As a wealth advisor for over 25 years and co-founder of Bridgewater Wealth’s Her Wealth™, I recently read a book titled Nice Girls Don’t Get Rich – 75 Avoidable Mistakes Women Make with Money by Lois P. Frankel which intrigued me. In all honesty, it was the subtitle, 75 Mistakes Women Make with Money, which really caught my eye. It made me reflect over my career as to the “lessons learned” from many of these unintentional mistakes, and how we can prevent them in the future.
Below is my list of the top 10 money mistakes that I see women make all too often. As you go through the list, I think you will find that you knew the right answers all along. However, for various reasons tied to fear, lack of confidence, preconceived notions of money from childhood and exhaustion from overscheduled days doing for everyone else, women neglect to prioritize their own financial wellness and assert themselves. It’s never too late to be more focused and intentional about your money. Quite simply, what are you waiting for?
So let’s begin…
As women, we make time and take care of the needs of our children, spouse, partner, parents, friends, and co-workers at the expense of taking care of ourselves. We excel at doing for others with very little time for our own priorities. We hear this all the time from the women we advise. But, when we put our finances last, we miss out on opportunities to grow our wealth and secure our own financial future. Be conscious about how you spend your time and make your financial well-being a priority right now…time is money. Set aside time each month to review your finances and goal—are you on track? Money gives you choices and allows you to be financially independent, all of which leads to a happier and more secure life. If you’re not sure what you need to know, take our Financial Fitness Checkup quiz. It’s quick (12 questions) and will confirm what you already know and what may be missing in your plan.
Being financially illiterate is a choice, just as being intentional about growing your wealth is a choice. You can’t control your financial future if you don’t know some basic “Finance 101” such as the importance of having an emergency cash fund; differences between good and bad debt; what your employer benefits are; why you need different types of insurance to protect you and your family; and how growing your savings through investing & compounding works. You may think you don’t have the time to learn or that investing is too complicated or scary. These are just excuses that prevent you from being financially independent. There are many ways to become financially knowledgeable with a small time commitment such as reading articles on money and investing (even if it’s just scanning headlines at first), listening to CNBC, radio shows and or podcast like So Money with Farnoosh Torabi as you drive, reading our Her Wealth blog, attending free investment and insurance seminars, and talking to financial professionals and friends. Remember, the goal is to learn about your finances and gain knowledge to benefit you, not succumb to sales pitches.
This happens one of two ways—by not having regular conversations about your net worth, spending, and everything else involving your finances with your spouse or partner, or by suddenly being faced with an unexpected life event such as death or divorce and not being prepared to take over the financial reins. Simply put, your Net Worth is the sum of all your assets (savings, retirement funds, house, etc.) less your total debt (all loans, including credit card balances). Your spending budget gives you a month-to-month picture of your income minus your expenses so you know how much is left over to invest and grow your wealth. It’s a big mistake not to have these ongoing conversations or assume your spouse or partner is handling all of this because life can take a dramatic wrong turn. The current statistics show that 50% of marriages end in divorce and the average age of a widow is 55. By age 75, 75% of married women are widowed. These are sobering numbers and the reason that women should be prepared to take care of themselves or their family financially. Have regular conversations about your current financial situation so you are well informed; and yes, make sure to have the difficult conversations too, such as those dealing with adequate life insurance and your will and estate plan. By the way, it’s not enough to just talk about all of this, you also need to have access to your financial records and know passwords for all accounts.
This goes hand-in-hand with being financially illiterate and unprepared. Review your monthly bank and brokerage statements. This is the best way to truly understand your personal financial status, catch any errors and keep you on track towards your goals. While you are at, you should also make sure to do a quick review of your annual tax return before signing it. You don’t have to be a tax expert, but look at it for reasonableness. There is a lot of valuable financial information contained here. Dawn Doebler, CPA, CFP® explains why you should Never Sign a Tax Return You Haven’t Read. Don’t be afraid to ask questions, do online research and meet regularly with your financial adviser…this is YOUR money so we encourage you to pay attention to it!
More times than not, it is the wife who pays the monthly household bills and the husband who takes care of the investment decisions and management of a family’s wealth. There seems to be an imaginary line drawn between these designated duties. Well, it’s time to cross that line and be an active partner in your financial planning and investment management decisions. This can be tough if your spouse feels you may be questioning his decisions. Let him know that you want to be comfortable with what you both have put away and how it’s invested for your future security. Make sure to attend meetings with your husband and wealth management team and review your financial and investment statements regularly and ask questions. We all know of stories where women blindly trusted their investment portfolios and inheritances to their husband or partner for years only to be “surprised” when their wealth was a lot less or non-existent. Stay informed and be engaged!
There is a difference between saving and investing. Saving typically relates to putting money in a bank accounts to earn a fixed rate of interest, while investing involves strategically growing your money through compounding, diversification (more on this in #7 below) and yes, taking some risk. Perhaps out of fear or lack of knowledge, women, in general, tend to be more risk-averse than men. By being too cautious, afraid of the stock market or not investing regularly or early enough, you will miss out on compounding. Compounding is having your money continuously grow based on reinvesting all the earnings. Albert Einstein said “Compound interest is the greatest mathematical discovery of all time.” The more time you give your investments, the more your original investment and reinvested earnings grow since money compounds on itself. Earnings includes interest, dividends and capital appreciation. Make every effort to invest regularly and maximize your annual retirement contributions in your 401K and IRA plans so that you combine long-term compounding and tax-deferral (as well as any employer matching). Your investments should match your risk tolerance and time horizon, but don’t fear every stock market downturn. Accept the stock market ups and downs as a normal part of investing and stay invested for the long term! Based on the time value of money tools like MSN’s Time Value of Money Calculator, it’s easy to compare saving at 2% versus investing at 6%. For instance, if you invested $1,000 a month for 30 years, or $360,000 in total, with annual compounding at 6% per year, the future value of your portfolio would be $949,000 in 30 years. Compare that with saving at 2% for the same 30 years, your future value would be $487,000.
This follows closely with the above mistake. It is so important for women to just get in the game and take control of their financial future. For all those women who are perfectionists and want to get everything right before investing, give yourself a break and understand there is no perfect investment strategy. Yes, you want to be informed, but not to the point of gathering so much information that you are overwhelmed and paralyzed from ever investing. Invest in a well-diversified portfolio that combines different types of stocks, bonds, real estate and multi-strategy investments to allow for more consistent returns with less risk. The asset mix you choose will determine the risk and expected return of your portfolio. There are plenty of good mutual funds and exchange-traded funds (or “ETF’s”) that are passively managed to mirror a market index, as well as actively managed investments. Both vehicles offer professional management, diversification, liquidity and low transaction costs. If you don’t want to make these investment decisions on your own, then hire a financial adviser to manage your portfolio and be an active learner. Bottom line, stay diversified, don’t try to time the market and remain invested for the long term. Your investments will grow through compounding! If you’re not sure how to get started, read my investing primer on WTOP.com – Investment Soup: A Recipe for Financial Success.
With over 50% of marriages ending in divorce, every woman should have assets in her name. This includes at least one bank or investment account and one credit card in your name only which is yours alone. This is in addition to a joint bank account to pay household expenses. Secondly, make sure your name is listed on all joint investment accounts and property—period. You should have equal access, signature authority and title to these joint, marital assets. Even if your partner gives you several good reasons why it should be held in his name only, don’t do it! The risks far outweigh any potential advantage should there be a death or divorce. This is not to say that you cannot own assets in the name of a Trust, but make sure you are fully knowledgeable when you title assets in Trusts by consulting with a good attorney. Let me add one caveat here—if you have a prenuptial agreement whereby your pre-marital assets are to be maintained in your individual name, then you should absolutely make sure you keep these monies in your separate and individual name. Do not commingle or put these accounts in joint name.
Getting an inheritance is often the last chance to receive a large sum of money, so women need to protect it legally and invest it wisely. First, always keep inherited wealth in your individual, separate name directly upon receipt of your inheritance. We recommend that you do not commingle or put your inheritance in joint name. If you are buying real estate with your inherited money, make sure that property is titled solely in your name only. Ditto for any investments or accounts that you open with this wealth. Unfortunately, separately (inherited) property has a way of becoming marital or joint property if commingled with joint assets so we strongly advise working with an attorney to ensure this does not happen to you. When it comes to investing this money, determine a careful investment plan and hire a financial professional as needed. Bottom line, stay in control of your inheritance, don’t feel guilty about keeping it in your name only and be very intentional about any monies you spend or give to other family members or friends.
While this may seem like a shameless plug, there is much value in having a trusted relationship with a financial adviser. Like having a personal trainer or a therapist, your adviser works to keep you on track to accomplish your goals and achieve peak financial performance. Assess what your financial needs are, whether investing, financial planning, tax work, estate planning—some or maybe all of them—and create your wealth management team by asking people you trust for references or check online resources. Interview a few advisers and get a good understanding of their services, the types of clients they serve, experience, areas of expertise, compensation, frequency and style of communication, sample reports, etc. Your adviser will have access to your personal financial information so trust and confidentiality are critical. Make sure you are comfortable with this person both professionally and personally. Take time to check out the firm’s credentials, as well as the professional designations of your advisory team. Remember, this adviser works for you and is paid by you so make sure this person is objective, puts your best interests first, listens and helps educate you, and most importantly, is someone you feel comfortable with.
Make a commitment to yourself to avoid these money mistakes and take control of your financial future. Your enrichment will go far beyond your finances!
Shawn: Now you hear all kinds of deals about leasing cars, how can you negotiate a better deal if you want to lease?
Nina: Okay, well many people don't realize that they can actually negotiate the sticker price on a leased car in the same way that you would do that if you're buying a car. And since when you lease -- when you're, you know, your lease payments basically cover the depreciation, the difference between the sales price and the residual value. So it's definitely in your best interest to try to reduce that sales price as much as possible because then you'll pay you know, smaller dollars over the life of the lease. Make sure you pay attention to the down payment at the lease signing. And so here's an example, you might see an ad that says you know, lease payment is only 1.99 a month and that sounds like a great deal for thirty six months. The catch is, is that it might require a $3,600 down payment. So, if you amortize the down payment, then actually that 1.99 special, becomes 2.99. So, you really have to kind of look at total costs.
And then lastly, dealerships use the term, money or lease factor, when they're calculating your financing costs and a lease factor is not the same as an interest rate. So, you have to make sure the dealer converts that lease factor into a comparable interest rate so you know what your financing charges are.
Shawn: At the end of the day, does one method wind up being more expensive more often than the other, or can we tell that?
Nina: You know what, it really depends on how long, if you're going to hold the car for a long time, you're better off buying. But if you know, and if you're not, if you just really enjoy driving and you want to have a new car, then go ahead and lease. I mean, there's pros and cons to both, to be honest with you, it's not one size fits all.
Shawn: Alright Nina, great. Happy Thanksgiving to you. Alright, Nina Mitchell is with The Colony Group, for more go to wtop.com and search Her Wealth.
Consider this your training manual to get and stay financially fit for life!