4 Money Blunders That Could Leave You Poorer

A “not-to- do” list for the new year & years to follow.

How are your money habits? Are you getting ahead financially, or does it feel like you are  running in place?

It may come down to behavior. Some financial behaviors promote wealth creation, while others lead to frustration. Certainly other factors come into play when determining a household’s financial situation, but behavior and attitudes toward money rank pretty high on the list.

How many households are focusing on the fundamentals? Late in 2014, the Denver-based National Endowment for Financial Education (NEFE) surveyed 2,000 adults from the 10 largest U.S. metro areas and found that 64% wanted to make at least one financial resolution for 2015.

The top three financial goals for the new year: building retirement savings, setting a budget, and creating a plan to pay off debt. 1

All well and good, but the respondents didn’t feel so good about their financial situations.

About one-third of them said the quality of their financial life was “worse than they expected it to be.” In fact, 48% told NEFE they were living paycheck-to- paycheck and 63% reported facing a sudden and major expense last year. 1

Fate and lackluster wage growth aside, good money habits might help to reduce those percentages in 2015. There are certain habits that tend to improve household finances, and other habits that tend to harm them. As a cautionary note for 2016, here is a “not-to- do” list – a list of key money blunders that could make you much poorer if repeated over time.

Money Blunder #1: Spend every dollar that comes through your hands. Maybe we should ban the phrase “disposable income.” Too many households are disposing of money that they could save or invest. Or, they are spending money that they don’t actually have (through credit

You have to have creature comforts, and you can’t live on pocket change. Even so, you can vow to put aside a certain number of dollars per month to spend on something really important: YOU. That 24-hour sale where everything is 50% off? It probably isn’t a “once in a lifetime” event; for all you know, it may happen again next weekend. It is nothing special compared to your future.

Money Blunder #2: Pay others before you pay yourself. Our economy is consumer-driven and service-oriented. Every day brings us chances to take on additional consumer debt. That works against wealth. How many bills do you pay a month, and how much money is left when you are done? Less debt equals more money to pay yourself with – money that you can save or invest on behalf of your future and your dreams and priorities.

Money Blunder #3: Don’t save anything. Paying yourself first also means building an emergency fund and a strong cash position. With the middle class making very little economic progress in this generation (at least based on wages versus inflation), this may seem hard to accomplish. It may very well be, but it will be even harder to face an unexpected financial burden with minimal cash on hand.

The U.S. personal savings rate has averaged about 5% recently. Not great, but better than the low of 2.6% measured in 2007. Saving 5% of your disposable income may seem like a challenge, but the challenge is relative: the personal savings rate in China is 50%. 2

Money Blunder #4: Invest impulsively. Buying what’s hot, chasing the return, investing in what you don’t fully understand – these are all variations of the same bad habit, which is investing emotionally and trying to time the market. The impulse is to “make money,” with too little attention paid to diversification, risk tolerance and other critical factors along the way. Money may be made, but it may not be retained.

Make 2016 the year of good money habits. You may be doing all the right things right now and if so, you may be making financial strides. If you find yourself doing things that are halting your financial progress, remember the old saying: change is good. A change in financial behavior may be rewarding.

Citations.

1 – http://denverpost.com/smart/ci_27275294/financial-resolutions-2015-four-ways-help-yourself-keep

2 – http://tennessean.com/story/money/2014/12/31/tips-getting-financially-fit/21119049/

Man and woman

Understanding Men, Women, and Money

For most people, money is never just money; it is a tool to accomplish some of life’s goals. It is love, power, happiness, security, control, dependency, independence, freedom and more. When two individuals form an enduring relationship with each other, money is always a partner, too.

Men and women vary in their idea of personal boundaries because they are both raised largely by women. Men have to psychologically disconnect more from women because of the sex difference; women do not have to separate so rigidly, and therefore can afford less distinct boundaries.

Second, men are raised to see the world as hierarchical and competitive. Women see the world as cooperative and democratic; they share. In addition, it is accepted that women are needy and vulnerable, while men are discouraged from such display.

When men make more money than their spouse, they believe their superior earnings entitle them to greater power in decision-making. By contrast, women who make more than their mates almost always desire democratic decision-making.

Money issues are different from other problems in a relationship. These problems are significantly more difficult to talk about and harder to resolve because of our extensive cultural conditioning. The most important thing in communication is empathy. It’s more important to be heard and understood than to have a partner agree with what you say without listening.

Mellan, Men, Women, and Money

What do you think? Can you relate? Or, is your situation different? Please let us know what you think by posting your comments on our Financially Savvy Women Fanpage.

Boomer Couple in Front of Their Beach House

Women and Financial Power

Too many women lack the confidence necessary to take control of their financial lives. Women fear making investments, managing their finances, planning and monitoring their spending, managing investments, and increasing their wealth.

Why aren’t women more confident with their finances?

The answer is that women are stopping themselves from being assertive. Many women leave their financial lives to their husbands, boyfriends or parents, and because of this way of thinking, they lack financial power. Financial empowerment must come from within. Women must seize it with fervor, reflecting an unshakable determination to take control of their financial lives. You must tell yourself that you can become empowered, and that you will not let outdated notions of gender hinder your success. Keep “EMPOWER” in your mind as an acronym representing these concepts:

Education is critical
Motivation inspired by your values
Protection against risk
Ownership of your future
Work — claiming what is yours requires effort
Emotions should be kept out of decisions
Responsibility to yourself

Do you use any acronyms to motivate you with your finances? I’d love to learn about yours! Please let us know what you think by posting your comments on our Financially Savvy Women Fanpage.

Gibbons, EmpowHer! Why more women are taking the financial lead

Happy senior couple making diner

Your Sex Might Cost You Money

There is no federal law banning discrimination based on sex, race, or gender on the cost of goods and services. Some states have adopted their own anti-discrimination laws, but many of these statutes are up for interpretation and don’t protect you. Here is what you need to know about how your sex might influence the prices you pay.
Women earn less and pay more:

Earnings: 81 cents for every man’s $1.00
Banking: 32% higher interest on subprime loans than men
● Cars: Offered list price $200 higher than men
● Deodorant: On average costs women 30 cents more than men
● Dry-cleaning: $6.50 per shirt; men pay $2.00 a shirt
Health Insurance: 45% more than men
Kingsbury, Buyer Beware

Financially Savvy Women have the wealth they deserve

5 Myths about Women and Wealth

There are several myths about women and wealth that you might not be aware of. Below are the top five myths about women and money:

  1. Women are not good at math: Nature, not nurture, accounts for the gap in math skills. However, there is a growing movement to expose more women to learning and mentoring opportunities in the fields of math, engineering, finance, and science.
  2. Women are impulsive spenders: Money is an equal-opportunity, all purpose mood changer. Just as many men impulsively spend and overshop as women. One major difference is how society labels it. Women overshop; men collect, a term that gives the activity an intellectual cast. However the underlying impulse behavior is the same.
  3. Women are too emotional to invest wisely: Female investors outperform men in the long run. Men try to compete with the market and chase returns, leading to more frequent trading and high transaction costs. Women take a long time to make an initial investment decision; they are committed to the decision in the long run. Women are less reactive to short term changes in the market, trade less frequently than men, and realize better long-term investment performance as a result.
  4. Women would rather let men manage the family finances: Women are the chief financial officers of their households in 66 out of 100 homes (2010 Women and Affluence Study by Women & Co.). Women in the ultra high net worth market reported they play a high to moderate role in the management of the family’s assets. When it comes to retirement, 90 percent of women participate in decisions that affect their household’s retirement and investment accounts.
  5. Women are not interested in wealth management: The gender gap in finance is diminishing as women enter the field. Advising clients lends itself to a woman’s strengths in relationship building and communication, allowing female advisors to have the opportunity to outperform men. Organizations like Directions for Women and The Female Affect offer forums and networking opportunities to facilitate the advancement of women in financial services.

Kingsbury, How to Give Financial Advice to Women

Understanding these myths will help you overcome and fears that you may have had when it comes to managing your finances. Do you know of any other myths about women and their wealth? Please let us know what you think by posting your comments on our Financially Savvy Women Fanpage.

 

female working on her finances

The Female Brain

All human brains have reflective and reflexive thinking. However, the way the female brain is structured makes women tend to be more focused on care-giving, passing on money and life values to the next generation, and using wealth to better the community as a whole. The three areas of the brain that will be discussed are the Amygdala and Limbic System, Hippocampus, and Corpus callosum:

Amygdala and Limbic System: The Amygdala is the center for emotion, fear, and aggression. It is located in the Limbic System and is the part of the brain responsible for the fight or flight response. The female brain’s limbic system is typically larger than the male’s. Scientists hypothesize that the larger limbic system contributes to women being more compelled to care for others.

Hippocampus: This part of the brain is the center of emotion and memory formation. This section of the brain is larger in women than men and accounts for a woman’s ability to remember specific details. The larger hippocampus also could contribute to some women wanting their Financial Advisors to remember personal details about their life.

Corpus Callosum: This part of the brain transmits signals and connects the left and the right side of the brain. Women have more connections between the left and right hemispheres, making them excellent at multitasking and verbal communication.

Kingsbury, How to Give Financial Advice to Women

Do you have any past experiences that reflect the new information you just learned about your brain?

Retired couple gardening

Why Women are Less Decisive

Women worry more about their financial health but lag in decision-making and self-confidence:

This difference in self-confidence has an enormous impact on the financial planning industry. A LPL Financial “Women Invest White Paper” survey shows that 67% women want an equal role in financial decision making and only approximately 20% want their husbands to make all the decisions. Yet, data shows less than two-thirds of women actually attain an equal role in financial decision-making (note: financial decision-making here refers to “big ticket item decisions,” not grocery shopping level daily or weekly decisions).

An ideal advisor will listen to both women and men – regardless of the gender of the financial decision-maker – and will avoid being patronizing toward both women and men if they lack financial understanding. Women prefer to work with female advisors, when possible. Although women comprise more than half the financial planning/investment clients in this country, fewer than one-quarter of Certified Financial Planners® (or other credentialed advisors) are female.

Kaplan, Women and Money: Why They Avoid Risk and Lack Confidence when Making

Don’t feel patronized or left out of your financial future. Whether you’re single, married, divorced, or widowed, let’s talk about how I encourage women to take on a greater role in the decision making process. Contact me today.

Debt and Your Financial Health

Boomer women glowing
Most people believe that any debt is detrimental to their financial health. However, some types of debt aren’t bad – a mortgage, college loans, or business loans. These types of loans appreciate in value in your future. Bad debt is money that you owe for things that you no longer benefit from; try to eliminate these debts.

There are ways to change your financial situation. Use a spending chart to record how you are using your money. Write down everything you spend and where your money goes to. To reduce debt, look at your nonessential expenses and decide which ones you can remove. Limiting the way you use your credit card can help with your spending.

You can avoid the legal consequences of bad debt by resolving your debt before it becomes overwhelming. Start planning now. Repaying the debts you have accrued will not happen overnight. However, if you control your spending and attain professional help, you will resolve your financial problems over time.

(Morris, A Woman’s Guide to Personal Finance)

Money Issues Across Your Life Cycle

Some women are co-breadwinners while others are the only source of income. Throughout a woman’s life, she will experience many money issues unique to women. A woman may experience the following situations: lower earnings, lack of retirement planning, divorce, and fewer years in the workplace because of child-rearing or caring for older parents. Many of these issues can work against a woman’s ability to accumulate money and attain stable financial status.

Lower Lifetime Earnings

As a population, women generally earn a lower income than their male counterparts. The Equal Pay Act that passed in the 1960s was supposed to narrow the earning gap between men and women, yet a gender pay gap still exists today. Women who work full-time year-round still are paid 77% of a man’s pay ($37,000 for a woman compared to $48,000 for a man in 2009) (U.S. Census Bureau 2012). Inequities start early and worsen over time. Research has shown a 5% difference one year after college graduation and a 12% difference after 10 years. The only identified explanation for the unexplained gaps was gender discrimination (Arnst 2007; Boushey, Aarons, and Smith 2010).

Breaks in Career

Women are more likely to have gaps in their work years because of child-rearing (Duke 2010). Some women may leave their jobs for extended periods of time to go on maternity leave. Other women make the choice to stay home for an extended time, reentering the job market years later. During child-rearing years, some women may leave careers behind and choose to work part-time or find a job with hours that match closely with children’s school schedules. As a result, upon retirement age, women’s income and Social Security benefits are often lower than those of their male counterparts.
Women need to pay attention to any employer retirement plan or matched contributions that may have been a job benefit. Find out about retirement or savings before you leave the job. If money is invested in a retirement plan, can it stay until you are ready to retire? What are the options?

Divorce

The divorce rate in the United States is estimated at 36%–50% (U.S. Census Bureau 2010). In general, divorce creates a financial disaster for families and may leave a woman to raise children using less money. Spending may likely need to change when a divorce occurs. It is important to review monthly expenditures and establish a budget. Since cash flow may drastically change and not be the same from week to week, continue to review income and expenses. Depending on the number of years a woman was married, she may be entitled to part of her husband’s retirement income. Be sure all financial issues are revealed and resolved during divorce proceedings.

Care of Elderly Parents

Another family obligation that may interfere with building wealth is caring for an elderly or ailing parent or other family member. Women tend to be the major caregivers for sick or older parents. Some women may take a career break or retire early to attend to the full-time care of a family member. Even if a woman continues to work, caring for the family member may become a financial burden.

Widowhood

As women age, the likelihood of living alone increases. According to the U.S. Census Bureau (2010), among those 65 and older, 44% of women were married, compared to 75% of men. Widowed women account for approximately 40% of women 65 and older, but only 13% of men 65 and older are widowed (U.S. Census Bureau 2010). The average age of widowhood is 55 years old (U.S. Census Bureau 2010). A spouse’s death is not only emotionally exhausting, but also will likely end with financial consequences.

Lack of Retirement Planning

As a whole, women tend to focus less on planning for their retirement over the course of their career, having saved less for retirement than men. Because women are often the caregivers for the family, taking steps to ensure their financial future may take a backseat when other events occur.
Women are reluctant to taking risk. When women do put money into a retirement fund, it is often a conservative investment that earns lower interest rates than their male counterparts. Try to research investments and identify your best options.

What You Can Do to Prepare Yourself

Women can improve their financial status and retirement income. Financial planning and learning about investing are the first steps on the road to financial independence. Time is on your side when you start early. Small amounts of money saved and invested over time add up to a secure financial life.

(U.S. Census Bureau 2010)

Women, Money and Emotions

Women can be notorious for making financial decisions based on emotions. It can be as simple as splurging on a new dress or purse that may not be a fiscally sound decision but “you just had to have it!” Or more serious events like leaving substantial money on the table when experiencing a divorce or financial separation. These decisions are often motivated by guilt or to avoid further conflict, and often create a serious and long-term impact on a woman’s financial future.

While not all emotional decisions have a negative impact recognizing your tendency to make financial decisions based on emotions, it can help you navigate more serious issues with greater care.
What was the last emotional decision you made with money? What impact did it have on your financial situation?