless of your long-term objective—whether you’re saving for retirement or a house—a financial planner can help you assess how aggressive your investments should be. Deborah Fowler, author of Your Guide to Financial Planning at, said certified financial planners charge a median of $100 an hour, with comprehensive plans typically costing $700 and programs for specific goals, such as retirement, commanding $300 on average. Ask friends and family if they retain a financial professional they enjoy working with, and be sure to check references of any adviser you consider hiring.

If you want to perform a self-assessment, contact a mutual- fund company and ask for an asset-allocation questionnaire that considers your age and the number of years before you want to cash in your goal. The answers you provide on the survey will help determine the combination of stocks and bonds that would be most effective for you, Braunstein says.

She Shoots, She Scores

To ensure you stick with your plan, set a major goal. It can be a car, a beach house or a college fund for your kid—any big- ticket item that needs a consistent fiscal approach.

“If you’re always saying, ‘Someday, I’ll do it,’ how likely are you to make it happen?” Altfest asks. “If you write down your goals, tell yourself when you’ll need the money and budget it out in a separate account so you’re not buying groceries with it, the money starts growing and growing.”

As you begin to save, visualize your objective. If you’re piling up funds for a home, start looking at classifieds in the newspaper to see how much your dream place costs. Drive around neighborhoods you’d like to live in and check out the area’s real estate.

“It helps you almost feel that house. It becomes very real to you,” Altfest says.

Above all else, be patient, and don’t expect overnight financial riches.

“The people who accumulate money are the people who live within their means and systematically save,” Braunstein says. “They’re not spendthrifts, nor are they cheap. They’re prudent. That’s all a person really has to be to accumulate wealth. You don’t have to be an investment genius.