Money in the Media #29

Every woman should be her own chief financial officer

In honor of International Women’s Day yesterday, I wanted to discuss specifically how women are affected by finances and the necessary steps that should be taken. Today’s article is from CNBC entitled “Every woman should be her own chief financial officer.” This article goes into some of the differences that women are more likely to experience in their lives and the crucial pitfalls that can cause negative trajectory and a negative mindset towards finances.

First, women are more likely to be affected by major financial transitions, with a US News report showing that two-thirds of women between ages 40 and 79 have experienced at least one in their lifetime. These transitions can be anything from divorce, motherhood, widowhood, becoming a caregiver for an aging parent and more. Women are disproportionately affected by all of these transitions since a woman can be more commonly expected to stay at home, causing a disproportionate earning ratio in the relationship. Then if that same woman suffers from a divorce or widowhood, there is little or no income entering the home due to the decision to have her become the stay at home parent.

Additionally, I’ve mentioned the role that women play in caregiving, but consider these quick facts on the matter:

• An estimated 66% of caregivers are female.
• The average caregiver is a 49 year old woman who works outside the home and provides 20 hours per week of unpaid care to her mother. 
• Although men also provide assistance, female caregivers may spend as much as 50% more time providing care than male caregivers.

Leaving us with the possibility that a woman could have been a stay at home mom, while suffering a divorce or widowhood and be an unpaid caregiver. This situation is terrible, but if there is a good financial foundation to fall back on, it can be managed. Keeping this in mind, let’s get into the major pitfalls that can create an unhealthy relationship between a woman and her money.

Top Five Financial Pitfalls

Not Using a Budget

The word budget tends to have this horrible connotation with it, but it’s really just a plan for your money. If you don’t have a plan for your money, then you’re basically getting in your car and trying to drive somewhere you’ve never been without a map or GPS.

If you’re in debt, having a budget is even more critical. Clearly things have not gone exactly as you had thought in the past, so taking the time to plan now can help prevent further debt accrual and start the path out of debt.

The article mentions that being in debt can lead to some serious health issues, which makes complete sense. I remember being in debt feeling like a constant weight on my shoulders, always pressing down any time that I even thought about money. Conversely, having a budget helps to reverse these negative affects because you are in control of your money and not the other way around.

There are MANY methods on how to create a budget and stick to it. The key is to find something that works for you that takes into account not only the expected expenses, but also the unexpected/random expenses of life (think sinking funds). As long as you check in with yourself throughout the month to ensure you are on track and adjust if you are not, you will be just fine.

Not Having an Emergency Fund

Not having an emergency fund is the number one reason that many (men included) cannot get themselves out of precarious financial circumstances. The standard advice is to have between 3 and 6 months worth of living expenses saved. However, having even one month’s worth of expenses saved in a high yield savings account can provide enough wiggle room for you to think a little more clearly about your finances without the imminent threat of ruin.

Of course, the more savings set aside the more opportunities are available. Leaving an awful job, an abusive marriage, etc are not situations that can be taken lightly. The number one reason that women stay in these positions is because they don’t have any cash set aside. Setting aside money at regular intervals (every paycheck) can slowly build this security over time.

In addition to the advice in this article, I want to reemphasize the need for sinking funds that I had mentioned above. So many people come to me by saying that they cannot seem to keep an emergency fund. Every time they make any headway, a tire needs to be replaced or they need new clothes for a big interview or their phone dies on them. Planning for car maintenance, taxes, home repairs and other “unexpected, but necessary” expenses will keep your emergency fund saved for actual emergencies like a medical emergency or loss of a job. Make sinking funds a part of your regular budgeting and you are sure to succeed.

A Man is Not a Financial Plan

The article has this summed up in one beautiful sentiment:

Every woman should be her own chief financial officer instead of waiting for her knight in shining armor.

Stacy Francis, President and CEO of Francis Financial

Come on ladies, it’s 2020. Even if your knight in shining armor did come and rescue you from your debts, something could happen to them, you or your marriage that would certainly wake you up from that dream very quickly. The only way to know that you would land on your feet is to be aware of your finances (both separate and joint). Know your bills, know how they get paid and know your net worth, both as a couple and on your own.

My mom married a CPA and since finance wasn’t her thing, she never learned about their finances until after he was diagnosed with early onset Alzheimer’s disease. My mom will forever be my hero for the way she stepped up to the plate to take on everything, but it was NOT easy. Watching her struggle the way that she did, was something that inspired me to learn so much about finances in the first place. I don’t want to see any of you have to go down the same path.

Being in a couple means that you’re a team. Even if you keep your finances separate, there still need to be money discussions because money is the tool that you will use to build your life. Make sure that you are both building lives that mesh well together. If you’re saving up to live a van life and he’s saving up to buy a second home, maybe you guys should talk about priorities and goal.

Setting up a regular date night where you just talk about money can keep you both on the same page. It doesn’t have to be long and painful. Make it fun and talk about your dreams together first, then narrow down to some of the finer details for monthly plans.

The Need to Know All the Right Answers and Doing Nothing

The need to know all the answers to every “what is” scenario is also called paralysis by analysis. I’ve found myself in this situation far too many times. It’s hard to snap out of it, but it’s important to remember that doing something is better than having the perfect plan.

Investing is a perfect example of this. The article quotes TheSimpleDollar.com as noting that women wait to invest because they feel that they don’t know enough. I completely understand this because I did the same time. I waited at least 6 months to a year longer than I should have to start investing. It just felt like a huge, insurmountable amount of knowledge that I needed before I put my money at risk.

Starting small and simple is the best way to combat this. I highly recommend reading JL Collins’ Stock Series as a great starting point. After that, you will have all of the basic knowledge to get off the sidelines.

The best time to start investing was 20 years ago. The second best time is TODAY.

Unknown

Saving Too Little

The gender pay gap is a well documented problem for women. In addition to this, women have a smaller savings rate than men. As women’s wages are increased to match men’s wages (slowly, but surely), the savings rate needs to increase to not only match, but catch up.

The best way to think about saving for your future (starting with an emergency fund and then your retirement fund) is to treat it as though it were a bill. A completely non-negotiable bill. For your retirement, save at least as much as you need to get your employers 401K match, more if you can, AND escalate it every year when you get your raise. This way, you will not even feel it.

On top of your retirement savings, treat savings for your sinking funds (including fun things like vacations!) like a bill as well. Set up these automatic transfers to separate savings accounts (or sub accounts if you have Capital 360 or Ally) to ensure that they’re allocated for specific categories already. Put as much separation as you need to deter yourself from raiding these funds.

Once you set up these automatic transfers to occur on the day you get paid so that you never even see that money, just leave the money alone until you actually need it. Don’t touch your car fund until you need an oil change or your tire blows out. If you follow those guidelines, you’re sure to succeed.

Wrap It Up!

This article is great in that it touches on the way that women tend to second guess themselves and put themselves at risk AND some of the systematic structures that are forced on us by society. Taking all of that into account, do your best to push it aside and do what is best for you. Once you know how to handle your money and your budget, nothing will be able to stop you from using money as the tool to build the life you deserve!

She needed a hero, so that’s what she became.

Anonymous

Happy International Women’s Day Everyone! What other pitfalls have you seen? How did you take charge of your finances? Let me know in the comments below!