Get Your Financial Act Together!

Answers to your money questions from the smartest woman we know: self-made financial whiz Elle Kaplan.

Answers to your money questions from the smartest woman we know: self-made financial whiz Elle Kaplan.

Elle Kaplan, 35, learned about money the hard way. She moved to New York City fresh out of the University of Michigan with just $200 in cash and no job or apartment—but talked her way into a position as an analyst at an investment bank, climbed the ladder, and today, as head of Lexion Capital, manages investments of up to $30 million for her superwealthy clients. So naturally she gets hit up for advice a lot. And she delivers! Here, she takes on the questions young women ask most. We're listening, Elle.

I know I'm paying way too much in rent, but that's life these days, right?

No. "I see it time and again," Kaplan says: young women forking over half their take-home pay for housing. "Your lease is your largest fixed expense," she says. "Sign one you can't afford, and you risk amassing credit card debt and digging yourself into a hole." Kaplan advises spending no more than 30 percent of your after-tax salary on rent, even if it means living with roommates or having a longer commute. "When I moved to New York, I took a studio apartment with another girl that was so small we slept in bunk beds," she remembers. "It requires creativity and patience to spend less, but because I paid only $500 a month in rent, I could put $100 a month into my Roth IRA. Today I've got six figures in there!"

Everyone says you should have an emergency fund, but how can I create one on a tiny salary?

In this case everyone is right, says Kaplan. We all should have six to eight months of living expenses (rent plus money for essentials like food and recurring bills, including everything from your car insurance to your cell phone) socked away, no matter what our salaries. But only 43 percent of women do—compared with 63 percent of men! Kaplan's advice: "Make short-term sacrifices to put away money wherever you can." When she was starting out, she took public transportation everywhere instead of hailing cabs, and she skipped pricey dinners out with friends, grabbing drinks afterward. "I never said I couldn't afford dinner, just that I'd meet them later," she says. "These choices mean you're taking care of you." She also advises setting up automatic transfers from your checking account to a savings account with the highest interest rate you can find. And don't ever, ever dip into it.

So if I've got those six months' expenses in savings, am I set?

Nope. Once you have an emergency fund, don't put another cent into a savings account. "Savings is for suckers!" says Kaplan. "Inflation averages about 3 percent per year, so you lose money in a savings account, which has interest rates under one percent." Instead, put 20 percent of your take-home pay into long-term investments, like your company's 401(k) plan (fund it at least up to your employer's match, if they offer one), a Roth IRA account, or the stock market, which has risen an average of 12 percent per year since 1926—well above inflation. "Making smart investments today means you'll be better able to take care of yourself tomorrow," explains Kaplan. "You can always borrow money to buy a home or to send your kids to college, but you can't borrow money for your retirement." Again, make these contributions automatic: Set up direct deposits to your 401(k) or an outside investment account (and make sure it's FDIC-insured). "You have 5,000 things on your plate," says Kaplan. "This way, it gets done."

But I'm afraid I'll lose money in the stock market.

About half of all women say they're "very inexperienced" with investing. "But women are excellent investors," says Kaplan. "We ride out the ups and downs better than men, who see the stock market as a giant video game." There will be times when the market's down, but don't panic or pull your money out—your dollar's actually going further, buying you more shares at a lower price. "The bigger risk is not investing, sitting on the sidelines while inflation erodes the value of your money," she says. To feel even more confident in your investments, diversify them, aiming for balance and variety. "Choose stocks, bonds, and commodities from a wide variety of geographies—over half of all publicly traded companies are outside the U.S., so your portfolio should reflect opportunities around the globe," says Kaplan. And in all things financial, "don't let fear paralyze you—let it motivate you! There's incredible power in owning your financial life."

Elle Kaplan is the CEO of Lexion Capital.