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MASTER THE UNEXPECTED
We know that everything in life is subject to change, yet we tend to plan for the status quo. Many of us feel we’ve got a good grip on our finances, expecting things to run smoothly. But what if they don’t? If you start planning now, you can expect the unexpected—with more confidence.
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HANDLE THE UNEXPECTED WITH CONFIDENCE
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Let Us Contact YouAs a young lawyer in international finance, Homa Dashtaki thought she had a long, rewarding career ahead of her. Then the 2008 financial crisis hit, and she was out of a job. But she wasn’t out of options. Instead of panicking and taking any job she could find, she was able to pause, reassess, and embrace a sense of possibility. Having saved a bit of her income, she was able to buy herself some time to explore her options.
On a journey of trial and error, Homa reflected on what money, work, and happiness meant to her. Following in a family tradition, she began making yogurt and selling small batches of it at local farmer markets. Out of necessity, she invented a new life for herself, discovering a great sense of mastery and satisfaction.
Faced with the loss of your current way of life, what might you do? Do you feel financially fit to face the unexpected with a sense of possibility and mastery over your own life? The time to have those financial conversations—with yourself, your family, and your financial advisor—may be right now.
Watch Homa’s story and be inspired.
These tips can help you take charge of your finances and expect the unexpected with more confidence.
A WORD FROM OUR EXPERT
"Pay yourself first." KATHERINE ROY, Chief Retirement Strategist, J.P. Morgan Asset Management
Learn MoreLike many people, you may find thinking about finances stressful and complex. In fact, according to Chase’s 2016 Generational Money Talks study,* Also referred to as the Chase-University of Colorado Boulder’s Center for Research on Consumer Financial Decision Making study which captures how different generations talk and feel about money, 63% of Gen X women and 75% of Millennial women feel stressed about money. The study also found that women tend to play the role of household CFO, which may make them better planners and well suited for the discipline of long-term planning and investing. So you may be a stronger investor than you know. Whether you want to buy a house, send your kids to college, or save for retirement, taking charge of your goals can be empowering. Here are some ideas about how to get started.
What do you want? And how much do you want it?
You can’t plan a vacation without knowing where you want to go, and that principle holds for creating a financial strategy as well. Your first step is to set clear goals. An effective financial goal should be specific and achievable. For example, if retirement is your goal, saying “I want to retire comfortably” isn’t as helpful as “I want to retire at age 65 with an income of $5,000 a month.” Take some time to consider your overall financial situation, come up with specific goals, and prioritize them.
Investing your savings gives your money the potential to grow at a faster rate than inflation.
How to get there
With specific goals in mind, you can create a saving and investment strategy. You’ll want to set aside money each month, and then invest that money to help you reach your goals. To get started, estimate how much you need to save, including possible returns if you invest those savings.
Investing in your future
Investing your savings gives your money the potential to grow at a faster rate than inflation. If you keep your money as cash, in 10 years that money may have less buying power because the cost of goods and services typically will rise over time. But if you invest that money and it grows, it may retain or increase buying power.
You don’t need to know everything about financial markets to invest. One investment option is a mutual fund—a professionally managed diverse collection of investments. You might also consider individual stocks, individual bonds, or bond funds. Each type of investment offers different advantages and drawbacks. (Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved.) Don’t hesitate to contact a financial advisor to learn more about your options and for help in getting started.
The easiest way to save
“Pay yourself first,” says Katherine Roy, Chief Retirement Strategist for J.P. Morgan Asset Management. Make a commitment to yourself by setting up automatic distributions of part of every paycheck into your investment account. And if your workplace offers a retirement plan, set up an automatic distribution for that. Often employers will contribute an equivalent amount or “match” to your account, and these accounts are often tax-advantaged, so opting in is a no-brainer as more people are discovering. According to Chase's 2016 Generational Money Talks study, Millennials started saving 17 years earlier than Baby Boomers, and seven years earlier than Gen Xers. Even if you don’t have a retirement account option, many financial institutions, including JPMorgan Chase & Co., have advisors who can help you find other retirement options. A retirement strategy helps you stick to a plan so the money will be there when you need it.
Stay connected
Review your investing statements every three months to make sure that your strategy still fits your goals, and sit down at the beginning of every year to go over your financial situation. It also pays to review your overall finances regularly, to see where your money is going and to ask if you could save more. Regularly reviewing your finances can reinforce your sense of achievement.
Having a solid strategy can help you pursue your goals, and better prepare you to weather life’s inevitable ups and downs.
A strong financial support network can help you hone healthy money habits no matter what comes your way.
With more women taking on the role of household CFO—and the pressure that comes with it—there’s never been a better time to increase your financial knowledge, so you can manage those challenges with less stress and more awareness. Tapping into your network for advice can really help. Here, four women share how financial “buddies” helped them overcome their money challenges—and how you might, too.
An HR consultant
“I needed to continue bringing in income even when I was on [maternity] leave, but my HR department wasn’t much help,” says Amy R. of Los Angeles. Unsure of her options, she met with an HR consultant who launched an organization that helps women maximize their maternity leave policies. “They worked with me to make sure no income or time-off potential was missed. They told me what forms to complete and when, and I was able to take 24 weeks off—with pay!” says Amy.
Friends & colleagues
Starting a new business is stressful—especially in the hospitality industry, where the failure rate is high. Before opening their Atlanta restaurant, Jenn S. and her husband reached out to fellow restaurateurs, mentors, and a professional advisor. “They were able to give us real figures of what they each spent in different areas—construction, equipment, permits,” she says. “It gave us a parameter for reasonable and outrageous costs.” Knowing what made sense let Jenn and her husband make smarter financial choices.
An accountant
“It’s intimidating to be in charge of all the financial aspects that come with running your own company,” says Anna G., a small business owner in San Diego. For guidance, she turned to an accountant referred by a friend. “She’s been incredibly open and patient with me, making sure I understand everything. I feel much more confident knowing we’re following laws correctly and paying taxes on time. It’s really important to find someone you can trust, who will empower you to learn.”
A financial advisor
“I got a lot of advice from well-meaning friends and family about saving for retirement, but it felt like the blind leading the blind,” says Irene H. of Philadelphia. She made a choice that, according to Chase's 2016 Generational Money Talks study, 79% of Millennial women make—she turned to a financial advisor. “He helped me figure out the best way to save—such as maxing out my 401(k) and Roth IRAs—and I realized I’d been missing out on investment opportunities.” A financial advisor can bring a higher level of expertise, help you execute your goals and adjust them accordingly if your priorities shift.
Women often have a network of friends for emotional support. A buddy system for financial support can be just as helpful. Whether you’re reaching out to others in similar situations or connecting with financial professionals, the more you know, the more in control you can be, and the better you’ll feel.
Stress-test your financial fitness in case life throws you a curveball.
Unexpected financial stressors can crop up any time,” says Kimberly Palmer, author of Smart Mom, Rich Mom: How to Build Wealth While Raising a Family. When the unexpected occurs, you’re probably able to handle it—or to learn how to do so by having the money talk, whether it’s with yourself, your family, or your financial advisor. Take this quiz to gauge how you might respond and learn more from Palmer about financial resilience.
When it comes to managing money, everyone has a few blind spots. These considerations may help you change course.
1. You have no emergency savings
Nothing can derail a financial strategy faster than an unexpected expense. Without an emergency fund that can cover six to nine months’ worth of living expenses in a safe, insured savings account, you could end up strapped for cash when you need it most, leaving you assuming high-interest debt to cover your bills.
CHANGE COURSE
There are several online tools that can help make saving for an emergency fund automatic and (relatively) painless. For example, some apps use algorithms to move small amounts of money from checking to savings based on your spending habits. Or you can set up an automatic transfer from your checking account to a savings account. Through your Chase bank account, you can transfer as little as $25 a month with no service fee.
2. You’re Stuck at your 401(k)’s default contribution rate
Consider this: A 30-year-old making $50,000 a year, contributing 3% of her salary and expecting a 2% annual raise, assuming a 7% annualized return with no withdrawals, would retire at age 65 with around $280,000. Boost the contribution by 10%, assume the exact same return and lack of withdrawals, and the balance jumps to more than $1 million.
CHANGE COURSE
Try to use at least a portion of every raise to increase your savings. And don’t ignore catch-up opportunities, notes Linda Ward, head of Retirement & Planning Solutions for JPMorgan Chase. If you’re age 50 or older, you can add an extra $1,000 to the current $5,500 maximum contribution limit for individual retirement accounts (IRAs), and an extra $6,000 a year to your 401(k).* All calculations based on this online calculator
3. You don’t have a financial strategy—and you don’t know how to get one
You can’t hit a target that you can’t see. And you can’t tell if you’re on track to meet your financial goals if you don’t know how much money you’ll need or when you’ll need it. This is even harder if you don’t know where to turn for help.
CHANGE COURSE
You can often meet with a financial advisor at no cost for an evaluation or initial consultation to begin creating a strategy tailored to your specific needs. Jump-start the process by writing down your goals, from your dream vacation to putting the kids through college and retiring, specifying the amounts you’ll need to save and the time lines, then prioritize them. (Hint: Retirement should always come first. Read more here about preparing for your first meeting with a financial advisor.) “I think every person has some sort of financial goal,” says Josh Palmer, CFP®, head of Chase Wealth Advisory. “Every dollar that a person has, whether they know it or not, is going to be spent by someone, so having a long-term goal for those funds is important.”
4. You’re missing out on tax breaks
Taking advantage of tax-deferred investment options, such as 401(k)s or IRAs, can mean more money in retirement.
CHANGE COURSE
Consider starting or contributing more to a tax-deferred plan, which allows pre-tax contributions to compound over time. Say, for example, you save $5,500 per year in a tax-deferred retirement account over 30 years. Assuming you take no withdrawals and earn 7% return each year, your plan would grow to $555,902 in 30 years. Though you would pay taxes when you withdraw the money in retirement, even a 33% tax rate would give you $426,904 in after-tax dollars. By contrast, investing in a taxable account means you would have to pay tax on that $5,500 each year before putting it into your account—thus taking a bite out of your yearly contribution before it’s had a chance to grow. Assuming the same 7% annual returns, with no withdrawals, you’d have $362,798.* Source: J.P. Morgan Asset Management, 2016. Assumes $5,500 after-tax contributions at the beginning of each year for 30 years and 7% annual investment return. IRA account balance is taken as a lump sum and taxed at the 25% and 33% federal tax rate, respectively, at time of withdrawal. Taxable account contributions are after-tax and assume a 33% federal tax rate during accumulation. This hypothetical illustration is not indicative of any specific investment and does not reflect the impact of fees or expenses. Past performance is no guarantee of future results.
5. You’re investing too conservatively
Think the stock market is too risky? Think again. There are many types of financial risk to consider, including the risk of not having enough savings when you retire and the risk that inflation will erode your money’s spending power over time (women tend to live longer than men, remember).
CHANGE COURSE
While all investments involve risk and stocks can be volatile on a day-to-day basis, history shows that over the long-term they consistently outpace inflation.
From 1928 to 2015, the average annual return on the S&P 500 was 7%, adjusted for inflation, while the average rate of inflation was 3.22%, so for the past nearly nine decades, stocks have outpaced inflation by almost four percentage points. Also be aware that past performance is no guarantee of future results.* Sources:
Investopedia
Federal Reserve database in St. Louis
InflationData.com, 2016
Financial guidance to help you master the unexpected.
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