Maintain Your BMW (Body, Mind, Wealth)

Although the phrase “maintain your BMW” is likely to have conjured up a pretty white and blue automobile logo that is meant to reference the movement of an aircraft propeller, I am not referring to a car. Rather, BMW in this instance means “body, mind and wealth” (although admittedly, I am probably influenced by the Top Gear Memorial Day marathon my husband insisted on as an indulgence).

In this post, I focus only on the “wealth” portion of BMW.

To be honest, I wavered on whether to have so serious a topic as my first contribution to Pretty Young Professional but feel that although there is plenty of press concerning the importance of maintaining your physical and mental health, financial literacy is something that has taken focus only in recent years. It is, however, no less important. As a young professional with boundless potential lying before you, it is crucial to maintain a “healthy wealth” in addition to a “healthy body and healthy mind.” Nothing I am about to say is new, but it is the monologue that I envision giving to my daughter some 16 years from now before she begins to flirt with the notion of financial independence.

It is important to maintain fiscal health.

Why? There are too many reasons to enumerate but if none of the usual reasons will sway you, how about the fact that a poor credit report could potentially derail your chances of a coveted job offer? Most major employers run a credit check on prospective employees because there is a perceived positive correlation, even if unfounded, between bad credit and a likelihood of embezzlement and fraud.

Towards this end, one should always exercise some financial best practices:

1. Regularly check your statements. Generally, any fraudulent activity must be reported within 30 days or else you could be liable for the fraudulent charges. The easiest way to spot fishy items is to regularly “balance” your accounts.

2. Credit cards are not the enemy. There are some who generally shy away from credit cards and only use debit cards in an effort towards “good money management.” In my opinion, however, these people just use their credit cards sub-optimally. There are two types of credit card users: a transactor (who pays his/her bills on time and in full almost every month) and a revolver (someone who “revolves” a balance to the next month and incurs interest payments). Whereas a revolver effectively borrows from the credit card company, transactors essentially use the credit card as a debit card because they settle the balance in full at the end of the month. So why not simply use debit cards? Compared to debit cards, credit cards have supercharged rewards options (although some debit cards have rewards programs, they are generally not as varied as credit card rewards). Further, should the need to dispute a charge arise, one has the chance to dispute the charge before payment occurs (rather than after payment is deducted from the bank account). Lastly, nestled within the Dodd-Frank Wall Street Reform and Consumer Protection Act is Senator Durbin’s “Durbin Amendment” which limits the interchange fees charged to debit cards. This amendment is beneficial to merchants, but comes at the cost of consumers who are likely to be face a decrease in/elimination of debit card rewards programs and/or higher fees. Credit cards are currently not expected to be subject to this type of regulation. Therefore, embrace your inner transactor!

3. Always participate in your 401K, if your company offers such an option. Not only does it encourage you to save for the future, but it also allows you to defer paying income taxes on the income contributed to your 401k. Furthermore, if your company offers a matching program, there is little excuse to not contribute at least the amount up to the company-match threshold. To do so would be tantamount to leaving free money lying on the table. Would you leave an abandoned $100 lying in the street?

4. Live prudently. This statement is my version of “live within your means,” which always struck me as a bit facetious. Nonetheless, the message is very important, particularly if you live in an expensive city where rent, and a few nights out can easily place quite a deep dent in your wallet. I am, by no means, advocating a life of no outings, no shopping and no fun; believe me, I am no stranger to splurges myself (I submit the new Escada dress hanging in my closet as Exhibit A). However, to the extent possible, I do try to make everything a zero sum game. A splurge is preceded (not followed by) a period of saving up for the splurge and/or a period of giving up other little luxuries (for example, a manicure/pedicure every three weeks instead of bi-weekly). Like many other things in life, it’s all about balance.

As I look over my above ramblings, I realize that although my message is not a pleasant one, it is an important one. Hopefully, I will figure out a way to make this dialogue fun and entertaining in the next 16 years or so. Until then, I will just have to practice what I preach and hope that my daughter learns by example.