Over the past two decades, I have specialized in advising women in moments of transition. This has given me the unique opportunity to observe women’s financial practices and attitudes during the window in which they are most open and most vulnerable. Oftentimes, this change happens as a result of divorce; however, women also face transitions in times of marriage, starting a new job, motherhood, widowhood, etc. In fact, according to U.S. News, “nearly two-thirds of women between the ages of 40 and 79 have experienced a major financial transition.” When facing financial transitions, women, generally, come across similar obstacles and misconceptions. In order to ensure smooth transitions and financial security, it’s important to be aware of common financial mistakes and risks to best avoid them. These are the top five financial pitfalls I have observed holding women back from a secure financial future.
#1 Not Using a Budget
While creating and maintaining a budget is a commonly dreaded affair, the benefits of keeping track of your monthly expenses far outweigh the disadvantages. Such benefits can entail saving for retirement, buying property, or having a college fund for your children. On the other hand, not using a budget can lead to overspending and credit card debt. Uncontrolled debt not only batters your finances, but may also generate enough stress to threaten your health. Health.com writes that debt can lead to health problems such as high blood pressure (which can result in heart disease or stroke), an increase in anxiety, and depression. On a more positive note, a study conducted by Rutgers University reported that “perceived control over personal financial circumstances was a significant predictor of higher psychological well-being.” In using a budget, not only are you helping to secure financial stability, you’re also enhancing your physical and emotional well-being.
Budgeting can be made easy by using apps such as Mint or You Need a Budget, allowing for quick access and control over your expenses. When considering your budget, it’s important to plan for the expected, as well as unexpected expenses, whether that be family vacations, home maintenance, holiday gifts, etc. Sit down and make a spending target each month and check in weekly to make sure you’re on track. Soon, it will become habit to check in and keep an eye on your spending.
#2 Not Having an Emergency Fund
How can you leave an awful job, an abusive marriage—any sort of bad situation—if you don’t have money? Save for an emergency cash cushion and aim to have at least three to six months of living expenses in the bank. Regardless of your financial situation, you should always plan to put something away into either your checking or a high-yield savings account. Unlike a traditional savings account, a high-yield savings account will have a higher interest rate so that you can accrue more money in your account, especially as your savings increase. While it may seem daunting, setting a goal and making a plan will allow you to save in a way that is economically feasible for you in the present and future. Diversity Woman, a publication that works to empower women of all backgrounds, claims that even saving 5-10% of your paycheck can result in a comfortable emergency fund. That way, you’ll protect yourself and the financial world you’ve built so that no situation overwhelms you.
#3 A Man Is Not a Financial Plan
Every woman should be their own CFO instead of waiting for their knight in shining armor. Don’t wait for Prince Charming to carry you over the threshold. Be the one paying the bills and keeping track of your assets and what you owe. Women are increasingly earning more, and according to New York Life Investments, $14 trillion worth of personal wealth is controlled by women, which is only to increase in the years to come. That means that, not only do women have the financial means to support themselves, but now is also the time for women to take control of their finances. Even if you are married, don’t hand over all control of the money to your husband “because it’s a guy thing.” It robs you of your power and financial security. You can also be the “money person” or ask to hold monthly discussions to look at the family finances. Schedule a “financial date night,” and make it fun!
#4 The Need To Know All The Right Answers And Doing Nothing
In a lot of situations, I try to have all the right answers before I proceed. It turns out that many other women do the same. But waiting to have all the answers can derail us from reaching our financial goals. For example, some people do nothing by sitting on the investing sidelines or investing too conservatively. The Simple Dollar explains that women often wait to invest, or don’t invest at all, thinking that they need to know more to make any investment. However, you don’t need to be an expert, and can always ask for help. If you really want to be wealthy, put your money to work with a nice mix of stocks and bonds. Have your money work as hard as you do—that’s what investing is all about.
#5 Women Save Too Little
Compared with men, studies show that, on average, women have lower savings rates, putting themselves at risk of outliving their money. Although women are increasingly earning more, such statistics could be credited to ongoing gender wage gaps and women leaving their jobs to become stay-at-home mothers. According to CNBC, men have a median household retirement savings of $76,000, while women’s number plunges to $23,000. Some women even confess to not having any savings at all. Don’t wait until it’s too late! Saving for your future should be just as much of a priority as paying off debt. Women can’t afford to only think short term. Stay consistent with a 10% yearly savings rate, which should include your IRA and/or 401(k) contributions, and keep it in an account you don’t have easy access to, so you can’t transfer it, but it is constantly growing for your future. Missing out on these opportunities from an early age only means you’re going to have to work longer or save more as you get older.
A helpful trick to easy saving is to set up automatic contributions to your retirement plan at work. You can also add the auto-escalation feature which will allow your contribution to automatically increase 1-2% annually. Also, using different banks for your checking and savings account can help diminish impulsive spending. It can take almost three business days to transfer money to your checking account from a separate bank, which gives you time to reconsider what you’re using your savings for. In addition, you can create sub-savings accounts at banks such as CapitalOne 360 or Ally. These accounts help redirect your money into separate accounts so that you can save for different things in a structured manner. In this way, you’re able to keep track of the money you have in your emergency fund, your vacation savings, your wedding savings, and any other savings goal you want to establish.
While you may be guilty of making some mistakes, you can bounce back and turn those bad habits around at any time. Empower yourself and take control of your finances! It’s never too early or too late to start. Ultimately, my money rule is simple: spend less than you earn. Never give yourself an increase in standard of living—instead, increase your savings! You’ll see the benefits pay off for your future and for your loved ones.
Over the past two decades, I have specialized in advising women in moments of transition. This has given me the unique opportunity to observe women’s financial practices and attitudes during the window in which they are most open and most vulnerable. Oftentimes, this change happens as a result of divorce; however, women also face transitions in times of marriage, starting a new job, motherhood, widowhood, etc. In fact, according to U.S. News, “nearly two-thirds of women between the ages of 40 and 79 have experienced a major financial transition.” When facing financial transitions, women, generally, come across similar obstacles and misconceptions. In order to ensure smooth transitions and financial security, it’s important to be aware of common financial mistakes and risks to best avoid them. These are the top five financial pitfalls I have observed holding women back from a secure financial future.
#1 Not Using a Budget
While creating and maintaining a budget is a commonly dreaded affair, the benefits of keeping track of your monthly expenses far outweigh the disadvantages. Such benefits can entail saving for retirement, buying property, or having a college fund for your children. On the other hand, not using a budget can lead to overspending and credit card debt. Uncontrolled debt not only batters your finances, but may also generate enough stress to threaten your health. Health.com writes that debt can lead to health problems such as high blood pressure (which can result in heart disease or stroke), an increase in anxiety, and depression. On a more positive note, a study conducted by Rutgers University reported that “perceived control over personal financial circumstances was a significant predictor of higher psychological well-being.” In using a budget, not only are you helping to secure financial stability, you’re also enhancing your physical and emotional well-being.
Budgeting can be made easy by using apps such as Mint or You Need a Budget, allowing for quick access and control over your expenses. When considering your budget, it’s important to plan for the expected, as well as unexpected expenses, whether that be family vacations, home maintenance, holiday gifts, etc. Sit down and make a spending target each month and check in weekly to make sure you’re on track. Soon, it will become habit to check in and keep an eye on your spending.
#2 Not Having an Emergency Fund
How can you leave an awful job, an abusive marriage—any sort of bad situation—if you don’t have money? Save for an emergency cash cushion and aim to have at least three to six months of living expenses in the bank. Regardless of your financial situation, you should always plan to put something away into either your checking or a high-yield savings account. Unlike a traditional savings account, a high-yield savings account will have a higher interest rate so that you can accrue more money in your account, especially as your savings increase. While it may seem daunting, setting a goal and making a plan will allow you to save in a way that is economically feasible for you in the present and future. Diversity Woman, a publication that works to empower women of all backgrounds, claims that even saving 5-10% of your paycheck can result in a comfortable emergency fund. That way, you’ll protect yourself and the financial world you’ve built so that no situation overwhelms you.
#3 A Man Is Not a Financial Plan
Every woman should be their own CFO instead of waiting for their knight in shining armor. Don’t wait for Prince Charming to carry you over the threshold. Be the one paying the bills and keeping track of your assets and what you owe. Women are increasingly earning more, and according to New York Life Investments, $14 trillion worth of personal wealth is controlled by women, which is only to increase in the years to come. That means that, not only do women have the financial means to support themselves, but now is also the time for women to take control of their finances. Even if you are married, don’t hand over all control of the money to your husband “because it’s a guy thing.” It robs you of your power and financial security. You can also be the “money person” or ask to hold monthly discussions to look at the family finances. Schedule a “financial date night,” and make it fun!
#4 The Need To Know All The Right Answers And Doing Nothing
In a lot of situations, I try to have all the right answers before I proceed. It turns out that many other women do the same. But waiting to have all the answers can derail us from reaching our financial goals. For example, some people do nothing by sitting on the investing sidelines or investing too conservatively. The Simple Dollar explains that women often wait to invest, or don’t invest at all, thinking that they need to know more to make any investment. However, you don’t need to be an expert, and can always ask for help. If you really want to be wealthy, put your money to work with a nice mix of stocks and bonds. Have your money work as hard as you do—that’s what investing is all about.
#5 Women Save Too Little
Compared with men, studies show that, on average, women have lower savings rates, putting themselves at risk of outliving their money. Although women are increasingly earning more, such statistics could be credited to ongoing gender wage gaps and women leaving their jobs to become stay-at-home mothers. According to CNBC, men have a median household retirement savings of $76,000, while women’s number plunges to $23,000. Some women even confess to not having any savings at all. Don’t wait until it’s too late! Saving for your future should be just as much of a priority as paying off debt. Women can’t afford to only think short term. Stay consistent with a 10% yearly savings rate, which should include your IRA and/or 401(k) contributions, and keep it in an account you don’t have easy access to, so you can’t transfer it, but it is constantly growing for your future. Missing out on these opportunities from an early age only means you’re going to have to work longer or save more as you get older.
A helpful trick to easy saving is to set up automatic contributions to your retirement plan at work. You can also add the auto-escalation feature which will allow your contribution to automatically increase 1-2% annually. Also, using different banks for your checking and savings account can help diminish impulsive spending. It can take almost three business days to transfer money to your checking account from a separate bank, which gives you time to reconsider what you’re using your savings for. In addition, you can create sub-savings accounts at banks such as CapitalOne 360 or Ally. These accounts help redirect your money into separate accounts so that you can save for different things in a structured manner. In this way, you’re able to keep track of the money you have in your emergency fund, your vacation savings, your wedding savings, and any other savings goal you want to establish.
While you may be guilty of making some mistakes, you can bounce back and turn those bad habits around at any time. Empower yourself and take control of your finances! It’s never too early or too late to start. Ultimately, my money rule is simple: spend less than you earn. Never give yourself an increase in standard of living—instead, increase your savings! You’ll see the benefits pay off for your future and for your loved ones.
