A 20-Something's Money Cheat Sheet

Illustrated by Elliot Salazar.
What do I wish someone had told me about money in my 20s?

So much. Mostly, that money is power, independence, and freedom, and living the lives that we want — lives that our mothers and grandmothers couldn’t have imagined.

Want to start your own business? Want to go on that round-the-world trip? Want to get an advanced degree? None of these things can happen if we’re not in control of our money; none of these things can happen if we’re not working toward these goals financially. It’s as simple as that.

That’s the good stuff. The not-so-good stuff: I also wish I had known that 90% of us women are solely responsible for our money at some point in our lives — whether we want to be or not. That’s because we marry later; we live five (or more) years longer than men; and a large chunk of marriages end in divorce.

I learned this the hard way: I loved him so much. And then his brilliant career wasn’t feeling quite so brilliant any longer. And there were the beginning hints that my career was going to take off.

And so we fought more than we had. And he left my sister’s wedding early, because he “had to work.” And he went on more business trips.

You’ve already figured out where this is going. But I was so devastated that I dropped 20 pounds — and not a good 20 pounds. It was many years more before I figured out who “she” was; “she” was a friend of mine. In fact, “she” was the one I confided in through the divorce. I know, right?

So awful. Not at all part of my life plan. But as humiliating as this was, having handed him control over our money added insult to injury. I worked in finance for Christ's sake. I didn’t know how much money we had, or where it was. I had ceded my power, and almost ceded my future.

It’s a story that repeats itself again and again, even today we tend to give that power up in a relationship when we can only imagine a happy future. But have you ever been in a relationship that ended poorly? Yeah, exactly.

Being in financial control is about playing offense. And it’s about playing defense. Money is power; and knowledge about money is power.

So what do I wish someone had told me? Ahead, 10 pieces of financial advice I wish I had known in my 20s.
Sallie Krawcheck’s professional mission is to help women reach their financial and professional goals. She is the CEO and Co-Founder of Ellevest, a soon-to-be-launched digital investment platform for women. She is the Chair of Ellevate Network, a many-thousand-strong global professional woman's network. And she is the Chair of the Pax Ellevate Global Women’s Index Fund, which invests in the top-rated companies for advancing women. Krawcheck has been named among the top ten of Fast Company's "100 Most Creative People" list. Before becoming an entrepreneur, she was CEO of Merrill Lynch Wealth Management and of Smith Barney.
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Illustrated by Elliot Salazar.
You’ve heard (and perhaps felt) the dated myths around women and money: Boys are better at math than girls; men are better investors than women; we women need more financial education to invest. They’re wrong. They’re all wrong. (And pretty 1958.)

Girls get as good — or better — grades in math than boys; women are as good — or better — investors than men; and, sure, everybody could use more financial education, men and women. But that doesn’t keep the guys from investing, and it shouldn’t keep us from investing either.

If I were to get all Gloria Steinem on you, I would say that the financial services industry has traditionally been built by men, for men. In investing, all the jargon, the sports-like feel to the markets, the sports-like feel to much of markets programming, the focus on “outperforming” and “beating the markets” and “picking the winners" — it’s all pretty male.

This, along with the dated myths, have made financial planning and investing feel out of reach for so many women. I promise you: It’s not us, it’s them. But the result has been that we’ve held back from engaging financially — and it costs us, big-time. Keep reading.
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Illustrated by Elliot Salazar.
So, first, let’s start with the debt thing. Some debt can be “good;” most of it is “bad.” And too much debt —when you can’t see your way to repay it — is always bad. The old rule of thumb for “too much”— when interest payments exceed 20% of your take-home pay — is higher than I would advise.

One form of potentially good debt can be student loan debt. A great education can lead you to a more interesting job and can forever increase your earnings. The interest rates tend to be on the lower end (less than 5%), and a portion of the interest payments are tax-deductible.

Another form of “good debt” can be a mortgage to buy a home. It’s good because, well, you have a home. That can also be a form of investment, over time; again, the interest rates can be low (say 4%), and the interest payments can be tax-deductible.

One type of debt that is never good debt is credit card debt. Never ever ever ever ever. Interest rates here can range from 7% to 35%. It’s just nuts. And there’s no tax break on that interest: so buy something for $1,000 on a credit card, at the middle of that range of interest rate, and a year later it will cost you $1,250 — or more — to pay it off. It’s like you bought it on “un-sale.”

The best rule on credit card debt: If you need to rack up credit card debt to buy something, just don’t buy it. Seriously. Just don’t buy it.
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Illustrated by Elliot Salazar.
You are your most important asset. That’s true in the “new age," namaste, love yourself way.

But it’s also true in the “net present value of future earnings” way — counting up the years that you will be working and earning your salary. In your 20s, in particular, the value of those future earnings is likely greater than any other asset you own.

“So what’s your point?” you may be thinking.

It comes down to making sure you’re earning what you’re worth. A higher salary now sets you up to earn even more later, since future raises start from a larger base. And that also helps us close that frustrating, infuriating, irritating, can’t-believe-we-still-have-this-in-2016, are-you-kidding-me gender pay gap.

I personally hate asking for a raise. I was brought up in the South, where such a conversation simply wasn’t ladylike. And that’s before you get to all the insecurities that such a conversation can churn up. And we all have them.

Well, I just got over it. Because let’s put it in context: Say you’re making $85,000 a year. If you are like the typical woman in the U.S., you are making a whopping 78 cents to a man’s dollar. If you get the raise to what the guys are making, that’s a 28% increase. So now you’re making $106,250 a year, just to what’s “fair.” Great. Even greater? Over the next 40 years, that means $1 million plus. Worth an awkward conversation or two, right? (And if the answer is no, changing jobs to go someplace that pays you more fairly is always an option.)
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Illustrated by Elliot Salazar.
Some of the dopiest financial advice I ever heard was that it was okay to put off saving for retirement — and other life goals — until I got older, when I would earn more.

Wrong. Wrong. Wrong.

Instead, you should target saving 20% of your salary from your very first paycheck. This may sound like a lot — particularly because so many people save nothing. But years of research have shown that people who save at this level are much better equipped to ride the ups and downs of the economy — and life — than others.

The trick here is to take this amount out of your paycheck first, and only then figure out how much rent you can afford, how much car you can afford, how much vacation you can afford, and how big your clothing budget can be.

If you really can’t save 20%, how about 15%, 10%, or 5%? Start at 5% and gradually increase it. It doesn’t have to be all-or-nothing to have an impact.

The first savings milestone is to build an emergency fund. This should be at least three months of take-home pay, in case you get fired (hey, it happens — more than any of us like to think), or in case you have to take time away from work for, you know, an emergency. That money should be held in cash, for safety.

And the next step is...
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Illustrated by Elliot Salazar.
Read some of the popular press, and you come away with the impression that the primary money issue for women is that we don’t earn as much as men. (See, "You are your most important asset. So get that frickin’ raise.”)

Okay, but...

What sometimes follows from this observation is a sense that, until we close that pay gap, everything else is pretty much pocket change.
Absolutely not.

Let’s go back to our example. Let’s say you’re earning that $85,000 a year. Sadly, you didn’t get the courage to ask for the raise, or you did and you struck out. It happens. But you did decide to take your annual 20% savings and invest it in a balanced investment portfolio instead of leaving it in the bank (except for your emergency fund, of course).

How much more money will you have in 40 years? Our estimates say anywhere from an additional $565,000 to $2.1 million more, depending on markets. So, on average, let’s call it $1.4 million more. That's more than the incremental $1 million you get over time from getting that raise.

So yes, absolutely ask for the frickin’ raise. But also invest the frickin’ money.
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Illustrated by Elliot Salazar.
If you have a goal in life, and you’re not investing toward it, you’re probably not going to be doing it. Instead you’re just dreaming.

For example, want to start a business? You should give yourself two years to get it to profitability. So you may want to save enough to live on for a couple of years while you get it going.

Want to have a kid? Those little suckers are expensive (financially and emotionally — but we’ll only address the financial part here). Expand your emergency fund to hold at least nine months of take-home pay.

Want to retire well one day? Target getting to 10 to 15 times your annual salary, so that you can live like a boss when you’re a grandma. A grandma boss. This last one seems like a lot, I know; that’s why it’s important to start saving for retirement early to give your money time to grow, and for your returns to compound.

I found that investing toward individual goals — and this included opening up an account for each goal and parceling out my savings among them — was the ticket to getting me on track for them, rather than looking at my money as one big nameless blob.
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Illustrated by Elliot Salazar.
Here’s something else I wish I had known in my 20s: a career break is more expensive than you’ve ever imagined…much more expensive. This is true whether you’re taking time off to have a child, to find yourself, to switch careers, or because you’ve just had enough and can’t take it anymore.

“How expensive??” you’re probably asking.

Let’s go back to that $85,000 a year you’re earning. You decide you want to take a two-year career break. Ok, you think that cost will be about $170,000, before taxes.

Um, no. Not even close.

That’s because women who take career breaks typically don’t return at their old salary levels; they typically come back at lower salaries, on average 20% less. (!) And the impact is long-lasting, because their future raises are based on these lower salary levels.

So that $170,000 cost? Well, in 40 years, the total cost can be $400,000 — more than double that quick calculation.

That’s not to say you shouldn’t take that career break — just make sure you’re 100% aware of how much it will cost you in the long run.
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Illustrated by Elliot Salazar.
There are always plenty of reasons not to invest: the market is down, so that makes me nervous. The market is up, so there isn’t as much upside. I have a whole bunch of stuff I want to read before I get started. The markets are rigged for the big guys. The market is uncertain.

Each of these can have some truth. But none of them justifies not investing. Especially since historically the stock market has provided a superior return compared to keeping money in cash, over time. A really interesting study has shown that if you historically took a systematic approach to investing, downturns weren’t as damaging as we typically think. And by systematic, that means you keep investing, in up markets and down. For example, if you invested $1,000 in the stock market at the beginning of 2008 (and what an awful year that was for stocks), and then you put in another $1,000 at the beginning of 2009 (essentially “buying low”), you would be back in the black by the end of 2009, with more than $2,000.

How about the Market Crash of 1929? With $1,000 in at the beginning of 1929, then another $1,000 at the beginning of 1930 and so on — it would have taken seven years to recover. From the Crash of 1929. Better than you would have guessed, right? The '70s recession? Just three years till recovery.

The key here is to systematically invest; and sometimes that means you “buy high” and sometimes that means you “buy low.” But steady investments into the markets typically win the day.
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Illustrated by Elliot Salazar.
Remember “money is power”? Well, increasingly, we can harness that power for issues we care about.

Today, by some estimates, trillions of dollars — not millions, not billions, but trillions — are invested in what is called values-based investing. Flavors of this are socially responsible investing, or sustainable investing, or impact investing, and, my personal favorite, gender-lens investing. In a nutshell, this type of investing directs our dollars to companies that, say, do business in a socially responsible way, or advance women in their companies — and avoids companies that don’t.

Chances are you won’t be hearing about this proactively from your financial professional. Historically, there’s been a view that some immutable law of nature meant these types of funds had to underperform, that somehow they represented the junior varsity of investing. (Frankly, that’s pretty much what I thought when I was running Merrill Lynch. But I’ve dug into the research and come to the conclusion that I was wrong. Or at least not right.)

In my opinion, this is worth looking into: Companies that do business the “right way” are also companies that can deliver good business results, as well as fair returns for investors. And by investing in them, we can not only earn a return, but also have an impact.