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Prior to her divorce, Dr. Lakisha L. Simmons hadn’t given much thought to her net worth.
At 36, the mother of two had no debt but, for the first time in her life, was responsible for all household expenses and financial decisions.
“Divorce is like starting over. And that’s what I did,” Simmons told Select. “It was a big weight to carry. It was all on my shoulders. I knew I had to find the money and learn how to really understand it.”
Simmons isn’t alone in her quest to master her money as a single mom. In a recent Personal capital study, two-thirds (62%) of single mothers said they were not confident in their ability to plan for retirement, compared to 40% of the general public.
And with a record number of women are leaving the labor market Due to pandemic exhaustion and increasing childcare duties, the impacts of the gender wealth gap are now hitting harder than ever.
During his financial journey, Simmons wrote a book “The Improbable AchieveHer” and founded BRAVE Advice, which offers workshops and financial coaching specifically for women of color. Upcoming, the Nashville-based author and educator shares with Select how she raised a net worth of $ 750,000.
Find out where you stand
Simmons’ first step in starting over after the divorce was to calculate his net worth. She had no debt after paying off her student loans and had savings of $ 5,000 in cash. There were also a few retirement accounts from previous jobs totaling approximately $ 125,000, and she did $ 35,000 of the sale of his house.
Simmons added up the total value of these assets. Each person’s assets vary, but they can include the following types of accounts and properties:
- Cash in bank accounts, such as checks, savings, money market accounts, etc.
- Prepaid debit cards
- CDs and savings bonds
- Government bonds
- Health savings accounts
- Investment accounts including 529 education savings plans and taxable individual investment accounts
- Retirement accounts including IRAs, 401 (k) s and 403 (b) s
- Cash value life insurance contracts
- Annuities with equity
- Vehicles, including cars, motor homes, motorcycles, boats and helicopters
- Real estate, including rental homes and main / residential homes
Next, Simmons subtracted his debts (aka debts) from the total value of his assets. Typical liabilities can include:
- Home equity lines of credit or home equity loans
- Credit card balances
- Installment loans, including personal loans, auto loans, and student loans
Ask yourself what matters
Before you can budget based on your goals, you need to know which goals are really important to you. Simmons knew she wanted increase her net worth by investing money in her retirement accounts, but she lacked interest in other methods of wealth generation such as real estate.
In fact, Simmons didn’t want to own it at all.
“When I looked at my budget, the biggest and most glaring number was my mortgage,” says Simmons. “It was $ 2,410 a month. I thought, why am I still paying $ 2,400 a month now?” Her five-bedroom, 3,000-square-foot home made sense during her marriage, but it was far too big (and expensive) for her and her two young children.
Simmons decided to cut housing expenses in half and take the stress out of the ongoing costs associated with maintenance. She sold her house, put the $ 35,000 in the earnings in the bank, and moved into an affordable apartment with a much lower monthly price (and luckily no lawn maintenance or house repair costs. ‘is required).
With the house gone, Simmons further refined his budget.
“I got grainy with it,” she says. “I wanted to know every dollar that came in and went out and followed it.”
Simmons avoided taking on new debt, including auto loans. She’s been driving the same car, a 2007 Lexus RX 350, for over 12 years – and she has no plans to upgrade anytime soon.
“It’s still going very well,” she said. And with the savings she earns by avoiding a larger car payment every two or three years, Simmons travels with her kids to nearby towns and, most importantly, invests.
Motivated by the popular FIRE movementSimmons learned to live on just $ 36,000 a year, or only 40% of his take home pay. Her expenses average around $ 2,000 during the lean months, but the more lavish months around vacations, birthdays and vacations can cost her as much as $ 3,000.
With its daily costs totaling only 40% of its earnings, Simmons is free to invest the estimated 60% that remains on the stock market each month.
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Simmons prefers to invest with tax-deferred investment accounts. As a full professor, his retirement account is a 403 (b), as opposed to the traditional 401 (k) offered by most employers.
The IRS limit for 403 (b) contributions is currently $ 19,500 per year. Simmons contributes the maximum amount each year.
It also contributes to a 457 (b) account up to the maximum limit of $ 19,500.
“It’s almost $ 40,000 just on top of that,” Simmons says. “I’ve been maximizing them for four years.”
With discretionary income remaining in his budget, Simmons invests in index funds. She has a brokerage account through Vanguard, which she opened in 2017.
“My personal strategy is the S&P 500 index fund because it allows me to have diversification. I don’t have to pick individual stocks. I want women to know that the stock market doesn’t have to be scary. Stay simply diverse. Just set it up and forget about it, that was the easiest for me. “
Simmons takes advantage of a strategy called cost averaging by putting the same amount of money into his brokerage account each month. However, she also maximizes her contributions by monitoring the stock market and buying on days when the market is low.
As a single mother, Simmons is a living example to her young sons. She even prepares them very early on for their own financial success by telling them about university, investing and entrepreneurship.
“Kids are expected to be entrepreneurs or go to college,” says Simmons. To help them prepare for tuition, she opened UTMA accounts for every child. For birthdays and Christmas, or whenever a grandparent gives them money, the kids put half of it aside for the future.
“We’re totaling stock index funds for kids,” Simmons says. “But every once in a while, I let them buy a share of Apple or a share of Disney.”
The family’s favorite way to spend quality time together is by taking budget trips to nearby US cities.
“I enjoy the time and the experiences with my kids,” says Simmons. “We recently took a road trip to Louisville and rented a hotel downtown. We love Embassy Suites because the room includes a hot breakfast and in the evening they host a reception with snacks and drinks. kids love it. “
And for economic activities, the family frequents children’s museums where they have a reciprocal membership that gives free or reduced entry to participating museums.
“It saves a lot of money because we can visit different museums for free,” says Simmons. “We had a blast”
More important than deciding on retirement age is choosing a dollar amount that will allow you to live comfortably for the rest of your life.
Simmons, who learned to live on $ 36,000 a year, can now easily calculate how high his net worth must be in order to be able to retire safely. The general rule is that retirees should not withdraw more than the equivalent of 4% of their investments annually.
With $ 750,000 in the bank, an annual withdrawal of 4% would give Simmons an annual budget of $ 30,000 if she retired today. However, she plans to continue increasing her net worth to over $ 800,000 or more before making the decision to quit her career.
“If I have $ 900,000, that’s what I need,” says Simmons. “I know I can take 4% off and get enough.”
While a budget of $ 36,000 a year may seem limited to some, it gives Simmons a sense of freedom.
“Make sure that what you spend is things that you really enjoy and that are sustainable in the long run,” she advises. “It all comes down to values.
Whether your goal is to retire early or just have enough cash to live out your golden years in style, it’s never too early to start tracking your net worth.
Simmons uses the free Personal capital application. Its free investing and budgeting features make it easy to track net worth. Users can view all of their financial data on the app dashboard, including all related assets and liabilities.
Personal Capital also offers users free access to its retirement planning tool where they can decide how much they need to retire, at what age they want to stop working and where they are in relation to their end goal.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.