Life is definitely more than just about money. There are so many things to know about money. The list is endless, but here are 10 important things you as a woman should know about money:
1. Men and Women are Different
Understand that men and women are different in how we use money, how we feel about money, and how we communicate about money. In most relationships one partner will be the spender and one will be a saver. Understand the differences of each and take the positives of both personalities to make the most out of your money and your relationship. Set time aside each month to have a “money date.” A money date is once or twice a month where you and your spouse go over your finances together. You can use this time to pay bills, review your expenses, review your investments and to use this time to understand and appreciate how you and your spouse view money. Discuss your monthly spending and saving. If you are single, your money date can be with your Financial Advisor.
If women stay at home to care for the kids, on average they stay at home for 11 ½ years. That is 11 ½ years that they don’t have money going into a retirement plan or social security. Also, it costs more as women to live. Just look at drycleaning. Women’s shirts cost more than men’s. What about haircuts? Women’s haircuts cost more than men. Also, women live on average 7 years longer than men1. Plus women tend to care for others before they care for themselves. Also, we as women tend to be more conservative investors. A recent Bloomberg survey reported that female investors outperformed male investors by 55 percent in the past nine years2. Another is our income. Studies show that women still earn 76 cents for every dollar that a man earns3. This is one of the reasons women start their own businesses two times the rate that men do. Another scary statistic is that 55% of women over 65 are widows and their income is $9,366.00 a year4! So, to sum it up we have a lot going against us, but we are smarter investors.
2. Have A Cushion
Any financial advisor is going to tell you that you want 6 to 12 months worth of income set aside for emergencies. This is for if you lose your job, car accident, medical emergencies, etc. Focus on where you are at financially and if you lost your income how long you could live off your savings. The main focus point is to make sure that your money is working hard enough for you. It is important to have the money in an account that earns interest. If you have your liquid money in a checking account or underneath your mattress it is earning no interest. Money that is liquid is immediately accessible to you such as in a checking or savings account. But, ideally in an insured money market account – some place where you can earn the most interest on your money but still keeping it liquid.
3. Know One Rule
The Rule of 72 is a simple formula that helps you understand how fast money grows and how assets appreciate. If you divide 72 by the interest rate that you are earning on your money, you will find out approximately how many years it takes for your money to double. For example, assume you have a hypothetical investment that is earning 10% per year. Plug that 10% into the formula, and you will find that your money should be doubling every 7.2 years. The Rule of 72 is a mathematical concept and is not a guarantee of investment performance or a predictor of investment results. It is simply an approximation of the impact a targeted rate of return would have. There is no assurance an investment will double in value.
4. Save Money Monthly and Buy SMART Assets
The more money you can set up in an automatic investment program the easier it may be to save. If you are like me and when you have money in your purse, you may spend it. With automatic investment programs, you are able to save as little as $25 a week or month and have the money come directly out of a checking or savings account. The goal is to buy things that produce income. That is the whole goal. The goal is that you accumulate enough assets so that you do not have to go to work and take your time to earn your money. The goal is that you accumulate enough assets that you can live off of them. Examples of these assets include businesses, rental property, stocks, and most bonds. Consider buying assets that are expected to produce cash flow, but do not require daily management. This can help you attempt to build and preserve your wealth.
5. Know Your Money
Money is simply a vehicle to get you to where you want to go. Take control of your vehicle and control your path and destination. The one thing women are great at is relationships. Your relationship with money is important. One of the things you can do to feel more in control of your money is to take time to attend seminars on money and investing. Learn what assets are and how they work. Use this educational time to then relate it to your own financial situation. Know the three basic types of investments: stocks, bonds, and cash. What is a stock? A stock is a share of ownership in a corporation. What is a bond? Think of a bond like a loan. You take your money, loan it out to someone and in a number of years you will get your money back plus interest. What is cash? Cash is liquid money. Cash is your money in a money market, savings account, and in your purse. Another way to learn more information is to seek the help of a financial advisor. Most financial advisors, including myself offer initial consultations at no charge. You should take advantage of their time to learn more about your own situation and you may find someone to help you in your financial situation.
6. Happiness in Retirement
The first step in saving for retirement is to answer these two questions. One, at what age do you want to retire? Two, how much income do you want when you retire? If you can tell me how much you have saved up so far and the answer to these two questions, I can tell you if you are on track towards retirement. Or if you are not on track. And if not on track, I can tell you how much you need to save every month to get on track. There are a number of different vehicles that you can use to save for retirement such as 401(k), 403b, 457, SEP IRA, SIMPLE IRA, Single 401k, Roth IRA, Traditional IRA, and Rollover IRA.
7. Investing Makes Sense
When it comes to investing we need to find balance. The balance can come by spreading risk over time. There are many different types of things to invest in such as stocks, bonds, mutual funds, exchange traded funds, and so many more types of investments. Seek out a financial advisor for they can help you to have investing make sense.
8. Helping Kids
How to help your kids be happy with money is by talking about your values and what is important to you about your money. I encourage you to give yourself and your kids an allowance. I also recommend setting up a family 401(k). With a family 401(k), you as a family come up with a goal for your money; as a parent, you can offer a matching program. The goal could be a trip or a new toy. So, for example, if your daughter puts in $1.00 to the family 401(k), you could match her 50 cents. This way she can learn about a 401(k) so that when she starts her first job she understands the concept of a 401(k) and the concept of investing. There are many options available for saving for kids for college such as a 529 Plan, the Education IRA, UTMA/UGMA or Roth IRA.
9. Plan For Your Estate
Estate planning is a topic that sometimes people do not like to talk about. Who likes to plan for their death? Estate planning can be crucial unless your plan is to die broke. I encourage you to meet with an estate planning attorney to set up a will or trust. The woman that is organized, and truly wealthy plans for when she will no longer be around. At a bare minimum you want to have a health care directive and a durable power of attorney.
10. Find a Mentor in a Financial Advisor
Studies have shown that women are more apt to use financial advisors and you should pat yourselves on the back for that. We as women are great multi taskers and typically do not do well to the answer “no”. We take the time to seek out answers and advice. We are not hesitant to ask for directions or enlist the help of a Financial Advisor. I encourage you to find a financial advisor that you can trust. Someone that you get along with and understands you and your financial picture.
Any opinions are those of Nicole Middendorf and not necessarily those of Raymond James. Expressions of opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing materials is accurate or complete. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All investing involves risk, including the possible loss of principal amount invested and there is no guarantee your investment objectives will be met.
1According to a report from HHS’ Centers for Disease Control and Prevention
2 Bloomberg Study. Female Outperformers. http://www.bloomberg.com/insights/female/
3According to Census statistics done by the National Committee on Pay Equity
4According to U.S. Census Bureau statistics