Category Archives: Money Management

Getting Finances in Order is Imperative for Women

Why Getting Your Financial House in Order is Even More Important for Women

“Women with money and women in power are two uncomfortable ideas in our society.”
–Candace Bushnell

As a financial planner, I was pretty adamant when I had couples as clients that they both participated in at least the initial kickoff session. After that, if one of the two said that they were fine with not being involved going forward, then that was acceptable to me, although I always gave the non-participating spouse a one-page “to do” list if the participating spouse ever got hit by the beer truck, and got a premature opportunity to find out what was on the other side. (Besides the stories that John Edward used to tell people about their loved ones talking to them through him.)

Maybe it was because I am a male or because there was a selection bias that occurred in the types of couples that I drew as clients, but there were certainly a few instances where the wife was the one who said that her husband made the financial decisions, and she was fine with it.

Note: I’m not including same sex couples in this analysis because if you’re a same sex couple, you both face the same gender-specific issues, whereas an opposite sex couple means that the female has different financial needs than the male.

Horses. Water. No drinking.

It was frustrating to me to see this situation because, like it or not, the women are much more likely to have to deal with and pick up the pieces when the husband passes away. I’ll explain more about this later.

The husband-as-lead scenario didn’t happen terribly often in my practice, maybe 20-25% of the time, but it certainly happened enough that I had a standard response to it.

The statistics about women participating in household financial decisions are mixed. A 2008 Pew Trust survey showed that families believe women make more decisions 43% of the time, whereas they divide decisions equally 31% of the time, and the man makes more 26% of the time.

But, in the same survey, the perceptions about who managed the money in the household differed between men and women. 45% of women said that they managed money in the household and 23% of women said that their spouse managed the money; however, 37% of men said that they managed the money and 30% of men said that their spouse managed the money.

On the flip side, a 2013 Fidelity survey reported that only 24% of women said that they took responsibility for day-to-day financial decisions.

Regardless of whose numbers you believe, there are a significant number of women who are punting the decisions on household finances to their spouses.

I’ll throw one more statistic to show some numerical and financial disparity.

In 2010, the RAND Corporation conducted a study relating the numeracy (math skills) of household members to overall household wealth.

The scores were scaled from 0 (the worst score) to 3 (the best score). When both spouses got a 0 on the test, the average household wealth was $200,000. When both spouses got the highest possible score, the average household wealth was $1,700,000 – 8.5 times higher than the 0/0 pairing.

According to the survey, men were more responsible for the finances than the women, with men in charge 62% of the time.

In cases where there was a 10 year or more age difference where the man was older, and the man was age 70 or older, the man made the decisions 82% of the time. This was the case, even though studies show that cognitive decline can start as early as age 60, and that math is the first skill to go.

What’s even worse, according to the RAND study, is that households where the man scored 0 on the test had him making the financial decisions 50% of the time!

How does this impact family wealth and financial well-being? Let’s look at couples who had one member score 0 and another member score 2. There were less than 20 0/3 couples out of 1,200, so there wasn’t enough data to draw conclusions.

In cases where the 0 scoring spouse led the family finances, the average wealth was $548,500. In the cases where the 2 scoring spouse led the family finances, the average wealth was $684,500, meaning that if the 2 scoring spouse took the reins, the average wealth was $136,000 higher.

More broadly speaking, when the less numerate spouse made decisions, the financial wealth of those couples was 14.7% less than households where the spouses were equally numerate.

But Wait! There’s More!

Adhering to traditionalist values, particularly when the financial decision-maker isn’t the mathlete (that’s a word…trust me!) is really harmful to your long-term nest egg’s health.

However, that’s not the only issue that causes women to come out on the short end of the stick when they don’t take part in the financial decisions.

On Average, Women Earn Less Than Men Over Their Careers

This quotation from Catalyst sums it up:

“No matter what their race/ethnicity, age, occupation, or education, all women are impacted by the gender wage gap.”

The Catalyst study finds that, on average, in 2013, women earned 78% of what men earned in income.

Let’s assume that you have a man and a woman starting out in their careers at age 25. The man earns $100,000, and the woman earns $78,000. Each saves 15% of their income, gets 7% return on their investments, and gets a 3% payraise every year.

How much will each have at the end of the year at age 60?

The man will have $3,154,916.

The woman will have $2,460,834.

Those differences add up over time. It’s a 28.2% difference over 30 years for the man.

Not only is this a problem when a woman is in her working career trying to save up, it’s a problem when she’s retired, too, because…

Women Live Longer Than Men

A woman who is 25 years old today can expect to live about 4.3 years more than a man who is 25 years old today.

So, just from a pure actuarial standpoint, women have a longer retirement to plan for. They can either work longer (which stinks if your husband is already retired) or plan so that they have enough assets to carry on when they, statistically speaking, outlive their spouse.

However, that would only be true if you married someone your age.

The average age difference for a heterosexual couple is 2.3 years, meaning that men are usually 2.3 years older than the women they marry.

So, women should plan on living between 6.5 and 7 years longer than their male spouses.

Most retirement projections from financial planners basically assume a 30 year joint retirement.

That’d be great if the female spouse was about 6.6 years older than her husband, but as we saw above, that rarely happens.

On average, a woman has to make the financial decisions for 6 ½ to 7 years without her spouse, whether she wants to participate or not. Plus, she has to make those decisions when she’s likely cognitively impaired and, therefore, susceptible to making the wrong moves.

Ladies, that’s not a position you want to be in, I can assure you! How many of you have heard the anecdotes of the widow who doesn’t even know how to balance the checkbook?

I’m sure you’re not in that position because you’re Frugal Femmes, but even then, you need to be actively participating in the financial decisions, from budgeting to investing to insurance to estate planning.

Budgeting

I’m not really going to go into the nuts and bolts of budgeting here; you can swing a dead cat at the Internet and find budgeting articles.

However, you do need to make sure that you’re setting aside enough money each month to save for your retirement.

We calculate the number such that the youngest spouse lives to be 100. There is a less than 1% chance that both spouses will be alive at that point, but you do not want to run out of money on your 99th birthday. That’s about the worst possible scenario you could face if you’re alive at that point.

I like the anti-budget. Figure out how much you need to save and then work backwards from there.

Investing

Again, I am not going to tell you what to invest in. In general, invest in low-cost indexed funds for most of your investments. Don’t try to swing for the fences lest you fall prey to the myriad behavioral biases that make the average investor a chump compared to market averages.

The rule of thumb that we use is for asset allocation – 100 – the age of the younger spouse for equities and the rest for fixed income. Easy peasy. Rebalance. Use proper asset allocation. Don’t follow the herd and try to figure out what the market is doing from what Jim Cramer prognosticates.

You do need to know what you’re invested in and why you’re invested in it so that if you have to be the one to start making the investment decisions, you’re fully aware of the game plan so that you can continue to execute it.

Insurance

The reason you buy insurance is to protect yourself against an unexpected event. You do it with your house in the hopes it doesn’t burn down. You do it with your car in the hopes that you’re never in an accident that is your fault. The same holds true for both life and disability insurance.

By the way, repeat after me (loudly, preferably if you’re reading this from a Starbucks):

INSURANCE IS NOT AN INVESTMENT. IT IS INSURANCE!

Yes, there are a few exceptions to this rule, but they are few and far between.

So, in this case, you want insurance in the event that you need to replace your spouse’s income, either from getting hit by the beer truck and finding out what’s on the other side (life insurance) or from getting hit by the beer truck and not being able to go back to work for long periods of time (which happens more often than you’d expect it to).

Estate Planning

This can be a touchy subject, particularly if you have a blended family. Remember, if your spouse passes away, you still have to look out for Number One (the person you see in the mirror).

You want to make sure that you have your documents together and affairs in order, to include not only a will, but other documents like advanced medical directives and do not resuscitate orders (if either of you doesn’t wish to be resuscitated in the event of an unlikely recovery).

It’s painful to go through. You’re forced to face your own and your spouse’s mortality in a way that no other event, aside from the death or disability of someone close to you forces you to do.

But do it anyway. You owe it to yourself and you owe it to your spouse to go through the planning process and make sure that you both understand each other’s wishes.

I’m Convinced! What Do I Do?

This list is not a comprehensive list, but a starting point for discussions with your spouse.

  • Know what the target number is for you to ensure you run out of heartbeats before you run out of money. That’s the amount that your nest egg has to be so that you can continue your desired standard of living in retirement without running out of money. Sure, the ideal is to spend your last cent (minus what you’d like to leave to kids/other benefactors, although I argue you should give that away while you’re alive so that you get to enjoy the act of giving) right as the old ticker gives way, but trying to achieve that, except through the use of low commission annuities, is impractical.
  • Know what you need to save each month/year in order to hit that target number. This is the starting point for your anti-budget. How you spend beyond that is a decision between you and your spouse.
  • Negotiate your salary. Only 16% of women negotiate their salaries, and only 15% believe that they are effective negotiators. What are most pay raises based on? Your current salary. That compounds over time. So, do everything you can to get your baseline as high as possible!
  • At least do a “fly-by” review of the monthly budget. You don’t have to get into the line item details, but you should have a general idea of where the money is going and how it’s being spent just in case you have to pick up the responsibility in the future.
  • Know where the accounts are. All you have to do is maintain a list of accounts by institution so if you need to access that list, it’s readily available.
  • Make sure that you’re both properly insured. Do a review. Find out your numbers of how much insurance you need. Get it. Don’t avoid the situation, put your head in the sand, or think “this could never happen to me.” Invariably, the unexpected happens more often to those who don’t expect the unexpected (though I have NO statistics to back that up!).
  • Update the beneficiaries for your insurance (you should be the first for your spouse’s insurance and vice versa) and the Payable On Death recipient on accounts. This will help you avoid a ton of inconvenience and wait if the worst case scenario hits.
  • Plan what you will do in the event your spouse can no longer manage the money, if you decide to delegate. It’s OK to not be a super active participant in the day-to-day finances (unless you’re the math smart one, in which case, you should manage), but you also need to have a contingency plan for the statistically inevitable.

Personal finance, in general, should not be a lot of work on a month-to-month or even a year-to-year basis. Set a plan and execute it.

Even if you don’t want to be involved in the nuts and bolts, if you’re a woman, you’re, in all probability, going to have to be the one to handle the day-to-day finances at some point. Make sure that you’re prepared for that day so that, if it comes, you know what to do and do not get taken advantage of.

Jason Hull, CFP®, is the CTO of the online, comprehensive financial planning service myFinancialAnswers. He is an Army veteran, earned a BS in Engineering from the United States Military Academy at West Point, and earned a MBA from the University of Virginia’s Darden Graduate School of Business.

This post is a part of Women’s Money Week. If you want to join us, you can do so here. Please tag this post with #WMWeek17 when sharing on social media.

Visualize Your Goals. Slay Your Goals.

Visualize your goals--loving idea #2!

Goal setting is a smart thing to do.  It’s the first step in attaining success in many aspects of your life:  education, career, family, travel, retirement, owning a home…the list goes on.

Sometimes we list out what we want to achieve and then never do anything about it.  A great way to overcome this obstacle and slay your goals is to implement visualization.

Having your goals or progress in your face in a place you can see everyday will remind you what you’re working so hard to achieve.  Here are some ways to get them there.

Use Visualization to Slay Your Goals

Nurse Frugal used this cute poster to mark their progress in paying off their mortgage.  As they paid off each chunk, they removed one piece from the poster.  In just 28 months, they paid off the entire thing.

Visualize Your Goals with Progress Bars

A ton of bloggers use these progress bars to chart their progress towards paying off debt or building an emergency fund. There’s no reason you can’t do the same. You can either start a public blog to help keep you accountable, or build a private site for your own, personal use.

Every time you stash some money away or pay off a chunk of debt, update it. I’d go so far as screenshotting every progress update and setting it as the wallpaper on my phone or computer.

Many banking apps now allow you to do the same exact thing. Play around with yours to see if you can’t get that constant reminder of your goals and progress to pop up every time you log in.

Use a Vision Board

swimming tulum ruins

A few years ago, some of my goals were to graduate on time despite giving birth in my final semester, travel somewhere tropical and save for a down payment on a home. I used a vision board to help me get closer to these goals.

I finished my educational endeavors on time, and we went to Tulum on our honeymoon. Still working on the down payment, but two out of three isn’t a bad track record at all.

Your vision board can be super fancy and computer-generated, or pictures you literally paste onto a piece of poster board.  The important thing is to have fun creating it and put it somewhere you’ll see it every day.

Some people believe that visualization is the first–though not only–step in attaining something; that you can’t achieve it without seeing it and allowing yourself to truly believe it.  I’m on board that ship. Hopefully it will port in front of a single-family home in the near future.

 

 

This post is a part of Women’s Money Week. Join us! Please tag any shares of this post with #WMWeek17.

How to Switch Checking Accounts

I've wanted to switch checking accounts for a long time for a higher interest rate---surprised at how simple it is!

A couple of years ago, the husband’s bank started charging him a monthly service fee on his checking account. The fee? Seven dollars per month—that adds up to $84 in service fees a year just for the one account.

On top of the fees, his interest rate was terrible. The customer service was nothing exceptional.

So we switched banks.

At first, the process seemed a little daunting. After we got into it, though, we realized it was little more than a mild inconvenience. The decision to transfer his accounts to a new financial institution was going to save him $84 plus per year. Even with that seemingly low dollar amount, the effort was worth the reward.

Why make the switch? There are a ton of reasons you may want to switch financial institutions. For my husband, the biggest reason was the account maintenance fee. However, there are other reasons you should definitely consider:

  • Better rates and fewer fees If you switch from a traditional bank to a credit union, you’ll soon discover that these organizations generally have higher return rates on deposits, offer lower interest rates on loans, and charge fewer service fees.,
  • Poor customer service.
  • Location and convenient accessibility. While this reason is dissipating more and more everyday with the advent of digital banking, it may be cause for concern if one of the following apply to you:  you work for cash tips and need to make frequent deposits, or you prefer the convenience of a physical branch to conduct certain types of transactions that you find easier to do at a physical branch location.

The biggest reason why I would switch financial institutions? Interest rates If someone is going to offer me a better rate of return on all my deposits, then switching is a sound fiscal idea.

For example, PenFed’s Access America Checking offers dividends with a monthly direct deposit of $500 or more and a daily balance up to $50,000 per statement cycle. Even better, PenFed’s Access America Checking account has no monthly service fee if you have a daily balance or monthly direct deposit of $500 or more. And what’s even better than better? Extras like: mobile access, more than 57,000 surcharge free ATMs, a chip-enabled debit card, and $0 liability on unauthorized debit card purchases.

Once you’ve identified the financial institution you want to switch to, follow these steps to smoothly make the move:

Step One: Know How Much Money You Have

This may seem like an obvious thing, but we live in a world of automatic payments and monthly subscriptions. Make sure you know how much money is in your account and address any upcoming payments. If you’ve recently bought something on debit or credit in the past few days, be aware that the transaction may not be reflected on your available balance yet.

After you know how much money you have, take out enough cash to last you a few days while your finances are in transition mode.

Step Two: Open Your New Account

You will have to fill out an account application and make an initial deposit. Be sure you have information on hand to verify your identity such as social security number, full mailing address, etc.

Step Three: Change Direct Deposit with Your Employer

Depending on the efficiency of your HR Department, this process can take a few minutes or a few days. All you’ll need to do, though, is fill out a new ACH form identifying your name, checking account number, routing number, and possibly employee ID. Reach out to your HR department to get the correct forms. They can also answer any specific questions or concerns that arise along the way.

If you are a contractor with multiple clients, repeat this step for each client that pays you through direct deposit.

Step Four: Transfer the Rest of Your Money

You can include this in step two if you wish, but make sure you transfer the remainder of your balance from your old institution to your new one. This can take a few days, which is why that cash from step one is so important.

Step Five: Change Automatic Payments

Because you identified all those automatic payments in step one, this should be a breeze. Simply call up customer service or log onto your online account to change the financial institution on record for payments.

Step Six: Live Happier with More Money in Your Checking Account

The mild inconvenience of switching is well worth avoiding fees and gaining interest or dividends. Once you’re through it, you’ll have more cash in your checking account. Which makes everyone all the happier.

 

*This post is in collaboration with PenFed Credit Union. Be sure to check out their Access America Checking option! PenFed is federally insured by NCUA.*

Lived Experience, Bravery and Fear

Today, Taylor of The Freedom from Money  joins us for our weekly Friday series on women’s money issues in honor of Women’s Money Week, which will take place January 1-7, 2017. Taylor’s story reminds us that financial decisions aren’t always about math—there’s a lot more to life than numeric calculations.

Please use the hashtag #WMWeek17 when sharing this story.

Wow, I love how she shares her experience as an LGBTQ+ woman through the lens of lived experience.

When I think about my relationship with money, there are a lot of things that come to mind—my relationship with my parents, feelings about myself and what I “deserve,” my career path and the people I love. What I don’t often think about, though, is the fact that I’m in a same-sex relationship.

But the truth is that it’s all connected. Who we are—our family, our history, our relationships and our health all interconnect with our money. In some ways, they are irrevocably combined. But despite the interconnectivity, there are some things that are impossible to quantify or explain with numbers.

Personal Finances as a Woman in a Same-Sex Relationship

According to the statistics I can tell you that my partner and I will each earn $1 million less than our male counterparts. I can also tell you that because we are in a relationship with each other (two women,) the gender wage gap will doubly affect us and we will not be able to “earn” back part of the difference in pay from a male partner.

I can also tell you that even though it’s cheaper, it often feels (and actually is) more difficult and unsafe to live in a small, rural town when you’re gay. My $1500 one-bedroom apartment in Southern California would cost me $470 in Wichita, Kansas and $750 in Louisville, Kentucky.

But what I can’t adequately tell you is what it’s like to be stared at and jeered at when you walk down the street with the person you love. I can’t explain what it’s like to be fearful that your relationship status could cost you your job. I can’t assign a value to those experiences and worries.

Making Choices Contextualized by Lived Experience

In many ways, it is impossible to quantify the experience of being gay.

It’s an experience that I’ve struggled to write about because I’m not sure what to say. It’s not an experience that I chose, but it’s one that I live. In the same way that I can’t control where I was born or how I look, I can’t control who I fall in love with, but it’s a part of my life nonetheless.

My relationship is a beautiful part of my life that brings me more joy than is possible to explain, but it comes with a financial price. It comes with strategic choices about what to mention to colleagues, which neighborhoods are accepting and what cities would be welcoming to our future children.

But these financial choices aren’t based in numbers or facts. They are based on lived experience, bravery and fears.

And sometimes, those are the most important financial concepts to talk about…even if you’re not exactly sure what to say.

 

Changing Your Money Mindset Will Change Your Life

A lot of times in the personal finance community we hear stories from those who come from very middle-class backgrounds. That’s all well and good, but with an increasing wealth gap in our country, there are very real and important stories that come from those whose struggles are even more dire.

Today, Alexa Mason of Single Moms Income joins us to kick off a new, weekly Friday series on women’s money issues in honor of Women’s Money Week. Alexa’s story is an important and inspiring, and reminds us that we shouldn’t make assumptions about people or their character simply because of their economic status. Please use the hashtag #WMWeek17 when sharing this story.

Just because someone lives in a trailer doesn't mean they don't have their financial ish together. Change your money mindset and you could change your life!

Society likes to put people in boxes. It’s natural, I suppose. If you’re honest with yourself I’m sure you can think back to a time or two (or a hundred) where you’ve looked at someone and immediately made an assumption without knowing a thing about the person. And you can bet people do the same when they look at you.

The problem is when you’re constantly stereotyped and put into a box you can start to feel like that’s where you belong.  Breaking out of that box and not feeling like you need to meet societal expectations is one of the most difficult, yet most powerful things you can do for yourself. Especially when it comes to your financial life.

Taking Back the Power

After getting a divorce and moving in with my Dad I was determined to get a place of my own as soon as I possibly could. Not earning much or having much money in savings, my Dad tried talking me into purchasing a trailer and putting it on a lot he owned.

At first, I wouldn’t do it. Not because it wouldn’t be the smartest thing to do financially but because of the stigma associated with living in a trailer. I was embarrassed.

Instead I went to the bank and tried to buy a house. I couldn’t get approved for much and made offers on two houses that I didn’t even like just because they were in my price range. Both offers fell through and I was back to square one.

After some soul searching I took my Dad’s advice and decided to buy a trailer. I was ready to get off the rollercoaster I was on – I was going to completely ignore what everyone else thought and do what I knew was right. This was my first step into changing the way I thought about money and breaking free from what was “acceptable” to society.

This turned out to be one of the best financial decisions I ever made. For the next couple of years my girls and I were happy to call our trailer home. And after working on my mindset even more I was able to make huge strides.

I worked hard and ended doubling my income in just a couple years’ time. Since then I’ve been able to build real financially stability and it all started with the way I thought about money.

Money is Important

When you think about money I’m not sure that mindset is the first thing that pops in your head. It was through the trailer experience that I really understood how my thinking was holding me back. And I’m not alone, either.

Over the past four years I’ve interacted with hundreds of women who were only held back by their mindset – just like I was. I’ve also seen the statistics that prove this.

According WomensMoney.org:

  • 1 in 3 women lives in or on the brink of poverty
  • 3 out of 5 women over the age of 65 cannot pay for their basic monthly needs
  • The median earnings for women is $638 per week compared to $798 per week for men – a 20% difference
  • Women set lower financials goals – a retirement study showed that women, on average, aimed to save $200,000 while men set their goal at $400,000

What Can You Do About It?

When I first started my blog I never thought it would one day be my full-time job. Instead I was determined to prove that as a then-single mom I could make it on my own. I wanted other people who had been in my situation to know that they could make it too.

If you can relate and are feeling trapped by your circumstances here’s what you can do:

Ignore Expectations – Again, one of the biggest parts of improving your financial life is doing what needs to be done – regardless of what other people think.

If you need food stamps to help with groceries while you’re improving your financial situation then get them. If you need to downgrade your housing in order to get ahead – do it. Forget what other people think and do what you know you need to do.

Stay Away From Debt – Unless you’re taking on a mortgage (and are prepared for that) or getting a modest car loan, stay away from debt. Don’t use your credit card to pay for Christmas, don’t buy furniture on a payment plan and most definitely, do not go to a payday lender.

Do everything you can to avoid debt.

Make Strong Goals – After I bought the trailer my next goal was to build financial stability before making any other decision. I set the goal to save $10,000. It took me almost two years but I didn’t stop until I got there. After that I moved onto to the next goal.

Make goals to improve your financial situation – pay off debt, save money, buy a house, etc.

Earn More Money – Earning more money has strangely been one of the hardest mindset shifts for me. Coming from a small town where wages are below the national average I had a hard time wrapping my mind around the fact that my income could be whatever I wanted it to be. But now I truly believe that.

If you need to earn more money the opportunities are endless. You can go back to school, start a business, or find an online job. (If you decide to start a business or find an online job start on the side, pretty please. It takes time to build those things up.)

If you need to earn more money know that you can. It won’t happen overnight but it can definitely happen.

Take Pride in What You Have Done and Can Do

At the end of the day money is important. The lack of money can make you feel trapped, depressed and affects all other areas of your life. Luckily, you can take back the power.

Start believing in yourself, make the changes necessary and be proud of where you’ve come from and what you’ve accomplished.

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